Good morning Andrew,
Metals seem to be in neutral this morning with traders awaiting today's release of the Fed minutes from the last FOMC meeting....The question on everyone's mind is what did the Fed members say about QE3 before making their last decision on monetary policy....A growing number of traders believe it's a matter of when and not if.......Meanwhile the Euro currency seems to be creeping higher as more details surrounding the European bail-out of Spain's banks get released....Last on the Euro $1.2284 up 32/100ths of cent against the U.S. Dollar.....
As for the metals; we find Silver changing hands at $27.10 up 18 cents per ounce.....Gold is $1.00 lower at $1578.00......Palladium sits at $581.00 unchanged....Platinum is $1.00 higher at $1434.00.....
In early energy trading the price of Crude Oil is pushing higher in advance of today's inventory report, and in light of the weaker U.S. Dollar....Last on Oil $84.89 , up 98 cents per barrel.....
As for the stock market; the Dow is being called to open 37 points higher in the wake of yesterday's loss of 83 ......Traders here are also hoping to hear optimistic insight from the Fed regarding implementation of further Fed stimulus.....Meanwhile; the earnings season moves along.....
Before signing off this morning I thought you might want to take a look at Euro-Pacific Capital's latest report by Peter Schiff regarding the current global economic condition and the likelihood for further quantitative easing.....Enjoy the article pasted below....That's it......Call to receive our latest free informational package on precious metals.......
Peter R.....Southern Trust Metals, Inc.
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Peter Schiff: The real fiscal cliff
By Peter Schiff
July 10, 2012
The media is now fixated on an apparently new feature dominating the economic landscape: a "fiscal cliff" from which the United States will fall in January 2013. They see the danger arising from the simultaneous implementation of the $2 trillion in automatic spending cuts (spread over 10 years) agreed to in last year's debt ceiling vote and the expiration of the Bush era tax cuts. The economists to whom most reporters listen warn that the combined impact of reduced government spending and higher taxes will slow the "recovery" and perhaps send the economy back into recession. While there is indeed much to worry about in our economy, this particular cliff is not high on the list.
Much of the fear stems from the false premise that government spending generates economic growth. People tend to forget that the government can only get money from taxing, borrowing, or printing. Nothing the government spends comes for free. Money taxed or borrowed is taken out of the private sector, where it could have been used more productively. Printed money merely creates inflation. So the automatic spending cuts, to the extent they are actually allowed to go into effect, will promote economic growth not prevent it. Even most Republicans fall for the canard that spending can help the economy in general. But even those who don't will surely do everything to avoid the political backlash from citizens on the losing end of any specific cuts.
The only reason the automatic spending cuts exist at all is that Congress lacked the integrity to identify specifics. Rest assured that Congress will likely engineer yet another escape hatch when it finds itself backed into a corner again. Repealing the cuts before they are even implemented will render laughable any subsequent deficit reduction plans. But politicians would always rather face frustration for inaction than outright anger for actual decisions. In truth though, only an extremely small portion of the cuts are scheduled to occur in 2013 anyway. If it comes to pass that Congress cannot even keep its spending cut promises for one year, how can they be expected to do so for ten?
The impact of the expiring Bush era tax cuts is much harder to assess. The adverse effects of the tax hikes could be offset by the benefits of reduced government borrowing (provided that the taxes actually result in increased revenue). But given the negative incentives created by higher marginal tax rates, particularly as they impact savings and capital investment, increased rates may actually result in less revenue, thereby widening the budget deficit.
In reality, the economy will encounter extremely dangerous terrain whether or not Congress figures out a way to wriggle out of the 2013 budgetary straightjacket. The debt burden that the United States will face when interest rates rise presents a much larger "fiscal cliff." Unfortunately, no one is talking about that one.
The current national debt is about $16 trillion (this is just the funded portion...the unfunded liabilities of the Treasury are much, much larger). The only reason the United States is able to service this staggering level of debt is that the currently low interest rate on government debt (now below 2%) keeps debt service payments to a relatively manageable $300 billion per year.
On the current trajectory the national debt will likely hit $20 trillion in a few years. If, by that time interest rates were to return to some semblance of historic normalcy, say 5%, interest payments on the debt would then run $1 trillion per year. This sum could represent almost 40% of total federal revenues in 2012!
In addition to making the debt service unmanageable, higher rates would depress economic activity, thereby slowing tax collection and requiring increased government spending. This would increase the budget deficits further, putting even more upward pressure on interest rates. Higher mortgage rates and increased unemployment will put renewed downward pressure on home prices, perhaps leading to another large wave of foreclosures. My guess is that losses on government insured mortgages alone could add several hundred billion more to annual budget deficits. When all of these factors are taken into account, I believe that annual budget deficits could quickly approach, and exceed $3 trillion. All this could be in the cards if interest rates were to approach a modest 5%.
If the sheer enormity of the red ink were to finally worry our creditors, 5% interest rates could quickly rise to 10%. At those rates, the annual cost to pay the interest on the national debt could equal all federal tax revenues combined. If that occurs we will have to either slash federal spending across the board (including cuts to politically-sensitive entitlements), raise taxes significantly on the poor and middle class (as well as the rich), default on the debt, or hit everyone with the sustained impact of high inflation. Now that's a real fiscal cliff!
By foolishly borrowing so heavily when interest rates are low our government is driving us toward this cliff with its eyes firmly glued to the rear view mirror. For years I have warned that a financial crisis would be triggered by the popping of the real estate bubble. My warnings were routinely ignored based on the near universal assumption that real estate prices would never fall. My warnings about the real fiscal cliff are also being ignored because of a similarly false premise that interest rates can never rise. However, if history can be a guide, we should view the current period of ultra low rates as the exception rather than the rule.
Fed trio move closer to QE3
Sound alarm on outlook
7-9-12
WASHINGTON (MarketWatch) — A trio of influential Federal Reserve officials on Monday sounded the alarm on the economy, and suggested that the central bank is close to starting another round of asset purchases.
In a speech to a bankers' convention in Idaho, John Williams, the president of the San Francisco Federal Reserve Bank, said progress on bringing down the unemployment rate is now running at a "snail's pace," and perhaps even stalled.
He said the Fed is on the "edge" of being forced from the sideline to once again prop up growth.
Fed Chairman Ben Bernanke told reporters last month that the Fed was watching the labor market closely to decide whether or not to undertake more easing steps.
Earlier on Monday, two of the most dovish Fed officials speaking at a conference in Bangkok, also expressed concern that the economy was struggling and said they would support more quantitative easing.
Boston Fed President Eric Rosengren said more quantitative easing is appropriate as labor market growth has slowed fairly noticeably and the global economy is vulnerable to financial shocks.
The U.S. created just 80,000 jobs in June, further evidence that the economy has hit another rough patch. The unemployment rate was See complete MarketWatch coverage.
The unemployment rate was unchanged at 8.2%.
Chicago Fed president Charles Evans repeated his call for aggressive action to counter the weak outlook.
"I support using our balance sheet to provide additional accommodation," Evans said.
On the other hand, Richmond Fed president Jeffrey Lacker, one of the most hawkish Fed officials, downplayed the recent soft data.
"We are just in a situation where growth is going to fluctuate between somewhat satisfactory and disappointing," Lacker said, in an interview with Bloomberg Radio.
Lacker, who voted against Fed efforts to stimulate the economy last month, said there was little the Fed could do about the unemployment rate because structural factors were keeping it elevated.
"Employment is close to maximum right now" given "the constellation of impediments and challenges this economy has had over the years," Lacker said.
In his remarks in Idaho, Williams said the Fed was facing a "sobering set of circumstances" that requires "extraordinary vigilance" from policymakers.
Williams, who is a voting member of the Fed's interest-rate setting committee this year, is considered closer to the center of Fed policy thought and so his move toward easing is significant.
Williams said he has a "subdued outlook" for the economy but even that is threatened by the ongoing crisis in Europe.
The danger remains that the "slow-motion" responses of European governments will be outrun by uncertainty and fear, he said.
Williams trimmed his growth forecasts for the next 18 months and said global financial market strains raise the possibility that growth and progress on employment will be even slower than expected.
"In these circumstances, it is essential we provide sufficient monetary accommodation to keep our economy moving towards our employment and price stability mandates," he said.
If further easing action is required, "the most effective tool" would be another round of asset purchases, including agency mortgage-backed securities.
Williams told reporters he would want the next round of quantitative easing to be open-ended.
Williams said the Fed's decision to extend Operation Twist until the end of the year is expected to only have "a relatively modest impact" on the economy.
Williams said that the trend in U.S. job growth is probably lower than 150,000 jobs per month.
This pace of job gains is just a bit above the growth of the labor force.
"So I expect that the unemployment rate will remain at or above 8% until the second half of 2013," he said.
Williams said that he expects the inflation rate to come in below the Fed's 2% target in 2012 and 2013.
"We are falling short on both our employment and price stability mandates and I expect will make only very limited progress toward these goals over the next year," he said.
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