Sanity at Last! Gold Rises as Stocks Dive

It warmed the cockles to see the Dow Industrials and Gold moving in opposite directions yesterday, even if the latter swooned a nasty $15 intraday before scaling the wall a second time to close near the highs.  The world somehow makes more sense to us when gold prices are rising and shares are falling.  Isn’t that what’s supposed to happen when the central banks are hell-bent on trashing their respective currencies, and every economy outside of China’s continues to grind toward cliff’s edge?  The news wasn’t all bad, either. For one, scientists have apparently made some progress in figuring out why Lyme’s disease recurs in some people. Much closer to Wall Street obsidian heart was a report from Alcoa that profits had more than doubled in the second quarter.  Unfortunately, you’d have to be an old-timer to remember when good earnings from the likes of Alcoa was enough to push the U.S. stock market higher.  Anyway, probably a dozen Alcoas would not have made up for the deepening gravity of Europe’s financial plight. Whereas it supposedly was only Greece that was in need of critical care, now Italy has joined the short list of financial basket cases close enough to disaster to take the whole system down.

And yes, we are being deliberately ambiguous when we avoid mentioning which “system” might come crashing down.  Europe’s financial house of cards?  The global banking system? The world economy? Frankly, we can’t even guess how far the damage might spread if “confidence” in Greece, Italy…Spain! were suddenly to evaporate.  We’ve put quote around the word “confidence” because only an imbecile could fail to see that whatever confidence exists is egregiously misplaced.  Even so, misplaced confidence is better for the time being than no confidence, since it’s all that’s keeping the global financial system marginally afloat.  How deep and wide does the misplaced confidence go?  Not very, we’re certain, although the mainstream media is doing its best to help maintain it – maintain the fiction that Europe’s problems are soluble. Thus did the Wall Street Journal note, in reporting on the looming Second Fall of Rome, that just two weeks ago the financial community regarded Greece’s problems as largely contained. Seriously?  Although we hesitate to lump the financiers with the aforementioned imbeciles, could anyone have thought the desperate deals struck to keep Greece temporarily out of default will hold? In fact, if there’s a containment strategy, it is having the rating agencies come down on Greece as though the rest of Europe, and of course the U.S., weren’t in the same, sinking boat.  Our Australian colleague Bill Buckler, intrepid editor of The Privateer (click here for a free sample),  framed the issue squarely when he noted that America owes more per capita than Greece.  Just so.  How much longer will the ratings agencies be able to divert a jittery world’s attention from that fact?


(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)

  • d p d a y July 12, 2011, 10:08 pm

    gd site
    but can*not* read yr posts at 2 4 h. g old. c
    left margin text hidden by metals prices banner/column.
    gd web site tho

  • John Jay July 12, 2011, 9:46 pm

    Time for Seal Team 6 to pay a little visit to the temple treasure in India. And blame it on Pakistan.
    Pakistan is ready to give us the boot anyway.
    Then count the loot and watch the fireworks.
    They need something in Fort Knox to Show Ron Paul.

  • Mava July 12, 2011, 9:22 pm

    Greece owns gold. Please, note that it isn’t willing to spend it’s gold, – rather, it would default.

    As for us, I expect Chinese to offer us further loans, denominated increasingly in their own currency. For our whores in the government, this is a rollover they will be looking for. For Chinese, this would be better than holding treasuries which we can devalue.

    • mario cavolo July 13, 2011, 5:19 am

      Its their game remember? Let’s assume as we should that all debt will eventually be rated junk.

      By the time Moodyz gets around to being forced to rate the U.S. as junk it won’t mean as much anyway. The news will already be priced in. Everyone’s debt will be rated junk and junk will have slowly become the new norm that’s “relative” to the scope of the overall economic model and all of its asset classes. So if everyone’s debt is rated junk then what? So what? Everyone will demand higher rates?

      And what if all the central banks together say, no too bad, no higher rates? This is the new economic world we live in with high debt all around, get used to it and accept your puny yields?

      A ridiculous idea yes but it points to the fact that the current system can’t last much longer without some kind of major reset.

      If all debt becomes junk, the markets will of course wish to avoid such junk and ergo they will put their money elsewhere…? Money would instead put their assets into stock markets, PM’s, commodities.

      Central bankers will continue coming up with new ways to kick the can down the road because we now know definitively there will be and is no will to solve the issues or absolve the sins already transgressed.

      If/when we get to the point where we have junk debt with soaring yields on a global scale, in the end that simply means a continuation of devalued currencies and inflation of goods and services. So what’s new? Where else can it lead?

      I realize more and its not just the U.S. and China where the societies are more and more creating two classes of haves and have-nots…the trend is going global. (Exception: China does have its rising middle class at the moment in history but that’s still only 300 million out of 1.3 billion, so there are still plenty of have-nots left)

      Its that and that’s it and its scary to ponder the future of the world’s societies.

    • mario cavolo July 13, 2011, 11:42 am

      Oh geez…:)

      It’s that and that’s it.

  • ben July 12, 2011, 7:19 pm

    How can [Greece,] a nation of 11 million people expect to pay off a government debt amounting to 475 billion euros? We have read variations on this question many times in the mainstream financial media,” Buckler notes, but “we have yet to read this question: ‘How can a nation of 310 million people expect to pay off a (funded) government debt amounting to U.S. $14.5 TRILLION?‘ If you do the arithmetic, you will see the ratio of debt to population is slightly lower in Greece than it is in the U.S.

    Not true. Greece’s debt is in Euros. When converted to dollars, 475 billion euros becomes 700 billion dollars, and their per capita debt is 35% higher than the United States.

  • C.C. July 12, 2011, 6:16 pm

    “For Pete’s sake! Can’t anyone get this straight?”


    Please correct if I am wrong, but your statement (in total) reflects to me, one, all-ecompassing scenario for the U.S.

    – That we can continue on our current path (trade imbalances, account deficits, total debt – public & private, unfunded liabilities, etc.) until – whenever…?
    In other words, due to the ‘circular’, closed-loop nature of what you describe, there is no issue?

    If there are no comparables to Greece/Eurozone, etc., then what are the consequences of our fiscal chicanery – or are there any?

    • roger erickson July 13, 2011, 4:36 am

      No fact ever suggests that it be followed to an extreme.

      My statement, despite Rick & the Privateer’s total misunderstanding of the meaning of “fiat”, simply states that we have real issues to attend to … and that we should move past the paralysis over whether or not we’ll have any problem paying fiat back to ourselves.

      Our only issues are aggregate demand, inflation, and deflation. Wrangling over fiat bookkeeping only keeps us from attending to more pressing self-regulation tasks.

    • Me July 14, 2011, 5:53 am

      C.C., just leave Roger be. He is delusional. Maybe if everyone just ignores him, he will slip back into his magnificent slumber in which only the Fed and the private sector participate in treasury auctions so everything is fine, because we owe it all back to ourselves! Yay! Inflation and deflation have nothing to do with money creation! Everything is going to be fine! Roger is a genius, now maybe he can spare the endless threads of useless posts.

    • roger erickson July 21, 2011, 4:03 pm

      To the royal “Me”;

      When there are endless options to explore, how do you get Luddites to actually explore them?

      Here’s one: don’t bother with Treasury auctions at all. Look up the history. Did we always sell Treasury Securities? When we did, did we always have auctions, or simply fix the rate? Has any country simply stopped the arcane & irrelevant practice? Is it necessary to auction fiat, or pay interest on fiat?

      If you can’t actually think, why bother posting?

  • C.C. July 12, 2011, 5:58 pm

    He may have meant colloquially, that the Eurozone’s problems could be ‘washed’ or, that further easing on the part of central banks in that region could re-liquify heretofore parched areas.

    Regarding the topic at hand: ‘Sanity’ as it were, will arrive when the lightbulb above the collective heads of populace’ across the globe flashes that precious metals are in fact: Real Money. I would contend that effect is happening – right now.

    • Rick Ackerman July 12, 2011, 10:15 pm

      See my citation from Merriam-Webster. For better or worse, we are stuck with “soluble” being a correct synonym for solvable.

      Hey, while we’re discussing usage, can I ask that everyone use “its” instead of “it’s” when the possessive case is intended. “It’s” is simply a contraction for “it is.” A good way to get this straight is to think through an easier but related case — i.e., we don’t say “their’s” when we mean “the choice was theirs to make.” I would guess that in this forum, the “it’s error” occurs 95 percent of the time.


    • Rich July 13, 2011, 12:09 am

      It’s It.

    • TM July 14, 2011, 9:20 pm

      And let’s not use “loose” when one means to say “lose”
      I blame that one on teaching spelling by phonics.

  • Roger Erickson July 12, 2011, 5:53 pm

    “America owes more per capita than Greece”

    For Pete’s sake! Can’t anyone get this straight?

    US Treasury “debt” is nominal, only, since the issuer owes it to itself. If the US Treasury simply stopped offering the savings accounts known as Treasury Securities, absolutely nothing would happen – except that dull witted investors would have to find better real targets for their floating-value currency savings.

    Greece actually does owe debts to foreigners, denominated in someone else’s currency.

    There is a difference, if you haven’t noticed.

    • Rick Ackerman July 12, 2011, 10:12 pm

      Bill Buckler does a nice job on the fallacy of this idea that we merely “owe the money to ourselves.” In the current edition of The Privateer, he writes as follows:

      “The entire global system of debt-backed money rests on that assumption. The old ‘we owe it to ourselves’ argument is here exposed in all its transparent hypocrisy. The ‘we’ are the ones who own the debt paper. The ‘ourselves’ are the ones who are expected to service and repay it, no matter how many generations that might take. And the ‘ourselves’ in question – the present and future taxpayers – have deluded themselves that the benefits they get in the way of government handouts and welfare outweigh the costs. That has been easy to do since the cost keeps getting fobbed off to future generations. At least it did – until now.

      “Every government, including the European governments, has waxed fat on this delusion. Of late, some of the European governments have begun to very gingerly suggest that this cozy arrangement might actually not last too much longer. But they haven’t tried hard enough and have left it MUCH too late.”

    • roger erickson July 13, 2011, 5:31 am

      “Bill Buckler does a nice job on the fallacy of this idea”

      Never thought I’d see such a misguided statement repeated here, by people familiar with other aspects of monetary operations.

      We made a fundamental shift in how our monetary operations work, in 1933, 88 years ago! Some people have not even noticed, even to this day?

      First, fiat currency is not “money” in the semantics used by Buckler, Rick & many readers here. If, like Greece, we actually borrowed anything from foreigners, which was NOT denominated in our own fiat, then yes, we’d have shot ourselves in the foot.

      We, however, do NOT use “debt based” money. We use fiat currency. There is no debt paper, and no one owns any debt. Treasury Securities are no more debt than is the interest paid on a savings account. It’s simply a service associated with currency creation, but not necessary for it.

      Teaching the Fallacy of Composition: The Federal Budget Deficit

    • roger erickson July 13, 2011, 5:41 am

      The beginning of US currency:
      A sovereign government can “be [tricked] into [pretending to] borrow “money’ instead of creating it”?
      [Yes. Ours was]

      Yet that was before multiple subsequent experiments, including eventually going on and then off the disastrous gold std.

      Has Buckler or RA ever read Beardsley Ruml’s 1946 essay? “Taxes for Revenue Are Obsolete”

      A fiat currency issuer doesn’t “get” fiat bookkeeping currency from anyone. Congress creates currency via appropriations, and Treasury distributes it by delegating spending through various public agencies. The FED only handles the Treasury checking account, and goes through the charade of tracking Treasury Securities too.

      Ask yourself this. Would the Treasury ever NOT be able to issue enough fiat to cover any & all Federal initiatives? Of course not.

      Only once a fiat, bookkeeping currency is in the hands of the public wishing to denominate distributed transactions is real wealth more efficiently accrued, through the return on coordination. It’s only after the fact that Congress considers how much fiat currency to destroy & hence remove from the economy.

      Our only concerns are aggregate invention, aggregate demand, inflation & deflation. Worrying about enough bookkeeping notation is about as silly as the NFL wondering if they’ll ever be able to pay back all the points they put on their scoreboards.

    • roger erickson July 13, 2011, 5:47 am

      Some more intro references for those that never heard of 1933, Breton Woods, or Nixon closing the gold window. There were implications from all 3, that some people never think through.

      “Almost everybody talks about budget deficits. Almost everybody seems in principle to be against them. And almost no one, literally, knows what [they are] talking about.” [Robert Eisner, The Misunderstood Economy, p.90]

      Why do we even bother pretending to “sell” T-bonds? Why not just halt the pretense of debt-related money supply?
      ONLY because bank lobbies pressured our Congress into passing a law requiring all currency creation to be matched, to the dollar, with Treasury bond sales. Why? Primarily to deliver a steady business in handling fees! Is there ANY utility in Treasury Bond sales? Perhaps some in managing short term inter-bank interest rates, but those reasons are grasping at straws, and could be better managed through other methods.


      JJ Lando on Quantitative Easing

      Handbook of World Exchange Rates, 1590-1914
      1. The statement that only four countries (Britain, the U.S., France, and Germany) had what the author calls a “true” gold standard. Somehow a number of others that were moving up in economic importance seemed to have gotten along without one.
      2. There is a section on “cashless” payments like bills of exchange. Is it a coincidence that they seem to have originated in Italy with its relatively vibrant city states?

    • roger erickson July 13, 2011, 5:49 am

      The Myth of National Debt

      1939 Senate testimony by Sen. Marvel Mills Logan, Kentucky (shortly before his death)
      Quoting Abe Lincoln: “Money possesses no value to the State other than given to it by circulation. Capital has its proper place and is entitled to every protection. The wages of men should be recognized in the structure of government and in the social order as more important than the wages of money. …
      Government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the Government and the buying power of consumers. …
      The taxpayers will be saved immense sums in interest, discounts, and exchanges. The financing of all public enterprise, the maintenance of stable government and ordered process, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own Government.”

    • roger erickson July 13, 2011, 5:53 am

      This is all repeating things covered by Ben Franklin vs Alexander Hamilton, >200 years ago. (After considering what’s below, were Hamilton & Burr worse sell-outs than Benedict Arnold?)

      Why, in 200 years, haven’t we haven’t come to grips with a [now worldwide] banking lobby that has narrow & undue influence, and doesn’t even know what it is doing? There has to be a very fundamental causality we’re skipping over.
      Narrow lobbies pursue tactics, not coherent operations that are adaptive for nations.
      Why isn’t the following front & center in Economics 101?
      In the mid-1700s the American Colonies were prospering, in part because they were issuing their own money called “Colonial Scrip,” which was strictly regulated and did not require the payment of any interest. When the bankers in Great Britain heard this, they turned to the British Parliament, which passed a law prohibiting the Colonial Scrip, forcing the colonists to accept the “debt” or “fiat” money* issued by the Bank of England
      [Roger: Note! NOT issued by the USA itself. For freedom, from either Colonialists or Gold Hoarding tycoons, it matters who the fiat issuer is].
      Contrary to what history teaches, the American Revolution was not ignited by a tax on tea. According to Benjamin Franklin, it was because “the conditions so reversed that the era of prosperity ended.” He said:

      “The Colonies would gladly have borne the little tax on tea and other matters had it not been the poverty caused by the bad influence of the English bankers on the Parliament, which has caused in the Colonies hatred of England and the Revolutionary War.”

      gets better

      Working with Hamilton, Aaron Burr helped to secure a charter and raise subscriptions for a private company to improve the water supply of pestilence-ridden Manhattan, but New Yorkers were shocked to learn that the surplus capital from the venture had been used to establish the Bank of Manhattan (renamed the Bank of New York). The Bank of New York was created by Hamilton and other wealthy New York investors that included Burr and the Bank of England. It was, and still is, underwritten by the Bank of England and was later chartered by the Congress as the First Bank of the United States.

    • roger erickson July 13, 2011, 5:58 am

      sample references on basic monetary operations

      ‘By current law the US Treasury has to issue [pretend] debt to cover any potential overdraft at their account at the US Federal Reserve. But, as Warren [Mosler] shows in “The Myth of Debt Monetization” section of Soft currency economics,
      this is somewhat of a stupid meaningless dance because of the legal mandate to maintain a target fed funds rate. This occurs because issuing [supposed] debt drains reserves from the system and this in turn immediately affects the fed funds rate (driving it up). Therefore, the FED has to add reserves to the system by buying the same debt back and thus to bring the fed funds rate back to the target! So, the net effect is the same as if the Treasury simply credited the bank accounts in the first place.’

      Modern Central Bank Operations – The General Principles

    • roger erickson July 13, 2011, 6:00 am

      “ECCLES: We [the Federal Reserve] created it.

      PATMAN: Out of what?

      ECCLES: Out of the right to issue credit money.

      PATMAN: And there is nothing behind it, is there, except our government’s credit?

      ECCLES: That is what our money system is.”

      – Federal Reserve Board Governor Marriner Eccles in testimony before the House Committee on Banking and Currency in 1941, during questioning by Congressman Wright Patman about how the Fed got the money to purchase two billion dollars worth of government bonds in 1933.

      [ps: If we can direct our CB to arbitrarily create the currency to “buy” bonds, in order to quickly force innovation through outdated methodology, then it’s also immediately obvious that we don’t even need to “buy” the bonds, and may bypass them as well. If Treasury-bonds were irrelevant & obsolete in 1941, then there is no reason for the USA to be limiting our ability to think creatively in 2010 !!]


      I must confess, Roger — and I mean this sincerely, without exaggeration — that I cannot understand a single thing you’ve said in ALL of these posts. I guess we just look at the world differently. And maybe I’m being simplistic, but I still think C.V. Myers said it all in one sentence: “Ultimately every penny of every debt must be paid — if not by the borrower, then by the lender.” RA

  • nonplused July 12, 2011, 5:40 pm


    Maybe Rick meant they are trying to disolve the European debt problem since it cannot be solved?

  • nonplused July 12, 2011, 5:38 pm

    Why on earth does anyone want to be long the Canadian dollar? Do a little research into Canadian debt levels and revenues and reassess. The only thing that could justify the Canadian dollar as a safe haven is if commodities go to the moon and the world economy deos not collapse as a result. Both things cannot happen at the same time.

  • Kenneth July 12, 2011, 5:37 pm

    In today’s commentary you used the word “soluble” in the below sentence.

    …. although the mainstream media is doing its best to help maintain it – maintain the fiction that Europe’s problems are soluble.

    “Solubility is the property of a solid, liquid, or gaseous chemical substance called solute to dissolve in a solid, liquid, or gaseous solvent to form a homogeneous solution of the solute in the solvent.”

    The word you are looking for is “solvable” or probably more correct would be the term “… Eurpoe’s problems can be solved.”


    No, my usage was correct, Kenneth, although I would concede that it doesn’t seem correct. Here’s Merriam Webster:

    [sol-yuh-buhl] Show IPA
    capable of being dissolved or liquefied: a soluble powder.
    capable of being solved or explained: a soluble problem.

  • Rich July 12, 2011, 6:55 am

    In agreement with Rick’s currency cliff, Big4 are short every exchange currency but the Australian and Canadian Dollars and long most Treasuries except the Ultra.
    Still looking for multinational stocks to climax on this Full Moon Friday options expiration in a global swoon…

    • mario cavolo July 12, 2011, 5:09 pm

      Hey Rich, thanks always for your comments here at Rick’s…a touch of confusion…they are “…short every exchange currency but the Au and CAD…” so that means they are short both the USD AND the Euro at the same time….??…against…??

      Cheers, Mario

    • Rich July 12, 2011, 11:59 pm

      Thanks for the ? Mario.
      Upon rechecking, Big4 also long Dollar and Ruble…

    • Rich July 13, 2011, 12:08 am

      And short, not long the CAD, whoops.
      (Must have been half asleep when writ.)
      So Big4 net long AUD, RUB and USD.
      Short every other currency, including copper, gold, platinum, silver.
      May change when CFTC CME begin to report Renminbi.

    • mario cavolo July 13, 2011, 4:34 am

      …Italian espresso made in a true espresso pot… that’ll do ya for future cloudy brain moments 🙂 Cheers

  • FranSix July 12, 2011, 5:05 am

    You’ll want to take a peek at Canadian banking stocks, esp TD or RY. Their stock charts look like parabolic mining stocks.