Tito's Blog

GATA Appeals to CFTC on Concentrated Gold Shorts

Gold bugs rejoice! GATA (Gold Anti-Trust Action Committee) appeals to CFTC to act against manipulative shorts:

GATA has evidence that there are enormous physical short positions in the gold and silver markets that cannot be covered. Because of the decades-long interference with the gold market, we estimate that the free-market price of gold is multiples of the current price. Growing stress caused by burgeoning physical bullion demand is threatening to lead to a price explosion, which will restore to the market the balance that regulation has failed to maintain. In our view, the Comex paper market will become dysfunctional, with “force majeure” having to be declared as the concentrated shorts are unable to deliver on their obligations.

Private, Government, Foreign Financial Balance

The March 2010 Absolute Return Letter (pdf) picks up the national income accounting identity mentioned earlier:

( T - G ) + ( Y - T - C - I ) + ( M - X ) = 0

Where:
T Taxes
G Government Spending
Y GDP
C Private Consumption
I Private Investments
M Imports
X Exports

In other words, the sum of net inflows of money into the stock of capital of a country’s economy from the government, the private sector and foreign investors (that counterbalance the net imports) is always zero, unless there is creation of paper money within a country or a change in foreign reserves.

That entails that as the consumer spending retrenches (and private savings go up) during the ongoing balance sheet recession, government deficit must worsen and/or the country must reduce its current account deficit (i.e. reduce net foreign capital inflows). Another way to look at it is that every dollar saved flows back (as a mathematical identity) to finance additional government debt and foreign capital outflows.