Estimated gold volume totaled 67,299 lots…which included 10,239 switches…as traders rolled over their May contracts into June and other months, rather than stand for delivery on April 30th. This same process is occurring in silver as well. Options expiry on the Comex [in both gold and silver] is tomorrow.

I was not impressed by the fact that the gold shares didn’t hold their gains in the last hour of trading as the Dow sold off. I don’t know if there’s anything to be read into that or not. The usual N.Y. commentator noted that…”Action like this usually heralds a serious bear raid.” We’ll see…as anything can happen around options expiry and first day notice. However, despite the gold shares’ poor performance, the silver shares did pretty well for themselves.

If you remember, Tuesday’s gold rally into the Comex open was subsequently hammered flat after that. Well, gold open interest actually rose 2,850 contracts to 339,226. Was it fresh shorting? Silver was also beaten down a bit on Tuesday, but not as much. Silver o.i. fell 422 contracts to 96,277. The cut-off for Friday’s COT was at the end of trading on Tuesday. Hopefully these numbers will be in it.

In other gold news, I see in the Comex Delivery Report for Wednesday that 56 gold contracts were delivered…and none for silver. As of the Comex open this morning, that leaves about 725 contracts left to be delivered in April. Over at the Comex-approved warehouses, silver inventories rose by 678,747 ounces…most of it into Scotia Mocatta. The U.S. Mint has updated its 1-ounce eagle production in both gold and silver…and they are as follows…one ounce gold eagles up another 44,500 last week…which brings the monthly total to 118,000. Silver eagle production rose another 575,000 to bring the April total to 1,868,000. We should get at least one more update before month’s end. There were no changes in either the GLD or SLV ETF’s alleged holdings.

The usual N.Y. commentator had the following comments yesterday…”On Tuesday, the European Central Bank’s weekly consolidated financial statement reported that a sale of gold by one captive CB produced a fall of €6.0 million (0.27 tonnes) in “gold and gold receivables”. Last week a 0.14 tonne sale was reported. The ECB itself has yet to run the 35.5 tonne sale of its own gold reported at the end of last quarter through the weekly statement (making a mockery of them). It did announce that the proceeds of gold sales have been ‘invested’ in dollars, a curiously indiscreet remark. Of course, reported sales are well below the amount notionally implied weekly pace of the second Washington Agreement on Gold. Also of note is the fact that the early rally in gold yesterday had the effect of taking The Gartman Letter out of its short position.”

Ted Butler sent an interesting piece my way yesterday. It’s the “BHP Billiton (NYSE:BHP) Production Report for the Nine Months Ended 31 March 2009″ Like Ted, I was only interested in their silver production numbers…and this [in a nutshell] is what it said… year/year silver production…down 11% [3.8 million oz.]…but compared to the prior quarter [Dec Q'08], silver production was down a whopping 24%. You can check out their production data on all metals. Except for natural gas and diamonds, their production is down across the board in just about everything. It’s the chart on Page 7 of this pdf file…and the link is here.

I haven’t had an ‘in other news’ paragraph for many a moon…but with so much happening, I just have to do one. In a marketwatch.com story…”Freddie Mac (NYSE:FRE) acting CFO found dead in apparent suicide”. I love the use of the word ‘apparent’. I wonder what dirty little [or big] secrets he took to his grave with him? In a story posted in The Wall Street Journal is the headline “GM Defaults.” It was only a matter of time, but now it’s official. The company CFO says the firm will not make its June 1st $1 billion debt payment. Let’s see what the bondholders do now. In a story in the New York Post yesterday, it was reported that The New York Times is facing “a cash crunch that could put it on the path toward insolvency.” [All the media, not just the print media, has seen their advertising revenues vanish. It's just as bad (if not worse) here in Canada. - Ed] And lastly, in a Bloomberg story I see that “Secretary of State Hillary Clinton said the U.S. effort to reach out to Iran will be coupled with the threat of ‘crippling’ sanctions should the regime in Tehran rebuff diplomacy to curb its nuclear program.” [I bet the boys in Tehran are just shaking in their boots...LOL! - Ed]

I have three stories today. The first was posted at upi.com and arrived in my in-box via Jim Sinclair over at jsmineset.com. Once again Hillary Clinton is beaking off about another country that represents a ‘moral hazard’ to the world. At first I thought she was going to discuss the United States…but no, it’s one of its own ‘allies’ or ex-’allies’…Pakistan. “Pakistan poses a mortal threat to the security and safety of our country and the world,” Clinton said. “And I want to take this occasion…state unequivocally…that not only do the Pakistani government officials, but the Pakistani people and the Pakistani diaspora … need to speak out forcefully against a policy that is ceding more and more territory to the insurgents…” It appears that, slowly but surely, the Taliban is taking over. The link to the story is here.

The second story was posted in London at news.bbc.co.uk…and is entitled “ ‘Deeper’ Recession Ahead Says IMF…” At the heart of the crisis is the continuing overhang of losses in the financial sector, which the IMF now estimates at $4 trillion, four times higher than it projected just one year ago. And it warns that the current outlook is “exceptionally uncertain, with risks still weighting on the downside.” [Ya figure! I'm sure glad these guys are here to tell us this. - Ed] I thank Brad Robertson for sending me the story…and the link is here.

My last article is posted over at garynorth.com. The headline itself is sure to raise the paranoia level of the average U.S. gold bug. It’s entitled “Why Gold Owners Are Targets of the Government”…and is a pretty good summary of the gold-price suppressing tactics of the central banks that GATA long has been publicizing. The link is here.

The money power denounces, as public enemies, all who question its methods or throw light upon its crimes. – William Jennings Bryan

As the IMF report mentions above…the current outlook is “exceptionally uncertain, with risks still weighting on the downside.” If they missed their guess by 400% in just one year…the mind boggles at the thought of how much they might be wide of that mark by this time next year…as this “greater depression” continues to gain strength. And, no doubt, a lot of governments [and their respective central banks] will burn their national currencies to the ground in an attempt to avoid the inevitable. I can’t think of a better reason to own gold and silver than that.

See you tomorrow.

Source: And Then There’s This…Thursday, April 23rd, 2009

I certainly can claim to be one of the early birds in detecting the strength of the movement towards Barack Obama. I am not sure that those early forecasts are of any importance except to the columnist himself, but they do reassure the writer that he, or she, is in touch with some sort of political reality.

On January 28th I wrote a column for the London Times, which started with the question: “Has Barack Obama developed the “Big Mo”, vital momentum that would take him through to the Democratic nomination, very possibly to the Presidency.” I answered my opening question in the last paragraph “Youth, idealism, style are powerful political weapons. On February 5th, we shall see whether they have captivated America. If they do, we shall find that they have captivated Britain as well. Barack Obama could have a message for us all.”

After Super-Tuesday, I went a stage farther. My opening sentence surprised many of my London friends and readers. I wrote that “it is hard to see who can stop Barack Obama becoming the next President of the United States…. Barack Obama has the future of America ahead of him.”

At any rate he has been fully tested by Hillary Clinton’s campaign. That had its own faults, and Bill’s interventions were usually disastrous, but we all came away with a new respect for Hillary’s resilience and endurance, even if many of us felt a great relief that she had lost. Now it is Obama versus McCain. Do I still feel that Obama is almost unstoppable, even though Hillary undoubtedly came closer to stopping him than I had expected?

There are of course inherent risks in being the first black candidate from a major party to be nominated for the Presidency. In 1968, the Vietnam primaries, Bobbie Kennedy, also a candidate of idealism, was assassinated. Separately from the primary struggle, so was Martin Luther King. Barack Obama is both black and idealist, a double challenge to the worst kind of American bigot. Everyone is aware of the risk, and nobody wants to talk about it.

There are other events which could change the ordinary pattern of political events, what the strategic study groups call “low probability, high impact events”. The classic low probability, high impact event was of course 9/11 itself. A crisis in the Middle East, or a terrorist attack on the U.S. itself could change the whole character of the Presidential debate.

However, these are not predictable events, they are merely conceivable possibilities. Outside those possibilities Senator Obama seems to me to be a very strong favourite to win the Presidency in November.

In the first place, he is the candidate of youth, idealism and change. Americans are tired of the Republican Presidency after two terms of George W. Bush. They are tired of the dynastic Presidency which proved a serious handicap to Senator Clinton. If she had won the Presidency that would have been the sixth successive term of the Bush or Clinton dynasties.

Senator McCain has much more experience of defence, and would be an impressive Commander-in-Chief, but he is already in his seventies – he is not a symbol of domestic renewal, because of his age. If the campaign concentrates on the recent Republican record, McCain will be hurt by that; if it concentrates on domestic issues, McCain is less attractive than Obama to the young and radical.

I still see Senator Obama as the candidate of change and vision. That was the appeal of John F. Kennedy. If America is tired of Washington cynicism, Obama is the Kennedy of the present generation.

William Rees-Mogg
The Daily Reckoning Australia

P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Source: Barack Obama is a Strong Favourite to Win the Presidency

That is, they were concerned Washington bureaucrats might restrict the free flow of the dollar and other currencies in and out of the United States.

I raised the issue during my Panama presentation last week because frankly, I’m also concerned about the decidedly anti-free market, anti-offshore statements and actions of both of the Democrat Party presidential candidates.

Failures at Economics 101

That dynamic novice economist and statesman, Sen. Barack Obama (D-Ill), has proposed inane legislation in the U.S. Senate that could disrupt American trade and business. His legislation would blacklist 30 or so foreign jurisdictions (Switzerland and Panama included) for the manufactured sin of imposing little or no taxes.

He would also require Americans to report offshore financial activity of every kind and give the U.S. Treasury unprecedented power to set new rules over such activity.

In 2004, Hillary Clinton, as New York senator, made offshore an issue claiming she wanted to close “loopholes” for “…people who create a mailbox, or a drop, or send one person to sit on the beach in some island paradise and claim that it is their offshore headquarters.” (She announced this while her husband was raking in millions from cozy offshore investments his rich, new cronies handed him.)

Indeed both wannabe presidents, Clinton and Obama have denounced offshore investments and financial activity. They’re trying to imply that the millions of Americans who freely do business offshore are engaged in tax evasion and hiding cash from the IRS.

That is simply untrue.

Thus the serious question: If, God forbid, either wins the White House, can currency controls be next? In fact, under emergency laws still in effect, a president can impose such controls by executive decree.

“Currency Controls” – What Are Those Again?

As you read this, keep in mind that we are not talking peanuts here – nearly US$4 trillion in foreign exchange moves in the global economy every 24 hours.

Free currency convertibility means residents and non-residents of a country are able to exchange domestic currency for foreign currency. That means you can trade the weak dollar for the strong euro, for example. But there are many degrees of convertibility, depending on how governments want to manipulate currency.

In the extreme case government regulations might limit or prevent currency or bank deposits from being moved out of the country. Other restrictions might include banning the use of foreign currency within the country or banning residents from possessing foreign currency, restricting currency exchange to government-approved exchangers, setting official fixed exchange rates, or restricting the amount of currency that may be imported or exported.

How Politicians Make Assets Worth Less

In the past, certain politicians have claimed the need to apply exchange controls to maintain “orderly capital flows” and preventing “runs” on a currency. That happens when businesses and individuals quickly sell the currency in exchange for another currency that is seen as more stable and valuable. Of course, such trades are the essence of the free market economy.

As the late Nobel Prize winner Friedrich von Hayek wrote in his 1944 classic, The Road to Serfdom, “The imposition of exchange controls leads to an instantaneous reduction in the wealth of the country, because all assets are worth less.”

Such controls have been especially appealing to unthinking politicians in countries with large balance of payments (imports vs. exports) problems. The U.S. trade deficit at the moment is US$272 billion so far for 2008 and amounts to many trillions over recent years.

Free market advocates disapprove of exchange controls because they restrict trade and business transactions, especially in a time of beneficial globalism. Free exchange of currencies allows instant capital flows. That expands integration of the international economy through trade, foreign direct investment, migration, and the spread of technology.

This recent world boom has been largely caused by developed economies integrating with less developed economies, using foreign direct investment, the reduction of trade barriers, and the “westernization” of these developing cultures. Free currency exchange is the life blood of this growth.

Controls Destroy Freedom

It is no accident that among the few countries now enforcing currency controls are some of the most tyrannical. These include China, Cuba, Libya, Myanmar (Burma) and Venezuela – and some whose economies would fare far better without controls – The Bahamas, South Africa, Argentina.

In Hugo Chavez’ anti-free market Venezuela, currency controls have produced shortages. They’re now lacking the basic foodstuffs such as milk, eggs and chicken, impeding imports and keeping out needed goods like capital machinery and spare parts out of reach for many businesses, which are now shutting down. In South Africa, a long-time system of dual currency controls has hampered growth and sustained a 25% unemployment rate, scaring away needed foreign capital.

Czar Nicholas II first pioneered limitations on convertibility in modern times. The Czar ordered the State Bank of Russia to introduce a limited form of exchange control in 1905-06. He wanted to discourage speculative purchases of foreign exchange.

Fortunately, the free market trend since the end of World War II has been to end exchange controls. Margaret Thatcher led the way in the 1970s. France abolished controls in 1990, after 44 years. The European Union’s adoption of the euro further did away with controls.

So could the U.S. buck the trend and start imposing these controls? Honestly, it is possible. History does not mean that statist politicians in America, hungry for more taxes to finance their radical spending, would shy away from imposing such controls – just as they repeatedly vow to “tax the rich.” All that it would require is the stroke of the new president’s pen.

What can you do about all this? If you are an American, know your candidates and cast your vote wisely this November. In the meantime, take advantage of your offshore financial freedoms while you still can.

BOB BAUMAN, Legal Counsel

Source: Attack of the Control Freaks!

• Lowe’s Cos. Inc. (LOW) coughed up a rough first quarter, reporting a 18% decline in profit as the declining U.S. housing market and weakened dollar cut customer spending. The No. 2 home-improvement retailer in the United States also lowered its full-year outlook and revisiting plans for store expansion, MarketWatch reported.

• Billionaire investor Warren Buffett told AFP that he’s backing Barack Obama for the presidency. Buffett said he’d offer support to either Obama or Hillary Clinton, but leaned in favor of the Illinois senator. “I will be very happy if he is elected president,” Buffett said.

• Microsoft Corp. (MSFT) is once again trying to team up with Yahoo Inc. (YHOO) though the renewed talks have not yet escalated to another takeover attempt. The Associated Press reported that discussions were revived Sunday, but Microsoft refused to offer up any specifics about the nature of the deal being explored except to say it involved bolstering the companies’ position in the online search and advertising markets.

• Office supplies retailer Staples Inc. (SPLS) yesterday (Monday) launched a hostile $2.34 billion bid for Corporate Express NV (CXP), as the Dutch office supplier was unwilling to negotiate, Reuters reported. Corporate Express rejected Staples’ $12 (8 euros) a share offer last week saying it significantly undervalued the company. Based on 182.848 million Corporate Express shares outstanding, the equity value is worth $2.26 billion (1.46 billion euros). Including net debt, the value is $4.3 billion (2.8 billion euros), Staples said.

• News Corp. (NWS) said yesterday (Monday) that it raised its stake in Premiere AG, a German pay-TV operator, to 25%, the Associated Press reported. News Corp., which previously owned 22.7% of the company, has been increasing its stake in Premiere since January, when it bought a 14.5% stake the from cable operator Unitymedia. Premiere has more than 4 million subscribers in Germany and Austria.

• Video game maker Take-Two Interactive Software Inc. (TTWO) once again rejected rival Electronic Art Inc.’s (ERTS) $2 billion hostile takeover offer. Due in part to the strength of Take-Two’s release of Grand Theft Auto 4, management recommended that shareholders not accept EA’s offer, Reuters reported.

• Pacific Ethanol Inc. (PEIX) shares more than doubled yesterday (Monday) as first quarter results beat expectations. The ethanol producer lost $35.2 million, or 90 cents per share, compared to earnings of $3 million, or 5 cents per share, for the same period the year prior, The Associated Press reported. But if not for a one-time charge of 96 cents, the company would have posted a first-quarter profit of 6 cents per share. Shares gained $1.94, an increase of 60%, to close at $5.14.

• Shares of for-profit education firm DeVry Inc. (DV) dropped yesterday (Monday) on news that the federal government is investigating the firm’s recruitment policies, The Associated Press reported. DeVry stock shed $2.47, a 4.36% decline to close at $54.20. DeVry has pledged to cooperate fully with the investigation.

Source: Global Investing Roundups: Tuesday, May 20th, 2008

Junior Mogambo Ranger (JMR) Phil S. sent me an article titled “Numbers Racket”, with the subtitle “Why the economy is worse than we know”, by Kevin Phillips, which first appeared in (I assume) Harper’s Magazine, and which I had talked about in a previous MoGu newsletter – although I forget which one, and I am not going to go find out because I can hardly stand to read that Stupid Mogambo Crap (SMC), as it is embarrassing enough to write it. I can only imagine your embarrassment in being caught reading it! Hahaha!

But this article is not about solving that old riddle, “Who is the most stupid: The Mogambo for writing his stupid crap, or the people who voluntarily read it?”, but about how I am glad JMR Phil sent it to me, because there was something in it that I had missed before, where the discussion turned to unemployment.

Mr. Phillips writes, “The series nearest to real-world conditions is, not surprisingly, the highest: U-6, which includes part-timers looking for full-time employment as well as other members of the ‘marginally attached,’ a new catchall meaning those not looking for a job but who say they want one”, and which is running at a frightening 9% unemployment.

Well, admittedly, this is not new, but the interesting part that IS new is when he writes, “Yet this does not even include the Americans who (as Austan Goolsbee puts it) have been ‘bought off the unemployment rolls’ by government programs such as Social Security disability, whose recipients are classified as outside the labor force.”

That’s right! There are lots and lots of people who no longer have to work because the government supports them! Too bad he doesn’t give an estimate of how many these are!

But the new unemployment numbers came out, and right off the bat I see that the Civil Labor Force went up by 173,000 and the number of Employed went up by 360,000, but Non-Farm Payrolls went down by 20,000 and Goods Producing Payrolls went down by 110,000! Huh?

Of course, nobody is surprised that government employment went up by 9,000 employees to 22,385,000, which is up 224,000 over the last year.

In fact, there are now more people on Government Payrolls (22,385,000) than Goods Producing payrolls (21,618,000)! Hahaha! We are so freaking doomed! What makes it So Damned Funny (SDF) is that a conceited, self-absorbed nation like America, that boasts how smart we are, cannot possibly realize the utter, utter stupidity of this! Hahaha! And yet, here it is! Dare I repeat myself that we are freaking doomed? Sure! We’re freaking doomed! Hahaha!

Agora Financial’s 5- Minute Forecast ignores my jocular outbreak and somberly reports that “The U.S. economy shed jobs for the fourth-straight month in April” which they say is important because “in post-Great Depression history, a four-month losing streak has always preceded a recession.” Yikes!

I am always interested in things that use “always” to describe them, which I have learned the hard way, such as “People always get upset when I tell them that they are stupid because they are not buying gold, even in response to Alan Greenspan of the Federal Reserve destroying the dollar by creating so much of them, so that the damned government can spend us into bankruptcy, and then they REALLY always get upset when I say that their stupidity has doubtlessly been passed along to their ugly, mutant children, who are, on average, the most ignorant, most stupid, most self-absorbed, most violent, most criminal bunch of worthless trash ever created in America, as indicated by standardized testing and personal experience, mostly from having a few of the rug-rats myself.”

And the fact that I “always” have to defend myself against these stupid people, including my own wife and kids to show you the kind of treachery I have to put up with around here every freaking day of my life, makes me perhaps a little more sensitive to the word “always” being featured so prominently in the snippet “a four-month losing streak has always preceded a recession.”

Maybe this “recession” thing is why the Labor Department reported that the U.S. lost another 20,000 jobs in April. In fact, the economy has shed 260,000 jobs since New Year’s Day!

I admire the way that John Williams restrains himself from busting out laughing as he says in his review of the government’s Payroll Survey that the “Bureau of Labor Statistics (BLS) reported a seasonally-adjusted jobs loss of 20,000 (loss of 28,000 net of revisions) +/- 129,000 for April 2008.” Hahahaha! Plus or minus more than 600% of the estimate? Hahahaha!

I instantly see how I can use this to my advantage the next time my stupid boss calls me into her stupid little office to get “on my case” about something. Like yesterday, for example, I could have used this fascinating and powerful technique when she called me in to ask me about losing the stupid Lindsey contract, which was because old man Lindsey had a “Hillary Clinton for President” campaign bumper sticker on his car, and so I politely told him that he was “stupid, commie-rat Marxist pinko collectivist low-IQ trash”, which he apparently took some exception to, and now it’s suddenly important to know how many OTHER contracts we lost because of me merely giving people what they deserve.

My first thought, of course, was to politely say, “None of your business, you stupid old cow, so shut up!”, but I realized it WAS her business, and, even worse, six other instances of this same thing instantly ran through my mind.

Today, now that it is too late to do me any good, I realize that I could have said, “How many others? None! Give or take six, which should be good enough for you because your own Leftist trash government says it is good enough when calculating employment!”

Saving this for another day, I now turn to the Birth/Death Model, which plays such a prominent role in the government’s calculation of employment, and which showed a surprising gain of 267,000 jobs, which is the biggest increase in the last 12 months! Wow!

Before you go off shouting “The recession is over! They’re hiring again!”, the Model showed that 45,000 jobs were added in Construction, which makes me laugh my Big Fat Mogambo Butt (BFMB) off, but not laughing in merriment and joy, but a dark and scornful laugh of contempt, because this would be the most jobs created in the Construction category in the entire last freaking year, which makes me laugh even harder and with more scorn! And LOTS more contempt!

Oddly enough, 83,000 jobs were created in the April’s Birth/Death Model in the category of “Leisure and Hospitality”, which I figure is a pretty good estimate of the number of women who have recently become prostitutes because they are so desperate for money! Welcome to the hell of inflation!

Until next time,

The Mogambo Guru
for The Daily Reckoning

The Mogambo Sez: I feel sorry for those who have not converted their wealth into gold, silver and oil. Not sorry enough to give them some of mine, however. Just sorry.

And I will feel sorry for them when gold, silver and oil make me rich and them poor. Not sorry enough to give them some of mine, however. Just sorry.

This week marked a milestone in the Western history. On the 5th of May 1789, the Estates General convened in Versailles.

In the popular mind, if there is one, mankind has been on a steady upward slant. From single-celled amoeba to Homo ergaster to Barack Obama…from the chubby carved madonnas found in caves to Caravaggio’s Madonna found in Sant’Agostino to Madonna herself, whereabouts unknown…from crossing the Red Sea out of bondage in Egypt to crossing the Rubicon to crossing the Delaware, it has been a march from the dark depths of history into the sunlight of modern democratic capitalism and consumer credit.

‘It’s all good,’ as they say in America.

Yes, of course, there are occasional instances of backsliding…even a Roosevelt or a Robespierre could be born with a prehensile tail. But the progress of the race continued. Tribal chiefs in skins gave way to emperors with purple on their backs. Wars, revolutions…one regime was replaced by a better one; tyranny butted heads with freedom until, finally, in the Year of Our Lord, 1989, the Soviet Union collapsed…leaving only one system resplendent, triumphant… modern capitalist democracy.

American intellectual Francis Fukayama, drinking too deeply from the victory cup, announced that history itself had come to an end. There would be no further need for wars or revolutions. Like Engels before him, he thought perfection had been achieved. In his mind, not only was he living in the best of all possible worlds, but it was a world that got better all the time. That was the real beauty of modern democratic capitalism; it adapted to change; it improved. “You can fool all of the people some of the time, and some of the people all of the time,” said Lincoln, putting his finger on it, “but you can’t fool all of the people all of the time.” Sooner or later, the residual wisdom of the masses will catch on to flimflam, in other words, and vote the rascals out. (Likewise, the process of what Schumpeter called “creative destruction,” assures that capitalism always sweeps away its old mistakes so as to make room for new ones.)

But the difference between democracy in theory and democracy in practice is like the difference between a filet mignon at the Ivy and a visit to a slaughterhouse. Watching the current U.S. presidential election, for example, calls for white rubber boots…and a good hosing afterward.

Both Hillary and McCain called for a “summer holiday” for the gas tax. Already, fuel costs only about a third of what it costs in Britain. And the effect of cutting taxes on gasoline would be so obviously negative, encouraging drivers to use more gas, even New York Times columnist Tom Friedman can see it is pandering to the voters: “This is not an energy policy. This is money laundering: we borrow money from China and ship it to Saudi Arabia and take a little cut for ourselves as it goes through our gas tanks.”

Of course, pandering and lying are what make modern elections more entertaining than an abattoir. But they’re also why capitalist democracies tend to cut their own throats. The politicians may be pandering, but the yahoo voters – as well as the powerful special interests – rarely turn down a chance to pick someone else’s pocket. And once granted, they never give it up. Then, the system doesn’t adapt to change; it tries to prevent it. No one wants a correction. Instead, the banker wants to borrow at lower rates. The homeowner wants to live in a house he can’t afford. The retiree, who forgot to save while he was working, wants someone else’s money to pay for his golden years. And each bailout, privilege, and giveaway brings the knife closer to the jugular.

Who can stop it? For every Paul Volcker and Tiberius Gracchi there are a hundred Alan Greenspans and Hillary Clintons. And the poor voter not only can’t tell them apart – he doesn’t want to. He’s chumped by his own vanity. On Election Day, the ultimate decider-in-chief looks in the mirror and sees a face as wise as Solomon and as good as Billy Budd. But when ballot box gives him a license to steal…he can’t help himself. That’s why every politician, from Caligula to Mussolini to George W. Bush, has found that the best policy is not to confront the mob, but to suborn it, with flattery, inflation and war.

One of the many low points in America’s campaign was reached when all three candidates appealed to fans at a Worldwide Wrestling extravaganza. All three candidates must have felt at home. Professional wrestling is a lot like a national election – staged, comic and appalling. There is probably no group of bigger cornballs outside a state legislature. But each candidate pretended to be just one of the rubes. Obama pronounced some forgettable words of feigned solidarity. Hillary said she was ‘ready to rumble,’ on their behalf. But John McCain (and his McCain-iacs) won the champion’s belt that night. Wrasslin’, he said, “is about celebrating our freedom.”

So spellbinding is the bright promise of democracy that generations of Frenchmen leapt to suicide to protect it. America’s current president has practically bankrupted the nation to try to implant it in Mesopotamia. And Republican candidate John McCain has made it the centerpiece of one of the most boneheaded proposals ever to come out of a presidential campaign. “A league of democracies,” says McCain, will provide a bulwark against tyranny and terrorism.

The 16th Louis called the Estates General for the same basic reason McCain wants a league of democracies – to try to adapt to new conditions while preventing things from really getting away from him. But the assembly soon spun out of control. The Old Order in France was no more willing to give up its ill-gotten gains than American voters are today. The system couldn’t adapt. In the end, Louis mounted the guillotine; sooner or later, so will modern democracy.

Until next week,

Bill Bonner
The Daily Reckoning

Editor’s Note: Don’t forget – you can hear Bill speak at this year’s Agora Financial Investment Symposium in Vancouver, British Columbia. This year’s theme is “View from the Peak: Seeking Profits in a time of Risk and Scarcity” – and it’s your first look at investment opportunities, global market concerns, and the best investment bets across the globe.

The Symposium takes place July 22nd and July 25th, 2008…but tickets are sure to sell out, so secure your spot today by clicking here for all the details:

Agora Financial Investment Symposium – July 22-25

Bill Bonner is the founder and editor of The Daily Reckoning . He is also the author, with Addison Wiggin, of the national best sellers Financial Reckoning Day: Surviving the Soft Depression of the 21st Century and Empire of Debt: The Rise of an Epic Financial Crisis .

Bill’s latest book, Mobs, Messiahs and Markets: Surviving the Public Spectacle in Finance and Politics , written with co-author Lila Rajiva, is available now by clicking here:

Mobs, Messiahs and Markets 

The financials appear to be reversing.

Just over 10 days ago, in a TD episode titled “Wait for a Reversal as Fed Folly Spreads,” we advised waiting for the rally in the financials to peter out… thus setting up a chance to short them again.

Here’s a chart of the financial SPDR (XLF:NYSE) as of Thursday’s close.

Two things are noticeable here. First, XLF has failed to hold the breakout attempt above its previous ceiling. Second, XLF has failed — yet again — to sustain a move above the 20- and 50-day moving averages (the red and blue lines). The Philly Bank Index shows a quite similar pattern to XLF.

As Hillary Clinton now knows, failure to follow through on a rally attempt is bad mojo indeed. A quick plunge lower isn’t guaranteed, of course. But nonetheless, this is a nice short setup. There will be some bearish trigger-pulling here soon.

Why is the rally failing? Perhaps because — surprise, surprise — the worst of the crisis is still to come.

On news of insurance giant AIG’s record $7.8 billion loss, The Wall Street Journal noted, “While the credit crunch may be easing on Wall Street, it appears to be tightening elsewhere. In the past week, U.S. regional banks have reported big losses and announced plans to raise fresh capital.”

So apparently there are more shoes to drop (big ugly ones, too). Gee, no one was expecting that, huh? Oh wait, that’s right… we were.

Part II of the China discussion, coming your way next week.

Last Friday, we discussed “The Riddle that is China.” As it turns out, more than a few Taipan Daily readers have spent time in China, and your experiences run the gamut.

Some of those responses will be served up next week — the good, the bad and the ugly — and we’ll also take a closer look at “how China did it.”

Jesse Livermore quotes are coming your way, too.

In Monday’s piece, “Playing the Odds Game,” I made note of the best trading book ever written, Reminiscences of a Stock Operator. The book, first published in 1923 and still in print, tells the story of the great trader Jesse Livermore. The response to my offer of Livermore quotes was overwhelming, so we’re working on that. Look for those quotes to be available soon.

Behold the “New Dow Transportation Index.”

Are the major market averages in a bear market? By some measures, yes; by others, no. We’ve certainly seen plenty of sectors and industries go their separate ways. In this 21st-century environment, it no longer makes sense to think in terms of all stocks going up or all stocks going down.

Bryan Bottarelli, of Bottarelli Research, believes that the major averages are NOT in a bear market. (The use of capital letters is his.)

Is he right? Hard to say. His conclusions are based on Dow Theory — a market discipline that makes sense to some and leaves others cold. (As for me, I prefer to avoid rigid classifications as a matter of habit… As Albert Einstein noted, “Things should be made as simple as possible, but not simpler.”)

Regardless of your opinion on Dow Theory, though, chances are you’ll find Bryan’s take on the “New Dow Transportation Index” interesting… and you’ll want to hear about the two small-cap stocks he’s recommending, both sporting 10%-plus dividends.

I woke up in the famous Mogambo Fortress Of Paralyzing Fear (MFOPF) just before dawn, bathed in sweat after another restless night of nightmares about inflation. The nightmares come in two varieties, in case you were wondering. The first variety is that my wife, children, family members and creditors are all demanding that I give them more and more money, while social workers and judges are standing behind them, urging them on, and I am running and running, but I can’t seem to get away. Over my shoulder I yell “You’ll never take me alive!” and they all yell back, “That suits us fine, you Stinking Mogambo Tightwad (SMT)! We just want your money!” and I scream and scream and scream at the prospect.

The other variety of nightmare is that little microbes that look just like Alan Greenspan (former chairman of the Federal Reserve whose insane monetary policies have destroyed the dollar and the American economy and have condemned us, for One Big, BIG Thing (OBBT), to death by inflation in consumer prices, and God knows what all else, too, because there will be lots of “elses”, all of them bad) are literally eating my internal organs, which causes an intense pain in my wallet, and I am running from doctor to doctor looking for a cure, but all the doctors look like Hillary Clinton shrilly demanding everything I own (probably because her bright idea is to come up with more and more unfunded mandates to force more and more healthcare providers to provide more and more healthcare to anyone who asks for it, whether they can pay or not, which they can’t, or they don’t, which is why they all turn to me to pay for everything, which is probably why I am having this nightmare all the damned time).

But now awake, I brushed the sleep and tears from my swollen eyes and yelled into the intercom for somebody to please bring daddy a cup of coffee (”Or else!”), when I noticed that it was quiet. Too quiet. And anybody who has ever seen an old movie on TV knows that when things are quiet, too quiet, it means danger, mostly in the form of bullets or arrows suddenly flying your way, at which point you turn to your own bullets and arrows, and it’s a hell of a tussle from then on.

Sure enough, no sooner had I decided that I did not have enough bullets and arrows in prepared response to this sudden quietude than I discover the reason for the quiet; Total Fed Credit at the Federal Reserve was down by $4 billion last week! And the total amount in this fount of miraculous credit is seemingly stuck at $864 billion, which is not only down for the freaking week, but is also down since last freaking YEAR at this time!

My hands shook so much at this news that I dropped some bullets and arrows, which is usually a bad thing to happen. The reason for my being so startled was that this Total Fed Credit is the magical stuff from which loan-able funds magically appear on the books of the banks, which is turned into money when somebody borrows it from the bank.

That’s how the money supply grows these days, which means that money literally comes from debt, as unwholesome and bizarre as that sounds, and as unwholesome and bizarre as that actually is. But this is not leading to one of my Predictable, Loud And Tiresome Mogambo Editorials (PLATME) about the absolute stupidity of the fake, fiat money that we use as currency, or the sheer preposterousness of allowing the banks to act so stupidly in creating so much money and debt, or about sheer insanity of disregarding the requirement, per the Constitution, that money be only of silver and gold so that money would not lose buying power due to over-issuance of money, mostly because that boat has sailed and now we are freaking doomed.

Instead, this is about the terrifying ramifications of not doing it anymore, as seems to be the case, which is where we find out exactly what is meant by the word “doomed”.

In short, once you get started with an idiotic economic system like this, debt must never stop growing because everyone owes both the money AND interest, and that means that money must never stop growing, even if you are just paying the interest that is due this money that was borrowed!

Therefore, your blood should run cold when you see that Total Fed Credit, the actual source of new dollar debt, it is not growing. As I was contemplating how my blood got suddenly colder, I was taking a long pull from a bottle of really cheap tequila to try and calm my ragged nerves about this lack of additional TFC thing.

It didn’t work. I just got sloppy drunk. And I dropped the bullets and arrows again, which, fortunately, stopped it from being quiet, too quiet. But I am still, obviously, nervous and drunk, and for good damned reasons, too. I think I’m going to puke, and for a lot of reasons, too.

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.

“We’re going to go right at OPEC,” she said. “They can no longer be a cartel, a monopoly that get together once every couple of months in some conference room in some plush place in the world, they decide how much oil they’re going to produce and what price they’re going to put it at,” she told a crowd at a firehouse in Merrillville, IN.

“That’s not a market. That’s a monopoly,” she said, saying she’d use anti-trust law and the World Trade Organization to take on OPEC.

The attack on OPEC and evil oil speculators is a powerful piece of posturing. But according to Doug Casey at CaseyResearch.com, Hill may not have such a high profile target for long, as analysts remain confused over the direction of oil.

This from Doug:

On the one hand, “It just doesn’t look like this market is getting ready to turn around and go down for a long term,” said Darin Newsom, of commodities information provider DTN. “The news in Iraq helps confirm there are still problems on the supply side.”

But on the other, “If the rally in the U.S. dollar index gains momentum and money begins to come out of crude oil, the bearish technical signal established this week could lead to a larger selloff ,” Newsom said.

The papers are so full of claptrap and humbug this morning…we don’t know what to laugh at first.

There is Hillary’s proposal for a ‘Gas Tax Holiday,’ for example. The initiative is so absurd that even trained economists can see through it. Alice Rivlin, Bill Clinton’s former budget director said she was “appalled” at what “looked like pandering.” One hundred economists signed an open letter criticizing the proposal – pointing out the obvious, that it would increase driving and divert money now going to the U.S. government to the governments of Arab oil exporters.

Obama has an advantage; Paul Volcker is advising him. So, we can expect a little better. But little better is what we get. Obama proposes a cut in the payroll tax (which finances Social Security) – up to $1,000 – to help families “offset the cost not only of gas, but of food.”

As we have said many times, we never met a tax cut we didn’t like. But what troubles us is: where are the cuts on the other side of the ledger? If Social Security has less money, how will it keep up with baby boomer retirements?

The weekend press tells us that people are beginning to worry about whether they’ll be able to retire at all. The middle class counted on rising house prices. But now house prices are going down. What are they going to do?

They’re going to start saving, is the answer. “Consumers to the sidelines,” says a Wall Street Journal headline. “Americans cutting back for Mothers’ Day,” says a headline in the Los Angeles Times.

You will recall why stocks were certain to go to the moon, dear reader. It was “Dow 36,000″ for sure – because the baby boomers had to put money in stocks so they could retire. When that mirage disappeared, they turned to residential real estate. People figured that they could buy an extra house at the beach. They would enjoy it on weekends and holidays…and then, when the time came to retire…they could sell the main house and live off the proceeds. That strategy too was fine – as long as prices were rising.

And now the boomers find them themselves with no easy way to finance their golden years. (They should have bought gold when we first suggested it!) What can they do? They have to resort to the old-fashioned, tried and true method – thrift and savings.

Here, we will spell it out:

You take the total amount of income, after tax. Then, you subtract the total amount you spend. If the result is a positive number, at least you are headed in the right direction. If it is a negative number, we suggest you apply for a job in government…maybe with the Council of Economic Advisors or the Congressional Budget Office. Besides, the federal retirement system is the most generous one around – outside of Wall Street.

Yes, dear faithful reader…the economy is getting a nip on the derriere. The consumers who spent what they didn’t have are now forced to save the little they do have. Result: the consumer economy is slowing down. The bubble has sprung a leak…and the feds desperately try to keep pumping it up. (More below…)

But forget the math…forget the ledgers…there’s an election to be won…and faint humbug n’er won fair voter. No, the way to win is to go all out…tell the biggest lie possible…promise the moon…and pretend to be something you are completely and emphatically not.

George W. Bush, for example – son of a CIA Chief, Vice President and then U.S. president, educated at Andover, Yale and Harvard, from one of America’s richest, most elite New England families – passed himself off as a straight-talking yahoo in a cowboy hat. Now, both Obama and Hillary are trying to pretend that they feel the working classes’ pain. Hillary appeals to the redneck instinct for toughness; she will “obliterate” Iran if it lays a hand on Israel, she says.

(Why the yahoos from Kentucky should care what goes on between Israel and Iran has never been fully clarified…but in the final days of imperial grandeur no sparrow can fall anywhere in the world without setting off sensors in the Pentagon…and eliciting a rapid response from the military/industrial/political complex!)

Obama, meanwhile, can pretend to be a man of the people too. He drinks beer, when the occasion calls for it… and shoots hoops with the locals. Of course, neither politician would probably give the blue collar workers the time of day were it not for the fact the yahoos are likely to vote tomorrow.

Yes, dear reader, tomorrow is now the big day…the showdown between the two democratic candidates. If Obama wins big…he can say goodbye to Hillary. If the Clintons win big, they could still win the nomination…and probably, the election. At least, that’s what the pundits say…

And so we see how democracy really works…by flimflam and bamboozle.

*** We have set up shop in a café near Auteuil in Paris…copy of the International Herald Tribune in hand…and someone’s wifi connection at our fingertips. It is a delightful spring morning in Paris…the chestnut trees are in flower…birds sing, the sun shines, and beautiful women amble along the sidewalk.

We had a café crème and a croissant…and then, we were enjoying the view so much, we ordered another. The waiter brought a check – the damage was just $15, very reasonable, under the circumstances.

The relevant circumstance is that the price of food is soaring everywhere. The grains are selling near record prices…and so is oil. This is no laughing matter. Food is a relatively minor part of our own family budget; the rising prices are only a nuisance. But a news report from Reuters tells us that 20% of Asians live on less than a dollar a day. Many are farmers with their own local supplies of cheap food. But more and more of them live in cities and pay global prices for their daily bread.

Rising food prices are producing famine-like conditions for many of these poor people. For others, they are wiping out years of financial progress, creating what Reuters calls a “Poverty Time Bomb.”