A Melman Minute By: Leonard Melman   NOTE: In order to complete Mr. Melman's forthcoming book on the essential fundamentals of the developing international financial crisis and its relationship to gold and silver, new "Melman Minutes" will be posted only three times per week, each Monday, Wednesday and Friday. Since the work has been expanded to include potential solutions to the growing list of seemingly insoluble dilemmas, the working title of the book has been revised to 'REVERSING THE WAY IN!"   March 19, 2010 Politicians are a strange breed, perhaps best reflected by the old joke which goes, "How do you know when a politician is lying?"  The answer is, "Whenever his lips are moving!"  Perhaps that may sound a little harsh, but consider, for example, some of the recent goings-on. During his election campaign, President Obama promised that he would never ask a member of the House or Senate to vote on a law which they did not have sufficient time to study.  He is now calling for a vote on his health insurance bill, which has not yet been completely finalized and for which a new list of amendments totaling more than 150 pages has just been issued.  If anyone could come up with a cogent explanation of just how an important bill is supposed to be properly understood when mountains of amendments are issued on Friday and a vote is to take two days later on Sunday, I would love to hear it. We were frequently told that the Obama Administration would never raise taxes on anyone earning less than $250,000 per year.  However, in the 14 months since Obama's inauguration, we have seen frequent proposed or actual American federal tax increases.  These include a $438 billion tax increase associated with his new health bill; an increase in Medicare taxes to include "unearned income"; a proposal to impose a new "Value Added tax (CAT)"; a new $90 billion tax on banks and other financial institutions which will directly affect costs for all Americans; new taxes on tanning salons, mostly patronized by low and middle class Americans; plus an array of numerous taxes that took effect January 1, 2010 and which include a new Alternative Minimum Tax and the termination of tax breaks such as a homeowner's tax reduction and the federal tax break on state and local taxes.  It is patterns such as these that breed skepticism regarding the political systems in nation after nation, administration after administration.  Such conduct fosters an attitude suggesting that the best anyone can hope for is to grab from government everything that is available today and simply not worry about tomorrow - and that supports our belief in holdings of gold and silver to protect our private wealth in case of some future systemic failure. Speaking of the Obama Administration, two of its pet measures are moving forward once again and it is our opinion that both will feed into growing federal budget deficits in coming years.  The two measures are "Obama Care" and a new jobs bill. As mentioned, a firm vote is to take place on Obama Care this coming Sunday and speculation is that the vote will be close.  However, we do not believe that Team Obama would have forced the issue and scheduled the vote for a specific date unless they felt certain of the bill's passage.  We shall see. In the meantime, the Congressional Budget Office (CBO) played directly into the hands of those supporting the bill by announcing that the expected cost of the measure would be "only" $940 billion over the next ten years, and also reporting that, somehow, passage of the bill would reduce the federal budget deficit by $118 billion over the same period of time.  President Obama claims that the bill will pay for itself and function at a surplus, but that is simply not the case as this "surplus" is to be achieved by the enactment of a huge array of new taxes and by massive borrowing from other government programs. According to an analysis by Fred Barnes, editor of the Weekly Standard, it is also worth pointing out that this claim of operating at a surplus flies in the face of what might be considered normal expectations when it is considered that the bill promises to offer free preventative care; coverage for those with pre-existing conditions; guaranteed issuance of policies regardless of economic circumstances; no benefit caps; and subsidies for insuring 30 million Americans who are now uninsured.  How this is to be accomplished while supporters claim such measures will result in a budgetary surplus will take some explaining. Several states are already lining up to file lawsuits against some of the bill's provisions and a major corporation, Caterpillar, claims the provisions of the bill will add at least $100 million in the first year alone to their employee medical service costs, and a company release stated that these costs would come at the expense of shareholders, retirees and current employees.  The Wall Street Journal pointed out that 130 economists had joined to sign a letter to President Obama claiming, "...the legislation would discourage companies from hiring more workers and would cause reduced hours and wages for those already employed." This last comment applies directly to the President's other major legislative initiative which is his "Jobs Bill".  Once the medical insurance initiative is resolved, it appears clear that a major bill which would "create jobs" will now be placed front and center as the focus of the Administration's agenda.  The House of Representatives has already passed the bill and all that remains is for the Senate to approve a reconciled version. Apparently, the most important feature of the proposed bill is a tax break for small businesses that hire workers who have been unemployed for 60 days or longer.  According to the break, such companies would not be forced to pay the 6.2% payroll tax for a full year and then would receive a further $1,000 tax credit should the employee remain on the job for a second year. The bill is expected to cost $15 billion (no time period stated) and at least there are no claims it will produce a surplus. What everyone seems to have forgotten is that there is nothing new in "job creation" bills and anyone who has been observing the legislative scene in America over the past few decades cannot have forgotten the famed "Humphrey-Hawkins" bill of the preceding generation.  That was supposed to be an act which would have made it illegal for there to be high unemployment in America.  The bill simply died an untimely death a few years ago after utterly failing to achieve success. All of this legislative tinkering appears to us to be leading in only one general direction:  massive future deficits accompanied by massive bureaucratic costs, massive debt creation and ever-growing pressure on the stability of the US Dollar.  Ergo, we maintain our opinion recommending the holding of monetary precious metals for both investment profits and long-term monetary insurance. Gold trading remains vulnerable to the kind of unexpected, sudden sell-offs which have taken place periodically in recent months and today has been no exception.  After holding on to a small, early-morning gain which saw gold rise to about $1,130, gold suddenly began to plunge and in short order, the yellow metal fell by almost $30 from its peak to barely above the $1,100 mark.  At this time, it is difficult to tell if these sudden declines are a function of open markets or if they have been deliberately induced.  Silver and platinum have also joined in such selling today. As of 10:00 AM PDT, financial markets in both countries are down with the Dow Industrials off by about 50 points and Canada's TSX is trading 80 points lower.  Base metals have joined the precious metals to the downside and mining share indexes have also sold off.  Crude oil futures have retreated back to near $80 per barrel and the US Dollar is stronger in currency markets. Most observers attribute the financial market selling to renewed difficulties within the Greece/Euro scenario and we plan to take a detailed look at this problem area in Monday's MM. - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for March 22, 2010.                 ◄  Previous Minute                                                                                                        Next Minute  ►
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