LAST YEAR China made great contributions to the world economy, writes Gary Dorsch at Global Money Trends, as it was the first country to recover from the international financial crisis.As a result of its 4 trillion Yuan stimulus spending, China's debt-to-GDP ratio is expected to reach 31% this year, far less than the average government debt of OECD countries, which is projected to almost equal their total GDP this year, and exceed it in 2011.

In sharp contrast to the sound finances of China, backed by $2.4 trillion of foreign currency reserves, the newly elected government of Greece's socialist Prime Minister George Papandreou faces massive pressure to get its fiscal house in order. Among the 16 nations within the Eurozone struggling to cope with their budgetary imbalances, Greece faces the most difficult situation.

With a budget deficit of 12.7% of GDP this year, and debt outstanding of €300 billion, Greece's debt-to-GDP ratio is expected to top 120%. In the short term, Greece needs to borrow €53 billion before year's end to refinance debt which is about to mature.

Over the course of the past two-months, the interest rate that Greece must pay in order to attract foreign capital for 10 years has risen by 175-basis points to 6.75% today.

Amid growing doubts that Athens can repay its debt, the cost of insuring €10 million of Greek government bonds against default for five-years has soared to €370,000. That puts Greece among the top-four countries in the world that are most likely to default, behind Argentina, Ukraine, and Dubai.

On Jan 29th, Greek Prime Minister George Papandreou complained that his country was being targeted as a weak link, by speculators with ulterior motives, and seeking to profit handsomely from the possible break-up of the single European currency. Already, amid the capital flight from Greek bonds, there's been a simultaneous exodus fleeing the Euro currency, knocking it below the psychological $1.400 area, from around $1.500 just two months ago.

In an ironic twist, the "flight for safety" from the Greek bond market, isn't finding a "safe haven" in the gold market. Instead, the Gold Price is enduring selling pressure, undermined by the weakening Euro.

The US Dollar is getting stronger by default, largely due to the unwinding of "carry trades" in global stock markets. Furthermore, spike rallies in the Gold Price could meet resistance, as it becomes increasingly apparent that China and India are still on course for further tightening of their money supply in the months ahead.

Also, G20 central banks allowed their foreign currency swap agreements to expire as of Feb 1st, eliminating a huge source of global liquidity, which at its peak reached $586 billion.

In the event that Greece defaults on its loans, or if its interest rates climb too high, it could prompt a chain reaction for other weak links in Eurozone bond markets, with devastating consequences for the entire Euro currency system.

The most vulnerable to capital flight is Spain, where the jobless rate hit 18.8% in the fourth quarter of 2009 and the government said it could reach 20% this year.

Already, contagion sales from the troubled Greek bond market are starting to seep into the Spanish bond market. The credit default swap rate to insure €10 million of Spanish bonds has nearly doubled to €148,000 and yields have climbed 40-basis points higher to 4.15% over the past two months.

Spain expects a fiscal deficit of 9.8% of gross domestic product in 2010, but said its ratio of public debt to GDP should peak at 74% of GDP in 2012, well below Greek levels. Still, capital flight from the weakest links in the Eurozone bond markets is triggering the unwinding of US-Dollar and Japanese Yen carry trades, which in turn, is rattling global commodity and stock markets, and precious metals.

While it's true that the January Barometer was far off the mark in 2009, one also should remember that it's been accurate for 90% of the time over the past 60 years. And falling global stock markets last month thus point to a poor outlook for 2010. Much will depend, however, on the degree to which the G20 central banks drain the global liquidity swamp, which led that the emergence of asset bubbles in 2009.

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Gold is now more closely correlated with US stocks than with either the Euro or silver...

OKAY, this is getting weird. Too weird, in fact.

And weirder still, no one else has yet noticed...

It might just be me...if not my nicotine D-T's.

But every time I look, there they are. Gold and the S&P500. Right at the same level. Minute by minute, session by session...ever nearer.

What in the Simon Cowell can this mean?

"It is easy to see why the Euro fell [this week] and one could then say that the Dollar is the obvious alternative," writes Phillip Coggan in his Buttonwood blog for The Economist.

"But what about gold? Hasn't that been rising on fears that spendthrift governments would debase their currencies? Yet when these fears started to look real [with the Eurozone crisis], gold fell 4% on Thursday..."

Well, yes and no. Gold always rises on fears of default or debasement. Because that's what it's for – hiding out when everything else falls in value, not least money itself.

But as gold has tripled and more over the last decade or so, it has also been rising thanks to that very debasement itself. Or rather, it's risen on the leverage which debasement enabled. Any pause or reverse in that leverage thus means the gold price can slip, whether or not debasement unwinds.

To recap: Gold began rising last decade because a handful of people saw deep trouble ahead in the race to slash rates. Also known as debasement, that race – led by the Fed, which then feared deflation in the face of untold corporate-debt burdens – took the cost of money below the rate of inflation pretty much worldwide.

Thanks to those record-low rates, global stocks all found their floor by March 2003. Yet the Fed waited another two years before teasing rates higher...and by then, this historic flood of cheap money had found a new use in finance:

Paying for leveraged bets against the Dollar itself.

Hedge funds, prop' desks...even retail investors and the weekly financial press...everyone saw that the Dollar was falling, yet the Fed refused to step out and catch it. Because the falling Dollar was also funding go-go days for home-builders, plus 10% year-on-year gains in the Dow.

Gold, naturally, was a prime mover in this bear market for cash. But with everything rising, gold's singular value seemed to offer just one more "risk friendly" trade.

You selling Dollars or Yen...swapping them for Euros or crude...? Then get yourself long of gold futures! Because that stuff's the ultimate carry trade, mate – a pure speculation on repaying your finance with devalued cash.

"Gold's sharp run is a case of mistaken identity," wrote Tocqueville Asset Management's John Hathaway in 2006. Barring what proved a blip in mid-summer that year, gold rose with everything else for 5 years ending in 2008. And it was never fuelled faster than when fresh "carry trade" dollars poured in thanks to the Bernanke Fed's record Dollar-rate cuts as the banking crisis broke...

See how the geared-gold position leapt ahead of the price in late 2007...? See how it sank when Lehmans went down?

That's what happens when prime brokers, i.e. investment banks, throw money at hedge funds, only to blow themselves up. But then note how gold found its floor sooner – one-third off its top – while the "net long" held by leveraged gold bulls shrank by more than one half.

Where did the Gold Price find this support? After all, at the margin, it's gold futures trading which sets the price of the stuff. A higher (or lower) bet on prices next month of course means a higher (or lower) gold price today.

But the global meltdown in stocks sparked by the meltdown in banking brought in a flood of unleveraged gold bugs, all demanding metal – not paper – and standing in line to buy coins and small bars at rapidly rising mark-ups. (A good number opted to buy the safest gold at the lowest costs by using BullionVault, too...)

Yes, Gold ETF demand also shot higher, reversing the 12% drop of July to Sept. 2008 before swelling by more than three-fifths. But that trust-fund exposure was also cash paid, in full. Because leverage was dead...and didn't revive until the tail-end of last year, when it drove the Gold Price once more, up to new record highs even as coin sales flagged and the ETFs shrank.

To repeat: There was no palpable crisis driving new money to gold as 2009 ended. Yet the price jumped above $1200 an ounce – and hit new all-time records in Euros, Sterling and pretty much everything else – even as Gold ETF demand barely touched its previous peak of six months before. That big move, very much like the spike of May 2006, came instead on leveraged bets, powered by the Fed's all-too cheap money, rather than because of it.

What next as Feb. 2010 unfolds? With next week bringing the Chinese New Year, might the "physical floor" rise up once more now that prices have sunk alongside gold's erstwhile bull-market chums? Please note that the weird daily lockstep with the S&P stock index runs deeper than mere nominal price. In fact, gold's daily changes this week – on a rolling one-month basis – have been more tightly correlated with stocks than with either the Euro or silver.

I'd guess that connection will break, one way or other. And it's hard to imagine a genuine Euro-currency crisis doing anything but sending new cash into gold.

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Challenging the consensus view on inflation, deficits and US Treasury bonds...

I'M A BEAR on US Treasury bonds, says Dan Amoss, writing from Jacobus, Pennsylvania for The Daily Reckoning.

Prices should go down...and yields should go up...as the creditworthiness of the US government deteriorates.

Right now, with the 10-year yielding 3.64%, investors are assuming that the future direction of inflation and budget deficits will remain under control. Indeed, Treasury bond bulls will argue various points on inflation, federal deficits, and the existing stock of Treasuries.

So I've listed the bullish consensus view in bold type below. My responses, listed as the alternative view, then follows each consensus view...

Consensus on Inflation:

"High unemployment and low manufacturing capacity utilization will keep inflation fears in check. So those folks expecting inflation fears to push Treasury yields higher in 2010 are a few years early."

Alternative view: Outside of the panic liquidation conditions of fall 2008 or the Great Depression, rising prices are hard-wired into the US economy. If investors panic once again and desperately seek to hold cash, the Fed can team up with spending addicts in Congress to create new US Dollars in limitless quantities. The past two years have proven this out.

The issue isn't whether the government can satisfy demands of investors looking to liquidate assets and hold Dollars. As long as Treasury yields remain low, the government can create limitless amounts of new credit to satisfy investor demand for default-free government liabilities (Treasuries and paper money).

Instead, the real risk facing financial markets over the next few years is whether investors will remain willing to hold cash and Treasuries at low yields. Cash has no intrinsic value beyond the belief that it can be exchanged for goods and services. The value of Treasury securities depends on investors' willingness to hold them, despite the near certainty that trillions in new Treasury securities will flood the market over the next decade.

The high unemployment/low capacity utilization argument is theoretical, antiquated, and based on a fairly closed, manufacturing-oriented economy. In this theoretical economy, unemployed workers continually bid the price of their labor lower until supply and demand for labor reach equilibrium at lower prices.

Today's US labor market does not work that way. The work force is very specialized. A laid-off automotive engineer is not likely to underbid the salary of nursing graduates for an open nursing position. Instead, those who have left the labor pool are collecting unemployment benefits without contributing to the aggregate supply of goods and services. When the claims on goods and services grow faster than actual supply, prices rise. The conditions for hyperinflation arise when an economy's productivity collapses and supply of government liabilities overwhelms demand (as confidence in the value of those paper government notes collapses).

The Federal Reserve promotes the "low capacity utilization" case for low inflation so it can keep subsidizing the wounded banks with easy money. But the market could lose confidence in the Fed's theory if the CPI remains stubbornly high at the same time as unemployment remains high. The market would express this view by selling off long-duration Treasuries, which increases yields. If this happens, the Fed will have to tighten policy to restore the market's confidence in the integrity of paper Dollars. Fed tightening would lead to a reacceleration of the unwinding of the commercial real estate bubble.

Consensus on Treasury supply needed to fund deficits:

"Even though US household savings may absorb just a few hundred billion in Treasuries in 2010, foreign investors and US banks will buy enough to keep yields from rising."

Alternative view: Several sources estimate that the US Treasury must auction roughly $2.5 trillion in new securities in 2010. Some of the proceeds will retire maturing securities, while the balance will finance the budget deficit.

The majority of the Treasury securities auctioned in 2009 were bills with very short maturity. The average interest rate paid on the Treasury bills auctioned over the past year is roughly 1%. But recently, Treasury auctions have been weighted more toward the longer maturities. Supply could overwhelm demand, causing prices to fall and yields at auctions to rise.

Because banks are choosing to defend their souring bubble-vintage loans, and writing them off slowly over time, they won't have the capacity in the "hold to maturity" section of their balance sheets to absorb as many Treasury securities as the market expects. If banks had flushed most of their bad loans off their balance sheets in 2009, they would have capacity to absorb perhaps hundreds of billions in Treasury securities in 2010. But they didn't.

There is a scenario in which domestic demand for US Treasuries could exceed new supply in 2010: another stock market meltdown similar to the one in late 2008. If enough investors flee stocks in a panic and invest the proceeds into Treasuries, yields could go down.

But considering that the government has committed its balance sheet to bailing out the financial system, that scenario is unlikely. More likely is a scenario in which investors question the integrity of the US balance sheet. The way to do that is to sell Treasuries. This scenario would be negative for the stock market, likely sparking the next leg of the secular bear market – a leg that involves several years of the S&P 500 trending gently lower under a rising interest rate environment. But it wouldn't likely involve a 2008-style panic liquidation of stocks.

Consensus on those Treasuries held by foreign investors:

"Year after year, Treasury bears predict that foreign appetite for US Treasuries will weaken, but they keep buying. Foreign central banks will maintain their appetite for Treasuries because they have to keep their currencies cheap or pegged to the US Dollar."

Alternative view: Foreign investors must be willing to hold Treasuries at a yield that compensates them for the risk that inflation and interest rates might go up in the future. If these investors fear that future inflation, interest rates, and deficits will remain dangerous, they won't buy more Treasuries until yields rise to higher levels.

A financial market that's evolved to a state at which it requires a perpetually growing inflow of new money to remain stable is a Ponzi scheme. The market for tech stocks in 2000 and real estate in 2006 had evolved into a Ponzi.

Those who argue that foreign creditors will never sell Treasuries because it's "not in their best interest" should explain why investors sold tech stocks or housing when they were in bubbles. Surely, it wasn't in the best interest of tech bulls to sell. Selling meant prices would fall, thereby damaging the value of tech stock positions. But they sold aggressively, because they perceived it to be in their best interests.

The situation of foreign creditors holding an unpayable mountain of debt of a trading partner is a classic "prisoner's dilemma." A prisoner's dilemma is a situation in game theory in which two parties might not cooperate even if cooperation is in their best interest. China and Japan might both conclude that buying more US Treasuries is not in their best interest. If they both stop buying at the same time, prices will fall and yields will rise.

This scenario, by the way, is the reason that the responsible American public is opposed to Keynesian deficits as far as the eye can see. Just because Keynesian pro-deficit policies plug a theoretical hole in "aggregate demand" doesn't mean they are sustainable or wise. The public understands that Keynesian deficits are unsustainable. The cumulative effects of these deficits – which are never offset by surpluses during the good times – ultimately destroy confidence in both the government bond market and the currency.

When the Japanese government hits the debt wall in the next five years and Japanese bond yields spiral upward, it will prove the foolishness of Keynesian policy.

Here is where the existing stock of US Treasuries comes into play. Japan already owns $750 billion worth of Treasuries. When the Japanese government hits the debt wall and yields rise, the Bank of Japan will likely print new yen to fund the government. If so, the value of the yen could collapse, which would force the Japanese Ministry of Finance to sell some of its $750 billion in US Treasuries in order to defend its currency.

It remains to be seen how long the government and the central bank can keep savers involved in this Ponzi scheme. This scenario – if Japanese savers abruptly lose confidence in their government's ability to service its massive debt load with taxes and bond market proceeds – is how Japan could shift quickly from deflationary conditions to hyperinflation.

Japan is several years ahead of the US in the transformation of its government bond market into a Ponzi scheme, so we should consider it a canary in the coal mine.

Aside from Japan, the appetites of two other huge Treasury investors are waning. The Chinese are rolling their maturing notes and bonds into buying shorter maturity bills. And the Social Security trust fund is not far from being in the position where it's a net seller – rather than a net buyer – of Treasuries. With unemployment stubbornly high, less payroll taxes are flowing in. With lower payroll tax inflow in 2010, the trust fund has less of a surplus to invest into Treasuries. When demographics switch the trust into a deficit position, it will become a net seller, rather than a buyer, of Treasuries.

All of these factors argue convincingly for rising Treasury yields in 2010 and 2011...meaning lower values and losses for bond holders and fixed-income portfolios.

Ready to Buy  Gold...?

Take a look at this long term chart of the Gold Price...

GOLD REMAINS "real money" and wealth insurance, writes Brian Hunt for Steve Sjuggerud's Daily Wealth.

So you can't value it the way a stock buyer says, "I'll pay 10 times earnings for this company," or the way a real estate investor says, "I'll pay eight times annual rent for this house."

This "hard to value" component makes the metal fluctuate wildly within its long-term trend as investor sentiment ebbs and flows...

Don't be surprised if the next "fluctuation" is toward lower Gold Prices. The Dollar is rallying from a deeply oversold condition, which likely means lower gold.

But even if that occurs, instead of panicking over your Gold Investing, take the long term view...and look at the five-year picture.

As you can see, the Gold Price could fall all the way down to $850 and still remain in the confines of its long-term bull trend.

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Gold and the Euro joined at the hip? Not outside the daily noise they're not..."GOLD RETREATS as Dollar gains," says a headline from Dow Jones Newswire.

Which makes sense. Because when that isn't happening, "Gold adds to gains as Dollar falls versus Euro," says Reuters.

Thus the intuitive Dollar-gold pairing swings now one way or other in the financial pages...gaining here, falling there...but always joined together as the journalist's deadline is heard hurrying near.

The "whys" and the "wherefores" of a quick market comment demand it as well. Ask a professional analyst for a 10 or 15-word soundbite, and they'll most often tell you, if not vice versa, that "The Dollar is stronger, keeping precious metals under pressure."

Beyond the daily noise, however – and with the single currency unwinding its last eight months' action vs. the Dollar at the end of last week – Gold has in fact moved up against both.

You wouldn't know it from scanning the newswires. But since the Euro last crossed through $1.40 – the level it just slipped through once more – gold has risen 22% for US investors. And of course, it's risen by precisely that same percentage for German, French and Italian buyers too.

Because with the EUR/USD cross unchanged since May 2009, the rise in the gold price shows equally on both sides of the pairing.

Indeed, at that $1.40 level – now the Euro's average value since Sept. 2006 – gold has risen time and again...adding 51% for investors both in the States and in Europe from the first crossing of $1.40 in Sept. '07.

Yes, a daily rise in the Euro typically means the Gold Price in Dollar has risen as well. On a daily basis, their average one-month correlation now reads +0.51 since the single currency's launch. That's stronger than gold's correlation with any other asset bar silver.

But it would stand at +1.0 if they moved entirely in lock-step. And as the waxing and waning mapped in the chart above shows, the Dollar's demise hit the currency buffers back in summer '08.

Priced in gold, on the other hand, the greenback has continued to fall. And so too has the Euro.

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They were all telling me that I was the idiot, and so I told them, no, they were the idiots, and they responded that, no, I was the idiot, and then there was a spontaneous lopsided debate (me against all of them) about who was the most idiotic.

Yet my argument was simple: Buy Gold, silver and oil to protect yourselves against the incredible fiscal insanity of the federal government, which is proposing a budget for fiscal year 2010 costing a whopping, I-cannot-believe-my-freaking eyes, $3.8 trillion.

And this in a $14 trillion US economy! And of that $3.8 trillion, a slightly less than whopping but I-still-can't-believe-my-freaking-eyes $1.6 trillion would be deficit-spending!!

The astute Junior Mogambo Ranger (JMR) will have made note of the two exclamation points above as being redundant, since long-time students of the Mighty Mogambo immediately comprehend and shudder in horror at the knowledge that $1.6 trillion in deficit spending means that the always-repellent, usually slimy, mostly corrupt, sometimes idiotic and sometimes actually insane federal government will have to borrow the aforementioned slightly-less-than-whopping, but still in the "I-can't-believe-my-freaking-eyes" zone, $1.6 trillion from somebody.

In the good old days, the government would have to borrow their deficit-spending money like everyone else, turning to people who had saved up some money, and this competition for funds would drive interest rates up, which caused a big problem, as people who also needed to borrow money rioted in the streets and hung deficit-spending elected officials from lampposts.

Thus the federal government was, as you would expect, not prone to borrowing money, and prices did not go up, which pleased everybody, especially the poor, who actually get poorer when prices go up.

Then (and you might want to note that the soundtrack has turned all gloomy, best described as "discordant horns over muted kettle drums played with an irregular beat, accompanied by the howling wolves of inflation that will soon be eating you alive"), the Federal Reserve stepped into the scene, now with the horrid Alan Greenspan at the helm, and who began a deliberate campaign, beginning with his appointment in 1987, to creating monstrous amounts of credit in the banks, which was, literally, a free gift from the Federal Reserve.

And so, with all this credit just sitting there on the books at the banks, the banks could drop interest rates to almost nothing, and still make a profit by loaning money, which was again created by the banks literally out of thin air, to people and businesses.

The money supply boomed! And naturally, with all this new money floating around, prices zoomed, and the prices of stocks, bonds, houses and size of government also grew, and grew, and grew, matched only by the desperate wailing of The Mogambo, whose despair is to be seemingly marooned on this stupid planet of stupid people who actually believe that you can borrow yourself into prosperity, and that banks can increase the money supply without any ill effects whatsoever like inflation, which is the thing that destroys people and destroys currency and destroys countries.

And – even worse! – the dimwitted denizens of this planet actually believe that their governments can borrow ridiculous amounts of money – ad infinitum! – to provide more and more money, and more and more benefits, to more and more people, with not only no, not only zero, not only nada, nil, and el squat-o adverse effects of any kind, but will that some fabulous benefit would be permanently achieved!

Hahahaha!

Thus, I thought I would easily win the debate with my fellow shoppers, proving conclusively that they were, just like I said, idiots for not Buying Gold, silver and oil in response to such governmental deficit-spending insanity, since their only line of argument was in the boring "Shut up and go away!" and "We hate you!" category, whilst I had the entire history of the last 4,500 years of what happens when one idiot country after another deficit-spends themselves into bankruptcy, and especially the truly-stupid countries that tried using a fiat currency to finance deficit-spending!

Alas, my dreams of victory were not to be, and instead of saying "Thank you, Wise and Wonderful Mogambo (WAWM) for showing us how stupid we are!" they laughed at me.

Yes, they actually laughed!

But like the scheming little vengeful rat that I am, I am soon back to pleasantly dreaming and plotting sweet revenge against a long list of people – now a little longer! – all of them guilty of a whole host of insults against me, both real and imagined, for which they must pay.

And as for laughing, it will be I who will has the last laugh, as Gold, silver and oil zoom in the raging inflation in prices that is sure to befall us from such insane increases in the money supply, and my laugh will be both cold and chilling, perhaps echoing eerily hollow with a subtle undertone of crushing doom and despair, and it will sound a little like this:

"Hahahahahahahaha!"

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A dollop of nonsense about Gold Investing, courtesy of Money magazine...

MY GRANDMOTHER'S favorite word for politely describing the obtuse among us aptly characterizes a recent attack on Gold Investing, writes Jeff Clark, senior editor of Casey's Gold & Resource Report.

Money magazine's Jan/Feb edition ran an article near the rear of the issue entitled "Coming Down with Gold Fever". The author paints a decidedly negative picture of gold, going so far as to compare gold's rise to some of history's greatest asset bubbles, such as tulips in 1630s' Holland, and internet stocks in late-90s' America.

That this attack on Gold Investing comes from a finance magazine commanding front-of-the-rack prominence in waiting rooms across our great land is reassuring evidence we still have a long way to go in this gold bull market. And the article is so blatantly biased and inaccurate that I decided to have a little fun with my rebuttal.

Regular Casey Research readers know I affectionately refer to self-declared Gold Investing debunkers as "Bert". You judge if this latest nay-sayer is worthy. What follows are the article's claims, along with my advice on how to respond...otherwise known as How to Talk to a Nincompoop (HTTTAN)...

#1. "Gold is now the world's 'it' investment..."

HTTTAN: You're absolutely right! A few cable TV commercials clearly signal the world has latched on to gold and is dizzy with excitement. The bestsellers at my local bookshop all scream with titles about gold. The radio waves are sparking with talk about buying, storing, testing, and securing all the different options with gold. And all those live newscasts from the lines outside gold shops across the country are really getting old.

If gold were in a mania, it would resemble the dotcom craze of 2000, where companies with no profits traded at 400 times earnings; when investors were leaving their brokers to chase the latest tech stock; and where everybody and their brother's dog was talking about the hot technology stock they just doubled their money on. None of that is happening now.

Besides, there's a good reason investors have been Buying Gold: it outperformed most other investments last year.

Gold Mining stocks tripled the performance of the Dow, more than doubled that of the S&P, and outran the Nasdaq.

#2. "The price of gold is the only thing rising...Gas costs less than it did a year ago."

HTTTAN: Well, my blood pressure rose when I read your article – does that count? And whew, I'm glad I misread my DirecTV bill announcing higher monthly charges. Higher fees from my bank? Must've had my glasses off while checking my last statement.

But either way, are you suggesting we wait till there's rampant inflation before we Buy Gold?

To start, the national average gasoline price rose from $1.70 to $2.70 a gallon over the past year, a 58% increase. The data disproving Money magazine's blatantly inaccurate and misleading claim is available free on the internet. And if you want to talk about things rising, how about the US monetary base...which more than doubled over the past 18 months to nearly $2 trillion, the steepest increase ever?

When you think of inflation, you apparently think "higher prices". News flash: price inflation stems from monetary inflation, and monetary inflation has ballooned. Price inflation is a tidal wave building off the coast. Don't get caught sipping piña coladas on the beach.

And you're right: Gold Bullion is the only thing that's been rising over the past decade! Ergo, that's been the place to be for a meaningful part of your investing.

Gold is doing what it's supposed to do: rise in times of crisis.

#3. "Gold isn't that inexpensive. And who says it's guaranteed to return to old highs?"

HTTTAN: Who says?! How about the laws of economics? My teenage son even understands this: the more you print of something, the less each one is worth. And as the Dollar continues deteriorating, gold will continue rising. And gee, Wally, they can't print gold.

Adjusted for inflation, gold's peak at $850 an ounce in 1980 would equal about $2300 today, more than double its current price. Guaranteed? Of course not. Where would I find a guaranteed investment? But I'll put the 5,000-year history of gold ahead of anything that is touted as "guaranteed" in the popular press...

#4. "Even China is wary of Gold Prices rising too much."

HTTTAN: Huh? The People's Bank of China merely said they may not buy much gold right now, referring to their desire to get a better price, not a change of heart. In fact, there are so many articles about how the Chinese continue Gold Investing it's hard to catalog them all.

• Liu Yuhui, an economist at the Chinese Academy of Social Sciences, said last quarter that China might again scale back purchases of US debt on concerns the Dollar will decline...
• This came after their holdings were already lower in November than they were last July...
• Is it possible the Chinese – and the myriad other governments concerned about what US leaders are doing to the Dollar – will stop Buying Gold for protection? Anything is possible, but it's far more likely that they're just getting started, considering that just 1.9% of their foreign reserves are held in gold.

And this just in: An ING survey reports that 45% of investors in Asian markets (excluding Japan) picked gold as their most favored tool to protect their returns from inflation, more than any other asset.

#5. "Only a small number of sophisticated investors are getting in on the action."

HTTTAN: You mean like some of the most successful hedge fund managers in the world? Wait – are you suggesting we follow your advice instead? I'll consider that when you show me that article warning of a market top in '07 and urging your readers to get out. Instead, I seem to recall your magazine's giddiness as the market peaked. Perhaps that explains why many "sophisticated" investors use your magazine as a contrary indicator.

Investment management firm Moonraker reported in a 2009 survey that 20 out of 22 fund managers interviewed chose physical Gold Investing for their personal portfolios because they fear quantitative easing programs may lead to inflation. In other words, not only are they Buying Gold in their funds, they're stashing real, physical metal securely, too.

Furthermore, central banks are now net buyers of gold for the first time in 22 years. And last quarter it was reported by the Financial Times that the world's wealthiest families are also switching to gold, reporting that two-thirds of the 100 respondents to a survey by the Family Office Channel, a new website, say they are now more likely to invest in gold and other commodities.

#6. "Since 1974, when restrictions on Americans' owning gold were lifted, stocks have actually done a better job beating inflation than gold has."

HTTTAN: You're kidding, right? You actually know someone who has held a stock since 1974? I suppose we could contact Warren Buffett and get a couple names. Otherwise, get real: there's a time for everything, and right now is clearly the time for precious metals.

Doug Casey made a fortune investing in gold stocks in the mid-'90s during a mini bull market in gold. Generational wealth was created during the late '70s gold run. I have colleagues that have already retired from gains they made in gold stocks this past decade.

#7. "Ask yourself how long this delirium can last."

HTTTAN: Until people like you start telling readers to Buy Gold, that's how long. And, delirium? Tsk-tsk, your envy is getting embarrassing.

There has been little involvement by the general public in the current gold bull market. While there are many examples of this, perhaps the best one is that your magazine doesn't recommend buying it and really never has. And when you finally do, that will be my signal to start selling. I might as well thank you now.

There's actually more, but you get the idea. When I finished the article, I couldn't help but wonder what Bert is really trying to sell us here. He's clearly either biased, blind, or bought.

Because otherwise, he truly does meet the definition of my Grandma's favorite word – nincompoop.

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The Western world's fast-ageing populations face a problem – a big problem...

AUSTRALIANS all, let us become more productive – for we are getting older!

It doesn't quite have the same ring as the first line of the Aussie national anthem, does it? says Dan Denning in his Daily Reckoning Australia.

But even though the country is younger (and perhaps freer) than many other countries, it might not quite feel the same way about itself after reading parts of the government's latest Intergenerational Report, released yesterday.

The problem for Australia, like in all the Western world is that the population is ageing. You have fewer and fewer workers supporting more and more retirees. Those retirees are also drawing down their stock-market based savings vehicles. Their demand for benefits and income is increasing but their liquidating their asset portfolios to meet that demand.

This transfers the burden of national retirement from the stock market to the government. But as the government itself showed yesterday, the numbers don't add up. The ageing of the boomers leads to increased national spending on healthcare as percentage of Australian GDP. As you case see from the chart below, health, aged pensions, and aged care all expected to up as a percentage of government spending and GDP

To pay those bills, you need more tax payers and higher taxes. Or you need more productivity. That's what the government is counting on. It hopes that increases it output per hour by Aussie workers will deliver higher GDP growth and thus higher government tax receipts.

But even so, the government itself projects a growing "fiscal gap", shown below as the annual Federal deficit as a percentage of GDP.

Granted, this fiscal gap isn't as bad as it is in other places like Japan and the United States. Japan's government deficits are even more pronounced, and its demographic math even more dismal. And the United States is also in its own kind of "reality gap" in which expectations of government by the population far exceed what America can afford.

The new Obama budget projects $3.8 trillion in spending a $1.4 trillion deficit. There isn't much in the way of spending cuts to programs what are considered "non-discretionary" (defense, social security, Medicaid, Medicare).

You could say America itself has a kind of national "mortgage stress". The future has been mortgaged for a higher standard of living today. But it was a national prosperity built on debt. It's all falling down. About the only good news...and only for Aussie stock investors...is that Obama's dollar-busting budget may drive higher asset prices for raw materials like Gold Bullion, energy, and other hard commodities.

But Australia and Australian investors also face a slow motion fiscal trap. The country receives a big boost from trade income with China and the rest of the commodity consuming world. The government can fund its deficits at reasonable interest rates for now. But what yesterday's report set up was a fight between two generations.

The Boomers will slowly liquidate share portfolios to meet rising health care expenses. And what they cannot pay out of pocket, you'd expect them to vote themselves. It's an effective strategy for shifting the retirement burden from the private sector to the public. We have no doubt that Super Funds will be compelled to own government bonds. And the government will sell bonds in order to finance its spending obligations to the Boomers.

Where does this leave the share market and the economy? Can the country really increase output per person and grow its way out of the fiscal gap? The highest paid and largest employing industries are financial services and resources. Are the Boomers going to migrate to those jobs?

In short, will you have 70-year old coal miners working in Queensland? What kind of work can an ageing population reasonably be expected to do? There are more questions to answer. But we're up against our daily deadline so we'll have to leave them until tomorrow...

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