Dave Gonigam – October 7, 2011
- Reverting to a barter system in Greece… and Florida
- Forget the usual unemployment numbers today: This one just reached a postwar high
- Catalysts for crisis: IMF adviser, Bank of England chief, Madoff whistle-blower all see trouble straight ahead
- Texas, Australia, Persian Gulf: Silver demand off the charts everywhere
- Readers write: Is the gold really there in Fort Knox?
“Battered by Economic Crisis, Greeks Turn to Barter Networks,” read a headline from last weekend’s New York Times.
The article described a growing number of informal groups, its members numbering in the hundreds, who trade a host of goods and services — language classes, baby-sitting, computer support, home-cooked meals — bypassing the euro.
In the city of Volos, “the group’s founders are adamant that they work in parallel to the regular economy,” the paper reports, “inspired more by a need for solidarity in rough times than a political push for Greece to leave the eurozone and return to the drachma.”
In other words, it’s not a matter of protest, but of necessity.
“Auto dealer takes horse as down payment for used car,” reads a headline from the Pinellas Park Beacon in Florida — demonstrating that America is farther down the road to Greece than many might like to admit.
The Park Auto Mall recently accepted a 13-year-old buckskin quarter named Dallas for a trade-in. Its owner needed a used minivan. She had no money for a down payment, and no need for Dallas. Dealership owner Fred Najjar’s kids always wanted a horse. Done deal.
In the last two months, Najjar has also accepted a professional Canon camera and an authenticated Thomas Kinkade painting.
“Whenever the bank requests money down,” says Najjar, “we suggest to the customer, ‘What do you have to trade? Something you’re not using.’”
Unemployment has reached a postwar record, according to ShadowStats.com’s John Williams — demonstrating that other businesspeople might have to adopt Mr. Najjar’s practices if they hope to keep getting customers through the door.
Mr. Williams takes the government’s skewed economic numbers and runs them the way they were 30 years ago. This morning, the Bureau of Labor Statistics issued its monthly nonfarm payrolls report. Let’s examine the official numbers, and Williams’ revisions…
- U3 unemployment, the number commonly reported in the media: 9.1%, unchanged from the previous month
- U6 unemployment, which includes all the U3 people, plus part-timers looking for full-time work and people who’ve given up looking for work completely: Up from 16.2% to 16.5%
- Williams’ alternate figure, which includes all the U6 people plus the people who gave up looking for work longer than a year ago: Up from 22.8% to 23.1%
According to the official report, employers added 103,000 jobs last month — not even enough to keep up with the natural growth of the population.
Compared with all the other postwar recessions, the “recovery” looks somewhere between anemic and abysmal. The folks at Calculated Risk who faithfully maintain this chart concede they’re running out of room and will have to expand it.
As of this morning, the nation has 6.6 million fewer payroll jobs than it did at the start of the official recession in December 2007.
“Layoffs are more of a predictor” of the jobs picture these days than the government report, says Michael Pento, the newest addition to our team of analysts.
“Looking back at 2008, Challenger Gray & Christmas presaged a huge amount of layoffs to come, well ahead of the employment report,” he says in an interview with TheStreet.com.”
Recall from our report Wednesday that Challenger counted 115,730 firings last month — up 126% from the month before, and a 212% increase year over year.
With that in mind, “We’re going have some very weak jobs numbers in the coming months because of the Challenger Gray & Christmas numbers,” says Mr. Pento. “In the next few months, we’re going to see anemic numbers and then going negative in early 2012.”
And that’s assuming no black swans arrive. As it is however, we’re spying a virtual flock of them this morning.
Assuming euro leaders don’t come up with a solution to their crisis, and soon, “I believe within perhaps two-three weeks we will have a meltdown in sovereign debt,” predicts International Monetary Fund adviser Robert Shapiro, “which will produce a meltdown across the European banking system.
“This would be a crisis that would be, in my view, more serious than the crisis in 2008,” adds Shapiro, who runs the consulting firm Sonecon and worked in the Clinton administration Commerce Department.
“We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France — that will spread to the United Kingdom, it will spread everywhere because the global financial system is so interconnected.”
“All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world.”
Right on cue, Fitch downgraded the sovereign debt of Italy and Spain after the close in Europe, around lunchtime in the United States.
A U.S. stock market that had traded up or slightly flat on the better-than-expected unemployment numbers turned decidedly south. The S&P is down nearly 1%.
“This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever,” adds Bank of England chief Mervyn King. “We’re having to deal with very unusual circumstances, but to act calmly to this and to do the right thing.”
The “right thing” in Mr. King’s judgment is more “quantitative easing,” which the Bank of England announced this week.
No, it won’t work any more than it worked in the United States. But that’s not the point: The move is “pretty much a vote of no confidence in European officials,” former Bank of England bigwig Richard Barwell tells Bloomberg.
“Either the virus is already in the U.K. so they had to respond, or they don’t believe the problem will be sorted out. I lean toward the second because of how much they’ve done.”
Then there’s the possibility of a banking crisis that starts in the United States, independent of anything going on in Europe. That’s the scenario raised by Harry Markopolos, the man who blew the whistle on the Bernie Madoff fraud.
“Bank of New York is going to go down,” he declares to King World News. “Between Bank of New York Mellon and State Street, these two institutions have stolen between $6-10 billion from tens of millions of Americans’ retirement savings accounts.”
On Tuesday, federal prosecutors and New York Attorney General Eric Schneiderman sued BNY Mellon, claiming it defrauded its clients by overcharging on foreign currency trades. Markopolos says he worked to bring the scheme to investigators’ attention.
“Every day, every time a state pension fund traded, the bank would steal approximately three tenths of one percent from every transaction,” he explains. “As an example, every time a pension fund bought a currency, what the Bank of New York would do is look back 20 hours and assign all of the state pension funds purchase transactions at the high of the day.”
Assuming this took place and the pension funds did not agree to it, this would be a rather serve problem.
We’re not in a position to say whether Markopolos is on solid ground or not. We are in a position to say this adds more uncertainty to a landscape that’s already tinder-dry and waiting for a spark.
“America’s economy in 2011 is a crumbling house of cards,” says our short strategist Dan Amoss. “The ‘recovery’ they tout — it’s held together by false statistics and worthless paper.” Dan has constructed a six-part strategy to protect your portfolio no matter which spark sets off the wildfire. You can review it at this link.
Precious metals are drifting lower as the week winds down. Gold has settled to $1,634, while an ounce of silver fetches $31.07.
“If you can find any silver these days, you will pay quite a substantial premium over the spot price,” writes Peter Cooper, one of Addison’s contacts in the Middle East. “But pay it because that is probably still a bargain compared to where silver prices are going.”
Peter is hearing many anecdotes about shortages of physical silver. To wit: “I used to buy silver from a shop in Khobar in Saudi. From the last four weeks, they said they ran out of silver. I cannot find anyone who sells silver in Saudi now. I asked them from where do they get their silver. They said the UAE. The problem is they have only 1 kg bars… and I still cannot find any supplier.”
Forget the UAE, says Peter — and he should know, being based in Dubai. “Our information is that the 1 kg bars are all sold out too. We’ve also had feedback about low or no stock in Texas and Australia from big private bullion dealers there.”
With the disparity between high demand and low prices, “the snap back for silver prices now has the capacity to be sensational,” Peter says, “and far beyond the mini-spike in the first few months of this year from $30 to almost $50 again. So those who go seeking out physical silver to buy at current prices are going to be very well rewarded and soon.”
“Earlier this year,” adds our resident rockhound Byron King in today’s Daily Resource Hunter, “silver prices spiked up near $50 per ounce. That seemed too high for my taste, at least in the short term. Recently, however, silver prices crashed down to under $30 per ounce. That’s more like it.”
“I believe we’re in the middle of a temporary silver crash and now is the time to build up your holdings. In other words, silver is on sale.”
“I watched Brad Meltzer’s ‘Decoded’ last night on the History Channel,” a reader writes. “It was about Fort Knox.”
“What was interesting is that everybody that was interviewed, including a former military guard that served there, says that there is no gold in Fort Knox. The entire Fort Knox thing is a sham.”
“That military person said that his platoon was issued rifles but never any ammunition, which he thought was odd and queried it until an officer told him that it was all for show, there was very little if any gold there. I guess when Nixon took the U.S. off the gold standard, it was because the gold stock was already starting to dwindle.”
“Other people that were interviewed said the government artificially depresses the price of gold. If people knew that there was no gold in Fort Knox, the price would be $5,000 an ounce. Try to obtain the episode and let us know what you think. I thought it was pretty scary.”
The 5: We missed it, but we do know Rep. Ron Paul has drafted a bill authorizing a top-to-bottom audit of the gold in Fort Knox. Unfortunately, he hasn’t been able to line up a single co-sponsor.
“I get a kick out of all the space and energy about nothing,” writes another after yesterday’s issue about chasing yield. “T-bills and bonds do not exist will not exist and are nothing but nothing. They are made from nothing. Why would you complain about getting a measly 1.5% interest on your ‘money’ when it does not exist?”
“If you really want to do something for humanity, you could help us get rid of the Fed. Any group of private investors that can make nothing and charge you interest for it belongs in jail. It is like a tax on the air you breathe. The Fed’s money does not exist, never existed and will not exist.”
“But of course, this will end up in the nut case file, and I do not care. It does not change a thing. The reality is that money exists only on a computer and the good graces of very kind, but not very bright humans.”
The 5: Um… Glad to see you’ve been paying attention for however long you’ve been reading…
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. “Fascism,” writes Ludwig von Mises Institute founder Lew Rockwell, “is the system of government that cartelizes the private sector, centrally plans the economy to subsidize producers, exalts the police state as the source of order, denies fundamental rights and liberties to individuals and makes the executive state the unlimited master of society.”
“This describes mainstream politics in America today.”
Lew teases out a host of implications in a thoughtful essay: He also demonstrates why the homeland fascist experiment is doomed to failure, and sooner rather than later. Give it a look in today’s Whiskey & Gunpowder.