12 Jan 2013

U.S. May Default On Debt As Soon As February 15

Today’s AM fix was USD 1,663.00, EUR 1,269.37 and GBP 1,036.65 per ounce.
Yesterday’s AM fix was USD 1,663.50, EUR 1,272.37 and GBP 1,035.35 per ounce.
Cross Currency Table – (Bloomberg)

Gold edged off $0.80 or 0.05% in New York yesterday and closed at $1,657.40/oz. Silver climbed to $30.57 in Asia then slipped back to $30.05 by late morning in New York, but it also rallied back higher in afternoon trade and finished with a loss of just 0.07%.
Gold, 1 Month Chart – (Bloomberg)

President Barack Obama will nominate House Chief of Staff Jack Lew tomorrow as his choice for Treasury secretary, replacing Timothy F. Geithner.  Lew’s nomination as Treasury secretary is subject to Senate confirmation.
Gold inched higher on Thursday, as market watchers await a rate decision by the European Central Bank at 12.45 GMT. European Bank Chief, Mario Draghi’s news conference is at 1330 GMT. Investors will also view the Bank of England rate decision at 1200 GMT.

U.S. weekly Initial Jobless Claims are out at 1330 GMT.
Most economists feel that the ECB will leave rates unchanged and continuing ultra loose monetary policies for gold bullish, especially in euros.
XAU/EUR, 1 Month – (Bloomberg)

German industrial output figures came in less than forecast and rose less than forecast which showed contraction in Europe’s largest economy in Q4.
The Japanese yen was at a 2 1/2-year low today on expectations that the Bank of Japan policy will take a new approach to boost inflation later this month.
The U.S. government may default on its debt in 38 days or as soon as February 15, half a month earlier than widely expected, according to a new analysis adding urgency to the debate over how to raise the federal debt ceiling.

The analysis came courtesy of the Bipartisan Policy Center (BPC), which released a revised “debt limit analysis.”

"If we reach the X Date and Treasury is forced to prioritize payments, handling payments for many important and popular programs will quickly become impossible, causing disruption to an already fragile economic recovery," said Steve Bell, Senior Director of the Economic Policy Project at BPC.

The government hit the $16.4 trillion statutory debt limit on Dec. 31, but the Treasury Department is able to undertake a number of accounting schemes to delay when the government runs into funding problems.

The Treasury has said that the accounting schemes, known as “extraordinary measures,” ordinarily would forestall default for about the first two months of the year, though officials were clear that
they could not pinpoint a precise date because of an unusual amount of uncertainty around federal finances.

If Congress does not raise the debt ceiling by the deadline, the White House has said that the nation probably will default. In a previous episode — in the summer of 2011 — officials determined that the best course would be to withhold all of a given day’s federal payments until enough money became available to pay them.
XAU/JPY, 1 Month – (Bloomberg)

The consequences of an immediate 40% cut to government services would be brutal. Practically all government employees would suddenly see their pay checks go to zero. The government would only have enough money to pay Social Security checks and Medicaid providers on certain days. The U.S. defence budget would collapse which could lead to considerable geopolitical uncertainty.

The risk of a U.S. default next month or in the coming months and more importantly the appalling U.S. fiscal situation and indeed the appalling fiscal situation of Japan, the UK and many European nations shows the importance of having an allocation to gold in a portfolio.


8 Jan 2013

$US1 trillion coin debt solution gains currency

Was the trillion-dollar coin idea inspired by the Simpsons?     Was the trillion-dollar coin idea inspired by the Simpsons? 

If you had to flip a coin over whether the US Congress will raise the country's debt ceiling, here's the ultimate one - a freshly minted trillion-dollar platinum coin.
A formal petition has been started asking the White House to create such a coin in order to avoid another high-stakes fiscal battle to raise the debt ceiling.
The Treasury secretary has the authority to mint platinum coins in the denomination of his choosing. Meant for commemorative products, US law grants Treasury permission to "mint and issue platinum bullion coins and proof platinum coins", which would allow the Treasury to get around legal limits on printing money to pay the bills.
Depositing it would technically pay down US debt, buying time before the country reached the limit on it (the "debt ceiling") again.
It's an idea that's been discussed favourably (albeit cautiously) by everyone from Democrat Representative Jerry Nadler to economist Paul Krugman, who calls it a gimmick but says "there’s a pretty good case for using whatever gimmicks come to hand".
"Should President Obama be willing to print a $US1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely," Mr Krugman writes in his New York Times blog. "He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious.
"By minting a $US1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling - while doing no economic harm at all," the Nobel prize laureate writes.
However, it's likely the idea would run into stiff opposition from lawmakers who have been trying to reduce the budget deficits. Creating the cash would also completely override the independence of monetary policy, something the Obama administration has been very careful not to do in the past.
The coin petition is one of many wacky requests to alight on the White House's website. People have petitioned the President to nationalise the Twinkie industry, deport British CNN talk show host Piers Morgan for gun control comments he made on air, and give Vice-President Joe Biden his own TV show.
About 4000 signatures have been collected for the coin petition, which was created two days after lawmakers passed a bill to avert austerity measures of higher taxes and spending cuts.
Shown are the petitioner's first name, first initial of surname, and in most cases, the city. In order to get a formal response from the White House, 25,000 signatures must be collected by early February.
"While this may seem like an unnecessarily extreme measure, it is no more absurd than playing political football with the US - and global - economy at stake," the petition said.
The TV series The Simpsons could take credit for at least some of the inspiration. In an episode in 1998 a $US1 trillion dollar bill from the postwar years went missing. It was Homer Simpson's mission to find it.
The US Treasury began shuffling funds in order to pay government bills after the country hit the $US16.4 trillion legal limit on its debt December 31.
However, the Treasury's accounting maneuvers will last only until around the end of February, giving Congress two months to raise the debt limit before the US defaults on its debt.
Last week's deal forced Republicans to forgo their anti-tax pledges and give in to Democratic demands to raise taxes on the wealthiest.
Now Republicans want to use the debt limit increase to win spending cuts from Democrats as well as major changes to Social Security retirement and Medicare health care programs.