Gold slide flashes warning signs for global economy

Gold Feet (Photo credit: @Doug88888)

The plunge in the gold price in the past week may have raised a big red flag over the global economy.

Some top investors say the gold sell-off, and the broader declines in oil and metals prices, reflect the failure of the Federal Reserve and other central banks to create robust demand even as they inject massive amounts of money into the world financial system.

The slide, which took gold to its biggest one-day loss ever in dollar terms on Monday, unnerved investors who saw billions of dollars in gains wiped out in a few days, and it may portend declines in other asset prices ahead. That may have begun this week with several days of big stock price drops.

Some see the move in gold as a possible flashpoint for a broader economic and markets shock comparable to the collapse of hedge fund Long-Term Capital Management in 1998 and even the financial crisis a decade later. Both events were preceded by sharp drops in gold.

The gold and commodities weakness is "signaling concerns about global growth," said Mohamed El-Erian, the co-chief investment officer of PIMCO, which oversees $2 trillion in assets. "Commodities have been sending the signal on growth for a while, and now even louder." Read more >>

IMF chief economist says crisis will last a decade

The world economy will take at least 10 years to emerge from the financial crisis that began in 2008, the International Monetary Fund's Chief Economist Olivier Blanchard said in an interview published on Wednesday.

Blanchard told Hungarian website Portfolio.hu, in an interview conducted on September 18, that Germany would have to accept higher inflation and a real strengthening of its purchasing power as part of the solution to Europe's problems.

But even though the focus was on Europe's troubles now, he said, the United States also had a fiscal problem which it had to resolve. "It's not yet a lost decade... But it will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape," Blanchard said. Read more >>

Investors Position for a Synchronized Global Slowdown

The insufficient job creation, stagnant earnings and alarming long-term unemployment highlighted by May’s disheartening jobs report underscore America’s persistent unemployment crisis. The numbers also speak to a synchronized slowdown that is now taking hold of the global economy — a phenomenon that is being signaled by virtually every other data release out of Europe, the U.S. and emerging countries.

The realization of lower global growth, together with increasing financial instability in some parts of the world (particularly Europe), is an important driver of the recent sharp selloff in equities and other risk assets. It has also turbocharged the collapse in yields on higher quality government bonds, with the 10-year U.S. bond at a record close of 1.46% on Friday (and Germany even lower).

To state the blatantly obvious, the best investor positioning for the last few weeks was an across-the-board defensive, “up in quality” one. The much more difficult (and urgently relevant) question on many people’s mind today is whether this still makes sense — particularly in view of the dramatic valuation moves.  Read more >>

Unemployment Has Risen in Two-Thirds of European Countries Since 2010

Unemployment has risen in two-thirds of European countries since 2010 as austerity hit growth and jobs, the International Labor Organization has said. In its annual world of work report, the Geneva-based ILO warned that the weaknesses in the labor market were becoming ingrained, with high levels of long-term and youth unemployment.

The study found there were still 50 million fewer jobs in the global economy than before the recession began in 2008 and it was unlikely that growth would be strong enough in the next two years to find jobs for an extra 80 million people looking for work.

Raymond Torres, director of the International Institute for Labour Studies and author of the report, said: “This is not a normal employment slowdown. Four years into the global crisis, labour market imbalances are becoming more structural, and therefore more difficult to eradicate. Certain groups, such as the long-term unemployed, are at risk of exclusion from the labor market. This means they would be unable to obtain new employment even if there were a strong recovery.” More...

US currency crisis dead ahead

Image by marcus_jb1973 via Flickr

Bud Conrad: Beyond the Point of No Return
“We’re heading toward government devaluing its currency to devaluate its debt in order to survive. That means you need to protect yourself. You can’t just have savings accounts paying no interest. You need to go and buy gold,” says Bud Conrad, chief economist with Casey Research, in this exclusive Gold Report interview. Despite the grim outlook for the U.S. dollar and other paper currencies worldwide, Conrad believes he and other speakers at the recent Casey Research 2010 Crisis and Opportunity Summit have information you need to both prosper and protect yourself during the coming economic storm.

TGR: Today we are talking with Casey Research Chief Economist Bud Conrad who recently presented a riveting talk during Casey Research’s 2010 Crisis and Opportunity Summit. Here are four major points from his talk:

1. The world economy is in a calm between a credit crisis turning into a currency crisis as the collapse of the private debt bubble is replaced by a government debt bubble that will also collapse.

2. The world is at a point of no return for government debt as debt-to-GDP approaches 100%. When debt becomes too big, governments cannot control the interest rates and currency. The lead warning is Greece, much the same as Lehman Brothers was in the credit bubble crisis.

3. Peak oil. The wealth of humanity has been built on energy. Half the world’s conventional oil supply is already used. That means that the quantity of oil produced each year will not increase much from the current level even as demand from developing countries like India and China increases. Wars over oil have already started. Energy prices will rise. We will see a substantial rise in the cost of food, as food production requires energy.

4. The U.S. can prosper and stay ahead of the rest of the world by developing and investing in three forms of technology—the Internet and cell phones, new medicines through biological breakthroughs and new sources of energy. All are good investment opportunities and are necessary for human expansion.

TGR: What lens were you using as you developed these themes?

BC: I was trained as an electrical engineer and I spent much of my career in the computer business, so I look at things from a total system point of view. Whenever somebody has an issue I say, ‘let’s look at the data.’

We have sort of a blue sky overhead right now, as people think things are improving, but I think we’re in the eye of the storm. We had heavy winds blowing from the credit crisis and we all know what happened. The governments came along to bailout the problems and purchase all the toxic waste of sub-prime mortgages and bad debt from too much private lending. Governments now have a huge credit bubble, just like we had with the housing mortgage bubble. I think that the government debt bubble will burst and that will be the other side of the hurricane, as the winds swirl around and hit us from the other direction in terms of a currency crisis and government debt collapse.

TGR: Are you at odds with the strategy the U.S. government is using to stave off the recession?

BC: If we decide we’re going to build a few roads, maybe build a bridge, hand out some money for basketball programs or some other idea that seems to be part of large government programs, then we won’t have achieved much. Last year, the government spent about $1.5 trillion more than it collected in taxes. The Federal Reserve also spent $1.5 trillion buying mortgage debt to keep that market from further collapse. So the government spent $3 trillion dollars to give us the current blue sky of a small recovery. The current blue sky could be measured as 3% of GDP. GDP is about $14 trillion, so that’s about $400 billion of economic growth. Well, $3 trillion spent for $400 billion of economic growth is a pretty bad return on your investment. Add to that several trillions of guarantees and future government obligations for Fannie, Freddie, FDIC, PBGC etc., and I have the basis for believing that these obligations are big enough to cause the collapse of the sovereign debt of the United States Furthermore, I don’t think it’s just the U.S.; I think it’s worldwide. In other words, we’re going to have debt crisis in the U.S. and Europe and other countries that have expanded their government debt too.

TGR: Is Greece the bellwether for this potential doomsday scenario?

BC: Greece is being bailed out, but it’s one set of governments bailing out another set of government debt. Pretty soon the question is who’s going to bailout whom? The U.S. debt is getting out of control at a spending rate approximately equal to Greece’s (in terms of percentage of GDP per year.) I think we’re in a far more precarious position than most people realize. More...

Debt Dynamite Dominoes: The Coming Financial Catastrophe

Andrew Gavin Marshall
The people have been lulled into a false sense of safety under the ruse of a perceived “economic recovery.” Unfortunately, what the majority of people think does not make it so, especially when the people making the key decisions think and act to the contrary. The sovereign debt crises that have been unfolding in the past couple years and more recently in Greece, are canaries in the coal mine for the rest of Western “civilization.” The crisis threatens to spread to Spain, Portugal and Ireland; like dominoes, one country after another will collapse into a debt and currency crisis, all the way to America.

In October 2008, the mainstream media and politicians of the Western world were warning of an impending depression if actions were not taken to quickly prevent this. The problem was that this crisis had been a long-time coming, and what’s worse, is that the actions governments took did not address any of the core, systemic issues and problems with the global economy; they merely set out to save the banking industry from collapse. To do this, governments around the world implemented massive “stimulus” and “bailout” packages, plunging their countries deeper into debt to save the banks from themselves, while charging it to people of the world.

Then an uproar of stock market speculation followed, as money was pumped into the stocks, but not the real economy. This recovery has been nothing but a complete and utter illusion, and within the next two years, the illusion will likely come to a complete collapse.

The governments gave the banks a blank check, charged it to the public, and now it’s time to pay; through drastic tax increases, social spending cuts, privatization of state industries and services, dismantling of any protective tariffs and trade regulations, and raising interest rates. The effect that this will have is to rapidly accelerate, both in the speed and volume, the unemployment rate, globally. The stock market would crash to record lows, where governments would be forced to freeze them altogether.

When the crisis is over, the middle classes of the western world will have been liquidated of their economic, political and social status. The global economy will have gone through the greatest consolidation of industry and banking in world history leading to a system in which only a few corporations and banks control the global economy and its resources; governments will have lost that right. The people of the western world will be treated by the financial oligarchs as they have treated the ‘global South’ and in particular, Africa; they will remove our social structures and foundations so that we become entirely subservient to their dominance over the economic and political structures of our society.

This is where we stand today, and is the road on which we travel.

The western world has been plundered into poverty, a process long underway, but with the unfolding of the crisis, will be rapidly accelerated. As our societies collapse in on themselves, the governments will protect the banks and multinationals. When the people go out into the streets, as they invariably do and will, the government will not come to their aid, but will come with police and military forces to crush the protests and oppress the people. The social foundations will collapse with the economy, and the state will clamp down to prevent the people from constructing a new one.

The road to recovery is far from here. When the crisis has come to an end, the world we know will have changed dramatically. No one ever grows up in the world they were born into; everything is always changing. Now is no exception. The only difference is, that we are about to go through the most rapid changes the world has seen thus far. More...