A two part interview of Eric Sprott by BNN, in which the Canadian asset manager shares his views on the economy, financial markets, sovereign overleverage, industrial commodities, and, of course, gold.
Part 1: http://watch.bnn.ca/#clip304447
Part 2: http://watch.bnn.ca/squeezeplay/may-2010/squeezeplay-may-20-2010/#clip304448
Total US debt just hit $12,987,823,000,000, $13 billion from lucky $13 trillion. As next week the US Treasury is auctioning off another gross $140+ billion in Bonds, we will pass this totally irrelevant resistance level on May 25, when Timmy issues another $42 billion of 2 Year Notes. The next important support level of $14 trillion will be surpassed around the time the Democrats get destroyed in the mid-term elections, while the statutory debt limit of $14.3 trillion will likely have to be raised in January 2011 by a new republican majority, an action which will promptly reduce popular republican support following their ladnslide election victory, thus starting the pointless D->R->D->R etc cycle all over again. Also, at approximately that time headlines that US debt is now 100% of GDP will bring the US bond vigilantes out of hibernation and will send US interest rates soaring, assisted by Ben Bernanke’s most recent announcement that the Fed will is once again”forced” to purchase another $1.5 trillion in treasuries and mortgages.
Stepping away from the Ouija board, we also notice that so far in April, the Treasury has rolled another unsustainable amount of Treasuries: $397 billion, of which $$359 billion is in Bills.
The clock to the US’ hyperstagflationary period is now ticking louder than ever
A video from Inflation.us;
Zerohedge comment
In addition to the EUR data in today’s CFTC Commitment of Traders report, another data point that caught our eye is the record exposure in outright commercial shorts in gold: this week they hit an all time high of 450,950. It appears that last week the desire to suppress any gold breakouts was at historic highs, even as net commercial exposure hit a 2010 low of -282.6, just slightly higher than that seen in the second week of January. If even with this massive onslaught to keep gold low by the LBMA, the precious metal managed to nearly hit $1,250 today, what will happen to gold when the 450k commercial positions are forced to cover?
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EU policy makers have enabled debt-laded countries to take on more debt, this hardly seems like a long term solution to the problem of living beyond their national means. EU politicians hope that by extending more credit to sovereign governments, bond vigilante investors will just, leave them alone!
It is astounding to read how officials blame derivatives as the “Wolfpack” of speculators for the crisis. As if it was the speculators who ran up huge debt-to-GDP ratios. I am amazed these politicians can actually look in the mirror!
So what does this nuclear solution to Europe’s debt problems really mean? It is simply another way of saying “Quantitative Easing – super size 1 Trillion more debt!.”
Does this now mean all national debt will be bailed out? All states of the USA will be bailed out? Where does it stop?
This very well could be the set up for a massive collapse.
“You cannot make any nation that is unable to service its accumulated debts more creditworthy by extending more credit!” said Jeremy Batstone-Carr, analyst at Charles Stanley in today’s Wall Street Journal. “If the EU lends Greece money, the loan will increase that country’s public sector debt. The interest on the additional loan, whatever it eventually proves to be, will increase the public sector deficit. Total debt-servicing costs will rise, raising the burden on public sector cash flows. At some point in the future, the loan will have to be paid back.”
Regardless of the first knee jerk market reaction, gold is going to higher much higher due to nuclear suggestions of adding more debt to entities failing because of debt. This is the EU Helicopter Drop, the next one coming up is the bail out of US States. Remember Greece has the same credit rating as the state of Utah – but Utah is more than double the size.
So what else will happen? With the ECB’s huge cash infusion coupled with the US Federal Reserve’s existing an very likely “more cash coming” should lead to a quick reflation of some markets.
Where? The biggest inflation could come in precious metals. One should hedge against the central bank monetization strategy and precious metals are about the only sensible speculation in a market which has essentially been reduced to total speculation by the distortion of values from the flood of money.
