A lot of media spin has been about how we are recovering economically despite the lack of jobs. After all, the stock market keeps going up and it is the barometer of the economy. At least that is what people assume, but there are many other indicators of economic health.
It isn’t often you see the words “world gold supply runs out.” In fact, I don’t recall ever seeing them until this article at The Telegraph. With less retrievable gold ore in the ground, it is going to be harder for nations to convert their financial reserves to hard metal. Output is plunging at the mines, so the rush to invest in gold has a problem – there isn’t enough of the precious metal to go around.
That’s always been an argument I’ve had with goldbugs, that there isn’t enough of the metal to cover the currencies of the world. There is a possibility that silver will go back up to make up the slack, but money is an illusion whether it be made of metal or paper or electrons floating in computers. Faith is what sustains it and gives currency value. So what happens when you can’t convert the currently held currencies and they dwindle into nothing? We may find out.
Speaking of running out of things, the FHA is running out of cash and may require – you guessed it, a bailout from the government. Oh yes, the housing market is still in trouble and there is fear they can’t cover loans due to growing unemployment. The critical quote of the piece:
The FHA’s cash reserves have plummeted to $3.6 billion, compared with $685 billion in outstanding insured loans - a ratio of 0.53 percent that is far below the 2 percent required by Congress and a fraction of the 6.4 percent reserve ratio in fiscal 2007.
Banks are usually closed down if they have that kind of ratio, so this is not good. With no signs of unemployment going down, we’ll be seeing more of these loans defaulting. So there will be a bailout using tax payers’ money. Except we don’t have enough because revenues are down. But China will loan us the money, right?
Well, China is not very happy with the US right now. They rightly have figured out that the weak dollar and low interest rates have dangerously ballooned stocks and property investments. What we don’t need is more bubbles that will burst and that is precisely what we are getting.
Not that China is really helping things themselves. Ambrose Evans-Pritchard has an interesting and somewhat alarming commentary on the problems surrounding China’s exporting overcapacity. We have too much supply and not enough demand from them so they are not taking up the slack from the West. Read it.
Fears of a double dip recession abound, but I still think we never came out of it in the first place. It was just a plateau in the fall and we are going to see darker days before anything truly gets better.
One kind of darkness has already fallen on Australia. They went with a cap and tax scheme to lower carbon emissions and electricity prices skyrocketed. People can’t afford their bills and are being cut off with retirees being hit hardest. That will strangle their economy in no time flat. Right now they are experiencing what we will if similar legislation is enacted.
I wish I had good news to report.
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