It may be silly to point out, but the baby boomer generation is not going to suddenly stop aging, and get younger.

The number of boomers claiming benefits will continue to climb, estimated to hit 10,000 claims per day in 2011. It is already widely acknowledged that the Social Security Trust really has no assets, since the US government has been raiding the trust fund to pay for general expenses for years.

If it is clear that this is unsustainable, the real question we should be asking ourselves is how will this be handled?

Simply cutting benefits to boomers is not politically viable, no politician who wishes to keep his or her job will have the will to do it.

So what then?

Expect politicians to try and print their way out, which is what history shows politicians do when faced with such circumstances. History repeats. In Rome it was Bread and Circuses, in the USA it will be Social Security and Medicare.

Net impact? More inflation, gold goes up, dollar goes down.

Got gold yet?

Rash of retirements pushes Social Security to brink

By Richard Wolf, USA TODAY

WASHINGTON — Social Security’s annual surplus nearly evaporated in 2009 for the first time in 25 years as the recession led hundreds of thousands of workers to retire or claim disability.

The impact of the recession is likely to hit the giant retirement system even harder this year and next. The Congressional Budget Office had projected it would operate in the red in 2010 and 2011, but a deeper economic slump could make those losses larger than anticipated.

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More OTC derivatives and Debt force Sovereigns to default – all around the Med we are seeing another financial crisis with global ramifications unfold – can this be contained?

We are looking at close to $2 Trillion to bail this one out.

Meanwhile, a flood of capital goes into the USD which is clearly still viewed as a safe harbor in a storm.

Notice the two charts below, as the VXO climbs, so does the USD.

vxo chart

usd chart

This cannot continue, the USD is no longer the symbol of safety it once was, it is more like an apparition, with no substance.

The US economy used to be undeniably the strongest in the world, and was a great solution to providing backing to the worlds reserve currency.

Alot can change in 20 years. With the manufacturing base moved overseas, the US has gone from worlds largest creditor the worlds largest debtor, running multi trillion dollar deficits, and holding financial liabilities reaching into the tens of trillions of dollars. A profligate money printing policy, and never ending wars in multiple theaters of operations, does nothing to help matters.

With debt levels reaching such heights that interest payments on the debt will soon become the largest expense in the federal budget outside of social security and medicare  (even larger than US defense spending) – the US has essentially become a Payday loan junkie, addicted to debt and unable to wean itself off of it. This will have disastrous consequences as there will be a day of reckoning.

The perception that the USD is still safer than other currencies of the world shows us just how far we have come from reality. At some point, the governments of the world will wise up. There is only one currency on the planet that cannot be created at will, and thus debased at will by government. That one currency is gold. In time, the capital that is thrashing about like a loose cannon on deck during a storm will find its way to gold because a stable measure of value is required, as it must for there is no other viable alternative.

Gold has been the money of Kings for over 5000 years of human history.

Greek Ouzo crisis escalates into global margin call as confidence ebbs

For the third time in 18 months the global financial system risks spinning out of control unless political leaders take immediate and radical action.

By Ambrose Evans-Pritchard

Flow data shows an abrupt withdrawal of German and Asian capital from Club Med debt markets. The EU’s refusal to offer Greece anything beyond stern words and a one-month deadline for harsher austerity – while admirable in one sense – is to misjudge how fast confidence is ebbing. Greece’s drama has already metastasised into a wider systemic crisis. The world risks a replay of the Lehman collapse if this runs unchecked, this time involving sovereign dominoes.

Barclays Capital says the net external liabilities of Greece are 87pc of GDP, or €208bn (£182bn). Spain is worse at 91pc (€950bn), and Portugal worse yet at 108pc (€177bn); Ireland is 68pc (€123bn), Italy is 23pc, (€347bn). Add East Europe’s bubble and foreign debts top €2 trillion.

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Video

Video

Yet does anyone you know own any?

Here is something to noodle: If you take the population of the UK at 61,383,000 and then divide it by the number of gold coins the mint produced, that means there is only 1 coin for every 489.228 citizens.

Sound like gold is an overbought bubble to you?

U.K.’s Royal Mint Doubles Production of Gold Coins

By Thomas Biesheuvel and Nicholas Larkin

Feb. 2 (Bloomberg) — The U.K.’s Royal Mint, established in the 13th century, more than doubled gold-coin production last year as investors sought to diversify their assets and hedge against a weaker dollar and accelerating inflation.

Output rose to 125,469 ounces from 46,315 ounces a year before, according to data obtained by Bloomberg News under a Freedom of Information Act request. Gold averaged $974 (612 pounds) an ounce last year. Fourth-quarter production rose 54 percent to 25,078 ounces, the data show.

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This wont stop – all fiat currencies will continue to devalue over time – I had a gentleman ask me a few days ago ‘Yes but why buy gold? It doesnt give you a return?”

On the contrary, when measured against USD gold has outperformed every other asset class there is for almost 10 years running.

“Competitive Devaluation” will ensure this is a trend that continues.

SNB moves to calm Swiss franc appreciation

By Peter Garnham

The Swiss franc settled back into its recent trading range on Monday after violent price action on Friday that saw it retreat sharply from an 11-month high against the euro on speculation that the Swiss National Bank had intervened in the currency market.

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BEIJING: China’s gold output soared 11.34 per cent to a record 313.98 tonnes in 2009, maintaining its No.1 rank as the world’s biggest producer of the yellow metal.

China’s booming domestic gold sector reported 137.53 billion yuan (20.14 billion U.S. dollars) of gross industrial output value in 2009, up 18.56 per cent year on year, according to latest statistics from China Gold Association.

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By David Walker

01/25/10 New York, New York The recession and attendant financial shock appear to be easing as I write this. But in Washington, financial imprudence is part of the fabric of government. You can see that in a single document that gets updated every year: the US budget. In putting together the budget, the president and Congress set our national priorities and allocate resources among them. The results have been pretty consistent. Over the forty years ending in 2008, revenues have averaged about 18.3 percent of our economy and spending has averaged over 20.6 percent, resulting in an average deficit of about 2.4 percent.

But that gap began to widen under Bush 43, who cut taxes while starting two wars, bolstering homeland security, adding an expensive prescription drug benefit to Medicare, and increasing other spending. In 2007, the federal deficit stood at $161 billion, or 1.2 percent of our economy. In 2008 it was $455 billion, or 3.2 percent. In 2009, figuring in the billions spent to pull our economy out of recession and on various bailout efforts, the deficit rocketed to about $1.42 trillion, 9.9 percent of our economy.

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The one thing black box algorithms cannot model is the tendency of human beings to go mad all at once, especially in financial markets. This will end badly.

Computer-driven trading raises meltdown fears

By Jeremy Grant

(Financial Times, London) – An explosion in trading propelled by computers is raising fears that trading platforms could be knocked out by rogue trades triggered by systems running out of control.

Trading in equities and derivatives is being driven increasingly by mathematical algorithms used in computer programs. They allow trading to take place automatically in response to market data and news, deciding when and how much to trade similar to the autopilot function in aircraft.

Analysts estimate that up to 60 per cent of trading in equity markets is driven in this way.

Concerns have been highlighted by news that NYSE Euronext, the transatlantic exchange operator, has fined Credit Suisse proprietary trading arm for the first time for failing to control its trading algorithms. In the Credit Suisse case, its system bombarded the NYSE’s systems with hundreds of thousands of “erroneous messages” in 2007, slowing down trading in 975 shares.

The case was far from isolated, say traders. CME Group, the Chicago-based futures exchange, is investigating a case this month where a trader in “mini” S&P Index futures contracts “inadvertently traded approximately 200,000 contracts as both buyer and seller”.

Last year, the London Stock Exchange suffered a three-hour outage after its trading system collapsed under the strain of a huge volume of orders. Some traders blamed the spike in volumes from algorithmic trading.

Frederic Ponzo, managing partner at GreySpark Partners, a consultancy, said: “It is absolutely possible to bring an exchange to breaking point by having an ‘algo’ entering into a loop so that by sending them at such a rate the exchange can’t cope.”

Regulators say it is unclear who is monitoring traders to ensure they do not take undue risks with their algorithms.

The Securities and Exchange Commission has proposed new rules that would require brokers to establish procedures to prevent erroneous orders.

Mark van Vugt, global head of sales at RTS Realtime Systems, a trading technology company, said: “If a position is blowing up so fast without the exchange or clearing firm able to react or reverse positions, the firm itself could be in danger as well.”

NEW YORK (Reuters) – New York’s financial sector will pay an estimated $64.2 billion in bonuses this year, up from about $57 billion in 2009, though still around $19 billion less than the amount paid out in 2008, the state budget division forecast on Tuesday.

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From madhedgefundtrader over at Zero Hedge

Brace yourself for the impending gold shortage. Gold shortage? Yup. With the launch of a flurry of ETF’s devoted to the barbaric relic recently, total ETF holdings have soared well past 60 million ounces worth $65 billion, more than total world production in 2009. The grand Daddy of them all, the SPDR Gold Shares (GLD), now has a staggering $42.7 billion of the yellow metal, making it the second largest ETF by market capitalization, and the fifth largest gold owner in the world.

When gold suffered a hair raising $150, 12% pull back from the all time high in December, I was deluged by traders asking if this was the peak, if it was the final blow off top, and if gold is finished as an asset class. My answers were no, never, and not on your life.

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The Daily Bell has posted an interview with Dr. Edwin Vieira. Dr. Vieira is perhaps the foremost authority on Constitutional Law, and has brought multiple cases before the Supreme Court, winning several.

The following article is long, but for a true thinker and anyone concerned with the potential outcomes of the current political situation, an excellent read.

You can find the entire article here: http://www.rapidtrends.com/switzerlands-daily-bell-interviews-dr-edwin-vieira-on-police-states-and-constitutionality-money/

Enjoy the video.Balls dipped in gold, anyone?

Summary of main points:

1. Central Banks net buyers of gold for first time in 20 years

2. Investment demand surpasses jewelry demand for first time in 30 years

3. Potential end of the Petrodollar is bullish for gold

4. During the last bull market in gold in 1960-1980, the Chinese citizen was precluded from participating in the market. Not only are they allowed to buy gold this time, but they have over a beelion ( say it with me folks, ONE BEEELION + ) people with disposable income with which to do so. China has just surpassed India as the largest consumer of gold on earth.

5. The potential explosive reality that there is 99x as much “paper gold” traded as real gold

6. Institutional buying is just getting started. If the worlds pension funds and hedge funds moved just 5% of their holdings into gold, it would force the price higher than $5000 / ounce.

***

Nick Barisheff

Keynote Speech Presented at the Empire Club’s 16th Annual Investment Outlook Luncheon

Good afternoon. As always, it is a privilege to speak at the Empire Club.

Each year for the past three years, I have returned to share perceptions about the precious metals industry and specifically about gold. Generally, this forces me to step back and assess the previous year’s events and then to speculate about what they may indicate for the coming year. Choosing the seminal events this year has been more difficult than usual. Lately the pace of gold-related news has accelerated exponentially with gold’s rising price. While 2009 was an exciting year for gold, setting a new average high of $1,088, 2010 promises to be even more exciting.

In 2009 gold resumed its historical monetary role – as the anti-currency. Therefore, the influences and events that affect its price are not simple commodity supply/demand fundamentals, but the more complex global monetary issues.

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Treasury bids drive speculation
By Michael Mackenzie in New York

Auctions of US Treasury notes this week have attracted extremely strong buying from domestic institutional investors, fuelling speculation that “one big bidder” has decided to defy the conventional wisdom on Wall Street that US government debt is due for a fall.

The surprising demand for Treasury notes has come in the form of “direct bids”, the term used for US institutional investors who bypass the so-called primary dealers that underwrite government bond sales.

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GEAB N°41 is available! The Decade 2010 – 2020: Towards a knockout victory by gold over the Dollar

- Public announcement GEAB N°41 (January 16, 2010) – The US Federal Reserve is no longer able, in reality, to continue its multi-decade combat against the « barbarous relic » in order to guarantee the supremacy of the US currency at the centre of the international monetary system. For LEAP/E2020 the decade which has just begun.

2010: Global economic stagnation / Direct USA/EU/Asian conflict to attract the world’s insufficient savings to finance growing public deficits / Inability and growing lack of will on the part of China, Japan and the oil-producing kingdoms of the Gulf to buy the mountain of US Treasury Bonds created by the exponential US deficit / Unveiling of the massive disguised repurchase of US Treasury Bonds by the Fed / 500 billion US Dollar emergency package to avoid the collapse of US states and local authorities / Increasing gold purchases by central banks worldwide / Acceleration of the unemployment growth throughout the world (20% reached in the United States and in Europe) / Chinese growth falls below 5% / American and European governments refuse to impose further taxes and other financial charges on the richest 10% / In the face of market distrust the United Kingdom is obliged to borrow from the IMF to balance its 2010 budget / China continues to refuse to revalue the Yuan

2011: The dollar falls a further 20% against other major currencies

A great quote:

Indeed for the first time in almost 40 years (since the ending of Dollar convertibility to gold in 1971), the interests of the world’s central banks and individual investors, once again, converge on gold: value is no longer at all guaranteed by the Dollar as an international reserve currency and, as long as the latter has no globally recognised successor, gold remains the only asset capable of maintaining this value.

I find this instructive, because I dont ever see any analysts who claim gold is in a bubble talk about this. Not a single one of them says what will replace the USD when they claim the gold bubble is about to pop. These same analysts are then ones telling you the stock market is still a good place to put your money, but fail to mention that $100 invested in gold since 2001 would yield you more than $400 today yet you would be down to $90 had that same money be put in the US stock market.

Once again, its important to note the trends here. I cannot emphasize enough how important the reversal of central banks is to the secular gold market.

History is repeating itself yet again. During the London Gold Pool, we witnessed the exact same pattern. France started the ball rolling asking to have their USD converted to gold and was in effect a vote of no confidence in the USD. Many other Central banks started buying gold as well, which led to the last record run from $35 / ounce in the early 60’s to $850 /ounce in 1980.

One of the most interesting aspects of this is that the common man (unsophisticated investor) who has always proven to move with the herd, did not start buying gold until after it hit $400 / ounce+. Prior to that, it was all institutional buying.

We are again witnessing the same pattern unfold here, with India leading the pack.

Remember again, what led to the Central bank buying was a loss of confidence in the USD. History proves that paper money holds confidence as long as the issuing entity holds confidence, in this case the US Government.

Until the issue of what will be the next global reserve currency is decided, this is looking more and more like a repeat of the last bull market 40 years ago than a temporary bubble in gold.

Gold brings a smile to the world’s central bankers

David Robertson, Business Correspondent

There is little to beat the lure of gold, as many recipients of a lavish Christmas gift will confirm, but it is not only seasonal impetus that has put a new shine on the precious metal — for the first time in 21 years the world’s central banks have been net buyers.

World Gold Council (WGC) data reveals that amid growing concern over the weakness of the dollar, about $28 billion of bullion was bought by central banks this year, based on an average price of $978 an ounce.

The biggest buyers have been the emerging economies of China, Russia and India, but smaller countries such as the Philippines, Kazakhstan, Sri Lanka and Mexico have also been shifting their reserves into gold.

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Five Fundamental Reasons Gold Will Hit $5,000
By Money Morning on January 14, 2010

Let me get right to the point. Gold’s going to $5,000 an ounce.

I know that sounds preposterous to most people. In fact, some of you probably think I’m crazy.

But for a whole host of reasons, $5,000 may well end up being a conservative estimate.

So before you start posting comments that I’ve gone bonkers, hear me out…

In 2001, gold traded as low as $255 an ounce. Within eight years, its price had quadrupled to more than $1,100 an ounce. How many investors thought that was possible, or even likely? Probably not very many.

Yet, it happened.

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My two favorite quotes from this interview:

As a matter of fact, I say there should be a transition, repeal legal tender laws and you take taxes off money, which is gold and silver. And then if the people want to use it, let them use it. If people want to get paid in paper, let them get paid in paper.

If gold is not good money, then nobody will deal with it. But I’m on the side of history with this one because paper money has never worked. It eventually goes to zero and people quit using it. But gold has survived for many, many centuries.

Ron Paul’s Golden Rule
Alexandra Zendrian

The Federal Reserve should answer to the government and dollars should be good as gold.

Congressman Ron Paul of Texas will be Steve Forbes’ guest Monday on Intelligent Investing discussing his new book End The Fed and his attempt, with Congressman Alan Grayson, to secure the right of the Government Accountability Office to audit the Federal Reserve.

Forbes: Why do you think the Federal Reserve needs to be audited?

Dr. Ron Paul: For lots of reasons. I don’t believe in secrecy. I don’t think anyone should have so much power that they can create money out of thin air and spend it and interfere in the markets and do central economic planning without any oversight. Congress has a responsibility to know what they’re doing because they created the Fed, they’re very, very important, and people benefit from their actions. And I’d like to know who benefits and who suffers the consequence. I just think that it would be in the interest of the people to know exactly what the Fed is doing.

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GM exec: China likely to keep auto sales lead
By TOM KRISHER
The Associated Press

DETROIT — China has probably passed the U.S. for good as the world’s largest auto sales market, General Motor Co.’s top executive in China said Wednesday.

Kevin Wale, president of the Detroit automaker’s China Group, said China experienced huge auto sales growth last year and he expects growth to continue, creating a gap that will be too large for the U.S. to close.

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