Japan Should Scrap U.S. Debt; Dollar May Plummet, Mikuni Says

What a sad state of affairs to see the US being thought of as a third world country incapable of paying off it's debt.

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Japan Should Scrap U.S. Debt; Dollar May Plummet, Mikuni Says

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By Stanley White and Shigeki Nozawa

Dec. 24 (Bloomberg) -- Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.

The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said.

“It’s difficult for the U.S. to borrow its way out of this problem,” Mikuni, 69, said in an interview with Bloomberg Television broadcast today. “Japan can help by extending debt cancellations.”

The U.S. budget deficit may swell to at least $1 trillion this fiscal year as policy makers flood the country with $8.5 trillion through 23 different programs to combat the worst recession since the Great Depression. Japan is the world’s second-biggest foreign holder of Treasuries after China.

The U.S. government needs to spend on infrastructure to maintain job creation as it will take a long time for banks to recover from $1 trillion in credit-market losses worldwide, Mikuni said. The U.S. also needs to launch public works projects as the Federal Reserve’s interest rate cut to a range of zero to 0.25 percent on Dec. 16. won’t stimulate consumer spending because households are paying down debt, he said.

U.S. President-elect Barack Obama wants to create 3 million jobs over the next two years, more than the 2.5 million jobs originally planned, an aide said on Dec. 20. Obama takes office on Jan. 20.

Marshall Plan

Japan should also invest in U.S. roads and bridges to support personal spending and secure demand for its goods as a global recession crimps trade, Mikuni said.

Japan’s exports fell 26.7 percent in November from a year earlier, the Finance Ministry said on Dec. 22. That was the biggest decline on record as shipments of cars and electronics collapsed.

Combining debt waivers with infrastructure spending would be similar to the Marshall Plan that helped Europe rebuild after the destruction of World War II, Mikuni said.

“U.S. households simply won’t have the same access to credit that they’ve enjoyed in the past,” he said. “Their demand for all products, including imports, will suffer unless something is done.”

The plan was named after George Marshall, the U.S. secretary of state at the time, and provided more than $13 billion in grants and loans to European countries to support their import of U.S. goods and the rebuilding of their industries

Currency Reserves

The Japanese government could use a new Marshall Plan as a chance to shrink its $976.9 billion in foreign-exchange reserves, the world’s second-largest after China’s, and help reduce global economic imbalances, Mikuni said.

The amount of foreign assets held by the Japanese government and the private sector total around $7 trillion, Mikuni said.

Japan will also have to accept that a stronger yen is good for the country in order to reduce excessive trade surpluses and deficits, he said. The yen has appreciated 23 percent versus the dollar this year, the most since 1987, as the credit crisis prompted investors to flee riskier assets and repay loans in the Japanese currency.

“Japan’s economic model has been dependent on external demand since the Meiji Period” that began in 1868, Mikuni said. “The model where the U.S. relies on overseas borrowing to fuel its property market is over. A strong yen will spur Japanese domestic spending and reduce import prices, thereby increasing purchasing power.”

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net

Last Updated: December 23, 2008 22:22 EST

Canadian Quantum to graduate

Canadian Quantum Energy CorporationNEX BOARD: CQM.H
Dec 22, 2008 09:21 ET

Canadian Quantum Announces Conditional Approval of Graduation From NEX to TSX Venture Exchange Tier 2

CALGARY, ALBERTA--(Marketwire - Dec. 22, 2008) - Canadian Quantum Energy Corporation ("Canadian Quantum" or the "Corporation") (NEX BOARD:CQM.H) listed for trading on the NEX board of the TSX Venture Exchange ("NEX") is pleased to announce that the TSX Venture Exchange ("TSX-V"), by letter dated December 11, 2008, has granted conditional approval regarding the NEX reactivation to the TSX-V. The shares of Canadian Quantum will commence trading on the TSX-V, Tier 2 on December 23, 2008 under the trading symbol CQM.

Summary of Properties

The Corporation owns various working and royalty interests in four permits encompassing over 169,300 gross acres in the St. Lawrence Lowlands Basin situated primarily on the south shore of the St. Lawrence River between Montreal and Quebec City that were recently valued by Martin & Brusset Associates.Canadian Quantum also has minor oil and gas production interests in Ontario.Recent ActivityIn 2007, the Corporation participated in the drilling of the Gentilly #1 Well ("the Gentilly Well") on Quebec Permit #2006PG907 (35,600 gross acres). The Gentilly Well was cored within the shales and then drilled through the Ordovician section testing gas from the Trenton at significant rates. Additional testing of the Gentilly Well bore in 2008 has yielded promising results in the Utica Shale section (800 mcf/d on an 18 day test post-frac).

Testing is continuing in the upper Lorraine section.Utica ShalesThe Utica shale deposits are relatively thick and regionally present in this basin, however, the primary area of prospectively is a narrow fairway paralleling the south shore of the St. Lawrence River (the "Fairway"). The Fairway is bounded to the south-east by a line of thrust faults known as Logans Line and to the north-west by the Yamaska Growth fault. The Fairway shales are largely undisturbed and the thermal maturity and average depth of approximately 1,220 meters are considered conducive for the generation of natural gas.Permits

The Corporation has an interest in 3 contiguous permits along the south shore of the St Lawrence, just east of the town of Becancour, totalling approximately 115,000 gross acres. These lands are prospective for the Utica Shale with part of the lands lying north of the Yamaska Growth fault. The Corporation's Gentilly Well was drilled on the western most permit. Canadian Quantum owns a 3.75% working interest and a 0.75% gross overriding royalty interest in these permits.The Corporation's fourth permit, # 2002RS056, referred to as the Nicholet Permit, is subject to two agreements. The first agreement requires Junex Inc. to drill and complete two earning wells plus pay $250,000 to the Corporation to earn a 50% working interest in the Nicholet Permit to the base of the Utica Shales. The second agreement that the Corporation has entered into provides for a major oil and gas company to make a cash payment to the Corporation of $300,000 and shoot a 6 km seismic program in order to earn 100% of the Corporation's deep rights below the Utica Shales and a 20% working interest from surface to the base of the Utica Shales subject to the payment of a 5% gross overriding royalty to the Corporation based on their earned interest. The Nicholet Permit, consisting of approximately 54,600 gross acres, is ideally located straddling the Fairway and sitting reasonably central in the St. Lawrence Lowlands Basin play.

Future Development

The Corporation plans to participate with its partners on the Gentilly permits, although no specific plans have been announced at this time for the 2009 calendar year.With respect to the Nicholet Permit, the Corporation does not foresee any significant capital expenditures for 2008 as the two Junex earning wells will have to be drilled and analyzed prior to making any further capital related decisions.

Current Financial Position and Planned Expenditures

As at December 1, 2008, the Corporation had net working capital of $344,633 and total assets of $248,411 as compared to total assets of $227,117 as at April 30, 2008. Management believes this working capital along with the consideration committed to be paid to the Corporation by its industry partners will be sufficient to fund all of its currently budgeted costs. Throughout the next 6 to 12 month period, the Corporation anticipates spending an estimated $150,000 on further developing its properties.

Corporate Strategy and Objectives

Management is committed to the Corporation being active in the Quebec Shale Play. Participation with quality partners in the various permits will allow the sharing of operational expertise in this new and developing play. Management remains open to evaluating additional opportunities as they arise, with the goal to building value for the Corporation's shareholders.

More gold missives for under the Christmas Tree

From - LeMetropole Cafe

A friend of mine just asked me about the TOCOM short positions, so I searched through the MIDAS archive to find the last time the chart was published showing the trend in the gold short positions of the “seven big gold shorts” in Japan.

And I found it (below), last published in MIDAS on October 22nd. That was the time that Goldman Sachs briefly went long for the first time (for just a few days), and coincided with one of the largest commercial short-covering days ever. That day, Goldman went from net short 200 gold contracts to net long 543 contracts, their first ever day long, while the “seven big gold shorts” slashed their net short position by 7,520 contracts to 12,359 contracts, the “smallest net short position they have held since (Scott) began recording this data in February 2006.”
And what did Gold do on the next day? Yep, it BOTTOMED at roughly $713/oz.!

So let’s see. Back in late October, at the peak of the market crisis, the big “commercials” were massively buying back shorts right around the bottom of the gold market. At that time, the Dow was 9,025, gold was $713, silver was $10.10, and the COMEX open interest positions were 319,000 for gold and 95,000 for silver.

Now fast forward to today. The Dow is LOWER, at 8,579, gold is $838, silver is $10.90, and the COMEX open interest positions are 294,000 for gold and 86,000 for silver.

As we know, the Cartel ALWAYS increases its shorts as the prices of gold and silver rise. However, in this case, for the first time EVER, they have not. Gold and silver have risen by 17% and 8%, respectively, over the past two months (while the Dow has fallen by 5%), however the TOCOM shorts have reduced their gold short position by 91% to its lowest level ever (essentially neutral at short 1,164 contracts) and are now long silver. Meanwhile, Goldman on Friday went long gold again in major fashion, yielding its largest long position EVER. And, simultaneously, the COMEX gold and silver open interest positions have fallen by 8% and 10%, respectively, back to their lowest positions in 3-4 years (last seen when gold and silver were nearly half the prices they are today).

Not to mention, since that time nearly HALF of the physical gold and silver COMEX inventories have been claimed (if the gold and silver are even there), and each day it’s looking like either February or March will represent D-Day for the COMEX short squeeze (barring any further dirty tricks by the Cartel).

In other words, taking out the market noise of the past few weeks, the themes of the gold and silver markets have been a) MASSIVE, UNPRECEDENTED SHORT COVERING by the bad guys during a period of rising gold and silver prices, b) MASSIVE, UNPRECEDENTED ABANDONMENT OF THE GOLD AND SILVER FUTURES MARKETS by traditional long speculators as they likely leave the COMEX forever, and c) MASSIVE, UNPRECEDENTED PHYSICAL DELIVERY REQUESTS on the COMEX.

Combine these themes with the MASSIVE PHYSICAL GOLD AND SILVER SHORTAGES, including closing mints, rising premiums (no more eBay cash back offers, for instance), and the topping of the dollar, sprinkle in the new Zero Interest Rate Policy, MASSIVE planned fiscal stimulus ($586 billion in China and $850 billion in the U.S.), heightened bailouts, and an incoming president designing himself to put FDR to shame, and you have the ingredients for a very near-term earthquake in the Precious Metals markets.

Nothing is guaranteed, but if I were a Vulcan like Mr. Spock, I’d say that you can’t argue with logic!

Andrew Hoffman

A powerful reinforcement of the gold trade

http://news.goldseek.com/GoldSeek/1228935840.php

Antal E. Fekete
Gold Standard University Live

Here is an update on the backwardation in gold that started on December 2 at an annualized discount rate of 1.98% and 0.14% to spot in the December and February contracts. It continued and worsened on December 8, 9, and 10 as shown by the corresponding rates widening to 3.5% and 0.65%. It is nothing short of awesome. This is a premonition of a coming gold fever of unprecedented dimensions that will overwhelm the world as soon as its significance is fully digested by the doubting Thomases. The worsening of backwardation must be viewed in the context of the gold price bouncing back from the lows of last week. It shows that the ‘gold bashing’ on Friday was done in the December contract. It is quite revealing that the spot price bounced back more than the futures price. The bulls are on the warpath. They have unearthed the hatchet. They have stopped eating from the hands of the clearing members.

Mish Shedlock published a disdainful criticism of my theory on the worsening backwardation in gold, calling it “nonsense” (see References below). A friend of his owns a seat on Nymex (a branch of Comex) who had this to say:

I have seen countless commodities go into backwardation for numerous reasons, the most frequent being a radical temporary divergence between immediate and overall demand. I have seen backwardations that have lasted years. The article is based on the assumption that a backwardation will necessarily lead to a breakdown of the delivery mechanism. But for every breakdown of the delivery mechanism there have been thousands of backwardations without a breakdown. Only if and when an actual breakdown occurred would the conclusions that the author drew make sense.

Well, well, one can buy himself a seat on the Nymex for sure, and the price is hefty these days, but Nymex does not deliver the understanding of monetary science along with the seat. Nor does any university anywhere in the world. To fill this obvious gap, I founded Gold Standard University Live. It is defunct today, but not because my theories are “nonsensical”.

It is defunct because Mr. Eric Sprott of Sprott Asset Management withdrew his funding after only three sessions, saying that “results do not justify the expense”. Under these circumstances I do what I can to teach all those who want to learn, and pick the “forbidden fruits” of monetary science that have been blotted out from the curriculum ― and from the gold and silver pits of Nymex.

Mish says that “there is nothing special about backwardation, period. OK, they are rare in gold. So what?” Here is what. There is a difference between “rare” and “non-existent”. Backwardation in gold has been non-existent, and for a very good reason, too, as I have explained in my articles. (I also pointed out that there have been ‘hiccups’, or short-lived instances of backwardation. They were temporary ‘logistical’ bumps, always resolved within a day at most, and they never ever spilled over to the next actively traded delivery month.)

Mish needs to educate himself on the fundamental difference between a monetary and a non-monetary commodity, before he can grasp the idea that lasting backwardation in gold is tantamount to the realization that ‘gold is no longer for sale at any price’.

The bottom line is that there is no fever like gold fever. It is akin to St. Vitus’ dance that swept through the Christian world just before the year 1000 A.D. affecting all the people who expected the end of the world to happen at the turn of the millennium. It was far worse than the mania that swept through the world affecting all the people who expected the 2K disaster to happen a thousand years later. The coming gold fever must be distinguished from tulipomania in February 1637, when one single tulip fetched the equivalent of 20 times the annual income of a skilled worker. Gold fever is as different from a bubble as real gold is from fools’ gold. It is visceral. It has to do with one’s instinct for survival. It has no patience with logical arguments. It is highly contagious, ultimately affecting everybody. A bubble that never pops.

You may ridicule the idea that, during a prolonged backwardation, all offers to sell gold will be withdrawn. But a serious analyst must answer the question why hundreds of millions of people having gold coins under the mattress and in the cookie jar refuse to take the bait of ‘risk-free’ profits offered by backwardation. Such a thing would never ever happen to a non-monetary commodity.

The only successful corners in history were gold corners, a.k.a. hyperinflation. Keynesian and Friedmaite economists in the pay of the government thought that gold futures trading will permanently short-circuit the forces of gold backwardation thus preventing hyper-inflation from ever happening. They were wrong.

In an article The Manipulation of Gold Prices (see References below), Professor Emeritus of Economics and former Dean of the School of Business Administration at the University of Indianapolis, James Conrad argues that Bernanke is different. He understands that he needs a much higher gold price in order to increase the efficiency of his airdrops. There is no better way to distribute new money among prospective spenders than putting it into the pockets of the gold bugs. (Conrad admits that he is one.) This will induce a large spending spree, holding deflationary pressures back.

According to Conrad, Bernanke is well aware that the new money he is feverishly airdropping has not stopped and will probably not stop the bloodbath in the stock market. Further devastation of share prices will render pension funds insolvent. To prevent this, the dollar needs a massive devaluation, on the pattern of Roosevelt’s tinkering with the value of gold. I quote:

Anyone who reads the written works of our Fed Chairman will know that Bernanke’s long term plan involves devaluing the dollar against gold. This is the exact opposite of the position of most prior chairmen. He has overtly stated his intentions toward gold, many times, in various articles, speeches and treatises written before he became Fed Chairman. He often extols the virtues of F. D. Roosevelt’s gold revaluation/dollar devaluation back in 1934, and credits it with saving the nation from the Great Depression. According to Bernanke, devaluation of the dollar against gold was so effective in stimulating economic activity that the stock market rose sharply in 1934, immediately thereafter. That is something that the Fed wants to see happen again.

It is only a matter of time before gold is allowed to rise to its natural level. Assuming that about one half of the recent increase in Federal Reserve credit is neutralized, the monetized value of gold should be allowed to rise to between $7,500 and $9,000 per ounce as the world goes back to some type of a gold standard. In the nearer term, gold will rise to about $2,000 per ounce as the Fed abandons its hopeless campaign to support Comex short sellers in favor of saving the other, more productive, functions of various banks and insurers.

Revaluation of gold, and a return to a gold standard, is the only way that hyperinflation can be avoided while large numbers of paper currency units are released into the economy. This is because most of the rise in prices can be filtered into gold. As the asset value of gold rises, it will soak up excess dollars, euros, pounds, etc., while the appearance of an increased number of currency units will stimulate investor psychology; and lending and economic output will increase all over the world. Ben Bernanke and the other members of the FOMC Committee must know this, because it is basic economics.

It is to be regretted that more of Professor Conrad’s admirable paper cannot be quoted here because of lack of space. To summarize: Bernanke is prepared to throw the issuers of paper gold at the Comex to the wolves, as they have become useless, even a nuisance, by now. Besides, the wolves must be appeased lest they devour whatever remains of the U.S. banking and insurance system.

My own position is somewhat different from Professor Conrad’s. In my view we are facing a world-wide elemental grass-root movement: the flight into physical gold ― witness the backwardation in gold. It is irresistible, and will ultimately overtake all other market forces. It will overwhelm official resistance.

An intriguing case can be made, as is attempted by Conrad, that Bernanke is intelligent enough to realize all this thinking that he can harness, if not hijack, the grass-root movement for his own purposes. This is a wee-bit more intelligence than I can give credit for to the Chairman, who is a former academic himself. I find the thought surrealistic that Bernanke wants to use gold as the safety-valve through which he can release steam from an overheating deflation one day, and from an overheating inflation the next.

Be that as it may, the Brave New World of irredeemable currency sans the paper gold factory at Comex will be an entirely different world from what we have been used to for the past thirty-six years. I highlight the differences as I see them. This should be helpful in the long run, even if this backwardation is temporary and gold futures trading will return to normal, since permanent backwardation is ultimately unavoidable.

Item 1: Barrick and other gold producers that still have an open hedge book will go bankrupt.
Item 2: Other gold miners will, one after another, stop selling gold altogether, and go into hibernation.
Item 3: Junior gold mines will put off starting production indefinitely. They will consider their gold ore reserves in the ground a safer store of value than paper money in an insolvent bank.
Item 4: The closing of the gold window at the Comex will furnish an excuse for other issuers of paper gold including the bullion banks to declare bankruptcy fraudulently.
Item 5: GLD and other joint depositories of gold will be under enormous pressure to default and let the owners of the ETF shares hold the bag. Let them sue for the gold. They won’t get it: their contracts give them no right to physical gold. They will get small change, in paper. The principals will cut up the gold pie among themselves. No crumbs will trickle down to shareholders.
Item 6: Even allocated and segregated metal account gold is not safe. The temptation on the account providers to default will be irresistible. They are not going to release the gold until expressly ordered by the courts, and will make sure that no gold will be left by then.
Item 7: Central banks forfeit their gold under leases due to backwardation, causing an uproar of citizens whose patrimony was sequestered and dissipated in such an ignominious manner.
Item 8: The only market for gold will be the fragmented black markets in various countries each charging a price whatever the traffic can bear. All legal protection of the ownership of and trade in gold will be suspended. The Dark Age will descend on the trading world, just as it did when the Roman Empire collapsed.

Our present experiment with irredeemable currency can last only as long as it is able to support futures markets in gold. The declining gold basis is the hour glass: when it runs out and the last grain of sand drops, gold fever will bleed the futures markets of cash gold, and the days of the regime of irredeemable currency are numbered.

Previous episodes of experimentation lasted no more than 18 years, or half as long as the present one which has taken 36 years so far, a world record. Of course, none of the earlier episodes were supported by futures markets. Forewarned, forearmed. Get ready and move closer to the doors. When the curtain falls on the last contango in Washington, there will be panic and some people may get trampled to death at the exit.

Dear Mish, lower your gun. The topic of gold backwardation is not for you.
References

Monetary versus Non-monetary Commodities, April 25, 2006

The Last Contango in Washington, June 30, 2006

Red Alert: Gold Backwardation!!! December 4, 2008

Has the Curtain Fallen on the Last Contango in Washington? December 8, 2008

These and other articles of the author can be accessed at the website
www.professorfekete.com

The Nonsense about Gold Backwardation, etc., by Mike (Mish) Shedwick, December 7, 2008, www.globaleconomicanalysis.blogspot.com

The Manipulation of Gold Prices, by James Conrad, December 4, 2008, www.seekingalpha.com

Gold in Backwardation? Not so fast…, by ‘Hard Asset Investor’, December 2, 2008, ibid.

The Battle against Contango, by Brad Zigler, November 20, 2008,
www.hardassetsinvestor.com