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Commodity Currencies Punch a Hole in Risk Aversion Fog

By Chuck Butler

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09/09/10 St. Louis, Missouri – Well… I love it when a plan comes together! I told you months ago, that the markets had given up on a rate hike from the Bank of Canada (BOC) at their 9/8 meeting… I took a different road, and said they would still hike rates… I was alone on this one folks, but… Guess what? The BOC hiked rates 25 BPS (1/4%) yesterday! I had thought they BOC would hike rates but attempt to water the hike down with dovish tones… Here’s the BOC statement, you decide if they sound dovish or not…

“Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.”

The Canadian dollar/loonie (CAD) rallied very nicely after the rate announcement, and the lack of “talking down” the loonie by the BOC…

The Aussie dollar (AUD) rallied nicely overnight, on the news that more jobs were created in July than forecast… Recall that yesterday I said the number of jobs created would exceed the forecasts, and they did… Not as large a difference as I said, but still, more than forecast! 30,000 and change jobs were created, versus the forecast of 25,000…

The reason this report put some wind in the Aussie dollar’s sails is that, for the most part, the markets were resigned to thinking that the rate hikes from the Reserve Bank of Australia (RBA) were over for 2010. This report brings back the question in their minds of…Read more…

If Gold Were Money Again

By Bill Baker

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09/09/10 Baltimore, Maryland – Why not gold? Even though it made an advance to some $1,000 per ounce by mid-year 2008, shortly thereafter it plunged to less than $700 per ounce. At $800, on an inflation-adjusted basis it would only be worth a little over $300 per ounce in 1980 dollars. After fully feeling the monetary discipline of Volcker and reflecting the collapse of oil in the glut of the mid-1980s, it could not sink much below $250, a level of support it maintained for years. One could overanalyze the investment rationale of our trading partners, but for those who are not blessed with generous supplies of oil, holding reserves in gold at these levels rather than in U.S. dollars would appear to be a no-brainer.

However, there are some reasons why these countries would not. Foreign governments operate fiat currencies, and these are a backdoor means of taxing wealth and also forcing it to remain inside their borders. As for the oil exporters, gold being very closely correlated with oil would magnify commodity risk for them, so they might not opt for this solution, unless perhaps asked to do so for political reasons by influential fundamentalists.

The largest stumbling block toward the adoption of gold as a currency reserve is the severe discipline it injects into the fiscal and monetary policy-making process. In recent years, the U.S. government has maintained an approximately $3 trillion budget in a $13 trillion economy with annual deficits in the hundreds of billions.

Its monetary authority, the Federal Reserve System, has permitted the money supply to double in the last seven years,…Read more…

Welfare States Decline Along With Youth Population

By Bill Bonner

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09/08/10 Baltimore, Maryland – Yes, dear reader, it looks to us as though the welfare state is kaput. Because it depends on the future to support it. And guess what, there is no future…

Ha ha…

Remember the Population Bomb of the ’70s? If we’re not mistaken that was Paul Erhlich’s dire, neo-Malthusian warning. There were soon going to be more people than the world could support.

Well, the population bomb turned out to be a dud. And now, in the developed world, the really explosive danger is not too many people, but too few people. It’s blowing up the social welfare systems put in place in the early and mid-20th century.

“By 2050,” writes Giulio Meotti in The Wall Street Journal, “60% of Italians will have no brothers, no sisters, no cousins, no aunts, no uncles.”

Gee, wonder what the weddings, funerals, family reunions and estate battles will be like. You may want to fight over dad’s bank account, but who will you fight with?

According to Meotti, Italy is approaching the point of no return. Once you get to a certain level, there aren’t enough fertile young people to replace the population that is retired and aging.

“According to demographic forecasts, it is highly unlikely that the number of people under 20 will ever again exceed the number of people over 60,” he writes.

Italians are committing social suicide, he says, disappearing by choice.

What happens to the social welfare state when the number of people who are meant to be supported becomes larger and larger…while the number of people who are meant to be supporting them becomes…Read more…

Burning the Economic Toast

By The Mogambo Guru

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09/08/10 Tampa, Florida – Even though I have been drinking so that my speech is slurred after testing some crazy idea that I could drink away my utter horror at the death and dying of the US dollar and economy, history is, on the other hand, being made crystal clear that when a country is so idiotic as to ignore its own Constitutional requirement that money be only made of silver and gold (so as to prevent its over-issuance and thus prevent inflation, The Worst Of All Evils (TWOAE)), and then to compound that stupidity and perfidy by unbelievable over-production of the ridiculously-preferred fiat currency by the foul Federal Reserve mindlessly printing too, too much of it, for too, too long, distorting the economy into an ugly, cancerous, government-centric abomination, that country and its currency are soon toast, which is an unfortunate metaphor because I like toast.

I have many pleasant memories of eating toast, actually, mostly lazy weekend mornings having a few pieces of toast with butter, maybe with some different jams, jellies, preserves or marmalades, or having toast some evenings when my wife says, “You’re home two hours late, you inconsiderate moron! So make your own dinner and choke on it!” but I don’t choke on the toast, and I like the toast, increasing my triumph! Ha!

Perhaps the actual metaphor is that the economic toast you were anticipating has become burned, bread burnt to a hot, blackened cinder, actual flames and acrid smoke swirling up from it, permeating the house, the smoke alarms squealing, “Beeeep! Beeeep! Beeeep!” all that noise is getting on your nerves,…Read more…