Facebook, Twitter, and the Arab Revolutions

The dictator of Tunisia was overthrown in less than one month after being in power for 23 years. There is no question about how opponents of his regime were able to topple it. Two words describe it: Facebook, Twitter. These two social networking sites enabled protesters to take to the streets, organize the opposition, recruit new protesters, and overcome the police force and the military.

There is no question that if the government had chosen to use machine guns to cut down the protesters, it probably would have succeeded in suppressing the revolt. If it had combined machine guns with switching off the Internet, it would have been able to cut the protest down, both literally and digitally. But to do that, the regime would have had to act extremely fast, and it would have risked coming under international condemnation. It would also have created a permanent opposition, ready to revolt again.

The opposition forces are now connected, yet not organized. This has never happened before in recorded history. The masses can communicate with like-minded people for the price of a computer and an Internet connection.

In the good old days of the Soviet Union in the 1960s, the leaders would have applied that degree of force without a moment’s hesitation. But this is not the era of the Soviet Union. We are living in a digital age, and almost nothing can be concealed from the public for very long. If a tyrant is weak, this will become common knowledge. There are few Goliaths and a lot of Davids online.

It is the power of the communications networks, when coupled with a willingness on the part of protesters to gather in the streets, that spells a period of crisis for every autocratic regime on earth. The autocrats have seen in January 2011 that it is difficult to put a lid on any unorganized protests. The organizing did not come from some little group that can be infiltrated or arrested. This was as close to a spontaneous protest as anything we have seen in modern times.

The ability of the social networks to organize a protest almost overnight, because people of similar beliefs and commitments are in close communication with others, has completely changed the nature of political resistance and revolution. This system of revolution toppled a middle eastern dictatorship in less than a month. It threatens to topple two more before the end of February: Yemen and Egypt. We have entered into a new period political resistance.

DISCOUNT REVOLUTION

From an economic standpoint, this is easy to explain. When the cost of political mobilization falls, more is demanded. When people can mobilize thousands of protesters without any centrally directed agency and without any organization that can be infiltrated and subverted, they are in a position to impose enormous political damage on any existing regime, as long as the regime really is corrupt, tyrannical, and hated. When a dictator can control the society for 23 years, and get 89% of the vote when he runs for office, you can be confident that he is hated. It is corrupt. Nothing survives that long in a democratic society with 89% support.

The revolt that is taking place in Egypt is a direct result of the success of the revolt in Tunisia. The social networking organizations are again at the center of the revolt. There is a similar revolt going on in Yemen. Across the Arab world, it is becoming obvious that protesters have a tool available that will enable them to cause enormous discomfort for the tyrannical regimes of the region.

Regimes have established systems of control, including thought control, based on the price of communications in the era of print media. They can control paper, ink, and distribution. They cannot control telecommunications through the Internet without shutting down the Internet entirely. This is what Egypt did on Friday, January 28.

Because Egypt had fewer than a dozen major Internet service providers, the government was able to shut down the Internet at one time. The government also shut down landline telephone communications in some regions of the country. This was not simply an attack on the Internet. The government had to shut down other forms of telecommunications.

The difficulty that the government faces is obvious: it cannot continue to keep the Internet and landline telephone service from the general public. The modern economy is becoming increasingly dependent upon the Internet. It has already become highly dependent upon the telephone system. It is not possible for any government to intervene into the delivery of telecommunications services without creating enormous problems for the economy. Any government that attempts to do so on a long-term basis is going to find its tax revenues falling, more people becoming alienated from the government’s policies, and more opportunities for troublemakers to increase the amount of trouble. At some point, the government will have to reestablish Internet services and landline telephone service. At that point, it will probably face an even more alienated population than when the protests began.

The governments of the world are caught between the proverbial rock and a hard place. If they allow the Internet to stay up, and if the social networking systems continue to recruit people to go into the streets, a corrupt government will face a rapidly escalating crisis. Its legitimacy is being called into question, and the only way to restore order under these conditions is to begin to shoot people. Tear gas is no longer working.

Here is a video of the riots in Cairo. The government had an armored vehicle rolling through the streets, and it was firing canisters of tear gas. People were not only paying no attention, they were kicking the canisters across the street into areas in which there were no protesters.

I have been subjected to a very mild administration of tear gas, when I was a high school student, and a local police chief was showing a few of us what it was like. He had an aerosol container of it, and he held his finger on the button for only a few seconds. We were perhaps 10 feet away, and it was unpleasant. I cannot imagine anybody staying in the streets when the police are firing canisters. But that is what I saw in the video.

Governments have become fearful of bringing out the machine guns, for fear of international condemnation. Dozens of people will be videotaping the event and will immediately upload the videos to a satellite, which will spread around the world in a matter of seconds. The low cost of telecommunications is making it possible for protesters to expose the policies of their governments so that all the world can see.

Universally, governments do not want exposure of what they are doing. They want to control the flow of information, and they want to be able to spin it rapidly. They can do neither when the Internet is operating, because the images are out there so rapidly, and picked up by the news media so rapidly. The governments cannot spin away the visual information. They are caught in the situation attributed to Groucho Marx, when he declared to someone who had interrupted his meeting with an attractive young woman: “What are you going to believe? Me or your own eyes?”

The fact that this is taking place in the Arab countries indicates that the whole region is vulnerable to more revolutionary resistance. The telecommunications network is well developed in all of these nations, and the people who use them are educated. They have enough money to plug into the Internet. A lot of them are college graduates. Worse, they are unemployed college grads. They understand the media, and they are in social network arrangements, connection by connection, with thousands of similarly unemployed, equally educated people. Unemployed intellectuals who are young have always been a threat to established tyrants. These are the people who have relatively little to lose, and they think they have great deal to gain, by taking to the streets. When they are not shut down fast, they are emboldened. They assume that nothing can stop them, because tear gas and rubber bullets are not so great a threat.

When people around the world can see street protesters, this encourages thousands of other protesters, who had attempted to sit the fence, to get off the fence and go into the streets. There is safety in numbers. When they can see on television or on the web that there are thousands of people in the streets protesting, they assume that they will gain a degree of invisibility and anonymity if they join the protests. So, they leave the safety of their homes and join the protest movement. Because of social networking, this can take place so rapidly that government officials are unable to respond fast enough to put a stop to it before it is obvious that there are thousands of people in the streets.

The social networks can become a liability if the revolt fails to dislodge the existing regime. The government can use the Internet to track down those people who were activists in the early stage of the revolt. There is no way to hide your communications retroactively on Twitter and Facebook. The government is going to find out who sent out messages, and it will be able to trace the spread of these messages by means of the very technology that enabled the original protesters to recruit thousands of volunteers. But how many can the police arrest? There were too many protesters to put all of them in jail.

The people the government will have to investigate are highly educated, and have enough money to own a computer and be plugged into the Internet. These are exactly the kinds of people the government does not want to alienate. These people have connections, they have money, and they have time on their hands.

When you are talking about thousands of protesters going into the streets, you are talking about a protest without any organization. You cannot stop the organization when you cannot control a handful of the organization’s leaders. The social network system enables rapid response protesting without any clear-cut chain of command. There really is no chain of command. That is the whole point of social networking. It is horizontal; it is not vertical. To stop something from spreading, the government has got to shut the entire system down.

A SPONTANEOUS REVOLT

This is changing the nature of social protest. This has finally produced a situation in which the old rhetoric of the revolutionaries is true: the revolution is a spontaneous work of the People. There is no clandestine group of conspirators who are organizing a conspiracy in such a way that it looks like a spontaneous insurrection. Governments can deal with that kind of revolutionary organization by infiltrating the organizations at the very top. They have done this for centuries. But when revolt really is the result of the spread of rhetorically effective communications in a decentralized system of telecommunications, the government cannot cut this off in advance. It cannot arrest the organizers in the days before the great plan was about to be executed. There is no great plan, and the government has no time to react.

By speeding up the mobilization process, and by flattening it out, the protesters have been able to topple one regime and threaten two more in a matter of a month. They were able to challenge the existing political structure of approval for autocrats who have held power for decades. The ruler in Yemen has been in power for 32 years. The ruler of Egypt has been in office for almost 30 years. Yet the social networks have brought these two regimes to the edge of disintegration in a matter of days. How can governments mobilize resources to head this off at the pass, when there is no pass?

We are therefore seeing a shift in the balance of power away from centralized government, which has control over most of the print media in the country, to broad masses of people with money and computers – people who are in no way dependent upon paper, ink, and paste to put up posters. The government can react rapidly to the older media, but it cannot react as rapidly as the social networks call out the anti-government troops. The government had the edge in speed back in the days of printed manifestos and posters. That world is gone.

So, as we watch the digits undermine the foundations of Middle Eastern autocracies, we get a picture of what is likely to come in the next generation. Every government in the world is now threatened by the visual power of street demonstrators. The protests will be posted on YouTube within minutes.

None of this existed six years ago. Governments have used money, recruiting techniques, propaganda techniques, and all the rest of it for the last hundred years in terms of a particular technology. That technology is the printing press. Martin Luther created a social and religious revolution in northern Europe by means of pamphlets, broadsides, and posters with cartoons almost 500 years ago. For almost five centuries, the technology of communication did not change radically. And then, without warning, the rise of the Internet began to shift the balance of power in the direction of citizens. With the advent of the social networks, there has been a quantum leap in the ability of protesters to register their protests publicly, with no comparable increase in response time by the authorities. Telecommunications are instantaneous, and they are delivered at no marginal cost to the participants. When the price of protesting falls, more of it will be demanded. This is what is taking place today.

The only defense against this is extreme poverty. We are not seeing anything like this in Zimbabwe. Hardly anybody has a computer in Zimbabwe. Only the very rich have access to the Internet. But as soon as price competition drives down the cost of getting connected, a government faces the kind of events that have taken place over the last three weeks. When there is widespread ownership of computers and widespread participation on the Internet, the social-networking capabilities of the Internet become a major threat to the government.

THE ISSUE OF LEGITIMACY

What is at stake is government legitimacy. When it becomes obvious to a growing minority of intellectuals that the government is corrupt, it is only a matter of time before these people begin to spread the word: the government is illegitimate. The only way that a government can keep control is to elicit voluntary compliance with its laws, rules, and official pronouncements. This can cease to work very fast.

A corrupt government is perceived as legitimate only because it is so expensive to get the word out to large numbers of people, especially people with educations and money, that the government is both corrupt and vulnerable. So, the only way for a despot to survive the kinds of things that have taken place in the North African autocracies is to extend political power, educational opportunity, and employment opportunities to the broad majority of the population. Western capitalist governments have been able to do this over the past century, but the autocracies have not been able to. They are the ones that are most at risk by the spread of the Internet and social networking. In other words, the best way to avoid revolution today is to have already created a system of political power in which large numbers of people believe that they have a stake in the system and a voice in the system.

The Arab world has never done this. The leaders seemingly are incapable of doing this. They will have to rethink the entire political order in order to avoid a series of protests comparable to what is taking place over the last month. They are going to have to reform their systems of government, or else those systems will be reformed for them. Yet an autocracy that grants greater democratic participation risks the very revolutionary violence that these three governments have experienced in January. The government never reforms fast enough and on a wide enough basis to satisfy those people in society who have called for government reform. Once it is clear that the government is capitulating to the demands of reformers, the more radical reformers are encouraged to believe that the system is toppling, and therefore they renew their efforts to topple the system. This has been going on since at least the time of the French Revolution. It will escalate.

Governments understand this process of escalating resistance in the face of limited domestic reforms. This is why they resist granting any kind of significant rights to large numbers of people. They see this as lighting a fuse that is going to lead to an explosion.

There is no way that any society can grow economically without adopting the Internet. This is the wave of the future, and educated people understand this. Arab governments want to participate in economic growth that is spreading across the Third World as a result of telecommunications. They are going to have to allow their citizens to buy computers and sign up for the Internet.

As the price of doing this gets less expensive, more and more people are going to take advantage of the opportunity. This brings money, entertainment, and many of the blessings of life that millions of people across the face of the earth have wanted to experience over the past 50 years or 100 years, and were unable to do so. So, we see the rapid escalation of the spread of this new technology. It brings benefits to large numbers of people, especially educated people. Yet, as we have seen, the spread of this technology leads to resistance against policies of these autocratic and formerly poverty-stricken nations. The richer these nations get, the more dangerous the intellectuals are.

I see no way out for the world’s autocrats. One by one, these men are going to be challenged by large numbers of people who now have the means of extending the resistance. The means of economic growth now constitute a threat to the survival of every autocratic regime. Only if the autocrats become media-savvy demagogues can they hope to mobilize the people who now have access to computers and the Internet. They are going to have to appeal directly to those people if they want to avoid some sort of domestic political conflagration. Yet they have no skills in mobilizing these people, because it was not necessary in the past. Governments could buy off intellectuals, and they could also control the spread of ideas, because they had control over radio, television, and printing presses. They are losing control in all three areas. They are on the defensive in the social media.

So, the techniques of political control that have been developed over the last 200 years are being superseded rapidly by new technologies that are so inexpensive that there is no way governments can keep them from spreading. North Korea can keep them from spreading, of course, but North Korea is one of the most poverty-stricken nations in the world. Any nation that pulls the plug on the Internet and landline telephones is in effect putting a sign that says, “Welcome to the next North Korea.” No government leader wants to do this.

CONCLUSION

From the point of traditional conservatism along the lines outlined over two centuries ago by Edmund Burke, and also from the point of view of traditional libertarianism as it was outlined by Leonard Read, Ludwig von Mises, and Murray Rothbard, the development of the social networks is consistent with theory, and beneficial to the extension of liberty. The decentralized worldview of Burke, the decentralized worldview of Hayek and Mises, and the anti-government worldview of Rothbard all come together with social networking, YouTube, and e-mail.

Digital technology, because it is price competitive, penetrates the broad masses of individuals in the West. It is price competitive, and therefore is inherently decentralized. Everyone can have his own printing press in the new system. The ability of governments to control the spread of ideas is not keeping pace with the ability of the Internet to enable people to communicate ideas. The competitive system is asymmetric. This time, it is not asymmetric in favor of the government; it is asymmetric in favor of the citizens. They hold the hammer.

Yes, it is true that governments can temporarily take away the hammer. They can shut down the Internet. Anyway, small governments in the Middle East can do this. It is highly unlikely that the government could in the United States. The tendency of the system of telecommunications is to decentralize. The government that would dare to stop the spread of telecommunications is asking to lose the next election.

Gold and Silver are on the Starting Blocks

A strange start to the year and a strange end to a volatile week, so we take a whiz across the air waves in order to get a ‘feel’ of whats going on, so this will be a mixed bag of data. The first eye catcher is this:

Eric Sprott – Expect $50 Silver, Gold Possibly $2,150 by Spring.

What follows is brief summary of an interview that he gave to King World News.

Eric Sprott recently launched a silver fund and so entered the market to acquire 15 million ounces of physical silver, to his surprise it wasn’t readily available and in fact it took 10 weeks to get his order filled. Another order placed for 1 million ounces has been given a delivery period of around 2 months. The silver that he received looks to have come directly from the refiners as it is so new. This again tells us that that the supply side is indeed very tight. On the subject of China Eric drew the listeners attention to this interesting dynamic; In 2005 China exported 100 million ounces of silver, fast forward to 2010 and China imported 100 million ounces of silver, thats a 200 million ounce turnaround in an 800 million ounce market.

Other influential factors included:

One of China’s major banks has offered their customers a facility whereby they can save a portion of their savings in gold, they then had to open one million accounts which required 10 tones of gold to satisfy the demand. He then ponders the outcome if this idea were to spread throughout China and further afield, say to India. What is the effect if we get an extension to QE2 or even a QE3? The current meeting at Davos were the possibility of a 100 trillion dollar fund is being considered. The UK, where economic confidence remains rather weak. (The Bank of England supremo, Mervyn King talks of the UK being in a depression.) Over in the United States the social security department has announced a 45 billion dollar overspend for 2011.

There appears to no hiding place as the currencies via for pole position in a race to the bottom. Rallies are no longer based on an individual currencies merits, but rather just how slowly the other fiat currencies are falling apart.

In India,China, Asia and many other countries throughout the world the concept of receiving money for doing nothing is laughable. For the western world to remain remotely competitive, welfare, social security, bailouts, handouts, freebie benefits are existing on borrowed time, you have been warned. Securing your own financial independence has now reached a critical stage, think, plan and implement new ways to supplement your income.

Now, just what was the reason for gold prices taking a dip recently, we take a quick look at a possible scenario as proffered by Zerohedge from an original piece by the WSJ, as below:

Over the past several weeks there had been rumors that the reason for the precipitous drop in gold was primarily driven by a hedge fund liquidating its futures positions. This has now been confirmed: “Yeah, that was just me liquidating my spread position,” Mr. Daniel Shak, [of SHK Asset Management] 51 years old, said in an interview. “I had a significant, fully margined position. The dollar amount of the gold liquidation was very small, it was just a lot of contracts.” Of course in the extremely jittery gold market, the kind of persistent marginal gross selling of contracts was all that was needed to spook weak hands into a consistent dump of the precious metal, which as we pointed out was beyond overdone. Judging by this morning’s jump in the PM complex, SHK’s liquidation is now not only over but about to promptly reverse as daytrading momos realize they were duped by one single guy. Look for gold to resume its upward advance as investors realize that the gold dump was nothing more than an ongoing futures position liquidation.

A huge trade by a tiny hedge fund has sent shudders through the gold market.

Thanks to the nature of futures trading, Daniel Shak’s $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa’s annual gold production.

It just goes to show how sensitive this market can be when the above action has such an impact. No doubt there are other contributing factors that also lent weight to the movement in gold prices but this will suffice for now.

Finally, you might want to catch the UKIP leader Nigel Farage – interviewed about the EURO on Russia Today, where he expresses his views regarding the lack of compatibility of some of the member states with the one size fits all currency. Italy could be the next candidate for a bailout, despite the soothing words from the Eurocrats.

Please click here to watch the clip.

For disclosure purposes our political support lies with UKIP, even though they have yet to get one candidate elected to the British Parliament.

And finally, yes we are almost done, for New Zealand readers, the movie Inside Job is being released across the country at selected cinemas, so take your partner for a surprise evening out, otherwise you will have no-one to explain it to you later.

Have a good un.

Gold and Silver Progress Report

 

 

 

 This chart courtesy Federal Reserve Bank of St. Louis shows the increase in M2 money supply is speeding up again after a somewhat slower rise during the past year. This represents monetary inflation, which precedes price inflation, which in turn provides energy for gold, silver and many other commodities.

// //

 

Charts presented in this report are courtesy Stockcharts.com unless indicated.

 “The central economic problem plaguing this country since 1913, has been the presence of the federal Reserve System. Without the FED’s debt-currency scheme having effectively supplanted the constitutional monetary system based upon silver and gold, would have been impossible – not simply improbable, or difficult, but impossible – for politicians in the public sector and speculators in the private sector to have amassed the staggering level of un-payable, unconstitutional, and unconscionable debt that now bear down upon this country.” Dr. Edwin Viera, Jr. (from: ‘Going to the roots of the Problem’).

Featured is the daily gold price chart. The blue arrows point to buying opportunities. The 50DMA is in positive alignment to the 200DMA (green oval), and the latter is rising. This is bullish action. Price is turning up while the supporting indicators are at support levels (green lines). Gold and silver usually suffer a seasonal decline in January or February, and Wednesday most likely mared the end of that decline. The Gold Direction Indicator rose up from 28% on Tuesday to 71% on Wednesday.

CBO’s Revised Budget Sees 2011 Deficit Rising By $500 Billion To $1.5 Trillion; $4 Trillion In Deficit Through 2013 Guarantees QE3+
This news item by itself should make you want to buy silver and gold. The strongest foundation beneath the bull market in precious metals is budget deficits. This fact was emphasized in the 1970s by James Blanchard III at his New Orleans hard money conferences. Budget deficits are never closed by cutting government services ( token cuts are merely symbolic). They are covered by borrowed money and by monetary inflation.

Featured is the index that compares gold to the US dollar. Price is carving out a bullish flag formation. The current pullback appears quite normal within the ongoing bull market. A breakout at the blue arrow will be very bullish for gold. The supporting indicators are at support levels (green lines).

 During the 1970 – 1980 inflationary period the ‘asset protectors’ were: silver, gold, oil, diamonds and farmland. Stocks and bonds did not keep pace.

Featured is the COT gold report courtesy Cotpricecharts.com. The ‘net short position’ of commercial traders dropped 18,000 contracts, to 207,000 as of Tuesday Jan. 18th. This is the lowest number since August 21 2008! Gold on that date was $952 and over the next 5 months it rose 19% to $1138. If a new COT report were to be released today, it would actually turn out to be lower still, because gold has dropped in price since the release of the latest report. As it is, the ‘net short’ position (purple bar), and the ‘net long’ position of large speculators (grey bar), are the most bullish of any week in this chart! The next COT report is due out this Friday Jan 28th and is expected to be even more bullish than this one!

This chart courtesy Kitco.com shows the gold price to be a bargain for buyers in India. They are able to buy gold at the same price as back in November. Indians love bargains!

This chart courtesy Kitco.com shows the gold price in Chinese Yuan. The buyer in China is able to buy gold at the same price as back in October. The Chinese also love a bargain, and this comes just in time for the New Year celebrations that begin on Feb 3rd 2011 AD. The Chinese are well aware of price inflation and the need to protect themselves from this inflation by buying gold.

Featured is the daily silver chart. Price became overbought at the end of December and the Fibonacci target for the pullback is at 26.02. Price turned up on Wednesday while the supporting indicators are oversold (green lines). A close above the blue arrow turns the trend bullish again. The 50DMA is in positive alignment to the 200D (green oval), and both are rising.

Fundamentals for silver are very bullish. In the 1950s an estimated 10 billion ounces were stockpiled around the world. In 1965 the US government owned a strategic stockpile of over 6 billion ounces. By 1980 the worldwide supply of silver was down to an estimated 3.5 billion ounces. Today estimates range between 500 million and at most 1 billion ounces. Silver is being used up faster than mines can produce silver, and the ‘easy to find’ silver from Peru and Mexico is ‘long gone’. Mines are expensive to build, and rising fuel prices cut deeply into miners profits. Meanwhile the industrial uses for silver continue to rise. Silver is used in cell phones, computers, TVs, refrigerators, electrical applications, medicine, weapons, satellites, water filters just to name some of the applications. Whereas gold gets recycled, the amount of silver used in industry is primarily in small amounts and ends up in landfill. The ratio between gold and silver (currently at 48), could one day end up being even!

This chart courtesy Cotpricecharts.com shows the ‘net short’ position of commercial silver traders to be the lowest since March 2010. Back then silver was 17.37 and it rose during the following two months to 19.34, an increase of 11%, (66% annualized). The total ‘net short’ position as of Tuesday Jan. 18th is 45,000, compared to 47,000 the week before, and this does not reflect the action from Thursday Jan 29th, when silver was knocked down to the tune of -1.20. Once that action is added to the data, (as it will be in the report that is issued this Friday), the ‘net short’ position is very likely to be the most bullish in several years!

Featured is the daily Platinum chart. Platinum is telling investors in gold and silver: “don’t worry – be happy – follow me.”

Featured is the TIP bond fund that consists of bonds that are indexed to inflation. The people who buy these bonds are trying to protect themselves from price inflation. An uptrend in the fund indicates that those who believe price inflation is occurring, are in the majority.

Featured is the CCI Commodity Index, weekly chart. Price broke out to a new all-time high this past week. The expectation is that the breakout at the green arrow will be tested, and if the test is successful, commodities will have blue sky above. The RSI and MACD are positive and the 50D is in positive alignment to the 200D while both are rising.

 A few bullish factors to be considered:
 Newly mined gold is not keep pace with newly printed money.
 As oil prices rise, mining costs increase – especially the cost of building a mine from scratch.
 Food prices are rising in a number of countries. This is one of the results of monetary inflation, as it produces price inflation.
 Chinese New Year begins February 3rd and runs for 15 days. It is a season of gift giving, and this year the number of millionaires has increased again over last year. Chinese people love gold and whereas the government prohibited gold ownership for many years, it now openly encourages its citizens to own gold.
 Central Banks are continuing to buy gold, instead of selling gold into the marketplace – as they did for years.
 Since the last gold rush in the late 1970s, the number of people on the planet has increased by several billion. 40% of these new citizens live in China and Asia.
 “Chinese gold and silver demand has been phenomenal ahead of the New Year holiday,” said Adrian Ash, head of research at BullionVault.com, a leading online service for gold bullion trading and ownership, citing comments from dealers among others. Shipments have been “heavy” and they began very early, in mid-December, he said.
 Western governments continue to run deficits. These deficits are covered with borrowed money and with printing press money.
 The US government is destroying the value of its currency and the nations against which the US dollar is compared in the US dollar index, are destroying their currencies in lock-step, in order to remain competitive in the market place. The only way you can measure this ongoing destruction is in the price of gold, silver and other scarce resources.
 Quantitative easing is here to stay, for to stop now guarantees the various economies would dive off a cliff.
 The multi-trillion dollar time-bomb of OTC derivative instruments is still bogging down progress in the world’s major banks. Central banks are printing money to shovel into these banks to keep the bottom line from showing too much red ink. Meanwhile some of the banks are using part of this money to reward their employees. This widens the gap between rich and poor and sets the stage for civil unrest.
 When government spending rises while revenues are dropping, the resulting gap begins to widen exponentially instead of arithmetically.
 A pull-quote from the latest article by economist Daniel R. Amerman: “The truly big picture for both the United States and most other major developed nations is that population growth has been shrinking, long term promises to current and future retirees have been extravagant, and for the most fundamental of demographic and economic reasons, the nations simply can’t afford to pay for those promises. On a global basis, governments are left with a choice between breaking promises by openly reneging on their legal commitments on a massive scale, possibly having to actually declare bankruptcy in many cases (effectively) – or they can follow the time-honored route that almost every nation which has found itself in the situation and has had the ability do so has done: they can pay their promises in form, but not in substance. They can inflate away the value of their national currency, and pay everything in full, but that currency will only be worth a fraction of what it is right now”.
 Since 2005, the January through March period has seen China’s private household gold demand average a rise of 22% from the previous nine months, according to a BullionVault analysis, based on GFMS data courtesy of the World Gold Council.
 “Long term, that has meant Chinese households have put an ever-greater proportion of their fast-growing annual savings into gold,” said Ash, with that portion growing from 0.8% of retained income in 2001 to a forecast of more than 1.7% in 2010.
 Until a major fiat currency becomes trustworthy, there is no alternative store of value that compares with gold and silver.
 Premiums for gold bars in China jumped to their highest level in two years.
 Precious metals dealers in China report very strong demand for gold from China. Refiners cannot meet the demand.
 The World Gold Council preliminary report shows gold sales into India will be the highest in its history.
 Eric Sprott, chief investment officer of Sprott Asset Management, after having difficulty locating enough bullion for their new silver fund was quoted : “Frankly, we are concerned about the illiquidity in the physical silver market. We believe the delays involved in the delivery of physical silver to the Trust highlight the disconnect that exists between the paper and physical markets for silver.”
 Sales of silver Eagles set a new record in January, by the 19th of the month. Already, 4.6 million coins have been sold, an all-time monthly high since the coin’s release in 1986.
 Gold and gold mining stocks represented 26% of all global assets in 1981 (high inflation), and 20% in 1932 (high deflation). Today, gold and gold mining shares represent about 1% of global assets
 John Embry of Sprott Investments, in a recent article for Investors Digest expressed doubts that all of the gold in the gold ETFs is physical, (suspecting that some of it consists of Comex contracts).
 Mr. Embry further observes that gold is re-establishing itself in its historical role as money.

Happy trading!

Crude Oil Spikes

 

 

Commodities / Crude Oil Jan 31, 2011 – 05:08 AM

 

Images of mass Egyptian protesters clashing with police in Cairo broadcasted around the world shook global financial markets on Friday, Jan. 28. Dow and S&P 500 both dropped more than 1%, while some asset classes such as gold, silver, U.S. Treasuries were hot commodities from safe haven demand.

NYMEX West Texas Intermediate (WTI) also spiked more than 4%, closing at $89.34, while ICE Brent crude for March delivery surged 2.1% to $99.42 a barrel, and touched $99.74 intraday, a new post-2008 high.

// //

 

Egypt – Home of Two Oil Transport Chokepoints

If you are wondering the significance of Egypt related to the crude oil market. Here is a quick overview.

Egypt, with oil production of about 685,000 barrels of oil a day, is ranked in the top 30 among the world’s oil producers, based on U.S. government data. The country is not a significant oil exporter as its production is mostly used for domestic consumption.

However, since Egypt is home to the two world oil transit chokepoints–Suez Canal and Sumed Pipeline–the surge in crude oil prices was partly on worries of potential supply transport disruptions.

Suez Canal Shutdown = Higher Oil Price

Suez Canal is a key water transportation lane between Europe, Middle East and Asia. An estimated 1.8 million barrels per day (b/d) of crude oil and refined petroleum products flowed through the Suez Canal, according to the U.S. EIA. The 200-mile long Sumed pipeline is an alternative to the Suez Canal for transporting oil with a capacity of around of 2.5 million barrels per day.

In the event that the canal is closed, thousands of ships and oil tankers would have to go around Africa, adding about 6,000 kilometers (3,729 miles) to their journey, slashing the availability, while adding to the cost of crude oil.

Increasing Middle East Tensions

Furthermore, since crude oil typically is very sensitive to geopolitics, markets are also nervous because the unrest in Egypt has raised tensions in the Middle East- the world’s major oil-producing region.

As riots first started in Tunisia, spreading to Yemen, and now Egypt, anger over rising prices and high unemployment has also prompted political protests erupting throughout the Arab world in Morocco, Algeria and Saudi Arabia.

Crude & Equities Diverge

Crude oil and equities were mostly trending in tandem since the 2008 financial crisis on the prospect of global economic recovery. And geopolitical event tends to spur a broad market risk-off trade, i.e. selling off of equities and commodities like crude, going into bonds and dollar. However, since the situation in Egypt is very specific to the supply risk of crude oil, this time around, it is risk-off for stocks, but risk-on for crude, resulting in a divergence. (Fig. 1)

WTI-Brent Spread at Record High

The North African turmoil also strengthened North Sea Brent Crude and widened its premium over WTI to a record $12.49 before ending the day at $10.08 (Fig. 2). Historically, WTI, a lighter and sweeter crude, has enjoyed a roughly $2 premium to the North Sean Brent.

This reversal and widening of the WTI-Brent price differential could be most attributed to seasonal and fundamental factors such outages at North Sea, cold weather in Europe, but more importantly is the “Cushing Syndrome.”

“Cushing Syndrome” Distorts WTI

Cushing, Oklahoma is a major crude oil trading hub and price settlement point for the NYMEX WTI. However, Cushing has a capacity and logistic problem, and the resulted land-lock tends to further exaggerate the already weaker U.S. demand, thus distorting against the WTI price. NYMEX WTI is also gradually losing its influence as global crude oil demand growth is shifting to Asia and away from the U.S.

Inventory at Cushing gained 2.3% in the week ended Jan. 21 to the highest since August, while the overall inventory in the U.S. also rose to 340.6 million barrels, 4.25% higher than a year ago, and above the 5-year average, according to the data from the U.S. EIA.

And the glut could get worse as TransCanada Corp.’s Keystone pipeline starts to pump as much as 156,000 barrels of Canadian crude to Cushing in February.

Lack of Transparency Boosts Brent

To be fair, with all the problems WTI seem to have (mostly associated with Cushing), Brent also has one unfair advantage over WTI which has helped boosting its price. That is, unlike the detail crude and product inventory report issued by the U.S. EIA weekly for the WTI crude, Brent does not have such (or any) reporting structure.

So, for all the criticism about WTI and that Brent is a better benchmark reflecting global demand, Brent could actually have been more easily manipulated to its current near $100 levels, due to its lack of transparency, and the considerably lower volumes on ICE (25% of NYMEX WTI, according to the CME Group as quoted by FT Alphaville.)

Higher Price = Better Benchmark?

I personally think most market players probably just pick whichever has the higher price point as being “the better gauge.” So, when the spread flips back to its historical pattern, either by the U.S. working off the excess at Cushing, or by some change of the WTI pricing structure, we could see headlines touting WTI as the better benchmark.

Fast & Furious WTI Short Squeeze

Meanwhile, the record differential has attracted some new spread traders piling into Brent, while shorting the WTI. Bloomberg reported that open interest for Brent futures rose to a record 968,565 on Jan. 21, based on data from ICE Futures Europe.

This not only further distorts the Brent and WTI differential, but also means a fast and furious short squeeze on the NYMEX WTI, with any unexpected events such as the Egyptian unrest. This is why you see WTI move 4% vs. the 2% of Brent on the same news.

Europe Is Not $12 Stronger

Moreover, the fact that the U.S. has more than sufficient crude inventory, a steady global product demand outlook (Fig.3), and plenty of OPEC spare capacity also suggest the world oil is currently well supplied, and there’s little reason Brent’s fundamentals should continue to be that much stronger than the WTI.

As such, I believe the current wide spread while partly supported by regional and seasonal market fundamental factors, is not sustainable.

Be A Brent Bear & WTI Bull

And with this new crisis in Egypt, shorts will likely come off on the WTI as nobody will be shorting crude anywhere, not even the WTI, regardless of the Cushing build. So, from what I’ve discussed here, I’d be more bearish on Brent and more bullish on WTI.

From that perspective, sometime in the next week or so, I expect WTI to break above $90 a barrel and could make a run at $93 as protests escalate, and Brent could break above $100. Meanwhile, the WTI-Brent spread will likely narrow to around $8 next week, and have the potential to move below $6 over the next few weeks, if chaos continues.

Crack Spread To Narrow Further

In the U.S., with both gasoline and distillate stocks continue to build and stay above the average range, and declining gasoline demand (Fig. 4), the independent refiners like Murphy Oil (MUR), Frontier Oil (FTO), Tesoro (TSO), will likely bear the brunt of this unexpected spike of crude prices further pressuring the crack spread.

Several U.S. refiners – Tesoro (TSO), Western Refining (WNR) and Alon USA (ALJ) each has short float of greater than 10%, while Valero (VLO) short float stood at greater than 20%.

Tanker Stocks Get An Egyptian Pop

Similar to Brent, shares of tanker lines like Frontline (FRO), Teekay Tankers (TNK), General Maritime (GMR), Overseas Shipholding (OSG), and Nordic American Tanker (NAT), also got a pop due to speculation that that tankers would be in high demand if the turmoil in Egypt causes the Suez Canal to close.

So far, the Canal has been operating normally since the riots started, and there’s no indication of a possible shutdown. Nevertheless, since it takes some time for portfolio managers to reallocate funds, and as long as the North African situation remains unresolved, there could be much more upside before the sector’s fundamentals set in again.

Among the tankers, Frontline (FRO), the world’s largest oil tanker operator, would be the best of the bunch from a risk/reward standpoint. I’d stay away from General Maritime (GMR) for the time being mainly due to its high leverage and its struggle with debt in recent months.

Start of a Political Shift in the Arab World

So far, the protests in Egypt seem to have no clear leader or organization, but could be ongoing for a while. For now, they have not spread into the major OPEC countries such as Saudi Arabia in a significant way; however, longer term, this movement could signal a change of political structures of possibly all Arab World in the years to come.

Priceless – Geopolitical Premium

Meanwhile, Bloomberg reported that oil options volatility increased to 30.1%, up 9% in one day as the underlying futures surged the most since Sep. 2009.

So, depending on the development in Egypt and the Middle East, volatility will likely rule crude oil in the near term as there has not been a geopolitical event such as this for a long time, and the “geopolitical premium” rises and falls based purely on markets’ “fear perception.”

Disclosure: No Postions

The Middle East at a Strategic Crossroads: Threat to US Hegemony?

The Arab world is the beating heart of the overwhelmingly Muslim Middle East, and the Arab masses are angrily moving for a change in the status quo, practically dictated by the military, economic or political hegemony of the United States, which in turn is whipped by the regional power of the Israeli U.S. strategic ally. But any change in the regional status quo would place the Middle East at a strategic crossroads that is not expected to be viewed tolerantly by the U.S. – Israeli alliance, a fact which expectedly would warn of a fierce struggle to come. Despite the U.S. rhetorical defense of the “universal rights” in the region, it is still premature to conclude that this hegemonic alliance will allow the Arab move for change to run its course, judging by the historic experiences of the last century as well as by the containment tactics the United States is now adopting to defuse whatever strategic changes might be created by the revolting Arab masses.

The U.S. war on terror has preoccupied U.S. decision makers and embroiled regional rulers in their preoccupation to overlook the tinderbox of the double digit unemployment rate among Arab youth, double and in some cases triple the world average, according to the most conservative estimates, which under the U.S. – supported authoritarian regimes has been a ticking time bomb for too long. Now, the “demographic tsunami to the south of the Mediterranean,” as described by Swedish Foreign Minister, Carl Bildt, has overtaken the west, but in particular the U.S. – Israeli alliance, by surprise, sending shock waves across the Middle East, shaking the pillars of what this alliance has taken for granted as a guaranteed geopolitical stability reinforced by the Israeli 34 – year old military occupation of the Palestinian territories, the Syrian Golan Hights and parts of southern Lebanon and the U.S. invasion then the ongoing occupation of Iraq. But “the Arab world’s Berlin moment” has come and the U.S. – supported “authoritarian wall has fallen,” professor of Middle Eastern Politics and International Relations at the London School of Economics, Fawaz Gerges, told Reuters.

Unlike in Tunisia, the U.S. regional strategy cannot afford a strategic change of regime in a pivotal regional country like Egypt. U.S. senior officials’ appeals for President Hosni Mubarak to respect the “universal rights” of the Egyptian people and their right in “peaceful” protests, for reforms that should be “immediately” undertaken by the ruling regime, and their calls for “restraint” and non-violence by both the regime and protesters are all smoke-screening the fact that the United States is siding with what President Barak Obama hailed as “an ally of ours on a lot of critical issues” and his spokesman, Robert Gibbs, described as “a strong ally” – - which Secretary of State Hillary Clinton wishfully described his government as “stable” on Wednesday, despite the roaring demands on the streets for its change – - at least because “a more representative government drawn from the diversity of Egypt’s political opposition will be much more inclined to criticize American and Israeli policies,” according to Bruce Riedel, a former long-time CIA officer and a senior fellow of the Saban Center at the Brookings Institution, on January 29.

The U.S. posturing as neutral, “not taking sides,” could appease and mislead American public opinion, but to Arab and especially to Egyptian public opinion even neutrality is viewed as hostile and condemned in the region as a double standard when compared with the U.S. siding with similar moves for change elsewhere in the world, let alone that this neutrality contradicts the western highly valued democratic values at home.

On Friday night, Obama called for “a meaningful dialogue between the (Egyptian) government and its citizens,” who insist on staying on the streets until the regime, and not only its government, is changed and Mubarak leaves. On January 28, Vice President Joe Biden told PBS NewsHour that Mubarak should not step down. When asked whether time had come for Mubarak to go, he said: “No. I think the time has come for President Mubarak to begin to move – to be more responsive to some .. of the needs of the people out there.” Nothing would be more clear – cut, but nothing would be more counterproductive to both Egyptian and American interests on the background of footages on the screens of satellite TV stations showing protesters condemning Mubarak as a “U.S. agent” or showing live bullets or “made in U.S.A.” tear gas canisters, reported by ABC News, which were used against them.

It seems the en masse Arab popular protests in Egypt that no party in the opposition could claim to be the leader are confusing the senior officials of the Obama administration who “have no idea of exactly who these street protesters are, whether the protesters are simply a mob force incapable of organized political action and rule, or if more sinister groups hover in the shadows, waiting to grab power and turn Egypt into an anti-Western, anti-Israeli bastion.” in the words of the U.S. commentator Lesli e H. Gelb, the former New York Times columnist and senior government official.

The U.S. confusion is illustrated by the stark contradiction between the realities on the ground in Egypt, Algeria, Morocco, Jordan, Lebanon and Yemen and, for instance, what the U.S. Assistant Secretary of State for Near Eastern Affairs, Jeffrey Filtman, told Josh Rogin of Foreign Policy: “What happened in Tunisia strikes me as uniquely Tunisian. That the events that took place here over the past few weeks derive from particularly Tunisian grievances, from Tunisian circumstances by the Tunisian people.” How farthest cut off from reality a senior U.S. official could be! “The White House will have to be forgiven for not knowing whether to ride the tiger or help put him back in a cage,” Gelb wrote.

White House Press Secretary, Robert Gibbs, said the U.S., in view of the protests, will “review” its two – billion annual assistance to Egypt. This “threat” is understood among Arab and Egyptian audiences as targeted not against Mubarak to pressure him on reforms, but against whatever anti – U.S regime might succeed him.

Arab en masse protests, especially in Egypt, are cornering the United States in a bind, tortured between maintaining “an ally” and respecting his people’s “universal rights” in expressing their “legitimate grievances,” according to Obama. What message would the United States be sending to the majority of Arab allied or friendly rulers if it opts to dump the most prominent among them? Would AIPAC and other American Jewish and Zionist lobbyists allow their government to facilitate the ousting of the 30 –year old guarantor of the Egyptian peace treaty with Israel? It’s almost a forgone conclusion that Obama’s decision is already made to once again give priority to the stability of U.S. “vital interests” in Middle East while in public giving lip service to Americans’ most cherished democratic values.

This translates into a naïve American recipe for preserving the status quo by some cosmetic reforms. But “Those who stick to the status quo may be able to hold back the full impact of their countries’ problems for a little while, but not forever,” Clinton warned in Qatar on January 13, otherwise, she added, the foundations of their rule will be “sinking into the sand,” but she did not announce the fears of her country that the pillars of the U.S. hegemony would be then crumbling too, anti – Americanism exacerbated and in turn fueling the only alternative to democracy in the Arab Middle East, i.e. terrorism. Egyptian former head of the International Atomic Energy Agency, Mohamed ElBaradei, whom some of the protesters have chosen to head a delegation to represent them on Sunday and who is seen as a potential presidential challenger to Mubarak, warned in Newsweek before his return to Egypt last week, that it was too late to believe reforms were still possible under the 82- year-old Mubarak, who has held “imperial power” for three decades and presides over a legislature that is a “mockery.”

Similarly, Israel was taken by surprise. On Tuesday, January 25, the Egyptian popular tsunami flooded the streets of Cairo on the Police Day. The coincidence was highly symbolic. The U.S. – supported police state was unable to honor its police and within a few days police simply “disappeared,” army was called in to protect vital state and public property while protection of private property and safety was left to the “popular committees,” which sprang up of nowhere. On the same day, the new chief of the Israeli Military Intelligence, Maj. Gen. Aviv Kochavi, was telling the Knesset Foreign Affairs and Defense Committee that the Egyptian President’s rule was not under threat, his regime was stable and Mubarak was able to rein in the protests. In no time Kochavi was proven wrong. Ordering his government’s spokepersons to shut up on Egypt and, like Obama, holding urgent and high level meetings with his senior security and intelligence officials, Israeli Prime Minister sent a clear and brief message on January 30: Israel will “ensure” that peace with Egypt “will continue to exist.”

The Egyptian shock waves have already hit Israel and the Israeli possible reactions are potentially the most dangerous. “An Egyptian government that is less cooperative with Israel .. could make Israel more prone to unpredictable unilateral actions, creating greater instability throughout the region,” warned Jonathan Alterman, director of the Middle East Program at the Center for Strategic and International Studies. Israeli mainstream media is already crying wolf. “If Mubarak is toppled then Israel will be totally isolated in the region,” said Alon Liel, a former director-general of the Israeli Foreign Ministry and a former ambassador to Turkey. “Without Egypt, Israel will be left with no friends in Mideast,” a story in Haaretz was headlined. Similarly, “Israel left all alone,” Itamar Eichner headlined his column in the Yadioth Ahronot online. The Egypt – Gaza Strip borders is now under Israeli spotlight. The Egyptian army which was called into cities west of the Suez Canal could not deploy in Sinai east of it, especially on those borders, restricted by none other than the peace treaty with Israel; the Egyptian security vacuum in the last few days was no evident more than in Sinai. The statement by the Hamas government on January 29 that the borders between Egypt and the Israeli besieged Gaza Strip, already declared an “enemy entity” by Israel, were unilaterally and “fully under control” was not good news in Tel Aviv. Hence the Israeli media reports about a possible Israeli reoccupation of the Gaza – Egypt borders.

On the surface, the Arab world representing the status quo is no less confused and undecided; its heart is with the Egyptian regime, but, like its U.S. ally, it has to speak with tongues. Example: “The Saudi government and people stands with the Egyptian government and people,” the Saudi Press Agency (SPA) quoted Saudi King Abdullah as telling President Mubarak in a phone call; earlier the king told U.S. President Obama there should be no bargaining about Egypt’s stability and the security of its people, according to SPA. In view of the U.S., Arab and Israeli thinly veiled determination to save the moment in Egypt, it was a forgone conclusion that Mubarak will cling to power, thus setting the stage either for a long battle of instability with his own people that for sure will deplete the country’s meager resources or cutting this battle short by a bloody crackdown that would make the repression which created the present people’s uprising look like a mercy

Egypt’s Rising Food Prices: The Economic Crisis Is Driving Political Protests Sparked In Part By US Financial Speculation

This is an upstairs/downstairs story that takes us from the peak of a Western mountaintop for the wealthy to spreading mass despair in the valleys of the Third World poor.

It is about how the solutions for the world financial crisis that the Ceos and Big pols are massaging in a posh conference center in snowy Davos Switzerland have turned into a global economic catastrophe in the streets of Cairo, the current ground zero of a certain to spread wave of international unrest.

Yes, the tens of thousands in the streets demanding the ouster of the cruel Mubarek regime are there now pressing for their right to make a political choice but they are being driven by an economic disaster that has sent unemployment skyrocketing and food prices climbing.

People are out in the streets not just to meet but by their need to eat.

As Nouriel Roubini who was among the first to predict the financial crisis while others were pooh-poohing him as “Dr Doom” says don’t just look at the crowds in Cairo but what is motivating them now, after years of silence and repression.

He says that the dramatic rise in energy and food prices has become a major global threat and a leading factor that has gone largely unreported in the coverage of events in Egypt.

“What has happened in Tunisia, is happening right now in Egypt, but also riots in Morocco, Algeria and Pakistan, are related not only to high unemployment rates and to income and wealth inequality, but also to this very sharp rise in food and commodity prices,” Roubini said.

Prices in Egypt are up 17% because of a worldwide surge in commodity prices that has many factors but speculation on Wall Street and big banks is a key one.

As IPS reported, “Wall Street investment firms and banks, along with their kin in London and Europe, were responsible for the technology dot-com bubble, the stock market bubble, and the recent U.S. and UK housing bubbles. They extracted enormous profits and their bonuses before the inevitable collapse of each.

Now they’ve turned to basic commodities. The result? At a time when there has been no significant change in the global food supply or in food demand, the average cost of buying food shot up 32 percent from June to December 2010, according to the U.N. Food and Agriculture Organisation (FAO). Nothing but price speculation can explain wheat prices jumping 70 percent from June to December last year when global wheat stocks were stable, experts say.”

Here’s a key fact buried in a CNN Money report—the kind intended for investors, not the public at large: “About 40% of Egypt’s citizens live off less than $2 a day, so any price increase hurts.”

Brilliant!

Think about that: what would you be doing if you were living of $2 a day. You won’t be drinking mochachinos at Starbucks, that’s for sure.

Trust me, the people on top are following this unrest closely on Wall Street as anxiety grows:

Reports the Washington Post:

U.S. stocks declined sharply Friday as violent clashes in Egypt injected a jolt of anxiety into global financial markets.

Egypt is central to U.S. interests in the Middle East as a moderate state and a key player in both counterterrorism operations and regional peace negotiations, said Helima L. Croft, a geopolitical analyst at Barclays Capital.

If street protests were to end President Hosni Mubarak’s nearly 30-year hold on power, “I think there would be a fear that you could see radicalism sweeping across the Middle East,” Croft said, adding that the fear might be unfounded.

Beyond its political significance, Egypt controls the Suez Canal, an important shipping lane.”

Suddenly, there are worries about Egypt being able to pay off its debt, it suddenly was pronounced riskier than Iraq, according to Asia Times:

“The cost of protecting Egyptian debt against default for five years with the contracts jumped 69 basis points, or 0.69 percentage points, this week to 375 today, compared with 328 for Iraq, according to prices from CMA, a data provider in London. Just last week, Iraqi swaps cost 19 basis points more than Egypt’s, and in June, an average 240 basis points more, as Iraq recovered from the U.S.-led invasion in 2003.

The unrest, inspired by the revolt that toppled Tunisia’s leader, “does raise political risks,” said Eric Fine, a portfolio manager in New York who helps Van Eck Associates Corp. oversee $3 billion in emerging-market assets. “If this is a revolution, the price of risk for Egypt could go much higher, and if it’s a failed one” the cost will drop to 300 basis points and probably 250, Fine said in a phone interview.”

While most of the increases in food prices are due to droughts and floods, US policy contributed to it mightily, argues Mike “Mish” Shedlock on his Global economic blog, revealing a reality the media has missed:

“Bernanke’s “Quantitative Easing” policies combined with rampant credit growth in China and India has led to increased speculation in commodities. That speculation has forced up food prices.

Please note that speculation in commodities is not a cause of anything. Rather commodity speculation is a result of piss poor monetary policies not only the Fed, but central bankers worldwide.”

Michael Fitzsimmons says that US energy policy is also contributing to the problems in Egypt, but agrees that monetary policy is a prime culprit. He writes, “ to sum things up: Ben Bernanke’s implementation of “QE2″ has directly led to food inflation across the world. In many developing and poor countries (i.e. Egypt and elsewhere) food makes up a much larger percentage of an individual’s income and is felt much more severely than in the U.S.

Why have most media outlets ignored this? The financiers schmoozing at the World Economic Forum in Davos know all about it and are worried as well as Bloomberg News reported.

“This protest won’t end in North Africa; it will spread in many countries because of high unemployment and increasing food prices,” Hamza Alkholi, chairman and chief executive of Saudi Alkholi Group, a holding company investing in industrials and real estate, said in an interview in Davos, Switzerland.

In an age of globalization, a hike in global prices will spread unrest globally. Egypt had its own “bread riot” in l977 when prices went up suddenly on the orders of the World Bank so it is no stranger to the need to fight back.

The question is why aren’t Americans up in arms too as inflation at the pump and the grocery store drives princes higher here. Part of the reason is that they don’t know that the US has worse economic inequality according to a scientific measure: The Gini Coefficent

Washington’s Blog reports “According to the CIA World Fact Book, the U.S. is ranked as the 42nd most unequal country in the world, with a Gini Coefficient of 45. Egypt in contrast is ranked as the 90th most unequal country, with a Gini Coefficient of around 34.4.”

He asks, “so why are Egyptians rioting, while the Americans are complacent?”

According to the report, Building a Better America, Dan Ariely of Duke University and Michael I. Norton of Harvard Business School demonstrate Americans consistently underestimate the amount of inequality in our nation.

And why is that? Could our media have anything to do with it, a media consumed with when it bleeds it leads, but where context and background are missing?

Egyptian Uprising Must Address U.S Interference and the Role of Israel in the Region

As an analyst and observer of the recent rebellions in the Middle East, specifically Egypt, I want to make three developing observations. First, the Egyptian people cannot confront local despots and “regime change” without addressing the patron of Mubarak’s regime–The United States. Second, because of the U.S’ influence and because Egypt is so strategically important to the U.S-Israel agenda for the Middle East, the U.S will attempt to control their investments and their interests by regaining control and maintaining patronage. In other words it will attempt (or may have already attempted) to co-opt the public uprising and manage it at some level and continue to do so. Last, in order to adequately address foreign meddlers within the context of the local region and its politics, one must also eventually address the role of Israel.

Local Revolution must Condemn Western Influence:

The images coming from the streets of Egypt bring a glimmer of hope to all in the Middle East as well as to anyone around the world who is serious about justice. Yet as I watch these images (as a Palestinian-Egyptian from the west) there is one thing that is alarmingly and frustratingly absent—cries of popular condemnation of and rebellion against the U.S’ influence and role in Egypt. There are denunciations of the puppet—Mubarak—but not of those who pull his strings. Any uprising against Mubarak that does not also confront foreign meddling is ultimately flawed and shortsighted. Revolutions against Arab despots must also address these dictators’ western over-lords and the latter’s ongoing colonial/imperial agenda for the region.

An Egyptian uprising that does not simultaneously confront imperialism and the heavy hands of the U.S and Israel is ultimately vulnerable to co-option and micro-management. Any new government (even if it succeeds in resolving the domestic issues of corruption, unemployment and food prices) that continues to receive 1.5 billion dollars in “aid” (i.e. bribery) will be a mere continuation of the Middle Eastern Banana Republic that Egypt is and has been for more than thirty years. It should be noted that the principal recipient of aid in Egypt is the Egyptian military and the vast internal security apparatus (with whom it shares the same branch of government). Consequently the role of the military and the security apparatus—whose patronage cannot allow them to be neutral and therefore genuinely stand with the people—is something that the protesters will inevitability have to contend with when addressing any reforms that may affect the issue of “security.”

U.S Attempting to Co-opt and Manage Egyptian Uprising

The lack of Egyptian condemnation of the U.S and its influence in Egypt may lead to speculations that the U.S is behind these uprisings. The United States has indeed been co-opting and courting Egyptian protest groups (especially youth dissidents) in an effort to work both sides within Egypt [1]. Chossudovsky aptly describes the U.S’ political double-speech as chatting with dictators while they mingle with dissidents [Ibid]. While I agree with much of the analysis I diverge on the issue of whether or not the current popular uprisings in Egypt are being directed by the U.S. Though the U.S has co-opted many opposition groups, what we are witnessing currently on the streets of Egypt is far-vaster in scale than a few meetings with Egyptian youth activists in Washington. I believe that even though the U.S administration has been attempting to appropriate certain opposition elements in Egypt (something it often does in client states), the current popular uprising took even them by surprise.

Moreover, Egypt’s neighbour and the US’ biggest ally and recipient of aid in the region, Israel, seems to be officially holding its tongue, clearly indicating that it is not pleased with this moment. In a recent Haaretz article Israeli media admits that Western and Israeli intelligence did not foresee a change of this scope. While Israeli and U.S intelligence did “predict” possible civil unrest and/or regime change in the Middle East (namely Egypt and Saudi Arabia), “a popular uprising like this was completely unexpected” [2]. In another Haaretz article it is maintained that the new IDF intelligence chief failed to predict the current popular uprising in Egypt [3]. If the Israelis (the eyes and ears of the U.S in the region) are admitting this then by extension, the U.S must also have failed to anticipate the scope of what is now developing into a full-fledged revolution. Gideon Levy, writing in Haaretz even applauds the Egyptian uprising:

“The masses of the Egyptian people- please note: on all levels- took their fate in their hands. There is something impressive and cheering in that.” [4]

While it may not have anticipated or orchestrated the current uprising, what the U.S is now attempting to do is to ultimately be able to control what is happening presently. As the “day of anger” spread into many days of wrath without any indication of dying down, the U.S has shifted its official stance on the uprisings and is increasingly and deceptively trying to present itself as a friend and ally of the protesters. Again, while they are not behind the uprising, there is a clear indication that the U.S seeks to appear supportive of the people in order to deflect criticism of its own role in the country and region and to position itself in order to co-opt and appropriate (typically meaning to threaten and/or bribe) any incoming or opposition government.

That the U.S is trying to cozy-up to the popular uprising and control it after the fact is evidenced in their repeated insistence on the restoration of social networking as a “right” after Mubarak disabled Internet capabilities [5]. Had a U.S- led campaign using online services like facebook and twitter been the catalyst for the uprising, then one might have expected the revolution to diminish as a result of Mubarak shutting down Internet and cell phone service; no such diminution occurred. Moreover, repeated cries from the highest levels of the U.S administration (including Hilary Clinton and Barack Obama) that in addition to the fundamental rights of democracy and free speech, Egyptians should have the “basic right to use social media” [6] (since when did Internet social networking become a basic human right?!), suggests that the U.S is eager to get ahead of the curve and control the uprising, using the Internet as one possible tool.

To demonstrate how much the U.S has depended on the Internet and social networking sites to co-opt opposition in Egypt, one should note that U.S officials have met in the past with dissidents from the April 6 Movement [7] (a youth opposition movement in Egypt that interesting exists mainly online through facebook). This notwithstanding, to reiterate my earlier point, the current uprisings are far vaster than anything the U.S may have been attempting to steer in the past, and have continued despite the shutdown of the Internet and the loss of social networking sites as an “organizing medium.”

In another, more obvious attempt at control, a “secret US file” relating to the aforementioned youth dissident group was leaked (most likely by the US administration). The document discloses U.S “support for Egypt protests” [8]. Clearly, in an effort to appear sympathetic to the authentic Egyptian uprising, the U.S is now shamelessly admitting that it has in the past attempted to co-opt youth dissidents, thus showing its hand at playing both sides in Egypt. In reality this self-leaked “secret document” does not show any authentic U.S support for Egyptian protesters and opposition as much as it proves that they have been infiltrating and co-opting social movements and activists in Egypt, specifically via Internet social networking sites.

In the most recent and brazen attempt to spin the U.S as the ally and anchor of the revolution, mainstream media in the west are openly declaring that the US has been secretly backing the leaders of the Egyptian uprising all along [9]. Such mainstream media framing serves to solidify the U.S as a supposed ally of the revolution while also deflecting much-needed criticism of U.S foreign policy and interference in Egypt and the Middle East. These narratives are intended more for western audiences and one hopes that Egyptians will not fall for this manipulative spin, damage control and blatant attempts at co-option.

Addressing the role of Israel in the Region

One cannot say enough about the special nature of the relationship (at all levels) between the State of Israel and the existing regime in Egypt. U.S aid and influence serve to ensure and solidify this warped relationship (after all the U.S funds the military budget of both nations). U.S aid to Egypt and control of the current regime is intended to support Israel and Israeli regional policy. U.S foreign policy in the region is contradictory at best. While the U.S claims to prefer secular regimes in the Middle East, it opposes or opposed the two main secular regimes of Syria and Iraq under Saddam Hussein [10]. And while it supposedly promotes democracy in the region, it is close friends and allies with Saudi Arabia and Egypt while shunning democratically elected Hamas [11], and the democratic process in Lebanon. As Gilad Atzmon succinctly and aptly explains,

“American policy seems to be a total mess — unless one is willing to openly admit that there is a clear coherent thread running through American foreign policy: it simply serves Israel’s interests.” [12]

In this respect we cannot critically address the U.S without also addressing those whose interests it serves—Israel. And as a puppet of the U.S administration, the Egyptian state has played a “special” role in protecting Israeli interests. These include signing a peace treaty with Israel, maintaining an Israeli security perimeter on its borders, constant intelligence leading to the bombing of supply tunnels, and closing the borders to Gaza.

Yet it is obvious that the Egyptian people have never been happy with their government’s relationship with Israel. Israeli journalist Gideon Levy correctly points out that one thing all opposition groups in Egypt share is a disdain for Israel. Levy even seems to admit that such disdain is justified given Israel’s illegal actions against the Palestinian people:

“As long the masses in Egypt and in the entire Arab world continue seeing the images of tyranny and violence from the occupied territories, Israel will not be able to be accepted, even if it is acceptable to a few regimes” [13].

Clearly, necessary criticism of Israel already exists within the Egyptian opposition, and it seems that the Israeli media is well aware of these sentiments. Mainstream North American media, on the other hand, are reluctant to link anything happening in Egypt with foreign policy concerning Israel and Egyptian sentiment around it. But let us hope that as the Egyptian revolution continues the Egyptian people and opposition will loudly articulate an anti-Israeli stance and long-term agenda. There will be more to say about this as the situation develops.

Conclusion

Overall, it is apparent that the U.S is (unsuccessfully) attempting to control and manage the uprising in Egypt—especially among the youth. Its schizophrenic shift in its official stance on the uprising (first condemning it, then supporting it, then going as far as to leak its own “secret” documents in an effort to suggest that it has been behind the uprising all along) suggests that they did not orchestrate the uprising but are currently scrambling to try and contain and control it in a manner that will allow them to once again pull the strings of whomever rules the country. Lets hope that the Egyptian people and their revolution are able to resist such brazen efforts. In order for them to do so they must extend their revolt to include a critical reassessment of their relationship with the U.S—and the Israeli interests it serves—and its foreign meddling in and control of Egypt and the region. This implicitly entails (finally) confronting the problem of the Zionist regime–Israel.

Predictions

I want to end by making a couple of predictions regarding what to look for in terms of the U.S’ response to the revolts and its relationship with Egypt [14]:

The US will further attempt to manipulate the revolution and position itself to control/threaten/bribe the new government, mainly by gaining the trust of the people vis-a-vis the military (note that mainstream media have already begun to praise the military as a “friend of the revolution”)
The US will protect Israel’s interests (directly or indirectly) by attempting to display a consistent bi-partisanship about Egypt within the US government. This bi-partisanship will have “security” as their main concern, employing double-speak in reference to “Egyptian security,” which is actually code for Israel’s security. Bi-partisan committees with a rainbow of representation will likely emerge in the coming days and weeks (look for AIPAC to instruct these committees as to how to proceed).
Israel may (much further down the road) attempt to make a bid for the Sinai. Since the U.S patronage of Egypt has been in the service of Israel, the ways in which it will attempt to control and co-opt any new or resultant government will also surely be in the service of Israel. Part of this service may entail helping to try and create a situation or conflict (i.e. a security or “terrorist” crisis on Israel’s southern borders, probably relating to Gaza) that would allow or “force” Israel to re-occupy the Sinai. Look for this to take shape over a span of the next couple years. Israeli media is already discussing IDF reformulations for its southern border.

Egypt. Rude Awakening! Revolution or Regime Change?

Eyes fixed on Egypt, the consensus is that we are witnessing a global awakening. Mesmerized by the crowds, mainstream media reports, and ‘pundits’ analysis, we have abandoned our ability to think critically — we fail to ask the right question: Why is the mainstream media in the U.S., the propaganda apparatus of the State and interest groups, condemning the Egyptian leader — America and Israel ‘s most subservient ally?

Clearly, we no longer suffer from short term memory in this country — we suffer from a total loss of memory.

We tend to forget that well over a year ago, political actors in America and allied nations had full knowledge that Egypt ‘s Hosni Mubarak was terminally ill. Certain that his reign was coming to a close, they devised a plan to compensate the inevitable loss of Mubarak’s unconditional support. A plan was put into motion to assist orchestrate an uprising which would benefit their interests. The idea was to support the uprising so that an ally could be placed in Egypt without raising suspicion. Not only would America be seen as a benevolent force acting in good faith, contrary to its hypocritical policies, but perhaps more importantly for the decision makers, Israel’s interests would be served – again – at the expense of the Arab world.

Who would be the wiser for it? It seems the public has fallen for the plan.

Media ‘pundits’ are eager to blame the timing of the protests in Egypt on economic hardships. Citing Egypt ‘s jobless and inordinate poverty, they would have us believe that the American ‘social media’, Tweeter in particular, has prompted and aided the protests. They would have us believe that in spite of the fact that the Egyptians cry over the price of wheat, they have cell phones and access to social media. We are to accept that the poor, hungry, and jobless Egyptians are revolting against their lot by ‘tweeting’ in English.

Their access to modern technology aside, we are told to accept that the knowledge of English among 80 million Egyptians is so strong that they can ‘tweet’ — fully comfortable with tweeter abbreviations and acronyms. Else, we are to believe that Egypt is busy ‘tweeting’ in Arabic even if Twitter does not lend itself to Arabic any more than it does to Persian.

When Iran ‘s opposition leader, Mir-Hossein Mousavi compared the Egypt uprising to the 2009 post-election protests in Iran , he had a point. Both had an outside source. During the 2009 protests in Iran, ‘tweets’ were traced back to Israel (see link). The rumors and support for the “opposition” initiated in the West though Tehran Bureau — partnered with the American PBS. A CNN desk was created to give the protests full coverage.

America has been attempting to undermine Iran ‘s government for over 30 years. The media has helped to demonize the regime. Why would the media treat this obedient tyrant the same way? The mainstream media, as well as the ‘left’ are reporting on Egypt ‘s protests round the clock. It is important to ask why.

For decades, the American government and allies have snuffed nationalist sentiments in the region in favor of dictators. Iran ‘s Mossadegh, a fierce secular nationalist, who was democratically elected to be prime minister of Iran , was removed by a CIA-backed coup when he nationalized Iran ’s oil and the oppressive Shah put in power. This political action led to the 1979 revolution. America lost a valuable puppet in the region.

Similarly, the nationalization of the Suez Canal by Egypt ‘s patriotic Nasser led to his demise, paving the way for the eventual installation of a puppet regime – Mubarak.

But Mubarak is dying. Fearful of losing an important ally in Egypt ‘s Mubarak, the political elite in America have undertaken a calculated risk: siding with the Egyptians to promote ‘democracy’ – hoping to help put in place one of their own. How likely is it that they will prevail in Egypt where they failed in Iran ? Could it be that apprehensive about the future of Egypt , more importantly, its alliance with and subordination to Israel , the Noble Laureate option is being played?

Amongst the neoliberals, a new wave of thinking emerged which endorsed the idea of promoting ‘democracy’ (“liberal Imperialism”) in order to evolve hegemonism to imperialism. Their thinking emphasized the ‘character of the political leadership’. A wave of books centered on ‘democratic transitions’ that focused on the character of the leader with the right ideas appeared. They planned to emphasis new successful leaders such as Vaclav Havel, Nelson Mandela, Lech Walesa in order to promote their own in places of interest.

These neoliberals believed that “transition to ‘democracy’ required focusing on “political strategies” and introducing “indeterminancy” and “uncertainty” into the process of political change which they believed would be ground for cautious optimism that ‘democracy’ could catch on. Laureates were appointed: Shirin Ebadi, El Baradei, Obama, Liu Xiaobo…

Mr. ElBaradei, the Nobel Laureate and former chief of IAEA, applauded the violation of the NNPT with his acceptance speech as he praised the Bush-India nuclear deal – an NPT violation. Ally S. Korea’s NPT violations were given a pass under his supervision, as well as that of Egypt ‘s. In violation of the spirit of the NPT, he allowed the illegal referral of Iran to the UN Security Council. Mr. ElBaradei had proven himself worthy of American trust – he could be relied on and deserved a Nobel prize. He announced his readiness to run for president of Egypt .

Although not supported by protestors (no doubt placing him under house arrest will give him a boost), ElBaradei’s return to Egypt enables the American politicians to speak from both sides of their mouths — supporting the protestors’ rights while supporting their ally. How could they go wrong? The thought process in this country (and elsewhere) has been guided and controlled by mainstream media and pundits, many of them neoconservatives. Curiously, the 24-7 media and its pundits have steered clear of ElBaradei and his arrest.

Sadly, the American political elite love Einstein’s science but ignore his wisdom. When Einstein alerted FDR to the possibility of a nuclear weapon by the Germans, he was listened to and the way was paved for the Manhattan Project. America developed the heinous weapons of mass murder and dropped it on hundreds of thousands of Japanese citizen in the name of peace. Regrettably, as the Middle East and Africa react to America ‘s decades of neocolonialist policies, Einstein’s definition of insanity –”doing the same thing over and over again and expecting different results” — is more apt than ever.

America (and her allies) has practiced the same damning foreign policy for several decades, each time expecting a new result. This political insanity manifests itself as the decision makers interfere in sovereignty of other countries – believing that they can continue to fool all the people all the time. Their controlled chaos may get out of hand and following the painful ‘pangs’ of neocolonial rule, we may witness the birth of a new world order.

Egypt Protests Show American Foreign-Policy Folly

While popular uprisings erupt across the Middle East, America stands on the sidelines. Stephen Kinzer on why the U.S. should abandon its self-defeating strategy in the region.

Leading figures in U.S.–Mideast policy (from left): Saudi Arabia’s King Abdullah, Palestinian President Mahmoud Abbas, and Egyptian President Hosni Mubarak.

One afternoon a couple of weeks ago, I walked into the British Foreign Office for a meeting with Middle East policy planners. “Tunisia is melting down and the Lebanese government has just fallen,” my host said as he welcomed me. “Interesting times.”

During our meeting, one veteran British diplomat observed that since American policy toward the Middle East is frozen into immobility, change there comes only when there is a crisis. I asked where he thought the next crisis might erupt. “Egypt,” he replied.

Events have moved quickly since then President Zine El Abidine Ben Ali of Tunisia has been overthrown, Hezbollah has chosen the new prime minister of Lebanon and thousands have taken to the streets in Egypt to demand an end to Hosni Mubarak’s 30-year dictatorship. The Middle East is erupting—and the U.S. is watching from the sidelines. Unable to guide the course of events, it can do little more than cheer for its sclerotic allies and hope that popular anger does not sweep them aside.

Washington sees the various local and national conflicts in the Middle East as part of a battle for regional hegemony between the U.S. and Iran. If this is true, the U.S. is losing. That is because it has stubbornly held onto Middle East policies that were shaped for the Cold War. The security environment in the region has changed dramatically since then. Iran has shown itself agile enough to align itself with rising new forces that enjoy the support of millions. The U.S., meanwhile, remains allied with countries and forces that looked strong 30 or 40 years ago but no longer are.

Iran is betting on Hizbullah, Hamas, and Shiite parties in Iraq. These are popular forces that win elections. Hizbullah emerged as the heroic champion of resistance to Israel’s 2006 invasion of Lebanon, winning the admiration of Arabs, not only for itself but also for its Iranian backers. Many Arabs also admire Hamas for its refusal to bow to Israeli power in Gaza.

Pro-Iran forces have also scored major gains in Iraq. They effectively control the Iraqi government, and their most incendiary leader, Moqtada al-Sadr, recently returned to a hero’s welcome after an extended stay in Iran. By invading Iraq in 2003, and removing Saddam Hussein from power, the U.S. handed Iraq to Iran on a platter. Now Iran is completing the consolidation of its position in Baghdad.

Postcards From the Revolution
Whom does America bet on to counter these rising forces? The same friends it has been betting on for decades: Mubarak’s pharaonic regime in Egypt, Mahmoud Abbas and his Palestinian Authority, the Saudi monarchy, and increasingly radical politicians in Israel. It is no wonder that Iran’s power is rising as the American-imposed order begins to crumble.

The U.S. keeps Mubarak in power—it gave his regime $1.5 billion in aid last year—mainly because he supports America’s pro-Israel policies, especially by helping Israel maintain its stranglehold on Gaza. It supports Abbas for the same reason: he is seen as willing to compromise with Israel, and therefore a desirable negotiating partner. This was confirmed, to Abbas’s great embarrassment, by WikiLeaks cables that show how eager he has been to meet Israeli demands, even collaborating with Israeli security forces to arrest Palestinians he dislikes. American support for Mubarak and Abbas continues, although neither man is in power with any figment of legality; Mubarak brazenly stage-manages elections, and Abbas has ruled by decree since his term of office expired in 2009.

Intimacy with the Saudi royal family is another old habit the U.S. cannot seem to kick—even though American leaders know full well, as one of the WikiLeaks cables confirms, that “Saudi donors remain the chief financiers of Sunni militant groups like al-Qaeda.” The fact that the Tunisian leader fled to Saudi Arabia after being overthrown shows how fully the Saudis support the old, eroding Middle East order.

As for Israel itself, it will lose much if new Arab leaders emerge who refuse to be their silent partners. Yet Israel clings to the belief that it will be able to guarantee its long-term security with weapons alone. The U.S. encourages it in this view, sending Israelis the message that no matter how militant their rejectionist policies become, they can count on Washington’s endless support.

The U.S. has long sought to block democracy in the Arab world, fearing that it would lead to the emergence of Islamist regimes. Remarkably, however, the Tunisian revolution does not seem to be heading that way, nor have Islamist leaders tried to guide protests in Egypt. Perhaps watching the intensifying repression imposed by mullahs in Iran has led many Muslims to rethink the value of propelling clerics to power.

Even if democratic regimes in the Middle East are not fundamentalist, however, they will firmly oppose U.S. policy toward Israel. The intimate U.S.-Israel relationship guarantees that many Muslims around the world will continue to see the U.S. as an enabler of evil. Despite America’s sins in the Middle East, however, many Muslims still admire the U.S. They see its leaders as profoundly mistaken in their unconditional support of Israel, but envy what the U.S. has accomplished and want some version of American freedom and prosperity for themselves. This suggests that it is not too late for the U.S. to reset its policy toward the region in ways that would take new realities into account.

Accepting that Arabs have the right to elect their own leaders means accepting the rise of governments that do not share America’s pro-Israel militancy. This is the dilemma Washington now faces. Never has it been clearer that the U.S. needs to reassess its long-term Middle East strategy. It needs new approaches and new partners. Listening more closely to Turkey, the closest U.S. ally in the Muslim Middle East, would be a good start. A wise second step would be a reversal of policy toward Iran, from confrontation to a genuine search for compromise. Yet pathologies in American politics, fed by emotions that prevent cool assessment of national interest, continue to paralyze the U.S. diplomatic imagination. Even this month’s eruptions may not be enough to rouse Washington from its self-defeating slumber.

Rising Debt and Manipulation of the Gold market

The US welfare state rumbles on and in some sectors of business it is being encouraged. We have to assume this attitude is based on more and increasing profits. Needless to say, it is cloaked in language that refers to the poor suffering people. The economy in the US and in many other countries is being run by and for major corporate interests.

We have government paid for and controlled by wealthy corporatist interest. In America you have $14 trillion in short-term debt and $105 billion in long-term commitments. Then there is the off budget items, such as wars and occupations that adds considerably to this debt, all attuned to keep the welfare state running. Both parties refuse to cut much of anything, although the Republicans say they will. We are skeptical after watching the tax bill become an $862 billion pork stimulus package. Discretionary spending is where the cuts will probably occur if there are any.

The cost of carrying this debt becomes more unpayable and onerous daily and there is little attempt to stop it. The Fed may control the short end of the Treasury bond market, but it has minor influence on the 10-year notes and 30-year bonds. As a result yields have risen and the spread in yields between short and long-term paper has grown to 32-year highs. Needless to say, holders of long-term notes and bonds want to be better compensated because they see more risk, as US debt grows uncontrollably higher. Short-term yields have stayed about the same because the Fed controls them. The demand for capital in small and medium companies has been muted by lenders reluctance to lend for the past two years. Zero interest rates have not helped these potential borrowers that create 70% of the jobs. Funds though are readily available to the major transnational conglomerates. Government and the Fed won’t talk about it, but they are manipulating all markets, and that is a long-term negative factor because everything they do is for their own benefit – not for the people. The state of political affairs could be worse but they certainly are not good. We liken the US economy to a rudderless ship being pulled and jerked by one special interest group or another from side to side never gaining equilibrium. As long as this situation persists no headway will be made in solving budget deficits, nor in neutralizing the welfare state.

At the same time we see red flags all over Europe. It is pointed out that in Europe, Greece is uncompetitive and has a sodden public sector; that Ireland borrowed too much and was moving more to a welfare state; that Belgium was a house truly divided with financial problems; that Portugal’s economy lagged like that of Greece and has similar major budget deficits, and that Spain doesn’t have a diverse enough economy and was literally destroyed by one interest rate fits all. What no one wants to contemplate is why did this all happen? That is because banks lent them all as much money as they wanted. The bankers, the professionals, should have never lent them such outrageous sums in the first place. Now the banks with their bad loans are demanding they be bailed out. It is ludicrous and the banks should be allowed to go bankrupt, they are the experts. They knew exactly what they were doing. That is Europe’s solution and the quicker they realize it the better off the Continent will be.

As of this writing gold has fallen about $100, and silver some $3.00. Support for gold lies anywhere between $1,280 and $1,340. Many are disappointed that both metals corrected, which is natural, but they are more upset that the correction was deliberately man-made.

Part of the corrective process was that Germany supposedly was going to save the euro, or at least that is what jawboning Chancellor Merkel seems to think. Germany is not about to bail out six insolvent countries. If they do or even participate in spending of more than the original solvent euro nation commitment of $1 trillion, they may become insolvent as well. The German people are well aware of this and they won’t allow it to happen. As we reported in the last issue contingency plans are already underway to reintroduce the Deutsche mark if necessary. The euro zone countries are facing major funding all year, but the heavy end will be in the first quarter with lighter demands in the second quarter. Germany is not about to bail out sick members or the euro, especially with Irish elections coming in three weeks. Thus, we see no eminent moves by Germany.

Gold has spent the last two years moving up in price as it challenged the US dollar for supremacy as the world reserve currency. Now, inflation is again in investor’s sights, as companies are forced to raise prices 6% to 15%, after having raised prices over the past year mostly in the form of small packaging. We’d call that stealth inflation. Manufacturers and producers think they are fooling the American public, but they are not. They are just demonstrating how deceitful they are. Raw materials costs are rising and they will continue to rise and so will real inflation, and that makes gold and silver move higher to reflect the loss in purchasing power of the public and the loss of value of all currencies versus gold and silver. In our previous report this week we pointed out the massive short covering by commercials in the gold pits. Unprecedented net short reduction, which can only portent a major upward move in gold and silver. The percentage of silver short covering was not nearly as successful for JPM, HSBC, GS and Citi. That is still yet to come. It will expedite the upside as it has done recently. All the elitists have done is ended their short bias and now will join you on the long side of the market. Their tactics have given you another opportunity to buy at cheaper prices.

The bond market yields will move slowly higher on the long end for the remainder of the year and thus, bonds should move slightly lower.

Stocks, which are way overpriced, will eventually fall probably back to 10,000 on the Dow.