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 - July 12, 2010 - - - - - In a memorable scene from the epic movie, "The Ten Commandments", Moses had returned to Egypt from exile and placed his demand in front of Pharaoh Ramses II to "Let my people go!"  The Pharaoh was not only unimpressed, but decided to punish Moses and the Israelite slaves by bidding that they "make bricks without straw", since Egypt would no longer provide them with that essential material. That phrase came to mind recently when I poured over reams of economic data and began wondering how the world in general and America in particular would be able to re-make a world of prosperity without many of the essential building "bricks" of soundly-based rising consumer demand.  In the first case, unemployed, under-employed and those who have given up even searching for jobs cannot likely participate in rising economic activity and the numbers who remain in those categories are not only not falling substantially, but in the latter two categories are actually increasing.  Next, even those who are employed and earning reasonable incomes can only step up their consumer activities if they are not already burdened with unacceptable levels of debt.  However, as has been reported frequently, the levels of debt among consumers, industry and government have been soaring spectacularly, leaving multitudes without the ability to raise their levels of consumption. In addition, those who are still employed and who have retained some ability to add to their consumption are now being hit with new taxation measures across a broad spectrum.  For instance, in Canada the province of British Columbia has just enacted a "Harmonized Sales Tax" which combines previous provincial sales taxes with federal Goods and Services Taxes (GST) to form a Harmonized Sales Tax (HST) which now applies to a multitude of new products and services.  As a result, the net disposable income for many has been reduced by the same amount that their taxes have increased.  In recent years, one must also factor in new "Green" tax levies; higher gasoline taxes; new computer disposal levies; new bottle deposit and environmental levies; higher government fees for passports, drivers licenses, etc. It is enough to make an optimist begin to stop and check his basic premises. And now, for millions of Americans, their ability to participate in the consumer economy has been weakened by yet another set of circumstances.  According to credit data service FICO Inc., the number of Americans whose credit scores have fallen below the generally acceptable level has risen sharply during the past two years.  According to their figures, more than 43,000,000 people now have credit scores below 600 on a scale ranging from 300-850.  That represents more than 25% of all consumers, up from just 15% at the start of the recession. FICO also reports that they expect the number of persons with credit scores below acceptable levels should rise over coming months due to high unemployment, rising foreclosures, or those newly falling behind on their current outstanding debt. One real estate mortgage broker, Rich Workman of Melbourne, FL, noting the number of mortgage applications which have been declined by potential lenders, lamented to the Associated Press, "...I don't get paid for loan applications, I get paid for closings...I have plenty of business, but I'm struggling to stay open." Yet another threat looms on the horizon in the form of growing pressure for the USA to turn to a "Value Added Tax", similar to those already enacted in many European nations or the GST in Canada.  This would impose an entirely new level of government impositions in the form of a national sales tax, which would raise the cost of a multitude of items, thereby lowering consumers' already-diminished consumer purchasing power. According to the Wall Street Journal, "...as the US faces swelling deficits, talk of adopting one (a VAT) has become more commonplace and is likely to intensify.  The latest rumblings came earlier this month at a meeting of a White House commission looking for ways to dig the US out of its fiscal hole." It is our growing personal belief that the American economy simply cannot dig its way out of the mess in which it is mired by "conventional" remedies such as stimulative programs or massive tax increases.  They have been tried over and over again and they are failing due what we regard as a vital consideration regarding actions by governments.  By increasing the regulatory and financial burdens of complex laws and massive taxation, governments impede both the consumer and the efficient operation of commerce. One cannot help but wonder why the alternative, reducing government impositions combined with real reductions in taxation is never seriously considered by those in charge.  There are groups such as the American Tea Party, Alberta's Wild Rose Party and the growing BC Conservative Party that are gaining some attention, but for the most part, those who hold the reins of power are holding fast to their tried-but-not-so-true methods. It is our opinion that those methods will fail spectacularly to produce any lasting economic expansion.  When - and if - the economy begins to contract once again, the ability for multitudes to provide themselves or their families with the necessities of life will likely be severely diminished, to put things mildly.  One can only wonder at the economic and social consequences of such a situation. Even if the possibility of genuine social and economic trauma seems remote to the majority of the general populations, the number who are genuinely concerned seems to be on the rise, and that proposition we believe is the underlying basis for gold's five-fold rise over the last decade.  We at TMR do not see those pressures ending any time soon. Yet another "Heads you Lose, Tails you Lose" situation appears to be looming.  We are referring to the growing litany of deep troubles now facing many American states.  A large number of states are now faced with horrendous deficits, forcing the cutting back of so-called 'essential programs' thanks to legal requirements that they balance their budgets.  Their one hope was that Washington would come riding to the rescue, but the anti-big-government mentality is spreading so fact that many Congressmen and Senators are reluctant to face the voters this coming November if they sign on to federal rescue programs for the states.  Total budgetary shortfalls for the states for the three years 2009-2012 are estimated to total almost $300,000,000,000.  No one has yet proposed a manner in which many states can attain fiscal stability without a destructive cessation of services nor a massive bailout from Washington - neither of which appears likely to happen. We believe this rising level of uncertainty also provides support for the monetary precious metals. Financial markets this morning appear to be making relatively minor moves for the most part.  As of  8:45 AM PDT, the Dow Industrials and Canada's TSX were modestly lower with the Dow off by about 20 and the TSX by almost 60.  Precious metals held steady most of the morning, but began to slide sharply about 45 minutes ago and gold is now just under the $1,200 mark, down by $10 on the session and silver is down by about 30 cents to hear $17.87.  Base metals are sharply lower while mining shares indexes are also trading to the downside with both XAU and HUI off by about one percent.  Crude oil has turned lower, off by about $1.30 per barrel and the US Dollar is slightly higher in currency trading. - - - - - All quotes US Dollars unless otherwise indicated. Due to travel to the "Beauce" gold play region in Quebec, our next Melman Minute is presently scheduled for Friday, July 16.  However, if possible, we will attempt to write one from our hotel early Thursday AM, July 15. ◄  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.