The DNA of the Global Economy – Sept 17, 2009

The DNA of the Global Economy
By Martin A. Armstrong (c) Sept 17, 2009
Former Chairman of Princeton Economics Intl

ArmstrongEconomics -(at)- gmail.com
OR send email to k58 -(at)- gmx.com for a faster reply.
(c) Sept 17, 2009 All rights Reserved

Questions can be directed by postal mail to: (because he has very limited internet access)

Martin A. Armstrong
#12518-050
FCI Fort Dix Camp
PO Box 2000
Fort Dix, NJ 08640

The Collaspe of the Rule of Law: A Prelude to Disaster! – Sept 20, 2009

The Collaspe of the Rule of Law- A Prelude to Disaster!
By Martin A. Armstrong (c) Sept 20, 2009
Former Chairman of Princeton Economics Intl

ArmstrongEconomics -(at)- gmail.com
OR send email to k58 -(at)- gmx.com for a faster reply.
(c) Sept 20, 2009 All rights Reserved

Questions can be directed by postal mail to: (because he has very limited internet access)

Martin A. Armstrong
#12518-050
FCI Fort Dix Camp
PO Box 2000
Fort Dix, NJ 08640

Japan and It’s Future After the LDP! – Sept 13, 2009

Japan & It’s Future After the LDP!
The Last Throes of a 26 Year Economic Depression 2016
By Martin A. Armstrong (c) Sept 13, 2009
Former Chairman of Princeton Economics Intl

ArmstrongEconomics -(at)- gmail.com
OR send email to k58 -(at)- gmx.com for a faster reply.
(c) Sept 13, 2009 All rights Reserved

Questions can be directed by postal mail to: (because he has very limited internet access)

Martin A. Armstrong
#12518-050
FCI Fort Dix Camp
PO Box 2000
Fort Dix, NJ 08640

Soaking the Poor for the Benefit of the Rich – Sept 9, 2009

Soaking the Poor for the Benefit of the Rich:
What Marx Got Right!

By Martin A. Armstrong (c) Sept 09, 2009
Former Chairman of Princeton Economics Intl

ArmstrongEconomics -(at)- gmail.com
OR send email to k58 -(at)- gmx.com for a faster reply.
(c) Sept 09, 2009 All rights Reserved

Questions can be directed by postal mail to: (because he has very limited internet access)

Martin A. Armstrong
#12518-050
FCI Fort Dix Camp
PO Box 2000
Fort Dix, NJ 08640

Cycle Theory (Part 1) – Sept 3, 2009

Cycle Theory
By Martin A. Armstrong (c) Sept 03, 2009
Former Chairman of Princeton Economics Intl

ArmstrongEconomics -(at)- gmail.com
OR send email to k58 -(at)- gmx.com for a faster reply.
(c) Sept 03, 2009 All rights Reserved

Questions can be directed by postal mail to: (because he has very limited internet access)

Martin A. Armstrong
#12518-050
FCI Fort Dix Camp
PO Box 2000
Fort Dix, NJ 08640

The 8.6 Year Cycle & the Forces of Mother Nature – Sept 15, 2009

The 8.6 Year Cycle & the Forces of Mother Nature By Martin A. Armstrong (c) Sept 15, 2009
Former Chairman of Princeton Economics Intl

ArmstrongEconomics -(at)- gmail.com
OR send email to k58 -(at)- gmx.com for a faster reply.
(c) Sept 15, 2009 All rights Reserved

Questions can be directed by postal mail to: (because he has very limited internet access)

Martin A. Armstrong
#12518-050
FCI Fort Dix Camp
PO Box 2000
Fort Dix, NJ 08640

Keynes versus Friedman – and Mises goes missing

Getty Images
John Maynard Keynes (pictured left) versus Milton Friedman: the economics clash to end them all. It is not merely that the pair were both phenomenally intelligent, frequently caustic debaters; nor is it that they hail from such different backgrounds, one an Eton-educated Englishman, the other the Brooklyn-born son of Hungarian Jewish immigrants. The fact is that the two men stood for radically opposing doctrines. They represent the ideological battle underlying the economics of the past 50 years. Whereas Keynes paid more attention to unemployment than inflation, and warned that the economy could be improved by a certain amount of state interference, Friedman argued otherwise. In his seminal book A Monetary History of the United States 1867-1960, co-authored with Anna Schwartz, he set out the theories of monetarism. – Telegraph
Dominant Social Theme: Giant versus giant?

Free-Market Analysis: This is a very interesting recent analysis by the Telegraph because it focuses on Milton Friedman and John Maynard Keynes as the archetypical east and west of economics. It is written by Edmund Conway whose Boom and Bust article we reported on just the other day. We thought the Boom and Bust article was something of a mis-hit, skipping over the culpability of central banks for the financial crisis in favor of blasting something called “capitalism” – whatever that is these days.
In fact, any sane person can see clearly that if one conflates capitalism with free-markets, the conclusion must be that protecting free-markets have increasingly not been a great concern of Western leaders. The West is taxed too much and its institutions fix the price of money and already over-regulate even the simplest financial transactions. Western governments, and now the American government, are increasingly intertwined with the largest corporations leading to a kind of command and control economy more akin to failed Eastern financial systems.
In setting up Friedman in contrast to Keynes, Conway once again skips over the free-market part of his argument. We don’t have any anything against Conway – actually his past few articles have been quite good from a mainstream press standpoint in that they tackle challenging subjects. But in producing such ambitious articles, Conway is inadvertently providing us with an example of the blind spots that mainstream media continues to harbor when it comes to economic analysis.
What Conway misses is that Milton Friedman is actually a kind of iconoclast and that the Chicago Freshwater school is a watered down version of real free-market economics – Austrian economics that got its start 200 years ago with the formulation of the theory of marginal utility (the idea that prices are endlessly fungible at the margins and only the marketplace itself can determine them at any given point).
One actually has to trace back the roots of an intellectual conversation to understand from whence it came and how it got where it was. If one does not perform this exercise one ends up with the kind of article that Conway has written. It presents Keynes, who partakes of a 5,000 year old tradition of socialism and dystopianism and contrasts his perspective with Friedman’s whose professional life, admirable as it was, seems to have been spent presenting a watered down free-market apologia.
The real giant of the 20th century when it comes to free markets was undoubtedly Ludwig von Mises who helped elaborate on central bank generated business cycles. Friedman knew of this work of course but he chose not to promote it. Instead, he spent the latter portion of his professional life first blaming central banks for economic malfunctions and then proposing how to use the same flawed tools to rectify the difficulties. Contrast this approach with Austrian frankness which defines the problem in ways that are similar to Friedman but then with appropriate rigor concludes that the institution of central banking is hopelessly flawed because it is a kind of price fixing – and price fixing inevitably distorts and eventually ruins any economy it touches.
Here’s some more from Conway on both Keynes and Friedman:

The fact is that the two men stood for radically opposing doctrines. They represent the ideological battle underlying the economics of the past 50 years. Whereas Keynes paid more attention to unemployment than inflation, and warned that the economy could be improved by a certain amount of state interference, Friedman argued otherwise. In his seminal book A Monetary History of the United States 1867-1960, co-authored with Anna Schwartz, he set out the theories of monetarism. “Inflation is always and everywhere a monetary phenomenon,” Friedman said. In short, by pumping extra money into the system (as the Keynesians were prone to doing) governments would drive up inflation, risking major economic pain. Friedman believed that if central banks were charged with maintaining control of prices, most other aspects of the economy – unemployment, economic growth, productivity – would take care of themselves.
In reading this summary, we seem to detect a certain fuzziness as to the world “inflation.” Friedman certainly understood that inflation was defined as an expansion in the supply of money (or money stuff in the case of paper bills). When Conway writes “By pumping extra money in the system, governments would drive up inflation” he seems to be using the word inflation two ways. What he may mean in the second instance is “price inflation” because the act of “pumping money” into the economy is the actual act of inflation from a classical perspective.
We also have trouble with the conclusion that Keynesian economics demanded state interference while Friedman’s central banking approach did not. True, Friedman advocated a “steady state” central banking approach to the economy, but central banking itself is a monopoly manipulation of currency, no matter whether the price fixing takes place in public or private hands. Friedman’s free-market sympathies seem to fail him when it comes to this most important Western institution.
Give Conway credit. This is a good mainstream article in that it courageously takes on important economic points not often discussed and attempts to contrast two very important philosophies. But in leaving out the development and stance of the real free market philosophy that developed over the past 200 years in order to emphasize Friedman, the article ends up contrasting economic thinkers who certainly had more in common than would seem at first glance. And unlike Friedman, Mises did not believe central banking was salvageable. As do other free-market thinkers, he looked to the invisible hand of nature to manage money as much as possible. (His advocacy of a gold standard is grist for another day.)
Conclusion: It is a little strange from our perspective to see Milton Friedman constantly being identified as a proponent of free markets. When it came to modern markets’ fundamental building block, he proved to be a proponent of bank-managed money. The Austrians have long recognized the futility of trying to manage money by setting interest rates and other statist money nostrums. Austrians of various colors wish for the return of true free market money, gold and silver, within the context of a free-market money standard. And truly, these days, there is little excuse not to notice the Austrians. Google Ludwig von Mises and you will find nearly as many mentions if not more than John Maynard Keynes – thanks to the Internet, truth is spreading.

US economy has lost almost 7 million jobs since recession began

Alex Wong/Getty Images
Unemployment in America jumped to the highest level in more than a quarter of a century last month, bringing to almost 7 million the number of jobs lost since the recession began. The jobless rate in the world’s biggest economy climbed to 9.7%, higher than the 9.5% expected by economists and up from 9.4% in July. President Obama has said that he expects the unemployment rate to reach 10% before beginning to fall. The figures from the Labor Department underline the challenges facing the leaders of the G20 countries who will grapple with when to pull back the stimulus given the global economy in the past 12 months. Timothy Geithner (pictured left) , the US Treasury Secretary who is in London for the meeting of G20 finance ministers, said this week that there is a long way to go before the global economy can declare a durable recovery. “The labour market’s healing process is agonizingly slow,” Joshua Shapiro, chief US economist at Maria Fiorini Ramirez, told Bloomberg. “We expect the improvement to remain a very slow one, and therefore for the household sector to be contending with a weak labour market for some time.” – Telegraph
Dominant Social Theme: Worse than thought?

Free-Market Analysis: We return to one of our favorite (though saddest) themes. No, we don’t believe unemployment is a lagging indicator. As we have pointed out, there is plenty of evidence that pump priming is a most inefficient way to go about aiding economies during a central-bank initiated economic crisis. Since Western leaders cannot admit this, they have come up with the respectable sounding term “lagging indicator” to conceal the reality of how modern economies operate during such downturns.
During the kind of crisis we have just experienced, Western fiat money went into a kind of meltdown. There was so much of it around that it caused first a reckless boom and then a terrible bust. By immediately setting the printing presses into motion once again, Western democracies managed to avoid a thorough shakeout of mal-investments and a sharp breakdown of worthless banks and institutions themselves. This has kind of trapped Western economies in amber. Unable to purge mal-investments – especially important in fiat economies which are routinely deformed – Western economies face a long, slow trudge toward economic vitality. On top of this, Western economies might be facing additional blows from commercial mortgage defaults and derivative defaults.
The optimal way to deal with a fiat money meltdown is to let it occur, but that is impossible for meddlesome Western governments. Another way to deal with such a large meltdown is to rush paper money back into the hands of those individuals and entrepreneurs that will immediately put money back into circulation. This doesn’t address the larger issue of unpurged mal-investments but at least it would circumvent the current lending gridlock that always occurs after one of these debacles.
Conclusion: In truth, Western democracies support central banking economies not free market ones. When central banks overprint money and generate first a boom and then a bust, their top bankers scramble to support the banking distribution system – which is therefore in a constant bubble. (The West is horribly over-banked.) Billions and in this case trillions are disbursed in days, weeks and months as necessary to staunch the financial bleeding. But this does nothing to help the real economy, nor should it, as the real economy is not the initial, nor even the ultimate concern of central banking. Central banks are put in place and maintained to create wealth and power for the state and those who control its levers. It is for this reason that we get the bizarre spectacle of US vice-president Joseph Biden boasting that his administration’s financial stimulus is beginning to take hold. How much was it? Approximately US$200 per person.

Keynes versus Friedman – and Mises goes missing

Getty Images
John Maynard Keynes (pictured left) versus Milton Friedman: the economics clash to end them all. It is not merely that the pair were both phenomenally intelligent, frequently caustic debaters; nor is it that they hail from such different backgrounds, one an Eton-educated Englishman, the other the Brooklyn-born son of Hungarian Jewish immigrants. The fact is that the two men stood for radically opposing doctrines. They represent the ideological battle underlying the economics of the past 50 years. Whereas Keynes paid more attention to unemployment than inflation, and warned that the economy could be improved by a certain amount of state interference, Friedman argued otherwise. In his seminal book A Monetary History of the United States 1867-1960, co-authored with Anna Schwartz, he set out the theories of monetarism. – Telegraph
Dominant Social Theme: Giant versus giant?

Free-Market Analysis: This is a very interesting recent analysis by the Telegraph because it focuses on Milton Friedman and John Maynard Keynes as the archetypical east and west of economics. It is written by Edmund Conway whose Boom and Bust article we reported on just the other day. We thought the Boom and Bust article was something of a mis-hit, skipping over the culpability of central banks for the financial crisis in favor of blasting something called “capitalism” – whatever that is these days.
In fact, any sane person can see clearly that if one conflates capitalism with free-markets, the conclusion must be that protecting free-markets have increasingly not been a great concern of Western leaders. The West is taxed too much and its institutions fix the price of money and already over-regulate even the simplest financial transactions. Western governments, and now the American government, are increasingly intertwined with the largest corporations leading to a kind of command and control economy more akin to failed Eastern financial systems.
In setting up Friedman in contrast to Keynes, Conway once again skips over the free-market part of his argument. We don’t have any anything against Conway – actually his past few articles have been quite good from a mainstream press standpoint in that they tackle challenging subjects. But in producing such ambitious articles, Conway is inadvertently providing us with an example of the blind spots that mainstream media continues to harbor when it comes to economic analysis.
What Conway misses is that Milton Friedman is actually a kind of iconoclast and that the Chicago Freshwater school is a watered down version of real free-market economics – Austrian economics that got its start 200 years ago with the formulation of the theory of marginal utility (the idea that prices are endlessly fungible at the margins and only the marketplace itself can determine them at any given point).
One actually has to trace back the roots of an intellectual conversation to understand from whence it came and how it got where it was. If one does not perform this exercise one ends up with the kind of article that Conway has written. It presents Keynes, who partakes of a 5,000 year old tradition of socialism and dystopianism and contrasts his perspective with Friedman’s whose professional life, admirable as it was, seems to have been spent presenting a watered down free-market apologia.
The real giant of the 20th century when it comes to free markets was undoubtedly Ludwig von Mises who helped elaborate on central bank generated business cycles. Friedman knew of this work of course but he chose not to promote it. Instead, he spent the latter portion of his professional life first blaming central banks for economic malfunctions and then proposing how to use the same flawed tools to rectify the difficulties. Contrast this approach with Austrian frankness which defines the problem in ways that are similar to Friedman but then with appropriate rigor concludes that the institution of central banking is hopelessly flawed because it is a kind of price fixing – and price fixing inevitably distorts and eventually ruins any economy it touches.
Here’s some more from Conway on both Keynes and Friedman:

The fact is that the two men stood for radically opposing doctrines. They represent the ideological battle underlying the economics of the past 50 years. Whereas Keynes paid more attention to unemployment than inflation, and warned that the economy could be improved by a certain amount of state interference, Friedman argued otherwise. In his seminal book A Monetary History of the United States 1867-1960, co-authored with Anna Schwartz, he set out the theories of monetarism. “Inflation is always and everywhere a monetary phenomenon,” Friedman said. In short, by pumping extra money into the system (as the Keynesians were prone to doing) governments would drive up inflation, risking major economic pain. Friedman believed that if central banks were charged with maintaining control of prices, most other aspects of the economy – unemployment, economic growth, productivity – would take care of themselves.
In reading this summary, we seem to detect a certain fuzziness as to the world “inflation.” Friedman certainly understood that inflation was defined as an expansion in the supply of money (or money stuff in the case of paper bills). When Conway writes “By pumping extra money in the system, governments would drive up inflation” he seems to be using the word inflation two ways. What he may mean in the second instance is “price inflation” because the act of “pumping money” into the economy is the actual act of inflation from a classical perspective.
We also have trouble with the conclusion that Keynesian economics demanded state interference while Friedman’s central banking approach did not. True, Friedman advocated a “steady state” central banking approach to the economy, but central banking itself is a monopoly manipulation of currency, no matter whether the price fixing takes place in public or private hands. Friedman’s free-market sympathies seem to fail him when it comes to this most important Western institution.
Give Conway credit. This is a good mainstream article in that it courageously takes on important economic points not often discussed and attempts to contrast two very important philosophies. But in leaving out the development and stance of the real free market philosophy that developed over the past 200 years in order to emphasize Friedman, the article ends up contrasting economic thinkers who certainly had more in common than would seem at first glance. And unlike Friedman, Mises did not believe central banking was salvageable. As do other free-market thinkers, he looked to the invisible hand of nature to manage money as much as possible. (His advocacy of a gold standard is grist for another day.)
Conclusion: It is a little strange from our perspective to see Milton Friedman constantly being identified as a proponent of free markets. When it came to modern markets’ fundamental building block, he proved to be a proponent of bank-managed money. The Austrians have long recognized the futility of trying to manage money by setting interest rates and other statist money nostrums. Austrians of various colors wish for the return of true free market money, gold and silver, within the context of a free-market money standard. And truly, these days, there is little excuse not to notice the Austrians. Google Ludwig von Mises and you will find nearly as many mentions if not more than John Maynard Keynes – thanks to the Internet, truth is spreading.

US economy has lost almost 7 million jobs since recession began

Alex Wong/Getty Images
Unemployment in America jumped to the highest level in more than a quarter of a century last month, bringing to almost 7 million the number of jobs lost since the recession began. The jobless rate in the world’s biggest economy climbed to 9.7%, higher than the 9.5% expected by economists and up from 9.4% in July. President Obama has said that he expects the unemployment rate to reach 10% before beginning to fall. The figures from the Labor Department underline the challenges facing the leaders of the G20 countries who will grapple with when to pull back the stimulus given the global economy in the past 12 months. Timothy Geithner (pictured left) , the US Treasury Secretary who is in London for the meeting of G20 finance ministers, said this week that there is a long way to go before the global economy can declare a durable recovery. “The labour market’s healing process is agonizingly slow,” Joshua Shapiro, chief US economist at Maria Fiorini Ramirez, told Bloomberg. “We expect the improvement to remain a very slow one, and therefore for the household sector to be contending with a weak labour market for some time.” – Telegraph
Dominant Social Theme: Worse than thought?

Free-Market Analysis: We return to one of our favorite (though saddest) themes. No, we don’t believe unemployment is a lagging indicator. As we have pointed out, there is plenty of evidence that pump priming is a most inefficient way to go about aiding economies during a central-bank initiated economic crisis. Since Western leaders cannot admit this, they have come up with the respectable sounding term “lagging indicator” to conceal the reality of how modern economies operate during such downturns.
During the kind of crisis we have just experienced, Western fiat money went into a kind of meltdown. There was so much of it around that it caused first a reckless boom and then a terrible bust. By immediately setting the printing presses into motion once again, Western democracies managed to avoid a thorough shakeout of mal-investments and a sharp breakdown of worthless banks and institutions themselves. This has kind of trapped Western economies in amber. Unable to purge mal-investments – especially important in fiat economies which are routinely deformed – Western economies face a long, slow trudge toward economic vitality. On top of this, Western economies might be facing additional blows from commercial mortgage defaults and derivative defaults.
The optimal way to deal with a fiat money meltdown is to let it occur, but that is impossible for meddlesome Western governments. Another way to deal with such a large meltdown is to rush paper money back into the hands of those individuals and entrepreneurs that will immediately put money back into circulation. This doesn’t address the larger issue of unpurged mal-investments but at least it would circumvent the current lending gridlock that always occurs after one of these debacles.
Conclusion: In truth, Western democracies support central banking economies not free market ones. When central banks overprint money and generate first a boom and then a bust, their top bankers scramble to support the banking distribution system – which is therefore in a constant bubble. (The West is horribly over-banked.) Billions and in this case trillions are disbursed in days, weeks and months as necessary to staunch the financial bleeding. But this does nothing to help the real economy, nor should it, as the real economy is not the initial, nor even the ultimate concern of central banking. Central banks are put in place and maintained to create wealth and power for the state and those who control its levers. It is for this reason that we get the bizarre spectacle of US vice-president Joseph Biden boasting that his administration’s financial stimulus is beginning to take hold. How much was it? Approximately US$200 per person.

Gold & Silver Daily: China Eyes Ban on Rare Metal Exports – Sept 03, 2009

World Faces Hi-Tech Crunch as China Eyes Ban on Rare Metal Exports

There was nothing in Far East and London trading yesterday that gave any inkling of what was coming at 8:30 a.m… shortly after the Comex open on Wednesday morning. Gold tacked on a quick $10… then sat at that price for two hours… took another $8 jump, then slowly rose another $7 to $980 shortly after 1:00 p.m. From there, the gold price basically traded sideways until the close of electronic trading at 5:15 p.m. Eastern time.

I was surprised that silver didn’t do better. The price popped a bit along with gold on the early morning Comex rally… but promptly gave it all back within two hours. Then, on the second gold run-up… silver finally took the bit between its teeth, and in the next two and a half hours, tacked on some really respectable gains. But shortly before the Comex close, the silver price looked like it was about to go vertical… and it got stepped on.

Needless to say, I was happy at all these price gains, but in the back of mind I was concerned about who was taking the short side of all these new long positions that were driving up the price. It would be a safe bet that it would be the bullion banks… so it nearly goes without saying that their short position is growing even more grotesque with each passing day.

The shares were on fire yesterday… with the HUI and XAU both up nearly 10%… and closing pretty much at their highs of the day. My stock portfolio [which is 100% in the precious metals] had a pretty good day… as I’m sure, dear reader, did yours. But looking at the 2-year HUI chart posted below, we’ve still got a long way to go [150 points… give or take] to get back to the highs of March 2008… so I’m not breaking out the party favours just yet.

Open interest in gold for Tuesday, September 1st, showed that o.i. rose 2,320 contracts to 384,703… on pretty big volume of 104,075 contracts. Silver o.i. also showed a healthy increase, up 1,614 contracts to 106,671… on decent volume of 30,006 contracts. I’m already cringing at what Wednesday’s open interest numbers will be when they come out later this morning because, without a doubt, they will be u-g-l-y! The thing that concerns Ted Butler is whether or not the ‘big four’ shorts in both silver and gold were actively going short in the market yesterday… or was it other bullion banks carrying the ‘short’ load. Unfortunately, or deliberately, depending on your point of view… we won’t find out until the Commitment of Traders report next Friday… September 11th… because all this action happened on Wednesday…the day after the cut-off for tomorrow’s COT report. As I’ve pointed out many times in the past, this is S.O.P. for the bullion banks when they want to cover their tracks when something big is afoot.

Yesterday’s Comex Delivery Report showed that only 9 gold contracts were delivered… but, once again, there was another big number for silver deliveries… 1,010 contracts… 5 million ounces. The big issuers were the ‘usual suspects’… Deutsche Bank, Bank of Nova Scotia and JPMorgan… with Bank of Nova Scotia taking virtually the entire delivery yesterday by themselves… 951 contracts.

Over at the usual ETFs, there was a small increase of 49,058 ounces at GLD… but over at SLV, for the second time in less than a week, there was a big draw-down. This time it was 2,477,429 ounces. So, in the last week, over 5 million ounces of silver have been withdrawn from the SLV ETF… and since June 13th, the price of silver has increased from $12.40 to 15.49. That’s a hair over three bucks. Silver should be pouring into the SLV ETF… but inventories have been drawn down instead. You would be quite right in asking yourself… “What the hell is going on?”… but it’s obvious that the entity that owned that silver needed it for something else. If there’s lots of silver laying around… why did they have to pull it out of the ETF to get it? Just asking.

There was no report from the U.S. Mint yesterday… and the Comex-approved warehouse stocks showed that 106,820 ounces of silver were withdrawn.

The usual New York gold commentator had the following yesterday… “Today, of course, gold exploded spectacularly on the Comex open, and again just after 10AM. Euro gold tracked $US gold closely, and the move was made before the $US Index started weakening Volume is heavy: estimated at 47,133 lots at 9AM and an even more impressive 113,015 at 12noon. Estimated volume [for the day] was 135,895 contracts.”

The much-abused Gartman Letter deserves credit for its instincts, expressed in the small hours of this morning: ‘…we get the sense that something really quite ominous is upon us and that some news… and clearly not good news… is waiting out there on the market’s periphery that shall tend, on balance, to weigh heavily upon stock prices, shall weigh heavily upon government intervention efforts; shall weigh heavily upon the global capital market’s collective psychology… we have the sense that we are at an historic turning point for the gold market, and that turning point was made mid-day yesterday when the dollar began to strengthen, as commodity prices began to weaken, and yet gold held steady as a rock.'”

“Wide acceptance of this type of thinking amongst the sort of Professionals who read TGL would be [and perhaps is being] an important development for gold.”

“ScotiaMocatta and MKS are both adamant that the rise stemmed from heavy fund buying, with MKS in particular noting “large buying orders before the U.S. market open”… and concluding with… “Large strategic buying from funds helped gold higher…”

“That being the case, a higher estimated volume might have been expected. It also appears that the leader of this advance strongly prefers operating in Comex floor hours.”

“Gold’s price, at present, is in the hands of powerful US-based operators. In this situation, technical input can have real influence. ScotiaMocatta says this evening: “Gold has finally broken out of the topside of our 3-month consolidation triangle at $965… We expect a good extension on this move with $991 [May high], $1006 [2009 high] and possibly $1,032 [2008 high] as technical targets. We expect the market to buy any dip now to $960/965 with only a close back below $950 removing the bullish sentiment.”

“Gold shares had a spectacular day… rising almost unfalteringly into the close. The CEF [Central Fund of Canada] bullion vehicle closed at a 13.6% premium to NAV, a recently high level.”

Talking about the CEF, I received an e-mail from Richard Nachbar yesterday that showed the monthly premium/discount to net asset value for both CEF and Central Gold Trust going all the way back to 1983. It’s hard to believe that CEF ever sold at a 25% discount to NAV at one time… but, as the graph shows, it did!

I thank Richard for the graphs. Richard Nachbar, is a rare coin dealer in upstate New York. His website, coinexpert.com is linked here.

Today’s first story is courtesy of Craig McCarty and is a post over at zerohedge.com. Wegelin Bank, the oldest bank in Switzerland is pulling out of the USA. In an 8-page report entitled “Farewell America” dated August 24th, the bank spells out the reasons for leaving. In the closing paragraph they state the following… “The USA will remain the unquestioned military power and also an enormous repository of debt and other problems. Because they are painful, and there is always an inclination to shift the blame for them onto third parties, redimensioning processes always harbour the potential for aggression. Switzerland is currently experiencing just this. But it won’t end there. Potential aggression and economic progress are mutually exclusive. Which is why we are well advised to take a general farewell of America. This will be painful, for the USA was once the most vital market economy in the world. But for now, it’s time to say goodbye.” The entire article is linked here.

The last two stories of the day are courtesy of the King Report. I’d seen this story on Monday, but didn’t have the space… but now I do. “Traders in London and Frankfurt were buzzing with talk that a major hedge fund was headed for default. Much of the talk was directed at Cerberus, a private equity and hedge fund firm hit hard by losses on investments in Chrysler and GMAC.” The Reuters headline reads “Cerberus dismisses talk of fund defaults”. It’s not a long article, and I suggest you take the time to run through it, and the link is here.

And lastly today, is another piece from Ambrose Evans-Pritchard from The Telegraph in London. It’s a blockbuster and your must read of the day. The headline reads “World faces hi-tech crunch as China eyes ban on rare metal exports”. I didn’t see silver mentioned, but that day may come as well… and if it does, you’ll see a three digit silver price almost overnight. The link is here.

The Constitution is not an instrument for the government to restrain the people, it is an instrument for the people to restrain the government… lest it come to dominate our lives and interests. – Patrick Henry

It’s almost 11:00 a.m. London time [6:00 a.m. in New York] as I put this report to bed. I note that both silver and gold prices have come to life during London trading. But let me quickly point out that the traders are all U.S. bullion banks, as they all have London offices. It’s obvious that we’re in for an interesting day during Comex trading in New York. The precious metals market looks like it wants to bust wide open. With China telling the U.S. bullion banks to take their commodities derivatives and stick ’em where the sun don’t shine… along with the threat to severely restrict exports of rare earth elements [including silver at some point?]… the ‘Big Game’ appears to be on between China and the U.S.A. Hold onto your hats!

See you on Friday.