8 Oct 2011

Philipp Vorndran Interview with James Turk

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Philipp Vorndran, of Flossbach & von Storch AG, and James Turk, Director of the GoldMoney Foundation, talk about the unsustainable level of US government debt. They discuss the possible combinations of growth, taxes, austerity and inflation necessary to reduce the debt burden. Philipp explains that as long as it can print its own money, the US government will never default on its debt. The real question is how much the dollars it repays it with will be worth. They also talk about the US sovereign debt bubble, but Philipp does not expect rising interest rates, because of central bank policy, including Operation Twist.
They talk about stocks. Philipp explains that dividends and cash flow has to be analysed together with risk, sustainability of earnings and risk. They also talk about the Eurozone’s new bailout fund and whether it will be enough to save the euro. Philipp explains the difference between the EFSF and the ESM and the process for their approval. He explains that the size of the EFSF is enough to rescue small countries like Greece or Ireland, but too small to deal with problems in Italy or Spain.
They talk about whether Greece can leave the euro. Philipp explains that there is no doubt that Greece is bankrupt. He talks of a 75% haircut on Greek debt and also expects strong opposition to austerity from Greek public opinion. He talks of the danger of bank runs in Portugal and other countries. Portugal, Greece and Ireland could still be contained and even leave the euro without destroying it.
This interview was recorded on October 1st 2011 in Vienna

5 Oct 2011

Ben Bernanke says “the recovery is close to faltering"

Ben bernanke capitol hill 2011 10 04
Federal Reserve Chairman Ben Bernanke testifies before the Joint Economic Committee on Capitol Hill in Washington, DC, October 4, 2011. Bernanke on Tuesday said the United States may face yet more slow jobs growth, as he warned short-term budget cuts and financial turmoil could further threaten the economy. (JIM WATSON/AFP/Getty Images/Getty Images)

Federal Reserve Chairman Ben Bernanke told a Congressional committee on Tuesday that "the recovery is close to faltering," The New York Times reports. 
According to the Times, Bernanke said that the Fed is ready to do more to help the economy, but that it can't fix all the problems alone.
"Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy," Bernanke said. "Fostering healthy growth and job creation is a shared responsibility of all economic policy makers."
In the past, the Times reports, Bernanke has suggested that the economy would recover as long as the government did not interfere. Tuesday's testimony suggested that Bernanke thinks the government needs to act.
Reuters called Bernanke's testimony before the Joint Economic Committee his "bleakest assessment yet of the fragile U.S. recovery."
Citing anemic employment, depressed confidence, and financial risks from Europe, Bernanke urged lawmakers not to cut spending too quickly in the short term even as they grapple with trimming the long-run budget deficit.
According to The Los Angeles Times, Bernanke also expressed empathy for the Occupy Wall Street demonstrators who have taken to the streets of New York recently to protest inequality and other economic concerns.
"Very generally I think people are quite unhappy with the state of the economy and what’s happening," Bernanke said. "They blame, with some justification, the problems in the financial sector for getting us into this mess and they're dissatisfied with the policy response here in Washington."
"On some level I can’t blame them," he said. "Like everyone else, I’m dissatisfied with what the economy is doing right now."


4 Oct 2011

CME Extends Margin Influence to Copper & Platinum

It appears the US has decided to apply a scorched earth policy to China. While we are seeing flashing headlines that the Senate just passed a China currency bill 79 to 19 (we don't know what is in the bill yet), we doubt it will be something that China will be too pleased with, as most likely there will be some language about currency manipulation and/or some such typical politician propaganda. What is more troubling is that the CME just made sure the tens if not hundreds of billions of Chinese copper collateralized Letters of Credit just lost even more value following yet another margin hike in Copper, which raised initial and maintenance margins by 15%. If China perceives US actions as provocative (and it made very clear that US overtures in Taiwan already are), we may just see an 'oopsie' moment tomorrow when the Mainland decides to offload a few billions in US Treasurys. And the cherry on top was a 28.6% margin hike in Platinum: a direct warning to gold and silver longs once again.