Teach people how to fish...

Photo from dimnikolov's photostream

Do you remember Maslow's Hierarchy of Needs from back in your school days? Maslow drew a pyramid, with human needs stacked according to their importance to us. The lower 4 are considered deficit needs... meaning we actively seek them out when we are deficit (lacking) in them. The needs are stacked in order of importance to us, with the lowest layer being absolutely primary. Even within layers, there is an order of importance: If you cannot breathe, you surely are not concerned about food and shelter at that precise moment.

The top level is actually different, it's things/traits we'd like to have in order to really feel fulfilled in our lives. Things like Truth, Goodness, Morality, Meaningfulness, Creativity and quite a few more that capture the essence of self-actualization.

Do you think in this desperate economic downturn that the starving, unemployed and/or homeless folks are thinking about those things at the top of the pyramid?

My bet is they are thinking about food and shelter (the basics to survive) which is the bottom, foundation level in Maslow's chart. I'm thinking that many folks now have nothing left but frustration, nothing else to lose, and even food and shelter seem elusive to them. Time bombs ticking...

If they cannot get those basic needs legitimately (like they could with the ex-paycheck from the company that closed its domestic doors and moved manufacturing overseas for more profit), they will ultimately resort to whatever means is at hand, including violence or unlawfulness of some sort if that's all that's available. Unlawfulness might be as benign as a mother shoplifting a can of Spaghetti-O's to feed a starving kid because she can't get food stamps, but it could be a purse-snatcher looking for a few bucks for groceries (or drugs or alcoholic beverages), or worse yet, home invasion.

Do you think their frustration or anger doesn't build when they hear of bonuses in the millions of dollars being paid to the people perhaps responsible for their dire straights? And to rub salt in the wounds, those bonuses are often paid with federal bailout money the now-unemployed people paid into for years as taxes, and their children (if they live long enough) will have to repay?

To be sure, there are always freeloaders who think the world owes them something for nothing. I'm not talking about them because I have no clue as to why some people are like that.

And I'm not even talking about those who would rather get food stamps and cry 'poor me' than have a job that pays minimum wages. I see those people in my small town all the time. A friend's daughter is out of work, has been for over 2 years. She gets free housing and food stamps because she has 2 dependent and "fatherless" children. She has no real incentive to get a job because she knows the system will take care of her as long as she has dependent children, but she also has no need to resort to violence because she has food and shelter.

I do not believe being on the dole is a Right. At the same time, I do think most of us feel some obligation to help others in an emergency if we are able, for instance victims of tornado, or hurricane devastation, and floods. That's not the same thing as a 'required' handout or someone being on the dole.

I believe that we owe it to ourselves and our children's children to clean up this mess, somehow, someway. And truthfully, I have absolutely NO earthly idea how we can do that. Like many people, I am never more than a few days or weeks away from being homeless and hungry myself. Our 'system' takes care of the children, but unfortunately not the elderly.

There must be a way of creating some opportunity for "Joe and Jane Average" to survive (which probably won't include cable and a 60 inch HDTV); and if they need some help UP, then we help. By 'we' I do not mean the federal government. I mean me... and you. Local, community involvement. Maybe even just 'on your street, or on your block' involvement.

Some of our biggest banks are sitting on large profits from the bailouts (profits made by using our tax money) but they won't lend it if you don't have both a job and excellent credit. Even then, they might not lend it. But look at it this way: who really needs debt anyway, except for maybe a very large purchase like a home? Who convinced us anyway that more is better, that we aren't 'worthy' unless we have a McMansion and a new car every 2-4 years?

It's time to stop favoring the Good Ole Million Dollar Boy Network. It's time to get lobbyists out of the pockets of our legislators and out of our Laws.

Time to start teaching people how to fish... somehow, someway.

Through the Looking Glass: Culture Shock

I had occasion to travel a bit out of my corner of the state the week before Thanksgiving. It was a great time with friends, but also some culture shock (seeing how the other half lives) when we went for a drive on the Parkway.

Château Morrisette Winery

Château Morrisette Restaurant, photos from their website

We stopped to check out Château Morrisette, and while I was sitting on a bench outside the winery on that gorgeous sunny day, I had the chance to watch folks drive up in their status-symbol imports, town cars, Hummers and fancy SUV's... and leave with multiple cases of wines. Not too many years ago, I might could have been part of that crowd, complete with designer jeans and a fresh manicure (and in the Mercedes I drove).

The exposure and the culture shock of seeing my life "then vs now" really got me to some hard thinking over the last 3 weeks, and to some honest reflections in my mirror. I'm still somewhat of the consumer 'mindset' (minus any credit cards), albeit now more for tools, equipment and other things geared towards survival. AND... I still love good wines and gourmet foods. It's hard to believe I used to think nothing of buying anything I fancied. I freely admit to champagne tastes, only now with a Near-Beer pocketbook. (Do they still make Near-Beer? It was all we could get, or even afford, in college.)

It took me a few days to realize and admit that I still had have some residual internal pique at not having that kind of discretionary income anymore. (Actually I thought only the rich still had much discretionary income in this economic downturn. I guess I don't get out of Dodge enough.)

The reason I am in an economic pit despite having made good money is due to naively believing that economic growth would always continue, that corporations were honest, and that Life was fair. Add in the governments' manipulation of the social security fund and the rules that changed during the few years before I retired, and it reduced my "estimated [by the government] SS income" by 75%... which necessitated bridging the gap for living expenses with my assets until they ran out. The government did not single me out; there were many tossed in the same boat. Factor in the economic crisis of the past few years and you have enough added weight to sink many lifeboats.

I have had to really take a hard look at what I have been doing with my life over the last few years: my goals, and what things give me satisfaction in order to balance out the pique I felt. Would I go back to that lifestyle if I could? I doubt it. Of course, a little extra cash now and then would be nice. :)

I suspect I'll never get over my taste for international and gourmet foods, since I spent most of my whole life traveling, and tasting new foods... but I've worked out how to still have them. As for the wines, designer jeans and fancy cars... pfffffttt. My 20 year old, high-mileage pickup truck gets me where I'm going (most of the time!) and if someone is going to judge me based on what I wear or drive, that's their problem. (Besides that, 2 Buck Chuck can taste pretty good.)

I'm learning that many of the things I love and can no longer afford are things I can make myself; the list is much too long to list here other than a couple of examples below. BTW, I did make some decent champagne this year from wild elderberry flowers; it cost me some sugar, water, yeast... and my time. Not Dom Perignon, but drinkable.

Buying $30-$50/pound cheese is not in my food budget, but I AM learning to make cheese. I may never make cheese anywhere near that good, but I can sure keep trying. Meanwhile, I make lots of tasty, real cheese for the price of some milk, a few small expenditures for cultures, and my labor. I make butter (from 100% Jersey cream) as good as, and much cheaper, than imported butter costing $7.95 for half a pound. Actually mine is cheaper than even American store-brand butter, too.

I buy whole pork belly and season then cure/smoke it myself, and wind up with a tastier product than store-bought organic smoked bacon for a fraction of the price. The pastured, free-range meat I buy isn't cheaper, but it's much healthier and tastier. And I discovered the cheap "odd bits" that most folks never buy (or even see) anymore make some outstanding dishes, equal to or better than imported patés, terrines and rillettes, and much cheaper than buying them.

I plan to try to make pancetta and proscuitto which are not in my budget either; after all someone makes them... how hard can it be to do what average people have done in France, Italy, Spain, and many other countries for centuries?

I find a great taste satisfaction in snapping a tomato right off the vine and eating it while standing in my garden, the juices dribbling down my fingers and chin. You cannot buy that "yummy fresh taste" in a store.

My home-grown herbs, fruits and vegetables are free of pesticides, insecticides, herbicides, chemical washes and irradiation. Anything I cannot eat fresh does not go to waste. I have a pantry full of home-canned, lacto-fermented, dehydrated, and frozen goods. Plus I always grow some vegetables that will keep over winter in my root cellar.

However many things I can make, there are still some things I either must buy, or do without... because of my location and gardening zone. Wild Alaskan Salmon is high on the list, as is good olive oil... and spices that won't grow here, like vanilla (a tropical orchid), cardamom and cinnamon. However, I can grow the most expensive spice (herb) in the world, saffron, for the cost of a few fall saffron crocus bulbs (Crocus sativus), which will multiply and give me more fresh saffron every year. Paella, YUM!

In the final analysis, the trade-off is that for every tasty morsel I can make myself, it frees up money in the budget to occasionally buy some goodies I cannot make. Nothing is so wonderful as something sinfully delicious straight from the stove or pantry, even if NOT ALL the ingredients are homegrown.

Who said "back to basics" aka being poor, has to be dull, boring and tasteless?

Fighting Food Prices 2011

Photo from The Comsumerist's Photostream

I had planned to cut back on my vegetable garden this year and concentrate my time and energies on making cheese and curing meats. Guess what? With the increasing food prices, it ain't gonna happen!

In 2010 alone, the cost of food increased 25%, with an additional 9.9% in the first 2 months of this year. That's a 35% increase just for food in 14 months, and the EIU is projecting an additional 19% rise this year. Can your food budget withstand a 54% increase? Mine can't!

So yesterday I put off a personal loan payment and ordered vegetable seeds instead. Much of what I ordered is OP (Open Pollinated) Heirloom seed so that I can save seeds for next year. That assumes we have a decent gardening year, which a lot of the world is not expected to have (and that will drive prices even higher).

For a long time, I have encouraged people to Eat Local, to buy from their Farmer's Markets and roadside stands, and to grow a few vegetables in their yards or pots on the balcony. I've encouraged the idea of converting the front lawn into a garden patch studded with fruiting bushes and trees alongside the rows or patches of veggies. This year I think those ideas are becoming imperative for more and more people, except those with their heads in the sand. (I think I've had my own head a little bit in the sand because I had NOT added up the actual food price increases until now. Shame on me!)

As an aside... Our minds do strange things with the thought of nuclear disaster, from denial to running scared... and one of the places my mind went was to row covers for foods growing in my garden. IF airborne nuclear radioactivity falls to earth contaminating our water and soil, what is the possibility that garden rows covered with long hoop housing could mitigate the soil accumulation and allow plants to grow untainted? Frankly, I have no idea... it was just a thought. (I don't have the money to do such a project anyway.)

Photo from The Consumerist's Photostream

In much the same way governments worldwide are trying to hide realities to calm fears arising from Japan's nuclear disaster, so are food companies trying to mask the incredible price increases by subterfuge in their packaging. You will find these look-alike packages on the shelves in the stores... they will be from the same manufacturer and look the same, perhaps have a price increase, but the contents will be reduced by the following amounts:

Kellogg Cereal: roughly 15%
Snickers Bars:11%
PepsiCo’s Tropicana OJ: 8%
PepsiCo’s Frito-Lay Chips: 12.5% - 20%
Haagen-Dazs: 12.5%
Chicken of the Sea Tuna: 17%
Kraft Foods’ Saltines and Graham Crackers: 15%
Reese's: 37%
Bounty: 7.2%,
Heinz Ketchup: 11%

Photo from The Consumerist's Photostream

American farmers are said to be switching some food acreage into cotton this year because the price of cotton has increased nearly 60% in the last year.

Be assured my tiny vegetable plot will remain planted in vegetables, as long as I feed the soil and the soil will support growth. I'll be posting more on seed starting plus how to make your own seed starting mix in the next few days.

That Glittery Stuff...

Yep, gold is in the news again with record prices.

What isn't so apparent is the changes that affect gold in production. Back about 1950, ore generally produced about 12 grams of gold per ton. That number has dropped to about 3 grams per ton in most mining areas, and even the quality of the ore quality had declined.

The picture above shows the most sought after gold bar for investment, the 100-gram bar. It will just about fit in the palm of your hand, and costs a cool $3,500.

Foreign governments continue to buy gold over US Dollars for safe investments. The Reserve Bank of India just bought 220 tons of gold from the IMF (International Monetaru Fund) for $6.7 billion. Sri Lanka recently disclosed it too is buying gold, and of course we know the Chinese are investing heavily in gold.

Gold has been around as a stable investment for over 6,000 years, while other monetary forms have come and gone as governments rise and topple. Despite the increased value of gold, if we adjust the price for inflation it will have to top $1885 to set an all-time record high.

Meanwhile, be very cautious if you choose to sell your scrap gold. Many folks are getting a mere fraction of the real value as fast-talking salesmen make their pitch.

Huge Commercial Real Estate Lender files Bankruptcy

This has been blowing in the wind for a while, but finally on Sunday Bloomberg reported that Capmark Financial Group (who used to be GMAC Commercial Holding Group) has filed for Chapter 11 bankruptcy protection after a second-quarter loss of about $1.6 billion.

They are one of the largest US commercial real estate lenders, and it seems they owe $7.1 billion to 30 of their largest debt holders, without having any collateral to back their debt. The biggest three of that group are Citibank N.A., Deutsche Bank Trust Company Americas, and Wilmington Trust FSB.

If the commercial real estate market goes the way of the residential real estate market, things won't get any better for a longer time, as trickle-down always happens.

CIT in Trouble

This has been brewing for some weeks now, but today (Monday Oct. 12) Reuters is reporting CIT Group may soon be filing Chapter 11 bankruptcy. Citigroup announced a couple of weeks ago that they would be closing many branches in an effort to scale back their operations. Looks like that isn't enough.

Citigroup is one of the largest recipients of government aid via the 'Troubled Asset Relief Program' (TARP), where they got $2.3 billion in December. CIT has more than a million customers, and over $70 billion in assets, but many of their borrowers are small businesses who are struggling in the current economic atmosphere. This does not bode well for the economy here, or abroad.

I wasn't planning to write any Doom and Gloom, but my spirits are down. My neighbor's son is still in a coma, and now has developed pneumonia in both lungs. Even the ventilator at the max isn't getting his O2 levels up enough...

Saturn cars will be no more...

Photo Creative Commons License by Saturn

The Washington Post today carried the story of the demise of the Saturn, a "different kind of car company" owned and made by GM. As a result, more than 350 dealerships are slated to shut down, and 13,000 jobs are threatened.

GM, now largely owned by the federal government, has been trying to shed several product lines, including Hummer and Opel, besides Saturn. They thought they had a deal with Penske (of Indy Racing Car fame), but that deal fell through simply because Penske could not find a car manufacturer here or in Europe to build the cars.

The first Saturn off the line (pictured above) was just 24 years ago, and in 1993 they rolled #500,000 off the line. I couldn't find a current estimate of how many Saturn's have been made.

My mother drove a Saturn. It fascinated me because it had three doors, not immediately apparent from the outside. When the driver's door was opened, a second door (without an outside handle) could be opened allowing access to the backseat, and it had no rigid column between the front and rear doors.

I'm sorry to see Saturn go, but at least it wasn't an Edsel.

It must be Friday...

A Georgia bank fails today. It must be Friday...

CNNMoney.com just announced the Atlanta-based Georgian Bank has failed, the 95th bank failure so far this year. That's an average of more than 10 per month, with probably more to come.

The cost of today's failed bank will cost the FDIC an estimated $892 million. Sigh.

FDIC in a pickle

I'm not sure I really understand all of this... the FDIC has spent a lot of money to pay off depositors in failed banks, and is now short of cash. Just 2-3 days ago, I read the FDIC is considering a huge loan from banks. This is where I get confused...

We know the government owns the FDIC, and we know the government has lent billions to bail out banks. So why would the government (FDIC) borrow money from (government) money in banks? Isn't that like borrowing your own money?

Now, I just read (Bloomberg) that if the FDIC 'borrows' from the government, it will push us past the debt limits. Does that mean the US government is 'tapped out'??

The Seduction of Gold on Two Fronts

I've written a few things lately about this precious metal we call gold, mostly from a financial value viewpoint.

Lately I've been thinking about this lovely malleable metal in terms of adornment. I lived in Miami during and after the first influx of Cuban Refugees in the early 1960's. It wasn't until they had been amongst us a year or two that I frequented some common areas. One thing I remember is all the heavy gold chains and ID bracelets the men wore and it wasn't 14KT either.

The only jewelry I could afford as a young adult was silver, and I soon learned I couldn't wear it without my body reacting to it. I began to wish I had some gold jewelry, other than small gold studs in my ears. When I divorced my first husband, I immediately bought myself a heavy gold nugget ring which I wear to this day, and a Museum Movado watch with an 18KT gold case. Eventually I bought a few more select pieces that I wore with my corporate drag.

Now I dress comfortably in jeans and hiking boots, and seldom wear any of the jewelry except my nugget ring, and a couple of small gold chains. I've given some of it to nieces, but even they dress down these days. However, the allure of gold still remains deep within me.

As to the value of gold jewelry... would I trade what few pieces I have left for food in a real crisis? I really don't know since I have never been in that kind of situation. I do regret some pieces I hocked, or sold, to pay rent. I was friends in the 1960's with a Hungarian man who came to the US as a refugee in WWII. He would buy any kind of gold jewelry at yard sales, auctions, etc. I remember him describing people in the war-torn areas of Europe who wore coats with gold jewelry sewn inside. They were always able to trade for food with it. I guess once you have seen it happen, you know it can happen again.

On the financial/market value side of gold... if you have been watching the market, gold is up further in value, well over $1,000 now. The IMF has announced they want to sell 403 tonnes of gold, which is about 1/8 of their gold holdings. 403 tonnes has a market value of close to $13 Billion.

Unconfirmed via Reuters reports say China is interested in buying it, if the price is right. They said $13 billion is small beans to the Chinese, who have more than $2 trillion in foreign exchange reserves. The Chinese report having 1,045 tonnes of gold already, accumulated slowly over the last 10 or so years. I wonder how much the US still has?

Last year in a moment of panic about the banks, a neighbor withdrew $25,000 from her savings and installed a home safe. I suggested she buy gold with it; gold was $928 then. That would have bought around 27 ounces of gold, worth about $2500 more today. Her savings were paying a pittance, even the CD's. After about 60 days, she put it back in the bank.

Failure Fridays Continue

Regulators closed more banks today at a cost of $850 million to the FDIC. Getting to be like clockwork, isn't it?

Regulators closed subsidiaries of Irwin Financial Corporation in Kentucky and Indiana Friday, bringing the total number of bank failures this year to 94, according to the Federal Deposit Insurance Corp.

Spitting Contest

Have y'all been noticing the spitting contest that's going on? It goes like this...

The Chinese haven't been too happy with how the US government has been handling the mess on banking and investment firms going belly-up... and since the Chinese have a substantial stake in US dollars, they are worried about more losses.

They say they were deliberately encouraged (and mal-informed) by some firms to invest in derivatives. So, the Chinese recently announced they would allow some Chinese government-owned firms to default on derivatives. Spit one.

Then the US government issued a 35% tariff on Chinese tires, effective with a 2 weeks notice. Spit two.

Now the Chinese have spit back, threatening to cut off imports of American chicken.

I wonder how we will spit back? I did notice gold shot up dramatically on Wednesday.

3 More 'Friday Failures'

Regulators closed banks in Illinois, Minnesota and Washington state today, at a cost of more than $2 billion to the FDIC insurance fund. That brings this year's failures to 91 or 92... but who's counting? BTW, that's four times the failures of 2008. In Illinois alone, 16 banks have failed so far this year.

Minnesota’s Brickwell Community Bank has been seized by regulators. Cost to the FDIC is $22 million.

Ventura Bank, based in Washington state, has also been seized, costing the FDIC fund about $298 million.

Corus Bank, the 3rd largest in Illinois, also collapsed. The FDIC estimates it will cost the insurance fund about $1.7 Billion.

A week or two ago the FDIC reported it only had $10 billion remaining in funds. Today’s hits will take 20% of that reserve. CNNMoney.com reports that over the next five years, the FDIC expects roughly $70 billion in losses due to the failure of insured institutions. Hey, just ask the government to print more!

Silver and Gold

Photo: Creative Commons License by Muffet

Continuing with my thoughts on money, currency, and gold… I thought I’d write about silver a bit. In my earlier post on Gold Value, Investing and Risks, I mentioned USD ‘silver certficates’ which preceded the USD federal reserve notes.

There are still a few of those silver certificates around, in the hands of collectors. They were withdrawn from general circulation in the mid-1960’s as I recall. That was about the time the price of silver went up and the value of the silver in our coins became more than the face value of the coins, so the US Mints stopped making silver coins. I read somewhere that when silver was $16/ounce, the silver value of our then-silver dime was over $1 in value by weight of the silver.

People began saving their silver coins as the newer alloyed coins were minted. When many folks were preparing for Y2K, it was advised to look for silver coins in case our economy collapsed. Those old silver coins usually have no value to a coin collector except for the silver value. Those coins are called ‘junk silver’, and even today an occasional silver coin will show up in circulating change. (I once found an old US half-dime in some change; they were minted from 1792-1873. I had it in my jewelry box with some buffalo nickels and my baby sister bought ice-cream from the ice-cream truck with them.)

My grandfather always carried 2 silver dollars in his pocket. One was minted the year he was born, and the other was minted the year my grandmother was born. I got them when he died, but when all my jewelry was stolen a few years later, the coins were in the box. I bought one replacement, his birth year (1882) several years ago, in just ordinary circulating condition, and I paid something like $20 for it. Probably cost about that to replace it today as that year Morgan Silver dollars were plentiful except the ones with the "CC" mint mark.

Silver has fluctuated a lot in USD value over my adult years, from around $2 to almost $23 a troy ounce. Today as I write this, it is $16.62.

The US Mint issued Kennedy half-dollars in the mid-1960’s that had an inner core of 79% copper and 21% silver, and clad with an outer layer of 80% silver/20% copper. They were the last US Mint coins containing any silver; their total silver content was 40%. Our current half dollar coin has a metal value of about 8¢.

Pennies from 1909-1982 were 95% copper (except for the 1943 steel WWII penny), and worth almost 2¢ in copper today. Pennies since 1982 are 97.5% zinc and worth about half a cent in metal value. The few folks who do small metal castings (like sand castings) can melt pennies along with some aluminum cans and some copper wire for a very inexpensive homemade alloy that has a low melt point for casting small parts.

If you want to see the historical (and current) price of silver, check here.

One thing does concern me a bit… should a catastrophic event occur, would our government confiscate our silver and gold coins they way the Patriot Act says they can (including confiscation of food stores and other items) in much the same way Roosevelt confiscated gold in 1933?

Of course, you could invest in gold foil-covered chocolate 'coins' like the photo above... you can always eat them!

It was a sneaky Monday...

On Labor Day, Reuters ran the story that China's Ministry of Finance is planning to issue (sell) bonds in their sovereign yuan currency, to raise as much as $100 billion yuan, the equivalent of $14.64 billion.

The move comes as China presses ahead with internationalizing it's yuan. China has already allowed some foreign banks to sell yuan-denominated bonds, and launched a pilot program to allow companies to settle imports and exports in yuan.

In a separate report by another English paper, China is reported to be alarmed by the US printing money to buy US Treasury debt, which could cause inflation and a decline in the value of the USD. A top member of the Chinese hierarchy, Mr. Cheng, said if there is a serious devaluation of the USD, it could compel China to redesign its foreign reserve policy.

He said most of the Chinese Reserves are in US bonds, over $2 trillion, and China would need to diversify into euros, yen, and other currencies. "Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added.

Numbers are looking positive!

In my post about the President speaking about H1N1 at the Rose Garden on September 1, I didn't mention that his opening remarks were about the positive numbers showing up on the economic front.

Indeed, numbers are increasing. The numbers just announced for unemployment were higher than anticipated, and even Food Stamp numbers are up!

Reuters reports the USDA announcement that the record number of more than 35 million Americans received Food Stamps in June, up 22% from the previous June. (By the way, that means 1 in every 9 Americans is now receiving Food Stamps.) June was the 7th straight month of Food Stamp rolls increasing. The average benefit amount is over $133 per person.

Gold Value, Investing, and Risks

I mentioned investing money in gold as being 'safe'... but JUST REMEMBER, I am not a financial advisor. I am not completely sure gold is a truly safe investment in this country, either, based on our history.

In April 1933, President Franklin D. Roosevely issued Presidential Executive Order 6102, which confiscated all gold coin, gold bullion, and gold certificates within the continental United States. The stated reason was based on "An Act to provide relief in the existing national emergency in banking, and for other purposes~"

An individual was allowed to keep up to $100 in gold. Failure to comply with the Presidential Executive Order could result in fines of $10,000 and 10 years in prison.

Having said that, let's look at the value of gold. The price of gold on the market today is very close to $1,000 USD per troy ounce of gold. But what does that really mean? Well, what you can buy with an ounce of gold today isn't really very much more that what an ounce of gold could buy 50 years ago, although the purchasing power of gold has increased, while the purchasing power of the USD had decreased. In other words, it takes more dollars to buy milk, or a car, today than 50 years ago.

When gold coins were "withdrawn" from circulation in 1933, the gold "standard" to back the US dollar was reduced from 23.22 grains to 13.71 grains. There are 480 grains of gold in one Troy ounce of gold. (Troy is the measurement standard for metals; 12 Troy ounces = 1 pound, whereas 16 Avoirdupois ounces = 1 pound.)

So, the USD changed overnight in value; it had been just over 20 dollars for an ounce of gold, and overnight it went to 35 dollars for an ounce, becoming generally called "the gold standard" which remained in effect for many years. Richard Nixon finally took the US completely off the gold standard in 1971.

When I was a youngster, our US paper dollars were marked "silver certificate" which meant they could be exchanged for silver. Now they say "Federal Reserve Note" but they can no longer be redeemed for silver, only for more notes. Government currency backed only by the power of the government is called a "fiat" currency, and is only as good as the government.

If you watch much television, especially late at night, you will see many commercials by companies buying scrap gold jewelry. (In fact, some of that business has been in the news lately due to lawsuits and press about the pitiful amounts they pay for gold.)

Those are companies are trading dollars of varying value for gold of known value.

Do These Dots Connect?

I've spent several days reading and trying to understand the Derivatives Market, and I still barely have a clue. I do not begin to qualify as any kind of financial analyst, but I do read. And, some things stand out in recent news making me wonder if there is any connection between them?

First, we all know China holds a huge stake in the USA. I don't know how much of a stake, and I'm not sure I want to know.

Then last week China made this blip on the Financial Market radar: “BEIJING, Aug 29 (Reuters) - Chinese state-owned enterprises (SOEs) may unilaterally terminate derivative contracts with six foreign banks that provide over-the-counter commodity hedging services, a leading financial magazine said.

China's SOE regulator, the State-owned Assets Supervision and Administration Commission (SASAC), had told the financial institutions that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying, "On September 1, 2009 Reuters said that the Banks, not the commodities would be at risk if China followed through."

Then, in several other unrelated reports:

1. Sep 3 HONG KONG (MarketWatch) -- Hong Kong is pulling ALL its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at Hong Kong's airport, in a move that won praise from local (Chinese) traders Thursday.

2. China pushes silver and gold investment to the masses.

3. The IMF (International Monetary Fund) said last Wednesday China has agreed to purchase approximately $50 billion worth of bonds denominated in Special Drawing Rights (SDR's, the IMF's own currency), a fundraising effort that is part of a broader push to bolster the IMF's resources.

Many analysts had expected China would sell some of its more than US$2 trillion in foreign-exchange reserves to buy the IMF bonds, in order to reduce its exposure to the U.S. dollar. But according to the agreement posted on the IMF Web site, China will use its own currency, the RMB, called the renminbi.

"The addition of the SDR-denominated bonds to China's assets should help the nation painlessly diversify its foreign-exchange reserves, the world's largest. U.S. dollar assets now account for a good portion of their reserves, but because China's positions are so large it would be difficult for it to switch out of the dollar and into something else without causing market turmoil."

In a research note, Barclays Capital economist Wensheng Peng said the currency used for China's payment will eventually come back into China, as the funds are lent out to member nations who then convert them to major currencies such as the dollar.

4. ChinaDaily ran this story: The national flag of the People's Republic of China (PRC) will be hoisted at the South Lawn of the White House in Washington on September 20, 2009.

Chinese associations in the United States had applied to hold a ceremony in front of the US President’s residence to celebrate the 60th anniversary of the founding of PRC.

Chen Ronghua, chairman of Fujian Association of the United States, told reporters that their application was approved not only because of the sound Sino-US relations but also because China is a responsible country.
"Many Americans admire China due to the success of last year’s Beijing Olympics," said Chen.

More than 1,000 people will attend the ceremony and the performances held after it, according to Zhao Luqun, who will direct the performances. Zhao said the performances will demonstrate the friendship, magnanimous spirit and kindness of modern Chinese people.

5. That brings me to the IMF itself, the World Bank, and other IFI (International Financial Institutions). These groups control the world's finances. All the loans are made with strings attached, and usually as political as monetary. They controlled all the world's money, until recently... and now, still "mostly" although there are other movements rising on the wind that may affect each of us.

Understanding the history and global reaches of monetary policies a bit better just might help each of us individually, and I will cover some of it in another post.

But for now, I would buy gold (if I had any money!). Not investments in gold funds, but real gold (coins, mini-bars) to have in your own possession. It is a valid, world-wide medium of exchange. The Wall Street Journal reports gold just increased another 2.3% as the USD continues to drop.

Another Friday "Surprise, Surprise"

Well, it's another Friday... and the Feds announced the seizure another 5 banks today, pushing the number of bank failures this year to 89. This batch of failures cost the FDIC about $401 million.

The FDIC insures deposits at over 8,000 institutions with roughly $13.5 trillion in assets, and reimburses customers for deposits of up to $250,000 when a bank fails. According to the Bloomberg story, the surge in failures has nearly depleted the Washington-based regulator's deposit insurance fund, leaving it with the lowest reserve since 1993.

A staggering 28.9% unemployment rate

While the state of Michigan has the highest unemployment rate of any state in the nation, the city of Detroit leads the way for cities.

For the month of July, the unemployment rate in Detroit stood at a staggering 28.9% — and that’s probably undercounted in the same way all unemployment figures are, due to the way such rates are measured. Still, it’s the highest rate ever on record for Detroit.