Eye of the Pyramid - Page 2

Now the US owned 8,000 tonnes of gold in the 50's, the last time there was an audit! How much of our precious gold is left after at least 10 years of gold price suppression? We know the known world reserves of gold in central banks was 34,000 tonnes of gold. We have had a deficit consumption of 1400 tonnes per year for the last 10 years. We know central banks have sold and leased gold for the last 10 years. Will we awake and find our national treasure of gold is gone here?

One of the themes of Eye of the Pyramid is the Federal Reserve and how it operates. In Mover Mike I posted that the FED is considering bringing back the 30-year bond. We ended the practice in 2001, because short rates were lower than long rates and our government figured we could save a lot of money in interest by doing away with long term bonds. Gradually, the average maturity of our $8 Trillion of debt has shrunk to less than 5 years. Now, by moving out the yield curve, we will automatically pay more interest, and the new borrowing at the long end will cause interest rates to rise further. Now that inflation is picking up, investors who buy those long bonds will demand even more interest to offset the inflationary risk.

You and I, as good financial managers, have moved to get rid of our floating rate mortgages and borrowed long, as in 30-year mortgages. (Yes, I know 36% of all new mortgages are floaters, but let's assume those are government workers borrowing that money.) Our government operates like those guys borrowing from the mob to bet on the horses; you just know they are going to get their kneecaps whacked.

Peter Schiff of Euro Pacific Capital had this to say in Treasury to re-issue 30 year bonds, any takers?

With the national debt approaching 8 trillion, every 100 basis increase in the average rate at which that debt is refinanced adds 80 billion in additional interest expense which the federal government must pay annually. Since the government is already operating in a deficit, this increase will also have to be borrowed. My guess is that over the next several years, 100's of billions will be added to the annual budget deficit merely as a result of increased interest payments. Also, because a significant percentage of those payments will flow to foreign creditors, the current account deficit will grow significantly as a result. Further, as higher interest rates will likely push the highly leveraged U.S. economy into a severe recession, the structural deficit will swell as tax revenues decline and higher expenditures kick in.

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Article Author: Mover Mike

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