Rare Metals Guy's  Instablog

The news around the world has been rather interesting over the last few weeks. We have Iran trading Oil for Gold instead of PetroDollars. The Greek crisis still has not been solved while Italy, Spain and Portugal are struggling to stay solvent. China has signed fourteen currency swap agreements bypassing the US Dollar. The Federal Reserve has announced that it will keep interest rates at or near zero until 2014. The US has just raised its debt limit once again, with little opposition. We all know that 2012 is an election year in the USA which usually means very little will be done in Washington.

So what will we see this year? Will we see Deflation or Inflation? Currently I hear news out of the USA and here locally in Panama that items are going up in price. I just spent a week in San Jose, Costa Rica where one liter of Coca Cola was $2.50. They were just forced here in Panama to raise the minimum wage to $500 just so people could afford to survive. You can imagine the repercussions, many businesses will have to let employees go in order to keep the doors open. Here in Panama we use the US Dollar as our currency. Who is to blame for the inflation we are seeing? It is not the printing presses fault. It is the powers behind the printing.

Way back on November 21, 2002 there was a Federal Reserve Governor named Ben Bernanke, who gave a speech to the National Economist´s Club. In this speech he outlined exactly what he would do if he was Chairman of the Federal Reserve in the instance of a financial crisis or Depression.

1. The Federal Reserve would lower the interest rate to zero
2. Purchase Securities from Banks (GM, Chrysler)
3. Increase the Money Supply
4. Buy Countries Debt QE1, QE2, QE3 and QE Infinity
5. Devalue the Dollar

I will not go into each of these scenarios individually. We all know that points one through four are already in play. The one that has not occurred yet is the devaluation of the Dollar. Mr. Bernanke calls himself a student of the depression. He has studied The Federal Reserve actions during that time. Here is an excerpt from that speech.

Ben Bernanke November 21, 2002

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it´s worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt´s 40 percent devaluation of the dollar against Gold in 1933-34, enforced by a program of Gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934. The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt´s devaluation.

On April 3rd 1933 President Roosevelt declared the Presidential Order 6102.

All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933.

At this time Gold was valued at $20 per ounce. Shortly after the Gold confiscation was completed the Federal Reserve revalued Gold at $35 per ounce or a 40 percent devaluation of the currency. Remember that during this time the Dollar was backed by the promise of Gold.

In my mind Mr. Bernanke is telling us what he is going to do next if the economy does not respond to the other four measures that he has implemented. What would a 40% devaluation of the US Dollar do to your savings if everything is in US Dollars or a currency pegged to the Dollar? The devaluation of the US Dollar would be great for Gold, Silver, Home Values, Debt and the stock market. What about the people that do not have hard assets? People who live off Social Security, Government Subsidies, Fixed Incomes and Savings will have a difficult time. Imagine tomorrow you wake up and your savings has just been devalued 40%.

Growing up I was taught that putting your savings in the bank was important. Today it seems that the idea is no longer valid. What Mr. Bernanke has told us is that he will devalue the currency in order for the country to continue to have growth. What are you doing to protect your family and future?

Tim Geithner has announced that the US Treasury is dipping its fingers again into the Federal Employee Pension Fund.  Over the last few years governments are getting more and more comfortable raiding the funds set aside for its citizens.  The US has been raiding Social Security for years bringing it to the brink of insolvency or should I say a corpse.  Here is the breakdown of the nations that have decided to get careless with its citizens retirements.

·         Portugal raided its Pension Fund to meet its deficit requirements to the tune of 5.6 Billion Euros.

·         Ireland raided its Pension Fund to meet its deficit requirements to the tune of 24 Billion Euros.

·         Argentina raided its Privately managed Pension Fund to meets it deficit requirements to the tune of 29 Billion Dollars.

·         Hungary is attempting to change 15 Billion Dollars of Private Pension Funds back into the State system.

The US Treasury decided it was ok to suspend reinvestments in the Federal Pension Fund.  Over the last 20 years the US Treasury put its fingers in the cookie jar six times to avoid hitting the debt ceiling.  The Obama administration has its back against the wall. I believe they fear another fight over the debt ceiling, during an election year. Tim Geithner has effectively kicked the can down the road for a few months. The debt ceiling needs to be addressed, this is not going away. We all know that they will just raise the debt ceiling again. Do you think they will ever cut spending? I have my doubts.

How about IRA´s and 401k´s Mr. Geithner? There is around 6 Trillion Dollars of assets residing in IRA´s and 401k´s. That is a substantial amount of money and seems ripe for the picking. The US Federal Government has shown that it has no reservations about taking what does not belong to them. If Social Security was a piggy bank for politicians just think how they might look upon our IRA´s and 401k´s.

What would the US Treasury do first? They might require US citizens who put a portion of their salary into 401k´s and IRA’s to invest a certain percentage into low paying US Treasuries. Then imagine that situations further deteriorate. The US Treasury then decides that you have to increase your purchases of US Treasuries. Then the worst case scenario happens and the US defaults or hyperinflation occurs rendering your retirement portfolio worthless. I hope it never gets this far, but we prepare for the worst and hope for the best. The Federal Reserve is looking more and more primed for QE3. They will not stop, it might as well be called QE Infinity.  Prepare yourself, I know I am.

Critical Metals Vital to Our Lives in Tight Supply

                We begin 2012 similar to how we started 2011 when it comes to rare earth, rare technical metals and rare industrial metals. China has over 90% of production and refining. The US and EU governments are scrambling to legislate, source, produce, open and reopen mines. The West has decided to continue down the road of the idea that the markets will take care of the supply and price of these metals. What is alarming is how easily the West was lulled to sleep by China´s ability to supply the world its metals cheaply and efficiently. The West concentrated on making money trading stocks and futures that dealt with these commodities. China concentrated on building the most extensive mining industry in the history of man. Here in 2012 the Department of Energy in the USA has approved a spending bill that includes $20 Million to focus on the supply issues of these metals.

                The metals I am speaking about are so vital to our everyday lives. These metals are found in your mobile phones, computers, LCD and LED TV´s, hybrid cars, solar power, wind power, nuclear power, efficient lighting and medical technologies.  Here is a list of metals that have been deemed critical.

•  Indium  RIM (Solar, Mobile Phones, LCD)
• Tellurium RIM (Solar, Computers, Semi-conductors)
• Gallium RIM (Solar, Mobile Phones, LED´s, Fuel Cells)
• Hafnium RIM (Processors, Nuclear, Lighting, Plasma Cutting Tools)
• Tantalum RIM (Capacitors, Medical Implants, Mobile Phones, Nuclear)
• Tungsten RIM (Nuclear, Armaments, Aviation)
•  Yttrium REE (Lighting, Medical Technology, Magnets in Hybrids)
• Neodymium REE (Magnets in Wind power, Super Magnets, Hybrid Vehicles)
• Dysprosium REE (Computers, Nuclear, Hybrid Vehicles)
• Europium REE (Lighting, LED´s, Lasers)
• Lanthanum REE (Hybrid Vehicles, Magnets, Optics)
• Cerium REE (LED´s, Catalytic Converters, Magnets)

RIM=Rare Industrial Metal                    REE=Rare Earth Element

The supplies of these metals could hold back the production of green technologies. According to the latest report by the Department of Energy, ¨Supply challenges for five rare earth metals may affect clean energy technology deployment in the years ahead¨.  If Green technology is to become main stream, the costs of these technologies have to reach cost parity with traditional energy sources. As long as there are serious supply issues with these metals the costs can´t reach these levels. The other option is finding alternatives like Graphene and Nanotechnologies.

The US and EU need supply chains of the metals that include both mining and refining of these metals. Relying on sovereign states for critical metals such as these, leave a nation vulnerable to outside influence in both politics and economics.  Environmentalists have succeeded in influencing politicians to close mines throughout the West. Politicians have legislated the mining industry into the position it is in today. The Western nations must start now to build its supply chain or continue to be at the mercy of the BRIC (Brazil, Russia, India and China) nations for its metal needs.

The best the West can do now is provide, enough metals to meet its own demands. China has reached a point where it can now demand that certain industries produce their products there. If a company decides to try to produce the product in another country China will make producing that item cost prohibitive outside of China by raising the prices of the metals.

The demand for the products these metals are used to produce, are showing few signs of slowing down even in a so-called recession. Governments are subsidizing Green technology, people are buying mobile phones across the planet and everybody wants a nice flat screen TV. Will 2012 pass without countries truly taking this opportunity to fix the problem or will they step up and make the hard decisions which can put the countries back in control over their own destiny.


 www.swissmetalassets.com/randy-hilarski