Discount Gold and Silver Trading
A Weekly Newsletter for Sunday, March 4th, A.D. 2012
  Between Friday, February 24th, and Friday, March 2nd, the bid prices for:

Gold fell 3.4 % from $1,773.60 to $1,711.00
Silver fell 1.9 % from $35.41 to $34.73
Platinum fell 0.7 % from $1,707 to $1,695
Palladium rose 0.3 % from $708 to $710
DJIA fell 0.0 % from 12,982.95 to 12,977.57
NASDAQ rose 0.4 % from 2,963.75 to 2,976.19
NYSE fell 0.3 % from 8,151.96 to 8,125.17
US Dollar Index rose 1.3 % from 78.43 to 79.48
Crude Oil fell 2.1 % from $109.35 to $107.01

Recovery, Recession or Depression?

Edited by Alfred Adask

The New York Times reports ("President Officers Theme of Nation Seeing Comeback") that,
"President Obama has a new message: America has gotten its groove back.  Mr. Obama has seized on a narrative of national optimism in recent weeks, offering a portrait of a country that, guided by him and powered by the American worker, is making a comeback.
"In his State of the Union address in January, President Obama declared, 'Anyone who tells you that America is in decline or that our influence has waned, doesn't know what they're talking about.   America is back.'"
Obama's optimism is encouraging, but is it based on truth?  Is America really “back"? 

I.e., is the American economy in a state of: 

1) recovery (as Obama claims);

2) continuing recession; or

3) an economic depression?

You decide:

•  Last month, the AP reported, "Gasoline prices are highest ever for this time of year.  At $3.53 a gallon, prices are already up 25 cents since Jan. 1. And experts say they could reach a record $4.25 a gallon by late April. 

Reuters reported that, "Iran has stopped selling crude to British and French companies in a retaliatory measure against fresh EU sanctions on the Islamic state's lifeblood, oil."  The EU must now seek another source for the 700,000 barrels a day it's previously bought from Iran. 

The result should be an increase in the price of crude oil and gasoline.  If Iran degenerates into a shooting war, the price of gasoline should go even higher.   A recent headline from CNBC warned, "Get Ready for $5 Gas This Year: Ex-Shell CEO."  Subsequent reports have predicted $6 gas as possible.

It's generally agreed that gasoline prices above $4/gallon will precipitate serious public reactions.  People will cut driving to a minimum.  The less people drive, the less they’ll buy. As they drive less and buy less, total demand for goods and services tends to fall.

Are rising energy costs evidence (please check one) of:

___ Recovery     ___ Recession    ___ Depression?

•  We already see reductions in commercial driving.  The Ceridian Fuel Index tracks the consumption of diesel fuel by US truckers and is believed to be a leading indicator for the economy.   When that Index rises, the economy typically heats up.  When the Index falls, the economy declines. 

According to the Ceridian Fuel Index, truckers are using 2.2% less fuel than they did one year ago.  Most of that fall (1.7%) has occurred since last December.  This suggests that US economic decline has recently accelerated.

Is the fall in the Ceridian Fuel Index evidence (please check one) of:

___ Recovery     ___ Recession    ___ Depression?

•  The Baltic Dry Index is a shipping and trade index created by the London-based “Baltic Exchange”.  This index measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea.  When the global economy is booming, the demand and cost for shipping increase.  When the global economy is slowing, the demand and cost for shipping decline. 

The Baltic Dry Index currently indicates that global shipping is slowing dramatically—much as it did in A.D. 2008 before that year's economic "crash".  On February 3rd, the Baltic Dry Index fell to its lowest point in 25 years

Some economists excuse this decline by claiming there are too many ships and competition is so fierce that shipping costs are being cut.  But, in conjunction with other indications that the EU's GDP is declining, it appears that we may be witnessing a "double dip" in the global recession, and perhaps even the onset of a global depression.

According to the UK Telegraph, Asian shipping is also down:  "Shanghai shipping volumes contracted sharply in January as Europe's debt crisis curbed demand for Asian goods, stoking fresh doubts about the strength of the Chinese economy. . . . Container traffic through the Port of Shanghai in January fell by more than a million tons from a year earlier."

Are the current declines in the Baltic Dry Index and also in Asian shipping evidence that the global economy is in a state of (please check one):

___ Recovery     ___ Recession    ___ Depression?

•  Wherever you look, global economic activity appears to be slowing.  The UK and German economies both shrank in the last quarter of 2011.  CBS News reports that German industrial production fell 2.9% in December from the month before.  Whether this sudden decline is merely an aberration or evidence of things to come remains to be seen.  But, given that Germany is the principle industrial force in the Europe, this decline suggests that Europe is heading into a recession.

Bloomberg reports that "Irish home loans in arrears for more than 90 days rose to 9.2 percent at the end of last year from 8.1 percent at the end of the third quarter.  A total of 107,708 home mortgages, or 14 percent of the total, were either 90 days in arrears or had been restructured."  We can anticipate falling Irish home prices, more Irish foreclosures, loss of capital and less money available as credit for Irish consumers and businesses.  Less available credit implies further economic decline.

For Spain, Bloomberg reports, "Lending fell by 3.3 percent in December from a year before, the biggest drop since Bank of Spain records started half a century ago. Bad loans as a proportion of total loans rose to 7.61 percent from 7.52 percent in November as borrowing considered "doubtful" jumped from about 11 billion euros five years ago, before Spain's property crash, to 136 billion euros today. . . . The prospect of a protracted recession in Spain is curbing the appetite for loans and making banks more cautious about lending. The economy may shrink 1.5 percent this year while unemployment stands at 23 percent. Exane BNP Paribas predicts an economic contraction could stretch through 2013."

Recent European car sales have generally fallen—in some countries, dramatically:  Portugal, down 47%; France, down 21%; Italy down 17%; Belgium, down 16%; Cyprus, down 17%, Greece, down 13%; even Germany, down 0.4%. 

Are current declines in European economic activity evidence that the global economy is in a state of (please check one):

___ Recovery     ___ Recession    ___ Depression?

•  If European and/or global economic activity are in a state of decline, is that decline likely affect the US economy?  Is so, are declines in European or global economic output more likely to cause the US economy to go into a state of (please check one):

___ Recovery     ___ Recession    ___ Depression?

•  The U.S. has the world’s highest percentage of women taking antidepressants.  American kids are three times more likely to be prescribed antidepressants than European children. 

Millions of young Americans can’t find jobs once they finish school. More than 30% of those between ages 18 and 34 continue to live at home and remain financially dependent on their parents.  As financial dependents, these youths can’t buy new cars or new homes, and the economy tends to slow. 

The weight of economic stress is changing the American people’s demeanor.  As economic pressures build, desperate people increasingly resort to violence to survive.  Violent crime in Washington D.C. is up 40%.  Last year In Detroit, justifiable homicide rose by 79% and self-defense killings are now 2200% above the national average.  Nationally, gang membership has risen by 40% since A.D. 2009.

Does this evidence of growing psychological stress indicate that the US is in (please check one):

___ Recovery     ___ Recession    ___ Depression?

•   Today, about 300 American municipalities are in default on their debt.  As a result, municipal government employment and services (including police and fire departments) have often been reduced.  In extreme cases, some municipalities have nearly broken down.

For example, Alabama’s Jefferson County (pop. 658,000)—which includes the city of Birmingham—went bankrupt last fall.  The county is drowning under $4 billion in debt, the legacy of a big sewer project and corrupt financial dealings that sent 17 people to prison.  The County’s lawyers are negotiating with roughly 4,000 creditors from suppliers to hedge funds.  

After New York City ran into financial trouble in the ’70s, and Cleveland fell into a hole in the ’80s, the federal bankruptcy code was changed to ensure that certain types of muni-bonds would keep paying interest and principal even if the issuing government authority sought bankruptcy. 

OK—we have laws that require municipalities like Jefferson County to make good on at least some kinds of municipal bonds—even if they’ve filed for bankruptcy.  But you can’t squeeze blood out of a stone.  How will those laws be enforced if the County is truly broke?  Can Alabama or the feds raise taxes on a county that’s bankrupt and arguably already in a state of economic depression, and still expect to see increased funding for existing debt?   Isn’t it generally true that, no matter what the bankruptcy laws say, the municipal bonds issued by Jefferson County and other bankrupt municipalities will at least lose some value as those insolvent municipalities struggle to survive? As the municipal bonds of insolvent communities lose value, creditors will lose assets needed to make credit available to the public and businesses. 

Is the loss of value of at least some municipal bonds evidence that the US is in a state of (please check one):

___ Recovery     ___ Recession    ___ Depression?

•  According to Bloomberg, Decemberhome prices in 20 U.S. cities declined another 4% to the lowest level since the housing crisis began in mid-2006.  Foreclosed properties returning to the market mean prices will stay depressed, prompting buyers to wait for cheaper bargains. While people wait to buy, the demand for new homes falls.  Falling demand tends to push home prices even lower.  Lower prices tend to make people wait even longer . . . . 

A graph on page 102 of the White House’s recent Economic Report of the President indicates that during the Great Depression, housing prices across the nation fell an average of 10%.  During the A.D. 1990 California housing crash, California prices fell an average of 25%.  During the Boston housing crash in A.D. 1989, Boston home prices fell an average of 33%.  And in our current “Great Recession,” housing prices on a national level have (so far) fallen by 40%—roughly four times the price decline of the Great Depression.

Is the current decline in American home prices evidence that the US is in a state of (please check one):

___ Recovery     ___ Recession    ___ Depression?

•  The holdings of US T-Bonds by Russia and China are falling.   Russia has dumped US Treasuries for 14 consecutive months from $176 billion in October, A.D. 2010 to $88 billion today.  China has slashed its holdings since last summer.  In December alone, China dumped $32 billion in US T-bonds. The volume of this dumping process is unprecedented.

Bilateral trade agreements between Iran and India, China and Japan are being consummated in terms of each treaty-members’ own currencies or even gold—but without the intervention of US dollars.

As nations become less willing to purchase US Bonds, and begin to transact commerce without the intervention of US dollars, the dollar’s status as “world reserve currency” is diminished and increasingly tenuous.

Is the diminishing status of the US dollar as “world reserve currency” evidence that the US is in (please check one): 

___ Recovery     ___ Recession    ___ Depression?

•  The Federal Reserve is increasingly isolated as the primary purchaser of US bonds.

Suppose I was the only one who would cash my own checks.  What would that tell you about my solvency and value of my checks? 

The US/Federal Reserve is not yet the only entity that will figuratively cash "US checks" (actually, buy US bonds)—but the trend is pointing in that direction. 

What does that imply about the US's solvency and value of its bonds?

Insofar as the US government relies on loans from foreign creditors to enable at least some deficit spending, and insofar as the world is increasingly reluctant to buy US bonds, is that evidence that the US is in (please check one):

___ Recovery     ___ Recession    ___ Depression?

•  The New York Post reports in “Credit Card Debt Nears Toxic Levels” that,
“More American households are falling back into the debt hole, this time without the safety net of home values to help bail them out.  Last year, total US consumer debt reached its highest point in a decade . . . .  In December 2011, the total consumer debt rose by some 9.3 percent to $2.498 trillion . . . .  The trend—month to month, quarter to quarter and year to year—is rising steeply.
“These numbers . . . mean that many middle-class Americans are taking big risks.  In a weak economy with high unemployment, many people with big card balances become vulnerable to financial catastrophe.”
Is an increase in credit card debt evidence that the US is in (please check one): 

___ Recovery     ___ Recession    ___ Depression?

•  So, add ‘em up.  How many times did you check off “Recovery”?  How many times, “Recession”?  How many times did you dare check off the D-word (“Depression”)? 

Where do you think the US economy is?  Where do you think it’s heading?  Do you agree with President Obama’s merry optimism that “America is back” and we’re in a state of Recovery?  Or, do you believe we are still in Recession or perhaps even in Depression?

•  And for extra credit,” here’s one last question:  Come November, will President Obama be (please check one):

___ Reelected     ___ Voted Out     ___ Impeached?

For the best in pricing and service for gold and silver coins, call Melody at 1-800-375-4188. Be sure to listen to DGSTC live on Short-wave 7.415Mhz M-F 4:00PM ET, and 3.215 MHz M-F 11PM ET.

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