As you are no doubt aware, Gold had a "50 cent week" this week. Not too surprising really, given the fact that there were a number of major "hurdles" for the U.S. financial system to clear. On Tuesday, the Fed met and decided to do nothing. Also on Tuesday, Mr Bush took a couple of hours off from his Texas vacation to lend his August presence to an economic and financial "forum". He came, he saw, he said a few words, and he left. Nothing much was discussed, absolutely nothing was "resolved", and the meeting broke up before noon.
Then, on Wednesday (August 14), came the deadline for all the bad little CEOs and CFOs to "come clean" on their books. Of course, the message to the markets was that once they had "come clean", investors would have nothing further to worry about. This implies that all corporate officers are crooks and that only Washington possesses the power to miraculously turn these crooks into paragons of fiscal virtue simply by slapping a piece of paper in front of them and saying: "Sign here - OR ELSE!".
That takes care of the domestic front. On the international front, there seems to be no stopping the momentum built up by the Bush Administration towards war with Iraq no matter what happens. The DON'T DO IT! messages have been flying thick and fast. Brent Scowcroft has weighed in. He was followed by Henry Kissinger. And now, Stormin Norman himself, Norman Schwarzkopf, the architect of Desert Storm in 1991, has come out and said that he doesn't like the present plans, and that Bush and Co are ignoring the many potential longer term effects of marching headlong into Iraq.
Public opinion is solidly against the Iraq war plans across Europe and Asia. Even in earstwhile "ally" nations like the UK and Australia, the best the pollsters can produce is a 50/50 opinion rating. In the U.S., dissent is growing slowly but surely, notably on the internet as the excellent postings proliferate. Here's one, from Michael Peirce on lewrockwell.com.
It would seem that the Administration's preoccupation with the U.S. economy is now back on the back burner. They passed the "Corporate Responsibility" act. Mr Bush had his economic "forum". The CEOs (at least some of them), signed on the dotted line. The stock markets have recovered. "Mission accomplished", now it's back to more pressing matters, like WAR.
Just over a week ago, the IMF came to the party and suddenly decided to throw $US 30 Billion at Brazil. That action, all by itself, was a major contributor to the big recovery which U.S. markets have made since the end of July. Well, it worked on Wall Street, but it's NOT working in Brazil. To the great shock of the IMF, the bail out package has NOT pursuaded the big money centre New York banks to roll over their loans to Brazil. The IMF just assumed that they would lend, once the IMF put the fix in. Well so far, it is NOT happening, and the spectre of a Brazilian default is growing rapidly again.
Both the IMF and the U.S. Treasury are maintaining that they will not try to FORCE the banks to lend. Funny that, since HUGE pressure was put on these same banks to continue their lending during the South Korean bailout of 1997 and the Brazilian bailout of 1998.
But that was then, during the Clinton Administration. The problem now is that both Mr O'Neill and Mr Bush are on record as being against putting the heat on private banks. This week, Mr O'Neill was quoted as saying: "I don't think it's a good idea for governments to ask companies to do something that's not in their own economic interest". And way back during the Presidential debates of October 2000, Mr Bush said this: "`I don't want to see the IMF out there as a way to say to world bankers, If you make a bad loan, we'll bail you out".
And speaking of big debts, the U.S. Treasury has just reported on their debt to the penny page that as of Thursday, August 15, Treasury debt had reached $US 6.193 TRILLION. On June 28, Congress finally approved a $US 450 Billion increase in the Treasury's debt ceiling - from $US 5.95 TRILLION to $US 6.40 TRILLION. Mr Bush signed the increase into law over the last weekend in June.
The Treasury's debt ceiling was raised seven weeks ago. Now, Treasury debt is up to $US 6.193 TRILLION. That means that it is more than HALF WAY (54%, to be exact) of the way to the new ceiling. The debt ceiling was last raised by $US 450 Billion in August 1997. It took almost five years (August 1997 - June 2002), for Treasury debt to increase by that $US 450 Billion. Now, a new $US 450 "tranche" has been added onto the Treasury's ability to borrow - AND 54% OF IT IS GONE IN SEVEN WEEKS!
It might also interest you to know that on that same "debt to the penny" page, the Treasury states that with about seven weeks left in the U.S. 2002 financial year, its debt has risen by $US 386 Billion. The biggest annual deficit which the U.S. government has ever admitted to was $US 432 Billion in the 1991 financial year. 2002 has a fighting chance of beating that, especially if the U.S. DOES go to war in Iraq.
Here we are in the "ides" of August, the slowest time of year on U.S. markets. The stock market has recovered from its multi year lows set less than a month ago. Treasury 10-year bond rates hit their lowest levels in 60 YEARS this week (compare THAT to the Treasury's debt record). The U.S. Dollar is starting to falter again. And Gold is doing nothing whatsoever. We are certain that this is the calm before the storm. We don't know just how bad the storm is going to be once it hits, or what direction the winds will blow in.
We also don't know whether the king hit Gold took at the end of July (down $US 20.60 in the week of July 22-26) was the LAST such success that the financial powers that be will have. We do know that the financial situation is getting worse very quickly indeed. Stay tuned. Only two more weekly commentaries before Labor Day.