But while I so stubbornly poke holes in the political machine in Washington, I must avoid being hypocritical. If I shame our legislators for disregarding the democratic keystone principals of checks and balances, I must be careful to avoid the same pitfalls.

That means it is critical for you to hear voices other than my own. I do not want to become a scribe who dictates through his pen. I want this to be a democratic forum.

That’s why I am pushing my views aside today and giving room to Jeff Clark, the editor of Casey’s Gold and Resource Report.

If the name sounds familiar, it should. His work has graced this column before.

Here’s what Mr. Clark has to say. If you are a gold bug, you’ll love it:

“Enron? Bear Stearns? Bernie Madoff? They’re all big stories about big losses and have hurt a lot of employees and investors. But none come close to getting my vote for the decade’s most dastardly deception…

“First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in U.S. history at that time. Chairman Kenneth Lay said that Enron’s decision to file bankruptcy would ‘stabilize the company,’ but over the next five years the company was completely liquidated. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later.

“And what had we been told by the media? Fortune magazine dubbed Enron ‘America’s Most Innovative Company’ for six consecutive years. A well-intentioned friend wanted to give me a gift subscription to the magazine for Christmas; I choked on my cocktail and luckily he assumed my drink was too strong. In the end, you can thank Enron for bringing us the Sarbanes-Oxley Act of 2002, a ghastly financial reporting regulation for which compliance is grossly expensive, and – stop the presses! – hasn’t prevented similar repeats.

“Next came WorldCom filing for bankruptcy in 2002, their assets of $103.9 billion dwarfing Enron’s. ‘We will use this time under reorganization to regain our financial health and focus, while operating with the highest integrity,’ assured CEO John Sidgmore. Was his eggnog spiked? Today, WorldCom stock certificates have been spotted as doilies under pancake house coffee mugs signifying it’s decaf.

“Tyco, Adelphia, Peregrine Systems… it’s a crowded field around this time. But their stories of fraud and greed and mismanagement get boring after awhile. Just watch the closing credits from the movie Fun with Dick and Jane and you’ll see what I mean.

“Bear Stearns set us all up for the Big Meltdown of 2008. It was B.S. (no, I mean Bear Stearns) that pioneered the asset-backed securities markets, and we all know how that turned out. Later we learned that as losses mounted in 2006 and 2007, the company was actually adding to its exposure of mortgage-backed assets, gearing itself up to 35:1. With net equity of $11.1 billion supporting $395 billion in assets, B.S. carried more leverage than a streetwalker’s push-up bra.

“And during it all, Bear Stearns was recognized as the ‘Most Admired’ securities firm in a survey by Fortune magazine (there’s that Lower Manhattan tabloid darling again). Frequent sightings of company executives on country club fairways assured the public that all was well. And CEO Alan Schwartz told us there was ‘no liquidity crisis for the firm’ and insisted he ‘had the numbers to back it up.’ His company was sold four days later to JPMorgan Chase at $10 per share, a 92% loss from its $133.20 high. Perhaps his numbers were prepared by ex-Arthur Andersen employees.

“Lehman Brothers, the 158-year-old investment bank, was next and still today holds the title as the largest bankruptcy in U.S. history. L.B. succumbed to 2007’s Word of the Year, ‘subprime,’ and its $600 billion in assets all went poof! In just the first half of 2008, before the meltdown, Lehman’s stock slid 73%.

“And what did CEO Dick Fuld tell us in April of that year? ‘I will hurt the shorts, and that is my goal.’ He must have been referring to the attire of his tennis club buddies, because the ones who actually got hurt were numerous other banks, money market funds, institutions, hedge funds, REITs, brokers, private and public trusts, foundations, government agencies, foreign governments, employees, and investors.

“Moving on to the largest U.S. government bailout recipient by far, AIG’s troubles spawned my favorite placard of the decade: seen outside their Manhattan offices stood a sign that simply read, ‘Jump!’ Maybe its creator heard what I did from AIG’s financial products head Joseph Cassano: ‘It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.’

“He must have substituted his prescription eyewear with those giant New Year’s Eve glasses, because the government sunk $180 billion into the company and it still had to be split up and the assets sold to the highest bidder. I’m sure that his non-flippant comment had nothing to do with him making CNN’s ‘Ten Most Wanted Culprits’ list in 2008.

“GM, with $91 billion in assets, filed for bankruptcy in the summer of 2009 and is now largely owned by the U.S. and Canadian governments (i.e., taxpayers). The $19.4 billion in federal help wasn’t enough to keep the nation’s largest automaker out of bankruptcy. But don’t despair: the government is pouring another $30 billion into GM to fund ‘reorganization operations.’

“GM shares? Bye-bye. For 83 years GM had been a member of the prestigious 30 Dow Industrial stocks. It managed to survive the Great Depression but not this decade’s Greater Depression. Yet chairman Ed Whitacre had insisted, ‘I remain more convinced than ever that our company is on the right path and that we will continue to be a leader in offering the worldwide buying public the highest quality, highest value cars and trucks.’ I wonder what he thinks now that the stock is named ‘Motors Liquidation,’ trades only on the pink sheets, and sells for about 50¢?

“Topping off our list is the infamous Bernie Made-off (er, Madoff), who scammed $65 billion over 20 years from unsuspecting institutions and wealthy investors. But don’t be too upset, because the number is probably half that amount. Hey, the alleged size of the losses comes from his own ledger book, and should we really trust his balance sheet? Dubbed the largest Ponzi scheme ever, I beg to disagree, as you’re about to see…

“By now you are probably wondering… what’s bigger than all these? He’s covered the major frauds and scams of the past decade – what could possibly be left?

“To quote my favorite sleuth, Hercule Poirot, “When all the facts are laid before me, the solution becomes inevitable.”

“Here are a few clues…

“Federal Reserve Chairman Ben Bernanke said on July 16, 2008, that Fannie Mae and Freddie Mac are ‘adequately capitalized’ and ‘in no danger of failing.’ Then-Secretary Treasurer Henry Paulson declared on August 10, 2008, ‘We have no plans to insert money into either of those two institutions.’

“Both Fannie and Freddie were nationalized 28 days later, on September 8, 2008.

“Ben Bernanke claimed on February 28, 2008, ‘Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks…’ Henry Paulson added on July 20, 2008, that ‘It’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.’

“Since the recession started in December, 2008, 144 banks have failed.

“Paulson informed us on April 20, 2007, that ‘All the signs I look at show the housing market is at or near the bottom.’

“The number of foreclosures skyrocketed shortly thereafter and will now any day surpass those during the Great Depression.

“Ben Bernanke announced on June 20, 2007, that ‘[The sub prime fallout] will not affect the economy overall.’

“Less than one year later, the stock market crashed, losing 53% of its value, and is still down 25% despite one of the biggest bounces in history.

“Those in charge of our country’s finances not only failed to see the crises developing and then bungled the handling of the recovery, they’ve deliberately misled us about what they’re doing to our currency. In spite of emphatic promises, flowery speeches, pat-on-the-back assurances, and continual reassurances, here’s what they’ve actually done to the dollar:

-Since September 1, 2008, the monetary base has ballooned from $908 billion to $2.0 trillion. The current monetary base is now equal to bailing out General Motors 23 times.

-Bailout funds in 2008 and 2009 total $8.1 trillion. That’s almost 78 WorldComs. It’s over 123 Enrons.

-U.S. debt has risen sharply, from $6.2 trillion in 2002 to $12.1 trillion today. That’s over $39,000 per citizen.

-David Walker, the comptroller general of the Government Accountability Office from 1998-2008, warned that the U.S. is on the hook for $60 trillion in unfunded liabilities. Independent analysts peg the figure at near twice that. Whatever the number, it is incomprehensibly large. The only way we will meet these liabilities is to print the money and inflate them away.

“We’re bailing out corporations that should fail, making financial promises we can’t keep, and adding layers of debt we can’t possibly repay. And the real killer is, if we don’t have the cash, we just print it. It is, by any reasonable account, the ‘blunder that will plunder’ the next several generations. It is changing America permanently, and the problems will persist long after you and I are laid to rest.

“Bottom line: after all the bailout programs, housing initiatives, rescue efforts, stimulus schemes, bank takeovers, wars, unemployment benefit extensions, and numerous other promises, the biggest financial deception of the decade is what the U.S. government is doing to the dollar. Nothing else even comes close.

“This reckless activity has spooked our foreign creditors, weakened our global standing, diluted our currency, is punishing savers and retirees, and ultimately sets us up for a level of inflation this country has never seen before.

“Yet, what is the guardian of our economy and money telling us now?

‘Will the Federal Reserve’s actions to combat the crisis lead to higher inflation down the road? The answer is no; the Federal Reserve is committed to keeping inflation low and will be able to do so. In the near term, elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here.’ (Ben Bernanke, December 7, 2009).

“This is pure rubbish. If inflation could be controlled by just thinking stable inflation thoughts, then Ben should be able to grow a full head of hair by just thinking scalp follicle thoughts. This is so ridiculous, it’s insulting.

“Government actions make a mockery of their words; what they say and what they do are diametrically opposed. It’s clear that inflation is not a question of if, but when.

“Any level-headed individual has to conclude that there will be a steady – and likely accelerating – decline in the dollar’s purchasing power. It’s inevitable.

“The great masses don’t quite understand it yet, but they will. There will be no escape from the cold, hard slap in the face citizens will receive when a high level of inflation arrives. And when it does, it will make a mockery of any opposing viewpoint.

“So the question before you is simple: Will you be a prepared survivor for what lies ahead, despite what our government leaders tell us, or will you be a complacent victim of the biggest financial deception of the decade?

“For me, there’s only one solution. Don’t kid yourself into thinking a man-made asset will protect your purchasing power. This is the time to be overweight gold and silver. I advise letting them serve their purpose for you.”

I thought all you contrarian gold bugs would be interested in Casey’s not-so-subtle opinion.

If you want to learn the best ways to buy and hold gold and silver, and the stocks that will help you outpace the inflation that’s right around the corner,give Casey’s Gold and Resource Report a risk-free try and learn how to escape with your assets intact.

For $39 a year, it’s a no-brainer. Click here for more information.

So gold is now publicly loved by armchair investors, famous hedge fund managers and central banks… even as we write, Erin Burnett is “squawking” about it on CNBC. Are your contrarian senses tingling yet?

“So many hedge fund managers and pundits are singing the same tune: long gold and short U.S. Treasuries,” our friend Dan Denning wrote in today’s Daily Reckoning. “The bond bubble could go on much longer than anyone expects. And when so many people agree on something, none of them are usually right. As a contrarian, you’d be worried about becoming a victim right about now.”

Finish reading this article on DailyReckoning.com.

Before you tell me I’m wrong, let me ask it this way…

• If inflation returns, or even hyperinflation…
• If the economic crisis persists and gets worse…
• If uncertainty and fear continue, and chaos and rioting begin…
• If stock markets languish or suffer another meltdown…
• If the recovery spending of the world’s governments proves futile…
• If government interference in the economy continues to increase…
• If the value of the U.S. dollar takes a major fall…
• If world recovery from the current recession/depression takes years…
• If you’re still wondering whether you have enough “safe” money…

…would you feel you own enough gold?

If all those things come to pass, I suspect many of us, including myself, would wish we had a few extra gold coins or bars stashed away.

So let’s assume you answered “No” to my question and need to add some ounces to your collection… is now a good time to buy?

The Best Time to Buy Gold?

Before glancing at the chart below, if you had to pick the month with the weakest average gold price, which would you select?

In our current 8-year bull market, June has seen the lowest return for gold. In other words, it’s been, on average, one of the best times to buy.

How does this compare to the bull market of the 1970s?

In the last great bull market, summer also was a good time to buy gold (although April was even better.)

What about gold stocks?

Since 2001, July and October have been the weakest months for gold stocks, as measured by the AMEX Gold Bugs Index, and the best times to buy.

However, keep in mind that these are price tendencies and not certainties. There were Junes when gold was up, and some Julys when gold stocks were up. Meaning, avoid using this chart for trading purposes or in anticipation of an immediate gain. Instead, use it to prepare for possible gold price weakness ahead. And if the weakness shows up, treat it as a buying opportunity and add to your holdings to position yourself for the next leg up in the bull market. Consider that this summer could be the last chance to buy gold for three figures.

Don’t lose sight of where we are at this point in the recession – in an intermission in the bad economic news. When it becomes apparent that the good ole days aren’t coming back, sentiment – and markets – could move rapidly. And gold is one of the best forms of capital that can protect you in a financial Armageddon. That gold was up in 2008 is a reminder of its protective power.

How much gold should you have? Continue to accumulate physical gold until you can honestly say you don’t care how many dollars Ben Bernanke prints.

Having physical gold in your possession is always a good idea in times of economic turmoil – there is no “uncertainty hedge” like it. But to actually make money, you should also look at premium gold stocks. Our current favorite has been so consistently successful that we call it “48 Karat Gold.” Click here to learn more.

…since it is concerned primarily with providing information and news about stocks and bonds so that you will be motivated to constantly buy and sell stocks and bonds.

So I was surprised to read where it starts out with, “Large investors, including some who anticipated deep troubles for the housing and financial sectors, have been buying gold, concerned that moves by governments world-wide to shovel money at problem areas could cripple leading currencies.”

This is exactly true! That is exactly why I am buying gold, and why smart people are buying gold and why large investors are buying gold!

Well, since the WSJ is traditionally concerned with stocks and bonds and so is historically unconcerned and disdainful of gold, I figure that Mr. Zuckerman will follow that “gold bug” news with some disparaging remark like “which only proves how stupid large investors are, since everyone knows that gold is for morons and raving lunatics like, for instance, The Mogambo, who is forever wailing about how you should be buying gold, silver and oil with your very waking breath because the Federal Reserve, which caused all of the world’s problems by their decades-old regimen of constantly over-creating money and credit which produced massive inflations in the prices of stocks, bonds, houses and size of government, is now going to make the money supply go Freaking Super-Nova (FSN) with even MORE excess creation of money and credit to accommodate the panicky, unbelievable, desperate deficit-spending plans measured in the multi-trillions of dollars by the incompetent, brain-damaged Congress and the ridiculous Obama administration comprising, as it does, the worst of the worst, and that means consumer prices are going to explode one day – say people like The Mogambo, within a year or so, and for a long, long time afterward, too.”

Although Mr, Zuckerman does not mention me directly, he says, “For years, big gold fans were fast-moving traders and so-called gold bugs, a crowd of bears ever-convinced that the underpinnings of global economies and markets were set to crumble” which not only describes me to a freaking T, but is exactly what happened!

He also describes me pretty well, too, when he says, “Gold has disappointed some investors because it hasn’t been a home-run investment despite continuing financial ills” which is also the fault of the Federal Reserve, which is on record as saying that “the Fed stands ready” to dump as much gold onto the market as is needed to keep its price from rising.

And the reason they are openly manipulating the price of gold, which is the advice of former Fed chairman Paul Volcker, is because they are concerned about the price of gold rising, which is a clear signal that inflation is raging because the Fed is a bunch of money-maddened morons and the economy is in Big Freaking Inflationary Trouble (BFIT) because of them and their mismanagement of monetary policy with their ridiculous neo-Keynesian econometric stupidities! Hahahaha!

And it is going to get worse, as Junior Mogambo Ranger (JMR) Wayne T. sent a clip from ft.com that announced that “Barack Obama’s top economic adviser has urged world leaders to pump more public money into the economy in a coordinated effort to boost demand and lift the world out of recession.”

And how are we going to do this amazing feat? By engineering a “global demand-led recovery” where everybody starts buying! Buying! Buying!

And in fact, Laughable Larry Summers thinks, “There’s no place that should be reducing its contribution to global demand right now. It is really the universal demand agenda.”

I cannot believe what I am reading! Perhaps in a feeble attempt to make me shut up my screaming in outrage at the inflation in prices that such irresponsible economic stupidity will cause, he does allow that, as ft.com terms it, “While the US and other western nations should return to living within their means in the medium term, everyone should raise spending sharply now.” Hahaha! Unbelievable!

And why in the hell would anyone in their right mind say such a bizarre thing that is directly contraindicated by the entire stinking corpus of world economic history for the last 4,500 years which proves that, 100% percent of the time, increasing the money supply of a fiat currency with government deficit-spending has been what we in the economics biz officially call a Big, Big, Bad, Bad, Bankrupting Bust (BBBBBB).

Well, don’t look at me for an answer as to why someone would say such a ridiculous thing and make us laugh with scorn and contempt, but, “In an interview with the Financial Times, Lawrence Summers said the urgent need for a short-term increase in spending by governments temporarily overrode the longer-term goal of tackling the global imbalances many economists believe caused the financial crisis.” Hahahaha!

“Temporarily overrode”! Hahaha! This is the economics of Larry Summers? Hahahaha! No wonder he wound up in the Obama administration! Hahaha! No wonder we are so freaking doomed!

I am struggling to contain my laughter, as I want to make sure that I write this down because people in the future are not going to be satisfied with me merely recalling the moment and laughing and guffawing all over again, but probably drooling more than I do now.

So I officially make note that Larry Summers, “Barack Obama’s top economic adviser” thinks that things will be better by having the government spend more money! Hahahaha!

This is after, I assume, getting it from the Federal Reserve, which can merely push a button to create all the money and credit one can even imagine, at perpetually low interest rates, so that untold trillions of dollars of new money can be borrowed from banks so that untold trillions of dollars in new Treasury bonds can be bought, worsening horrific imbalances that are already so staggering that they could only have been produced during rampant government corruption and/or pandemic stupidity! Hahaha!

I knew I could not get into the interview itself, and, as usual, am stopped long before I can even get near, although sometimes I can break free of the grasp of security guards long enough so that you can barely hear me in the background yelling, “We’re freaking doomed, you morons! The damned increase in the money supply by government deficit-spending will increase prices and produce Really, Really Weird (RRW) economic distortions!”

Well, this is not one of those times, and I couldn’t hear a thing they were saying, and thus they could not hear me, and I had to read in the Financial Times article that Mr. Summers says, in another of those things that must be written down because nobody is going to believe it, that “The US administration had no choice but to take strong public action to ‘save the market system from its own excesses.’” Hahahaha!

“Save the system from its own excesses” with more excesses! Hahahaha!

But this is not about how much disrespect I have for Mr. Summers’ opinion (because, as Milton Berle said, “Never trust the opinion of a man in trouble” as to the necessity of more governmental deficit-spending to correct the bankrupting imbalances of previous governmental deficit-spending until fully half – half! – of the economy is now composed of local, state and federal government spending, which is not even to mention all the borrowing by the local and state governments floating bonds to pay for sewers and fire houses and playgrounds where most of the “children” are probably drug-addled adolescent criminals and brain-damaged mutants, judging by the way they look, dress and act.

No, this is about how you should buy gold; but perhaps the best reason to buy gold is provided by Mr. Zuckerman himself, who says, “Since 1971, the dollar has been backed not by gold but by faith in the U.S. government”! Hahaha! Faith in the U.S. government! Hahahaha!

If anybody has any faith whatsoever in the U.S. government, then they have not been paying attention and deserve to lose their money, as the price of freedom, they say, is eternal vigilance, but that is not exactly true. It looks like the saying should be “The price of freedom is either eternal vigilance or all your money.”

The good news is that the real, lazy man’s secret is that gold is “eternal vigilance” in a handy, compact yellow metal, and sometimes, like now, you will actually get richer in terms of fiat money due to the depreciation of the over-produced fiat money!

Whee! This investing stuff is easy!

Source: There’s No Place Like Gold

This from Ted:

As you know, I’m a gold bug. I’m quite bullish on the yellow metal. I have been recommending gold since 2001 and I expect gold to run much higher. You should own some gold in your portfolio as an insurance policy, just in case the economy gets worse.

Gold is a safe haven in times of financial and geopolitical instability. Gold has often been nicknamed the “crisis commodity” since it tends to outperform other investments during periods of market distress and world tensions.

I mentioned in previous articles that a great way to own gold in your portfolio is to buy the SPDR Gold Shares (GLD).

You can even generate some income on your holdings in GLD by selling covered calls against it.

This simply means selling the right for someone else to buy your GLD shares at a specific price (strike price) until an exact date (expiration date).

Therefore, if GLD were to go up in price – exceeding the specific price (strike) and the buyer of the call exercises their option, you have to hand over your GLD, but you still make a nice profit.

The investor pays you money (premium) upfront no matter what happens with GLD.

If your GLD shares never trade for more than the strike price, then you keep the premium and your shares in GLD.

You want to get lots of cash (premium) upfront and still be able to profit if gold heads higher. So I suggest selling covered calls with a strike price about 15 to 20 percent above the current price of GLD. I also suggest options that expire 4 to 6 months out.

The drawbacks are that you cap the amount you can make in the position, but you can buy GLD back if your position is taken away from you, allowing you to maintain your exposure to gold. Also, if gold goes lower you will lose money but you will still keep the premium that you received by selling the covered calls. Please consult with your broker before acting on this strategy to see if it’s right for your financial situation. I want you to fully understand how covered calls work before you proceed.

Covered call selling can be a great way to reduce the average cost for your GLD position and boost your overall performance.

You can even earn more income using this strategy than from some of the highest dividend paying stocks around. This strategy is very attractive because option premiums are high right now.

Source: Earn Income on Your Gold

Business sales are down a couple of percent, factory shipments are down a couple of percent – which may explain why electric power is down about one percent – and all kinds of stuff are down, except, of course, the damned government payrolls.

Even retail sales are down 2.8% from September, and down a whopping 4.1% in the last 12 months. And as bad as that 4% drop is, Anthony M. Cherniawski of The Practical Investor newsletter notes that it is worse than it appears, as “these prices are not adjusted for price changes in the past year”, and if you look at the year-over-year 4.9% inflation statistic from the Department of Labor, as he did, then “That means retail sales, adjusted for inflation, are down 7.6%” in the last 12 months! Gaaahhh!

If people aren’t buying stuff, then this may have something to do with what I saw at Chartoftheday.com. They write, “It has been said that earnings drive the market. That may be so, but it has been the ongoing financial crisis that has driven earnings – off a cliff.”

And since, when examining my whole life, I can be characterized as “a paranoid, xenophobic, penny-pinching little tightwad, armed-and-dangerous gold-bug bastard going off the deep end again”, I am particularly attuned to other things that are “going off a cliff.” So I run to the tables in Barron’s, and I see that the earnings of the S&P500 – the 500 biggest corporations in the country – went down again last week to $46.10 from $51.37, a drop of about 10%! And $46.10 is a long, long, LONG way down from the $84.92 they made last year! Earnings have been cut almost in half! Wow!

And looking even more long-term, earnings of the S&P500 are back to where they were in 2000! Hahaha!

Naturally, being a scared and paranoid-yet-disagreeable little man who grows more so with every tick of the clock, I was trying to think of something clever to write that would convey both my Utter Mogambo Contempt (UMC) at anyone who thought that investing in the stock market over the long term was a good idea, and my Utter, Utter Mogambo Contempt (UUMC) at anyone who thought that placing all their retirement eggs in the stock market was a good idea.

This, of course, leads me to how the monstrous Alan Greenspan, while chairman of the abomination known as the Federal Reserve, irresponsibly created all the money and credit that allowed such rampant inflation in the prices of assets, so much so and for so long that it made such “invest for the long-term” idiocy actually seem possible; and then that naturally leads me to how Greenspan could not have done it without the despicable educational system graduating students who rank at the bottom of the world, the despicable news media for their gullibility and ignorance, and the despicable Congress in general (and Sen. Christopher Dodd and Rep. Barney Frank in particular) for being so stupid, incompetent and worthless as to allow the Federal Reserve to commit such monetary villainy, which naturally leads me to how even all these execrable halfwits, together, could not have done it if the damnable Supreme Court had not bizarrely ruled that FDR was allowed to corrupt the dollar by substituting a fiat currency instead of the strictures of the Constitution’s Article 1, Section 10 that mandated that only “gold and silver coin” will be money.

Then, predictably overwhelmed by the enormity of such supreme stupidity and total failure, I am soon angry and outraged, again yelling, “Damn them! Damn them all!”, shouting out revolutionary slogans and ranting, “To the bunkers! We’re freaking doomed, you morons!”

It was not until later that I learned that Chartoftheday.com also had a comment about the idea of “investing for the long-term” using these earnings numbers as a springboard, but which was a lot more calm, more nuanced, and classy, even though I could feel the marrow congeal in your bones when I read, “Altogether not a historically high number considering that it is merely 19% greater than where earnings were back in 1966.”

But I suppose it all proves, for the umpteenth time in history, that you cannot achieve prosperity by printing money, as James Grant, of Grant’s Interest Rate Observer makes perfectly clear in his article at online.wsj.com when he writes, “partly because there was no external check on monetary expansion, debt grew much faster than the income with which to service it. Since 1983, debt has expanded by 8.9% a year, GDP by 5.9%. The disparity in growth rates may not look like much, but it generated a powerful result over time. Over the 25 years, total debt – private and public, financial and non-financial – has risen by $45.1 trillion, GDP by only $10.9 trillion.”

And now total debt is north of 350% of GDP, the highest ever, and with a federal government putting us on the hook for another accrued $95 trillion or so in promised future benefits for which they will cause the necessary money to be created, then if that is not a Damned Good Reason (DGR) reason to buy gold, then nothing is! Whee! This investing stuff is easy!

Source: Corporate Earnings Go Cliff Diving

His line of argument makes sense in the strange, warped world that has emerged in 2008: If you throw billions at the empty suits who made high-risk loans and the empty heads who committed to them, how about making it easier for those who are willing and able to take out a solid mortgage… by reducing mortgage rates and fees and by “providing incentives such as a buyer tax credit for the purchase of all types of homes.”

Just like the U.S. car industry: Have Uncle Sam help out with some cash so unionized car workers can keep making cars.

From a practical point of view, they all have a point. The government will end up paying through the nose one way or another. It’s either soaring unemployment benefits, welfare and chronically reduced tax revenues as people abandon unaffordable homes and get laid off from bankrupt companies.

Or it’s lending debile companies billions of dollars you’re unlikely to see again.

But lowering mortgages further from near-historic lows and increasing your mortgage interest tax deduction does not create demand for houses. Nor do government-subsidized parking lots full of brand-new Suburbans. Even though my father-in-law assures me that GM is now producing the best vehicles ever…

For the simple reason that people don’t buy homes or cars when they’re unsure that they have a job to go back to a week from now.

We’ve entered a vicious cycle: If consumers don’t spend, employers cut payrolls. Unemployed consumers spend even less… and eventually default on loans and mortgages, bringing down home values, stock valuations, business and industry.

Someone upstairs has bumped into the universal “reset” button. And throwing good money after bad will not stop the chain reaction.

As a culture, we’re getting an object lession in the meaning of value. As I wrote in my Hot Trading Secrets in 2005: “Value is defined by what someone else is willing to pay, or by what someone wants to receive at any particular moment.”

There is now the chance that nobody is willing to pay anything. Zero, as in yesterday’s Deutsche Bank projection of GM’s share price, is now a likely valuation for all kinds of assets.

And that’s on a good day!

Value exists merely as the subjective perception that you can arbitrage an asset to your own benefit. That the house you sign over your savings and the bulk of your cashflow for will be cheaper than renting and higher in price in the long term. That the new car will lower your transportation cost, open up job options, or is cheaper than hair plugs. That the stock you buy will be worth more in the future than you spend on it now.

In that regard, we’re not so much looking at the destruction of valuation… but a zeroing out of the core concept of value.

Nothing illustrates this better than the development of oil prices. Driven to $147 by the expectation that even historic highs would prove to be value propositions, oil’s steep downward trajectory now points at a complete destruction of value. Brent crude oil prices today sank under $55 a barrel, a 21-month low.

On the NYMEX, light sweet crude for December dropped $4 to $58.32, the lowest level since March 21, 2007.

Like with consumer spending and GM stock prices, the bottom for oil is as elusive now as it was a month ago. My predictions of $50 oil, which elicited howls of protest just a month ago, now look like they are on the conservative side. Oil at $30… or even at $10 a barrel now are more probable than oil at even $100.

Which means we will see parity between the dollar and the euro by April 15… and a steep plunge in gold prices. Based on the recent oil-to-gold ratio, $50 oil would peg the gold price at $375. $30 would mean gold at $225. And $10 oil could mean gold at $75.

Goldbugs will argue that oil-to-gold ratios work only on their way up. Or that historically, it was twice the 7.5 factor we’ve seen in recent years.

Alright. I deal. Here’s that best-case scenario: At 15, twice of the average of recent years, we get $750 gold at $50 per barrel of crude oil. Sounds reasonable. But that still leaves us with $450 gold at $30… and $150 gold at $10.

Unreasonable? Gold bugs have selective memories. But in the past 30 years, gold prices have spent far more years below $500 than above. And more years below $400 than above $700.

Who, after all, will buy gold jewelry when the Arab States tally up their monthly maintenance bills for indoor skiing resorts?

Source: GM’s Zero Valuation: Portent of things to come

“Investors increase bets on US rate rise.”

Anticipating a rise in rates, rather than another cut, investors sold gold, bonds, and oil. The black goo lost $4 a barrel. Gold got slammed for a $23 loss, while yields on 10-year Treasury Notes rose over 4% (yields rise as prices fall).

Why would the Fed put rates up? Ah…that’s our story for today. It’s a story of numbskullery, tomfoolery, and chicanery…of vigilantes and blazing saddles…of war and forgetting. In short…it’s a typical financial tale, where nothing goes as hoped for…and everything goes as it should.

Let us back up.

Last year, we were writing about a ‘battle’ between inflation and deflation. The markets were deflating…but the feds were inflating. Who was going to win?

Actually, it was a mixed-up, woebegone war…with casualties all over the place and the average American household caught in the crossfire. The poor lumpenconsumer has been taking incoming from both sides for more than a year. His house sustained a direct hit from deflation. Then, his income got whacked by shrapnel from the dollar’s blowup.

Meanwhile, inflation blasts him with higher costs for just about everything – notably the essentials, fuel and food. What can he do but keep his head down?

And pity the poor guy who was lured out to a distant, new suburb by a big, new house with a big subprime mortgage! Now, he’s got to pay $4 a gallon to drive to work, while his house payment goes up and his house value goes down.

Naturally, the feds rushed to help the guy. His real problem was that he had too much credit…but didn’t stop them; they tried to give him more.

Still, when a bubble pops, it is almost impossible to pump it up again.

Henry Kissinger explains why in today’s International Herald Tribune :

“…the role of speculative capital has magnified. For speculative capital, nimbleness is the essential attribute. Rushing in when it sees and opportunity and heading for the exit at the first sign of trouble…”

Speculative capital is what the Feds create when they lend money below the inflation rate. It does not go out and invest in long term projects like steel mills. Instead, it looks for the hot, rising market…the one that will give it a quick payoff. The guy with the big house and the subprime mortgage was not really buying a house…he never paid for it. He was just speculating.

And now his speculation has gone bad…and all the Fed’s hot air goes into a new bubble. When the tech stock bubble popped, for example, the next big thing was a bubble in housing and housing-related debt. When the housing and subprime bubbles popped we guessed that the authorities would pump hard to try to reflate them…but that the Fed’s inflation would go into new bubbles – in commodities, oil, and gold. So far, so good. Oil slid up past $135. Gold shot up over $1,000. And food? Food prices are so high they’ve set off riots all over the world. The OECD says high food prices are here to stay. And farmers in Argentina are setting up roadblocks, again, to try to starve the capital into submission.

Getting back to oil…British truckers clogged up London earlier this week, demanding relief from high fuel taxes; truckers in Marseille shoved against riot police…again, complaining about the high cost of diesel fuel, which is running about $9 a gallon in France. We’re pleased to report than no mobs are forming to demand cheaper gold…but surely some bubble is in the yellow metal is bound to inflate sooner or later.

At the heart of the discontent is a very new, very disturbing, and very predictable fact: these new bubbles are not nearly as nice as the old ones.

*** The bubble in residential property made people feel good. They thought they were wealthy and thought they could ‘take out’ a little of that wealth and spend it. A bubble in oil is an entirely different matter. It makes people feel poorer every time they fill up their gas tank. And it forces them to cut back on spending rather than increase it.

Earlier this week we reported an historic downturn in Americans’ driving habits. For the first time since the ’40s, they’re seeing considerably less of the U.S.A. in their Chevrolets. This morning, comes this headline from Bloomberg:

“Sears posts net loss as consumers slow spending on clothing.”

They’re spending less on imports too – bringing the U.S. trade deficit to a 5-year low.

Remarkably, despite these huge victories for the forces of deflation, the U.S. economy is still growing and the stock market is not falling apart. The latest numbers from Washington tell us that GDP grew 0.9% in the last quarter, rather than the 0.6% previously reported. Knowing how the Labor Department suborns its numbers, however, we would want a good cross-examination before we believe them.

After the Fed intervened to save Bear Stearns, it looked for a while as if they had done the trick – as if they had succeeded in re-inflating the bubble in the financial industry. After the panic, the bank index rallied 22%. But now it’s given up almost all that gain. Banks are about 40% down from their high…amid talk of more pain and suffering in the industry. Wall Street, for example, said it had more layoffs coming later in the year.

Well, to be fair, the standard answer from those of us in the Outraged Lunatic Gold-Bug Fringe Element (OLGBFE) is that the loathsome, corrupt Fed will create the money and the loathsome, corrupt Congress will spend it, bailing everyone out, creating an inflation in consumer prices that will destroy the country, and thus we dismiss the whole thing with a casual wave of our hands as a fait accompli.

But perhaps it doesn’t matter anyway, as he says that when you notice that “the $436 billion the Fed has recently injected into our economy and the fact that it represents some 50 percent of the Fed’s balance sheet, a massive problem of relative size is manifest. It begs the question of whether the Fed has the resources to do anything but make a dent in the crisis.”

Half of the Fed’s stash of government debt has been used up already! Yikes! And how big is the entire rest of the Fed’s stash of government securities? A piddly $629 billion! Hahaha! This is what they have as a bulwark against a couple trillion dollars in housing losses alone, not to mention the losses on some of the other $700 trillion in global derivatives! Hahahaha!

Just as I was going to raise my hand to add this interesting little factoid to the mix, he cuts me off with the gloomy assessment, “Faced with these realities, it is unlikely that the Fed has much chance of averting a serious recession. If Congress fails to act soon, depression will threaten.”

By this time I am getting a little peevish that he, too, is worried about some stupid recession, when it is the inflationary impact of all of this dollar-and-debt creation that is the real killer! So I was just getting ready to give this Browne guy a lesson in economics, when he again anticipates me by saying, “In short, if we are to stall a depression, we must necessarily experience both far greater inflation and lower interest rates. The result will be renewed downward pressure on the U.S. dollar and the unseen erosion of U.S. dollar based wealth.”

And it is not just the American housing bubble that is giving us trouble and forcing us to endure higher inflation, or the British housing bubble, or the Australian housing bubble, or the Spanish housing bubble, or the Irish housing bubble, but if you want to read something really spooky, as a reader writes to Agora Financial’s 5-Minute Forecast, “I have seen no comments anywhere on the coming mother of all real estate bubbles: urban China. I live in Guangzhou, where a shoddily constructed three-bedroom apartment in a desirable locale is now costing 3-4 million yuan (approx. $430,000-570,000).”

To show the degree of speculation, he adds, “I sold my apartment last month for 30% more than I bought it six months earlier.”

And there is plenty of supply, too, as “Vacant apartments are ubiquitous. So is new building, however, driven on by a consortium of banks, municipalities and developers. Growth is fueled by speculators using funds borrowed from cash-flush government companies to buy and resell blocks of apartments.”

Well, speaking of “cash-flush government companies”, Doug Noland in his Credit Bubble Bulletin notes that the banks, now just another slimy part of a corrupt government, are still able to shovel money out of the doors, as “Bank Credit surged another $41.7bn (week of 3/19) to a record $9.490 TN. Notably, Bank Credit has now increased $277bn y-t-d, or 13.0% annualized. Bank Credit posted a 35-week surge of $847bn (14.6% annualized) and a 52-week rise of $1.154 TN, or 13.8%.”

This reminds me, with a shudder, that John Williams at his ShadowStats.com recently reported that his latest estimate of the broadest money supply, M3, is running at 20% annualized.

With all the losses and slow business conditions, it is easy to predict that tax revenues are down, and the increase in the federal government’s usual appetite for issuing new government debt is also easy to predict.

And so it is perhaps not too surprising that Junior Mogambo Ranger (JMR) Len S. picked up this interesting bit of news, “Beginning with the 13- and 26-week bill auctions of Monday, April 7, 2008, all Treasury marketable bills, notes, bonds and Treasury Inflation-Protected Securities (TIPS) will be available to the public in minimum and multiple amounts of $100. Marketable Treasury securities have been available in $1,000 minimums and multiples since August 1998.”

JMR Len figures that “the Treasury is NOT doing this out of the kindness of their hearts. By lowering the amount to $100, it opens up Treasuries to the smaller investors thinking this is a good deal”. To this, he adds True Mogambo Cynicism (TMC) when he says, “but if it was such a good deal, the big boys would have fought tooth and nail to keep it at $1000 per Treasury to keep the ‘good deal’ for themselves.”

He asks, “Could it be that the foreign investors have become so fed up with Treasury’s low interest rates after inflation is factored in, that foreigners are avoiding future sales of Treasuries in the near-to-long-term future?” Since I have no idea, I say, “Well, the money has to come from somewhere!”

If just won’t be enough. It can never be enough. And that is why we are doomed. Ugh.

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.

That’s why we’ve got two reverse-index gold ETFs to hedge our Gold-Bugs Portfolio. And they’re flying lately.

Alas, the brilliant yellow metal has pulled back sharply from its all-time high of US$1,034 an ounce intraday in March to US$891 this morning for the June gold contract.

The ongoing correction is part of a broader decline for raw materials that took hold of the markets just a couple weeks ago. Prices simply overextended their moving averages following a massive influx of investor capital.

May I say once again, corrections are perfectly normal in any bull market. And while some sectors look quite bubbly in the commodities realm, the rest of the complex should resume its bull market uptrend eventually.

Gold’s Taking a Much Deserved Rest

Please don’t be concerned. On the contrary, view any pullback in gold as a long-term buying opportunity. As gold continues to slide, look to increase or establish fresh positions when gold slides below US$875 an ounce.

I still see prices heading significantly higher 12-24 months from now. My forecast remains at least US$2,000 an ounce before this bull market is laid to rest.

I’m also expecting a short-term dollar bounce off these low levels. But any dollar rally will run out of gas if the Fed stubbornly sticks to its low interest rate monetary policy to heal the markets.

There is nothing to fundamentally support a secular bull market for the dollar – nothing. Two wars, massive twin deficits, ultra-low interest rates, a banking crisis – none of these events suggest long-term buying can be sustained, at least not until the Fed begins raising rates again.

Gold, of course, has been surging against the dollar since 2002. And it’s not rallying in just U.S. dollars, either. Gold prices have also soared versus all major currencies since 2005, including the mighty euro, yen and the Canadian dollar.

Other factors, apart from global currency weakness are at hand, and are pushing this gold bull market. These factors include grave supply problems in South Africa and reduced mining output worldwide. Plus, there’s a booming demand from investors seeking to hedge rising food and energy inflation and the worst banking crisis since the Great Depression.

Once again let me say: Buy gold at US$875 an ounce. Twelve months from now you’ll be glad you did.

ERIC ROSEMAN, Investment Director