One of the most interesting news items I've found was on the cover of The Financial Times, where I learned that a guy named Lahde "made tens of millions of dollars from betting against the financial and property sectors during [the] past two years", and he now wanted to thank "the low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA" who made it all possible for him to find enough suckers.

He noted that "These people who were often truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the aristocracy," he says, "only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America."

This goes along with an article in the St. Petersburg Times about Tom James, chairman and chief executive of Raymond, James Financial, who had "some tough words for the wizards of Washington, DC who oversaw the $700-billion bailout package".

He reports, "The Brave And Wonderful Mogambo (BAWM) was right all along! Those government weenies are the biggest freaking morons you ever saw, and we as a country should be ashamed of ourselves for having elected such corrupt, half-witted, utter failures and congenital idiots!"

As you have probably guessed by now, he did not say those exact words, but he implied every syllable when he said, "Legislators were almost embarrassingly ignorant of how the financial system works", which I figure explains how they don't understand the linkage between their own Bad, Bad Performance (BBP) as legislators and the subsequent Bad, Bad Performance (BBP) of the economy, and he says that only 3 of 16 legislators that he talked to actually understood what was going on in the "credit crisis." Less than 20%! Hahaha! We're doomed!

Well, maybe these Congressional losers will understand the unfolding economic slowdown, as evidenced by the Baltic Dry Index, which is an index of the cost to transport stuff by cargo ship, and which has fallen precipitously, which seems very important to me, and to Junior Mogambo Ranger (JMR) Riccardo, too, who is also alarmed by this like - as I previously said - me.

It's actually beyond scary, in a terrifying kind of "ain't nobody buying nothing in a consumer economy" kind of way, which means that without the consumer buying stuff as his or her contribution to the famous statistic of "the consumer is 70% of the economy", we are, in case you ain't heard, freaking doomed!

Well, maybe not all buying is drying up, as silver market analyst, Ted Butler, reports that in the last 10 months, "some 150 million ounces of silver can easily be documented to have been bought by investors. Undocumented purchases would add tens of millions more ounces."

In fact, when you add it all up, "Investment demand for silver this year is running at a full 25% of world mine production and over 20% of total production (including recycling). This is a remarkable historical turnabout."

Thus, it is easy to see why Mr. Butler is "bullish beyond belief for silver", since this kind of demand means that "In silver, the documented 150 million ounces bought in the first ten months of this year is equal to 15% of all the silver bullion equivalent thought to exist!" Wow!

More than one-seventh of all the silver bullion "thought to exist" in the whole world was suddenly bought up in less than a year, and yet the price of silver has been pounded down to less than 10 bucks an ounce? No wonder I am so bullish on silver!

He also notes that the gold/silver ratio is at more than 80, which is "one of the biggest differences in history."

And not only that, but since there are 4 to 5 billion ounces of gold in the world versus only 1 billion ounces of silver, that means that "the total dollar value of all the gold in the world is worth 300 to 400 times more than all the silver in the world (80 times 4 or 5)".

Talk about undervalued! Hey! This investing stuff is easy! Whee!

Until next time,

The Mogambo Guru
for The Daily Reckoning Australia

• Silver and its Large Short Position
• Gold and Silver!
• Gold and Silver Demand Unprecedented
• Price of Silver Climbing to All Time High of US $1,012
• Silver Stats That Will Make You Salivate

"We may now be entering the Asian century, dominated by a rising China and its currency. This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order. The United States must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles. For the last two decades America has been spending more than its income, increasing its foreign liabilities and amassing debts that have become unsustainable."

Yes, it could take more than a decade. But investors could take a big loss any day. All it would take would be a sudden move by China...or a shocking inflation figure in the United States...or a Treasury bond auction that doesn't go as planned. Everyone is watching the United States...carefully. And foreigners hold trillions' worth of dollar- based assets outside the United States. These are dollars that people hold, not to pay their bills or buy gasoline, but as a speculation. They're speculating the greenback will hold its value as well or better than the other things they might do with their money.

Europeans hedge their bets against the euro - with dollars. Asians hedge their bets against falling stock prices. Russians hedge their bets against the ruble. Latin Americans hedge their bets against their own pesos, bolivars, and cordobas. Everybody likes dollars because they are the most trusted money in the world. For the last 50 years, nothing could compete with the dollar. (Even though the dollar lost value against a number of other currencies over long periods of time.)

These foreign holders are already nervous. They've seen the mess the United States has gotten itself into. They read the headlines. They watch the news. They know that the United States is running a budget deficit this year equal to four times the biggest budget deficit ever - a record set just last year. It is as if a runner broke the record in the 100-yard dash...and then ran the course four times faster a year later. This is not progress. This is spooky.

The Chinese already let the United States know they are worried.

"We trust you to protect the value of our assets," they in essence said to the US Treasury Secretary.

And in the middle of May 2009, from the Financial Times comes news that Brazil and China are working toward using their own currencies in trade transactions rather than the US dollar.

This comes on the heels of the news that China's central bank governor Zhou Xiaochuan proposed to create a reserve currency "that is disconnected from individual nations."

What Mr. Zhou would like is to replace the US dollar as the world's leading currency with a new international reserve currency, possibly in the form of special drawing rights (SDRs), a unit of account used by the International Monetary Fund.

Then in June, Russian President Dmitry Medvedev questioned the US dollar's future as a global reserve currency and said using a mix of regional currencies would make the world economy more stable. Russia may consider ruble-yuan swaps.

The dollar "is not in a spectacular position, let's be frank, and its prospects cause various questions as do the prospects for the global currency system, " Medvedev said in an interview published by the Moscow-based Kommersant newspaper. Regarding the global financial system, "therefore our task is to make it more mobile and at the same time more balanced."

But for now, as long as these countries trust the United States to keep its promises and protect its money, they continue to hold US dollar investments - notably, US Treasury bonds. But just wait until the United States loses their trust. In a matter of minutes, China could dump enough US dollars to set off alarms all over the world. All of a sudden, dollar holders would rush for the exits - each one trying to get out before the others. In minutes, the dollar market could collapse...taking down US Treasury bonds with it.

Regards,

Bill Bonner and Addison Wiggin
for The Daily Reckoning Australia

• The Greenback Dollar Decline
• US Dollar As Reserve Currency Not Working Very Well
• US Dollar a Sort of Monetary Brand
• 4 Ways to Protect Against a Falling Dollar
• Special Drawing Rights Used as the World’s Reserve Currency?

Your editor scratched his chin over this question while thumbing through a copy of the Financial Times over the weekend in the shadow of the le Grand Arche de la Defense west of Paris. You know the one. It's a modern, shiny, gleaming version of the Arch de la Triomphe.

Just why we chose to stay in the business district of Paris rather than down in the middle of the city...well it had to be a cost saving decision. It certainly wasn't aesthetic. This is Paris without the charm, pretty trees, and rich smelling coffee. In fact, with all the glass buildings and paved pathways, it could be any city anywhere during any credit boom. It's just another example of finance dominating the global economy.

And that returns us to the big question as we open the week. The financial markets have clearly rallied. If it's true that markets lead economies, markets are telling us that things are going to get much better. The FTSE index of emerging markets is up 99% from its March lows. The S&P 500 is up nearly 60%. And gold itself is up 25%, with much of that move coming in the last few weeks. This is what happened in 2003, all asset classes went up simultaneously, riding the global money tide.

David Rosenberg, who used to work at Merrill Lynch but is now the chief economist and strategist at Gluskin Sheff, says that something is fishy about this rally. It's come, at least in the U.S., as the economy lost another 2.5 million jobs. "Typically, by the time we are up 60%, the economy is well into the third year of recovery; we are not usually engaged in a debate as to what month the recession ended."

Fine, you may be thinking. Employment is a lagging indicator. It will be the last thing that picks up. But it will pick up. In the meantime, how can you ignore what the markets are saying?

One answer might be that the markets are rigged. Or, if that is too indelicate, you could say that the surge of liquidity provided by central banks has allowed banks to load up on assets again, producing paper gains which boosted earnings and justified-in the minds of some insane people-higher valuations for stocks. The bull is back baby! The economy should quite being such a party pooper and get with the program.

For example, during the same time that the U.S. economy has shrunk by about $400 billion in terms of GDP, the balance sheet of the Federal Reserve has grown by over $1 trillion. Japan has the same problem, a shrinking real economy and an expanding central bank balance sheet. GDP has fallen by £16 billion in the UK, but according the FT's Lex Column, the Bank of England has injected ten times that amount into the economy.

What does it all add up to? Why isn't an increase in credit leading to growth in the real economy? All that new money is not leading to a lending boom with renewed business investment that creates jobs and a recovery. Instead, it's leading to forced speculation in the stock market which is driving asset prices higher. This is the famous problem Alan Greenspan had with low interest rates. You can turn the credit spigot on, but you just never know where the money is going to flow.

Right now, it's flowing into stocks. Lex says that since Lehman collapsed, "US banks have increased their assets by 10 percent to $14.2 trillion." Rather than shrinking their balance sheets, the banks seem to have escaped the push for regulatory reform and actually loaded up again on free money for a credit-fuelled bender. Leverage is in vogue again, as are risk assets.

But we have no reason to believe this is going to end any differently than the last leveraged boom. We know how those end. We've seen bubbles popping steadily since 2000. First it was Internet and telecom stocks. Then emerging markets. Then common stocks. Then the commodities sector got pounded. And don't even get us started on how bad an investment sovereign government bonds issued by debtor countries are going to be.

All of that might sound unnecessarily grim for an Australian-based investor wandering the streets of Paris in late September. Can't we manage to say anything positive? Well....yes, we can! For example, last night's dinner of simple farm-style chicken in the shadow of the Sorbonne was...well it was excellent.

But what about investing? If you're going to have a plan for the next five years that takes into account this attempt to reflate the financial economy, there are a few things worth keeping in mind. First, it's going to fail, and probably spectacularly so. That failure will be accompanied by an even greater expansion of government debt.

For example, the Times of London is reporting that Britain's net debt is growing at a rate of nearly six thousand pounds per second. Tax receipts are plunging. And politicians, jack asses that they are, are actually making even more promises to deliver things they can't begin to pay for now.

We think they key idea in all of this is that you're going to witness a transfer of ownership in the underlying capital assets of the global economy. The big question is will you profit from it or be victimised by it? We reckon that if we're right-and if you can anticipate the general progression of events-you can stay one step ahead of the curve.

Easier said than done, right? So for the remainder of the week, we're going to go back and review our proposal for a "Permanent Portfolio." It will be based on a forecast of more debt deflation...and then rapid inflation.

Yes, it sounds tricky. But this isn't the first time this sort of thing has happened. Tomorrow, we'll take you back to one of the first "Great Inflations" Europe experienced and show you how it literally capitalised a new entrepreneurial class for the next three hundred years. Until then!

Dan Denning
for The Daily Reckoning Australia

• If Unemployment Numbers Get Better So Will the Economy
• The More Money in a Financial System the Less Each Unit is Worth
• Financial World Has Every Reason to Encourage Government Stimulus
• A Recovery of Some Kind in Global Trade
• Possible Second Round of Panic Hitting Financial Markets

The reason for the dollar's decline and gold's rise was given in the front-page headline of today's Financial Times. China launched a "new dig" at the dollar, it says. As near as we could tell, China merely stated the obvious - that the world is going to have to find a better monetary system. The US dollar won't be king of the hill forever. And China, which is up to its neck in dollars, would like to find a solution sooner rather than later - that is, before the dollar goes the way of all paper.

The dollar will eventually give way to inflation and devaluation, but probably not soon.

"I'm absolutely worried about inflation," says John B. Taylor.

But here at The Daily Reckoning, it is not inflation that worries us...it's the lack of it. Making a long story short, as long as the feds see no inflation they will continue trying to create it. In the end, they will get more than they wanted.

And where will investors flock when that day comes? You guessed it - to our favorite yellow metal.

Though, right now, instead of inflation, we have deflation. Today's New York Times tells us that deflation in Ireland has reached 5.4% - the highest since the Great Depression of the '30s.

You know the reasons for deflation as well as we do. The world suddenly has too many people who borrowed too much money buy too many things they really didn't need and really couldn't afford. This caused the world's producers to greatly over-estimate the 'real' demand. Their customers began to disappear in 2007. Their factories are still standing.

Bill Bonner
for The Daily Reckoning Australia

• Ireland Going Through Same De-leveraging Process as the US
• Obama Plans to Do Away With Ireland’s Tax Advantage
• Broad Money Supply Declines by $50B in US, Fire Up the Printing Presses
• US Dollar Declining as China’s Currency Rises
• The Rally is On as the Dow Rises

And it's one, two, three,
What are we fighting for?
Don't ask me, I don't give a damn,
Next stop is Vietnam;
And it's five, six, seven,
Open up the pearly gates,
Well there ain't no time to wonder why,
Whoopee! We're all gonna die.

- Country Joe & the Fish, "I Feel Like I'm Fixin' To Die Rag"

Robert McNamara must have been in a hurry too. He never had time to wonder why he was sending 500,000 American boys to fight a war when Lyndon Johnson was "publicly promising in campaign speeches not to 'go North,' not to send American boys to fight wars Asian boys ought to fight for themselves," as an editorial appearing in the June 17, 1971 issue of The Washington Post put it.

Both the International Herald Tribune and the Financial Times describe the former Secretary of Defense as the "architect" of the Vietnam War. This is news to us and libelous to real architects; as near as we could tell, the war went on without plans or blueprints, clapped together by jackleg meddlers. Then, the whole thing fell down in a heap.

But we do not disrespect the dead here at The Daily Reckoning. Instead, we cut them open in order to figure out what was wrong with them. Look for the autopsy report later in the week...until then, Robert S. McNamara, RIP.

For today, let us return to the markets.

Yesterday, the Dow rose 43 points. Oil sank to $64. Gold traded at $924. The dollar remained about where it was, at $1.39 per euro. And the 10-year note yielded almost exactly 3.5%.

Economists are guessing about how high unemployment will go in the United States. One estimate in RealEconomics has it peaking out at 14%. Another, from PIMCO, worries that it might just climb over 10% and stay there for a long time.

Naturally, the calls for more stimulus spending are becoming louder. People are wondering how come Washington bails out Wall Street but not California.

Wouldn't that stimulate the economy? The Golden State is issuing IOUs to paper over the holes in its budget. Wall Street has announced that it has found a way to make a buck on California's troubles; it will trade the IOUs just like bonds. But major creditors - fearing the paper could decline in value - may not take it...forcing California into a more immediate crisis.

This will make people wonder something else: how come creditors take US IOUs, but not California's? The feds' deficit is 70 times greater than California's. Yet, lend money to the federal government for 10 years and you get just 3.5%.

Meanwhile, in the business sector, Bloomberg continues its reports on the progress of the depression: "Earnings Drop Worldwide," says the headline.

In the United States, dividends are going down faster than at any time in the last 50 years. Businesses are earning less and paying less in dividends because shoppers have stopped buying.

Maybe it's just mid-summer. But despite the darkening clouds, there's an air of eternity...like the stillness before a thunder storm...as if time were stuck in a drop of amber...and lightning would never strike.

"The worst is behind us," says a report from the British Chamber of Commerce. Of course, those words could have come from any one of dozens of sources. Economists believe it. Businessmen. Investors. The recovery may be "long" and "fragile." Maybe "L" shaped...rather than the V we were hoping for.

However, Capital & Crisis' Chris Mayer tells us, the crisis is far from over. "We talk incessantly about bailing out the banks, bailing out Wall Street, when the real question is: who is going to bail out the taxpayers?"

Now, should come the part where the rebuilding begins...and yet, there is no rebuilding. Instead, the economic model that has existed more or less intact since the end of WWII is being dismantled.

Yes, dear reader, we have entered a period of creative destruction. Between the Napoleonic Wars and WWI was a period of growth and stability. There were disruptions - even grave disruptions, such as the War Between the States in the United States and the Franco-Prussian War in Europe. There were various uprisings, communes and Risorgimientos. But the 'powers that be' were solid. So was their money. The pound, the dollar, and the franc were all backed by gold. European powers ruled the earth. Britain ruled the waves. And gold ruled commerce and banking.

It all came to a disastrous end in 1914. Soon, almost every government in Europe was bankrupt. The royal families of Europe - the Hohenzollerns, the Hapsburgs, the Ottomans, and the Romanovs - all were swept away by war and revolution. And then came the Genoa agreement of 1922 that allowed central bankers to hold pounds or dollars, instead of gold, as reserves. It was a small step for man...but a big step on the road to ruin. Thereafter came a number of other steps leading up to Richard Nixon's giant step in August 1971, removing the last trace of gold from the world's official financial system.

The Archduke Ferdinand was shot in Sarajevo in June 1914. The summer that followed was uneasy but, for a while, calm. No one was quite sure what would happen next. As the warm days went by, it began to look as though nothing would happen at all. People had lived through a century of relative peace and prosperity. Smart people believed that something fundamental had changed. It was a new era, they thought. Globalization was making them all rich. And new technological innovations - the internal combustion engine, automobiles, airplanes, electrical appliances - promised a better, easier life for everyone. This better life was based on capital...savings put to work in factories, buildings, machines and transportation systems. Wars no longer made sense, since they destroyed this vital capital. Everyone clearly benefited from the new system of globalized trade; no one stood to gain anything worthwhile from war. One popular book of the time argued that war had become obsolete...unthinkable in this new modern world.

Alas...here we are.

Despite the comforting arguments in July 1914, the guns opened up in August and didn't stop until four years later. Even then, the destruction was not over. The next three decades were spent settling scores and sorting out the debris; the Bolshevik coup in Russia...Mao's victory in China...taking the Germans and Japanese down a notch...hyperinflation in Germany...depression in America - taken together, these developments created a new world order.

The United States of America emerged triumphant. The US has dominated the planet's military affairs ever since; the dollar has dominated its financial affairs.

But now this giant seems vulnerable. It still has the world's strongest military, but depends on it rivals for financing. Britain depended on financing from America in WWII. But America's elite were anglophiles...gladly sharing power with the British Empire in the interwar period, and then stepping into its boots after WWII. The handover of imperial power was smooth. Diplomats still speak of the 'special relationship' between the United States and Britain.

Today's rivals are different. They speak different languages. They have different political systems...and different cultures. They are not European powers. Led by China, they are responsible for a larger and larger share of the world's output. And they already are responsible for a large share of the world's savings - with the biggest piles of cash in the world. Until now, they have recycled those savings back into the United States. It was as if you bought a new automobile and then the manufacturer gave you back your money so you could buy another one. This arrangement seemed to serve everyone fairly well for a long, long time. Americans got to enjoy a standard of living that not even they could afford. Emerging markets got to emerge much faster than they would have otherwise. Factories went up in Asia; debts went up in America.

But that economic model is finished. Broken. It's over. Kaput. American consumers are not going to go further into debt so that Chinese factory workers can add to their savings. Instead, savings rates are soaring in the United States. And the Chinese are facing riots (described as "ethic riots" in the paper...they have left 156 dead in a remote Chinese province...How much effect did the financial downturn have on this civil insurrection? We don't know...)

Like the great powers in the summer of '14, no one has an interest in upsetting the economic model of the last 50 years or disturbing the political stability of post-Cold War period. Besides, the rising powers - again, led by China - are "trapped," say analysts. They are thought to have "no choice" but to back the United States and its dollar.

"China - with 80 different car makers to bail out... tens of thousands of huge socialist-era factories... and 100s of millions of workers to support - has a big problem," The Richebacher Letter's Rob Parenteau tells us.

"Much bigger than they're letting on."

"But when you are trapped, you spend all your time trying to figure out how to get free," said an analyst we met with yesterday. "Sooner or later, they'll find a way. Then, watch out."

Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

• The New Chinese Era
• China Will Rule the Business World While America Finds Itself Heavily in Debt
• BRIC – Brazil, Russia, India and China Suffer High Rates of Inflation
• Chinese Economy Seems to be Growing
• Australian Economy in Weak Phase

Is this a number you can believe? Maybe so. It sure seems like it is at odds with what everyone in the business community is saying. And most economists still expect unemployment in Australia to creep towards 10% by 2010. But for a month at least, the numbers say otherwise.

Speaking of numbers, try US$74 billion (or $100 billion, if you like your numbers in Aussie dollars). That's the combined total of how much capital the U.S Treasury Department thinks America's 19 largest banks will need to survive further losses. Under the "more adverse" scenario, Treasury modelled how banks would survive with a loan loss rate of around 9.1%.

U.S. stock markets reacted to the tests by closing down over one percent. Is that because the results were already pretty well known? Or is it because most people know the 'stress test' exercise actually did more harm than good? Investors spent weeks speculating about which banks were under the most pressure. But frankly, we're not much closer to that answer today.

There are also two big things the 'stress tests' did NOT do. First, they did not clarify how raising additional capital improves the quality of around US$2 trillion in housing-related assets that are currently rotting on bank balance sheets (because it doesn't). Second, they did not show how converting preferred shares into common shares actually improves a bank's capital position.

In fact, converting preferred into common doesn't really put any more money into the bank. It's just an accounting gimmick. It's a painless way to improve tangible common equity, against which banks can offset future losses. So just to be clear, we can't quite figure out how converting preferred shares into common improves a bank's capital position in any meaningful way. More meaningful ways would include selling assets to raise actual cash, or selling new shares to raise actual cash.

More than anything, the 'stress tests' reveal a complete lack of resolve on the part of the U.S. government to deal with its banking crisis honestly. Instead, we're going to get 'zombie banks' in America. The FT's Lex column says, "In the short term, many shareholders will be diluted as banks convert preferred shares into common equity to raise capital."

"But at the end of this process," it continues, "many will be convinced the banks have been restored to health. Longer term, however, the $3,000bn-odd aggregate hole in US financial sector balance sheets is beyond the private sector's ability to fill. Mirroring Japan more than a decade ago, Thursday may well mark less a revival of the sector than the beginning of zombie banking in America."

And it's because of the private sector's reluctance to plug gaping holes in financial sector balance sheets that we can extend a warm welcome to the European Central Bank. It joined the "Quantitative Easing" (QE) club today, and it did so in style. First, Europe's central bank cut short-term interest rates to just one percent. This was expected. The bank has cut rates by 325 basis points since last October.

What was less expected is that the inflation hawks at the ECB seem to have been outflanked by the counterfeiters (money printers). The ECB joins the U.S., Japan, and the U.K. in throwing caution to the wind and money from helicopters by pursuing a policy of Quantitative Easing . ECB President Jean-Claude Trichet said the bank will buy €60 billion worth of "covered bonds." It will do so with brand spanking new euro notes.

So what does it mean? Well, in comparison with the QE efforts in other countries, the ECB is late to the game and modest in ambition. The ECB's first foray into this strange new world is small, at just 0.5% of Eurozone GDP. That compares with QE efforts of 2% of GDP in the U.S. and 8% in the U.K. IN fact, just yesterday, the Bank of England said it would increased its bond purchases (QE) by £50 billion.

But what's important about the ECB's action is that it was the last major central bank to at least pay lip service to inflation that results when the monetary base expands so much. Now, the world's major central banks are in ideological agreement that the response to falling asset prices is to support them directly through money printing. That is probably the most important development in financial markets all week. It means you can expect an even larger expansion of the global monetary base, the precondition for a big surge in inflation when banks begin lending again.

"Navigating the world is much harder than in the 1930s," says Black Swan author Nassim Taleb. This is the most difficult period of humanity that we're going through today because governments have no control." Taleb was speaking at a conference in Singapore. He warned of "big deflation" ahead as asset values fell. But Bloomberg reports that he also thinks gold and copper could "rally massively" as governments print money.

We have tentatively named this the "Dr. Barbaric" trade. That's a combination of copper's nick name (Dr. Copper) and the moniker given to gold by John Maynard Keynes (the barbaric relic). Copper prices rise when an economy recovers. So we're assuming here that Taleb's forecast on copper is a kind of call option on future growth, while the gold forecast is a put option on paper money.

You know that copper will eventually be in demand again when global demand resumes growing (we're assuming that it will, some day, in the future, perhaps in China and India). So for now, copper stockpilers or futures traders might like the idea of being in a practical metal that has real industrial and economic demand as opposed to, say, government bonds. Of course not everyone is going to do this. But for some traders, copper might be a good place to park capital in the coming inflation.

And gold? Well you know all about that. Yesterday's Financial Times had three stories in a row on gold. The first was, "Beijing Bets on Bullion" and showed that even though China's gold reserves have doubled since 2003, the country still only has 1.6% of its total foreign reserves in gold. The world average is 10.5%. This means that China-like Russia before it-is likely to be a ready buyer of IMF gold sales or sales from European Central banks. It's yet another kind of Money Migration.

The second FT article said that "Gold sales cost Europe's central banks $40 bn." Central banks in France, Spain, the Netherlands, and Portugal followed Britain's 1999 example and sold large chunks of their gold reserves when gold prices were around US$280. They sold around 3,800 tonnes of gold for around $56 billion, according to the FT. The FT reckons if they'd kept those gold reserves and not bought government bonds with the proceeds, those banks would be $40 billion better off. That would come in handy today, wouldn't it?

As an aside, can you see how upside-down the world is? The ECB prints money to buy bonds. The Bank of England, the Bank of Japan, and the U.S. Federal Reserve all do the same thing. Meanwhile, central banks are selling a real tangible asset like gold. These people are supposed to be guardians of sound money with steady purchasing power? They seem to aiming for the exact opposite.

European central banks have a larger percentage of total reserves in gold compared to the rest of the world. The FT says that even after years of sales, European central banks typically have around 60% of their reserves in gold. So in theory, selling the gold reduces their exposure to one asset class and gives them greater diversification.

But at what price? Europe accumulated its large gold reserves through centuries of commerce and conquest. Now it's selling the Continent's accumulated monetary treasure off in order pay for unsustainable social welfare promises made by nanny state socialists over the last 50-years. Does that seem like a good long-term trade for Europe's future?

Maybe the rising gold price and anxiety over huge deficits is causing a re-think. The third FT article on gold reports that "Central banks succumb again to bullion's lure." It reports that last year, "central banks sold 246 tonnes of gold, which was the lowest amount in ten years." On an annual basis, Eurozone central banks sold the lowest amount of gold in the last ten years in 2008. And outside of Europe, central banks were net buyers of gold in 2008.

Our point? Serious, knee-rattling doubts about the financial system are held at the highest levels of global government and banking. Pay no attention to the drivel, pap, and platitudes you hear on a week-to-week basis. This latest market rally is a convenient distraction from fundamental changes that are afoot in the world's monetary system. As investors, we need to keep that in mind and be positioned to profit from the right commodity investments.

Former Morgan Stanley analyst Andy Xie is certainly keeping it in mind. " If China loses faith, the dollar will collapse," he's recently written.

"Emerging economies such as China and Russia are calling for alternatives to the dollar as a reserve currency. The trigger is the US Federal Reserve's policy of expanding the money supply to prop up the banking system and its over-indebted households. Because the magnitude of the bad assets within the banking system and the excess leverage of its households are potentially huge, the Fed may be forced into printing dollars massively, which would eventually trigger high inflation or even hyperinflation and cause great damage to countries that hold dollar assets in their foreign exchange reserves.

Xie then makes a point Aussie investors ought to consider. Namely, the Fed's big expansion sets off a cascade of global currency devaluations. This is the catalyst for a higher Aussie gold price, as the Reserve Bank lowers rates and the Federal government pursues larger deficits and more stimulus to deal with the crisis.

"As the Fed expands the money supply," Xie writes, "it puts pressure on other currencies to appreciate. This will force other central banks to expand their own money supplies to depress their currencies. Hence major currencies may take turns devaluing. The end result is inflation and negative real interest rates everywhere. Central banks are punishing savers to redeem the sins of debtors and speculators."

So what is the end game?

"China is aware it must become independent from the dollar at some point. Its recent decision to turn Shanghai into a financial centre by 2020 reflects its anxiety over relying on the dollar system. The US will not pay attention to something so distant. However, if global stagflation takes hold, as I expect it to, it will force China to accelerate reforms to float its currency and create a single, independent and market-based financial system. When that happens, the dollar will collapse."

It may not happen this week or even this year. But we agree with Xie. That's where we're headed. With copper, oil, and gold all beneficiaries of money printing and U.S. dollar weakness, investors in Aussie resource stocks can turn the dollar crisis into an opportunity. What's more, Chinese diversification out of dollar reserves has already proven to be resource bullish.

This resource exposure is a good hedge for the Australian economy. The Australian government may squander it by running up large and largely unproductive debts that steal away capital from the private sector. But since there's nothing we can do about that except to point out that it's idiotic, the best strategy is to turn the coming currency realignment into a benefit. More on that next week. Until then...

Dan Denning
for The Daily Reckoning Australia

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It will also be a long time before Americans return to free-spending ways. Not only do they no longer have the collateral to back up more debt, they are also growing older and wiser. Consumer spending rose 2.2% in the last quarter. But that is probably a fluke. Americans can't spend what they don't have. And they must save for long retirements...knowing that their houses and stocks could lose value at any time.

The last report we saw showed the saving rate was back towards 5% - a big jump up from zero a year ago. There is no way savings AND spending can go up at the same time.

What's more, their incomes are falling. Wages and salaries are down 1.2% over the last year. As this depression sinks in...Americans will lose more income.

USA Today opens with a cover story on "the new homeless." There's a photo of a 53-year-old man sitting in his tent. It's a "temporary situation," he says. But the tent city in Pinellas County, Florida, may be home for longer than he expects.

"Tent cities filling up with casualties of the economy,' says the headline. "Some middle-class workers with college degrees find themselves displaced by layoffs, foreclosures."

"Economy contracts 'faster than in the 1930s,'" says a headline in today's Financial Times. A research outfit is forecasting a drop in British national income of 4.3% - substantially worse than the government's guess. The reason for this new outlook is that "world trade has collapsed by more than forecast," explained an economist on the case. The report went on to forecast UK public debt at 100% of GDP.

The story is not much different in the United States. GDP is falling at a 6% annual rate. If this continues for a few years, it will make this depression worse than the Great Depression of the '30s - which hit America much harder than it did Britain (probably thanks to the forceful response of the Hoover and Roosevelt administrations).

Equity losses last year were worse than those of '29. It stands to reason that the next phase - the economic decline - will also be worse than the '30s.

By our calculation, the U.S. economy carries about $20 trillion of excess debt. Until that debt is eliminated, the idea of a healthy boom is a mirage. Getting rid of that debt either involves a long, hard period of work and sacrifice - as debts are paid down. Or, it involves something much worse.

Our guess is that the feds - who still have no idea what is going on - will choose the second solution...something much worse.

But what, exactly? We have some ideas...some guesses...stay tuned.

Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

• Normally Small Businesses Lead the Economy Out of Recession
• Investors and Their Lost Money
• This Isn’t a Recession
• Investors Are Thinking: Inflation is Coming, But it Isn’t Here Yet
• A Funny Story About $20 Gold Coins

"Optimism builds," says a headline in the Financial Times.

As predicted, the world markets are enjoying a bounce. People who had no idea there was anything wrong with the world financial system two years ago, now say the problem has been fixed.

Who fixed it? The people who had no idea what was wrong with it, of course.

What did they fix it with? The same thing that caused the problem they didn't see - debt.

Who makes sure it won't break again? The people who didn't notice the wheels coming off the last time.

Yesterday, the Dow rose 214 points. Oil closed over $54. Gold ended the day over $900. And dollar sank to $1.33 per euro.

Most interesting...bond yields, though still pathetically low, are rising. The U.S. 10-year note yields more than 3%. The long bond yields more than 4%.

The longer these trends go on, the more reasons people will find to believe that it is not just a bounce...but another major boom.

New York-based Economic Cycle Research Institute says, "The U.S. is on the cusp of a growth rate cycle upturn," the article explains.

Let's look at whether this optimism is justified.

On the housing front...U.S. houses are down 30% from their highs. The Case-Shiller index of housing prices has fallen for 30 months in a row. Isn't that enough?

Maybe. The latest data shows more sales - of new, as well as existing houses. And there are more housing starts too. But in the former boomiest states - California, Nevada and Florida - about half the sales are of foreclosed properties. These properties are hitting bargain prices...but pulling down the value of the entire housing stock. And there are still lots of houses to sell. So don't expect any major turnaround in prices. If prices have hit bottom - which we doubt - gains are likely to be very small...and they'll come very slowly.

When the housing crisis began, we estimated that prices needed to come down about 40% in order to make the average house affordable by the average person. But that was before the average person's income came down. If the depression continues, as we think it will, house prices should come down a further 10% to 20%.

And don't forget about the second wave of defaults headed our way. The Richebächer Letter's Rob Parenteau tells us that in 2011, the "Option ARM" and "Alt-A" home loans will reset at a higher rate...and some unlucky homeowners could see their mortgage payments as much as double. Millions will see their wealth disappear...and the ripple effect it will have on the banks and economy as a whole will be devastating.

Besides, if the United States is entering the "worst downturn since the Great Recession," who will have the money to buy a house? But that's the issue. Maybe the world is not entering a major downturn, after all. Maybe it was just a case of mass hysteria...a panic, like the Y2K bug...or terrorism...or swine flu. Maybe people are now getting over it...and getting back to business, just like they did before.

Consumers are becoming bolder. Consumer confidence measures are about 20% below the baseline metric of 1985...but that's a big improvement; they had been nearly 40% below the '85 standard.

There is some evidence that consumers are returning to their bad habits, too. Consumer spending is picking up - at least, that's what recent numbers from the discount stores show. They're taking up cheap thrills and necessities again. But luxury shops are still reporting drops of about 20% per year.

Major stock markets have rebounded 20% and more. But the real excitement has come in emerging markets. A few months ago, it looked as though China would be unable to decouple from the developed world. They were stuck, said analysts, like a rusty sink drain. The Middle Kingdom was headed towards recession just like everyone else. But then those clever Chinese seem to have found a wrench big enough to pop the joint. Almost unbelievably, China seems to have pulled off the much desired "V-shaped recovery." Instead, of contracting, China's figures show it expanding at a more than 8% rate.

China might be lying, of course. It seems very unlikely to us that China could have recovered so quickly. This is not a recession, we keep saying. It's a depression. And depressions demand structural changes - the kind that takes time.

Besides, eyewitness reports tell a story that sounds like a cross between "Grapes of Wrath and a repeat of Mao's Long March." That is Elliot Wilson's description after a recent trip into the heartland of the communist giant.

"Once-bustling malls are now empty," Wilson continues. "Plaza 66 in Shanghai, owned by Hong Kong-listed Hang Lung Properties, is a case in point. On a Friday afternoon, the 51,700 square meters of high-end retail space boasted exactly 11 customers...

"Everywhere's the same. I talk to the concierges of Shanghai's leading hotels, always men in the know. At the JC Mandarin, occupancy is at 40 percent in early February, against 80% a year ago. At the vast JW Marriott, it's even worse; just 25%..."

Office complexes too are "empty, empty, empty...Gemdale... 50 floors of office space completed last summer are all empty..."

But what the heck? Maybe we're wrong. Maybe China is already recovering. It may be a structural depression - but only for the developed countries, particularly the United States. Maybe it's only a recession for China. And maybe it's over. Seems almost unbelievable...but now, with so many wonders to wonder about we wonder why we bother to wonder at all.

Besides, other developing economies are reporting the same things - increases in exports after a catastrophic collapse at the end of the last year. You can measure the collapse easily just by looking at the Baltic Dry Index - which keeps track of bulk shipping rates. It fell by more than 90% last year. From its low, it's doubled - up 100%. But that still leaves it down 80% from a year ago.

Stock markets in emerging markets show similar increases. Brazil's stock market is up almost 90% from its low. South Korean stocks are up 71%. And Chinese stocks - those listed on the Shanghai exchange - have gained 50%.

Apparently, someone thinks the worst is over. Maybe that person is right. But we doubt that this rebound is the sign of a new, healthy boom. Credit expanded for half a century. The Bubble Epoch at its end caused trillions of dollars worth of errors. Many of those errors have already been corrected. But the economy the bubble built remains unreconstructed. Same mismanaged companies...same mismanaged regulators...same mismanaged banks. Exporting nations had gotten into the habit of earning net sales from the U.S.A. of $2 billion per day. Those earnings provided much of the speculative capital that created the Bubble Epoch prices. But that money has all but disappeared. And there's not much chance that it will return anytime soon.

Instead of a healthy new boom, our guess is that the world is enjoying a sick echo of the old one. Governments, led by the U.S.A., attempt to reinflate the bubble with guarantees and giveaways equal to an entire year's annual output of the world's largest economy. Since every penny of this money is borrowed, it makes sense that every penny will have to be withdrawn from the world economy at some point.

In fact, economists are already looking ahead to the moment when deflation fears give way to inflation fears.

"Inflation Nation," is the title of an editorial in today's International Herald Tribune. In it, Alan Meltzer argues, "If President Obama and the Fed continue down their current path, we could see a repeat of those dreadful inflation years [the 1970s]."

Professor Meltzer reminds us that cutting off the inflation of the '70s wasn't easy. The feds turned the screws...and let the prime rate go above 21%. Of course, today's Fed has this information. And Paul Volcker, who was Fed chairman during that period, is now an economic advisor to Barack Obama. Still, "I do not worry about their knowledge or technical expertise," continues Mr. Meltzer, "What I doubt is the commitment of the administration and the autonomy of the Federal Reserve ... Under Bernanke, the Fed has sacrificed its independence and become the monetary arm of the Treasury..."

"The Fed's job is to take the punch bowl away," said an Eisenhower era chief. But we have come a long way since the Ike and Dick years. This time, the inflationary party is likely to get out of control, happy days will be here for a while...and then some very sad days are likely.

When the I.O.U.S.A. team interviewed Paul Volcker in December of 2007, he said, "...when I look back on my lifetime, it is obvious that letting inflation get a little bit out of control and not dealing with economic problems effectively in the'70s led to a very uncomfortable crisis. We don't want to have to go through big recessions again to teach people fiscal responsibility. Instead, we should anticipate what needs to be done while maintaining the growth of the economy. And the threat will always be an unstable economy and an unstable currency. And that's not just destructive to economic life, but it can be destructive to America's position in the world, which to me is the greatest concern."

Bill Bonner
for The Daily Reckoning Australia

• The Feds Debate the ‘Long and Short’ of Recession
• The War On Capitalism Continues
• Most People Think a Rising Housing Market Makes Them Richer
• The Country is Going into a Recession with its Finances in the Worst Shape Ever
• Predictions for a Polite and Mild Recession

WATCHING SOMEBODY ELSE slip on a banana-skin always raises a laugh. Not least in the divine comedy of money and finance.

"It took three generations," wrote a professional metals consultant in Feb. 2009, "but we now seem to have reached the point in the world's history where, for the first time, gold is valued only for jewelry use and speculation.

"The metal today has rapidly diminishing monetary use..."

Whoops! Within a matter of weeks, two of the world's biggest monetary powers - Russia and China - publicly said they wanted to discuss including gold in a new global "basket" to replace the Dollar as reserve No.1...

"What of the idea," The Economist then asked this week, "that China has [already] diversified into other currencies? The statistics are hard to make sense of [because] the State Administration of Foreign Exchange (SAFE), which manages the country's reserves, does not disclose such details."

Hee-Hee! The very next morning, the head of SAFE, Hu Xiaolian, told the world that her country's gold hoard has risen by 75% since 2003 to 1,054 tonnes...

"Just as it was a mistake to assume that the good times would keep on going in the 1990s," Christopher Davis now writes for MorningStar, "it's equally foolhardy to expect lackluster stock market returns to continue forever.

"In fact, the stock market has often gone on to post outsized gains after long periods of drought. [So] the moral of the past 10 years isn't that you should give up on stocks. To the contrary, it's probably a better time to invest in stocks than anytime in years..."

Well, at least he's trying. Because the funniest pratfall a forecaster can make is mistaking where she or he skips today for the path things will continue to take forever and ever, amen.

"Gold has a future, of course, but mainly as jewelry," declared finance historian Niall Ferguson 10 years ago, at the very close of the 20th century. Falling in price for almost two decades, "this ancient form of wealth is less an international currency and stable store of value than ever before," he went on.

"It's just another commodity that swings to the global rhythm of supply and demand."

Plenty of other historians and analysts - plus Europe's big central banks - queued up to throw dirt on gold's coffin, too. The Financial Times, Economist and BusinessWeek all announced the "death of gold" as the Nineties neared their end. Gold-mining directors leased gold and sold it, locking in then-current prices for fear of raising still lower prices in future.

You'll therefore forgive our caution today. Because after what then happened to gold - rising four times over and more against each of the world's major monies - making a grand call at the end of Gold's Decade would be a true buffoon's gambit. Tripping over a forecast only raises a laugh when it happens to somebody else.

So first, let's re-tie our laces and scan the pavement ahead for slapstick bananas.

"We calculate the market cap of all above ground gold, including central bank reserves, equals about 1.4% of global financial assets," reported John Hathaway of Tocqueville Asset Management a little over four years ago.

"In 1934 and 1982, when investor stress reached extreme readings, that percentage was between 20% to 25%."

Fast forward to the financial crisis/meltdown/deflation/depression of early 2009, and by our maths here at BullionVault, investor stress still remains low compared with those historic extremes.

That's not to say gold prices MUST rise, of course. Just that they haven't risen, in terms of the world's wealth, anything like previous bull runs in the value of gold.

World Financial Assets

• $4 trillion in notes and coins (global M0, Mike Hewitt at Dollar Daze)
• $25 trillion in bank deposits (mid-2008, eFinancial News)
• $16 trillion in short-term notes (all issuers, Bank of International Settlement)
• $60 trillion in domestic debt securities (again, both corporate & public, BIS)
• $23 trillion of international bonds (ditto)
• $33 trillion in stocks (World Federation of Exchanges)

Yes, we're ignoring unlisted business, because the numbers just can't be found. And yes, we also ignore both derivatives and real estate, because the one is unfunded (and simply too big to settle) while the other only counts as "investment" when you gear up using another guy's money.

But against this under-played $161 trillion total for the world's paper wealth - spread as it is across cash, banks, bonds and stocks - the value of gold compares at some $4.4 trillion, or scarcely 2.7% of the total. And that figure, please note, includes all gold ever mined in history, rather than simply the investment bars, monetary coins and tradable jewelry beloved of south-Asian consumers.

Whether as teeth, bracelets or micro-chips, best estimates (courtesy of our friends at GFMS via the World Gold Council) reckon just 2% of the 161,000 tonnes un-earthed over the last 5,000 years has been lost for good, slipping down the back of the sofa or buried beyond the reach of metal-detectors. Yet it's the total supply we use here, meaning the number above once again over-states gold as a proportion of investable wealth - a risible 2.7%.

Which again makes gold's still-tiny size all the more note-worthy when you consider what's supposed to have happened to the alternative choices for storing your wealth.

"At the low of 1974," as Mark Hulbert of the eponymous Financial Newsletter noted on CNBC this week, "average P/Es were around five or six. This time they were down more in the low 'teens..."

Indeed, the apparent "bear market" low of early 2009 saw US stocks trading for 13 times earnings - only a little below the 130-year average of sixteen.

"So you know," Hulbert went on, "it's hard to say that market-wide we were at values at all reflective of a major market bottom like in December '74."

"And dividend yields were at what, seven per cent?" chipped in anchor Joe Kernen. "Which they would've been now, if everyone hadn't cut their dividend!"

"That's right," confirmed Hulbert, "and it's interesting that at the bottom of a terrible recession [in late '74] you still had high dividend yields, whereas now we're not anywhere near those kinds of yields.

Outside the boardrooms and on the trading desks, meantime, "Where was the universal excess bearishness that typically marks the end of major bear markets?" asked Albert Edwards of Société Générale pointed out when global stock-markets hit their new low point in March.

"Before I can go overweight equities, I need not just cheap valuations, I need to see despair and revulsion," Edwards said. Which hardly squares with today being "the best time in years" to buy stocks given the chorus of bulls calling the bottom last month.

Still wary of stocks, the world could yet go further over-weight bonds, of course. Which would certainly make governments happy, seeing how many bonds they're going to issue this year in a bid to finance their historic, structural and unavoidable short-falls. Or maybe corporate bonds appeal, what with interest rates already at all-time record lows amid the worst recession since WWII, but without (as yet) a significant jump in defaults. They're also getting no rarer, but the value has already tipped lower. Worldwide - and in US-Dollar terms - the outstanding stock of corporate bonds shrank by 14% in 2008. Outstanding government debt, in contrast, swelled by one tenth (again, in terms of US Dollars) as new issuance of public-sector debt rose by a fifth compared with 2007.

Or maybe you'd rather choose cash...now paying less than even official inflation per month in pretty much every major economy. Again, you'll need to ignore that pesky risk of default (this time by banks) as well as the fresh flood of printing. Or perhaps you'd rather buy into private equity and small, local businesses...what with taxation set to surge (and keep surging) to try and pay for the worldwide stimulus in due course, while private borrowers keep competing with that flood of AAA-rated debt pumped out by the state.

None of this makes gold a buy in itself, of course. But buying gold still makes an unpopular choice against the broad mass of alternative stores of value. Which might just prove close to a tip if history's your guide.

Compared to the Great Depression or inflationary wipe-out of three decades ago, the world's wealth remains very under-invested.

Adrian Ash
for The Daily Reckoning Australia

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events - and must be verified elsewhere - should you choose to act on it.

• When Gold Ruled the Earth, Part I
• Investors to Drive Next Leg of Bull Market in Gold
• China is a Key Driving Force in the Gold Market
• September is the Best Month for Gold
• Prices of Gold in the Top 10 World Currencies

As near as we can tell, the financial world conveniently remained on hold while we were gone. As of Sunday night, little had changed. Gold, stocks...economists...politicians - they're all about where we left them. That is to say, the bear market rally on Wall Street continued. The feds continued to pervert the economy with their bailouts. Economists continued to call a spade a petunia. And politicians and commentators continued to blab and bluster about nothing.

But yesterday, the rally on Wall Street got smacked in the chops. The Dow fell 289 points. Oil dropped to $45. Investors were selling stocks - mostly financials - and turning to the dollar and gold for safety. The dollar rose to $1.29 per euro. Gold returned to $887.

The most important fact still sits like an alien spaceship on the White House lawn - so monstrous and dumbfounding that people don't know what to make of it...so they simply ignore it. The U.S. government is spending $13 trillion - nearly an entire year's output - to 'fix' the problems caused by the worldwide financial meltdown. Of course, they can't actually fix anything. Companies that are losing money are still going to be losing money. Investors are still going to take losses on stocks and bonds that were overpriced. Bad debts are still bad. Bad investments are still bad. A kiss is still a kiss. A smile is still a smile. Time goes by just like it always did.

But this $13 trillion of extra spending is bound to have some big effect. What?

A Financial Times article, written by one of Obama's advisors, makes a guess:

"The unprecedented explosion of the US fiscal deficit raises the spectre of high future inflation. According to the Congressional Budget Office, the president's budget implies a fiscal deficit of 13 per cent of gross domestic product in 2009 and nearly 10 per cent in 2010. Even with a strong economic recovery, the ratio of government debt to GDP would double to 80 per cent in the next 10 years.

"...the potential inflationary danger is that the large US fiscal deficit will lead to an increase in the supply of money. This inevitably happens in developing countries that do not have the ability to issue interest-bearing debt and must therefore finance their deficits by printing money. In contrast, when deficits do not lead to an increased supply of money, the evidence shows that they do not cause sustained price increases.

"But now the large US fiscal deficits are being accompanied by rapid increases in the money supply and by even more ominous increases in commercial bank reserves that could later be converted into faster money growth. The broad money supply (M2) is already increasing at an annual rate of nearly 15 per cent. The excess reserves of the banking system have ballooned from less than $3bn a year ago to more than $700bn (€536bn, £474bn) now.

"The deep recession means that there is no immediate risk of inflation. The aggregate demand for labour and goods and services is much less than the potential supply. But when the economy begins to recover, the Fed will have to reduce the excessive stock of money and, more critically, prevent the large volume of excess reserves in the banks from causing an inflationary explosion of money and credit."

If that was a bit hard to follow, here is our friend, Ron Paul, with a more succinct explanation:

"When I talk to many teenagers, [and] grade schoolers, they seem to have no problem comprehending the fact that if you just create a lot of money, it'll be like monopoly money and it won't have value," he told the I.O.U.S.A. crew when they sat down with him for an interview for the film.

"Governments do that for all kinds of reasons, especially to enhance political power to fight wars we shouldn't be fighting or to be passing welfare programs that aren't deserved. When you print that money, the value of that dollar has to go down and then one of the consequences of inflating the money will be higher prices. But there are a lot of other problems with inflating, it causes financial bubbles and it causes a lot of economic distortions and unemployment - but inflation is very simple. When governments create new money out of thin air, you have inflation."

Inflation? When? How much?

No one can say.

Maybe not for a long time. But when it comes...it will take our breath away. That's why we urge you to protect yourself and your money while you can. Especially now, with just shy of $11 trillion in debt already piled up... another $8.5 trillion already committed to the bailouts... and $3.6 trillion more in new spending on the table.

Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

• U.S. Government Must Roll Over $3.4 Trillion in Debt Over Next Four Years
• Fed Willing to Print Money to Buy More Bonds to Keep U.S. Interest Low
• Federal Government Making Taxpayers Pay Taxes for Nothing
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• The Very Large Bubble of Government Debt