Gold Forecaster
- Global Watch
Some key features in the
changed Gold-positive climate
Julian D.W.
Phillips
Gold Forecaster snippet
Sep 21, 2007
Liquidity relief coming from
the U.S, the U.K and European Central Banks to the banking system,
is still struggling to unfreeze the system, simply because it
is cash and not an underwriting of dubious investments. Some
read the drop in interest rates in the U.S. will bring instant
relief to the driver of the U.S. economy, the besieged U.S. consumer,
but no such thing will happen until rates are much lower still
and confidence restored. Why?
The besieged U.S.
Consumer - more pain to come
The last boom [there
are signs that it is ending] was, primarily, driven by the U.S.
consumer. The average U.S. consumer has a relatively fixed wage
or salary. A look at the burden he is carrying shows that he
is unlikely to become a significant saver in the midst of today's
pressures. The pressures on this person are like this: -
- Nationally, half of all renters
and more than one third of all mortgage holders spent at least
30% of their gross income on housing costs.
- We guess-estimate that they
are starting to spend up to 10% of their income on fuel [rising].
- Tax may well be around 20%
[?]
- Other loan repayments will
likely account for a further 20% or more?
- This leaves the necessities
[food, clothes, medical, etc] around 20% left.
So he can't handle more pressure
from rising prices or high interest rates. He needs help now
and must get it, if he's to keep driving the economy. Most observers
expect the Fed to keep cutting interest rates at the remaining
meetings lined up until the end of the year. Even with this in
mind, will he then keep spending to keep growth at healthy levels?
The debate rages on about this, with most believing that a recession
[two consecutive quarters of falling GDP] is likely in 2008.
Others in the euphoria of running stock markets across the globe
are convinced that the troubles from the housing market and credit
crunch are over. Has confidence been restored? We think it's
going to take more than a half point drop in interest rates to
do that.
But we do believe that Benanke
and the Administration will do all in their power to ensure that
growth stays healthy if not rising, reinforcing a gold positive
climate. They have to do this because the recent crises were
not the sort that blow over quickly. They were systemic
problems that, if not cured, could precipitate far worse than
a recession, a probability that cannot be allowed to happen.
Already the credit crunch and
the Fed's action are causing other systemic problems to appear.
The $ is running towards a break in support and who knows how
much more of a drop? Saudi Arabia the key oil producers is likely
to cut its peg with the, which will be a system fracture all
on its own. What next?
The global economy, let alone
the U.S. cannot afford these problems on top of the ones it has.
The coming years will be dark and difficult unless these systemic
fractures are fixed and not just their symptoms. The price of
these years will outweigh any inflation damage that will inevitably
come with systemic repairs, if they are made. Inflation
will just have to be sucked up.
But what if the problems on
the capital flow and currency front balloon? Harsh, national,
curative measures loom up in front of us. Could these include
some form of Exchange Controls?
Capital and Exchange
Controls?
The massive loss of
liquidity from the world's capital markets seen in the last month
beat the authorities to it, in a way few foresaw. The inability
to sell assets related to the sub-prime mortgage story led to
many of them losing worth. They are dead in the water as investments,
so the capital value they had before has 'fled' the market already.
Hence, the 'capital control' the authorities exercised was seen
in the form of filling the hole of the lost liquidity [not lost
capital] caused by the crisis, by printing it, which is not a
happy solution.
With the market still absorbing
the frank and open statements from Ben Benanke, that:-
- Foreigners would, at some
point be sated, with U.S. $' and $ investments,
- The Trade deficit is unsustainable,
it is inevitable that the Fed
will act to prevent the withdrawal of capital from the States,
at some point in time. Foreign selling of U.S. Treasuries was
very heavy lately giving rise to speculation that China is trying
to drop some of its positions already, bringing Exchange Controls
closer by the day. Saudi Arabia's action on top of this and others
still unreported, is causing the $ to drop to historically low
levels, so maybe exchange controls are almost here?
It is close to a forgone reality
that the States will do something about foreigners withdrawing
capital from the States en masse, unhappy with their $
investments. In our recent issues we have warned of Capital and
Exchange Controls for some time now, [and described some possibilities
in previous issues] so let's prepare you a little better, because
when they arrive, they're suddenly a past event and you find
yourself locked inside without a way out. [Of course any such
warning from the authorities would defeat the purpose of the
controls, namely to block funds from fleeing a bad situation]
Such action would not only
lock in the capital of foreigners inside the U.S., but that of
all home based U.S. citizens, unless they had planned against
it ahead of time?
In future issues, we will publish
more on this subject. When the time is right we will look at
the fundamentals of Exchange Control systems, so you know what
to expect.
Exchange Controls are usually
imposed for a few years only, until the threat of a foreign capital
exodus fades away. At least that's the intention [In South Africa
they have been on and off to a greater or lesser degree for 40
years now, but in England they were imposed for just over 5 years.
It is always hoped that the underlying causes for the flight
of capital can be solved, but usually the causes are more fundamental
then Central Banks expect.
The underlying principals governing
exchange controls, such as seen in the historic Exchange Controls
[seen in the U.K. in the early 1970'] and in countries like Belgium,
South Africa, Zimbabwe, et al, separate Capital transactions
from Commercial ones.
This opens wide the possibility
of great profits and great losses for both individuals and institutions
who are able to act quickly, decisively and with knowledge beforehand.
We at Gold & Silver Forecaster have considerable
expertise and experience in profiting hugely from these situations
going back 36 years. [Please contact us for more details].
Please subscribe to GoldForecaster
for the entire report.
-Julian D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
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