GOLD - TAKE A LOOK AT THE BIG PICTURE

As Gold prices have corrected over the last week, I think its time to once again take a look at a long term gold chart.

Mr P. Radomski of SUNSHINE PROFITS has an excellent long term gold chart

Perhaps the sell off can push gold down towards $1550.
Long term gold bulls must remain focussed on the long term trend.

As Jim Sinclair said on 14/5/2012 -

The price of gold is going much higher. the problems that give gold its reason to go higher are growing not waning.

FED ACTIONS AND THE FINANCIAL CRISIS - SUMMARY BY GAINS PAINS AND CAPITAL

Graham Summers of Gains, Pains and Capital in a recent write up on Feb 4, 2013, very aptly sums up the actions of the US Fed

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Here's a recap of some of the larger Fed moves during the Crisis:

• Cutting interest rates from 5.25-0.25% (Sept '07-today).
• The Bear Stearns deal/ taking on $30 billion in junk mortgages (Mar '08).
• Opening various lending windows to investment banks (Mar '08).
• Hank Paulson spends $400 billion on Fannie/ Freddie (Sept '08).
• The Fed takes over insurance company AIG for $85 billion (Sept '08).
• The Fed doles out $25 billion for the automakers (Sept '08)
• The Fed kicks off the $700 billion TARP program (Oct '08)
• The Fed buys commercial paper from non-financial firms (Oct '08)
• The Fed offers $540 billion to backstop money market funds (Oct '08)
• The Fed agrees to back up to $280 billion of Citigroup's liabilities (Oct '08).
• $40 billion more to AIG (Nov '08)
• The Fed backstops $140 billion of Bank of America's liabilities (Jan '09)
• Obama's $787 Billion Stimulus (Jan '09)
• QE 1 buys $1.25 trillion in Treasuries and mortgage debt (March '09)
• QE lite buys $200-300 billion of Treasuries and mortgage debt (Aug '10)
• QE 2 buys $600 billion in Treasuries (Nov '10)
• Operation Twist reshuffles $400 billion of the Fed's portfolio (Oct '11)
• QE 3 buys $40 billion of Mortgage Backed Securities monthly (Sept '12)
• QE 4 buys $45 billion worth of Treasuries monthly (Dec '12)

The Fed is not the only one. Collectively, the world's Central Banks have pumped over $10 trillion into the financial system since 2007. This money printing has resulted in a massive expansion of Central Bank balance sheets, spread inflation into the system, and done nothing to address the key solvency issues that lead up to the great crisis."""""""""

JAPANESE GOVERNMENT DEBT AND THE JAPANESE YEN

Record high government debt that has so far been domestically funded, record low interest rates (positive real rates  & until recently an appreciating Japanese Yen)  and a current account surplus has enabled the Japan to continue to muddle its way through just over two decades of deflation.

As the current administration promises to weaken the Japanese Yen and attempts to inflate its way out of debt, the stage may be set for a tragic end.

According to Martin Feldstein -Even without the prospect of faster inflation and a declining yen, fundamental conditions in Japan point to higher interest rates. The Japanese government has been able to sell its bonds to domestic buyers because of the high rate of domestic saving. The excess of saving over investment has given Japan a current account surplus, allowing the country to finance all of the government borrowing domestically, with enough left over to invest in dollar-denominated bonds and other foreign securities. But that is coming to an end.

The household saving rate has collapsed in recent years, falling to less than two per cent. The combination of high corporate saving and low business investment has sustained the current account surplus, allowing Japan to fund its budget deficit domestically. But the surplus has fallen sharply in the past five years, from roughly six per cent of GDP in 2007 to only one per cent now. With a falling rate of household saving and the prospect of new fiscal deficits, the current account will soon be negative, forcing Japan to sell its debt to foreign buyers.

As Satyajit Das says in his article - " Japans toxic combination of weak economic performance,large budget deficits,high and increasing levels of government debt,declining household savings and looming current account deficits is unsustainable."

WATCH THIS SPACE!

LINKS:

Satyajit Das  - The Setting Sun's Rising Debt

Martin Feldstein: Ending Japan's long deflation