It boggles the mind that the United States, along with the rest of the world, could find itself in the budget mess we are now in. For current information on the nature, size and difficulty of the budget deficit, yesterday's blog is a great place to start: http://markostake.blogspot.com/2010/05/us-budget-deficit-continues-to-spiral.html.
The solution is a lot easier than one might think. In fact, just about anyone, on an individual level, has found themselves in a similar position: too many bills, too much debt and not enough income.
The difference is that NONE of us can print money and/or change the rules so as to circumvent the system. Uncle SAM can do both. Although NEITHER are appropriate options and NEITHER work.
Step 1: Change incentives to REWARD productive behavior and PUNISH suboptimal behavior. Sound tough? Hardly! As Milton Friedman pointed out time and time again in his prolific writings, if you want more of something, SUBSIDIZE IT! If you want less of something, TAX IT!
Here are some real life examples of how this has worked in the past. A couple of decades ago, it was common practice to subsidize dairy farmers. The result? A surplus of milk and cheese. Milk had to be poured down the drain to keep prices from crashing and cheese was given out from huge warehouses. The oversupply of Milk, in turn, caused farmers to convert dairy cows into hamburger - thereby putting pressure on meat prices. Instead of helping farmers, the "invisible hand" of government stupidity slapped them in the face.
In the case of oil, the decision was made to impose possibly one of the most idiotic taxes ever created: the Windfall Profits Tax. Used as a method to PUNISH the oil companies, the tax was levied to keep them from profiting on the Middle East Oil Embargo. The result? A complete cessation of drilling, at a time when new sources of oil were desperately needed to be created. Once President Reagan ended this tax immediately upon taking office, the price of oil crashed soon thereafter and the next 25 years were marked with ample and cheap oil supplies.
This brings us to the utterly counter-productive income tax system. Taxing the "rich" is nothing more than a means to curry political favor among the public, which doesn't understand that only the successful are in a position to create jobs. The result? Fewer productive people working less at creating jobs and more at discovering tax loopholes. Less time spent building business and developing technological innovation. LESS, not more income taxes generated.
As for the other side of the coin, WELFARE subsidizes the non-productive. The result? More people on Welfare! And, more people who become "addicted" to the lifestyle of receiving handouts for fear of losing their benefits should they be able to return to the workforce.
The solution? A NEGATIVE Income tax. First proposed, to my knowledge, by Milton Friedman, the Negative Income Tax would provide a base level of support without strings, thereby eliminating the need for most, if not all, assistance programs.
Here's how it would work: Set a base level of income of, say $50,000 per year. Anyone below that level would qualify for some support. The negative income tax would be applied to any shortage of earnings below that level. For example, if someone earned $30,000, they would receive some subsistance. Using a negative tax rate of 25%, the individual would recieve $5,000 (($50,000 - $30,000) X .25)). The individual would still keep 75% of additional earnings up to $50,000 and pay the normal income tax rate on anything earned ABOVE that level. So, instead of being incentivized to stay home and do NOTHING, the person is rewarded for at least doing something. Society, as a whole, is much better off.
In addition, by being a CASH distribution without strings, the Negative Income Tax would not interfere with the allocation of resources. Take Medicare... PLEASE! Because health care is subsidized, it is OVER-consumed by beneficiaries - which results in the entire health care system being stressed to the point of malfunctioning. If consumers were allowed to CHOOSE the level of healthcare they wanted, the system would be in balance and we wouldn't need to create government behemoths like Obamacare.
Just fixing the reward system, by itself, would go a long way toward generating economic growth, lowering un- and under-employment and alleviating the economic distortions caused by the interference with a free market.
Tomorrow, we'll tackle the next part of "Fixing The Budget Mess" by reviewing the issues of entitlement spending, which now consumes more than half the budget.
Marko's Take
Our new You Tube channel and our video blog series is designed to focus on topics such as solutions to the problems facing us as a society. The next episode, due to be posted shortly, is entitled "Social In-Security: The Solution" and goes through a 7-step solution to undo this ill-concieved and immoral wealth transfer scheme. Currently posted is "Social In-Security: The Problem" which can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Saturday, May 15, 2010
Friday, May 14, 2010
U.S. Budget Deficit Continues To Spiral Out Of Control
Yesterday, we wrote about the huge budget deficits plaguing the Euro-Zone. Greece, the center of attention, has a budget deficit equivalent to approximately 14% of Gross Domestic Product (GDP). The United States, thought to be much more fiscally prudent, is current running a deficit of 12% of GDP. Latest monthly budget numbers for April indicate a rapidly deteriorating fiscal situation.
The United States posted an $82.69 billion deficit in April, nearly four times the $20.91 billion shortfall registered in April 2009 and the largest on record for that month, the Treasury Department reported on Wednesday.
It was more than twice the $40 billion deficit that economists had forecast and was ominous since April marks the filing deadline for individual income taxes that are the main source of government revenue.
In prior years, there was a surplus during April in 43 out of the past 56 years. The government has now posted 19 straight monthly budget deficits, the longest string of shortfalls in history.
For the first 7 months of fiscal 2010, which ends September 30, the cumulative budget deficit totaled nearly $800 billion, down slightly from $802.3 billion in the comparable period of fiscal 2009.
Outlays during April rose to $327.96 billion from $218.75 billion in March and were up from $287.11 billion in April 2009. Government spending for April was a historical record.
Receipts in April were $245.27 billion, up from $153.36 billion in March but lower than the $266.21 billion taken in during April 2009. The year-over-year reduction reflects lower income tax collections as receipts from individuals fell to $107.31 billion from $137.67 billion in April 2009.
Historically, the current deficit is the highest as a percentage of GDP with two exceptions: toward the end of World War I when it hit nearly 12% in 1918 and then 17% in 1919. During World War II, the deficit exceeded 20% of GDP from 1943-5, peaking at nearly 30%.
Post Second World War, the percentage hasn't breached the 10% level until this year when it is expected to hit 12%. In 2009, it came in just under at 9.9% of GDP.
One of the major stumbling blocks to deficit reduction is the composition of the budget itself. More than 60% of the deficit is made up of non-discretionary items such as Medicare, Social Security, Welfare and interest on the National Debt.
The math gets very ugly here. Total spending is running at $3.8 trillion. The deficit is expected to reach $1.5 trillion this year. Even if defense were cut ENTIRELY to zero, the defict would STILL EXCEED $500 billion! If all non-discretionary spending were cut to zero, the budget would barely balance.
The math gets even uglier. The bulk of Government spending is destined to rise sharply without a major and politically unacceptable restructuring. Social Security and Medicare cater to the old who are the fastest growing demographic.
Interest on the National Debt has been kept artificially low because of the ZERO interest rate policy of the Federal Reserve. Even if rates stay low, this year's deficit alone will result in an increase of more than 10% to the National Debt. So even if rates DON'T rise, the interest portion will still grow by leaps and bounds. Once rates do rise, the interest portion will explode and constrain future policy makers even further.
The freight train also known as government spending can only climb on a parabolic path without a major overhaul of the entire government. As unemployment is expected to stay high for an extended period of time, the U.S. can't look to income taxes to make up the growing shortfall. Clearly, the day of reckoning is fastly approaching.
Marko's Take
For readers with a more political bent, our new You Tube channel has video blogs covering "Peak Oil", the Federal Reserve, the Legality of the Personal Income Tax and Social Security. You can access these and the others to follow in coming weeks by clicking here http://www.youtube.com/markostaketv.
The United States posted an $82.69 billion deficit in April, nearly four times the $20.91 billion shortfall registered in April 2009 and the largest on record for that month, the Treasury Department reported on Wednesday.
It was more than twice the $40 billion deficit that economists had forecast and was ominous since April marks the filing deadline for individual income taxes that are the main source of government revenue.
In prior years, there was a surplus during April in 43 out of the past 56 years. The government has now posted 19 straight monthly budget deficits, the longest string of shortfalls in history.
For the first 7 months of fiscal 2010, which ends September 30, the cumulative budget deficit totaled nearly $800 billion, down slightly from $802.3 billion in the comparable period of fiscal 2009.
Outlays during April rose to $327.96 billion from $218.75 billion in March and were up from $287.11 billion in April 2009. Government spending for April was a historical record.
Receipts in April were $245.27 billion, up from $153.36 billion in March but lower than the $266.21 billion taken in during April 2009. The year-over-year reduction reflects lower income tax collections as receipts from individuals fell to $107.31 billion from $137.67 billion in April 2009.
Historically, the current deficit is the highest as a percentage of GDP with two exceptions: toward the end of World War I when it hit nearly 12% in 1918 and then 17% in 1919. During World War II, the deficit exceeded 20% of GDP from 1943-5, peaking at nearly 30%.
Post Second World War, the percentage hasn't breached the 10% level until this year when it is expected to hit 12%. In 2009, it came in just under at 9.9% of GDP.
One of the major stumbling blocks to deficit reduction is the composition of the budget itself. More than 60% of the deficit is made up of non-discretionary items such as Medicare, Social Security, Welfare and interest on the National Debt.
The math gets very ugly here. Total spending is running at $3.8 trillion. The deficit is expected to reach $1.5 trillion this year. Even if defense were cut ENTIRELY to zero, the defict would STILL EXCEED $500 billion! If all non-discretionary spending were cut to zero, the budget would barely balance.
The math gets even uglier. The bulk of Government spending is destined to rise sharply without a major and politically unacceptable restructuring. Social Security and Medicare cater to the old who are the fastest growing demographic.
Interest on the National Debt has been kept artificially low because of the ZERO interest rate policy of the Federal Reserve. Even if rates stay low, this year's deficit alone will result in an increase of more than 10% to the National Debt. So even if rates DON'T rise, the interest portion will still grow by leaps and bounds. Once rates do rise, the interest portion will explode and constrain future policy makers even further.
The freight train also known as government spending can only climb on a parabolic path without a major overhaul of the entire government. As unemployment is expected to stay high for an extended period of time, the U.S. can't look to income taxes to make up the growing shortfall. Clearly, the day of reckoning is fastly approaching.
Marko's Take
For readers with a more political bent, our new You Tube channel has video blogs covering "Peak Oil", the Federal Reserve, the Legality of the Personal Income Tax and Social Security. You can access these and the others to follow in coming weeks by clicking here http://www.youtube.com/markostaketv.
Thursday, May 13, 2010
PIGS Go To Slaughter
Now that the Greek bailout has been undertaken, the marketplace is turning its attention to other nations believed to be under economic or financial stress. The term "PIGS" originally referred to the "fearful foursome" of Portugal, Ireland, Greece and Spain. Italy has appeared to be on the verge of joining this uneviable assemblage of financial wreckage - creating the revised "PIIGS".
As has been written here in recent weeks, the so-called austerity program enacted by Greece is a farce. It is hardly "austere" to force lazy government workers to actually work! It is hardly austere to reduce the absurdly generous early retirement packages which allow some civil servants to retire as young as 45. Where can I sign up for that deal?
The other PIGS are now enacting their own "austerity" measures in an attempt to be more pro-active before their nations hit the crisis fever that was triggered by the Greek financial meltdown.
José Sócrates, Portugal’s prime minister, is expected to announce tough new austerity measures today, including a “crisis tax” on companies and wages, to reduce the country’s massive budget deficit.
Portugal's new austerity package, which follows similar moves by Spain, Greece and Ireland, is being introduced under pressure from Lisbon’s European Union partners for sharp budget cuts in support of a €750 billion emergency plan to defend the Euro.
Angry trade union leaders immediately called for a “mobilisation” against what they called “harsh and unjust” measures, expected to include a 1 % increase in value added tax to 21% and increases of up to 1.5 % in income tax. Unions opposed to cuts? Shocking! (Sarcasm intentional)!
The increases are expected to include a 2.5 % increase in corporate tax to 27.5 %. Politicians and public sector managers will also see their salaries cut by 5 %.
The new measures are designed to reduce the budget deficit by an additional €2.1 billion, from 9.4 % of Gross Domestic Product (GDP) in 2009 to 7 % this year and 2.8 % in 2013. Portugal’s original deficit target for this year was 8.3 % of GDP.
José Luis Rodríguez Zapatero, Spain’s prime minister, angered his trade union allies but cheered financial markets on Wednesday when he announced a surprise 5 % cut in civil service pay to accelerate cuts to the country’s budget deficit.
In what he called one of the hardest speeches of his life, Mr Zapatero told parliament how Spain planned to reduce its deficit by an extra 0.5 % of GDP this year and another 1 % of GDP in 2011, a total of €15 billion.
The new measures should help bring the deficit down from 11.2 % of GDP in 2009 to just over 6 % of GDP in 2011.
Surprisingly, trade unionists were outraged at what they said were harsh measures. One regional leader of the small United Left political party called for “rebellion and a general strike”. Shocking! (Sarcasm intentional)!
Thus far, Ireland has surprised the market skeptics by pro-actively embarking on a draconian plan to tackle its debt, which includes large public sector pay cuts, and resolve the bad loan problems at its banks.
Pledging to cut public sector spending by 7.5 % of GDP this year alone has not spared Ireland market pain. Last week its bonds were trading at a spread of 3 % over German Bunds. The moves have prevented the country from being deemed a full-blown basket case.
Italy, has been on the cusp of becoming the 5th member of this elite group. However, a very well received bond sale indicates that Rome is not yet ready for inclusion. Italy just sold €3 billion of 2015 notes at an average yield of just 2.57 %, which was 2 basis points lower than existing comparable debt. This demonstrates a substantial level of market confidence.
The problems in the Euro-Zone only BEGIN with Greece. Bail-out or not, the key to success will be a return to economic growth for all the affected nations. Greek unemployment is now more than 12% and is expected to rise to 14% over the next year or so. Until the European Union economies start to show growth, the budget deficits will continue to widen and the threat of a massive round of sovereign debt defaults will be an ongoing issue.
Marko's Take
Please visit us on You Tube. You can access video blogs covering topics such as the Federal Reserve, Income Taxes, Social Security, Peak Oil and a mock "State Of The Union" address by clicking here http://www.youtube.com/markostaketv. Our most recent video is on the FRAUD and Ponzi Scheme known as Social Security. It can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
As has been written here in recent weeks, the so-called austerity program enacted by Greece is a farce. It is hardly "austere" to force lazy government workers to actually work! It is hardly austere to reduce the absurdly generous early retirement packages which allow some civil servants to retire as young as 45. Where can I sign up for that deal?
The other PIGS are now enacting their own "austerity" measures in an attempt to be more pro-active before their nations hit the crisis fever that was triggered by the Greek financial meltdown.
José Sócrates, Portugal’s prime minister, is expected to announce tough new austerity measures today, including a “crisis tax” on companies and wages, to reduce the country’s massive budget deficit.
Portugal's new austerity package, which follows similar moves by Spain, Greece and Ireland, is being introduced under pressure from Lisbon’s European Union partners for sharp budget cuts in support of a €750 billion emergency plan to defend the Euro.
Angry trade union leaders immediately called for a “mobilisation” against what they called “harsh and unjust” measures, expected to include a 1 % increase in value added tax to 21% and increases of up to 1.5 % in income tax. Unions opposed to cuts? Shocking! (Sarcasm intentional)!
The increases are expected to include a 2.5 % increase in corporate tax to 27.5 %. Politicians and public sector managers will also see their salaries cut by 5 %.
The new measures are designed to reduce the budget deficit by an additional €2.1 billion, from 9.4 % of Gross Domestic Product (GDP) in 2009 to 7 % this year and 2.8 % in 2013. Portugal’s original deficit target for this year was 8.3 % of GDP.
José Luis Rodríguez Zapatero, Spain’s prime minister, angered his trade union allies but cheered financial markets on Wednesday when he announced a surprise 5 % cut in civil service pay to accelerate cuts to the country’s budget deficit.
In what he called one of the hardest speeches of his life, Mr Zapatero told parliament how Spain planned to reduce its deficit by an extra 0.5 % of GDP this year and another 1 % of GDP in 2011, a total of €15 billion.
The new measures should help bring the deficit down from 11.2 % of GDP in 2009 to just over 6 % of GDP in 2011.
Surprisingly, trade unionists were outraged at what they said were harsh measures. One regional leader of the small United Left political party called for “rebellion and a general strike”. Shocking! (Sarcasm intentional)!
Thus far, Ireland has surprised the market skeptics by pro-actively embarking on a draconian plan to tackle its debt, which includes large public sector pay cuts, and resolve the bad loan problems at its banks.
Pledging to cut public sector spending by 7.5 % of GDP this year alone has not spared Ireland market pain. Last week its bonds were trading at a spread of 3 % over German Bunds. The moves have prevented the country from being deemed a full-blown basket case.
Italy, has been on the cusp of becoming the 5th member of this elite group. However, a very well received bond sale indicates that Rome is not yet ready for inclusion. Italy just sold €3 billion of 2015 notes at an average yield of just 2.57 %, which was 2 basis points lower than existing comparable debt. This demonstrates a substantial level of market confidence.
The problems in the Euro-Zone only BEGIN with Greece. Bail-out or not, the key to success will be a return to economic growth for all the affected nations. Greek unemployment is now more than 12% and is expected to rise to 14% over the next year or so. Until the European Union economies start to show growth, the budget deficits will continue to widen and the threat of a massive round of sovereign debt defaults will be an ongoing issue.
Marko's Take
Please visit us on You Tube. You can access video blogs covering topics such as the Federal Reserve, Income Taxes, Social Security, Peak Oil and a mock "State Of The Union" address by clicking here http://www.youtube.com/markostaketv. Our most recent video is on the FRAUD and Ponzi Scheme known as Social Security. It can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Wednesday, May 12, 2010
Greek Bail-Out Destined To Fail
Now that the collosal bail-out of Greece has been enacted, it's time to take a step back to analyze both the prospect for success and examine the appropriate remedies.
As has been written in Marko's Take numerous times, the problem with Greece is its system. The problems in Athens were decades in the making and can NOT be fixed by throwing around a few measley hundred billion dollars.
Greece suffers from an entitled population that has been coddled by the promises of socialist governments - allowing the people to expect to be taken care of. The problem with that reasoning is that the more people who are recipients of the government dole, the less productive they become. The people who are pulling the cart are taxed into oblivion and eventually wonder why they should be made to support the corrupt and lazy.
Greece is known for its corruption. It has a very high proportion of it work force employed by the government. Many government employees have been given lavish early retirement packages.
The rather modest budget cuts will NOT fix the problem. The only impact of these cuts in the short run will be to remove stimulus from the economy and facilitate a further downward spiral. Greece has one of the largest deficits as a proportion of Gross Domestic Product (GDP) in the world. Unless the economy grows, this will only grow worse.
The formula applied to Greece is hardly novel. The identical remedies were tried with Argentina in 2001, which suffered the world's largest debt default in 2001. They failed. According to Cristina Fernandez, Argentina's President, the bail-out repeated "the same recipes they applied to us, which provoked what happened in 2001".
Argentina, as an IMF member, voted for the Greek bail-out, but “critically”, Ms Fernández said, adding that the enforced austerity will have “terrible consequences” on the economy.
In the 1990s, Argentina was a devotee of the pro-market Washington Consensus and pegged the Peso to the Dollar. But it racked up debt and its economy crashed. Argentina savagely devalued its currency and became a pariah on international financial markets.
Speaking at an event on Monday night to refinance debt for Argentina’s provinces, Ms Fernández defended the demand-driven economic model, which has delivered several years of high growth, championed by her husband, Néstor Kirchner, in his 2003-07 government and which she has continued since.
The long-term solution for Greece is a complete overhaul of its economy and changing the mind-set of the population. This will be no easier there than here in the United States, where out-of-control social programs like Social Security and Medicare threaten to bankrupt us. Socialism has NEVER worked and NEVER will.
Only a return to a market-driven model, after a period of austerity, can possibly return Athens to a positive trajectory. Let's hope that Greece gets the message, the rest of the Euro-Zone gets the message and American gets the message. If we don't, we will suffer the same fate as Greece.
Marko's Take
Please visit us on You Tube at http://www.youtube.com/markostaketv. Our lastest video, on that Ponzi Scheme also referred to as Social Security, can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI. Our 7-step solution to this mess will be uploaded shortly.
As has been written in Marko's Take numerous times, the problem with Greece is its system. The problems in Athens were decades in the making and can NOT be fixed by throwing around a few measley hundred billion dollars.
Greece suffers from an entitled population that has been coddled by the promises of socialist governments - allowing the people to expect to be taken care of. The problem with that reasoning is that the more people who are recipients of the government dole, the less productive they become. The people who are pulling the cart are taxed into oblivion and eventually wonder why they should be made to support the corrupt and lazy.
Greece is known for its corruption. It has a very high proportion of it work force employed by the government. Many government employees have been given lavish early retirement packages.
The rather modest budget cuts will NOT fix the problem. The only impact of these cuts in the short run will be to remove stimulus from the economy and facilitate a further downward spiral. Greece has one of the largest deficits as a proportion of Gross Domestic Product (GDP) in the world. Unless the economy grows, this will only grow worse.
The formula applied to Greece is hardly novel. The identical remedies were tried with Argentina in 2001, which suffered the world's largest debt default in 2001. They failed. According to Cristina Fernandez, Argentina's President, the bail-out repeated "the same recipes they applied to us, which provoked what happened in 2001".
Argentina, as an IMF member, voted for the Greek bail-out, but “critically”, Ms Fernández said, adding that the enforced austerity will have “terrible consequences” on the economy.
In the 1990s, Argentina was a devotee of the pro-market Washington Consensus and pegged the Peso to the Dollar. But it racked up debt and its economy crashed. Argentina savagely devalued its currency and became a pariah on international financial markets.
Speaking at an event on Monday night to refinance debt for Argentina’s provinces, Ms Fernández defended the demand-driven economic model, which has delivered several years of high growth, championed by her husband, Néstor Kirchner, in his 2003-07 government and which she has continued since.
The long-term solution for Greece is a complete overhaul of its economy and changing the mind-set of the population. This will be no easier there than here in the United States, where out-of-control social programs like Social Security and Medicare threaten to bankrupt us. Socialism has NEVER worked and NEVER will.
Only a return to a market-driven model, after a period of austerity, can possibly return Athens to a positive trajectory. Let's hope that Greece gets the message, the rest of the Euro-Zone gets the message and American gets the message. If we don't, we will suffer the same fate as Greece.
Marko's Take
Please visit us on You Tube at http://www.youtube.com/markostaketv. Our lastest video, on that Ponzi Scheme also referred to as Social Security, can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI. Our 7-step solution to this mess will be uploaded shortly.
Tuesday, May 11, 2010
Rising Chinese Inflation Augurs Well For Gold
The Chinese economy is growing at double-digit rates, yet, instead of rejoicing, the Chinese leadership is worried. Beijing has slowly begun to take steps to begin to cool its economy and an increase in interest rates is thought to be coming sooner rather than later. The various stimulus plans appeared to have done their job, but now comes the inevitable effect on prices.
Recently released data indicates that the Chinese economy is overheating and that prices are beginning an upward creep. Consumer prices in China rose 2.8% in April from the same month a year earlier, the fastest pace in 18 months - but below Beijing’s full-year target of 3% , data released on Tuesday showed.
Adding to fears of potential overheating, Chinese property prices jumped 12.8% in April from a year earlier, the biggest increase since records began in 2005, although sales volumes have already fallen substantially in many big cities in reaction to a string of government measures to cool the market.
More disturbing was the news that Producer prices rose 6.8% in April, up from March’s 5.9% rise, indicating that consumer prices are likely to increase faster in the coming months.
Food prices make up about a third of China’s consumer price index and were the main driver of higher inflation in April, rising 5.9% from a year earlier, while non-food prices rose a mere 1.3%.
With the benchmark one-year bank deposit interest rate at 2.25% , Chinese savers are already faced with negative real interest rates, making investments in the booming property market more attractive.
The fear of Chinese policy tightening has dogged commodities markets in recent weeks, with base metals well off their mid-April peaks.
This morning, copper for delivery in three months fell 2.1% to $6,970 a tonne on the London Metal Exchange. Aluminium was off 2.9% at $2,075 a tonne, while lead – particularly exposed to moves in Chinese demand as it is used in car and electric bike batteries – dropped 3.7% to $2,022 a tonne.
As inflation creeps up in China, as well as the rest of the Asian-bloc, it will undoubtedly spill-over into the rest of the world. Just as Chinese infation is rearing its head, so should that in the United States. Washington has also enacted substantial stimulus programs and the accompanying inflation is inevitable.
Especially in a low interest rate environment, this can only be bullish for Gold. It's no surprise that the yellow metal has taken center stage, broken out to new all-time highs and will undoubtedly explode higher as the world scrambles for the only bona-fide infation hedge. Investors would be wise to jump on board before its too late.
Marko's Take
Please visit us on You Tube at http://www.youtube.com/markostaketv. Our latest video, explaining the Ponzi Scheme known as Social Security, can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Recently released data indicates that the Chinese economy is overheating and that prices are beginning an upward creep. Consumer prices in China rose 2.8% in April from the same month a year earlier, the fastest pace in 18 months - but below Beijing’s full-year target of 3% , data released on Tuesday showed.
Adding to fears of potential overheating, Chinese property prices jumped 12.8% in April from a year earlier, the biggest increase since records began in 2005, although sales volumes have already fallen substantially in many big cities in reaction to a string of government measures to cool the market.
More disturbing was the news that Producer prices rose 6.8% in April, up from March’s 5.9% rise, indicating that consumer prices are likely to increase faster in the coming months.
Food prices make up about a third of China’s consumer price index and were the main driver of higher inflation in April, rising 5.9% from a year earlier, while non-food prices rose a mere 1.3%.
With the benchmark one-year bank deposit interest rate at 2.25% , Chinese savers are already faced with negative real interest rates, making investments in the booming property market more attractive.
The fear of Chinese policy tightening has dogged commodities markets in recent weeks, with base metals well off their mid-April peaks.
This morning, copper for delivery in three months fell 2.1% to $6,970 a tonne on the London Metal Exchange. Aluminium was off 2.9% at $2,075 a tonne, while lead – particularly exposed to moves in Chinese demand as it is used in car and electric bike batteries – dropped 3.7% to $2,022 a tonne.
As inflation creeps up in China, as well as the rest of the Asian-bloc, it will undoubtedly spill-over into the rest of the world. Just as Chinese infation is rearing its head, so should that in the United States. Washington has also enacted substantial stimulus programs and the accompanying inflation is inevitable.
Especially in a low interest rate environment, this can only be bullish for Gold. It's no surprise that the yellow metal has taken center stage, broken out to new all-time highs and will undoubtedly explode higher as the world scrambles for the only bona-fide infation hedge. Investors would be wise to jump on board before its too late.
Marko's Take
Please visit us on You Tube at http://www.youtube.com/markostaketv. Our latest video, explaining the Ponzi Scheme known as Social Security, can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI.
Monday, May 10, 2010
U.S. Gold Corporation: A Junior Explorer Ready To Go Big Time
While the Euro-Zone's problems continue to make the headlines, investors should NOT lose sight of the emerging opportunity in the precious metals market and junior miners. Against a backdrop of a 1,000 point intra-day loss in the Dow Jones Industrial Average last Thursday, GOLD surged above the $1,200 level as it begins the long-awaited hyperbolic growth phase.
That said, we wish to continue our series on junior precious metals companies with incredible promise to make huge gains in this very exciting phase of the bull market. Today's featured company is U.S. Gold Corporation (UXG), an American-based explorer with significant land holding in Nevada and Mexico. UXG continues to report excellent drilling results and appears poised to take this relatively unknown company to the next level.
Rob McEwen, Chairman and CEO of US Gold, is also the Company's largest shareholder with 21% of the stock and does not draw a salary. Previously, McEwen was the founder and former Chairman and CEO of Goldcorp Inc. (GG), where its Red Lake Mine in northwestern Ontario, Canada is still considered to be the richest gold mine in the world.
During his tenure at Goldcorp, McEwen transformed the company from a collection of small companies into a mining powerhouse, growing its market capitalization from US $50 million to approximately $8 billion. The shares of the Company produced a compounded annual growth rate of 32%.
UXG's Nevada holdings are concentrated in the Cortez Trend - of the Battle Mountain-Eureka Gold Belt that includes American Barrick's (ABX) Cortez (35 million ounces of gold) to the north and the Ruby Hill mine (4 million ounces) to the south. US Gold's combined properties on the Cortez Trend sit 10 miles south of Barrick's recent discovery.
While the Cortez Trend remains under-developed, recent discoveries indicate that it could rival the famous Carlin Trend which is located approximately 30 miles to the northeast where reserves and mineralized material are estimated to be 180 million ounces.
The Company also owns approximately 500,000 acres of mineral rights in Mexico's Sinaloa State. Exploration work was initiated in early 2008 and has produced encouraging results including the exciting El Gallo discovery announced in November 2008.
McEwen believes that GOLD will rise to $2,000 per ounce this year and to an ultimate high of $5,000. Sounds pretty familiar. Could he be a reader of Marko's Take?
The company's investor presentation could be accessed by clicking here http://www.usgold.com/presentation/pdf/24.pdf.
According to UXG's most recent financial statements for the quarter ended March 31, 2010, liquidity was ample with more than $35 million in cash, short-term investments and GOLD bullion. The Company is debt-free.
As an asset play, UXG's value should be viewed based on its resources. All holdings have been independently audited with an "NI 43-101" - a national instrument for the Standards of Disclosure for Mineral Projects. The Instrument is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which report these results on stock exchanges.
According to the most recent review, UXG has "measured and indicated" holdings of 3.3 million ounces of Gold, primarily in Nevada and 9.8 million ounces of Silver in Mexico. Based on 122 million shares outstanding and current prices of the metals, this reveals an asset value of approximately $30 per share. UXG closed Friday at $3.27 per share.
Naturally, this valuation doesn't include the costs of development and mining, nor does it include the potential value of FUTURE discoveries. Since 2007, "measured and indicated" Gold resources in Nevada have nearly tripled! Given the prodigious history of the Cortez Trend, further resource discoveries would seem highly likely. The company intends to invest $18 million in the coming year to add to its resource base.
UXG is traded on the Amex and is quite liquid - trading approximately 1 million shares per day. The Company intends to list on the NYSE as soon as it can.
As a disclosure item, I hold some UXG. This stock is not for the feint of heart. The stock traded at nearly $7 per share in late 2007 before declining to about $.50 at the bottom of the financial crisis in late 2008. This stock should only be considered by aggressive holders with a high tolerance for risk.
Marko's Take
Everything you never wanted to know about Social Security is revealed on our latest You Tube video which can be accessed here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI. Our subsequent video, to be released in the next week, will propose a 7-step solution to the Social Security mess. For information on "Peak Oil", the Federal Reserve, Income Taxes and a mock "State of The Union" address, you can access all by clicking here http://www.youtube.com/markostaketv.
That said, we wish to continue our series on junior precious metals companies with incredible promise to make huge gains in this very exciting phase of the bull market. Today's featured company is U.S. Gold Corporation (UXG), an American-based explorer with significant land holding in Nevada and Mexico. UXG continues to report excellent drilling results and appears poised to take this relatively unknown company to the next level.
Rob McEwen, Chairman and CEO of US Gold, is also the Company's largest shareholder with 21% of the stock and does not draw a salary. Previously, McEwen was the founder and former Chairman and CEO of Goldcorp Inc. (GG), where its Red Lake Mine in northwestern Ontario, Canada is still considered to be the richest gold mine in the world.
During his tenure at Goldcorp, McEwen transformed the company from a collection of small companies into a mining powerhouse, growing its market capitalization from US $50 million to approximately $8 billion. The shares of the Company produced a compounded annual growth rate of 32%.
UXG's Nevada holdings are concentrated in the Cortez Trend - of the Battle Mountain-Eureka Gold Belt that includes American Barrick's (ABX) Cortez (35 million ounces of gold) to the north and the Ruby Hill mine (4 million ounces) to the south. US Gold's combined properties on the Cortez Trend sit 10 miles south of Barrick's recent discovery.
While the Cortez Trend remains under-developed, recent discoveries indicate that it could rival the famous Carlin Trend which is located approximately 30 miles to the northeast where reserves and mineralized material are estimated to be 180 million ounces.
The Company also owns approximately 500,000 acres of mineral rights in Mexico's Sinaloa State. Exploration work was initiated in early 2008 and has produced encouraging results including the exciting El Gallo discovery announced in November 2008.
McEwen believes that GOLD will rise to $2,000 per ounce this year and to an ultimate high of $5,000. Sounds pretty familiar. Could he be a reader of Marko's Take?
The company's investor presentation could be accessed by clicking here http://www.usgold.com/presentation/pdf/24.pdf.
According to UXG's most recent financial statements for the quarter ended March 31, 2010, liquidity was ample with more than $35 million in cash, short-term investments and GOLD bullion. The Company is debt-free.
As an asset play, UXG's value should be viewed based on its resources. All holdings have been independently audited with an "NI 43-101" - a national instrument for the Standards of Disclosure for Mineral Projects. The Instrument is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which report these results on stock exchanges.
According to the most recent review, UXG has "measured and indicated" holdings of 3.3 million ounces of Gold, primarily in Nevada and 9.8 million ounces of Silver in Mexico. Based on 122 million shares outstanding and current prices of the metals, this reveals an asset value of approximately $30 per share. UXG closed Friday at $3.27 per share.
Naturally, this valuation doesn't include the costs of development and mining, nor does it include the potential value of FUTURE discoveries. Since 2007, "measured and indicated" Gold resources in Nevada have nearly tripled! Given the prodigious history of the Cortez Trend, further resource discoveries would seem highly likely. The company intends to invest $18 million in the coming year to add to its resource base.
UXG is traded on the Amex and is quite liquid - trading approximately 1 million shares per day. The Company intends to list on the NYSE as soon as it can.
As a disclosure item, I hold some UXG. This stock is not for the feint of heart. The stock traded at nearly $7 per share in late 2007 before declining to about $.50 at the bottom of the financial crisis in late 2008. This stock should only be considered by aggressive holders with a high tolerance for risk.
Marko's Take
Everything you never wanted to know about Social Security is revealed on our latest You Tube video which can be accessed here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI. Our subsequent video, to be released in the next week, will propose a 7-step solution to the Social Security mess. For information on "Peak Oil", the Federal Reserve, Income Taxes and a mock "State of The Union" address, you can access all by clicking here http://www.youtube.com/markostaketv.
Saturday, May 8, 2010
Iran Nuclear Showdown Looms Closer
Iran's nuclear program is one of the most controversial issues in one of the world's most volatile regions. American and European officials believe Tehran is planning to build nuclear weapons, while Iran's leadership mainains that its goal in developing a nuclear program is to generate electricity and preserve its vast oil reserves.
Top American military officials said in April 2010 that Iran could produce bomb-grade fuel for at least one nuclear weapon within a year, but would most likely need two to five years to manufacture a workable atomic bomb.
Pronouncements from Tehran have been all over the map. In a recent statement by Iranian cleric Ahmad Khatami, Iran has entered the world's "nuclear club" and major powers should accept it.
Khatami, a conservative hardliner also warned the major powers that Iran could "endanger your entire world" in any future confrontation.
The United States and Israel, Iran's arch foes, have not ruled out military action if diplomacy fails to resolve the row.
Iran, a predominantly Shi'ite Muslim state, has said it would respond to any attack by targeting U.S. interests in the region and Israel, as well as closing the Strait of Hormuz, a waterway crucial for global oil supplies.
One key to reaching a non-military solution has been the cooperation of the United Nations Securtiy Council. China, which imports 12% of its oil from Iran, has been the most reluctant to endorse stringent sanctions.
President Nicolas Sarkozy of France told President Hu Jintao of China that nations would have to impose new sanctions on Iran if it refuses to curb its nuclear program, official Chinese news organizations reported on last week.
France has joined with the United States and Britain in pushing for a new package of economic sanctions from the United Nations (UN). Those countries accuse Iran of using its nuclear program to try to develop weapons. Iran has said it is interested in pursuing nuclear power, not arms.
Addressing the UN, President Mahmoud Ahmadinejad of Iran said that relations with the United States might never be repaired if new sanctions were imposed against his country, that the United Nations atomic agency had no authority to interfere into matters like missiles and that, despite his contested re-election last year, Iran had not become a republic of fear.
Later in the day, he suggested that relations with Tehran might never recover from a United States push for new economic and military sanctions against Iran through the United Nations Security Council. New penalties would “mean relations between Iran and the U.S. will never be improved again,” Mr. Ahmadinejad said at a news conference.
Of major concern is what options the U.S. has in response to a threatened attack by Iran against Israel or in attempting to sabotage Middle East oil supplies.
Defense Secretary Robert M. Gates has warned in a secret three-page memorandum to top White House officials that the United States does not have an effective long-range policy for dealing with Iran’s steady progress toward nuclear capability, according to government officials familiar with the document.
One senior official, speaking anonymously, described the document as “a wake-up call.” But White House officials dispute that view, insisting that for 15 months they had been conducting detailed planning for many possible outcomes regarding Iran’s nuclear program.
Mr. Gates’s memo appears to reflect concerns in the Pentagon and the military that the White House did not have a well prepared series of alternatives in place in case all the diplomatic steps finally failed. Separately, Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, wrote a “chairman’s guidance” to his staff last December conveying a sense of urgency about contingency planning. He cautioned that a military attack would have “limited results,” but he did not convey any warnings about policy shortcomings.
Thus, as Iran continues the development of its nuclear arsenal, options available to contain the situation appear limited. Israel has repeatedly warned of a pre-emptive strike if diplomatic initiatives fail. So far, the Obama Administration has successfully convinced Israel to remain patient while discussions are taking place.
However, given the stated intention of Iran to retaliate if sanctions are imposed, the potential outcomes are strewn with high risk. The last thing the sputtering world economy needs is a major disruption of Middle East oil supplies or an all-encompassing regional war.
Marko's Take
Our latest You Tube video, entitled "Social In-Security: The Problem", which tells you everything you need to know about the world's largest Ponzi scheme is now posted here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI. Our subsequent video, entitled "Social In-Security: The Solution" outlines a 7-step program to fix the mess. Hope you tune in!
Top American military officials said in April 2010 that Iran could produce bomb-grade fuel for at least one nuclear weapon within a year, but would most likely need two to five years to manufacture a workable atomic bomb.
Pronouncements from Tehran have been all over the map. In a recent statement by Iranian cleric Ahmad Khatami, Iran has entered the world's "nuclear club" and major powers should accept it.
Khatami, a conservative hardliner also warned the major powers that Iran could "endanger your entire world" in any future confrontation.
The United States and Israel, Iran's arch foes, have not ruled out military action if diplomacy fails to resolve the row.
Iran, a predominantly Shi'ite Muslim state, has said it would respond to any attack by targeting U.S. interests in the region and Israel, as well as closing the Strait of Hormuz, a waterway crucial for global oil supplies.
One key to reaching a non-military solution has been the cooperation of the United Nations Securtiy Council. China, which imports 12% of its oil from Iran, has been the most reluctant to endorse stringent sanctions.
President Nicolas Sarkozy of France told President Hu Jintao of China that nations would have to impose new sanctions on Iran if it refuses to curb its nuclear program, official Chinese news organizations reported on last week.
France has joined with the United States and Britain in pushing for a new package of economic sanctions from the United Nations (UN). Those countries accuse Iran of using its nuclear program to try to develop weapons. Iran has said it is interested in pursuing nuclear power, not arms.
Addressing the UN, President Mahmoud Ahmadinejad of Iran said that relations with the United States might never be repaired if new sanctions were imposed against his country, that the United Nations atomic agency had no authority to interfere into matters like missiles and that, despite his contested re-election last year, Iran had not become a republic of fear.
Later in the day, he suggested that relations with Tehran might never recover from a United States push for new economic and military sanctions against Iran through the United Nations Security Council. New penalties would “mean relations between Iran and the U.S. will never be improved again,” Mr. Ahmadinejad said at a news conference.
Of major concern is what options the U.S. has in response to a threatened attack by Iran against Israel or in attempting to sabotage Middle East oil supplies.
Defense Secretary Robert M. Gates has warned in a secret three-page memorandum to top White House officials that the United States does not have an effective long-range policy for dealing with Iran’s steady progress toward nuclear capability, according to government officials familiar with the document.
One senior official, speaking anonymously, described the document as “a wake-up call.” But White House officials dispute that view, insisting that for 15 months they had been conducting detailed planning for many possible outcomes regarding Iran’s nuclear program.
Mr. Gates’s memo appears to reflect concerns in the Pentagon and the military that the White House did not have a well prepared series of alternatives in place in case all the diplomatic steps finally failed. Separately, Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, wrote a “chairman’s guidance” to his staff last December conveying a sense of urgency about contingency planning. He cautioned that a military attack would have “limited results,” but he did not convey any warnings about policy shortcomings.
Thus, as Iran continues the development of its nuclear arsenal, options available to contain the situation appear limited. Israel has repeatedly warned of a pre-emptive strike if diplomatic initiatives fail. So far, the Obama Administration has successfully convinced Israel to remain patient while discussions are taking place.
However, given the stated intention of Iran to retaliate if sanctions are imposed, the potential outcomes are strewn with high risk. The last thing the sputtering world economy needs is a major disruption of Middle East oil supplies or an all-encompassing regional war.
Marko's Take
Our latest You Tube video, entitled "Social In-Security: The Problem", which tells you everything you need to know about the world's largest Ponzi scheme is now posted here http://www.youtube.com/markostaketv#p/u/0/twFn9XyP2rI. Our subsequent video, entitled "Social In-Security: The Solution" outlines a 7-step program to fix the mess. Hope you tune in!
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