The Case For a Barter Economy

March 27, 2010 Global Economy, Physical Gold, Politics No Comments

The case for a barter economy is mounting quickly, but you would never know it if you get your news from the government controlled media. Bartering has been around for ever, and it is soon going to emerge as the underground railroad of a free market society that is being strangled by the ideologues that it elected in the name of fairness!

The Devil Is In The Details

With the signing of Obama Care into law, we have been transformed into the United Socialist States of America. When you add Obama Care, Chrysler, GM, AIG and all of the banks that the U.S. Government now controls, 46% of the U.S. GDP is controlled by the Federal Government. All of this in just 15 months. What a difference electing a statist “progressive” makes in the country you once knew. I guess this is the “fundamental change” that Comrade Obama was speaking about during the campaign.

The lies and distortions of reality that have been spewed by this administration are mind boggling! Fortunately the American people are not as stupid as the Progressives/Marxists would like to think and they are awakening in ever vaster numbers as the details of this attempted coup d’etat of the health care system become known.

Companies across the U.S. are already announcing that their health care premium costs are going to go through the roof under the recently enacted law. The companies response to the new socialist plan vary from firing people, to cutting benefits.

The Wall Street Journal reports:

– Caterpillar said it would cost the company at least $100 million more in the first year alone.
– Medical device maker Medtronic warned that new taxes on its products could force it to lay off a thousand workers.
– Verizon announced to employees that it will likely have to cut healthcare benefits to offset the new costs.

How’s that whole hope and change thing working out for you now?

With America bouncing along the bottom of the worst recession/depression since the Great Depression, Comrade Obama is doing nothing to put America back to work. Everything that he is doing is causing the recession to grow deeper, America to get angrier and laying down the case for a barter economy.

As you will soon see, gold and silver will become the money of choice because it is real money and not subject to government manipulation. The current administration is destroying the dollar with their deficit spending in order to create the chaos which will enable them to step in and create a European style state controlled economy.

The Wall Street Journal is one of the few newspapers that is actually shedding light on what is really going on these days.

U.S. Is Riskier Than Euro Zone; So Says CDS Market

The Wall Street Journal

By Michael Casey

NEW YORK — Something troubling has occurred in the market for default protection on the debt of the world’s biggest borrower.

As the folks at Standard Poor’s Valuation and Risk Strategies division noted in a research note Monday, the difference between the spread on U.S. sovereign credit default swaps and an equivalent benchmark for AAA-rated euro-zone sovereigns flipped into positive territory March 12. As U.S. CDS spreads expanded to their widest levels in two years, that cross-region gap blew out to 5.7 basis points last Friday before narrowing to 4.7 Tuesday.

Wider CDS spreads indicate that sellers of insurance against a particular issuer’s default are charging more for it. In effect, the positive U.S.-versus-euro zone spread means investors think the risk of a U.S. default–however remote–is greater than that on euro-denominated sovereign debt.

So much for the view that low inflation and loose monetary policy make for a rosier debt outlook for Treasuries than for the debt of crisis-hit euro-zone sovereigns.

“We’ve seen CDS on U.S. Treasuries break with euro CDS before, but never to the degree we have here,” said Michael Thompson, head of research for S&P’s

Valuation and Risk Strategies group. “If we sit on this precipice for a time, I think a lot of market participants would see this as a bit of a shot across the bow, a bit of a wakeup” for anyone who’s complacent about U.S. debt.

Wouldn’t it also challenge U.S. Treasurys’ status as the so-called “risk free” benchmark? S&P didn’t go there. But the report did say the trend “reflects increasing market anxiety surrounding the U.S.’s credit quality.” In other words, a fiscal deficit worth 10% of gross domestic product–in the absence of a clear plan to reduce it — matters.

My first instinct was to dismiss the trend as an anomaly fueled by the technical quirks of an illiquid sovereign CDS market, where a conflicting array of investment strategies can confuse price signals. Some market participants use CDS contracts to hedge existing positions in underlying bonds, others sell default insurance as an alternative exposure to those bonds, while still more seek to extract arbitrage profits from playing between the two.

What’s more, the AAA euro-zone benchmark doesn’t reflect bets on a single sovereign’s debt but rather a basket of the region’s six remaining AAA-rated countries: Germany, France, Austria, Finland, the Netherlands and Luxembourg.

Disentangling its message on default risk could be messy. And what, after all, can a current-day contract on a future Treasuries default tell U.S. when a U.S. breach on its financial obligations is virtually inconceivable? [The government would pay for its debt with inflation long before opting for the blunt instrument of default.]

Yet, notes Mr. Thompson, “there is real money changing hands there [in CDS markets]. And if there is real money changing hands, there has to be real value … The market is expressing some valuable information.”

Short-term moves of a basis point or two can be attributed to technical factors, but such a lasting shift in the two regions’ CDS relationship “is not technical,” Mr. Thompson said. “I certainly wouldn’t ignore it.”

Thompson’s team also noted that the deterioration in U.S. default swaps meant that S&P’s “market-derived signal” dropped to ‘aa+,’ its lowest level in two years. The historical series for that indicator is based on an established correlation with actual S&P ratings.

There’s no indication that S&P’s separate ratings division is about to downgrade the U.S. ‘s vital ‘AAA’ rating. But over time, ratings analysts cannot stay blind to market signals like this one. As its weighs the stimulus needs of a still-fragile U.S. economy against future risks to debt servicing costs, the U.S. government can’t ignore market signals either.

To add insult to injury, the CBO came out this week predicting that the U.S. budget deficit would rise $10 Trillion, and become 90% of GDP by the year 2020.

Unless this insanity is stopped soon, we will be forced into a barter economy in which silver will be the driving force.

As the dollar crisis becomes common knowledge, gold and silver are going to sky rocket as the current dollar strength fades. Now is the time to position yourself, ahead of the falling dollar, with substantial positions in both gold and silver. As the dollar deteriorates, silver will present both the bigger percentage gains and the added advantage of enabling you to get goods and services as inflation destroys the dollar.

The dollar and gold have been joined at the hip for sometime and it appears that the recent dollar run up is about to end, so expect gold and silver to react in the inverse.

A.M. Kitco Metals Roundup: Gold Higher on Weaker U.S. Dollar, Greece Debt Agreement

By Jim Wyckoff
26 March 2010, 8:16 a.m.

Gold prices are modestly higher in early trading Friday, as the U.S. dollar index is under pressure and the Euro currency rallies following news the European Union countries have agreed on a plan to aid debt-laden Greece. April Comex gold was last quoted up $5.50 an ounce at $1,098.40. Short covering from recent selling pressure and some fresh speculative bargain-hunting buying were featured early Friday.

The EU and International Monetary Fund will jointly work to help Greece resolve its debt burden, news reports said.

Spot gold in London was also higher Friday as the Euro rallied. However, London traders said the news of an EU-IMF aid agreement for Greece is actually a mixed bag for gold. While the Euro did rally on the news and investor risk appetite improves, which supported buying interest in gold, the Greece news also eased some of the uncertainty that has been overhanging the European currencies, which will now likely limit safe-haven buying of gold.

In overnight trading, the London A.M. gold fix was $1,098.00 versus the previous afternoon fixing of $1,093.00.

Technically, April Comex gold futures are seeing short covering from recent selling pressure, but prices are still in a three-week-old price downtrend on the daily bar chart. Solid chart support is located at $1,075.00. A close below that key technical level would produce fresh near-term technical damage. For April gold, shorter-term technical resistance is seen at this week’s high ofÂ $1,108.60 and then at $1,112.00. Buy stops likely reside just above those levels. Stronger chart resistance is located at $1,120.00. Sell stops likely reside just below shorter-term support at the overnight low of $1,088.50 and then at this week’s low of $1,084.80. Today’s key near-term Fibonacci pivot level for April gold: $1,104.00.

Comex silver futures are higher in early trading Friday, on a short-covering bounce from recent selling pressure. Prices are in a two-week-old downtrend on the daily bar chart. The weaker U.S. dollar and firmer crude oil and stock index futures prices are also supporting modest buying interest in the silver market Friday. May silver last traded up 12.4 cents an ounce at $16.865. May silver finds shorter-term technical resistance at $17.00 an ounce, and then at this week’s high of $17.15. Buy stops likely reside just above those levels. Shorter-term technical support for May silver is located at this week’s low of $16.555 and then at $16.40. Sell stops are likely placed just below those levels. Today’s key Fibonacci pivot level for May silver futures is located at $16.98.

Gold and silver are going up, the only thing in question is the exact timing. I believe that it is sooner rather than later. If the “from each according to his ability, to each according to his need” people have their way, the barter economy will be here before most people even realize that their country has been stolen out from under them!

Bartering has bee around for ever and has seen a revival in the U.S. in the past couple of years as the financial crisis began to unfold. Soon there will be a new twist as gold and especially silver enter into the equation as the dollar becomes worthless. This CBS piece, made in early 2008 gives a little background on bartering and, without intending to, is pointing to the future of the U.S. economy if things are not subjected to a 180 soon.

With confiscatory taxes looming and a dollar that will soon be shedding value, it is only a matter of time before silver will become the money of choice for smaller transactions. It will hold its value because it can’t be devalued by the government. It may not seem important now, but it will be shortly. I highly recommend loading up on physical silver while the price is low, because it is not going to stay low for long!

One last little tidbit that is going to play a major roll in setting the bottom for precious metals is supply and demand. Mining is become more difficult and more costly due to government regulations, and with more regulation comes decreased supply. With decreased supply, you get higher prices.

Russian gold lobby sees Q1 2010 output down 10 pct

Wed Mar 24, 2010 6:12am EDT Reuters

MOSCOW, March 24 (Reuters) – Russia’s gold output in the first quarter of this year is expected to decline by 10 percent from the 31.39 tonnes produced in the first three months of 2009, the Russian Gold Industrialists Union said on Wednesday.

A monthly statement issued by the industry lobby did not provide the reasons behind the expected decline. It said Russia produced 17.54 tonnes of gold in January and February 2010, without providing a comparison for the same period a year ago.

It seems that from every angle that you look at it, gold and silver will soon be on the rise again. The case for the barter economy is being made by the very people that wish to control production and every facet of American life. Unfortunately they have under estimated the the will of the American people. The American people will starve the beast that is government through both the power of the people at the ballot box and by ceasing to participate in the statist run economy. The case for the barter economy will continue to grow until the people take back their country.

The monetary system of this country is based on the “full faith and credit” of the U.S. government. Both are in short supply and they are adding to the case for a barter economy.

Till next time, good luck and good trading!