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Government policy underpins gold for the foreseeable future.  There are three choices that the progressives are currently faced with and only two that they will actually consider.  Implementation of either of these two choices will prove that government policy underpins gold!

Government Underpins Gold!

This first fact must be read, understood and acknowledged by every serious investor.

Government policy affects all investments to some degree or another!

The US Treasury is caught between a rock and a hard place.  It needs to issue roughly $150 billion of new debt per month while rolling over trillions in existing debt while being faced with investors who are willing to lend to it for shorter durations.  In the next two months, the treasury has to refinance over $133 billion in debt.

Add to this the  roughly $150-300 billion in new debt to finance our $1.5 trillion deficit brought to us by the progressive government who want to end the recession/depression by growing government at the expense of capitalism and the private sector.  Somehow I know that this is not going to end well.

The Treasury Department’s Treasury International Capital Data for October, reports that foreign governments were sellers of long-term US debt during October.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $8.3 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased by 43.9 billion. Foreign holdings of Treasury bills decreased by 38.3 billion.

The bold type is my addition, which points out that it is becoming increasingly difficult for the U.S. to keep funding it’s  profligate spending habits with foreign purchases of our debt.  This spells trouble for the recent rally in the U.S. dollar and underpins the strength that we are seeing in gold.

Foreign governments are voting on U.S. policy by filling their vaults with gold bullion and shying away from purchasing U.S. debt.  This trend will accelerate in 2010, especially if the U.S. Government succeeds in it’s attempts to destroy the insurance industry by taking over 1/6th of the U.S. economy by nationalizing health care.  (All of you progressives out there can scream all that you want, but if any version of the House and Senate bills are passed, the ultimate result will be nationalized health care within 20 years!  AND THAT’S A FACT, JACK!)

What Choices Do  Current U.S. Policy Present?

It seems that there are only  three options available to the U.S. Government at this stage of the game.

1.  Stop spending and reduce the size of government, thereby unleashing the power of
capitalism and the free market.

2.  Continue with “quantitative easing” and keep the ponzi scheme going.

Or, and this is a big Or:

3.  Create another market crash which would burst the bubble in stocks and drive investors
into the bond market.

Lets look at these three options in more detail.

Choice number 1.

There is no way that the current U.S. government is going to put the people’s will before its own desire to rule every aspect of the of its subjects lives.  A simple look at both health care bills that are currently being reconciled show the aggressive nature of this governments desire to micromanage every aspect of life in the United States.  We are witnessing no less than a coup by our own government!.

Speaker Pelosi just laughed at a recent question regarding President Obama’s campaign promises of openness in crafting the health care “reform”.  The progressives live by rules that are not found in the constitution, so do not expect them to voluntarily do the right thing.  They are not capable of it.

This criticism is not just leveled at the progressives, it also applies to the Republicans.  They are so drunk with power and disconnected with from their constituents that they should all be thrown out of office.  Unfortunately for America, they will have already passed their socialized medicine scheme before the 2010 elections occur.

The upshot of this is that option one is not viable.  If it were to be put into practice in earnest, the dollar would stabilize and gold would react to the strength, and health, of the U.S. dollar and return to more normal levels.  This is the option that preserves freedom and continues the American experiment.

Choice number 2.

Continuing the Ponzi Scheme is probably the course of least resistance because it allows the Community Organizer In Chief Obama, the ability to throw the rest of the unused stimulus money into the government right before election time.  He can create more jobs in government while strangling the private sector at the same time.  That would be a win, win for the progressives, because that is their ultimate goal in the long run!

Quantitative easing allows the progressives to grow in power and postpone the day of reckoning with the debt by inflating their way out of the debt in the future.  Unfortunately for the American public this policy just delays the reckoning and destroys years of hard work and savings, while enslaving future generations of Americans with the loss of their wealth and their freedoms.  Once again, a win, win for the Community Organizer In Chief!

Under this scenario, the dollar continues its long term down trend and gold continues on to new highs.  This choice guarantees  a loss of freedom, opportunity and perverts the American system to one that guarantees that misery will be shared by all(except the ruling elites)!

Choice number 3.

What if the progressives have grown tired of waiting for their Marxist/Socialist Utopia and they opt to bring it on suddenly?  That is a very real option for this power hungry group that is currently holding the all of the cards in Washington.

The Embodiment of Contempt for The U.S. Constitution!

Rahm Emanuel eluded to this option with this remark:

“You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”

How big a step is it from taking advantage of a crisis, to implementing one in order to reach your goal? Some will say that no president would do that to his own country, but those are the same people who have not studied history.  Leaders have used this technique through out history.

Now add a President who spent his formative years being tutored by Saul Alinsky and other radicals of the left and it no longer seems far fetched.

President Obama's Mentor

Two quotes from Alinsky’s  “Rules for Radicals”  provide ample proof that choice number 3 is a viable player going forward.

“A Marxist begins with his prime truth that all evils are caused by the exploitation of the proletariat by the capitalists.  From this he logically proceeds to the revolution to end capitalism, then into the third stage of reorganization into a new social order of the dictatorship of the proletariat, and finally the last stage -- the political paradise of communism.” (Rules for Radicals, Page 10)

This next quote goes to the heart of President Obama’s policy.  What appears to be a lack of policy to end the recession/depression, is, in actuality, exactly what his policy is intended to do:  namely, extend the crisis so that he can end capitalism as we know it in America.

“The first step in community organization is community disorganization.  The disruption of the present organization is the first step toward community organization. Present arrangements must be disorganized if they are to be displaced by new patterns…All change means disorganization of the old and organization of the new.”  (Rules for Radicals, Page 116)

Choice number 3 once again provides a crisis that the progressives can exploit.  If they let the stock market collapse as it did in 2008 they are presented with the opportunity to step in and save the people from the crisis of their own creation.

We learned that in 2008, the “flight to safety”  drove hundreds of billions of dollars into Treasuries.   That is precisely what the government requires to escape the debt bomb which is currently ticking away and dragging down the dollar and the economy.  This scenario delays the day of reckoning for some time and consolidates power in the hands of the Marxist/Socialist state.  Once again a win, win for the progressives and total defeat for freedom and the Constitution. Gold will be off to the races after it initially is sold off, as in 2008.

For those of you investing in physical gold,  do not sell any and just ride out the the downturn and use it as an opportunity to purchase more.  The elimination of the U.S. as a world power will send gold to highs that no one could predict today.  For those of you investing in gold and silver stocks,  I suggest that you take reasonable profits as they come and have tight stops going forward so that you are not pulled down if choice number 3 becomes reality.

Is The Double-Dip Recession On The Way?

As the U.S. economy struggles through the recession/depression, there are signs that all is not well in America.  This may be the set up for choice number 3 in 2010.

This video of a Fox interview of Peter Schiff originally aired on October 31, 2009, but it is just, if not more so, timely today as it was then.

The mainstream media is proceeding along with their heads up the government’s anal orifice, but a different picture is beginning to emerge as this next article suggests.

Are We Headed For The Double-Dip Recession/Depression?

Double Dip Housing Market Slide Begins

By Richard Michael Abraham | Builder/Developer in Fort Lauderdale, Florida

Despite the significant rise in existing home sales in November, brace yourself for an inevitable double dip housing crisis.

The first signs are already in place as Mortgage Applications fall significantly.  In fact, only one out of four applications are for purchasing a home. The remaining applications are for refinancing.

Interest rates have already risen from a low of 4.75% to 5.20% in just two weeks, heading for an estimated 6%-7% in May, as the FED raises interest rates to avoid an inflationary spiral.

The FED has toyed with zero percent interest rates for too long creating an equity bubble in the stock market, and now, will need to retrench by raising federal fund rates.

Other than a flurry of tax credit housing sales in the low prices of $150,000-$250,000, home values continue to decline in most areas at an alarming rate.

Indeed, unemployment at 10%, plus an additional 10 Million underemployed or people who just stopped looking for jobs, will take a greater toll on the housing market.  Foreclosures in 2010 will dwarf the historic high foreclosures of 2009. In addition, the crisis in commercial real estate note defaults has begun, and for the next two years will make the residential crash of 2008-2009 seem like a little bump in the road.

The U.S. Economy buoyed with enormous stimulus has shown little index movements which attempt to paint a better economic picture, but this rosy spin cannot overcome the fundamentals of a shrinking U.S. economy.

Prediction: By May, 2010, the housing market will be in the throws of a severe double dip decline and housing sales will fall dramatically. Foreclosures will rise significantly. Bankruptcies of national home builders and related building and construction companies, who simply cannot hold on any longer, will sharply rise.

Add that to this and you will begin to see that all that is spin out of Washington is not necessarily the truth.

U.S. growth prospects deemed bleak in new decade

Pedro Nicolaci da Costa

ATLANTA

Sun Jan 3, 2010 6:55pm EST

ATLANTA (Reuters) -- A dismal job market, a crippled real estate sector and hobbled banks will keep a lid on U.S. economic growth over the coming decade, some of the nation’s leading economists said on Sunday.

Speaking at American Economic Association’s mammoth yearly gathering, experts from a range of political leanings were in surprising agreement when it came to the chances for a robust and sustained expansion:  They are slim.

Many predicted U.S. gross domestic product would expand less than 2 percent per year over the next 10 years. That stands in sharp contrast to the immediate aftermath of other steep economic downturns, which have usually elicited a growth surge in their wake.

“It will be difficult to have a robust recovery while housing and commercial real estate are depressed,” said Martin Feldstein, a Harvard University professor and former head of the National Bureau of Economic Research.

Housing was at the heart of the nation’s worst recession since the 1930s, with median home values falling over 30 percent from their 2005 peaks, and even more sharply in heavily affected states like California and Nevada.

The decline has sapped a principal source of wealth for U.S. consumers, whose spending is the key driver of the country’s growth pattern. The steep drop in home prices has also boosted their propensity to save.

“It’s very hard to see what will replace it,” said Joseph Stiglitz, Nobel laureate and professor of economics at Columbia University. “It’s going to take a number of years.”

One reason is that U.S. consumers remain heavily indebted. Consumer credit outstanding has fallen from its mid-2008 records, but still stands at some $2.5 trillion, or nearly one-fifth of total yearly spending in the U.S. economy.

Another is that many of the country’s largest banks are still largely dependent on funding from the U.S. Federal Reserve and the implicit backing of the Treasury Department.

Kenneth Rogoff, also of Harvard, argued that if the U.S. government ever “credibly” pulled away from its backing of the financial system, then a renewed collapse would likely ensue.

He cited government programs giving large financial institutions access to zero-cost borrowing as artificially padding their bottom lines.

“There’s something of an illusion of profitability,” he said.

There is definitely a bad moon rising.  What are our options?

To be fore warned is to be fore armed.  Get out and call , write,  e-mail your representatives. Let them know that you will organize against them, if they continue down this road of government expansion.

Protect your self with physical gold purchases on dips in price.  Don’t get greedy with your precious metals stocks.  Take reasonable profits as they become available and tighten your stop losses in the event that gold falls with the general equities if choice number 3 is implemented by the progressives.

Remember, government policy underpins gold and the course ahead will be pretty violent in both directions!

Till next time, good luck and good trading!

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