Seeking Alpha

Ed Zimmer's  Instablog

Ed Zimmer
Send Message
Ed is a graduate of The School of the Ozarks (now known as College of the Ozarks) in Southwest Missouri. He spent 14 years in broadcast news in the Midwest covering, among other things, commodities. He is currently manager of a healthcare support facility doing over two million dollars a year in... More
View Ed Zimmer's Instablogs on:
  • The Illusion of the Federal Reserve Note
       A great deal of information has been written about the decline in the value of the Federal Reserve note and why the US continues to hold the world reserve currency and what that means for US citizens, etc, etc.

      But yesterday, I came across a rambling about the price of gasoline, on an old gas pump which showed 32 cents per gallon.   The point was that if a person had the three dimes and two pennies from 1960, they could still buy a gallon of gasoline today.

    Following that?

    Prior to 1965, US coins were minted in 90% silver.   The value of those three dimes in silver content would be about $3.45.   The pennies, 95% copper, would be worth another 4 cents.    With gas trending around here at $2.50 gallon, not only would you be able to buy the gas, but would have change left over.

    Which brings us to the Illusion.    That 32 cents was one-third of a dollar, now more commonly referred to as a Federal Reserve Note.    That paper dollar, which once would have purchased three gallons of gasoline, now takes two and a half times that mount to purchase a single gallon.

    In other words, where the silver bearing coins have not only kept, but increased their value, the FRN's purchasing power has depreciated by 87%.

    Once again, I am not advocating a wholesale rush into precious metals as a means of coinage (trade), but there is something, tangible, about silver and gold holding their value and fiat money, backed by the full faith and CREDIT of the government, losing value.    By the way, the same 32 cents, in coinage as issued by the federal government today, would be worth slightly more than 3 cents (metal content)

    Three dimes and two pennies.   By the old coinage standard, now worth $3.49.
    Three dimes and two pennies.  By the new coinage standard, now worth $0.03

    Even with the full faith and credit of the US government backing the FRN, the intrinsic value of the US coinage is 1% of what it was prior to 1965.

    Didn't the Roman's go down this road before?

    Disclosure: Long GLD, SLV, Physical Metals, retirement accts
    Feb 19 11:38 AM | Link | Comment!
  • Comex Silver Stocks now below 2005 levels
    Comex Silver on hand fell below levels last seen in 2005 as of February 16th.   The Combined total of silver on deposit in Comex warehouses fell to slightly more than 108 Million ounces, a drop of 600,000 ounces in just a day.    That total is below the level of stocks reported in 2005 (109.6 Moz) and continues to show a dramatic decrease from 2008 when stocks were listed at 134.1 Moz.

    In other words, in just a little over a year, more than 26 Moz of silver has been removed from the COMEX depositories.    Nearly 20% of silver on deposit is removed in a year.       A significant portion of that reduction was silver that was registered to back up contract positions on the COMEX.

    The recent plunge in silver prices allowed many of the short commercial postiions to be covered, reducing the Commercial Short position from 83% to 75% of all shorts.    However the amount of silver under contract is still 592 Moz and the COMEX only has 47 Moz of silver that is not owned by someone else already, to cover demands for delivery.    

    Percentage of Registered Silver to Cover Contracts  7.9%
    Percentage of ALL Comex Silver to Cover Contracts  18.2%

    Feb 18 9:45 AM | Link | Comment!
  • Why Downgrades are in the US Future

     

    It is common sense that the President’s Budget Proposal to Congress is DOA.   Not because of the outlandish sums of debt being proposed, but because Congress has not yet added its level of constituent satisfaction programs to the national soup pot.     Unfortunately, that is only the surface of the pot that is boiling, what is going on under the surface is a potent brew that US taxpayers are going to be asked to stomach .   
    The assumptions of President Obama are indeed pie in the sky numbers viewed through rose colored glasses after substantial amounts of the government koolaid have been dispensed.    While all the attention has been focused on the 2010 budget numbers (1.556 Trillion in additional debt, 3.7 trillion in total spending), it is the numbers past 2010 that are much more lethal to our current existence.
    In 2009, the Total US Debt reached 86% of the country’s Gross Domestic Product, which is the government measure of the total output of the US for the entire year.   Once that number approaches or exceeds 100%, ratings agencies tend to take a dismal view of the viability of the sovergn debt (i.e. the ability of the nation to eventually pay off its debt or at least bring it down to a level that can be lived with)   In fact, Moody’s released a report yesterday which warned that the current rating of the US was in question “If the current upward trend in government debt were to continue and become irreversible.”
    Back to the President’s Budget Proposal.    It calls for decreasing deficits through 2014, after which, deficits will trend upward and potentially, be irreversible.     From a low of just 706 Billion, the annual deficits will steady rise to over 1 trillion per year by 2020, this despite a doubling of receipts to the Federal Government by 2018.
    Of course, these predictions are based on receipts increasing at a feverish pace starting in 2011.   Reciepts are anticipated to increase by 18.5% in 2011, jump another 13.9% in 2012, then just 8.9% in 2013 and 8.3% in 2014.    The increase for 2010 which the President currently places at just 2.8% over last year, was projected at 8.9% just 12 months ago and there are concerns that receipts may actually fall in 2010, not increase.      The projections for 2011 are just as fantastic, a revenue increase of 18.5% when just a year ago they were anticipating only a 13.9% increase
    So according to the President’s budget for this year, our total debt will rise to 94.8% of the GDP.   This is under the best case scenario presented.     Is also assumes that the continuing debt for 2011 will push that percentage to 98.9% by the end of 2011.    This is all based on revenues jumping by 400 billion dollars in 2011 and our GDP increasing by 675 Billion.   You can add to the fact that the Public portion of the US Debt will go from 53% in 2009 to 68% at the end of 2011.   That’s right, the Public portion will grow by 15% while the intragovernmental portion will decline from 47% to just 32%.
    President Obama’s budget assumes a GDP growth of between 4.6 and 6 percent through 2014 and an increase in receipts of 1.3 trillion by the same time.    That receipt increase is a jump of nearly 60% in revenues in just 4 years.   Where do most of those revenues come from, why Taxes of course.
    In just three years, the projected GDP for 2013 has fallen from 18.243 Trillion to just 17,182 Trillion. <Presidential Budget’s 2008-2010>    With that much drop in GDP, where are all the increased taxes expected to come from and how much will taxpayers be willing to cough up when unemployment is northward of 10% (officially) and somewhere between 17 and 20% (unofficially).
     
    As Moody’s stated in their report, “The trend and the outlook would be more important than any particular level of debt.”   If that is indeed the basis for leveling a new rating for the US and it’s reserve currency, then the US is giving fair notice that after 2014, the trend is indeed upward and most likely, irreversible.      Once the current buyers of treasuries start to demand higher rates, there is no painless way to reverse the slide.


    Disclosure: Long GLD, SLV, Physical Metals, Retirement accounts
    Feb 03 1:08 PM | Link | 1 Comment
Full index of posts »
Latest Followers

StockTalks

  • Despite 25% Margin Increases, Silver still a buy. Paper is under $37 but completed auctions say $45-50 per ounce. Do the math
    May 5, 2011
  • Cross Contagion. Areas that are unexpected or little researched. Outcomes that are downplayed when they should have been emphasised
    Mar 17, 2011
  • Silver breached the $30 mark again today, expect margins to be raised in another lame attempt to stop the rise. Darn those specualtors! :)
    Feb 8, 2011
More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.