It’s the Debt, Stupid
“When President Clinton was fighting his first presidential campaign against George H.W. Bush, he kept  a piece of paper in his pocket on which he had written,’ it’s the economy, stupid.’

This was to remind him that that he was fighting the election during a time of a mild recession in the US. In like manner, all my readers need to know is that, ‘it’s the DEBT, stupid,’ which is the principal cause of the impending depression.” The Long Wave Analyst, January 2003. P. 4

Never in the history of mankind has there been a global debt bubble of the current magnitude.  This has all been enabled by a fiat monetary system, which has been grossly mismanaged through the exorbitant use of the printing press. Nowhere has this been better demonstrated than in the United States, which had a moral responsibility to temper her fondness for debt, because of the extraordinary privilege accorded to the U.S. dollar as the world’s reserve currency.

This monstrous debt bubble has now exploded and effectively, many countries, their corporations and their citizens are now bankrupt. There is a masquerade of solvency which is currently being showcased, but how long this charade can be maintained is anyone’s guess. My guess is not for long and by that I mean months, rather than years.

We must remind ourselves that while massive debt bubbles have occurred several times throughout history, this time it is much bigger and more international in scope, than any of its predecessors. The miserable outcome, when the debt bubble bursts, has always been a deflationary depression. With the bursting of the current debt bubble, there is no chance that a deflationary depression can be avoided. “It is a delusion to think that a depression caused by credit can be resisted. All the panaceas, nostrums, and quacks invented by all the politicians in the world, can but hold off the eventual day of reckoning, prolonging the agony.” Smitley, Robert. Popular FinancialDelusions, Fraser Publishing Company, Vermont, 1984; first published in 1933. P. 9

Austria’s recent bank nationalization of Hypo Group Alpe Adria, reportedly fearing its collapse, might spark a “Lehman Bros. effect” in emerging Eastern Europe.  This is a reminder of the collapse of Austria’s leading bank Credit Anstalt of Vienna in May, 1931, which ultimately caused Austria to abandon the gold standard.  Then, Great Britain followed suit in September of that same year, leading to the eventual collapse of the world’s monetary system.  In a similar vein 79 years later, financially strong euro zone countries, such as Germany, are being forced to come to the aid of ‘weak sister’ euro zone economies, where the public debt far exceeds the 60% limit set by the Maastricht Treaty, not only, raising concerns regarding the effectiveness of the European Union legislation, but also, the very survival of the EU itself.  In a worst case scenario, countries that default on their debt will endure a prolonged period of high interest rates, capital constraints and significant contractions of their gross domestic product (GDP).  Indeed, we believe that current projections for GDP growth of the world’s most developed economies over the next several years, will prove wildly optimistic.

….read page 2-6 HERE.

When the Fed Stops the Music
Who Wants the Old Maid?
It’s the Deleveraging, Stupid!
London, Monaco, and Zurich

Last week we delved into the uncertainties that face us and that make forecasting for 2010 problematical. Will the government actually increase taxes as much as they say, with unemployment still likely to be at 10%? Or will cooler heads prevail? Would such an increase cause a recession? Will the markets anticipate the effects of such a major increase in advance? How will the mortgage market react when the Fed stops buying mortgage securities at the end of March? There are so many things in the air, and today we explore more of them, as I continue (perhaps foolishly) to try and peer into what is a very cloudy crystal ball.

….read more HERE. (Ed Note: When the Fed Stops the Music is begins after the Haiti Appeal)

Richard Russell has made his subscribers fortunes. One of the best values anywhere in the financial world at only a $300 subscription to get his DAILY report for a year. HERE to subscribe. Amongst his achievements Richard was in cash before the 2008/2009 Crash and he has been Bullish Gold since below $300

Ed Note: Richard Russell is bullish Silver and holds one of the largest single positions he has held since the 1950’s in the precious metals.

Section 10. Constitution of the United States: “No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.”

I’ve been pondering over the following strange situation. The Dow is actually lower today than it was ten years ago. What does this really mean? To me, it means that the market over the last ten years has been discounting “no growth” ahead. When you take an unbiased look at the picture, compared with gold almost everything today is cheaper than it was a few years ago. Since gold is the universal immutable standard around which everything else (including the dollar) fluctuates, this means that the price of literally everything has been going DOWN against the standard which is gold.

This is deflationary. Of course you can say that a loaf of bread costs more now than it did a year ago, and this is inflationary. True, it’s inflationary in terms of dollars, but the dollar is lower in terms of gold. So in terms of gold, everything is deflating.

This deflationary trend is continuing, and what’s more it’s continuing against a veritable ocean of central-bank created currencies. Subscribers know that I believe this bear market will end, as most others have, with stocks selling at extreme great values — dividends high, price/earnings low. And you ask, “How can this possibly occur?”

This is the question I’ve asked myself. And the answer I come with is that stocks will be hit by brutal world deflation. That’s what the miserable performance of the Dow is telling me. That’s what the poor performance of everything else against gold is telling me. I’m not talking about the performance over recent months, but their performance over the years.

Yes, I know that the conventional wisdom is that we’re heading for all-out inflation. This forecast is based on the thesis that the only way to handle America’s deadly multi-trillion debts is to inflate them out of existence. But suppose the Fed is unable to engineer inflation? Look how hard they’ve been trying over the last year to restart inflation. And what’s happened to housing, the chief object of the Fed’s inflation target? Housing prices have gone nowhere, well maybe they’re less weak then they were six months ago. But inflation in home prices? It’s just not happening.

And now political pressure is on the Fed to cut back on stimulus, money-creation and at the same time raise interest rates. This, if it happens, will definitely be deflationary, and it will hit housing and the economy.

Ever since World War II the Fed has been on the inflation path. Leverage, rising debt, speculation, and higher prices have been the “law” of the land. Now, I believe we have hit the inflection point; we are just entering the huge deflationary spiral that will unwind six decades of leverage and inflation.

In the big picture what I see is that China and Asia will become (they already are) phenomenal producers. The developed nations will not be able to compete with them. The result will be a crushing decline in the price of manufactured goods, which, in turn, will impact on all goods including foodstuffs and services and medical services. In a vain effort to compete with China, India and Asia, currencies will be devalued across the board.

Currencies will sink in the face of competitive devaluations (think Venezuela), and whatever can go bankrupt will go bankrupt. Debt will become a dirty word again, as it was during the 1930s (if you can’t pay for it with cash, live without it).

The one item that will withstand this crushing force of deflation will be gold. Whereas most items have been sinking against gold. If the deflation that I foresee arrives, items will be plunging in price against the standard — gold. This will be the great deflation that nobody foresees and nobody understands and nobody has protected themselves against.

The reason nobody foresees deflation is that for years the world has ignored or failed to understand the real meaning of gold. The world has been thinking in terms of dollars for generations. Let’s take an example. You bought a loaf of bread five years ago for a hundredth of an ounce of gold. Today you can buy three loafs of bread for the same hundredth of an ounce of gold. Bread has deflated in terms of gold since now you get far more bread for the very same amount of gold.

When you’re willing to agree that gold, not the dollar, is the universal immutable standard, you can see that the forces of deflation are taking over.

The 85 yr. old writes a market comment daily since the internet age began. In recent years, he began strongly advocated buying gold coins in the late 1990’s below $300. His position before the recent crash was cash and gold. There is little in markets he has not seen. Mr. Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late-’50s through the ’90s. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-’66 bull market. And almost to the day he called the bottom of the great 1972-’74 bear market, and the beginning of the great bull market which started in December 1974.

John Kaiser: Balancing Security of Supply Worries with Optimism on the R&D Front

Interviewed by Karen Roche, Publisher, The Energy Report

Americans have been bemoaning U.S. dependence on foreign oil for decades and a domestic alternative still seems a distant dream. Meanwhile, the world has changed. On one hand, that dependency now stretches across a broadening spectrum of raw materials, from molybdenum and tungsten to zinc, nickel and chromium to the decade’s darling on the periodic table—the rare earths. And on the other, huge emerging economies, primarily that of China, are driving up demand for the raw materials needed to develop infrastructure and making it clear that their own domestic needs take priority. That adds up to what mining analyst John Kaiser describes as “the big theme that underlies the base metals and all the specialty metals markets”—the concept of security of supply—and it’s a global issue. In this exclusive Energy Report interview, John identifies a few investment opportunities that are emerging to forestall lack of access to some key ingredients of economic growth. He also registers a clearly optimistic note in anticipating “a period of scientific breakthroughs that’s going to pump up the world in a very big way.”

…..read the interview HERE

Let me get right to the point. Gold’s going to $5,000 an ounce.

I know that sounds preposterous to most people. In fact, some of you probably think I’m crazy.

But for a whole host of reasons, $5,000 may well end up being a conservative estimate.

So before you start posting comments that I’ve gone bonkers, hear me out…

…..read all 5 reasons HERE.