By: Jeff Clark, Senior Editor

Casey’s  Gold &  Resource   Report

Silver has been sizzling and causing lots of buzz in the industry. Investors are excited.

Part of the hubbub is due to its current run. Since its February 8 low, silver has roared ahead 22.4% (through June 21) and has doubled from its November 2008 low.

This excitement has spilled over into greater investment demand – especially so for coins. The U.S. Mint sold more Silver Eagles in the first quarter of this year – just over nine million – than any prior quarter in its history. The Royal Canadian Mint produced 9.7 million silver maple leafs in 2009, also a record.

Take a look at the jump in U.S. Mint coin sales since 2007.

Silver bullion ETFs are growing, too, experiencing a five-fold increase in metal holdings since 2006.

There’s plenty we could talk about with silver, but our goal is to make money. So let’s focus on answering just two questions: Is today’s price expensive or cheap? And, what are the best silver coins, ETFs, and stocks to own?

We have all the answers straight ahead, including lots of actionable info, so let’s jump right in…

Why Should I Buy Silver?

There are several reasons to own silver in addition to gold.

First, it’s cheaper! Known as the poor man’s gold, those with limited budgets will find it easier to purchase. You might hesitate plunking down $1,200 for an ounce of gold, but you can pick up 32 ounces of silver for half that amount.

Second, silver has wide industrial use and this component can help or hinder its price. As its consumption increases across a growing number of industries, this should help place a floor under demand. And because of its unique properties, new uses continue to be discovered.

Third, silver is money and has served this role more than any other material on earth, save gold. Due to its historical role, silver will always have monetary value and offer similar protection as gold to the ongoing global currency devaluations, and will definitely benefit from the inflation hurricane we see as inevitable.

Silver is more practical as a currency used for everyday purchases. When the time comes, you can sell the requisite number of silver coins to cover a specific need, as opposed to being forced to liquidate a high-dollar-value gold holding. Silver is perfect when smaller amounts of cash are required.

Fourth and last, silver could possibly outperform gold before this bull market is over. The market capitalization of silver (and silver stocks) is much smaller, making its price more susceptible to demand spikes than gold.

In the latter part of the 1970s precious metals bull market, gold gained over 700% – but silver soared over 1,400%. If you’ve got a bit of Gordon Gekko in you, we recommend investing a portion of your dollars in silver.

Caution – Hot!

Like all things, silver has its drawbacks, two in particular.

First, the price is volatile. Over the past 12 months, silver has seen gains of 53.8% and 22.9% and drops of 21.9% and 19.6%, all within a period of months or even weeks.

If you’re going to own silver, you must be prepared for big price gyrations. The best way to do that: buy it and forget about it. And…

►Make price volatility your friend. Big price swings present the opportunity to snag silver at a big discount. We give some guidance on prices below.

Second is the storage issue. As your pile grows, the advantage to storing gold will become self-evident. At $1,200 gold and $18.50 silver, $10,000 will get you eight gold eagles that will fit nicely in the credit card slots of your wallet; however, it will buy 540 silver eagles, weigh nearly 34 pounds, and fill a small bank safe deposit box.

►How to store physical silver. There are several ways to solve the storage dilemma, even if you plan to buy like the Hunt brothers.

1. Spread your holdings around. Not only is it wise to avoid keeping all your physical silver in one place, diversifying your storage arrangements allows you to buy more. Hide some at home in several locations (no cookie jars, though), and obviously tell only one trusted person. Store some in a bank safe deposit box and use more than one bank as your holdings grow.
2. Buy bars. Silver bars take up less space than a pile of coins of the same weight. We wouldn’t start out with nor have all our holdings in bars, because you want the advantage coins offer. But the larger your holdings, the easier it will be to store some of it in bar form.
3. Use pool accounts and unallocated storage. With a pool or unallocated account, you’re essentially getting free storage no matter how big your stash. That’s hard to beat. You’ll pay fabrication and delivery charges if/when you convert your holdings and take delivery, but in the meantime, you save on storage costs. Great value for the large holder.
4. Private storage. Store your silver with a private vaulting company. The advantage is that it’s outside the banking system; the disadvantage is that it’s usually expensive, though it can be cost effective for large holdings. Do your own due diligence if you go this route because we can’t vouch for any facility, but you could start by checking out delawaredepository.com. Keep in mind that using a vaulting facility beyond a reasonable driving distance will mean added shipping/insurance costs and restrict quick access.

Is Now a Good Time to Buy?

With the gains we’ve seen in silver, would we buy right now?

Let’s first look at the big picture. The following chart shows how far silver is below its inflation-adjusted peak reached in 1980.

Another clue some investors watch is the gold/silver ratio (gold price divided by silver price) shown below.

Since our current bull market in precious metals began in 2001, the ratio, while fluctuating wildly, has never gone below 45. And yet look where it went during the precious metals peak in 1980: it bottomed at 17. Even though gold was soaring at the time, silver outran it.

The ratio might show relative strength between gold and silver, but it’s not a good buying indicator. A falling ratio could mean silver is rising faster than gold, like it is currently, or it could mean silver is falling slower. As a result, we’d use the ratio to determine silver’s upside potential but not necessarily when to place an order.

These big-picture signals tell us silver is undervalued and, at the moment, a better bargain than gold. And given the currency crisis we’re convinced is in the cards, we wouldn’t want to be caught without any. If you have a long-term mindset, silver is a buy today.

Would we wait for a better price?

If you do not own any, and plan on holding what you buy until a mania develops, then we wouldn’t wait. The risk of buying silver at current prices is lower than owning none at all.

If you do own some but want to add to your holdings, we’d probably wait for a drop in price, in part because silver could more easily fall when the economy is found to be more fragile than what many believe. And with industrial uses comprising approximately half of silver’s demand, it would be more susceptible to sell-offs than gold if our research is correct about global economies.

Further, summer usually brings pullbacks in prices, and this can be especially true for silver stocks. This is the tendency, though we can’t be sure if this summer will follow past trends. Still, our best guess is to anticipate another leg down this year. If you already own silver, we’d look for a correction to add to your holdings.

In our opinion, owning no silver in this bull market would be a mistake. And your first (and biggest) investment in silver should be in a physical form.

How much physical silver should you have? There’s no right answer and one size will not fit all. But we do recommend holding more gold than silver. Our suggestion for your precious metal holdings is roughly 80% gold and 20% silver.

Like gold, silver comes in different forms. We’d start with the more popular one-ounce coins and then branch out into other types as your holdings grow.

Check out the 1 ounce rounds and the bullion bars that Scottsdale Silver provides.  With some of the highest resale premiums on ebay, the market demand on the Scottsdale Hallmark is second to none.  Also take a look at the PAMP Suisse Gold Bullion Bars as they come in all kinds of sizes such as 5 gram, 1 ounce and more.  The quality of their bullion is a fantastic start for anyone getting going, or addition to the most seasoned investor.  They accept Credit Cards and offer Free Shipping over a $500 order.  http://www.scottsdalesilver.com

Filed under: USAWatchdog.com

Dear CIGAs,
Last week, three stories acted as signposts for the direction of the U.S. Dollar. The first is about a letter President Obama sent to members of the G20 (Group of 20 major industrial countries) in advance of next weekend’s meeting in Canada. The President’s letter asked members to “reaffirm our unity of purpose to provide the policy support necessary to keep economic growth strong.” The policy he is talking about is to print money and run monstrous deficits to keep the world economy afloat. The talk in Europe is just the opposite. The EU these days is all about austerity and budget cuts which are hardly pro-growth. The Associated Press reported the story this way: In the letter, Obama said that the June 25-27 summit should also focus on efforts to stabilize public deficits in the “medium term,” a reference to the administration’s position that governments need to run huge deficits currently to provide the stimulus needed to ensure a sustained recovery but then move in future years to deficit reduction efforts. (Click here for the entire AP article.)

The second story illuminating the dollar’s path comes from Alan Greenspan. The former Fed Chief gave a warning about how the U.S. may soon reach its “borrowing limit.” A Bloomberg story quoted Greenspan saying, “The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.” (Click here for the Bloomberg article.) Please note Greenspan’s reference for the U.S. “commitments” that it, “will be unable to meet in real terms.” That surely means the government will simply print money to pay its bills. The Federal Reserve could end up being the buyer of last resort for America’s debt, and that is highly inflationary.

This brings me to the third story indicating the future direction of the dollar. The headline says it all: “Gold hits record as investors seek alternate asset.” (Click here for the complete story.) The only conclusion you can draw is investors are seeking a stable store of wealth. According to world renowned gold expert Jim Sinclair(jsmineset.com), that spells trouble for the dollar. Sinclair said, “. . . that’s not a pleasant conclusion because it speaks of a currency system in the entire Western world that is being significantly challenged.”

In an exclusive interview with USAWatchdog.com, Sinclair compared the U.S. to Greece– the same as Greenspan. Sinclair said the dollar’s true weakness has been concealed because the attention has been on Europe. Sinclair said, “We’re rolling over in this so-called economic recovery . . . It’s not a pretty picture, and the focus will come off Europe as soon as all the currency traders have made all the money . . . (then) it’s coming right back here. . . You look over here and you see 33 states are headed towards bankruptcy. What’s the difference between that and Greece? There’s none.”

I asked Sinclair when will the dollar start plunging? He said, “The time horizon, I think, is four months.” A plunging dollar will quickly cause higher prices for goods and services and, if things get really bad, Sinclair says, “If, in fact, this thing gets out of control, you’ll see decreasing supply (of goods) because of economic disruption of the means of distribution.”

Under an extreme loss of value for the buck, you can forget about cheap oil and gasoline. Sinclair says, “If the dollar falls out of bed, they shoot to the moon.” Sinclair thinks what is taking place now is a “change in psychology and a loss of confidence that are now beginning to show themselves in market terms. You will still have the dollar around. It will still be in bank reserves, but its buying power will be severely reduced.”

This change in psychology is driving gold to one record high after another. Since 2001, Sinclair has been calling for gold to reach $1,650 a troy ounce by January 14, 2011. Some of Sinclair’s contemporaries are calling for gold to be much higher by next summer. $5,000 per ounce by June is one prediction. Sinclair says, “. . . that only occurs if the whole thing goes splat,” and that is also a real possibility.

http://usawatchdog.com/the-u-s-dollar-falls-by-fall/

Please consider the following story carried by Dow Jones relating to China and the gold market and then ask yourself how a price of $1100 for gold will look 5 years from now. This is why gold will continue to remain well supported on any dips in price. We are dealing with long term strategic thinking here versus short term oriented hedge funds.

DJ WGC Study: China’s Gold Demand Rising While Supply To Decline
Sun Mar 28 21:20:07 2010 EDT
By Allen Sykora
Of DOW JONES NEWSWIRES

China’s gold jewelry and investment demand could double in the next decade at the same time the country’s mining output declines, according to a World Gold Council report.

“Our analysis shows that if gold demand were to continue to increase so markedly, domestic supply would be unable to keep pace,” said Eily Ong, investment research manager at the WGC and author of the report. “Whatever the outcome, China’s outlook will almost certainly have implications for the global market.”

China is the second-largest buyer of gold in the world behind India, with consumption of $14 billion, in 2009, the WGC report said. This could rise to $29 billion, at end-of-2009 prices, within the next decade.

This increase can be expected as China’s middle class keeps growing, said Juan Carlos Artigas, another investment research manager for the Gold Council. Roughly 80% of the Chinese gold demand is for jewelry, and China was the only country to post an increase in jewelry demand last year, when consumption dipped in other nations amid high gold prices and global economic weakness.

Furthermore, China’s gold market is not yet “as mature” as in other countries since deregulation allowing gold to be bought freely did not occur until 2001, Artigas said. “Therefore, it has potential to grow,” Artigas said.

China’s per-capital annual purchases of gold jewelry are 0.26 grams, low compared to other gold-buying nations, Artigas said. If this were to eventually increase to the same rates as in other regions such as India, Hong Kong or Saudi Arabia, jewelry-related purchases could increase by anywhere from 100 metric tons to a few thousand. Indian per-capita consumption is 0.34 grams per year.

Gold investment in China has grown in line with gross domestic product and the population since deregulation, and this trend is expected to continue, the WGC said.

“Basically, China will be consuming more than it’s producing, therefore demanding more gold from global sources,” Artigas said.

In fact, the country’s 2009 mine output of around 314 metric tons did not match the jewelry and investment demand of 423, the WGC report said.

Meanwhile, the country’s supply is likely to decline in the future unless the country attracts “significant” capital investment for further exploration, the WGC said.

China increased gold-mining output by 84% in the last decade and is currently considered the world’s largest producer. However, China also has only 4% of the known global reserves, according to the U.S. Geological Survey.

“This suggests China would exhaust its known gold reserves in about six years if they were mining at the same rate as they are mining now,” Artigas said. The global average is 10 to 15 years, he said.

Meanwhile, there would seem to be potential for China’s central bank to add to its gold reserves, the Gold Council said. At 1,054 metric tons, China’s official holdings are more than all but four central banks and the International Monetary Fund. However, Chinese central-bank gold holdings amount to just 1.6% of the country’s total $2.4 trillion in reserves, which is a low percentage by international standards, the WGC said.

If the country simply returned to 2.2%, as in late 2002, this would mean incremental demand of 500 tons at current prices, Artigas said. “Even if they only increase [total holdings] by 10%, that is still an additional 100 tons of offtake,” Artigas said.

-By Allen Sykora, Dow Jones Newswires; 541-318-8765;
allen.sykora@dowjones.com

For at least some private investors. . .it is an important question whether their bullion investments will be realizable in extremis.

Wainwright recently published an interview with Toronto mutual fund owner Nick Barisheff about using ETFs, such as GLD or SLV, to invest in precious metals. Mr. Barisheff questioned whether such ETFs provide the investor with ownership of the precious metal itself, as would a direct purchase of bullion, or investment in a closed-end mutual fund.(1) Some of these doubts arose from disclaimers that appeared in the original prospectus for the GLD fund.(2)

The attractiveness of gold as an investment is not in question. Wainwright’s research over many years has made us consistent advocates of investing in gold, especially in (but not limited to) inflationary conditions like the present. The evidence, indeed, continues to pile up that official estimates of inflation are not timely or accurate enough to warn investors when their holdings in stocks and bonds are threatened by a general debasement of the currency.

We regard the price of gold, in contrast, as a direct market measure of currency depreciation and a predictor of its inflationary consequences. Gold also has other properties that are of enormous value to an investor. Its price movements are uncorrelated (or correlated inversely) with those in bonds and in most equity assets. It is a resilient investment in extremely adverse financial conditions and a leading indicator of asset price movements.

Also uncontested is the fact that the GLD has recently performed immaculately as an investment in gold throughout the deepest financial crisis since the 1930s. Liquidity was never an issue. The GLD does, as claimed in its prospectus, “reflect the performance of the price of gold bullion, less the Trust’s expenses.” And it provides many investors with “a cost effective investment in gold.”(3)

Doubts about precious metal ETFs. Nevertheless, as there are a variety of vehicles through which an investor can benefit from investing in gold, investors need to be well informed about the advantages and disadvantages of different vehicles. Back in December, we did not have sufficient information to convert the doubts expressed into definitive conclusions and, to our puzzlement, some of the questions raised have proven to be complex and contentious. After some further study of relevant documents, and thanks to input from the World Gold Council and other sources, we now take this opportunity to dig deeper.

The most frequently expressed motives for investing in precious metals reflect the desire for protection against adversity and the role of bullion as a safe haven. They are threefold:

Participation in the price appreciation of an asset which is expected to perform well under specified economic conditions such as currency depreciation and inflation;
Diversification of an investment portfolio otherwise devoted to equities, fixed income, and other conventional instruments;
Ownership of an asset whose purchasing power would be unquestionable in the most extreme imaginable breakdown of the financial system or the economy.
Gold and silver ETFs obviously satisfy the first two of these motives as long as their prices track the corresponding bullion prices closely, as they do. It is only the third that might be questioned. Presumably this is not a purely academic issue, but one that may or may not loom large in the mind of a private investor. As Alan Greenspan put it in congressional testimony: “. . .gold still represents the ultimate form of payment in the world. It is interesting that Germany in 1944 could buy materials during the war only with gold, not with fiat, money paper. And gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold.”(4)

Indeed, though these views of Mr. Greenspan were not entirely shared by Robert Rubin, there can be little doubt that central banks such as the US Treasury hold vast quantities of gold bullion with the expectation that their financial powers will survive adverse events up to and including nuclear war.

For at least some private investors, therefore, it is an important question whether their bullion investments will be realizable in extremis. They must ask themselves whether ownership of ETF shares would provide the same degree of safety that they would enjoy if they held title to physical bullion under secure custody in an accessible and well-identified place.

The problem of leased gold. As explained in our earlier report, ETFs are more complicated than mutual funds. They do not directly take in investor money and then go out and buy the assets according to their investment mandate. Instead, commercial banks and brokerage houses acting as “Authorized Participants” (APs) contribute defined “Creation Basket Deposits” of assets to the ETF, receiving in return “Creation Units” which are then sold to investors at a premium over net asset value. The investor’s claim is perfectly transparent in the sense that the exact amount of gold that will be involved in the event that APs or their clients wish to redeem holdings in the fund is very clear.

It is well known that the best-known precious-metal ETFs, the GLD and SLV, hold only bullion and do not take positions in futures or other derivatives. The gold in question exists in the form of standard London Good Delivery Large bars. According to one recent article, “gold and silver ETFs, like the platinum and palladium funds, own actual metals,” a fact that “seemingly puts them outside the jurisdiction of the CFTC, the regulator that has taken the lead curbing commodity speculation.”(5)

But perfect transparency may be lost when leased gold is involved. In our report of December 22, Mr. Barisheff pointed out that, in gathering the assets that are contributed to the GLD Trust, the AP may either buy the gold or lease (borrow) it from a central bank. There is, of course, nothing unusual in either buying or borrowing such gold bars, which are traded in large volumes spot and forward across the world in the wholesale market. Annual gold lending by central banks worldwide is estimated at 1,862 tonnes in 2009(6)—more than the total amount of gold produced by the world’s gold mines.

The specifics of gold lease agreements between central banks and private financial institutions do not seem to be available in the public domain. Neither lease termination dates nor whatever encumbrances might have been agreed to in the use of the gold by an AP, as in contributing gold to an ETF, are known. But we can be sure that, when an AP borrows gold from a central bank, it is required to post 100% collateral in exchange. Otherwise a 1% or so gold lease rate could hardly compensate a central bank for the risk that the lessee could become insolvent or the victim of fraud.

Title to leased gold. It is hard to see how unencumbered title on the part of the ETF would be compatible with the use of leased gold. In common commercial practice a lessor always retains title to leased property, and a lease transfers only the right to use property. The International Monetary Fund explains gold leases in the following words. Central banks may “have their bullion physically deposited with a bullion bank, which may use the gold for trading purposes in world gold markets. . .The ownership of the gold effectively remains with the monetary authorities, who earn interest on the deposits, and the gold is returned to the monetary authorities on maturity of the deposits.”(7)

Odd as it may sound, title to leased gold (in the sense of physical possession or access to it and use or control of it) passes to the borrower, but ownership remains with the lender. The lessee is free to melt down the leased gold for jewelry manufacture or other purposes, but retains an obligation to return the exact weight of gold back to the lessor under specified conditions or at a specified time. The central bank retains an ownership claim on the specific number of ounces that have been leased. That is presumably why tracking agencies such as Gold Fields Mineral Services, which has been publishing detailed statistics of the world supply and demand for gold for the past forty years, does not show any leased gold as adding to the world supply of gold, or being subtracted when leases terminate.(8)

A major question raised by Mr. Barisheff is whether, if part of the gold held by the ETF is borrowed, and something went wrong, it is the fund or the central bank who owns the leased gold? Would all the gold, whether leased or not, be accessible in the event of sudden liquidation of the fund? The Participant Agreement for the GLD casts some light on this(9), but invites further questions.

According to Section 16 on “Title to Gold,” the AP “represents and warrants. . .that upon delivery of a Creation Basket Deposit to the Trustees. . .the Trust will acquire good and unencumbered title to the Gold . . .” Section 8 on “Redemption” uses different but equally careful language. The AP “warrants. . .and ascertains (i) that. . .it owns outright or has full legal authority. . .to tender for redemption the Baskets to be redeemed and. . .(ii) such Baskets have not been loaned or pledged to another party. . .”

Precise interpretation of this legal language is beyond the scope of this report. But the language does not exactly say that the AP is required to hold or transfer to the ETF good and unencumbered title to the gold in exchange for Creation Units. The phrase “will acquire” in Section 16 leaves this question open.

Imagine a situation in which the market price of leased gold has risen substantially, while the collateral posted by the original lessee, for whatever reason, has not kept pace. The question is whether the ETF is obligated by the terms of the undisclosed gold lease agreement or any agreements between the ETF and its APs to return the leased gold to the central bank.

In another scenario, suppose an AP contributed gold that was encumbered by such a lease agreement, and subsequently became insolvent. Would ETF investors be at risk? If so, would they have legal recourse against the trustee or the custodian for accepting encumbered bullion? We are still unsure of the answers to these questions.

In sum, we still cannot determine whether, at any given time, the GLD enjoys unencumbered ownership of the entire amount of the gold that the fund represents, estimated at about $38 billion at the end of January.

Investment conclusion. There is little doubt that precious-metal ETFs function as excellent tracking vehicles for bullion prices, at least during normal market conditions. No problems were reported even during the turbulent conditions of 2007–09, during which the gold market functioned normally. But direct ownership of gold is different from ownership of a security that tracks the gold price, however faithfully it may do so.

R. David Ranson
H.C. Wainwright & Co. Economics Inc.
d.ranson@hcwe.com

“Risks of Investing in Precious-Metals ETFs,” Strategic Asset Selector, H. C. Wainwright & Co. Economics Inc., December 22, 2009.
Prospectus, streetTRACKS@ Gold Trust, August 26, 2005, p. 1.
Op.cit.
Federal Reserve Chairman Alan Greenspan, in an exchange with Congressman Ron Paul, in The Architecture of International Finance, testimony by Greenspan and Treasury Secretary Robert Rubin before the Committee on Banking and Financial Services, U.S. House of Representatives, May 20, 1999.
Ian Salisbury, “Will metal detector buzz on new ETFs?” Wall Street Journal Fund Track, February 5, 2010.
The Yellow Book, NBP Paribas Fortis / VM Group, November 2009, p.32.
Anne Y. Kester, International Reserves and Foreign Currency Liquidity: Guidelines for a Data Template, International Monetary Fund, October 23, 2001, paragraph 99.
Gold Fields Mineral Services, Annual Gold Survey, www.gfms.co.uk. The 2010 edition is scheduled to be published on April 14, 2010. Estimates for 2009 also appear in The Yellow Book, op. cit.
Participant Unallocated Bullion Account Agreement, streetTRACKS@ Gold Trust, need complete citation.

The bill approved Monday is intended to encourage the use of silver as a form of currency and reinvigorate Idaho’s silver mining industry, which has been in decline for decades.

Athol Republican Rep. Phil Hart told the House State Affairs Committee that consumers should rely less on money printed by the federal government because inflation will diminish its value. His bill reignites a long-standing debate about the value of paper money not backed by commodities.

Hart’s measure also includes tax breaks for any company that agrees to process silver ore for the medallions.

Lawmakers in Georgia considered allowing citizens to pay taxes with gold and silver last year.

PARKERSBURG, W.Va. — The retirement nest egg of an entire generation is stashed away in this small town along the Ohio River: $2.5 trillion in IOUs from the federal government, payable to the Social Security Administration.

It’s time to start cashing them in.

For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.

Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg’s municipal offices.

Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn’t be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.

Social Security’s shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program’s finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there’s concern that the looming crisis will lead to reduced benefits.

“This is not just a wake-up call, this is it. We’re here,” said Mary Johnson, a policy analyst with The Senior Citizens League, an advocacy group. “We are not going to be able to put it off any more.”

For more than two decades, regardless of which political party was in power, Congress has been accused of raiding the Social Security trust funds to pay for other programs, masking the size of the budget deficit.

Remember Al Gore’s “lockbox,” the one he was going to use to protect Social Security? The former vice president talked about it so much during the 2000 presidential campaign that he was parodied on “Saturday Night Live.”

Gore lost the election and never got his lockbox. But to illustrate the government’s commitment to repaying Social Security, the Treasury Department has been issuing special bonds that earn interest for the retirement program. The bonds are unique because they are actually printed on paper, while other government bonds exist only in electronic form.

They are stored in a three-ring binder, locked in the bottom drawer of a white metal filing cabinet in the Parkersburg offices of Bureau of Public Debt. The agency, which is part of the Treasury Department, opened offices in Parkersburg in the 1950s as part of a plan to locate important government functions away from Washington, D.C., in case of an attack during the Cold War.

One bond is worth a little more than $15.1 billion and another is valued at just under $10.7 billion. In all, the agency has about $2.5 trillion in bonds, all backed by the full faith and credit of the U.S. government. But don’t bother trying to steal them; they’re nonnegotiable, which means they are worthless on the open market.

More than 52 million people receive old age or disability benefits from Social Security. The average benefit for retirees is a little under $1,200 a month. Disabled workers get an average of $1,100 a month.

Social Security is financed by payroll taxes — employers and employees must each pay a 6.2 percent tax on workers’ earnings up to $106,800. Retirees can start getting early, reduced benefits at age 62. They get full benefits if they wait until they turn 66. Those born after 1960 will have to wait until they turn 67.

Social Security’s financial problems have been looming for years as the nation’s 78 million baby boomers approached retirement age. The oldest are already there. As that huge group of people starts collecting benefits — and stops paying payroll taxes — Social Security’s trust funds will shrink, running out of money by 2037, according to the latest projection from the trustees who oversee the program.

The recession is making things worse, at least in the short term. Tax receipts are down from the loss of more than 8 million jobs, and applications for early retirement benefits have spiked from older workers who were laid off and forced to retire.

Stephen C. Goss, chief actuary for the Social Security Administration, says the crisis has been years in the making. “If this helps get people to look more seriously at that in the nearer term, that’s probably a good thing. But it’s only really a punctuation mark on the fact that we have longer-term financial issues that need to be addressed.”

In the short term, the nonpartisan Congressional Budget Office projects that Social Security will continue to pay out more in benefits than it collects in taxes for the next three years. It is projected to post small surpluses of $6 billion each in 2014 and 2015, before returning to indefinite deficits in 2016.

For the budget year that ends in September, Social Security is projected to collect $677 million in taxes and spend $706 million on benefits and expenses.

Social Security will also collect about $120 billion in interest on the trust funds, according to the CBO projections, meaning its overall balance sheet will continue to grow. The interest, however, is paid by the government, adding even more to the budget deficit.

While Congress must shore up the program, action is unlikely this year, said Rep. Earl Pomeroy, D-N.D., who just took over last week as chairman of the House subcommittee that oversees Social Security.

“The issues required to address the long-term solvency needs of Social Security can be done in a careful, thoughtful and orderly way and they don’t need to be done in the next few months,” Pomeroy said.

The national debt — the amount of money the government owes its creditors — is about $12.5 trillion, or nearly $42,000 for every man, woman and child in the country. About $8 trillion has been borrowed in public debt markets, much of it from foreign creditors. The rest came from various government trust funds, including retirement funds for civil servants and the military. About $2.5 trillion is owed to Social Security.

Good luck to the politician who reneges on that debt, said Barbara Kennelly, a former Democratic congresswoman from Connecticut who is now president of the National Committee to Preserve Social Security and Medicare.

“Those bonds are protected by the full faith and credit of the United States of America,” Kennelly said. “They’re as solid as what we owe China and Japan.”

On the Net:
Social Security Administration: http://www.socialsecurity.gov/
Trustees’ reports: http://www.ssa.gov/OACT/TR/
National Committee to Preserve Social Security and Medicare: http://www.ncpssm.org/
The Senior Citizens League: http://www.seniorsleague.org/
Bureau of Public Debt: http://www.publicdebt.treas.gov/
Congressional Budget Office: http://tinyurl.com/ydgrl5d

http://www.google.com/hostednews/ap/article/ALeqM5jWbISwIapd30hnID5R3gGD7VFZ3QD9EED7CO0

By Michael Collins

(March 10) Wall Street is headed toward international pariah status thanks to two recent actions by the European Union (EU).

On Tuesday, the EU announced that it was banning Wall Street banks from the lucrative government bond business in Europe. They didn’t express official concern or fire off a warning shot. They simply banned Wall Street from financing government bond deals like the one Goldman Sachs sold to Greece. The Guardian pointed out that Wall Street bond business from European governments has gone down over the last two years. Now the business is gone period. In effect, the EU has labeled Wall Streets business tactics as too dangerous for their governments to handle.

Then on Wednesday, the President of the European Commission said that the EU was considering a ban on government debt speculation through Credit Default Swaps (CDS). President José Manuel Barroso announced that, “the Commission will examine closely the relevance of banning purely speculative naked sales on Credit Default Swaps of sovereign debt.” While not an outright ban, the threat of banning CDS on national debt would be a major loss for the world’s financial speculators, particularly those in the United States and Great Britain.

These two hostile moves toward Wall Street by Europe were discussed by officials in the context of the current Greek debt crisis. Wall Street firm Goldman Sachs has been implicated in helping the Greek government hide the true nature and size of the debt. Discovery of this sleight-of-hand action exacerbated an already challenging crisis.

While the Greek crisis was presented as the proximate cause of the anti Wall Street actions, these announcements follow a March 6 national referendum in Iceland. Citizens voted overwhelmingly, 93 to 2 percent, to reject their government’s plan to have citizens cover the losses incurred by Iceland’s second largest private bank, amounting to around $6 billion.

In January, public opinion polls showed opposition to the bailout in the mid 50% range. The 93% opposition vote Saturday was a startling and bold statement of citizen opposition to subsidies for the private sector.

A few days before the vote, German Chancellor Angela Merkel said:

“The debt that had to be accumulated, when it’s going badly, is now becoming the object of speculation by precisely those institutions that we saved a year-and-a-half ago. That’s very difficult to explain to people in a democracy who should trust us.” Business Week, February 23
Escaping the sinking ship?

The Chancellor is right. It has becomes increasingly difficult to explain socialism for the financial elite and survival of the fittest for the rest of us. Despite promises of trickle down benefits from policies that benefit only those at the top, the record since the 1970’s has been one of declining living standards and benefits for those who produce the wealth through their hard work.

The politicians behind the two policies are the center-right Merkel of Germany and hard right President Nicolas Sarkozy of France. Could their sudden, harsh actions against Wall Street reflect a general awareness among their patrons, the European financial elite, that citizens have had enough? Are the leaders worried that the contrived government debt crises throughout the continent will be met by citizens with sustained, angry protests and democratic defiance of de facto socialism for the financial elite?

Goldman and other Wall Street banks are a perpetual presence along the corridors of power in Washington, DC. Will this insider influence be used to dictate a U.S. response that reflects the will of Wall Street at the expense of the people?

Merkel and Sarkozy are hardly heroes of working men and women. They’re reacting to the excesses of Wall Street as those excesses threaten the Euro currency and its beneficiaries, not their people. To a greater degree, no doubt, their actions reflect fear among the European elite that the entire continent might rise up in a rage if they continue policies that turn the vast majority of citizens into indentured servants.

Citizens all over the world are getting a crash course on the politics of scarcity for the many and abundance for the very few.

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Filed under: In The News

Thoughts For The Day

1. A curtailment of bank trading department’s activities will not impair the price of gold as the gold banks are not on the long side.

You can forget that foolish rumor. It is more likely if any bank regulation is passed that it will require short covering.

2. The propaganda that China will not buy IMF gold is back.

China already said the contrary but who listens to China when Reuters quotes some unknown as saying the opposite.

Jim Sinclair’s Commentary

This has been an interesting day. The gold websites that publish every kind of opinion are working feverishly to produce bearish material. The run of the mill money manager is yelling deflation as they come to realize a Jobless Recovery is a world class oxymoron.

Few understand that hyperinflation is a currency event, not an economic event.

After China decidedly and without any doubt said along with India that they will bid for IMF gold, Reuters published an article to the contrary so the sheeple went contrary.

When I read the articles of the new gold experts I want to yak. Gold is going to $1650 and quite possibly $5000. Asia will take it there without your help and over the dead bodies of shorts.

In between it is all noise and fury signifying nothing whatsoever.

China Prepares to Transform the Gold Market
March 10, 2010
Peter Cooper

The inscrutable Chinese are hardly likely to inform the world that they are on a gold buying spree for fear of sending the gold price through the roof before they can finished their acquisition plans.

China’s gold reserves amount to 1,054 tons, ranking fifth in the world, said Yi Gang, central bank vice governor on Tuesday. China is the largest gold producer in the world, with more than 300 tons of gold produced annually, all of it consumed locally and not exported.

Private gold reserves

China is the second largest gold consumer in the world, with a consumption of over 400 tons of gold a year, second only to India. And it has been conservatively estimated that there are far more than 3,000 tons of gold accumulated among Chinese people.

Indeed it was only at the start of last year that China suddenly announced to the IMF that it had doubled its official gold reserves to 1,054 tons from 2003. Nobody knew anything about it before then, although there must have been suspicions in the trade.

Ah but let me run that past sharp readers again. Yesterday the Chinese central bank announced gold reserves of 1,054 tons, exactly the same figure as it gave the IMF a year ago. Is that not suspicious? When will we see the true figure including whatever they bought last year?

New watchdog report says the Treasury Department sank billions into auto finance giant GMAC without an exit strategy or proof the company was viable – a decision that could cost taxpayers $6.3 billion.

WASHINGTON – The Treasury Department sank billions into auto finance giant GMAC Inc. without an exit strategy or proof the company was viable — a decision that could cost taxpayers $6.3 billion, a new watchdog report says.

The government said the $17.2 billion bailout was a necessary step to save troubled automakers General Motors and Chrysler. GMAC provides critical financing to auto dealers, who borrow to finance their fleets until the cars can be sold to consumers.

Yet GMAC faced far fewer conditions than the bailed-out automakers, the report says. When the automakers were rescued, they were forced into bankruptcy. Shareholders lost their investments, creditors took a hit and executives were forced to detail plans for making the companies viable.

GMAC was treated more like banks that received bailouts without having to explain what they were doing with the money, the report says.