Capital Gold Group, Inc.

June 30, 2009

Armageddon. Apocalypse. Disaster: These are the words being used to describe California's staggering $24 billion budget deficit. With a midnight deadline to balance the budget, state lawmakers are facing a daunting task: Find a way to bridge the gap or start issuing $3 billion in IOUs this week to cover the bills.

Almost every state is suffering from the effects of the recession, but not every state accounts for 12 percent of the national gross domestic product. According to AP, if California goes down, so goes the nation: California's annual $1.7 trillion economy is the world's eighth-largest economy and provides a significant chunk of tax revenue for the government; California alone funds many social programs for the entire nation.

Like the Big Three automakers, California may be "too big to fail." If the state implodes, the ripple effect could slow the entire nation's recovery from the recession. Burt P. Flickinger, a retail consultant, tells AP:

"California is the key catalyst for U.S. retail sales, and if California falls further you will see the U.S. economy suffer significantly."

How did California dig itself such a huge hole? The recession certainly didn't help, but Time's Kevin O'Leary writes that California's financial troubles can be traced back to the passage of Proposition 13 in 1978. An antitax measure, Prop 13 makes it extremely difficult to raise taxes or pass a budget unless a 2/3 majority in both state houses agree — a virtually impossible task. California Rep. Zoe Lofgren tells Politico:

"If we [in Congress] had to do what the California legislature does, we would never send a bill to the president of the United States,” she said.

If the political wrangling over the budget isn't resolved by midnight tonight, Californians will be feeling the pain on every level, big and small. Just a few of the proposed spending cuts:

— State employees will be forced to take another day of unpaid leave a month, in addition to the two days leave they were forced to take starting in December. (NYT)

— Funding for the Bureau of Narcotics Enforcement will be slashed by $20 million. The "little-known unit" has played a key role in several of the state's high-profile cases: The bureau's agents helped arrest Scott Petersen for the murder of his wife and unborn child, and their investigation led to charges in Anna Nicole Smith's overdose death. (AP)

— 80 percent of state parks would be closed, 25 in the Bay Area alone, including several beaches along the peninsula. Park visitors spend an estimated $2.6 billion a year in and near state parks, but closing the parks would save only .26 percent of the $24 billion deficit. (SF Chronicle)

— Education funding would be reduced by $5.3 billion. School districts have already laid off 30,000 employees. Class sizes are expected to surge from 20 to 30 students and many after school programs, arts and music classes will be cut. A national education survey conducted this year ranked California 47th in per-student spending. (AP)

— Gov. Schwarzenegger is proposing to eliminate the state's $1.3 billion welfare program. Frank Mecca, the head of the County Welfare Directors Association of California, tells Time, "California could become the only state in the First World without subsistence benefits for poor children."

So far, the government is using a "wait and see" approach to California, or as a recent Politico headline stated more bluntly — "Washington to California: Drop dead." Earlier this month, White House spokesman Robert Gibbs said that the administration would "monitor" the situation, but that California's "budgetary problem unfortunately is one that they're going to have to solve."

(Think you can do a better job at balancing the state budget than the governor or state lawmakers? The Los Angeles Times is letting the common folk try their hand with a "You balance the budget" interactive.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Five Banks Are Seized, Raising U.S. Failures This Year to 45

By Margaret Chadbourn

June 27 (Bloomberg) -- Five U.S. banks with total assets of about $1.04 billion were seized by regulators, pushing this year's tally of failures to 45 as a recession drives up unemployment and home foreclosures.

Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles were closed yesterday by state regulators, according to statements from the Federal Deposit Insurance Corp. The FDIC was named receiver of the four banks.

Wilshire Bancorp's Wilshire State Bank will take over all of Mirae’s $362 million in deposits, and will purchase $449 million of assets, the FDIC said in a statement.

Sunwest Bank of Tustin, California, acquired most of MetroPacific’s $73 million in deposits and $80 million in assets, this FDIC said. Stearns Bank of St. Cloud, Minnesota, bought Horizon Bank’s $69.4 million of deposits. Stearns will purchase $84.4 million of Horizon’s assets, the FDIC said.

The FDIC didn’t find a buyer for Community Bank of West Georgia, and said it will mail checks to reimburse insured depositors. The bank has deposits of $182.5 million. Charter Financial Corp.'s CharterBank will assume Neighborhood Community Bank’s $191.3 million of deposits and purchased some assets in a loss-share agreement with the FDIC, according to the agency.

“The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector,” the FDIC said. “The agreement also is expected to minimize disruptions for loan customers.”

Regulators have seized the most U.S. banks this year since 1993. The U.S. economy has shed about 6 million jobs since the recession began in December 2007. Foreclosure filings surpassed 300,000 for the third straight month in May, according to RealtyTrac Inc.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Jun 25 2009 4:00PM

Yesterday the Federal Reserve completed the latest meeting of its Federal Open Market Committee.  It re-affirmed its plan to purchase by the end of the year some $1.8 trillion – yes, $1.8 trillion – of US government paper, comprising of agency debt, agency mortgage-backed securities and US Treasuries.  That’s nearly $6,000 for every man, woman and child in the United States. 

While $1.8 trillion is a gargantuan amount of money, the actual amount is of secondary importance to the essential, piercing question.  Namely, where is this $1.8 trillion going to come from?

The answer is not pretty.  These dollars will come from the same place that all other dollars are created these days, namely, out of thin air.  Here’s how Mr. Bernanke explained this monetary sleight-of-hand before he was appointed as chairman of the Federal Reserve.  “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Like most central banker statements, this one is based on half-truths. How can there possibly be “essentially no cost” to creating all these dollars?  We all know that there is no free lunch in the real world, so there must be some significant cost to creating so many dollars, right?

Please read Mr. Bernanke’s statement again. There may be essentially no cost to the US government, but here is what he doesn’t tell you. There is a very real and huge cost to everyone who ends up holding these dollars that were created ‘out of thin air’.  It is the cost of inflation; it is the onerous cost burden arising from the reality that the purchasing power of the dollar is being continuously eroded. And the more dollars that are created beyond the need for dollars in normal commerce, the worst the inflation becomes. The $1.8 trillion the Federal Reserve will soon be creating should cause those remaining deflationists still arguing their point of view to recognize that they are looking down the wrong road.

They argue that deflation is inevitable because credit is contracting.  However, contracting credit is not deflation. Rather, contracting credit causes wealth destruction, but does not necessarily cause deflation in a fiat currency world. 

Deflation arises when the quantity of dollars contracts, as it did when credit contracted in the Great Depression.  But the quantity of dollars is not contracting today.  It continues to grow, regardless what measure one uses, M1, M2 or M3 (which John Williams of http://www.shadowstats.com estimates to have grown +7.3% over the past 12 months).

Percent change at seasonally adjusted annual rate	M1	M2
3 Months from Feb 2009 TO May 2009	9.4	4.2
6 Months from Nov 2008 TO May 2009	9.5	9.5
12 Months from May 2008 TO May 2009	16.2	9.0

Source: http://www.federalreserve.gov/releases/h6/current/h6.htm

What’s more, the trillions of dollars created out of thin air for various bailout schemes as well as this latest $1.8 trillion planned purchase by the Federal Reserve will make sure that the quantity of dollars continues to grow.  The result will be that the purchasing power of the dollar will continue to be inflated away.

It has become increasingly apparent that the US dollar has caught the fiat currency disease, where too many units of account are created.  This disease is fatal, and hundreds of fiat currencies buried in the fiat currency graveyard throughout history have succumbed to it. 

By creating too many units of account out of thin air, the Federal Reserve has sealed the dollar’s inflationary fate.  Own gold and/or silver to protect yourself and your family from this inevitable outcome.

by James Turk

www.kitco.com

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

By Moming Zhou, MarketWatch

NEW YORK (MarketWatch) -- Gold futures rose Friday, heading for their first weekly gain in four as a weaker U.S. dollar and record-low interest rates boosted the metal's investment appeal.

The dollar was under renewed pressure Friday after China's central bank reiterated a veiled call to lessen the currency's role as the world's reserve currency. The Federal Reserve said Wednesday its key interest rate will remain near zero "for an extended period."

August gold rose $8.30, or 0.9%, to $947.80 an ounce on the Comex division of the New York Mercantile Exchange. The June contract, which expires at the end of Friday's trading, gained $6.20, or 0.7%, to $945.30.

Gold prices, as gauged by front-month contracts, are set to end the week up about 1%. For the month, it's still down 4%.

"The precious metals complex has trading modestly higher as the dollar lost ground after the Fed announced it would keep rates low," said James Moore, a precious metals analyst at TheBullionDesk.com, in a note

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Longer term charts tell the tale and block out daily trading noise. This weekly chart with a hugely bullish, inverted head and shoulders forecasts a major gold buying event later this year. This would be consistent with our forecasts of smashed stock markets after Labor Day 2009. We cannot tell for certain how high the Dow and the S&P 500 might recover between now and September 15th. We do know this: Numerous information, technical interpretations, and other data signal a largely broken fall, 2009 stock market and a corresponding rally in precious metals. This is our prediction.

We’ve all been patiently waiting for gold to breakout through strong resistance levels between  $1,007 and $1,032. When the price has closed firmly and decisively over $1,032.50, we should expect $1,050, $1,150, $1,250-$1,260 and a potential for $1,375. These have been our previous gold price support and resistance forecasts expected for the December, 2009 futures contract highs.

It is very important to understand that once these higher numbers are achieved it is not the end of this gold rally.

Rather, once new loftier highs are posted and reasonably held, we should see a new and higher sequence of buying. Our very old gold high forecast of years ago was $2,960. As of today, we hold on that forecast for a minimum but are in fact expecting prices way beyond this figure.

As markets move forward and post higher highs in certain commodities and especially gold and silver, we can technically determine what’s next. Somewhere along the trading trail in the next few months, precious metals shares will breakaway from the influence and attachment of other stock markets. We are not there yet but we have seen some tiny signals telling us this is coming.

Should gold be inflation adjusted today to its proper price, gold would exceed $2,250 in our view. If we say our minimum is $2,960, these two correlated prices are not all that far apart. What I want to figure out next is; where is gold going after $2,960? This can be determined when other related new market prices and techncials are established in crude oil, credit, silver, and grains.