A Melman Minute — August 17, 2009

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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. The working title of the book will be 'Just a Melman Minute!"

Perhaps this section should be entitled "Fun with Numbers", because it involves some pretty unusual numeric calculations, and the use of terms with which our esteemed readers might not be totally familiar. However, we can assure you that what follows is a discussion of perhaps frightening future importance for North Americans, Europeans and the rest of the industrialized, "economically-advanced" world.

This past Sunday, I had the pleasure of attending a get-together of freedom-loving, free market advocates known as libertarians and I am delighted to count myself among their numbers. One of the young men attending the event had just returned from a visit to Zimbabwe and he brought with him what I regard as a truly astonishing document. It was the annual report of a bank holding company called "CBZ Holdings Ltd." What intrigued us was the relationship between the figures printed in that annual report and the astonishing - truly astonishing - level of price inflation which has inundated that once-prosperous nation.

Just for the record, and because it applies to this discussion, here is the sequence of "giant" numbers, as documented by the National Institute of Standards and Technology, U.S. Department of Commerce. We are all reasonably familiar with the fact that one thousand thousands are equal to one million and one thousand millions are equal to one billion. From there, the categories are as follows:

1,000 billions = one trillion

1,000 trillions = quadrillion

1,000 quadrillions = one quintillion

1,000 quintillions = one sextillion

1,000 sextillions = one septillion

(By the way, Britain, France and Germany use different terminologies for such numbers, but since these designations are the ones used by the vast majority of our readers, we will stick with them.)

Believe it or not, all of these numbers are applicable to the annual report from the aforesaid Zimbabwean financial corporation.

Most American or Canadian corporate reports list figures as so many thousands, or millions when the data applies to larger companies. Government reports, particularly from the USA, frequently list aggregate numbers in the "billions". However, that is all small potatoes when compared to the annual report of "CBZ Holdings Ltd." Their financial statement lists items such as "assets", "deposits", and so forth in quintillions.

The figure that really caught our eye was the "total assets" number, which amounted to Z$5,467,558 quintillion. Extended to its proper form, that number reads, "five septillion, 467 sextillion, 558 quintillion Zimbabwean Dollars! Were we talking about any other 'reliable' currency, that figure might represent most of the wealth accumulated in the entire UNIVERSE! But what we are talking about is the Zimbabwean Dollar which has become a hyper-inflated piece of nonsense.

In the financial notes, even CBZ's accountants had to take note of the following: "The official rate of inflation opened the year (2008) at 100,580%, and rose sharply to reach two hundred thirty million percent by July, 2008...Thereafter, no official figures were released by the Central Statistical Office.

By the way, these figures do not include the fact that the Zimbabwean Dollar had previously been hit by a 'reverse split' of a trillion to one! If you re-calculate in preceding terms, adding another twelve zeroes to the numeric categories, you go through octillions, nonillions, decillions and undecillions!

The havoc this kind of hyperinflation has done to Zimbabwe can hardly be over-emphasized. What we must be constantly on the lookout for are signs that the outlandish monetary policies of Zimbabwe are NEVER repeated in other financially important nations, most particularly the United States of America.

One of the most notable trends we have identified in recent years, and one we earnestly suggest that any affluent readers keep constantly in mind, is the veritable frenzy among the world's governments for tax revenues, particularly revenues from the 'rich' so various politicians can reassure the much larger number of poor voters that all their generous programs are being provided totally free of any charge to them! Two recent news items confirm that the trend is indeed alive and growing.

In the first case, Italy in now cracking down on "tax cheats" who have failed to report to the Italian government that they have some assets located in foreign countries. Italy is now charging ahead with programs to identify those assets and tax the living life right out of them. We regard two items in a "Telegraph" news story regarding this situation to contain especially ominous implications in regard to personal financial privacy - if that concept truly still exists anywhere on earth.

It seems the Italian government is concentrating their tax-gathering efforts on, "...a list of 500 names that had been seized from a Swiss lawyer..." Whatever happened to the concept of privacy between a lawyer and his client, one of the foundational premises of most Western judicial systems?

Next, we learn that one Attilio Befera, an Italian tax official, stated, "...We are not only focusing on millionaires but anyone with foreign accounts and holdings we don't know about." Are we the only ones concerned with the implications involved in the premise that governments are now apparently entitled to know every single facet of your entire personal economic existence?

The other item refers to recent stories about the U.S. government using coercion to force UBS of Switzerland to turn over confidential and personal information on thousands of its depositors who had been previously reassured regarding Switzerland's reputation for unending and unassailable fiscal privacy.

We also presume that these concepts of government intrusion into formerly private financial matters now fully apply to corporate life as well. If that is so, and we believe it is, mining corporations should take note.

A sudden spate of stories coming out of China are suggesting that the Chinese boom is not likely to be as strong or prolonged as previously thought and markets are reacting in a negative fashion. The Shanghai Stock Index plunged six percent overnight and selling has also hit most major financial and commodity markets this morning

Selling in gold was quite intense and the yellow metal had plunged by more than $15 as of 9:30 AM PDT. (see chart) Silver, platinum and the base metals were also lower, as was the petroleum complex and financial markets in Canada and the USA, with the TSX Index off over 300 points and the Dow Industrials down by about 160. Mining share indexes were sold down as well, off by about six percent so far this session while the U.S. Dollar rose markedly.

We intend to take a longer look at the overall Chinese situation in Wednesday's "Melman Minute."

(All quotes US$ unless otherwise noted)

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.

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