1. Gold and silver prices will rise by a higher percentage in 2011 than they did in 2010.
If any of the lawsuits against JPMorgan Chase or HSBC (including one that is also suing the SLV silver exchange traded fund) for illegal manipulation of the silver and gold markets result in the disclosure of any damning details, gold and silver prices will go nuts.
On January 10, 2011, US District Court Judge Ellen Segal Huvelle ordered the Federal Reserve to produce documents for her inspection by January 14 as part of the lawsuit filed by the Gold Anti-Trust Action Committee (GATA) seeking compliance with their Freedom of Information Act (FOIA) request for documents disclosing the Fed’s gold swap activities and arrangements since 1990. While this order does not necessarily indicate that GATA will win this suit, it does demonstrate that the judge has some skepticism over the Fed’s claims. Should any documents be released that proves the Fed lied about its claims of not swapping any of the US government’s gold reserves, precious metals prices will soar.
Rep. Ron Paul (R-TX) is now the chair of the House Monetary Policy Subcommittee of the Financial Services Committee. This committee has oversight of the Federal Reserve. Rep. Paul plans to pursue his effort for legislation to audit the Fed and determine the exact status of the claimed gold reserves. This effort was supported by most members of Congress last time around, but was blocked by the Democratic leadership. If successful and an audit casts any doubts on the accuracy of the US governments gold holdings, prices will take off.
2. Worldwide currency wars.
Despite pretenses otherwise, worldwide currency wars are already underway. They will become blatant in 2011. The G-20 Group of Nations had a special meeting in South Korea last November to try to forestall the conflict. The only thing accomplished was an agreement to meet again in six months to try to reach an agreement.
I expect that every attempt to achieve international agreements to prevent currency wars will either fail or will not be worth the paper on which they are written.
Japan’s government has already announced that it will not sacrifice its domestic economy to support the paper currencies issued by other countries. The nature of the currency wars are for each country to try to devalue their currencies by a greater percentage than other countries. As the value of the US dollar was sinking in October and November, several South American countries intervened to try to prevent their own currencies from appreciating against the dollar.
It is entirely possible that the Euro nations may become so fragmented between those that are economically stable and unstable that there could be an alteration of the eurozone, where some countries are pushed out. Alternatively, the Euro may eventually fail.
3. Highest official consumer price increases in several years.
The US government has played many tricks over the decades in reporting the change in consumer prices, all with the purpose of holding down the reported increases. Announcements of price increases are coming so fast and furious that I don’t see how the data can help but increase in 2011.
4. Higher interest rates.
Consumers and investors are not blind and dumb. They will observe the devaluation of their currencies and demand higher interest rates for holding bonds and savings accounts. The interest rate on 10-year US Treasury debt has increased by more than 30% since early October. Look for it to get even higher in 2011.
5. Continued softness in residential and commercial real estate demand, with lower prices.
In 2010, the US government subsidized the purchase of homes for a few months. That turned out to not help the market revive. Instead, it merely accelerated some transactions by a few months. One side effect of the current round of quantitative easing has been the rise in mortgage interest rates. As the interest rates rise, that means that potential buyers will have to pay a lower price for their homes in order to end up with the same size of mortgage payment. The same goes for businesses looking to acquire commercial property. Weakness in the real estate market will be one of the two most important factors preventing an economic recovery in the US in 2011.
6. Massive job losses among state and local government employees.
There has been almost a complete unwillingness to confront the reality that state and local governments, which are required to have balanced budgets, have experienced such a decline in tax collections that they will be forced in 2011 to slash budgets to the bone. In the process, I expect at least one million government employees, including a high percentage who are unionized, to lose their jobs by the spring of 2012.
The cutbacks in government functions will affect the public. The rise in unemployment will create further hardships for the economy. I expect this to be the other important factor preventing a US economic recovery in 2011.
7. Disclosures of secret deals between the Chinese and United States governments.
Despite all the political attacks, the governments of China and the US are both dependent on the wellbeing of other.
The US government needs to borrow trillions of dollars to fund budget deficits, and the Chinese are the largest source of such funds. Over the past year, the Chinese have reduced their total holdings of US government debt, but they could have reduced it much more.
In return, the Chinese need the US to hold up the value of the US dollar simply because of the trillion dollars of US debt that they hold. If the US dollar were to drop in value by 10%, that would cost the Chinese government $100 billion in addition to reducing future demand for Chinese exports.
I have a sneaking suspicion that, in return for the Chinese not dumping a lot more US government debt, the Chinese have extracted promises or guarantees from the US government to either cover or otherwise compensate for any Chinese losses from a possible decline in the US dollar.
As much as the US government is in debt, it has a relatively weak bargaining position—and the Chinese know it. If there are such agreements and they become public knowledge, expect a significant political backlash in the US.
8. More major failures of private entities.
There are repeated rumors that significant enterprises are on the brink of bankruptcy, such as Bank of America. Should the lawsuits proceed poorly for them, both JPMorgan Chase and HSBC could be in peril to such an extent that I would expect the US government to rescue them.
Although many publicly traded companies have improved their balance sheets and are enjoying higher profits, there are still a number of dead companies that have not yet gone into bankruptcy. I anticipate that several of them will not be able to hold on until the end of 2011.
9. At a minimum, Section 9006 of Obamacare will be repealed.
This obscure provision in the health care legislation enacted in March 2010 would require, starting in 2012, all 34 million businesses, non-profits, and government agencies to file 1099 forms with the IRS for any purchases of goods for services totaling $600 or more from one party over the course of a calendar year.
The burden this reporting requirement would impose on businesses is so onerous that even the IRS is complaining, saying that it would have to hire an additional 16,000 employees to handle the extra paperwork. Of course, with millions of businesses required to collect confidential tax information from so many parties, you can be sure that identity theft would soar. The public raised so much clamor over this provision in the past few months that even the president stated in his address the day after the November elections that this would have to be resolved. There were multiple attempts by both Democrats and Republicans to repeal this provision over the past several months, but neither party would allow the other party to claim credit for the repeal. As of this moment, almost everyone in Washington is pushing for repeal, but it just has not happened yet. Look for it to be history by the end of this year, before it ever takes effect.
10. The continuing risk of government “confiscation” of private retirement accounts.
The first US government discussion about the seizure of private retirement account assets occurred shortly after the first election of President Clinton, when the Democrats controlled both chambers of Congress. The plans were shelved when the Republicans gained control of Congress after the 1994 elections.
Further consideration of the idea did not occur until late in 2008, when it became obvious that the Democrats would again take control of both chambers of Congress and that a Democrat would again be president. Hearings were held in September 2010 to consider plans to require private retirement plans to offer retirees an option to convert their assets into an annuity upon leaving the workforce. This is the first of several steps planned to gradually lull the public into accepting government seizure of private retirement assets.
Now that the Republicans have regained a majority in the House of Representatives, I suspect that further progress on nationalizing private retirement accounts will be slowed, but will not stop entirely. The federal government is just too desperate to get their hands on any source of funding and these accounts hold trillions in assets that would be easy pickings.
My suspicion is that the Republicans will eventually support an alternative first step of establishing mandatory retirement accounts that will be required to hold US government bonds. This will be touted as a way of covering workers who now have no retirement accounts at all, but will really be done so that the feds can get their hands on the assets in such accounts.
Patrick A Heller is the owner and General Manager of Liberty Coin Service, Michigan’s largest rare coin and precious metals dealer since 1971. Mr Heller is the editor of the Liberty’s Outlook Newsletter, and gold market commentator for Numismaster. In addition he is a columnist for The Greater Lansing Business Monthly, and has a radio show on WILS-AM 1320.