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!"   MELMAN MINUTE - April 26, 2010 - - - - - Two of our favourite sayings, both applicable to the ongoing Greek financial drama, come to mind this morning. The first is "the 400-lb gorilla in the room", referring to a subject which is very important but which no one wants to talk about.  In terms of the Greek crisis, that "gorilla" is the fact that Greece is clearly unable to make principal and interest payments on the debt which it already owes, so how is it going to make payments on a much larger amount in the future?  A difficult problem based on this subject has already arisen in the form of a direct statement by Germany that it is unwilling to proceed any further with a Greek rescue program unless somehow it can be convinced, according to a UK Telegraph news article of this morning, "...whether Greece goes through with the strict austerity in coming years."  The austerity Germany is referring to is for Greece to dramatically cut expenditures, including the termination of huge numbers of their civil servants and the freezing of salaries for the remainder.  Greek civil service unions have already promised massive demonstrations if such measures are actually undertaken. There is one other possibility and that brings our second saying, namely "nothing is confirmed until officially denied" into play.  In this case, that saying relates to an actual default on debt payments followed by a restructuring of their debt.  What made us recall the 'denied' saying was the comment of Greek's finance minister, George Papaconstantinou, that, "I want to categorically state that any restructuring is off the table."  That kind of statement truly raises our suspicions here at TMR. In any case, the cost of financing Greece's debt offerings has now reached the highest levels in twelve years, clearly due to rising uncertainty about that nation's ability to EVER repay its debt.  Such uncertainty regarding a member nation is clearly not healthy for the Euro, it is not healthy for Greece and it provides a growing level of financial anxiety for the international financial community.  THAT could be healthy for the world of precious metals. As the "Telegraph" points out the entire situation is becoming illogical because it makes countries like Greece, "...to go deeper into trouble...The bailout cost falls hardest on those that can least afford it.  It deepens the North-South divide that lies at the root of Europe's crisis."  Perhaps our greatest concern of all is the changing nature of international finance during the past few decades, particularly the manner by which the entire international financial community has begun to adopt the theory of shared risks, and we are seeing this concept applied to such events as the Greek crisis noted above.  In our view, this shared internationalism increases the danger that in the event of a renewed monetary crisis, the total world economic system might be placed into jeopardy, rather than a single nation or a lesser group of countries. Recent events at the ever-expanding International Monetary Fund (IMF) seem to fall into line this theory.  The IMF just announced it had reached an agreement with contributing nations to increase its lending capacity by an additional $86.2 billion and it was also re-writing its regulations to allow developing countries - which normally contribute nothing - to increase their voting participation.  Not surprisingly, the American Treasury was at the heart of these new negotiations and US Treasury Secretary Timothy Geithner offered this comment to the Wall Street Journal, "...We can feel proud that we have concluded agreements on a transformative financial and governance reform agenda, along with new capital for the World Bank (IMF's governing body) and a new and more representative sharing formula."  Interestingly enough, the IMF continues to push for internationally binding financial regulations and we see this trend gathering force through an ever-expanding United Nations, the creation of new supra-international bodies such as the G-20, and growth within the IMF itself. Does this sound like a movement toward "one world" financial organization to anyone else?  It is beginning to sound like movement in precisely that direction to us and we would note such dramatic upheavals, if they take place, could provide an additional incentive for movement of some long term, 'store of value' funds into insurance positions in gold and silver. ............... The problem of how governments are to reign in expenditures in order to restore fiscal stability while at the same time avoiding social rebellion is not limited to Greece.  As Great Britain approaches its May 6 election, they are having similar debates.  All three party leaders are attempting to reduce government expenditures, but are faced with the political reality that if they cut too deeply or in the wrong places, they face electoral oblivion. A case in point is Britain's immensely popular National Health Service (NHS) where, according to the "London Daily Mail" newspaper, "Thousands of doctors and nurses face the sack (firing) after the election under devastating cuts being planned by the NHS."  Of course, the nurses' union immediately contacted the media which reported, "...nursing leaders warned the cuts could see the return of Third World wards and long waits for treatment - and could even threaten the lives of patients."  Not unsurprisingly, government managers then assured the public that huge cuts could be made in expenditures without affecting the quality or availability of patient care. In America, state governments are engaged in the same manner of debating.  In Oklahoma, the City of Tulsa has just laid off 89 police officers, joining cities such as Stockton, CA and Naperville, IL which have also been forced to cut police staffs along with other tightening measures, and yet, those communities' leaders keep assuring the public that policing services will not be adversely affected. And so the beat goes on.  Some governments are attempting to control expenditures, but keep running up against political reality, plus another concept which could cause even more difficulty.  When they let someone go from public service, expenditures are seldom reduced, since that person will go on some manner of relief, or they will be eligible for immediate retirement benefits, keeping the level of expenditures high while tax receipts continue to remain at low levels, such as California where all the economic 'improvement' has resulted in revenues being only 2 percent greater than they were at the bottom of the recession. As can be seen, the Dow chart continues to point toward higher short-term prices.  As of 9:30 AM PDT, that average is ahead by about 30 points while Canada's TSX has gained 24.  Precious metals are little changed with gold down by about $2 while silver remains near $18.30 and the PGMs are trading quietly.  Base metals are moderately stronger and mining share indexes are up slightly.  Crude oil has fallen back to near $84.00 per barrel and the US Dollar is slightly stronger in currency trading.  Interest rate futures have been trading quietly as well. - - - - - All quotes US$ unless otherwise noted. Next "Melman Minute" scheduled for Wednesday, April 28, 2010.          . ◄  Previous Minute                                                                                                        Next Minute  ►
		DISCLAIMER The information presented above is based on data which we believe to be from reliable sources, but the accuracy of which cannot be guaranteed.  Any opinions or predictions contained herein are those of the editor and are likewise offered also for information purposes only. Any investment decisions should be made only following consultation with registered investment professionals.