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Solution To Banking Crisis

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It can only get better from here 😉

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Congo Worth $24 Trillion in Mineral Wealth

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Africa is a continent of war, conflict, poverty yet unbelievable wealth. It seems that the its wealth is the real source of thewar and conflict as the Western powers like to capitalize on the continents woes while slipping in to whisk away its treasures. Congo alone is worth according to CNBC is $24 trillion in mineral wealth alone. With a population of 4 million, that would mean each of its citizens owning $6 million. What are the chances of them seeing $1 worth.

Global financial markets don’t pay much attention to the conflict in the Democratic Republic of Congo. They should. The central African country produces major quantities of tin and tungsten, about half of the world’s cobalt output and about three percent of the world’s copper and gold, according to the U.S. Geological Survey.

Consumer electronics makers would also be well-advised to watch developments in the war-torn nation, which is a key supplier of columbite-tantalite, or coltan for short—a mineral ore used to manufacture capacitors found in cellphones, tablet computers, laptops and practically every mobile device on the market today.

Like Sierra Leone with its notorious ‘blood diamonds’, DRC Congo has been blighted by the stigma of ‘conflict minerals’ ’ where the proceeds from resources extracted from mines controlled by government or rebel forces are used to fund war. ‘Conflict-free’ certification programs and legislation have sought to reduce market share of resources mined in war zones but convoluted supply-chain networks have allowed buyers to exploit loopholes in the system. 

Legislators in the U.S. have sought to close those loopholes.

On August 22, the U.S. Securities and Exchange Commission adopted a rule mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act to require companies to publicly disclose their use of conflict minerals that originated in the DRC or an adjoining country.

Under the rules, companies are required to disclose their use of conflict minerals that include tantalum, tin, gold, or tungsten if those minerals are ‘necessary to the functionality or production of a product’ manufactured by those companies, the SEC said.

But the industry has been slow to respond, according to market research firm IHS iSuppli.

The “vast majority” of U.S. companies are not yet ready for the new rules that go into effect in less than two years, IHS isuppli pointed out in an exhaustive study released on October 25. “The industry appears to be unprepared, given that about 90 percent of firms so far have not produced the data, declarations, or documentation that will help fulfill regulatory requirements detailing the presence of such minerals in their supply chains,” the firm said.

As of August, the percentage of electronics component manufacturers with available conflict minerals information amounted to only 11.3 percent of the peer group, according to the IHS Parts Management Service, accounting for just 17.1 percent of active electronic components on the market.

IHS estimates that 15 cents’ worth of tantalum was contained in every smartphone shipped when Dodd-Frank was originally signed in 2010.  In 2012, this would amount to $93 million worth of tantalum in smartphones alone. The firm has been gathering information on conflict minerals for more than two years from a database on more than 300 million electronic, electromechanical and fastener components used in commercial and military applications.

$24 Trillion Mineral Wealth

A striking endnote from IHS estimates the value of DRC Congo’s mineral wealth at as much as $24 trillion, which stands in stark contrast to almost three-quarters of the population who live below the poverty line — a clear case, some might argue, where a developing country’s resources wealth has morphed into a resources curse.

A question for the immediate term is to what degree the unrest will affect production from major assets run by listed global miners.

Though the most recent bout of unrest in Congo threatens the eastern minerals-rich Kivus region near the Rwandan border, any impact will likely be limited as M23 rebels, reportedly backed by Rwanda, may have achieved their “primary strategic and commercial aims” by capturing Goma, the capital of North Kivu province, said Philippe de Pontet, Africa Director at political risk advisor Eurasia Group, in a report on Nov. 22. 

“This limits the immediate commercial impact to the Kivus region, the world’s largest source of coltan – also known as tantalite, a crucial input in many electronic devices,” de Pontet said. The region is also home to Toronto-listed gold miner Banro Corporation’s Twangiza gold mine which entered commercial production on September 1.

“Absent a major escalation, or a plausible but unlikely army mutiny (or assassination) that topples President Kabila, we do not envision direct impacts on copper/cobalt producers concentrated in (southern province of) Katanga,” de Pontet added.

However, AngloGold Ashanti’s Mongbwalu gold asset is a “bit more exposed should conditions worsen,” the risk consultancy said. “The threat of escalation beyond North Kivu, while not our base case, cannot be discounted.”

(Read More: Despite High Gold Prices, Supply Will Lag: AngloGold CEO)

AngloGold has held the Mongbwalu concession — with proven reserves of 2.5 million ounces — since 1998 and has had a presence there since 2004, but insecurity has hampered work, meaning that construction is only now getting under way, Reuters reported in April.

The world’s third-biggest mining firm partnered with Congo’s government to build the industrial gold mine in a vast zone deep in the hills of Ituri, a district in the central African state still recovering from a bloody ethnic conflict that ended in 2003, Reuters said.

Source: CNBC , IHS iSuppli

 

 

Impending Dollar Collapse

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Much has been written and said of the impending USDollar collapse below is another cheery article 😉 but well worth the full read at CrisisHQ. The pressure is ever increasing, as 2013 brings with it $5-6 trillion in US debt to be repaid. The official debt figure of $16 trillion is nowhere near the mark. Its more like closer to $70 trillion.

U.S. government’s real financial burden is close to 70 trillion dollars. This is because the national debt of 16 trillion does not account for obligations like Social Security, Medicare, Public Employee Pensions and other liabilities which the government is already committed to.

These liabilities are ticking time bombs, primed to explode with each new wave of retiring baby boomers. On top of this, medical costs continue to rise across the board driving Medicare expenses through the roof.

Ultimately the unsustainable debts will lead to 2 options, default or permanent money printing which is the solution favoured by politicians as the people who run the financial system are part of the problem.

dollar

How long can we keep borrowing?

 

Some economists like to imagine that we can just grow our debt endlessly, because we have the ability to print dollars out of thin air. These “experts” allege that the treasury market is as strong as ever and we can just keep borrowing endlessly. These are the same “experts” that insisted that real estate prices will continue to rise perpetually, right up to the 2008 crash. According to them, we just need to raise the debt ceiling and keep growing that debt evermore.

But even though we can raise our debt ceiling time after time, there is still a natural debt limit we cannot cross. The notion that our government can keep growing our debt without end is preposterous.

First, it’s based on a foolish assumption that the rest of the world is willing to lend us money that they know we can’t pay back. Second, it ignores a mathematical consequence: exponential growth due to interest alone. Third, it presumes that the U.S. dollar will forever remain the world reserve currency.

….

The Federal Reserve has been keeping the interest artificially low to help the government keep borrowing. Of course this is no favor on the FED’s part because the end result is debt enslavement. Since whatever the government owes is inherited by the people, it’s the people who get screwed in the end. If the interest was allowed to return to market rates, it would help prevent the government from borrowing beyond its means.

However, at this point our lenders are realizing that our debt has long passed a sustainable level. If you have ever applied for a loan, you should be familiar with the following universal rule. When the borrower is in too much debt, the loan becomes high-risk and so the lender demands a higher interest to make the reward worthy of the risk. With every passing day, America plunges into a deeper debt pit and this makes lending to the U.S. (by buying treasury securities) a more and more risky investment.

To make things worse, the FED is devaluing the dollar at an increasing pace by issuing bailouts, stimulus packages, quantitative easing, etc… and our lenders are realizing this too. This means that the dollars that our creditors are loaning to us now are worth less when they get them back.

For these two reasons, the U.S. treasury securities (government IOU’s) are now high-risk, low-return investments. What was once considered the safest investment is now a Ponzi scheme at the point of collapse.

Who will bail out America when it runs out of lenders?

 

Our pool of willing lenders is starting to shrink as our creditors are waking up to the fact that treasuries are now a high-risk, low-return investment. To compensate for this the Fed is forced to buy up all the long term U.S. treasuries in an effort to artificially stimulate demand, to keep up the smokescreen. Of course this only inflates the U.S. bond bubble even more.

When the pool of willing lenders dries up, the scheme will reach its end and the final bubble will explode. Without lenders, the U.S. government has only two appalling choices, default on debt or hyper-inflate the dollar.

 

Option one

is to default on all debt. Essentially declaring bankruptcy to renegotiate all obligations. This would create a severe financial shock as the dollar collapses and loses its status as reserve currency. This would lead to a sharp increase in the cost of nearly everything, as more US dollars would be needed to pay for imports, resulting in a catastrophic economic impact for every American. The government will be forced to cut spending dramatically. A broad range of government payments would have to be stopped, including military salaries, Social Security and Medicare payments, unemployment benefits, tax refunds, etc. Companies would be crushed by a US consumer that would no longer have any buying power. In addition, credit would dry up virtually overnight, which would force untold numbers of companies to shut their doors. Unemployment in the country would spike to obscene levels. Interest rates would rise significantly forcing millions of families with adjustable mortgages to go into foreclosures.

 

Option two

is to have the Federal Reserve create trillions upon trillions of dollars out of thin air. This creates an illusion that the debt is being paid back, but in reality the dollars issued to pay the debt would become increasingly worthless, turning rapid inflation into hyperinflation. This would actually create a much worse scenario then the first option as hyperinflation will be even more economically destructive for the average American. Prices would soar to unimaginable levels, unemployment would skyrocket. The average American would be forced to work overtime just to put food on the table, that is if he or she is lucky enough to still have a job.

It’s worth mentioning that it is highly unlikely that the U.S. will choose default (option one). Even though hyper-inflation is by far more destructive for the American people in the long term, the government will most likely try to print its way out.

Either way the economy will collapse. Economically, the first option would feel like a heart attack and the second option like terminal cancer.

The ripple effects of either scenario would be unprecedented. It would not be the end of the world, but you can expect massive social unrest, protests, riots, looting, arson, etc., basic supply disruptions on all levels, utility failures and infrastructure decay, rampant violent crimes, especially in metropolitan areas, followed eventually by a long and very painful period of readjustment of living standards for most Americans.

What if we cut spending, raise taxes and balance the budget?

   

It’s amazing, that even now you hear the same old catch phrases like, “recovering economy”, “budget cuts” and “responsible spending”, thrown around by politicians on all the major news shows. But, anyone out there that insists that this crisis can be fixed under our current system is lying.

The spending cuts and tax increases that Congress is talking about are absolutely meaningless when compared to how rapidly our debt is exploding.

Calling those cuts and taxes “pocket change” would be an insult to pocket change.

No bailout, stimulus package or manipulation by the Federal Reserve is going to avoid the massive financial pain that’s coming our way.

So what can our government do to fix the current financial crisis and avoid the dollar crash? What would it take?

It would take the kind of measures that are our government considers too extreme to even discuss and so there’s no chance of them being approved. For starters we would need to abolish the Federal Reserve, go back to the gold standard, shut down overseas military bases, completely reform the tax code, restructure entitlement programs, etc.

Unfortunately, proposing such changes is the fastest way to lose your political funding, become the laughing stock of Washington and be ignored or ridiculed by the mainstream media. Just ask Ron Paul.

Our Congress knows full well that fighting against the system is political suicide. And so no meaningful change that would help lessen the impact of the coming crash will be approved.

As far as the oval office and Congress is concerned, postponing the crash by issuing bailouts and stimulus packages is a more politically favorable approach, even though this ensures an even bigger catastrophe in the end.

The bottom line is this: we’re on a path to an inevitable dollar crash. The ones that run our monetary system and hold the keys to our economy are actually part of the problem instead of the solution. The ones in power that can make the desperately needed changes dare not.

Rather then risk their careers, they will continue to shamelessly distribute our hard earned money among their friends on Wall Street. The handful of our honest politicians that are actually brave enough to stand up for the people are shut out by the system.

At this point, we’re on a run away train without brakes, so you better brace yourself. The good news is there is still time for you to prepare for what’s up ahead. Most people will be completely unprepared when the whole thing comes crashing down.

Don’t be part of that group.

Source: CrisisHQ

Dylan Ratigan Rant: US System is Screwed But Can Be Fixed

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Dylan Ratigan goes on a rant and accuretly sums up the corrupt system in the US run on behalf of banker interests. He goes on to say that it can be fixed. Interesting to watch.

Paper Gold Volumes Vs Physical Gold Volumes

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goldAlthough I have been writing about the subject of gold price manipulation (check out Thunder Report) rarely have I seen the relationship of paper gold sales volume put in context to physical gold sales volume. The figures are quite startling and quite clearly demonstrate that the real price of physical gold is a multitude higher. In Q1 2011, on the LBMA, sales of paper gold per day was the equivalent of over 2 years annual production of gold.

To start with lets take a look at the LBMA and its attitude.

Most gold trading – both physical and paper – clears through the London market, with dealers and banks settling transactions for clients around the world. According to the LBMA website, “a credit balance on a loco London account with an LBMA member represents a holding of gold or silver the same way that a credit balance in the relevant currency represents a holding on account with a New York bank or Tokyo bank.” Further, the LBMA explains “Credit balances on the account do not entitle the creditor to specific bars of gold or silver, but are backed by the general stock of the bullion dealer with whom the account is held. The client is an unsecured creditor.” (London Bullion Market Association, 2012)

Let us pause here to re-emphasize a point. When you deposit money at a New York or Tokyo bank, you no longer own the money. You own a claim – you own bank credit. Banks are free to use deposits as they please – typically as a base to leverage – aka fractional reserve banking. As the LBMA points out, loco London accounts operate in the same way – they are bank credit denominated in gold. So long as the bank meets its’ contractual obligation, paper gold and allocated physical are fungible.

Over the decades, the derivative market for gold has grown exponentially. What began as a means to finance new gold production has morphed into an untenably leveraged marketplace.

To maintain confidence in the USdollar, the gold price must be suppressed.

As long as the marketplace holds “paper” gold on par with physical gold, the dollar price of gold is suppressed because of the new, synthetic paper flow. In order to maintain confidence in the $USD as a store of value – flow of gold bidding for dollars is desperately needed. As we see it, the US Dollars’ ability to function as a store of value, and global reserve currency, is now completely dependent on the continued flow of (and confidence in) ‘paper’ gold.

Paper Gold Volume size Vs Physical Gold Volume.

How big is the flow of this combined market? Total trading volume for 2011 was estimated at 50,459,865,000 ounces. (Gold Fields Mineral Services, 2012) 50 BILLION OUNCES!! As a point of reference, the World Gold Council states that annual mine production for the last 5 years has averaged approximately 83,000,000 ounces, and total above ground stock of physical in all forms is approximately 5,465,500,000 ounces. (World Gold Council, 2012) One might conclude that a significant amount of leverage exists in the gold markets given the fact that in 2011, the volume of paper gold that traded equaled 10x the amount of physical gold that has been mined in history! Consider further that the WGC estimates that only 19% of existing above ground stocks is categorized as “investment”, and nowhere near all of that 19% sits in LBMA vaults in good delivery form, ready to satisfy paper claims. Further, Central Banks (estimated to hold approximately 20% of the gold stock) today are net buyers – not sellers.

The last liquidity survey by the LBMA of its members revealed some startling information regarding paper gold sales volumes.

By August 2011, 36 of the 56 Full LBMA trading members submitted returns for the new survey, and the results were rather shocking. Quietly, the size of the “paper” gold market had grown to monstrous proportions – successfully creating a tsunami of paper gold flow. In fact, according to the Q1 2011 LBMA Liquidity survey, over 173,713,000 ounces or 5,400 tons of “paper gold” per day (more than 2 year annual physical production) turns over with only 2/3 of LBMA members reporting!

Looking to the COMEX we can get another glimpse of the ratio of paper contracts to the physical.

How many paper claims exist on the relatively small stock of bullion? For a few hints, we can look to the COMEX. As of October 30, 2012 COMEX gold Open Interest equaled 454,742 contracts (45,474,200 ounces of gold). COMEX registered inventory stood at 2,735,041 ounces for a factor of 16.6X. (CME Group, 2012)

Is a leverage factor of 16 enough for you to take action? For some very prominent fiduciaries, the answer is a resounding “YES”. In a 2011 interview Kyle Bass of Hayman Capital (who helped the University of Texas Endowment take delivery of nearly $1 Billion in physical gold bullion) described a conversation he had with an exchange official:

“When I talked to the head of deliveries at COMEX NYMEX, I was like, ‘What if 4% of the people want deliveries?’ He said, ‘Oh Kyle, that never happens. We rarely ever get a 1% delivery.’ And I asked, ‘Well, what if it does happen?’ And he said, ‘Price will solve everything’ and I said, ‘THANKS, GIVE ME THE GOLD’ – (Bass, 2011).

                                                                                                                                              

When looking at the demand figures, you would normally expect the price to sky rocket, but not gold.

Let’s look at the leverage a different way. In 1Q11, the 36 reporting members of the LBMA disclosed gold sales of 5,593,743,000 ounces versus purchases of 5,350,183,000 ounces (see line 1 – London Turnover). Based on the survey, we deduce that in 1Q11 excess demand for gold was 243,560,000 ounces which translates into approximately 7,575 metric tons. In a typical year, quarterly physical production (new mining supply) is approximately 625 tons. One would imagine that with a traditional commodity, physical demand outstripping new supply in a given quarter by a factor of 10 would cause a significant increase in price!! And for commodities like copper, corn, or cotton that would certainly be true. Yet during 1Q11, the price of gold rose from $1410 to $1439…a $29 dollar per ounce increase. (LBMA, 2011)

So with the true price of gold masked behind the paper gold price, the smart hands are holding onto their physical. Where does that leave the true price?

We believe that the largest holders of physical gold have very strong hands – and $1,400 per ounce is nowhere near high enough a price to coax significant new flow into the market. As a simple mind exercise, let’s imagine this dollar denominated gold demand was met exclusively from new mine production – no paper flow and no existing physical bidding for dollars. Based on the LBMA liquidity survey and WGC data, newly mined (average) per quarter flow of 625 tons physical gold would have needed to absorb 100% of that $337 Billion dollar demand. And in order to do so – gold could not have been at $1,400/oz. Instead, to clear the market gold would have averaged a price of $16,920! This is a partial glimpse at the true Freegold concept (Another, 1997) – no paper gold flow – a return to a purely physical marketplace. Although this may sound like an amazing price – if we apply a “reserve” factor of 16.6 to the LBMA demand statistics, we’d suggest that $16,000 gold would be a bargain. It’s all a matter of perspective.

Finally, the best description of paper gold yet..

Paper Gold is just like allocated, unambiguously owned physical bullion…until it’s not.

Source: ZeroHedge

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