U.S. DEBT PROBLEMS DRIVING METALS

The metals are steady this morning with a bias to the upside, as the dollar has weakened overnight. The dollar is down 26 basis points at 81.86. The dollar weakened as the euro strengthened on news of an agreed bailout for Greece. As that news broke, gold hit a high of $1,099.80 trying to get back through the $1,100 level, which has now turned into resistance. Before the day is over however, gold may still be able to breach that level, so for now it continues to be a buying opportunity trading below the $1,100 level.

It is interesting that the bailout agreement for Greece is a joint agreement between the European union and the International Monetary Fund. It will be put into effect if Greece's debt problems persist. In the mean time, our debt problems in the U.S. are increasing. Alan Greenspan told Bloomberg this morning that if interest rates on 10-year notes get above 4% the country will be in trouble with regard to its debt. Clearly, interest rates rising are not a good thing for debtors, which would include the U.S. government, state governments and local governments. Moreover, it is not particularly good for individual debtors either. As more people become aware of the problems with regard to the U.S. debt and start to take action to protect themselves from the ultimate consequence, which is a falling dollar and rising inflation, I think gold will make a better move to the upside.

In addition, we continue to add to the debt by the social programs. The Obama administration announced today the details of its latest overhaul of programs aimed at avoiding foreclosures. These would include more efforts to reduce loan balances for underwater homeowners who owe more than the current value of their homes. This is essentially the same program that Bank of America announced two days ago. However, the new twist is that lenders will receive 10% to 21% of federal subsidies per dollar of loan principal reduced. In other words, the government is going to pick up part of the loan losses for the banks and the institutions that have purchased these loans from the banks. At the same time, the FHA which itself is bankrupt will offer a new way for some borrowers to refinance into a smaller loan.

Overall, this will add more to the U.S. government deficits and will continue to reward those who have done the wrong thing. We now see that the banks who did the wrong thing creating this massive problem, received their bailouts, the insurance companies that insured credit default swaps got their bailouts, now the debtors who obtained essentially fraudulent loans that they knew they couldn't afford to pay are getting their bailout. The only people who are not being bailed out are those who have done the right thing. Those who have worked hard, saved diligently, and live within their means. This is an unfortunate message to be sending to our country and our society, along with the rest of the world. When you look at this as part of the big picture, you can see that in the long run it is terribly damaging to our currency and to our countries finances. As our finances deteriorate, the currency and purchasing power deteriorates. The net result is something we refer to colloquially as inflation. Gold and silver are a way to protect against this and to have potential profits.

The very rich and the most successful investors are protecting themselves from this future eventuality by acquiring gold in very large amounts. Simply look at the billions of dollars of gold that have been purchased by Jim Rogers, John Paulsen, David Einhorn and George Soros. They understand the result of these actions and are protecting themselves and their finances. Meanwhile hard-working Americans are brainwashed into believing that everything is "okay." They are the ones, who once again will bear the brunt of this through confiscation of their wealth through the mechanism of dollar devaluation and deflation.

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