In The News Today

Posted at 2:26 PM (CST) by & filed under In The News.

My Dear Friends,

Stay with your gold hedges. About that there is no question.

We are a far way off from any positive initiative that would act to contain the debt situation. They will emerge, if at all, in 2016.

Gold between $1600 and $1764 is deciding its new and elevated role in international finance.

The deal struck in Washington is much ado about nothing. Actually, it is an embarrassment to its creators.

Regards,
Jim

The President Surrenders
By PAUL KRUGMAN
Published: July 31, 2011

A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

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Jim Sinclair’s Commentary

You have seen a lot of this lately. Remember how crazy you thought I was in 2005 when I suggested this would happen?

Bank of Korea buys gold, first time since ’97-’98
By Yoo Choonsik and Kim Yeonhee | Reuters

SEOUL (Reuters) – South Korea’s central bank bought 25 tonnes of gold over the past two months in its first purchase in more than a decade, saying the time was ripe to boost its gold holding, but markets barely moved on the news.

A brittle global economic recovery and precarious debt situations in the United States and Europe have boosted the safe-haven appeal of gold, lifting bullion to a series of record highs in July, as investors and central banks chased prices higher.

The central bank of Asia’s fourth-largest economy said that, with prices hovering near historic highs, gold looked less lucrative as an investment but it was the right time to buy gold because its foreign reserves had risen above $300 billion.

News of the Bank of Korea’s purchase barely moved spot gold which was steady at $1,617.89 an ounce by 2236 GMT, but analysts said it was supportive of prices. Gold hit a record high of $1,632.30 on Friday.

“Any news about central banks buying gold reassures consumers and other major players who are already looking at gold as an investment,” said Jeffrey Pritchard, analyst at California-based commodities futures and options brokerage Altavest Worldwide Trading.

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Jim Sinclair’s Commentary

Much ado about nothing.

House Passes $2.1 Trillion U.S. Debt Ceiling Plan
By James Rowley and Catherine Dodge – Aug 1, 2011 5:21 PM MT

The House of Representatives approved legislation to raise the U.S. debt limit by at least $2.1 trillion and cut federal spending by $2.4 trillion or more, one day before a threatened default.

The House voted 269-161 for the plan negotiated by leaders and President Barack Obama over the weekend. Ninety-five Democrats voted in favor and 66 Republicans in opposition. The measure goes to the Senate for a final vote planned tomorrow.

“We’re coming up to a deadline we all must recognize: default,” said Representative Paul Ryan, a Wisconsin Republican and chairman of the Budget Committee. “Both parties got us in this mess; both parties are going to have to work together to get us out.”

Ryan called the spending cuts connected to the debt-ceiling increase “a huge cultural change” for Congress.

Representative Gabrielle Giffords, the Arizona Democrat wounded in a shooting attack, drew a long standing ovation as she arrived to vote for the measure, making her first appearance on the House floor since the Jan. 8 assault in Tucson.

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‘Drop in the Ocean’ Cuts Mean 2-Notch Downgrade: Strategist
Published: Monday, 1 Aug 2011 | 4:28 AM ET
By: Patrick Allen

Following the last-minute debt deal agreed by President Barack Obama and congressional leaders, one strategist is predicting the rating agencies should downgrade US debt by two notches.

The “US debt deal” package cannot disguise that the proposed cuts are a drop in the ocean relative to the current US budget deficit, said Marc Ostwald, a strategist at Monument Securities in London in a research note.

The deal also does nothing to hide the weakness in the US economy as highlighted by a second quarter growth figure of just 1.3 percent, according to Ostwald, who believes quantitative easing has been a failure.

“The failure of QE1 (a first round of quantitative easing) and QE2 to stimulate the US economy, in effect because trying to use monetary policy to cure structural weaknesses in the financial and housing sectors and politics, and colossal imbalances in the economy, was always doomed to failure” said Ostwald.

“A US ratings cut should be delivered this week (and should properly be a 2-notch cut to AA with negative outlook), but whether it will or not is another question,” he said.

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