Sequester Silliness

Fri, Mar 1, 2013 - 10:24am

Time to discuss this "sequester" nonsense.

What a two-bit, vaudeville charade U.S. politics have become. Let me see if I've got this straight...

  1. The U.S. breaches the "debt ceiling" back in August of 2011. The dollar nosedives and Standard&Poor's downgrades the country's debt rating while gold surges to $1920.
  2. As part of the deal to extend the debt ceiling by $1,600,000,000,000, Congress punts any responsibility for cutting spending. They create an extra-constitutional "Super Committee" to do the heavy lifting and make recommendations with the caveat that, IF the Super Committee also punts, automatic spending cuts will kick in at about the time the debt ceiling is reached again. The target date was 3/1/13.
  3. Of course, in true Washington fashion, even the Super Committee can't come to an agreement and they...not surprisingly....punt.
  4. Because spending is out of control, the debt ceiling is actually reached ahead of schedule, back in January. Once again, rather than deal with it, Congress waives the debt ceiling LAW and extends it without limitations, to August.
  5. But now we have those nasty "sequester cuts" that are described in point #2 above.
  6. What to do? What to do?
  7. God forbid that the rate of growth of spending will be slowed. Good heavens we can't have that! Children and old people will die in the streets without the constant growing intervention of the Federal Leviathan.
  8. But we can't have a "deal", either, so the sequester kicks in and now the discussion is about this supposed "U.S. austerity".

Let's stop there. What a freaking joke this is! If nothing is done, all the "sequester" means is that federal spending will increase by $8T instead of $9T over the next 10 years. Brutal, huh? And because of this, gold is....falling? Seriously?? The U.S. has added another $1.6T to its national debt and the fiscal 2013 deficit is already about 20% above fiscal 2012. Entitlement spending will likely never be addressed and more credit downgrades loom and yet gold falls from $1920 to $1550? Nah. Move along. All of us tinfoil-hatters are simply crazy. Just a free and fair market reaction. That's all.

Even more silly is this notion of "austerity", the debt, the economy and QE∞.

  1. Allegedly, gold is falling because of this forced U.S. austerity.
  2. Allegedly, gold is falling because assorted Fed Goons have claimed that QE will soon end.
  3. Allegedly, gold is falling because the all-knowing and prescient speculators are flowing their funds into the short side of the trade.
  4. And this is all a crock of excrement.
  5. Please explain to me how #1 and #2 go together when there is seemingly universal agreement that a drop in U.S. government spending will force a dramatic slowdown in the already anemic growth of the U.S. economy.
  6. Slowing/stalling/non-existent economic growth will reduce tax revenues.
  7. Larger deficits require larger QE intervention to soak up bond issuance and keep rates low.
  8. Federal layoffs will increase lines at unemployment offices.
  9. The Bernank has consistently maintained that QE∞ will continue until unemployment drops below 6.5%.
  10. All the while, since 1/1/13, The Fed has simply created from whole cloth $170,000,000,000 brand new dollars. Since 1/1/13, the dollar price of gold has fallen from $1691 to $1581.
  11. The Fed will create from whole cloth a minimum of $85,000,000,000 new dollars in March.
  12. The Fed will create from whole cloth a minimum of $85,000,000,000 new dollars in April.
  13. The Fed will create from whole cloth a minimum of $85,000,000,000 new dollars in May and so on...

Now, before you say something like, "following this path, Turd, gold will be around $1400 by June 1", let me just emphatically state: No, it wont. Games are played in the short term and that will always be the case. But the Laws of Economics are just as strong and just as consequential as the Laws of Physics. Yes, it is possible to, by using tremendous amounts of energy, suspend and even break the laws of gravity. However, once that energy slows or dissipates, gravity reasserts itself. The same can be said in economics. Yes, it is possible for The Fed, their Goons and their Agents to suspend and seemingly break the Laws of Economics. However, in the end, their efforts will fail just as all previous attempts to inflate and prosper through currency devaluation have failed.

Stay the course. Add to your stack. Prepare accordingly.


p.s. Late Friday, this was posted at ZH. Why worry about $85B in sequestration "cuts" when the U.S. government borrows $80B in one day?

About the Author

tfmetalsreport [at] gmail [dot] com ()


Mar 3, 2013 - 5:10pm

@DPH: Rethinking Money: The Rise of Private Currencies

One of the articles you linked in your newzapoloza is interesting:

Rethinking Money: The Rise of Private Currencies - Peter Ferrara, Forbes

The first few paragraphs give a pretty good view of pre-fiat and fiat money history from a soft Austrian (Hayekian) perspective. Good solid stuff, but then it gets a bit dicey. Looking at frequent flier miles as a form of private scrip is a neat take, and I can see it. It is actually backed by real goods and services. As long as the airlines or other vendors don't suddenly change the rules you could almost call it a money. So far, so good.

But then they had to start talking about time-banking, social credit, LETS and the Tera. Every one of those is a bad, bad idea. While they might actually be useful and lead to economic activity in lieu of tight credit markets, but in the long run they all depend on a central repository of information. This makes them potentially easy to track and tax--and cut-off if you become someone's enemy.

The Daily Bell has been tracking and analyzing this trend. While some people consider them to be a bit on tinfoil side, they do solid economic analysis and put they put things in a historical and politico-social context far better than any of the other nutters.

Let the Elites Have Their Silly Gold and Silver ... Use Local Money to Create Sustainable Economies!

The top elites are evidently and obviously desperate to blunt the libertarían attacks on monopoly central banking. They are trying to move the conversation to other kinds of state run money that they can control. They also want to disassociate gold and silver from the discussion of money so Money Power is not diluted.

Elites Promote Pure Fiat Currencies – Mutual and Social Credit – for Traceability?

There are many interesting facets to alternative currencies, but anonymity is not one, perhaps. Is it possible that the powers-that-be are covertly supporting such currencies as an alternative to the anonymity of money metals and "cash"?

The Pure Fiat Con: Every Transaction Available for Official Scrutiny – and That's Just the Point?
After continually researching these currencies and finding out just how deeply the UN was involved in them, we realized that the reason for the promotion might well have to do with conditioning people to accept that all their transactions were to be logged and monitored.
There is no alternative to real money. Keep stacking.
Admiral Ag Bar
Mar 3, 2013 - 12:56pm

Motely Fool

I hear you and understand it is a bit of gamble. By scaling into trades at 40/1 (when I bought the silver at 55/1), I think I will be able to get a fair bit of gold for an excellent deal. If the GSR become more and more favorable for a swap, than good for me - I will have lots more to trade as the GSR dips.

I think the folks who are holding a bunch of silver and are waiting to trade it for gold when the GSR hits 20/1 might not get the opportunity to do so, when like you said - everyone is trying to pile in at the same time.

The flip side of that argument is the if gold goes to $5000 or $55,000 per oz or something even higher than that, the average Joe will not be buying one ounce gold coins. They will be out of reach for the common debt slave! If the economic SHTF happens and people wake up that paper wealth is only an illusion, then the average Joe will pile into silver! They will be ecstatic to trade $1,000 in useless FRNs for 4 silver eagles. Just like stocks, real estate or any other momo trade - the sheeple will pile in...only at the very end!

I will be there off loading my red hot silver at my LCS or online for those "unaffordable" gold coins. In that scenario, those holding silver would be in the cat-bird seat. Just a different perspective, I guess.

While I am open to FOFOA's (perversely obtuse and lengthy) theory - my problem with it is that is assumes only one outcome is possible - FREEGOLD and nothing else. I know the system is corrupt to the core and the psychos running the show can throw any curveball they choose. Add in geo-political and petro-dollar endgames... well you can see the future is anything but certain.

I just want to have a nice stack of both and some productive farmland. I never wanted to be rich, just happy. I am well on my way.

Motley Fool
Mar 3, 2013 - 12:19pm
Motley Fool
Mar 3, 2013 - 12:18pm

@admiral AG bar

Many have the idea that that is the thing to do, use the leverage in silver to gain more gold. When the system collapses though it will likely come without warning, for even the most astute trader or market watcher.

I would simply say good luck to you in your thoughts of swapping silver for gold when you judge the time to be 'right'.

I think you will find at that time that you havea lot of company, and might have less success with that trade than you had hoped.

Mar 2, 2013 - 8:51pm

@silverstool re Australian property


That's not true that you have to spend over a million to get a house "within 30 minutes of the CBD" for Melbourne at least. Firstly, you're talking about traffic there and I'm guessing with such a generalisation like that you're not from Melbourne. Actually, I can see that ad is from Perth which is I'm guessing is where you are. Yes, the ad is ridiculous but be careful about generalising about cities that are about as far from you as LA and New York are from each other.

There are plenty of*three* bedroom houses (not apartment/units/townhouses/condos etc) for 600k AUD within 5km of the Melbourne CBD for example.

I agree that Australian property is ridiculously overpriced here (been falling slowly for two years) but be careful not to spread such misinformation when comments like that can be taken as gospel by people outside Australia.

Mar 2, 2013 - 7:39pm

My gold TA

This is getting exciting, as within the next two weeks we could see an important turning point/Major Low in the gold market. I'm not predicting anything, only getting prepared mentally. The current lows (1525) look like they will be challenged as the upside trading in the futures has been so weak recently.

The linked weekly chart of Comex gold tells the story as I see it. The linked monthly chart shows even better than the weekly how the Babson 0-Y center line is very strong, which implies a very strong R1 line to hold the decline. If the bears cannot close gold on a weekly basis under the R1 line of the weekly chart, gold remains in a strong position with the promise of a strong impulse wave to new highs.

The correction has been long; the failure of the rally from May 16 2012 to go higher has discouraged many in the bull camp. But gold rallied up to the passed 0-Y line, where it was sold. That rally is now seen as an X-wave per EWP, with more corrective action to endure. Sentiment is at a decade low--worse than in 2008--which may confirm that a final low is probably right in front of us. Yet the correction has been very shallow, which is very bullish!

A break below 1525 would trigger a sell-stop avalanche. Many traders will become outright bearish. Now, if a Comex decline reaches weekly R1 and closes on the weekly chart below the R1 line, I'll be concerned. A March monthly close below monthly R1 @ 1485 will make me nervous and I would consider jettisoning the additional cash positions I hope to take in the area of the red box; I would consider waiting for additional consolidation and confirmation that the decline is indeed likely over to add to long positions.

The Babson 0-Y R1 line is a primarily a method for determining the end of a correction, and works best with other confirming factors. As a measuring method it has some other applications. For example, in Friday's "stop raid" in Comex silver 60m chart, the plunge stopped right on the 0-Y R1 line (though a new low was made; a method of covering during rollover especially). R1 was exceeded in the hourly April gold, but price then recovered the line.

Weekly gold: [IMG][/IMG] (Click on the image to enlarge)

Monthly gold: [IMG][/IMG]


Mar 2, 2013 - 3:58pm

@Adman, at what point do we concede we were wrong?

A legitimate question. People will have different answers. You shout not rate the answer of this question on current price levels. Personally, I will concede that I am wrong when either QE ends AND the economy does well or when I sell my stack for less paper than I bought it.

Tesi, judging the probability of this to happen at about 0%.

Mar 2, 2013 - 2:47pm


Rock On!!!

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Mar 2, 2013 - 2:15pm

Paranoid War Pigs & a Fairy Wearing Boots

blacksabbath paranoid lyrics

Black Sabbath - War Pigs with lyrics - motion type typography
Black Sabbath - Fairies wear boots(+lyrics)

Mar 2, 2013 - 1:47pm

Not that I'm Paranoid...

...but maybe I am. I've been buying PMs since 2006 and never bought online. ALWAYS-ALWAYS-ALWAYS paid currency at my LCS and LPS. I don't want any data warehouse, credit card database, or other e-record of my right to own PMs. I worked for the guberment for many years in IT Security, and know first hand that privacy and protection of personally identifiable information is an illusion at best.

Don't buy what I'm selling? Consider this. Overall, federal guberment IT systems are more secure than systems used by the banking industry. Guberment systems are required to comply with policies and standards mandated by the Federal Information Security Management Act (FISMA).

On the other hand, banks and financial institutions are not required to follow any federally regulated IT security standards. Many do follow the International Standardization on Security (ISO). However, there are no standards for compliance assurance, therefore, there's no assurance that banks adequately applied security controls.

To help substantiate my claim, a colleague who's very familiar with FISMA compliance now owns a company that performs penetration testing for banks. He told me once that if I knew how "open" some of these banks were, I'd keep my money under my mattress. As a side note, I now keep my fiat and PMs at the bottom of a lake. I paranoid or enlightened? DYODD

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