by Addison Wiggin & Ian Mathias

• Accounting tricks now infect even the “honest” reckoning of U.S. deficit
• Things we can no longer take for granted: 2009’s no-brainer play, market angst over Greece
• Byron King with two good reasons to add to your gold and mining stock positions
• Coming to a strip mall near you? England’s own Potemkin village
• Readers debate Canada’s hot streak, envision the future of mail delivery

  Happy inauguration day! Today we begin with this little known factoid: For the first 143 years of the American Republic, presidents were inaugurated on March 4, the only day of the year that is also a command.

The date was moved up to Jan. 20 in 1932 when the activist president Franklin Delano Roosevelt couldn’t wait to wring his hands around the neck of the U.S. economy. Roosevelt set in motion 78 years of what the economist Friedrich von Hayek called the “fatal conceit” -- the arrogant belief that anyone could know enough at any one time to plan an economy.

  Today, we’re paying the price. A little-noticed Treasury report that’s supposed to provide an honest accounting of the government’s finances is now being manipulated just like everything else.

The Financial Report of the United States Government applies generally accepted accounting principles to arrive at a realistic appraisal of the annual deficit. In a typical year, that’s up to twice the official number. But in fiscal 2009, the “real” number is actually lower than the official record-shattering $1.4 trillion.

  Statistical watchdog John Williams laments this year’s report reflects “accounting that might be considered questionable if it were used in the private sector. The relatively ‘positive’ 2009 results reflected capitalization of much of the government’s bailout efforts, a late ‘profit’ from TARP, questionable handling of some post-fiscal year liabilities and changes in actuarial assumptions.

So hinky are the numbers, the Government Accountability Office refuses to sign off on the report. In a statement, the acting comptroller general invokes “material” questions of how Treasury is valuing bailout-related liabilities and assets. In other words, Treasury under Tim Geithner is employing mark-to-make-believe just like the banks he used to oversee when he ran the New York Fed.

  Curiously, the most reliable trade of 2009 is breaking down as we enter the third month of 2010.

Four weeks ago, we noticed stocks are no longer moving in inverse proportion to the dollar. Even the “gold up-dollar down” play is no longer a lead-pipe cinch.

At the time, this break from trend had been going on for just two days. So we weren’t about to call a turning point. Heck, we’re still not. But look at what’s happened since…

So what’s going on? Hard to say. But we’re noticing some other things we can no longer take for granted. Like how markets hang onto every development in the Greek debt drama from Athens to Berlin to Brussels…

  On the surface, today’s news from Greece should be roiling the markets. “Prime Minister George Papandreou is flying to Berlin to speak with German Chancellor Angela Merkel tomorrow,” explains our forex specialist Bill Jenkins. “It is widely assumed that she holds the golden ticket for any EU assistance.”

But now it appears that ticket won’t get punched. Merkel says the meeting won’t be “about aid commitments.” Her finance minister elaborated by saying a third round of Greek “austerity measures” -- tax increases and cuts to government-worker wages -- should do the trick.

Buyers of Greek debt seem to think so. An auction for 10-year bonds went just dandy today -- heavily oversubscribed. You wouldn’t think protesters were again taking to the streets and seizing the finance ministry in Athens… but they were.

  The rest of the world is reacting with an equal degree of calm. U.S. stocks are up a bit this morning. And the currency markets are sitting tight.

“The market has not been very committed,” continues Bill Jenkins. “The euro free fall has ended, finding support at the 1.3450 area. We are on our 12th day of congestion in a 2-cent range… 1.3450-1.3650. Is this a bottom? It acts like it wants to be, but there’s not very much bounce here… at least not yet. Not many traders willing to take on the risk yet.”

  While the euro and dollar go nowhere, gold is holding onto most of yesterday’s big gain. It sits at $1,135.

  “All of the precious metal miners have pulled back in the past couple months,” reports Byron King. “It's a buying opportunity that's reflective of last year's run-up in the price of gold (and silver). Gold hit $1,230 per ounce in November. Then the gold price started to retreat. This pulled down the share prices for the miners.

“So looking ahead, what's the general direction for precious metal prices?

“You guessed it… upward. Hence, add to your positions in the mining patch.

“When it comes to future trends for gold and silver, it seems clear to me. It's obvious that overall world gold output is falling. I've discussed falling gold output in other updates.

“On the monetary side of things, the political classes across the planet can't control their respective government spending. This is bad for the dollar, and every other currency. It's as if the legislatures of every nation are in an Olympic race to determine who can ruin their currency the fastest. Except there's no gold medal for winning this race. Just the opposite, in fact. It leads to national penury.”

But it’s a lesson that’s been lost on national leaders for at least 476 years… as Byron relates in his latest special report. For the full story, plus the best ways to protect what you have during this race to the bottom, check it out.

  After a day of drifting nowhere, U.S. stock indexes opened up 0.3% this morning on a couple of positive data points…

First-time jobless claims fell by 29,000 last week. And continuing claims now stand at their lowest level in a year. This will be the final data point on jobs before the February employment report from the Labor Department, due tomorrow

Business productivity jumped 6.9% in the fourth quarter of last year. Digging into the numbers, this appears largely a function of companies continuing to cut jobs and the remaining employees working harder out of sheer terror that they’re next… but the market sees this as a positive.

  For the record, the Federal Reserve’s latest Beige Book -- or the Lily White book, as we’d prefer it be called -- delivers no news and no surprises. It found economic activity improved slightly last month in nine of its 12 regions, and it might have been better had it not been for the two big snowstorms. Yawn… stretch.

   We have stayed away from the Toyota witch hunt being conducted by Obama’s emboldened Transportation secretary because it seemed like such a waste of time. But daft we think Toyoda, the unfortunately named CEO, has gone. 

To drum up sales, Toyota just began offering 0% financing for up to five years on its most popular models. And in response, General Motors is doing the same. As if 0% financing circa 2002 made no contribution to GM’s bankruptcy circa 2009.

If they couldn’t “make it up on volume” then, what makes them think they can do it now? Oh, that’s right. They now have a red phone connected directly to Tim Geithner’s office at the U.S. Treasury.

  Next time you hear politicians complain that “the banks aren’t lending,” consider this: Their latest scheme to “protect the consumer” will likely dry up $6.3 billion in short-term consumer credit.

That’s the conclusion of the bank consulting firm Bretton Woods, which figures bank revenue from fees for overdrafts and nonsufficient funds totaled $38 billion in 2009 -- a 10% increase from the year before and a 27% increase from 2005.

Much of that increase results from schemes like “overdraft protection.” If you don’t usually run your bank account near zero, it works like this: You can ring up a $4 latte on a debit card, and if it takes your balance below zero, your card will still be accepted… but you’ll also rack up a fee of something like $34. (And another $34 for every transaction you conduct that day.)

Consumers have always had the choice of opting out of these schemes, but under new regulations that kick in July 1, they’ll instead have to opt in if they want it. Thus, a huge revenue stream for the banks dries up, and Bretton Woods figures that means $6.3 billion less that consumers can borrow this year. Gotta love the law of unintended consequences.

  Behold, Suburbistan:

The town council in North Tyneside, England, is conducting an experiment with phony storefronts.

Just tape these snazzy graphics inside the windows or screw them to the fascia and you too can create the illusion of a bustling commercial district. They’re reusable!

True, there’s advertising encouraging people to set up a real business there, but we wonder about other applications of this concept. Maybe Detroit or Toledo could throw up some cutouts of ranch homes to encourage urban homesteaders?

  Reacting to the Canadian dollar’s hot streak, a reader writes, “The strong economic recovery in Canada, an amazing 5% in Q4 09, shows the country’s economy has significantly decoupled from the U.S.

“This large measure of independence in economic activities (albeit less so in business ownership -- the U.S. still owns a large chunk of big Canadian businesses) means the Bank of Canada can now afford to pursue a strong policy without worrying too much about the U.S. Fed. If it hikes interest rates and further encourage the already high savings, there will be a huge amount of real money available for investments for the future. Canada will take off from the U.S. orbit.”

  “No,” another reader counters, “we’re just enjoying a good commodities run, and lagging the USA on the credit bubble. Consumer debt ratios in Canada are now approaching levels seen in the USA in 2006.”

  In light of the Postal Service’s looming cutbacks, a reader speculates, “The future will be for mail to be handled by companies such as FedEx and UPS and their subsidiaries and by a hundred other wannabees. These companies are already deeply involved in the process of transporting the mails.”

“When the mail is handled by corporations to the maximum extent possible, the mail within the low-operating cost and high-volume areas will be by private companies. All the mail going places where costs are even questionably higher will still be left to USPS. The objective will be to get all the money for the job and do no work. Mail delivery will not be door-to-door, but to the mailbox unit at the nearest major intersection, etc.

“Mail now delivered to the ranch or main farmhouse will be available at the turnoff from the nearest interstate; never mind that it is 120 miles away (in a lot of places in the Midwest or maybe Nevada). More-local delivery might also be available by even more private means: the high school kid who would have been a paperboy once upon a time will now be a mail delivery person.
 
“If all that sounds too outlandish, consider that if you today in the East Coast Megalopolis send a parcel or FedEx message to Aunt Molly in her house out there in that little valley several mountains north of Boise, FedEx proudly takes it to Seattle, turns it over to UPS, which takes it to Boise and gives it to the USPS to cart down those gravel roads to Aunt Molly's place.”

Cheers,

Addison Wiggin
The 5 Min. Forecast

P.S. “Congratulations to Options Hotline readers,” reads an e-mail we received this morning “they’re up 86% in just nine days playing calls on a major automaker.” Steve Sarnoff’s next recommendation is due Sunday, and right now, because of a promotional offer we’re running, you can snag six months of service free.

P.P.S. If you missed the informal announcement earlier this week, we’ve locked in our friend, money manager, author, U.S. Senate candidate and YouTube sensation Peter Schiff for the 2010 Agora Financial Investment Symposium in Vancouver.

Along with a return appearance by Marc Faber and perennial favorites like Doug Casey, this year’s event is shaping up to be one of our best ever. Here’s where to secure your early-registration discount.