“If you add up all the promises that
have been made for spending obligations, including defense expenditures,
and you subtract all the taxes that we expect to collect, the
difference is $211 trillion. That’s the fiscal gap,” he says. “That’s
our (US) true indebtedness.”
Today’s AM fix was USD 1,321.75, EUR 978.71 and GBP 824.34 per ounce.Friday’s AM fix was USD 1,355.25, EUR 1,002.18 and GBP 845.39 per ounce
Gold dropped $39.30 or 2.92% Friday, closing at
$1,325.30/oz. Silver slid $1.27 or 5.84%, closing at $21.74. At 3:32 EDT
Friday, Platinum fell $31.30 or 2.1% to $1,427.50/oz, while palladium
slipped $18.53 or 2.5% to $713.97 /oz. Gold was up 0.16% and silver was
down 2.03% on the week.
Gold has been up and down in choppy trading in London today as investors digest the U.S. Fed’s decision to wait on tapering until perhaps next month. Comments on Friday from James Bullard, the St. Louis Federal Reserve Bank President affected the markets. He said, “a reduction of the Fed’s $85 billion monthly bond purchase program beginning in October was possible and that the Fed can be patient in deciding when to scale back its pace of asset purchases”.
In Germany’s elections, Chancellor Angela Merkel is on her
way for a third term as German leader after her party, the Christian
Democratic Union (CDU) scored its best federal election result since
1990. However, it appears likely she has lost her coalition partner, the
Free Democratic Party (FDP) as they failed to secure the required 5%
threshold necessary and will be without Bundestag representation for the
first time in its 65-year history.
Gold is finding support by the increasing consensus that
the current Federal Reserve Vice Chair, Janet Yellen, will take over
from Bernanke. Gold got a boost Thursday after a senior White House
official’s remarked that Yellen is a leading candidate to replace
Bernanke when he steps down.
Yellen, a strong supporter of Bernanke’s policies, should
keep U.S. interest rates low for an extended period of time and she is
very dovish, contrary to recent revisionism.
The U.S. national debt continues to surge higher every day and is now at $16.95 trillion and will soon surpass the $17 trillion mark.
When Standard & Poor’s reduced the U.S.’s credit rating
from AAA to AA-plus, it was the first time the U.S. ever suffered a
downgrade to its credit rating. The S&P took this action despite the
plan Congress passed last week to raise the debt limit.
The downgrade, S&P said, “reflects our opinion that the
fiscal consolidation plan that Congress and the administration recently
agreed to falls short of what, in our view, would be necessary to
stabilize the government’s medium-term debt dynamics.”
It’s those medium- and long-term debt problems
that also worry economics professor Laurence J. Kotlikoff, who served
as a senior economist on President Reagan’s Council of Economic
Advisers. He says the national debt, which the U.S. Treasury has accounted at about $14 trillion, is just the tip of the iceberg.
“We have all these unofficial debts that are massive compared to the official debt,” Kotlikoff tells David Greene, guest host of weekends on All Things Considered. “We’re focused just on the official debt, so we’re trying to balance the wrong books.”
Kotlikoff explains that America’s “unofficial” payment
obligations — like Social Security, Medicare and Medicaid benefits —
jack up the debt figure substantially.
Laurence J. Kotlikoff served as a senior
economist on President Ronald Reagan’s Council of Economic Advisers and
is a professor of economics at Boston University
“If you add up all the promises that have been made for
spending obligations, including defense expenditures, and you subtract
all the taxes that we expect to collect, the difference is $211
trillion. That’s the fiscal gap,” he says. “That’s our true
indebtedness.”
We don’t hear more about this enormous number, Kotlikoff
says, because politicians have chosen their language carefully to keep
most of the problem off the books.
“Why are these guys thinking about balancing the budget?”
he says. “They should try and think about our long-term fiscal
problems.”
According to Kotlikoff, one of the biggest fiscal problems
Congress should focus on is America’s obligation to make Social Security
payments to future generations of the elderly.
“We’ve got 78 million baby boomers who are poised to
collect, in about 15 to 20 years, about $40,000 per person. Multiply 78
million by $40,000 — you’re talking about more than $3 trillion a year
just to give to a portion of the population,” he says. “That’s an
enormous bill that’s overhanging our heads, and Congress isn’t focused
on it.”
“We’ve consistently done too little too late, looked too
short-term, said the future would take care of itself, we’ll deal with
that tomorrow,” he says. “Well, guess what? You can’t keep putting off
these problems.”
To eliminate the fiscal gap, Kotlikoff says, the U.S. would
have to have tax increases and spending reductions far beyond what’s
being negotiated right now in Washington.
“What you have to do is either immediately and permanently
raise taxes by about two-thirds, or immediately and permanently cut
every dollar of spending by 40 percent forever. The [Congressional
Budget Office's] numbers say we have an absolutely enormous problem
facing us.”
UBS has updated their short-term gold targets today,
increasing their one-month forecast to $1,450/oz from $1,250/oz and
three-month to $1,375/oz from $1,350/oz citing the U.S. Fed’s decision
not to reduce its QE program as positive for gold. Additionally the U.S.
fiscal and debt ceiling debates
are imminent. Oct. 1st is the U.S. government shutdown date to be
avoided and the market rhetoric will increase gold’s safe haven status.
Finally, UBS analyst Edel Tully noted the upcoming wedding and festival
season in India followed by the Chinese Lunar New Year will all increase
physical demand for the yellow metal.
Art by WB7
A victory for Merkel will only mask Germany's long-term economic problems
By
Ambrose Evans-Pritchard: The defining picture of Germany’s election is a billboard of Angela Merkel’s
hands, posted next to Berlin’s central railway station.
__________________________________
A victory for Merkel will only mask Germany's long-term economic problems
There is no face. There are no words. Nothing else is needed. It is so
self-evident to most citizens that their Chancellor has the safest hands on
offer that the message speaks for itself.
Her approval rating has reached 70pc. It is the mirror image of Germany’s
unemployment rate, at a post-reunification low of 5.3pc. The rate for youth
unemployment is 7.7pc — against 26pc in France, 39.5pc in Italy and 56.1pc
in Spain. Germany’s lead is largely thanks to the country’s superb
apprenticeship schemes.
Germany has reason to be complacent as it goes to the polls on Sunday, but
German economists warn that this ascendancy is more fragile than it looks,
an illusion of the business cycle and a China-driven global boom in
machinery and capital goods that is running out of steam. Merkel is
encouraging Germans to think that all is well and that nothing needs to
change.
“Germany is in a fantastic position but we’re squandering our competitive
advantage: all the main parties want to roll back reforms,” said Christian
Schulz from Berenberg Bank.
Joerg Asmussen, Germany’s board member at the European Central Bank, says the
country will become “the sick man of Europe again in five to 10 years” if it
continues to neglect its ageing infrastructure and fails to invest more in
education. Germany’s top-rated university is Munich Technical, ranked 53rd
in the world.
Germany’s industry federation, BDI, has called for a drastic change in energy policy, warning that the €1 trillion dash for wind power, solar and other renewables is pushing power costs to levels that “endanger German competitiveness”. Electricity costs 30pc more than in the rest of Europe, and twice as much as in the US. Natural gas costs four times more than in the US as the shale revolution alters the global economic landscape at lightning speed, leaving parts of Germany’s chemical and plastic industry under mortal threat.
Yet during the campaign none of the main parties proposed any serious change to plans to the so-called “Energiewende” — the goal of sourcing 50pc of all power from renewables by 2030, and 80pc by 2050 — as if the problem will take care of itself.
The OECD says Germany has one of Europe’s most rigid labour markets, despite the Hartz IV reforms a decade ago. It is still very hard to lay off workers, creating a barrier to technology start-up companies.
Productivity per worker grew by just 0.6pc a year from 2000 to 2010, compared with 1.4pc for other rich countries. The OECD advised Berlin to take lessons from the Australian Productivity Commission.
Germany ranks 106th for starting a firm in the World Bank’s ease of doing business index. It ranks 31 for mobile broadband, 75 for soundness of banks, 127 for hiring and firing, and 139 for wage flexibility, according to the World Economic Forum index.
Economists fret that Germany is coasting as deep structural problems build up, repeating the mistakes of Italy and Spain at the outset of monetary union.
While nobody disputes that Germany gained competitiveness in the early euro years, the question is whether this was achieved by a superior economic model or merely by screwing down wages in a “beggar-thy-neighbour’ policy. This red-hot dispute scarcely intruded on the campaign.
“Real disposable income per capita in Germany has been growing at half the rate in France since the launch of the euro. They have been ripping off their own people to build up pointless trade surpluses,” said Charles Dumas from Lombard Street Research.
“Their weakness is reliance on foreign demand, which is no longer forthcoming from emerging markets. They were bailed out for a while by China’s excess investment, but China wants to stop doing the wrong thing,” he said.
The risk for Germany is that the damage emerges just as the country’s ageing crisis strikes in earnest. The European Commission expects the country’s workforce to shrink by 200,000 a year this decade, replicating what happened in Japan.
The old age dependency ratio will climb from 31pc in 2010, to 36pc in 2020, 41pc in 2025 and 48pc in 2030.
“Germany faces a demographic time bomb,” says Mats Persson from think tank Open Europe. Social security liabilities lift the real level of German public debt to 192pc of GDP. This compares to 146pc for Italy, which has tackled its pension threat. “Germany can’t afford to underwrite the euro forever,” Persson said.
German voters already sense this and seem increasingly tempted to vote for the anti-euro movement Alternative fur Deutschland (AfD).
A pre-election INSA poll showed the party has reached 5pc support for the first time, the threshold for seats in the Bundestag. This is a minor earthquake. Momentum is now working in their favour, and it is widely believed that not all AfD supporters are telling pollsters the truth. “We could see a snowball effect,” said Persson.
AfD may scramble the election, depriving Merkel’s bloc of its expected majority. A Left-Right “grand coalition” has become more likely, though a combined front of all Left-wing parties with the Greens is also possible.
Crucially, there may now be a vocal movement in the Bundestag, with electoral legitimacy and greater press coverage, committed to breaking up the monetary union — either by German withdrawal from the euro or by forcing weaker states to leave.
This shifts the centre of political gravity in Germany, and may embolden Bavarian and East German Euro-sceptics within Merkel’s alliance.
It will make it even harder for the next government to deflect populist protest over a third Greek bail-out, a second bail-out for Portugal and a rescue for Slovenia, all expected in the coming months. It may also kill any chance of debt pooling.
“There has been a lot of wishful thinking about a quantum leap in the eurozone after the elections. We see no possible scenario of a banking union that puts German money at risk,” said Persson.
If Europe’s recovery gathers pace, this may not matter. But if the recovery is yet another false dawn, or it proves too little to stop the debt trajectories of southern Europe spiralling out of control, it will matter enormously. An electoral breakthrough by AfD could be a turning point in modern European history.
Germany’s industry federation, BDI, has called for a drastic change in energy policy, warning that the €1 trillion dash for wind power, solar and other renewables is pushing power costs to levels that “endanger German competitiveness”. Electricity costs 30pc more than in the rest of Europe, and twice as much as in the US. Natural gas costs four times more than in the US as the shale revolution alters the global economic landscape at lightning speed, leaving parts of Germany’s chemical and plastic industry under mortal threat.
Yet during the campaign none of the main parties proposed any serious change to plans to the so-called “Energiewende” — the goal of sourcing 50pc of all power from renewables by 2030, and 80pc by 2050 — as if the problem will take care of itself.
The OECD says Germany has one of Europe’s most rigid labour markets, despite the Hartz IV reforms a decade ago. It is still very hard to lay off workers, creating a barrier to technology start-up companies.
Productivity per worker grew by just 0.6pc a year from 2000 to 2010, compared with 1.4pc for other rich countries. The OECD advised Berlin to take lessons from the Australian Productivity Commission.
Germany ranks 106th for starting a firm in the World Bank’s ease of doing business index. It ranks 31 for mobile broadband, 75 for soundness of banks, 127 for hiring and firing, and 139 for wage flexibility, according to the World Economic Forum index.
Economists fret that Germany is coasting as deep structural problems build up, repeating the mistakes of Italy and Spain at the outset of monetary union.
While nobody disputes that Germany gained competitiveness in the early euro years, the question is whether this was achieved by a superior economic model or merely by screwing down wages in a “beggar-thy-neighbour’ policy. This red-hot dispute scarcely intruded on the campaign.
“Real disposable income per capita in Germany has been growing at half the rate in France since the launch of the euro. They have been ripping off their own people to build up pointless trade surpluses,” said Charles Dumas from Lombard Street Research.
“Their weakness is reliance on foreign demand, which is no longer forthcoming from emerging markets. They were bailed out for a while by China’s excess investment, but China wants to stop doing the wrong thing,” he said.
The risk for Germany is that the damage emerges just as the country’s ageing crisis strikes in earnest. The European Commission expects the country’s workforce to shrink by 200,000 a year this decade, replicating what happened in Japan.
The old age dependency ratio will climb from 31pc in 2010, to 36pc in 2020, 41pc in 2025 and 48pc in 2030.
“Germany faces a demographic time bomb,” says Mats Persson from think tank Open Europe. Social security liabilities lift the real level of German public debt to 192pc of GDP. This compares to 146pc for Italy, which has tackled its pension threat. “Germany can’t afford to underwrite the euro forever,” Persson said.
German voters already sense this and seem increasingly tempted to vote for the anti-euro movement Alternative fur Deutschland (AfD).
A pre-election INSA poll showed the party has reached 5pc support for the first time, the threshold for seats in the Bundestag. This is a minor earthquake. Momentum is now working in their favour, and it is widely believed that not all AfD supporters are telling pollsters the truth. “We could see a snowball effect,” said Persson.
AfD may scramble the election, depriving Merkel’s bloc of its expected majority. A Left-Right “grand coalition” has become more likely, though a combined front of all Left-wing parties with the Greens is also possible.
Crucially, there may now be a vocal movement in the Bundestag, with electoral legitimacy and greater press coverage, committed to breaking up the monetary union — either by German withdrawal from the euro or by forcing weaker states to leave.
This shifts the centre of political gravity in Germany, and may embolden Bavarian and East German Euro-sceptics within Merkel’s alliance.
It will make it even harder for the next government to deflect populist protest over a third Greek bail-out, a second bail-out for Portugal and a rescue for Slovenia, all expected in the coming months. It may also kill any chance of debt pooling.
“There has been a lot of wishful thinking about a quantum leap in the eurozone after the elections. We see no possible scenario of a banking union that puts German money at risk,” said Persson.
If Europe’s recovery gathers pace, this may not matter. But if the recovery is yet another false dawn, or it proves too little to stop the debt trajectories of southern Europe spiralling out of control, it will matter enormously. An electoral breakthrough by AfD could be a turning point in modern European history.
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