Instead of choosing to strengthen itself, the Eurozone is bailing out Greece...

HAS BAIL-OUT mania finally reached Europe? asks Martin Hutchinson at Money Morning.

The 16 nations that make up the Eurozone are seriously exploring the creation of a "European Monetary Fund", a bailout fund that would help Euro-member countries that can't pay their debts.

This has the potential to be a pretty good idea. If structured correctly, the EMF could provide the discipline and stability that the Euro needs. But I'm not holding my breath.

Given the EU's track record, the EMF bailout plan will most likely evolve into yet another slush fund for politicians ? as well as a drag on the European economy.

Even when the Euro was founded in 1999, it was obvious that its central weakness was the lack of control over budget deficits. As the following chart demonstrates, the so-called "Maastricht Criteria" had established theoretical limits of 3% of gross domestic product (GDP) for such deficits. But there were no proper mechanisms for enforcing those limits, or for preventing the bankruptcy of a country that fell into such difficulties.

Since the birth of the Euro 11 years ago, an additional problem has appeared. Well-run, highly disciplined economies such as the one in Germany keep their inflation rates low, their productivity growth high and their wage costs under control.

The upshot? Unlike the Eurozone's less-disciplined members, these economies gradually become more internationally competitive, and run balance-of-payments surpluses. This tendency was hidden in the Euro's early years by Germany's struggles to integrate the former East Germany, whose much lower productivity was a drag on the economy. However from about 2005 the costs of integrating East Germany began to diminish and Germany's true economic superiority became more obvious.

At the other end of EU's economic spectrum, Europe's Mediterranean countries ? now delightfully referred to as the "PIGS" (Portugal, Italy, Greece and Spain) ? turned out to have much less discipline. Even before they joined the Eurozone, these countries had relatively high interest-and-inflation rates. The advent of the Euro gave them low real interest rates, particularly as their domestic inflation continued and productivity growth remained low.

The result in Spain, for example, was a gigantic housing bubble. Italy had the poorest productivity performance, falling behind Germany at a rate of almost 3% a year and so becoming hopelessly uncompetitive. On the other hand, Italy's budget discipline was fairly good ? far better than that of Greece, a country whose current woes underscore the inability of the EU to adequately police the finances of its member countries.

Since it joined the European Union in 1981, Greece has been much poorer than other member countries, and so has treated the EU as a never-ending source of free handouts. That brings us back to the EMF proposal. It would be possible to design a fund that solves this problem. If you staffed it entirely with Scrooge-like bankers ? the type that likes throwing foreclosed widows out in the snow on Christmas Eve ? then it could achieve two things.

First, it could force Greece and any other country that needs money from the fund to reform their economies properly. This would involve cutting back the public sector, making everybody retire at ages closer to 70 than 60. It would also force down wage rates in the parts of the economy that were heavily unionized, and that had been extracting rents from their fellow citizens (or in Greece's case, from German taxpayers). Because it won't actually be a political body, an EMF of this kind would be invulnerable to the strikes, demonstrations, whining, squawking and Europe-wide lobbying which this process would undoubtedly cause.

The second achievement of such an EMF would be the creation of a bailout process that is so unpleasant and onerous that other countries end up being "scared straight" ? to the point that they actually take aggressive steps to reform their own systems so as not to be subjected to the fund's sado-banking.

The precedent for such an institution would be the Bank of England of 1931, an institution led by the Bank of England's greatest-ever governor, Montagu Norman. In office from 1920-1944, he saw Britain had a sloppy minority Labour government in 1929-31 that permitted public spending bloat. Yet the nation was also on the "Gold Standard", a very deflationary monetary system at a point when the Great Depression was beginning to bite.

Britain came off the Gold Standard in Sept. 1931, but only after the Labour government had been replaced by a fiscally responsible National Government, with the flinty Neville Chamberlain as Chancellor of the Exchequer. Sidney Webb ? a Labour cabinet minister as Lord Passfield, and author of Soviet Communism: a New Civilization ? bleated:

"They never told us we could do that."

Quite right, they didn't.  Norman had deliberately not given the Labour government the option of devaluing and wasting the benefit of devaluation through sloppy Keynesian spending. The result of Norman's duplicity and Chamberlain's firmness was an end to the Great Depression that involved far less pain than was experienced in the United States...followed by an astonishing economic recovery.

During the period from 1932-37, Britain enjoyed the highest economic growth rate in its history. Lost joys, alas.

A European Monetary Fund with, say, Otmar Issing ? the hard-money former European Central Bank (ECB) chief economist who's now advising German Chancellor Angela Merkel not to bail out Greece ? might repeat Britain's success. In the real world, however, if a European Monetary Fund does come into existence, it will be the typical sloppily statist international institution, leeching yet more money from productive taxpayers and lending it to Europe's worst-run countries, without any proper controls.

Clearly, Europe would be best served to not create it at all.

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Use TME for an MDZOS to escape SFOO. Oh, and Buy Gold to escape the FDIC, says the Mogambo...

PEOPLE SEEM TO think that Daily Reckoning publisher Addison Wiggin is just another talented, intelligent, pretty face who secretly thrills to hear people say things like, "You're a lot better looking than The Mogambo!" says the Mogambo Guru himself in, ummm, The Daily Reckoning.

"And you're younger and smarter, too!" they tell him. Yet he is much, much more than that.

His story starts off that "The FDIC is even more broke than it was three months ago" to which most people rudely say, "Welcome to the club! Waddya think, we got some kind of picnic at the beach going on out here in the real world while you pretty-face hotshots talk about who is smarter and about some idiot named Mogambo who must be an idiot because otherwise he would not have such a stupid name!"

Mr. Wiggin goes on undaunted, perhaps buoyed by the knowledge that no matter what happens, he'll still be better looking than The Mogambo. And smarter, too. And younger.

Maybe that's why he did not seem to be registering horror at the news of the bankruptcy of the FDIC. And, as if to underscore my suspicions, you can almost hear the confidence in his voice as he explains:

"The fund the FDIC uses to 'insure' your [US] bank account went $20.9 billion in the red during the fourth quarter of 2009. That's more than twice the deficit reported when the fund first entered negative territory in the previous quarter."

Naturally, if these were the old days when the money supply was more-or-less constant, this would cause panic:

"Our bank deposits are uninsured! Yikes! The Mogambo said we'd be wiped out and here it is, and he said to buy gold, silver and oil, and we didn't, and now look at us! Oh, woe!"

But nowadays? Relax! We have a fiat currency that the Federal Reserve can, literally, create at will, at a stroke, all the money necessary to make sure that every Last Freaking Dollar (LFD) dollar in your account is fully protected against actual nominal loss; you had an electronic or paper buck, you will still have and electronic or paper buck!

Unfortunately (and you can tell there is a "catch" by the way the soundtrack suddenly turns gloomy and there seems to be the sound of somebody, in the distance, throwing up into a toilet) this huge, sustained increase in the money supply guarantees ? guarantees! ? that you will lose buying power in every one of your precious dollars, so you are kind of screwed, either way, when you stop and think about it, by Federal Reserve policies.

My Sensitive Mogambo Nose (SMN) detects (sniff, sniff, sniff!) detects panic. So, desperate for money, I look to prey on the superstitious, and suggest that maybe you should just send all of your "tainted" money to me so that my hoodlum friends and I can have a big ol' party, where we will raise our glasses in a long series of toasts to you, to your health, and to your good luck because ? hey! ? attracting the attention of deities, paranormal powers, transcendental influences and cosmic forces could, conceivably, work!

Mr. Wiggin is not enthusiastic about my latest rip-off scam, which I suggest only because I am out of ideas and I am desperate for money. He suggests a perfectly legal and good way to get some money, which is, "As long as banks can continue to borrow from the Fed at 0.25% and park it in 10-year Treasuries for nearly 3.7% (and leverage it up, of course), we don't see this changing."

He's right, of course, but before you rush out to start a bank and get your piece of this Federal Reserve stupidity, perhaps you should consider something along the lines of buying gold, silver and oil in some kind of wild, paranoid, knee-jerk reflex as a small, small part of a whole constellation of symptoms known collectively as Screaming Fear Of Outrage (SFOO) of the inflation that will be caused by such massive increases in the money supply, now additionally caused by the needs of the FDIC, but he goes on that it will get worse than that, as, "On top of that, the FDIC's list of 'problem banks' grew during the fourth quarter from 552 to 702" he says! Yikes!

A long, haunting howl of dismay escapes my lips, perhaps not unlike the sound of ravenous, starving wolves howling, "oooOOOOOOooooooooh!" as they close in on your bloody trail as you crawl along, dressed in rags, wounded, bleeding, in the snow, at night, in the mountains, in a snow storm, with freezing sleet, and you realize that you can't buy them off with your paper fiat money, but with a flash of True Mogambo Enlightenment (TME) that has come tragically too late, you realize that with the heft of a kilogram of gold in your hand, you can beat the living hell out of anything that comes near you that is metaphorically wolf-like in economic nature, or, with literal wolves, something spewing out .45 caliber bullets in a semi-auto fashion, putting us one more leg-up (as if we needed it!) on wolves of the literal kind, with politicians being of the metaphorical kind of ravenous wolves, thus mixing up literal with figurative, back and forth, up and down until you are in a panic, all confused and bewildered, wondering what's real and what's not, and your first instinct is to just start blasting, blasting, blasting until your trigger finger is bloody and cramped, and you manage to clear out a "Mogambo Dead Zone Of Safety (MDZOS)" all around you.

And you probably would have, too, if you had not remembered that you bought a lot of gold, silver and oil just to take care of situations like this! And it's working perfectly! Ahhh!

But this thing about how the "FDIC's list of 'problem banks' grew during the fourth quarter from 552 to 702" is, as I notice with alarm, not only a number that is a huge (almost 50% higher in just one quarter), a statistic which sets my Sensitive Mogambo Senses (SMS) tingling, some kind of Trend Of The Ugly Kind (TOTUK), to which I am particularly alert ever since I noticed that the entire freaking course of human history in the world, a world you call Earth, is the sad, stupid story of one stupid country after another borrowing money and getting into debt that they can't repay, which is always resolved with inflation in prices, a bankruptcy of assets, and a ruinous war with somebody as we attempt to shift the cost of victim-hood from ourselves to foreigners so that there is, indeed, a free lunch for us.

Mr. Wiggin is not impressed with my penetrating analysis, which is in line with what everyone else agrees is pretty stupid and not worth reading or even admitting that they had even read, even in part, but I notice that he immediately takes up on my idea of "trend" that just I mentioned, and ? surprise! ? he finds, "Hmmm, let's see. The number grew 27% in just one quarter. At this pace, every bank in the country will be on the problem list by the fourth quarter of 2012."

An involuntary "Yikes!" escapes my lips. That's a trend!

I, as are most normal people who understand how this "economics thing" works, am horrified by all of this, and the only saving graces were that I had gold, I had silver, I had oil, and I had enough firepower ? within reach! ? to provide calming relief to an otherwise paranoid, screaming, hysterical man, such as myself, pumping adrenaline from every pore in his primal outrage at the sheer terror that is being created by the Federal Reserve.

For some reason, I can actually feel your scorn, as you deride what you think is just another paranoid gold-bug gun nut Loonie-Tunes weirdo since the Federal Reserve can just create all the money and credit that the FDIC needs, so why don't I, as I asked my kids, just shut up?

With that, I thought it was all over, until he went on, "Another tidbit from the FDIC's report: Bank lending last year dropped at the biggest clip since 1942", which was the year after we entered World War II, which seems important, but was a long time ago, and we don't get to watch watching terrific war footage with things blowing up and ? blam blam blam blam! ? guns are firing! Things are on fire! It's all exciting as hell!

Instead, we will note, much more soberly, that this is today we are talking about, not some ancient yesterday, and Americans are not the "good guys" bravely freeing Europe by destroying it all so that our industrial advantages are completely spared, but are, instead, the biggest bunch of feel-good, hyper-leftist morons that the world has ever seen where, despite a national emphasis on education, ample historical evidence, and the Constitution of the United States requiring that money be only of gold and silver, the citizens have allowed a pure fiat money and every kind of slimy flim-flammery that such unbridled money supply would allow, which was, as you would guess, anything you could imagine.

The bad news is actually beyond that of mere bank lending being down, since nobody (except governments) wants to borrow money, since nobody has the money to buy anything anybody makes, so why invest money to make something that nobody will buy. The worse news is that bank lending is how money is created.

Money is, by definition, being destroyed, so that there is less money around with which to pay debts.

You know, without me telling you, that all this ain't good! And these are the times when you are glad that you are safely invested in gold, silver and oil, and the only thing you have to worry about is, for instance, the usual stuff of keeping an eye out for party-killing suspicious strangers who may know your wife or boss, checking for suspicious pods growing near where you sleep, and protecting yourself against vampires, werewolves, and other blood-suckers, which leads us back to politicians deficit-spending, which leads us back to the Federal Reserve creating more money, which leads us back to Buying Gold, silver and oil in fearful response, which leads me back to, "Whee! This investing stuff is easy!"

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How can China build its gold reserves if it doesn't Buy Gold...?

"A FEW FACTORS limit our ability to increase [our] Gold Investment," said China's chief foreign exchange manager, Yi Gang, in a speech this week, notes Steve Sjuggerud in his Daily Wealth email.

Western investors have long speculated China will start Buying Gold and selling its hoard of US Dollars at some point. (China's hoard could be literally trillions of US Dollars.) It would be the first step in a "Doomsday" scenario for the greenback.

Just imagine ? China trades in its Dollar reserves for Gold Bullion. The value of the Dollar crashes...and US interest rates soar, as China is no longer willing to buy US government Treasury bonds.

Some investors have said China has a perfect way to do it, available right now. The International Monetary Fund (the IMF) has a near-200-tonne hoard of gold that it wants to unload.

But if China actually used all its Dollar reserves to Buy Physical Gold, it would completely overwhelm the market. It would end up trying to buy about a third of all the gold ever mined in the history of the world. There's no way it could get all that gold without sending the price to outrageous levels.

It seems Mr. Yi recognizes that. He essentially said gold is too volatile, the historic returns aren't that great, and any gold buying by China would "certainly" increase Gold Prices.

If Mr. Yi is to be taken at his word, in short, China doesn't have plans to Buy Gold in the open market. And Mr. Yi's comments are in line with recent comments from the China Gold Association, who told the China Daily newspaper that it is "not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility."

So how would China acquire gold if it doesn't buy it? This is where it gets interesting...

An official from the China Gold Association told the China Daily that rather than acquiring Gold from the IMF, China would Buy Gold directly by buying gold mines "abroad". Rather than buying physical gold in the open market (where China would be the 800-pound gorilla in the room), China plans to buy future production instead.

If that's true (and there is some sense to it), then how should you play it? Dennis Gartman reported on this yesterday, in his Gartman Letter:

Perhaps we are to begin owning gold mines rather than Gold Futures or Gold ETFs. We have avoided owning mines for years, preferring the "purer" play of owning gold rather than the mines, for we fear being exposed to poor mine management, or accidents in a mine that might do damage to the equity while gold itself moves higher. But if the Chinese authorities want to own mines, perhaps we have to consider doing so also...

I've done more than consider buying Gold Mining companies. In the latest issue of True Wealth, my subscription newsletter, I recommended Buying Gold mines as the best way to have exposure to gold right now.

The reason is simple. This chart sums it up...



Gold is up 70% since the summer of 2006. Meanwhile, gold stocks (as measured by the Gold BUGS Index) have done nothing.

Usually, a 10% move in gold would mean a 20% move in gold stocks. But this relationship broke down in the financial crisis. Now, either the price of gold needs to crash... or the price of gold stocks needs to soar to correct this anomaly.

The timing might be just right. Gold mining stocks are down, and it's just coming to light that the Chinese authorities could prefer acquiring gold mines ? which give the country a permanent supply ? over Buying Gold in the open market.

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Yes, kind of, says one analyst. The seasonality of gold has broken down...

DON'T COUNT out the US Dollar just yet, not as the Euro waivers.

So says Louis Paquette, who launched Emerging Growth Stocks in 1995 to provide investors and speculators with a unique alternative to what he saw was a growing problem with corporate governance and conflict of interest on Wall Street.

Here he speaks to The Gold Report about the outlook for the US currency, plus the fact that the "seasonality" of Gold Prices and gold-mining stocks has broken down...

The Gold Report: In your February newsletter, you noted the negative sentiment towards the Euro driven by fears of the PIIGS's defaults. But you pointed out that states such as California are fairing far worse potentially than Greece, Italy, Spain or Portugal. So why is this boosting the Dollar and depressing Gold Prices?

Louis Paquette: For a while now, the Euro has been the currency that's weak. The attention has gone to Greece and people are thinking, well what's going to happen if this contagion spreads to Spain and other countries that are looking bad over there? We've just seen this shift after a whole year of the US Dollar falling. It got really overdone. It got to be a really crowded trade and now sentiment has shifted negative against the Euro, which has allowed the US Dollar to recover.

Interesting note on a technical basis, the US Dollar Index has now had a 50% retracement of the negative down move that took place in 2009. So who knows? Maybe we've seen enough of a rebound now of the US Dollar, and the Euro has come down enough that we're going to see a reversal now. Maybe the US Dollar will have a downturn now but, at the moment, all the attention ? the negative attention ? is towards the Euro.

TGR: Well factoring into the US Dollar I'm sure, California's population is well over three times the population of Greece. It's the largest US state and it's in serious trouble financially, many say much more than Greece. Are the eyes of the world investment/finance community just in the wrong place right now?

Louis Paquette: I don't know if it's the wrong place because the Euro has a really serious problem. The ratios ? the debt per gross national product and the debt ratios ? in many countries in Europe and England are terrible. I don't know if the investment community is looking at the wrong place. These things ebb and flow. For a while, the negative sentiment and the selling has been on the Euro; and that'll continue until it gets to be too much, and then something will happen. Some news event will take place regarding the US Dollar, and then it will have a decline. That's just the nature of markets. They move back and forth.

TGR: When the US Dollar declines, are we expecting to see a focus back onto the Euro, or would we start seeing focus on other currencies such as the Yuan or Rupee?

Louis Paquette: I think the focus will go back on the US Dollar because it will have had a pretty darn good move up and the short sellers will probably swoop down on the Dollar again. In terms of other currencies, we just keep hearing good things about the Canadian, Australian and Indian currencies. So I think the bears will circle the US Dollar again sometime later this year.

TGR: How do you think the Chinese Yuan factors into the equation right now?

Louis Paquette: Well you can't pressure the Chinese to do anything. Telling them to let their Yuan rise is almost counterproductive. They may not let it happen just because you want it to. They're going to do whatever they want no matter what.

TGR: As we move into this bear focus on the US Dollar, and we know there are issues with the Euro, are we going to see a decoupling from the Euro-goes-up-Dollar-goes-down (or vice-versa) mindset, to Euro-and-Dollar-go-down, and Canadian, Australian Dollars go up?

Louis Paquette: That's what I think is going to happen.

TGR: How does an investor play that?

Louis Paquette: It's kind of a race to the bottom with most of these currencies, even with Canada's. I hear the big, big investors saying, Canada's such a great place, and we're supposed to have a conservative government, yet they're going to have a huge massive deficit this year. Even the most favorable countries are now spending beyond their means and I guess the only way to play this is to have some gold in your portfolio. Have some raw gold, have some bullion and have some shares of good mining companies. If you're really aggressive, talented and you know how to short and play the futures markets, then you can try and time these, the bigger declines. Sooner or later the US Dollar will top out again. If you're really comfortable with doing that you could do a short sell on the Dollar with the futures markets but I'm not that comfortable doing that kind of thing. So I just hold gold.

TGR: Do you feel confident that the Canadian banking system is going to remain strong given what you've just said, or do you just see that waning a bit too?

Louis Paquette: Well the corporations themselves have run themselves fairly well. But sadly with ? it seems like anytime the population figures out it can vote someone in who spends more, that's when you run into trouble. It seems like every country is doing that. Perhaps China and India aren't, but here in the West that's happening. I'm not comfortable with the government, but the Canadian banking sector is still being run fairly prudently.

TGR: There's a growing belief of a double dip recession for the second half of 2010. You refer to Dan Arnold's work, The Great Bust Ahead, predicting the bust will begin in 2013. If there is a bust ahead, how should the typical investor play a busting market? Some feel the prudent strategy is to go long in cash/gold avoiding equities whose value will fall during a bust. Is this your opinion?

Louis Paquette: I would stick with holding some gold equities of really good companies. If we do get a real meltdown in the currencies, it's going to impact the price of gold ? and the companies should make terrific profits. But will they melt down, too, in a big meltdown? I really don't know, but I would just hold some. The one thing I would be confident in doing is saving a lot of cash. I would short stuff and own more cash. I would not buy luxury items and I would save cash.

TGR: In our last interview with you, we discussed the Typical Seasonality in Gold, especially gold stocks, both of which have a fall and a spring rally, followed by a typically quiet summer. At that time, you were uncertain if the climate had truly shifted for gold, and were unsure whether or not that seasonality was breaking down. A year later, do you think it has? Also, has the psyche for accumulation of the metal itself moved into the acquisition of promising junior or mid-tier Gold Mining company stocks?

Louis Paquette: Let me answer the second question first. For the last year, the emphasis has moved toward the metal. The Gold Mining shares? I'm looking at a chart right now of appreciation of gold and gold shares, and the gold shares have gone sideways for the past two years and gold has gone up. So for the moment, there's better value in the gold producers, in the shares of the companies, and people have been buying the bullion price.

The first question, has Gold Seasonality broken down? I think the answer is yes, kind of. The last buy time for seasonality was last August. That did work. The price of gold started to take off after that. But now when it comes to the high point, gold peaked on December 3rd; it hit a parabolic high at that point ? and looks like a cyclical high now ? and it's not strong. It's supposed to be peaking around now, and we're $100 or so below the peak. I would say the seasonality is breaking down because the price is now being driven by Gold Investment demand as opposed to physical demand for jewelry. So the answer is yes. The seasonality is breaking down and you have to revert to other methods to pick your highs and lows now.

TGR: To what extent do you believe news and the news media can make a market? And has the gold market yet to be made?

Louis Paquette: I think it has a lot to do with it. And I don't think we've seen the full extent of it yet. We haven't seen a media-driven parabolic rise yet. You don't see the average person lining up to Buy Gold coins at this point. I think that day is going to come, but I don't believe we've seen it yet.

TGR: What are you recommending for portfolio diversification with regard to gold stocks, Gold ETFs, and the physical metal?

Louis Paquette: The leveraged two-times ETFs were really popular here in Canada, and I'm completely avoiding them. They experienced time decay. So zero for the leveraged ETFs. And the main focus is on junior mining companies, exploration situations and near producers with growing reserves. I'm not Buying Gold anymore. I used to buy it years ago in the beginning first few years of the bull market, but I just sit on that. That's 5%, 10% of one's portfolio in the metal, in the Gold Bullion, and for me a lot larger than that with the gold share (but I specialize in that). So I don't know what the good number is for the average investor, but I'd say maybe 5-10% of the gold shares of selected junior mining companies.

TGR: Earlier on we were talking about a double dip recession. You said people should short stop and go long on cash. So the suggestion is to hold cash; but really early on we were talking about the devaluation of the Dollar and the Euro. How is this a good strategy?

Louis Paquette: Well, all I can tell you is what I'm also doing ? taking a fair number of those Dollars and owning stocks that pay good dividends. At least I'm making an income with that money. I guess that's where you have a portion in the gold sector too, if the currencies are going to devaluate. Consumer goods are going to fall in value even faster than everything else.

TGR: Value declines as soon as you take it out of the store.

Louis Paquette: Exactly. So I'm not in a big hurry to buy brand new cars. They're going to be cheaper in the future.

TGR: So you were talking also a bit about having 5-10% of your portfolio in metals, which leaves another 90% of your portfolio in other types of things. Given that there are significant reports of green shoots and some positive economic news, at least coming out of the US, what other sectors would recommend our subscribers invest in so they have a balanced portfolio?

Louis Paquette: The areas I like are gold and energy. On weakness, I have been purchasing shares of these income trusts that pay 5-10% yields. So I'm about 50% cash and about 5-10% in the metal, say 20% in Gold Mining shares and the balance in energy shares. Also in special little situations, I've got the odd investments ? biotech and even a social media company. Some very small micro cap situations are also in there, not specific to any sector, but "bottom up" selections based on the merits of the company.

TGR: In terms of energy, are there specific subsectors of energy that you're focusing in on?

Louis Paquette: Yes. I've got a love/hate relationship with natural gas right now. The production community seems to be determined to drive the price to zero. But sooner or later, this natural gas situation is going to turn around. They're going to deplete all these new reserves they've found and there's going to be a shortage of it. I'm not saying in the next month or so, but in the coming years there may be a great opportunity in natural gas.

TGR: Lou, thank you so much for joining us.

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Savers, retirees & wage-earners are just collateral damage in the war between debt & depression...

SLASHING the Bank of England's base interest rate to an historic low of 0.5% was supposed to "rebalance" the economy.

But all that the resulting 20% slump in the Pound has done so far since rates began sinking ? two years ago this month ? is gift a no-brainer gain to Gold owners.

"While we were hit with a great recession, we now know that the world has indeed avoided a great depression," said UK prime minister Gordon Brown at a Reuters press conference in London bright and early on Wednesday.

Just as with the war in Iraq, however ? another "shock and awe" campaign planned with little thought for the collateral damage ? we'll never know how things would have panned out if brave men like Brown hadn't done "whatever it takes". And just like in Iraq, victory has been declared way too early.

New data today showed industrial production in the UK sinking to 1991 levels. The employment rate has sunk back to 1996 levels, meaning a net loss of private-sector work when you allow for Brown's intervening civil-service jobs jamboree. And despite the collapse in Sterling, the UK's trade deficit has been widening for more than a year, verging at last count on the record 3% of GDP hit at the very top of the credit bubble, 2005-2008.

"Let us be clear," says Brown, "the economy is growing, but remains fragile."

And the cost of this modest success...?

• The interest paid on the average cash ISA account now lags retail-price inflation by 3.3 percentage points per year ? the worst real returns to cash in over three decades (source: Bank of England and ONS data);
• Annuity rates have fallen by 6p in the pound, offering new retirees barely £6,000 per year on pension savings of £100,000 (source: www.WilliamBurrows.com);
• Real wage growth ? on average, and after inflation ? has gone negative for the first time since 1974, falling well over 1.5% since March 2008 (source: ONS data).

Not quite depleted uranium, then. But followed up with cluster-bombs of £200bn in quantitative easing ? money wished into existence by the Bank of England, and entirely spent on government bonds, thus flirting with that "debt monetization" which typically precedes hyperinflation ? the campaign for hearts and minds is at least being won at home, if not amongst the victims.

"In the medium to long term, inflation has to come through," says Nouriel Roubini's latest fixed-income hire at RGE Monitor, former Citi managing director and wealth-management strategist, Arun Motianey.

"Just allow it...just admit it. It doesn't matter where the inflation comes from. It doesn't have to be through monetization of public-sector deficits, although at a pinch we may need to do that. What I am saying is that if we do get cyclical [demand-driven] inflation, then let that inflation stay...allow it help to write down the real value of debt."

Naturally, Motianey was talking to CNBC this week because he's got a book to promote. (Hey, we're all shills, remember.) And naturally, looking to sell a few copies, his policy prescriptions conclude with handy tips for investors on "How do you preserve purchasing power, how do you preserve savings?" amid the inflation which Motianey says we should ? and shall ? get.

The finance industry can have it both ways, in short. Government debt can be inflated away, while creditors are somehow protected. I can't say whether Gold Bullion is part of his saver's solution. But when fixed-income economists beg for inflation...and pretend that savers won't get screwed in the process...you've got to wonder where else you can hide.

Ready to Buy  Gold...?