As the title says, there’s two major Gold stories on the radar from late last week.

If they are accurate, either has the potential to explode the gold price, if both are true the explosion will be thermonuclear, and the sky is quite literally the limit as to where the price might end up, assuming it were even possible to buy it anymore.

Firstly Janet Tavakoli – if you don’t know who she is, Janet has been one of the main voices trying to hold Goldman Sachs to account for the AIG skullduggery.

Her Cv is impressive, and she is as tenacious as a terrier, so you have to take this story seriously really..

Watch the whole interview in the video, it is well worth your time (or read on below)

“Congress should act immediately to abolish credit default swaps on the United States, because these derivatives will foment distortions in global currencies and gold.

Failure to act now will only mean the U.S. will be forced to act after these “financial weapons of mass destruction” levy heavy casualties.

These obligations now settle in euros, but the end game is to settle them in gold. This is so ripe for speculative manipulation that you might as well cover the U.S. map with a bull’s-eye.

Speculators Want U.S. CDS Payoffs in Gold

Remember AIG? When prices moved against AIG on its credit default swap contracts, AIG owed cash (collateral) to its trading partners. AIG paid billions of dollars and owed billions more when U.S. taxpayers bailed it out in September 2008.

U.S. credit default swaps currently trade in euros. After all, if the U.S. defaults, who will want payment in devalued U.S. dollars?

The euro recently weakened relative to the dollar, and market participants are calling for contracts that require payment in gold.

If they get their way, speculators on the winning side of a price move will demand collateral paid in gold.

The market can create an unlimited number of these contracts very rapidly. The U.S. wouldn’t have to ever default to trigger a major disruption in the gold market.

Spreads (or prices) on the credit default swaps could simply move based on “news,” and demand for gold would soar.

If this speculation drives up the price of gold, and the available gold supply becomes limited, are you willing to post your children as collateral? I am pushing the point so that we put a stop to this before it is too late.”

And on the same day, GATA – the Gold Anti Trust Action who have been doggedly rooting out the now clear-as-day Gold price manipulation for several years now announced that they finally have proof that:

“GATA has evidence that there are enormous physical short positions in the gold and silver markets that cannot be covered.“

Zerohedge said of this

If GATA is not bluffing and indeed has evidence of massively uncoverable physical positions, and should this evidence be made public, the repercussions for the price of gold will be unprecedented.

Full GATA letter to ex-Goldmanite, and Brooklandville, MD resident, Gary Gensler:

So we (allegedly) have a fraudulent Gold Comex exchange with enormous fraudulent manipulative Short Gold trades that cannot be covered, and we have the CDS traders eying and wanting to be paid their multiple billion payouts for their “weapons of financial destruction”  in Gold…

Which way do you think the price is going?

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It’s starting to look like the day of reckoning draws  near for GBP Sterling..

Edmund Conway, Economics editor of The Daily Telegraph writes..

Is this the start of a Sterling crisis?

So, is this a Sterling crisis? According to Simon Hayes of Barclays Capital, you should define a currency crisis as a fall of around 25pc in value.

That didn’t happen in the late 1960s under Harold Wilson and his devaluation; it didn’t happen in 1976, at the time of the IMF loan, nor did the fall amount to that much after Britain was ejected from the ERM in 1992.

In fact, the only fall big enough to fulfil this definition of a currency crisis in the past 50 years was the one we saw over the past two years.

However, as I’ve pointed out, this was a “benign crisis”. However, that does not stop it turning nasty – and on that basis the experience of the past 24 hours is not encouraging

If you had transferred your money from any GBP Sterling into Gold as we have been urging everybody to do, your Gold would be up by 7% in the last month, when priced in Sterling. But as we keep saying, Gold hasn’t gone up, every single Pound coin in the UK is now worth the equivalent of 93 pence, in less than a month.

Goldcore writes

Sterling’s fall is due to fears of an election stalemate between Labour and the Conservatives and the realisation that whoever wins the election, there will have to be severe fiscal measures (in terms of cutting spending and raising taxes) in order to steady the ship that is UK Plc. UK government deficits are high and rising and this is causing concern in bond and currency markets about how these significant deficits will be funded.

There is growing doubt as to whether there will be sufficient international appetite for the scale of government debt to be issued in the coming months and years. Markets fear that the UK government will be forced to create more sterling in order to buy their own government bonds and that quantitative easing and debt monetisation may continue for longer than expected. The Bank of England continuing to punish savers with near zero percent interest rates at 0.5% while inflation appears to be looming is also contributing to concerns about a new sterling currency crisis.

Given the degree of macroeconomic risk facing economies internationally and the unprecedented fiscal and monetary responses, we are likely to see further volatility in currency markets and there is a the real risk of an international currency crisis.

Sterling gold has reached new record nominal highs over £750/oz as concerns of a sterling crisis have seen sterling fall versus most major currencies and gold.

[ BuyGoldSilver edit £760 in overnight trading actually]

Sterling’s previous record nominal gold high was on the 3rd of December 2009 at £735/oz (inter day) and £731.59/oz (London AM fix).

Sterling has fallen by more than 7% against gold and 6.4% against the dollar in the last month. Since the start of the year sterling has fallen by more than 10% against gold and by some 7.5% against the dollar (see Performance Table below).

And on the same day Gold also broke free of it’s inverse relationship with the US Dollar, ie

THEY BOTH WENT UP..  ..from the mighty ZeroHedge

Gold Surges With DXY Positive For The Day

Submitted by Tyler Durden on 03/02/2010 11:09 -0500

No, you are not reading that chart wrong. Gold just surged to near two month highs, hitting $1130/oz, or $12 higher, even as the dollar is green for the day. The fiat currency inferno is picking up, as traders refuse to keep their money in anything but gold or dollars – proof of tungsten gold counterfeiting is not helping the gold shorts. From the 2010 lows, the currency devaluation “safety trade” has been Gold and the USD, in a ratio of 5-1!

Intraday chart…

And from the February market lows: note the relative performance of the DXY and GOLDS:

Holders of US Dollars should also be paying attention because this is also coming your way very soon.

Whether it’s Pounds Sterling, US Dollars or Euros, you should be swapping it for Gold, RIGHT NOW because only the yellow metal can protect you from this and preserve your wealth..

Do it, and do it now, – protect your wealth – buy gold

Those of us who have studied history and in particular mankind’s financial systems, experiments and blunders over the ages are relatively confident where this is all going to end up. We know what’s going to happen at some point, but calling exactly how and when is of course always difficult, and is the art of being successful in a trading environment.

Just knowing what is going to happen isn’t enough, plenty of people although ultimately right, have gone broke in the meantime waiting to be right.

So when we say we know that within the next 10-20 years Gold WILL be on it’s way through $5000 per Oz and upwards, it doesn’t mean this year or next, only that history will once again repeat itself, as it always has, and all the FIAT paper we have today will one day be gone.

On the Dollar’s way down to zero value, at some point Gold will be  worth $5000 per Oz. This doesnt mean that  Gold got more valuable, it means that the USDollar is just 5 times less valuable than now. Is that so difficult to believe?

However, what does that actually  mean? Lawrence Williams from Mineweb wrote yesterday..

What does $5,000 gold really mean? ..Perhaps social chaos and, if so, who really wants that?

Author: Lawrence Williams
Posted:  Friday , 26 Feb 2010

LONDON -

General talk of gold as a potentially spectacular investment as opposed to an inflation hedge glosses over the true picture.  Over the ages, gold has kept up with inflation pretty well, and it will probably continue to do so in the future, but it may not make you wealthy, just protect whatever wealth you have.

True there have been periods when gold has outpaced the decline in currency values due to inflation, but that is usually when it is playing catch-up from a period of underperformance.

Now some ultra gold bulls out there are predicting $5,000 gold – or even higher.  While we think this unlikely in the foreseeable future, think what this means if it should come about.

It can only really happen if there is an equivalent decline in the US dollar – or the onset of hyper dollar inflation.  While some predict this also, the likelihood of a Zimbabwe situation with trillion US dollar notes buying less than a loaf of bread is hopefully rather more than we can see ahead.  If that should happen then $5,000 gold will be the least of what we should expect from the gold price.

But coming back to the arbitrary $5,000 gold level.  What this would imply is that the purchasing power of the US dollar would have sunk to around the equivalent of 20 cents today.  Your $500 computer would cost you $2500 or your dollar loaf of bread would be $5. So you won’t really have gained anything in the purchasing power of your gold, you’ll just have done rather better than most of your fellow men, and women, in retaining what wealth you already have.

I can recall Ian Macavity at last year’s New York Hard Assets investment conference, in talking about the economy and gold telling the gold bulls ‘be careful what you wish for’.  A wish for $5,000 gold could also mean a wish for a total breakdown in society as an increasingly worthless dollar would mean the have-nots would have even less, if that is possible, and many of the middle classes would be turned into have-nots.  Think Great Depression in spades – with perhaps a less disciplined, more violent, and gun toting, underclass than in the 1930s.  That’s pretty unpleasant to contemplate, but a huge rise in the gold price could well mean just that.

The more likely scenario is perhaps a less steep decline in the value of the dollar, likely leading to a gradual rise in the price of gold.  True the dollar has made a bit of a recovery of late and gold hasn’t really moved much one way or the other, but that’s just because most of the currencies against which the dollar is valued are in just as bad a financial position – or worse.  Gold has recently hit a new high in terms of the troubled Euro for example.

Eventually the various stimulus programmes around the world, achieved by printing more and more money, backed by nothing more than a politician’s wing and a prayer, will inevitably lead to inflation.  Prices will rise and the dollar will fall against currencies which matter – mostly those from the more resilient Asian economies – and gold will rise with it in dollar terms, if not in renminbi terms – but again probably not to the extent the true doomsayers project.

In an interesting article in the Daily Reckoning recently, Bill Bonner waxed eloquent on what gold has meant to the holder of the metal over the ages.  One of his conclusions:

“Gold is real money. At least, it’s as real as money ever gets.

…Gold represents wealth. It can be exchanged for wealth.

…And since the above-ground supply of gold grows about as fast as the economy itself, gold tends to hold its value over centuries.

Today, gold is worth about the same as it was worth 2000 years ago.”

In other words, gold won’t necessarily make you rich, but it will preserve your riches!

From time to time it will move above and below the inflationary trend and these movements, if judged correctly, offer buying and selling opportunities which can improve your wealth, but unless you have huge sums to invest, probably not significantly.

Buygoldsilver.org say:

Actually we have to disagree slightly here, if you follow this simple method of buying and selling Gold for maximum profit, Gold could actually make you very wealthy over time..

Chart from Steve Juggerd’s Daily Wealth

Protect what wealth you have now, before it’s too late Buy Gold

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The constant propaganda about the ebb and flow of the Gold price vs the $ USD and the rabid reporting of every little fluctuation in a downwards direction makes us chuckle on a daily basis. The point that people miss here is that although Gold is technically priced in US Dollars, it is a truly international trade, and it is of course also priced in every other currency in the world locally.

If you are looking at Gold on just the USD charts, you are missing the main point of the metal.

Note that although Gold has come down off it’s 2009 US Dollar highs of $1225+ which was mainly due to Dollar weakness at the time, to the sub $1100 mark, as the charts below show, it is simultaneously making new highs against the Euro (which is under pressure currently due to the problems in Greece now, and the Euro zone generally) and at the time of writing this is also hovering just under it’s all-time highs in GBP Sterling.

Back in 2009 Kitco launched their Gold Index which allows people to track the “real Gold price” against a global basket of currencies not just the USD, and as the chart below shows the Dollar is clearly losing it’s value against Gold faster than the rest of the world put together.

Gold was around thousands of years before the Dollar, and it will be around thousands of years after the Dollar, and indeed even long after the US as we know it has ceased to exist, Gold will still be here, and you will still be able to trade it for other things of value.

Gold is the ultimate hedge, it doesn’t go anywhere, but the various pretend paper wealth that assigns the metal a “value number” gyrates around it like a skint pole-dancer at a Goldman Sachs works do.

Gold just sits there as it has throughout the ages, going nowhere, storing it’s value timelessly.

It cares nothing about the USA, the Dollar, the blatent Gold market manipulation by the bullion banks, it will outlast every single trader, and every single bank.

You can be confident that in real terms,  Gold is worth the same today,  as it was yesterday, and will be the same tomorrow, next year, the year after, it’s just the paper value system we have deteriorating around it that gives the supposed rises in price. Barring a complete meltdown of paper we have today and a Gold revaluation taking it through the stratosphere, it will continue to do this, as it always done.

What’s your value stored in?

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A little light relief courtesy of The Onion

WASHINGTON—The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.

Calling it “basically no more than five rectangular strips of paper,” Fed chairman Ben Bernanke illustrates how much “$200″ is actually worth.

What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world’s largest economy.

“Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…” said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. “You know what? It doesn’t matter. None of this—this so-called ‘money’—really matters at all.”

“It’s just an illusion,” a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. “Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless.”

According to witnesses, Finance Committee members sat in thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT) finally shouted out, “Oh my God, he’s right. It’s all a mirage. All of it—the money, our whole economy—it’s all a lie!”

Screams then filled the Senate Chamber as lawmakers and members of the press ran for the exits, leaving in their wake aisles littered with the remains of torn currency.

U.S. markets closed as traders left their jobs and resolved for once to do or make something, anything of real value.

As news of the nation’s collectively held delusion spread, the economy ground to a halt, with dumbfounded citizens everywhere walking out on their jobs as they contemplated the little green drawings of buildings and dead white men they once used to measure their adequacy and importance as human beings.

At the New York Stock Exchange, Wednesday morning’s opening bell echoed across a silent floor as the few traders who arrived for work out of habit looked up blankly at the meaningless scrolling numbers on the flashing screens above.

“I’ve spent 25 years in this room yelling ‘Buy, buy! Sell, sell!’ and for what?” longtime trader Michael Palermo said. “All I’ve done is move arbitrary designations of wealth from one column to another, wasting my life chasing this unattainable hallucination of wealth.”

“What a cruel cosmic joke,” he added. “I’m going home to hug my daughter.”

Sources at the White House said President Obama was “still trying to get his head around all this” and was in seclusion with his coin collection, muttering “it’s just metal, it’s just metal” over and over again.

“The president will be making a statement very soon,” press secretary Robert Gibbs told reporters. “At the moment, though, his mind is just too blown to comment.”

A few U.S. banks have remained open, though most teller windows are unmanned due to a lack of interest in transactions involving mere scraps of paper or, worse, decimal points and computer data signifying mere scraps of paper. At a Bank of America branch in Spokane, WA, curious former customers wandered aimlessly through a large empty vault, while several would-be robbers of a Chase bank in Columbus, OH reportedly put their guns down and exited the building hand in hand with security guards, laughing over the inherent absurdity of the idea of $100 bills.

Likewise, the real estate industry has all but vanished, with mortgage lenders seeing no reason to stop people from reclaiming their foreclosed-upon homes.

“I don’t even know what we were thinking in the first place,” said former banker Nathan Collins of Brandon, MS, as he jimmyed open a door to allow a single mother and her five children to move back into their house. “A bunch of people sign a bunch of papers, and now this family has no place to live? That’s just plain ludicrous.”

The realization that money is nothing more than an elaborate head game seems to have penetrated the entire country: In Wilmington, DE, for instance, a collection agent reportedly broke down in joyful sobs when he informed a woman on the other end of the phone that he had absolutely no reason to harass her anymore, as her Discover Card debt was no longer comprehensible.

For some Americans, the fog of disbelief surrounding the nation’s epiphany has begun to lift, with many building new lives free from the illusion of money.

“It’s back to basics for me,” Bernard Polk of Waverly, OH said. “I’m going to till the soil for my own sustenance and get anything else I need by bartering. If I want milk, I’ll pay for it in tomatoes. If need a new hoe, I’ll pay for it in lettuce.”

When asked, hypothetically, how he would pay for complicated life-saving surgery for a loved one, Polk seemed uncertain.

“That’s a lot of vegetables, isn’t it?” he said

Jeff Clark, Senior Editor, Casey’s Gold & Resource Report writes:

Tracking the numerous ongoing bullish factors for gold is quite a chore. There are, quite literally, so many compelling arguments for holding our favorite metal that I used to catalog them each month in our letter.

The reason there are so many “reasons” is because gold is unlike any other asset.

It…

• responds to its own supply and demand
• protects against short-sighted government actions and interventions
• is a bellwether of market sentiment and economic outlook
• protects against currency devaluation and inflation
• is global
• is one of the most beautiful metals ever found in the earth’s crust
• is a store of value
• is timeless
• is money

How many assets can you say have all those characteristics?

In spite of gold’s recent correction, the reasons haven’t decreased. In fact, the case for holding gold is stronger than ever. And over the past two weeks, a few “reasons” have surfaced that have fallen mostly under the radar.

These, I believe, portend a higher gold price. In fact, it is catalysts like these that could end up in our children’s history books that, in retrospect, were obvious to see…

1. For the first time ever, China has invested in GLD, the gold exchange-traded fund. Their sovereign wealth fund, China Investment Corporation, recently invested $155 million in the ETF. The amount represents only 0.05% of the sovereign funds’ $300 billion, meaning there’s a lot more where that came from.

Those mainstream lemmings who predicted China was done buying gold now have to deal with the reality that this move more likely signals they are closer to the beginning – and not the end – of a long-term strategy to diversify into gold.

2. The Prime Minister’s Office in India is creating a stream-lined process so that the country’s state-owned corporations can “aggressively pursue the acquisition of strategic mineral resources.” The Indian government, normally known for thick-layered bureaucracy, has created a centralized body that will have “rapid strategic and decision making powers.” This is telling, both from the perspective that they see some urgency to the matter, and that the acquisition targets are minerals.

Given the country’s historic propensity to own gold, it’s not a stretch to think the yellow metal will be high on the list of “strategic investments.” Recall their government purchased almost half the IMF gold for sale last year in one fell swoop.

The upshot? Don’t be surprised to soon hear of India following China’s lead of buying precious metal companies and resources.

3. “Iran is now a nuclear state,” declared President Ahmadinejad last week. The Islamic republic has produced its first batch of high-level enriched uranium, which they claim is solely for electricity purposes but can also be used to create material for atomic weapons if enriched to 90%. In response, the U.S. imposed new sanctions, and the U.N. is considering adding more of its own sanctions, too.

The West recently proposed that Iran export its uranium for enrichment and then have it returned as fuel rods for a reactor. Iran demanded changes to that plan, which were rejected, so claimed they had “no choice” but to start enriching to higher levels on their own. “God willing,” declared Ahmadinejad, “daily production will be tripled.”

I’m sure this will all just blow over, right?

4. The U.S. government must inflate. Here’s another reason we think that sooner or later inflation trumps deflation… by 2020, government economists project that entitlement benefits (Social Security, Medicare, etc.), along with interest payments on the national debt, will devour 80% of all federal revenues.

This assumes entitlement benefits don’t grow, which, of course, they are. The overall national debt, meanwhile, will rise to 100% of GDP within a few years, an alarming level by any measure. Even Moody’s warned that our credit status could lose its triple-A rating if the nation’s finances don’t improve, an unheard-of prospect just a few years ago.

So, we’re abruptly fleeing our debt-adding habits, right? As you probably heard last month, Obama signed legislation that raised the cap on government debt from $12.4 trillion – already close to being breached – to $14.3 trillion to permit more borrowing. As Doug Casey has pointed out numerous times, this is the exact opposite of what the government should be doing and will have serious inflationary ramifications.

There’s only one way out: devalue the dollar to reduce the debt burden.

We may very well see another round of deflation, but the endgame is inflation and the direct result of that is a rising gold price.

What I would point out is that any one of these reasons would be sufficient for wanting to put some gold in your portfolio. It’s the cumulative effect that’s potentially scary, one that argues we should be overweight precious metals at this point in history. The reasons are numerous and, in my opinion, overwhelming.

BuyGoldSilver.org  say:

..Don’t have much to add to that really, you know it makes sense..  Buy Buy Buy Gold

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Martin Weiss from moneyandmarkets.com writes today..

One year and five months ago — armed with a 92-page white paper and 59,000 petitions — we warned Congress about the grave danger of government bailouts.

To view the video of my presentation at the National Press Club, click here. To download the white paper, “Dangerous Unintended Consequences,”

And to understand how this is likely to impact your investments this year, please listen carefully to what I have to say now about the NEXT major debt crisis — this time hitting sovereign governments …

The Spreading Rot

In a debt crisis, Washington, Wall Street and European governments still seem to think that the only way to “restore investor confidence” is to pump in massive amounts of rescue capital, bail out the sinking ships, and plug the biggest leaks in the system.

But they accomplish little more than spreading the bad debts from one place to another. And recent history has proven, ad nauseam, that the relief they provide is pitifully short-lived … while the toxic material they spread is inevitably lethal.

So many examples come instantly to mind, we need not even blink to remember:

• Bankrupt subprime lenders were rescued by mortgage giant Countrywide Financial in 2007 … Countrywide was rescued by Bank of America in 2008 … and BofA itself needed an emergency bailout by Uncle Sam in 2009.
• Similar sequences of big-fish-eat-small-fish contamination abound with the likes of Washington Mutual, Merrill Lynch, Citigroup, JPMorgan Chase, and many others.
• And still today, we see Fannie Mae, Freddie Mac, and the FHA taking over 90 percent of the entire U.S. market for mortgages … while, at the same time, we see the Federal Reserve and U.S. Treasury providing 90 percent of the financing.
• Ditto for companies and governments all over the world — not just in weaker economies like Greece, Italy, Portugal, Ireland, and the UK … but also in supposedly stronger ones like France, Germany, and even Switzerland.

Yet, despite everything, few have recognized the historical patterns that have emerged:

Pattern #1 The stampede to risk is a herd phenomenon.

When the Fed pushes interest rates down to practically zero and when Uncle Sam virtually guarantees a failure-free environment, the Garden-of-Eden illusion captures nearly everyone; nearly all players are enticed by the forbidden fruits of risk.

This is why every major equity mutual fund, commercial bank, brokerage firm, and U.S. household got scorched in the Tech Wreck of 2000-2002 … and were burned even more severely in the Housing Bust of 2006-2009.

This is why state retirement funds like CALPERS, supposedly conservative banks like the Union Bank of Switzerland, and even government-sponsored agencies like Fannie Mae also got killed.

Pattern #2 Greed breeds corruption. To keep the party going, companies and governments dress up the numbers, hide the facts, or simply lie through their teeth.

In the years leading up to the Tech Boom, dot-bomb companies padded sales reports, created phantom capital, disguised costs, and then, to add insult to injury, convinced the world that profits were a non-issue to begin with. An estimated 31 percent of companies listed on the NYSE were suspected of manipulating their earnings reports. Nearly all “buy” recommendations by Wall Street research analysts were bought and paid for by the companies being recommended.

In the Housing Boom-Bust, the lying was even more widespread. All major Wall Street firms conspired to create fictional market prices for “structured securities” based on shaky mortgages. And all three established Wall Street ratings agencies joined the conspiracy by assigning triple-A ratings to the grossly overvalued, high-risk securities.

Meanwhile, chief executives of Fannie Mae and Freddie Mac, financiers for much of the mortgage industry, repeatedly swore before Congress on a stack of Bibles that their books were both clean and strong. They were neither.

Pattern #3 Inevitably the truth is revealed, setting investors on a selling frenzy. Like predators, they first attack the weakest, at the periphery of the herd.

In the Tech Wreck, investors first struck the obviously weakest lambs — companies with near-zero earnings and sky-high P/Es like Drugstore.com and Homestore.com. Then they went after bigger targets like Amazon and Yahoo.

Established, brick-and-mortar technology companies said they were above the fray and immune from the contagion. But soon, they, too, came under attack.

Before investors were done selling, Yahoo had crashed 97 percent; Amazon, 95 percent; Homestore.com, 95.5 percent; and Drugstore.com, 99 percent. Even big names like Dell, Microsoft, and AT&T shed hundreds of billions in market cap.

A half decade later, we saw the same pattern in the Housing Bust. Peripheral subprime mortgage lenders were the first to feel investors’ wrath. But the industry said the “crisis was contained to a small niche,” and their regulators agreed.

Next, big mortgage lenders like Countrywide got slammed — and again, “containment” was the watchword. Soon, all companies in the housing sector were slammed … and even as Washington and Wall Street were insisting that it was “exclusively a mortgage crisis,” the virus enveloped the ENTIRE financial sector.

Nearly all had joined the high-risk stampede, pulling millions of investors into the fold. So it stands to reason that nearly all were vulnerable to the contagion, when investor greed turned to fear and buyers became sellers.

Pattern #4 The bailouts merely helped spread the rot.

Bailouts, previously reserved strictly for unique emergencies, soon became the norm.

Yes, each successive bailout deal was typically larger than the previous. And yes, each was hailed as the “end-all solution” to the crisis.

But in reality, the deals did little more than spread the toxic material up the food chain — from niche players to Wall Street giants … and from Wall Street giants to sovereign governments.

Ultimately, however, as Mike Larson eloquently explained, ALL of the bailouts fail the most basic of smell tests.

Reason: The debts stink up the joint. Investors hear rumors of big blunders. And they feel it in the gut when numbers don’t add up. That’s why they dumped tech stocks in 2000; that’s why they dumped bank stocks in 2008.

The most important pattern of all: Until and unless excess debts are liquidated, the disease cannot be subdued. It will merely return at a different time, in a different form. Next to feel the pain: Sovereign nations!

After nearly three years of escalating government bailouts, it should come as no surprise that the biggest debtors of all — and the biggest warehouses of bad debts — are now sovereign governments.

Nor should you be shocked if the pattern of past crises is repeated …

1. The herd:

As in prior episodes, we have witnessed a new stampede to risk. Except this time, the leaders of the pack were governments themselves:

• The U.S. Treasury on a budget-busting rampage totaling $4.3 trillion in just three years …
• The Federal Reserve buying nearly a trillion-and-a-half dollars of mortgaged-backed securities and corporate bonds, plus …
• Sovereign governments across Eastern and Western Europe following a similar path.

2. Rigged numbers:

• The Obama administration has just presented 10-year budget estimates based on assumptions that are SO optimistic, even giddy Wall Streeters don’t believe them.
• Spain, Ireland, Portugal, Italy, and the UK have committed even more serious accounting sins.
• Greece even hired Goldman Sachs to help break Eurozone rules and cover up its excess debts, the New York Times revealed yesterday.

3. Investors attack the weakest first:

• Greece, the weakest link on the periphery of the Eurozone, was the first victim.
• Portugal was next.
• And in New York this past week, even the United States Treasury felt the sting when its auction of Treasury notes bombed.
• The big irony is that Germany, France, and other supposedly “stronger” Eurozone members know that if they bail out Greece or others, they, too, could become the next victims. But rather than bite the bullet and face the heat, they are choosing the same path as Bank of America with Countrywide and Uncle Sam with BofA. They will bail out Greece. They will absorb the bad debts. Then they will pray investors suddenly forgive and forget.

But the hard evidence already proves their prayers are falling on deaf ears.

Investors are not forgetting! And they’re certainly not forgiving!

Global investors know that all investments — no matter how safe on the surface — involve some measure of risk.

And they know that all governments — no matter how powerful and rich — could, in extreme circumstances, default on their debts.

So to protect themselves from the downside, they buy government default insurance … which, of course, comes with a cost.

If the consensus of market opinion leans toward a higher default probability, the cost of the insurance rises. If fears of default are minimal, the cost of the insurance falls.

So these insurance contracts — called “credit default swaps” — act as a pretty accurate gauge of investor fears and behavior.

And right now, fears of sovereign debt default are surging globally — for good reason: Even in the most optimistic recovery scenarios, deficits are out of control. And in a double-digit recession, some major countries will go broke. This is why …

• The cost of insuring Greek government bonds has catapulted to nearly DOUBLE the levels seen at the peak of the last debt crisis, receding only marginally when Eurozone countries vowed to stand behind Greece last week.
• The cost of insuring Portuguese government bonds has also surged far above the peak crisis levels of 2009.
• The contagion has infected the UK, where fears of default now match those associated with the U.S. in the thick of our bailout madness.
• And the fears are ALSO returning to the U.S. itself, where the cost of insuring against a U.S. Treasury default has jumped dramatically in recent weeks. Although still not at new all-time highs, they now exceed the peak levels seen in the 2008 debt crisis — a harbinger of sadder days ahead.

These are giant canaries in the coal mine. As Moody’s warns, unless the U.S. government can somehow perform miracles — a revenue bonanza or gut-wrenching spending cuts — its triple-A credit rating will be in jeopardy.

I don’t expect a U.S. default, and I believe anyone betting on it is throwing money down the drain. But if the Wall Street rating agencies don’t act to downgrade U.S. Treasury bonds, the market will.

Net result: Far higher borrowing costs not only for Uncle Sam, but for every borrower in the world.

What To Do

1. If you own long-term bonds of any stripe or color, sell them now. Don’t wait.
2. If you’re overloaded with U.S. stocks, cut back drastically.

BuyGoldSilver say:

If you want to read more from Martin check out his site: Money & markets

We think that whatever the daily volatility of the precious metals prices is, you are safer with your money in something real, tangible, and that can’t be printed or devalued overnight.

If and when it gets to that, as they devalue the paper, the value of your Gold & Silver will increase incrementally against the falling paper / stocks / bonds etc, and you don’t have long, this has started already, and can come very quickly now..

..but it will still come “Out of the Blue” (LOL!) to the sheep-like masses who will get get herded into the slaughter chamber yet again.

Time to buy Gold & preserve your wealth?

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Have you seen this video “Money as Debt“?  it is a MUST WATCH.

You can watch the whole thing from our video box here –>>

It’s 47 minutes long but we promise that if you are not a financial expert, this video will blow you away, in that you will be amazed that you didn’t know it worked like this.

And then today’s mail quoted below from the awesome Casey Research Daily Dispatch – subscribe HERE now if you’re not already getting this) is super relevant on the subject.

Dear Readers,

U.S. markets are not yet open as I settle in this morning. They are in Europe, however, where the sell-off in equities continues. The “rush to safety” back into the U.S. dollar is still underway, and so the greenback continues to rally and the commodities fall.

Observing the global flow of money, it seems important to consider the implications of a system built around the notion that debt is considered money. To wit, governments the world over fund their operations largely with money created by issuing debt. Even the payments made on great piles of debt are made using this “debt-money.” So, more debt begets more debt-money begetting more debt. Over time the system is, I hope you can understand, unsupportable.

Which brings us to the case of Greece and other “fringe” countries in the euro-zone. These failing states – and all the nation-states are failing, just at varying rates – need to sell a lot of debt in order to generate the debt-money needed to keep the government’s doors open, but investors, noting just how much debt has piled up, are wary of owning more.

And that gives rise to what is one of the thorniest problems resulting from a systematic reliance on debt-money – the demand for higher interest rates to offset the actual risks of owning the debt-money of an overindebted state.

But it’s even worse than that. To understand why, let’s reduce the situation to more human terms.

Imagine for a moment, being approached by your deadbeat cousin for a $1,000 loan. In exchange, he offers you an IOU that says he will pay you back in specie, with interest, at some point down the road. Now, consider the same situation, but in a world where debt is treated as money. Now, instead of lending him the $1,000 in exchange for an IOU that promises he’ll pay you back your $1,000 plus interest, he promises to pay you back, but only with another IOU.

This is the net result of using debt as money.

Investors are now looking at the mountain of debt looming over Greece and balking, causing that country to raise rates to attract their money – which, in turn, causes losses to existing debt holders and, over time, ratchets up the interest expense on the existing piles of debt. It doesn’t take a genius to see the potential for yet higher and higher interest rates being demanded, and that, dear reader, results in the need to gin up yet more debt-money.

You can see how this all gets quickly circular, and so I will put a period just here.

For the moment, the anxious market believes that the debt-money that trades under the “dollar” brand is of a superior quality to that of the euro (among others), and so the money flows back this way.

But the irony is that whatever brand of the stuff you own, it is still just the same thing: debt-money. Which is to say, an IOU masquerading as money.

Money, in our view, should be a reliable store of wealth. It is hard to use that term when talking about an obligation that someone else needs to pay up on – especially when that someone else has proven themselves to be serially unreliable. That makes the debt-money now sloshing around nothing more, really, than a slip of paper representing an untrustworthy promise.

To understand how untrustworthy the issuers are, you need look no further than the steady decline in purchasing power of all of the world’s many variations of debt-money. Case in point, in 1939 the average house cost $3,800.

Do you think that a shortage in real estate and improvements in construction quality explain the one hundred-fold increase in prices over the past 70 years? Not hardly. It’s that the Fed and other central bankers, in close cahoots with the politicians and their cozy buddies in high finance, have used the ludicrous and dishonest debt-money system to flood the nation with more and more of the stuff, debasing the existing stocks of same.

As we now know, because we can see it in the brazen numbers pushed forward by the president and Congress, the debt-money game is heading for a wall. It was one thing when the size of the debt rose at a measured pace that left it largely unnoticed as it grew and grew. But in 2009, the façade fell away, and now the severity of the problem is there for all to see.

While there have been some whiffs of a recovery in the economy, it is important to recognize that what recovery there is, is based on yet more debt-money. A lot more.

In other words, the roots of the recovery, as tentative as they may be, are exactly the same as the roots of the crisis.

There are good reasons that gold and silver have been used as money through the eons. As Doug Casey often points out, it is because it they are durable, divisible, convenient, consistent, and valuable.

While I can’t say, sitting here in the early hours, what the stock market is going to do today or how the unemployment numbers are going to ring in, what I can say with some certainty is that the era of debt-money is going to pass in the foreseeable future.

It won’t be a simple or easy transition back to something tangible. When the average man learns that his debt-money is not worth much more than the paper it is printed on, we could even see riots in the streets.

For the time being, though, the money flow is headed back into the U.S., where, unlike the irresponsible Greeks who ran a budget deficit equal to 12.7% last year, our government’s 2011 budget shows deficit spending at “just” 10.6% of GDP. For the record, as recently as 2006, that deficit was only 1.2% of GDP. Even so, for the moment, our debt-money is considered to be better than the euro and, it appears by looking at their prices, gold and silver.

It’s all a matter of perspective. And from where I sit, I have a strong preference that my money to be no one else’s obligation.

Before long, I suspect a lot of people will come to the same conclusion, and the rush to convert debt-money into something more reliable will send gold and silver soaring.

Until Monday, when we will certainly be treated to a lot more in the way of fun and games, thank you for reading and for being a Casey Research subscriber.

David Galland
Managing Director
Casey Research

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“Thoroughly agree, protect your wealth now before it’s too late..”

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Here’s a brilliant Graphic from the Harvard Business Review.

Amongst other things it shows very clearly the true actions of the individual governments, despite all their empty rhetoric..  ..the old “say one thing, do another” that the US and UK especially are so good at.

Click the image to see full-size.

Some have pointed out that the US tries to portray France for example as a “socialist hell”, meanwhile by everybody else’s standards France employed almost no bailouts (1.4%) and similar (1.2%) stimulus, whilst the US & the UK basically nationalized everything (that was bankrupt) in sight using taxpayer money..

from taxes ..that have yet to even be levied.

= Total world Bailout & Stimulus = 13 TRILLION of NEW PAPER.

This is what a Trillion Dollars looks like..  do we need to put it below another 12 times to make the point?  (we have at the bottom of the post )

You might want to click this one too if you haven’t seen it, it’s important to understand the difference between $billions (so 2009 now) and $Trillions, which are being banded around like last years billions now, THIS IS AN EXPONENTIAL RISE IN PROBLEMS

Bear in mind that only yesterday the US again raised their debt ceiling to $14.3 Trillion, up from $12.3 Trillion, which it was last raised to on only Christmas Eve 09, and which it had not done, it would have already defaulted on it’s sovereign debt!

So from the 24/12/2009 to the 28/01/2010 they spent their extra $2 Trillion and are now back for another two!

Historians will look back on this period of collective blind madness and laugh.

Make sure you’re laughing too, not crying because you were a victim of their  insanity, protect yourself from them now- Buy Buy Buy Gold

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Here’s the other 12 Trillion – what do you reckon, $20 Trillion by the end of the year? $30?

We liked this article because this is what we’ve been doing with silver over the years;  just every now and then when it’s been dropping for a while, buy the dips, a Kilo at a time, and then just forget about it.

This has of course now become much easier now with the advent of Bullionvault selling silver too (as well as gold) in amounts as small as 1 gram at a time.  – Lets just say it’s now built into a substantial cash value, and in another 10 years it will be a whole lot more.

By Chris Weber at www.dailywealth.com

Six years ago, on January 15, 2004, I officially recommended buying silver for readers of my Weber Global Opportunities Report.

We’d had silver stocks, and I’d owned silver personally, but I was waiting for silver to fall in order to get in at a better price for the newsletter readers.

We got in at $6.18 per ounce… It soon went to $8 and then fell back to $6, and then climbed back to $8, where it stayed a couple of years before mounting a new rise in 2006.

I tell you this to show how wide silver’s swings can be ($6 to $8 is a 33% gain in a few weeks’ time, then $8 back to $6 is a 25% plunge in an even shorter period). I also want to show the long periods of flat prices that characterize the metal as well.

So now silver is over $18.50. How high can it go?

I’ve often mentioned that a key thing for silver is for the metal to get back to test the 50% level of its huge decline from 1980 to 2001. This level represents a retracement of 50% from the highest point it reached in the previous bull market to the lowest point it got in the bear market.

On January 21, 1980, silver’s London fix price was $49.45. It has never been higher. From there, it began a plunge that would take it to a low of $3.5475 at the end of February 1993. That was a plunge of 92.8% in just over 13 years. A 50% retracement of this loss would be around $26. So far, it has not done that. I’m still waiting.

However, I want to give silver more leeway than gold, since it is so much more volatile. My feelings are that when and if silver soars, it will do so in a fairly short time and go to levels that are hard to believe today.

Several years ago, I thought if silver broke above that $25-$27 level, it could get to $50 in 2010. If it did, in real terms, after inflation, this would still be a lower price than the $50 silver briefly reached 30 years ago. In real terms, $50 in 1980 bought what it would take over $130 to buy today.

I think we are a long way from prices like that. Again, first I want to see how silver handles that 50% point. Maybe we’ll get a chance to see that soon.

Already this year, the gold/silver ratio has fallen. This ratio shows the number of ounces of silver one ounce of gold will buy you. The ratio ended last year at 65:1. Now it is 59:1. Even this ratio is historically high for silver. The chart below shows the average annual gold/silver ratio from 1792, when the U.S. dollar began, to 2005.

The next chart updates this, and gives a view of the last 10 years: We’ve seen the traditional ratio is about 16 to 1. However, at the peak of the last precious metals bull market, back in January 1980, silver went as high as just 14.8 ounces per one gold ounce.

So far, in this bull market, silver has not gotten below about 45:1, back in 2006. I’d want it to make another attempt at that ratio, and then see what happens. This, too, I think will happen in 2010. It’s something precious metals holders will want to watch closely.

The way to best play silver is just to buy it, or one of the ETFs (SIVR is best), and wait. Be prepared to see it very volatile, and don’t have so much that you panic every time silver plunges. In silver bull markets, that’s what silver does. If you can, just put your position out of your mind entirely, or at least at the very back of your mind.

But expect silver to run higher in the coming years. Nearly every government in the world wants their currency to decline in value to make it easier to service debt. That means real, timeless currencies like gold and silver will continue to rise in value.

Regards,

Chris Weber

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