In The News Today

Posted at 6:53 PM (CST) by & filed under General Editorial.

Dear CIGAs,

If Chairman Volcker became Secretary of the US Treasury at this time that would be friendly to gold. However his suggestions contained herein are the opposite of what Obama has been saying in the last few days.

If Lie-bor was telling the truth Volcker would not have made certain statements. Think about it. Last April people were jumping up and down because of the lies of Lie-bor. Now when it suits them there is total silence.

I present you with this article where an Obama plan for an economy in OTC derivative convulsions is discussed. The problem is until you address the problem you treat symptoms. The problem continues to grow and you fail.

Volcker issues dire warning on slump

Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasise after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence.

By Ambrose Evans-Pritchard Last Updated: 10:39PM GMT 17 Nov 2008

"What this crisis reveals is a broken financial system like no other in my lifetime," he told a conference at Lombard Street Research in London.

"Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again. The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial."

His comments come as the blizzard of dire data in the US continues to crush spirits. The Empire State index of manufacturing dropped to minus 24.6 in October, the lowest ever recorded. Paul Ashworth, US economist at Capital Economics, said business spending was now going into "meltdown", compounding the collapse in consumer spending that is already under way.

Mr Volcker, an adviser to President-Elect Barack Obama and a short-list candidate for Treasury Secretary, warned that it is already too late to avoid a severe downturn even if the credit markets stabilise over coming months. "I don’t think anybody thinks we’re going to get through this recession in a hurry," he said.

He advised Mr Obama to tread a fine line, embarking on bold action with a "compelling economic logic" rather than scattering fiscal stimulus or resorting to a wholesale bail-out of Detroit. "He can’t just throw money at the auto industry."

Mr Volcker is a towering figure in the US, praised for taming the great inflation of the late 1970s with unpopular monetary rigour. He is no friend of Alan Greenspan, who replaced him at the Fed and presided over credit excess that pushed private debt to 300pc of GDP.


Jim Sinclair’s Commentary

The following are the key points of the article:

1. "Then there is the need for increased public spending on infrastructure and federal grants to state and local governments to offset the collapse of private spending."
2. "Candidate Obama spoke of $150 billion of fiscal stimulus. But if this recession turns out to be the deepest since World War II, as now seems certain, the appropriate figure will be at least four times that large. Anything less would fail to cushion the downturn."
3. "Then there is the problem of the auto industry. The best course normally would be Chapter 11 bankruptcy. This would allow the Big Three to shed bad management and contracts, both of which would be thrown out in the bankruptcy process."
4. "A further complication arises from the fact that cars last for years and when they break down are expensive to repair. Warranties matter, in other words. If a producer was undergoing bankruptcy reorganization, from which it might or might not emerge, consumers would question whether its warranties were worth the paper they were written on."
"But if this is the problem, then the government can guarantee the warranties."
6. He can ramp up spending on education and training.

Commentary: How Obama can fix the economy
By Barry Eichengreen
Special to CNN

BERKELEY, California (CNN) — President-elect Barack Obama has been holding his economic cards close to his vest. He did not participate in person at last weekend’s meeting of G20 leaders.

He has been reluctant to encourage the lame-duck Congress to adopt a major fiscal stimulus package.

He may be right in saying that the U.S. has only one president at a time. But this makes it all the more important that he hit the ground running on January 20.

This will mean, first of all, addressing the credit crisis. Despite all the actions of the Fed and the Treasury, the banks are still not lending. In some cases this is because their own finances are weak. But in others it is because they have other more convenient uses for their funds, ranging from acquisitions to dividend payments.

This reflects a flawed bank recapitalization scheme that gives the government no voting shares in the banks into which it is injecting public funds and hence no say in their decisions. Fortunately (as it were) there will be an opportunity to correct this, since as the recession deepens there will be more loan losses and the need for more capital injections. The next round of public money should come with voting rights so that taxpayers’ interests are protected.


Jim Sinclair’s Conclusion

The solution remains to throw money at it via quantitative easing and fiscal stimulus. The consequences without any doubt will be hyperinflation in a depression like all other examples of hyperinflation in history. Also keep in mind that the re-emergence of gold in the monetary system will not be as a convertibility item but as a control item in the FRGCR.