Daily Digest

Daily Digest - June 10

Thursday, June 10, 2010, 10:51 AM
  • Chris Martenson On Financial Sense: G20 Shocker
  • As China’s Wages Rise, Export Prices Could Follow
  • The Dilbert Portfolio: Buy the companies you hate
  • Go To Cash - In Plain English
  • Bernanke Warns Of 'Unsustainable' Debt
  • Barack Obama's attacks on BP hurting British pensioners
  • FSN In Depth: Laurence J. Kotlikoff, Jimmy Stewart Is Dead
  • Why Private Employment Is In Structural Decline
  • The 20 Most Economically Stressed Counties In America
  • Y16.7 trillion ($182 billion) Mistake by Deutsche Bank Nearly Sinks Osaka Exchange
  • Economy

    Chris Martenson On Financial Sense: G20 Shocker (pinecarr)

    Consider that the US and the UK are currently running deficits well north of 10% of GDP and are politically committed 100% to continued stimulus as the means to stoke domestic demand. But along comes the rest of the world saying that they are now committed to living within their budgetary means.

    As China’s Wages Rise, Export Prices Could Follow (Sarfarazali A.)

    Coastal factories are increasing hourly payments to workers. Local governments are raising minimum wage standards. And if China allows its currency, the renminbi, to appreciate against the United States dollar later this year, as many economists are predicting, the relative cost of manufacturing in China will almost certainly rise.

    The Dilbert Portfolio: Buy the companies you hate (Humor, Nickbert)

    Instead of investing in companies you hate, as I have suggested, perhaps you could invest in companies you love. I once hired professional money managers at Wells Fargo to do essentially that for me. As part of their service they promised to listen to the dopey-happy hallucinations of professional liars (CEOs) and be gullible on my behalf. The pros at Wells Fargo bought for my portfolio Enron, WorldCom and a number of other much-loved companies that soon went out of business.


    For that, I hate Wells Fargo. But I sure wish I had bought stock in Wells Fargo at the time I hated them the most, because Wells Fargo itself performed great. See how this works?"

    Go To Cash - In Plain English (kelvinator)

    "We advocate switching out of equity positions and going to cash. The European sovereign debt crisis appears to be nowhere near over. The
global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the
credit market prices risk and where the equity market is priced. Equity is lagging the deterioration in credit conditions. Moves in currency,
equity and commodity markets are mirroring the moves in the credit market. Global growth, in a credit-constrained environment, will
slow. Profits will be squeezed by the higher cost of capital." - Mark Steel, BMO

    Bernanke Warns Of 'Unsustainable' Debt (jdargis)

    All the while, Mr. Bernanke refused to endorse any particular spending cuts or tax increases, or even specify the balance between the two. And he was not subtle about his strategy.


    “I’m trying to avoid taking sides on this because it’s really up to Congress to make those decisions,” he told Representative Michael K. Simpson, Republican of Idaho.

    Barack Obama's attacks on BP hurting British pensioners (joemanc)

    On Wednesday, BP's share price fell a further 17.35p to 391.55p – representing a 40 per cent drop on the 655p price of a share two months ago.
    Experts have said that the clean-up costs of the oil spill will run to between £10 billion and £20 billion but the biggest cost to the company is from investors dumping stock for fear of BP being further punished by the US Government.

    Those fears have been heightened by Mr Obama's increasingly aggressive rhetoric towards BP, which some investors see as an attempt to deflect criticism of his own handling of the crisis. Last month, a White House spokesman said the President's job was to keep his "boot on the throat" of the company.

    FSN In Depth: Laurence J. Kotlikoff, Jimmy Stewart Is Dead

    This is not your father's financial system. Jimmy Stewart, the trustworthy, honest banker in the movie, It's a Wonderful Life, is dead. And so is his small-town bank, Bailey Savings & Loan. Instead, we're watching It's a Horrible Mess with Wall Street (aka the Vegas Strip) playing ever larger craps with our economy and our tax dollars.

    Why Private Employment Is In Structural Decline (pinecarr)

    Statistics reveal the structural decline in private employment but do not capture the causes.

    The 20 Most Economically Stressed Counties In America (pinecarr)

    Here are the 20 most economically stressed counties with populations of at least 25,000 and their April 2010 Stress scores, according to The Associated Press Economic Stress Index…”

    Y16.7 trillion ($182 billion) Mistake by Deutsche Bank Nearly Sinks Osaka Exchange (Samuel A.)

    The error caused the Tokyo Stock Exchange's Nikkei-225 futures index to lose 110 points or one per cent. If mistake hadn't been caught quickly, it could have caused a repeat of the Dow flash meltdown of a few weeks ago some analysts said.

    Please send article submissions to: [email protected]

    18 Comments

    saxplayer00o1's picture
    saxplayer00o1
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    Re: Daily Digest - June 10

    "(Reuters) - Ratings agency Standard and Poor's is likely to make a decision on its negative outlook on the UK shortly after the budget on June 22, the agency's head of sovereign ratings said on Tuesday.

    The ratings agency wants to see if British fiscal strategies are credible before deciding on any action on the sovereign's AAA rating, David Beers told Reuters and Reuters Insider television.

    Asked if a change on even the United States' AAA rating was conceivable, Beers said: "Yes.""

    "Beers also said he was watching developments in deficit-reduction in the United States.

    "We're watching and waiting to see in terms of the political debate in Washington, whether there's likely to be over the next couple of years a change in tone and in policy to turn the deficit around.""

    "MADRID—Spanish unions and employers failed to agree on labor market reforms deemed crucial for resurrecting the economy and allaying jitters over its public finances, the government said Thursday as wary investors again sent its borrowing costs soaring.

    The failure of the 11-hour negotiation that broke up just before dawn means the government will now propose its own plan for changing the rules that govern Spain's labor market. "

    "The Treasury auctioned euro3.903 billion ($4.69 billion) in 3-year bonds at an interest rate of 3.394 percent. That marked an increase of 1.36 percentage points since the last auction of this class of debt on April 8. It was also the highest level for this bond since November 2008. Thursday's auction was 2.11 times oversubscribed, the Treasury said.

    The higher interest rates reflect investors' worries that Spain might have trouble trimming its oversized budget deficit and could eventually struggle to raise money to finance its operations, as did Greece, which ultimately needed a bailout from the EU and the IMF. "

    "June 10 (Bloomberg) -- Overnight deposits with the European Central Bank rose to a record as the sovereign debt crisis made banks wary of lending to each other.

    Banks lodged 369 billion euros ($444 billion) in the ECB’s overnight deposit facility at 0.25 percent, the Frankfurt-based central bank said in a market notice today. That’s the most since the start of the euro currency in 1999."

    * HUF 35 bln bills sold vs 50 bln plan, yield up 18 bps

    "BUDAPEST, June 10 (Reuters) - Hungary cut its 12-month bill auction offer on Thursday and sold the bills at higher yields than two weeks ago as markets were still uncertain and awaiting proof the government's economic plan could be implemented.

    The bills were sold at an average yield of 5.35 percent, compared with a yield of 5.17 percent two weeks ago, before the market turmoil last week caused by the government's mixed messages about the state of Hungary's public finances.

    Some of those comments spooked markets, triggering concerns that Hungary may be close to a Greek-style debt crisis."

    "But the biggest risk to the U.S. economy could come if financial markets begin to worry about the U.S. government's ability and commitment to reduce a record budget deficit that is seen at around $1.5 trillion this year and next.

    If the U.S. doesn't soon come up with what he dubbed a "fiscal exit strategy," Bernanke said that "would cause a lot of stress in the economy and, in the worst case, would cause financial instability like we're seeing to some extent in Greece.""

    "The amount of losses on distressed CMBS loans resolved in the past year has jumped 33% to where noteholders are now recovering approximately 43 cents on the dollar. And, say analysts, the losses are expected to continue to mount this year.

    The average loss severity rate or the ratio of realized loss to liquidation balance for U.S. commercial mortgaged-backed securities (CMBS) loans resolved with losses in 2009 was 57% compared to the 43% rate in 2008, according to new data from Fitch Ratings. Those losses outpace the cumulative historical average of 37.2%."

    "TOLEDO, OH (WTOL) - As another way to decrease the massive deficit facing the City of Toledo, leaders are renewing their focus on people who aren't paying utility bills.

    The city says $12 million is owed to them in unpaid utility bills.

    Leaders say they are going to enforce the policy of shutting off water service to a customer who fail to pay the bill for seven weeks. On a normal week the city shuts off water service to around 200 homes. That might increase to 400 homes per week if the city's policy is strictly enforced.

    For owner-occupied properties, the city will seek property liens against owners who fail to pay utility bills."

    "At a June 1 announcement ceremony, Newsom asserted that the budget was balanced "without draconian cuts," saying, "We were able to avoid the kind of cataclysmic devastation that some had argued was inevitable in this budget."

    Nearly a week later, Board President David Chiu told the Guardian that sort of cataclysm wouldn't be staved off for long if the city continues on the course of repeatedly making deep budget cuts without proposing any significant new sources of revenue.

    "Now that the smoke has cleared, it is clear that the mayor's proposed budget is perfect for a mayor who is only going to be around for the short term, but it does not address the long-term fiscal crisis that our city is in," Chiu said. "Next year, we're looking at over a $700 million budget deficit. The year after that, we're looking at almost an $800 million budget deficit. The budget proposal that Newsom put out balances the ... deficit on many one-time tricks and assumptions of uncertain revenue." "

    "June 10 (Bloomberg) -- European Central Bank President Jean-Claude Trichet said the ECB will only give details on the amount of government bonds it has bought and doesn’t plan to provide further information at the moment. He also said the ECB has no immediate plans to sell debt certificates to absorb excess liquidity pumped into markets through the bond purchases. At the same time, the ECB is looking at all options, he said.

    “We’re looking at all possible instruments but there’s absolutely nothing immediate in this domain,” Trichet said at a press conference in Frankfurt. "

    "Extended, Emergency Claims

    The continuing claims figure does not include the number of Americans receiving extended or emergency benefits under federal programs.

    Those who’ve used up their traditional benefits and are now collecting emergency and extended payments increased by about 69,000 to 5.39 million in the week ended May 22."

    "Nearly half of home sellers in 26 of the nation’s largest markets slashed prices in May following the expiration of he Federal tax credit April 30, dropping average prices by nearly $2500 according to a monthly review of MLS-listed properties by the national online real estate brokerage ZipRealty.

    The same review showed that although there were more price-reduced “for sale” homes in May, the median reduction was $19,240, down slightly (1.06 percent) from April.

    “Home sellers may be lowering their list price to help stimulate interest from home shoppers now that the first-time and repeat homebuyer credits have expired,” said Leslie Tyler, vice president of marketing for ZipRealty."

    • Other news and headlines:

    U.S. Child Born in 2009 May Cost $222,360 to Raise

    Gold Running in Short Supply ((Eric Sprott interview)

    US Senate Approves Measure Voicing Concerns Over China Treasury Holdings

    World Bank Says Some Europe Nations Risk 'Double-Dip'

    BOE May Keep Up Stimulus as Public Spending Cuts Loom

    Bernanke Says Gold, Commodities Conflict on Inflation (Update1)

    China's home prices rise 12.4% in May (year on year)

    China to overtake US as top economy in 2027: RCM

    France selling 1700 buildings to help cut debt

    In Florida, Housing Bust Looms Over Bonds

    State facing staggering pension debt (Illinois...as much as $166 billion)

    ECB Keeps Rate at 1% as Pressure Mounts Over Bond Purchases

    Jobless seen rising near 3 million on deficit cuts (UK)

    Greek recession deepens despite bailout

    Country heading towards 'financial emergency': 'Q' (Pakistan..."clear that the country’s economy may collapse anytime")

    States begging Congress for $24B Medicaid bailout

    Rendell Urges Harrisburg Against Act 47, Bankruptcy

    Bad drivers might fix city's budget (RIO RANCHO, N.M....Increase fines and add red light cameras)

    BP Trades as Junk, Credit-Default Swaps Invert: Credit Markets

    U.S. Faces 'Severe' AIG Losses, Says Panel

    In jail for being in debt  "They have no right to do this to me," "Not for a stupid credit card."

    725 could lose jobs to close Sacramento County budget gap

    Poet's picture
    Poet
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    Re: Daily Digest - June 10
    Quote:

    Why Private Employment Is In Structural Decline (pinecarr)

    Statistics reveal the structural decline in private employment but do not capture the causes.

    Really? I can think of a few...

    1. Outsourcing of jobs to countries where labor and regulatory costs are lower even factoring in language barriers and transporation cost issues.

    2. Lack of skilled labor - One third of American high school students drop out and even the ones who graduate aren't necessarily educated nor skilled. Job training centers often focus on areas of declining growth or cause a glut of supply.

    3. Technological innovation and automation enabling downsizing or doing more with less.

     

    idoctor's picture
    idoctor
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    Erik T.'s picture
    Erik T.
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    Re: Daily Digest - June 10
    DailyDigest wrote:

    Chris Martenson On Financial Sense: G20 Shocker (pinecarr)

    Consider that the US and the UK are currently running deficits well north of 10% of GDP and are politically committed 100% to continued stimulus as the means to stoke domestic demand. But along comes the rest of the world saying that they are now committed to living within their budgetary means.

    I bet that if just a few of Chris' loyal fans were to call in to the "Q-Line" (1-800-794-6490), compliment Jim Puplava on having a great site, then politely point out that it's been more than a year since Chris Martenson has been on the show... I bet Jim would invite him back.

    What an opportunity!

    Erik

    ckessel's picture
    ckessel
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    Re: Daily Digest - June 10
    Erik T. wrote:
    DailyDigest wrote:

    Chris Martenson On Financial Sense: G20 Shocker (pinecarr)

    Consider that the US and the UK are currently running deficits well north of 10% of GDP and are politically committed 100% to continued stimulus as the means to stoke domestic demand. But along comes the rest of the world saying that they are now committed to living within their budgetary means.

    I bet that if just a few of Chris' loyal fans were to call in to the "Q-Line" (1-800-794-6490), compliment Jim Puplava on having a great site, then politely point out that it's been more than a year since Chris Martenson has been on the show... I bet Jim would invite him back.

    What an opportunity!

    Erik

    Erik,

    Great idea!

    The phone number referenced above is for a mail order pharmacy company. Could you re-check the Q-Line phone number and repost. Thanks,

    Coop[

    Erik T.'s picture
    Erik T.
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    Re: Daily Digest - June 10

    Yikes! Typo... 800-794-6480

    For anyone unfamiliar with the show, that is FSN's call-in number to ask questions or leave comments to be aired on the show. Guest requests are common and welcome.

    Erik

    saxplayer00o1's picture
    saxplayer00o1
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    Re: Daily Digest - June 10

     

    "SEATTLE, June 10 /PRNewswire/ --Milliman, Inc., a premier global consulting and actuarial firm, today released the latest update to the Milliman 100 Pension Funding Index, which consists of 100 of the nation's largest defined benefit pension plans. In May, defined benefit pension plans experienced asset decreases of $41 billion and liability increases of $14 billion, resulting in a $55 billion deterioration in funding status.

    "We haven't seen a month like this in a while," said John Ehrhardt, co-author of the Milliman 100 Pension Funding Index. "We saw a similar decline in overall funded status in June of 2009, but that was largely liability-driven. Last month's precipitous decline was the result of steep asset losses and further liability increases, making it the worst month for pension funded status since the dire days of late 2008."

    Overall, the pension funding deficit increased to $294 billion at the end of May. Given current interest rates (5.61%), investment gains of 34.4% for the remainder of 2010 would be needed to reach a 90% funded ratio, which would still leave the deficit at $138 billion."

    "For the first eight months of the fiscal year, the government incurred a budget deficit of about $936 billion, $56 billion less than the deficit recorded during the same period last year."

    •  Other news and headlines:
     
    Hungary may yet raid private pension schemes, industry experts warn (Try this one if the link doesn't work) State Won't Bailout Harrisburg Cal State proposes more student fee increases Threat of New York Government Shutdown About 21 percent of children in the United States will be living below the poverty line in 2010
    joemanc's picture
    joemanc
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    Re: Daily Digest - June 10
    Erik T. wrote:

    Yikes! Typo... 800-794-6480

    For anyone unfamiliar with the show, that is FSN's call-in number to ask questions or leave comments to be aired on the show. Guest requests are common and welcome.

    Erik

    The call has been made. Contango Bandana. Hasta Luego Laughing

    Erik - We need to get you on the show too. Perhaps you and Chris can do a roundtable with Jim?

    rjs's picture
    rjs
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    Re: Daily Digest - June 10

    Bernanke Puzzled by Gold Rally - Federal Reserve Chairman Ben Bernanke says he’s a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, might be interpreted as a loud signal from markets that big inflation pressures are building in the U.S. Gold is seen by many investors as a hedge against inflation risk. In this case, it might instead be a risk against risk broadly. Mr. Bernanke notes that the inflation signal isn’t confirmed by movements in other asset classes. Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently. Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low. And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.

    rjs's picture
    rjs
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    Re: Daily Digest - June 10

    Bernanke Puzzled by Gold Rally - Federal Reserve Chairman Ben Bernanke says he’s a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, might be interpreted as a loud signal from markets that big inflation pressures are building in the U.S. Gold is seen by many investors as a hedge against inflation risk. In this case, it might instead be a risk against risk broadly. Mr. Bernanke notes that the inflation signal isn’t confirmed by movements in other asset classes. Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently. Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low. And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.

    pinecarr's picture
    pinecarr
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    Re: Daily Digest - June 10
    joemanc wrote:
    Erik T wrote:

    Yikes! Typo... 800-794-6480

    For anyone unfamiliar with the show, that is FSN's call-in number to ask questions or leave comments to be aired on the show. Guest requests are common and welcome.

    Erik

    The call has been made. Contango Bandana. Hasta Luego Laughing

    I called too, Erik; excellent idea!

    Joe, BTW, been meaning to say congrats on the new home purchase!Smile

    -pinecarr

    jamesdvetter's picture
    jamesdvetter
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    Re: Daily Digest - June 10
    rjs wrote:

    Bernanke Puzzled by Gold Rally - Federal Reserve Chairman Ben Bernanke says he’s a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, might be interpreted as a loud signal from markets that big inflation pressures are building in the U.S. Gold is seen by many investors as a hedge against inflation risk. In this case, it might instead be a risk against risk broadly. Mr. Bernanke notes that the inflation signal isn’t confirmed by movements in other asset classes. Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently. Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low. And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.

    Surely he's joking!!  Seriously..Bernacke is puzzled by surging gold prices.  Is this for real?  Or does he just have his Keynesian head so far up his a** he truly is befuddled?  Or more likely, this is just more deflectionary propaganda for mass consumption.  Gosh, I sleep much better at night knowing Ben's at the helm.. Frown

    pinecarr's picture
    pinecarr
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    Re: Daily Digest - June 10

    The link to Chris Martenson's article on FInancial Sense, "G20 Shocker", that is posted in today's Daily Digest, has changed.  It can now be found at http://www.financialsense.com/Market/daily/wednesday.htm .

    ckessel's picture
    ckessel
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    Re: Daily Digest - June 10
    jamesdvetter wrote:
    rjs wrote:

    Bernanke Puzzled by Gold Rally - Federal Reserve Chairman Ben Bernanke says he’s a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, might be interpreted as a loud signal from markets that big inflation pressures are building in the U.S. Gold is seen by many investors as a hedge against inflation risk. In this case, it might instead be a risk against risk broadly. Mr. Bernanke notes that the inflation signal isn’t confirmed by movements in other asset classes. Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently. Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low. And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.

    Surely he's joking!!  Seriously..Bernacke is puzzled by surging gold prices.  Is this for real?  Or does he just have his Keynesian head so far up his a** he truly is befuddled?  Or more likely, this is just more deflectionary propaganda for mass consumption.  Gosh, I sleep much better at night knowing Ben's at the helm.. Frown

    Let's just say that it is probably due to the exponential growth of the CM website and number of CC grads around the world!

    Coop

    guardia's picture
    guardia
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    Re: Daily Digest - June 10
    jamesdvetter wrote:

    Surely he's joking!!  Seriously..Bernacke is puzzled by surging gold prices.  Is this for real?  Or does he just have his Keynesian head so far up his a** he truly is befuddled?  Or more likely, this is just more deflectionary propaganda for mass consumption.  Gosh, I sleep much better at night knowing Ben's at the helm.. Frown

    Gold is basically money, so it also does well in depression... I'm truly amazed that Ben doesn't understand that! Whatever way we go, in general, as long as the economy isn't stable, gold is bound to go up! I'm with you on that one: "Ben, hello?? Earth here, calling the moon...! Didn't you know that they increased the value of gold during the Great Depression? Aren't you supposed to be the expert?"

    Samuel

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    tx_floods
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    Re: Daily Digest - June 10
    Erik T. wrote:

    I bet that if just a few of Chris' loyal fans were to call in to the "Q-Line" (1-800-794-6490), compliment Jim Puplava on having a great site, then politely point out that it's been more than a year since Chris Martenson has been on the show... I bet Jim would invite him back.

    What an opportunity!

    Erik

    Erik - Do we have to come with a really zippy closing tag? I've been scrambling my brain, trying to come up with something, but everything I've come up with would out me as a poseur and wanna-be! :-) 

    I really enjoy cm's free writing's. (In response to the thread that raised many hackles recently.) I'm just an average guy, trying to fit all these puzzle pieces together. CM's piece on the G-20 was unique, in that, of all the blogs/sites/pieces I read, no one has connected those particular dots, at all, let alone in a way that I can more-or-less grasp what's happening. And Dr. Martensen offered it, for free. Thanks, Dr. M.

    saxplayer00o1's picture
    saxplayer00o1
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    Oops. Posted on the wrong

    Oops. Posted on the wrong day again.

    jamesdvetter's picture
    jamesdvetter
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    Re: Daily Digest - June 10
    guardia wrote:
    jamesdvetter wrote:

    Surely he's joking!!  Seriously..Bernacke is puzzled by surging gold prices.  Is this for real?  Or does he just have his Keynesian head so far up his a** he truly is befuddled?  Or more likely, this is just more deflectionary propaganda for mass consumption.  Gosh, I sleep much better at night knowing Ben's at the helm.. Frown

    Gold is basically money, so it also does well in depression... I'm truly amazed that Ben doesn't understand that! Whatever way we go, in general, as long as the economy isn't stable, gold is bound to go up! I'm with you on that one: "Ben, hello?? Earth here, calling the moon...! Didn't you know that they increased the value of gold during the Great Depression? Aren't you supposed to be the expert?"

    Samuel

    On Peter Schiff's video blog, he voiced his confusion over Bernacke's comments as well.  Schiff was just more blunt about it.  He said either Bernacke is a liar..or just incompetent.  Either way, it's a sad situation when those comments are coming from the chairman of the Fed.

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