Back on November 15, 2009, we issued a featured report on a silver company that was trading at $0.32.
Since that time, the Company’s share value has climbed to a high of $0.50 (currently trading at $0.495). Not only that, the streams of news from them has been nothing short of impressive. More on that in a bit.
Over this last year, we have been discussing topics related to the devaluing of the US Dollar and why we expect precious metals to outperform in the long-term. (see A New World Currency? What the US Goverment Doesn’t Want You to Know”)
But this topic brings along with it a lot of financial practices that many are still not familiar with yet. So to end the year off, let’s go over the realities of how our financial system works.
Every day we hear about the US printing more money; that this will lead to inflation. But this isn’t exactly what’s happening.
The US Doesn’t Print Money. It Borrows it.
Although in its simplest form this is true, we need to remember the US doesn`t actually print the money on its own printing press. It borrows it. And lots of it.
It’s no secret the United States has decided to tackle their economic problems and crumbling banking system by throwing trillions of dollars at it. Just two weeks ago, in our newsletter titled, “The Impressive News Release,” US debt sat at roughly $12,080,600,000.
At the time of this writing, its already higher than $12,138,000,000.
It’s no wonder the former U.S. Federal Reserve Chairman Alan Greenspan has called for politicians to put party differences aside and formulate a joint plan to tackle the debt this week. The economic guru warned that the country faced an unprecedented ‘fiscal crisis’ because of the record red ink from America’s debt mountain.
To service this debt, the US must pay hundreds of billions of dollars every year on interest alone. For the 2009 fiscal year, the US will have paid over $383 billion dollars in interest.
To make matters worse, this debt is expected to spike dramatically as the Obama administration attempts to reform health care and social security.
But they’re not finished.
Remember TARP? There’s been a lot of talk regarding the banks repaying their TARP funds which should lead us to believe it will lessen the debt load. But Treasury Secretary Timothy Geithner has decided to extend the TARP program until next October – it was supposed to have ended at the end of this year.
Shortly after that, the US House passed a $154 billion economic-aid package (of which half will be funded by the remaining TARP funds) and added a $290 billion increase in the legal limit on government borrowing.
As the US administration is clearly demonstrating, they are not done spending. Not even close.
But where does all this money come from? How and where does the US borrow all this money from?
The Golden Question
The money comes from many different places.
Mutual funds. Foreign governments. Individual investors. Pension funds. Hedge funds. But more importantly, The Federal Reserve.
Before we get into that, we know that China is one of the largest foreign government holders of US debt and the largest foreign holder of US dollar. Fed chairman Ben Bernanke recently stated that China will likely continue to buy US debt because their currency is so strongly tied to the Greenback. But that’s the reason why China so very much wants to diversify their incremental reserves into Euros, Yen, other currencies, plus assets such as gold:
“Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets” – Cheng Siwei, former vice-chairman of the Standing Committee.
As we stated in past newsletters, this suggests that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction. Yet another reason why we remain bullish on gold in the long term.
Now back to the Federal Reserve.
The Federal Reserve
First of all, we need to understand that the Federal Reserve is NOT owned by the US government. It is a private bank created, owned, and controlled by the richest well-known families in the world (although their board of governors says otherwise) to ensure their families will remain rich forever.
And they are doing a fine job at that.
The Biggest Lender
The Federal Reserve is one of the biggest lenders to US’ insatiable appetite for borrowing. This past March, they printed $1.2 trillion and lent it to the US. (see video from March 2009 >>>>)
The US will not default on payments of their loans – that we know.
This means anyone who is lending the US money, will make a sure-fire bet on their return. Think about how much money the Federal Reserve will be making alone on their $1.2 trillion loan that’s guaranteed to be repaid? And guess what? It costs them nothing. Zilch. All they do is print it. There’s no such thing as a FED audit.
So while the same private bankers who control the world’s financial systems continue to lend the US money, the average US citizen will be busy paying back the interest on those loans.
The Rich Get Richer, and the Poor Get Poo
Wouldn’t it be nice if we could print some money and lend it to the US? Obviously, we can’t. Most of us do not belong to the banking families that control the world’s wealth.
And we certaintly do not recommend trying to beat or expose their monetary policies and activities because they are an extremely powerful group you do not want to mess with.
The truth is, there is nothing we can do about it. Except for one thing.
Invest in precious metals
The smart money knows what’s really going on. It’s the reason they have been pouring their funds into precious metals-backed assets such as silver and gold. It’s the only valuable asset that remains tangible.
That’s why we remain bullish on precious metal plays and why we have been featuring nothing but precious metal juniors.
Two Signicant Announcements
This past week, our featured silver company Silvermex Resources (TSX-V: SMR) made three significant announcements.
They announced that Michael Callahan has now become the new President and Arthur Brown, effective January 1, 2010 will be the new Chairman of the Board.
To put this into perspective, let’s take a look at their credentials.
Mr. Callahan served as Vice President of Hecla Mining Co. (NYSE: HL) and President of Hecla’s Venezuelan Operations from 2006 to 2009. He served as Vice President, Corporate Development from 2002 to 2006. He served as President of Minera Hecla Venezolana, a subsidiary of Hecla Mining Co., from 2000 to 2003. Mr. Callahan joined Hecla Mining Co. in 1989 and held a variety of positions including Director, Accounting & Information Services and Senior Financial Analyst before being named Vice President. From 1997 to 1999, he served as Financial Manager of Silver Valley Resources.
Arthur Brown, retired in 2006 as Chairman of Hecla Mining Company (NYSE: HL), headquartered in Coeur d’Alene, Idaho. During his 39 year tenure at Hecla, he held several senior operating positions within the Company, he became President of Hecla in 1986 and was named Chairman and Chief Executive Officer in 1987. He graduated from Witwatersrand Technical College, South Africa, as a mining engineer in 1961. Following his graduation, he worked at Cementation Co. in Canada until 1967, when he began his career with Hecla Mining Company as an industrial engineer. Mr. Brown serves as a director on the boards of AMCOL International Corporation (NYSE: ACO) and Idaho Independent Bank. He is a former Director of the National Mining Association and served as a Director of The Gold Institute and The Silver Institute (Past President). He is past president of the Idaho Mining Association. He is also a Trustee for the University of Montana Foundation (Past Chairman). He is a member of the audit and compensation committees of Amcol International.
Why would Arthur Brown, ex-Chairman and CEO of Hecla Mining, want to become Chairman of this relatively unknown silver junior?
We’ll let you be the judge of that.
One of the reasons we selected Silvermex Resources (TSX-V: SMR) as a featured company (aside from their properties and recent acquisitions) was the new group of directors they acquired with top executives from two of the world’s foremost silver producers: Silver Standard and Hecla Mining.
In addition to the management additions, they released on Friday some underground sampling assays with highlights including 2m of 41.0 g/t Gold, 123.0 g/t Silver and 6.4% Base Metals. Take a look at the news release by clicking here.
With their new team in place and recent acquistion, we are looking forward to what Silvermex Resources (TSX-V: SMR) has in store for us next year.
Until next year, happy holidays!
Disclaimer and Disclosure
Regarding Historical Data: All resource estimates presented in this report for Silvermex other than their San Marcial project are historical and were prepared before the introduction of National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”).
Historical resource estimates may not be relied upon until they are confirmed using methods and standards that comply with those required by NI 43-101. The potential for the exploration target to replicate the historical resource, or to reach the indicated range of tonnages, is conceptual and is based on historical reports, which cite approximately lengths, widths, depths, grades and projections of the historical resource. Readers are cautioned that a qualified person has not completed sufficient exploration, test work or examination of past work to define a resource that is currently compliant with NI 43-101 for historical resource estimates in the Silvermex Reports. We further caution that there is a risk that exploration and test work will not result in the delineation of such a currently compliant resource. Neither Silvermex nor its personnel treat the historical resource estimate or the historical data as defining a current mineral resource, as defined under NI 43-101, nor do they rely upon the estimate or the data for evaluation purposes; however, these data are considered relevant and will be used to guide exploration as the Company develops new data to support a current mineral/resource estimate in accordance with the requirements of NI 43-101.
For more information on Silvermex Resources, investors should review the Company’s registered filings that are available at www,sedar.com.
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