California's budget deficit will swell to nearly $7 billion greater than expected due to weak tax revenues and slow progress in cutting spending, Governor Jerry Brown said on Saturday.

Brown said the shortfall for the state's 2012-2013 fiscal year now stands at $16 billion, up from a previous estimate of $9.2 billion made in January.

"We are now facing a $16 billion shortfall, not the $9 billion we thought in January," Brown announced in a video posted on YouTube. "This means we will have to go much further and make cuts far greater than I asked for at the beginning of the year."

This Reuters story was posted on their website on Sunday...and I thank reader "David In California" for sending it. The link is here.

The loss, and the embarrassment it held for Jamie Dimon, the bank’s imperious chief executive, came just one month after a private dinner party in Dallas at which he assailed two respected public figures who have pushed for policies that would make banks like JPMorgan smaller and less risky.

One was Paul Volcker, the former Federal Reserve chairman, whose remedy for risky trading by too-big-to-fail banks is known as the Volcker Rule. The other was Richard W. Fisher, president of the Federal Reserve Bank of Dallas, who has also argued that large institutions should be slimmed down or limited in their risky trading practices…

One guest asked about the problem of too-big-to-fail banks and the arguments made by Mr. Volcker and Mr. Fisher. Mr. Dimon responded that he had just two words to describe them: “infantile” and “nonfactual.” He went on to lambaste Mr. Fisher further, according to the attendee. Some in the room were taken aback by the comments…

Gretchen Morgenson has her way with Mr. Dimon in her Saturday column over at The New York Times. I borrowed it from yesterday's edition of the King Report...and the link is here.

Stung by a huge trading loss, JPMorgan Chase will replace three top traders starting Monday, including one of the top women on Wall Street, in an effort to stem the ire that the bank faces from regulators and investors.

They are the first departures of leading officials since Jamie Dimon, the chief executive, disclosed the bank’s stunning $2 billion loss on Thursday.

The huge scope of the complex credit bet caught senior bank officials off-guard when it began to sour last month and has set off renewed regulatory scrutiny of the industry. Mr. Dimon has largely sidestepped blame for the loss, although he has offered numerous apologies for the blunder, the biggest of his eight-year tenure at JPMorgan, the nation’s largest bank.

This story appeared in the Sunday edition of The New York Times...and I thank Roy Stephens for sending it along. The link is here.

Of all the tricks Wall Street uses to pull the wool over the eyes of regulators, Congress, and everyday Americans, none is more effective than the pretense that the strategies used in finance are so complicated that few outside the banking industry could possibly understand them. Wall Street CEOs ask to be treated like nuclear engineers and say "trust us" when it comes to the complexity of their tasks. In fact, no trust could be more misplaced and no claim to superior knowledge could be further from the truth.

The $2 billion loss announced at J.P. Morgan last week is the latest example. Management, starting with CEO Jamie Dimon, would have the public believe that the loss was due to a complex hedging strategy involving hard-to-value instruments and embedded risk that eluded the best and brightest minds at the bank until it was too late.

This is nonsense. The trade was a simple bet on the difference, or "spread," between the price of a group of bonds and an index based on those bonds. In theory, those two prices should be about the same. In practice, they may vary due to factors such as the relative liquidity of the bonds and the index. At a certain point, the J.P. Morgan trader, known as the "whale," took a view that the index was expensive and the bonds were cheap. In effect, by selling the index and buying the bonds, the whale would own the spread. As the spread comes back to normal, the whale reaps enormous profits and finally unwinds the trade by selling what he bought and buying what he sold at better prices.

This sounds an awful lot like what happened to LTCM when other traders began to trade against LTCM's know positions, knowing that the brain trust at LTCM would have to get out of the trade with a loss. This usnews.com story was sent to me by Randall Reinwasser...and is certainly worth the read. The link is here.

If I were JPMorgan top management, I’d surely be moving today to reduce the company’s risk profile – especially with respect to myriad global market risks. The clouds are darkening and much better to move before the heavy downpours commence (and buyers, along with their liquidity, run for the hills). While I will give no Credit for their self-serving self-flagellation, they are a savvy group that has demonstrated their ability to manage through crises. Certainly, writing Credit and market risk insurance has, again, become a risky proposition. And I’ll assume that JPMorgan’s market-making operations will be reined in throughout various risk insurance markets – and I’ll assume a similar change in tack will be afoot by the cadre of major derivatives operators. Importantly, this equates to less liquidity and more expensive market insurance. A less favorable insurance market equates to more restraint in risk-taking and an attendant tightening of financial conditions. As such, I would not be surprised if this week proves a major inflection point for global risk markets - and a major coup for “risk off.”

Doug's Credit Bubble Bulletin from last Friday is posted, as usual, over at the prudentbear.com website. I thank reader U.D. for bringing it to my attention. I consider it a must read...and the link is here.

At least 100,000 Spaniards angered by grim economic prospects and the political handling of the international financial crisis turned out for street demonstrations in the country's cities Saturday, marking the one-year anniversary of a movement that inspired similar pressure groups in other countries.

Tens of thousands of protesters in Madrid flooded into the central Puerta del Sol plaza in the evening and aimed to stay for three days. But authorities warned they wouldn't allow anyone to camp out overnight, and up to 2,000 riot police were expected to be on duty.

"I'm here to defend the rights that we're losing and for the young people who have it so tough," 57-year-old middle school teacher Roberto Alonso said. "They're better educated than ever. But they don't have work. They don't have anything. They're behind and they'll stay that way."

This AP story ended up posted over at The New York Times website on Saturday...and is the second story that I lifted from yesterday's King Report. The link is here.

The annual mass exodus from the French capital sees the city's inhabitants while away the August heat in the countryside.

But this week many of the biggest earners across the Channel have been mulling a départ which could be rather more permanent.

The toppling of Nicolas Sarkozy by François Hollande, the first socialist president to lead the country in 17 years, has sent ripples of fear through the wealthier arrondissements of Paris.

This story was posted in The Telegraph late on Saturday night...and is another offering from reader Roy Stephens. The link is here.

France's new Socialist president owns three holiday homes in the Riviera resort of Cannes, it emerged today.

Francois Hollande, 57, who “dislikes the rich” and wants to revolutionise his country with high taxes and an onslaught against bankers, is in fact hugely wealthy himself.

His assets were published today in the Official Journal, the gazette which contains verified information about France’s government.

To the undoubted embarrassment of the most Left-wing leader in Europe, and a man who styles himself as “Mr Normal”, they are valued at almost £1 million.

It will also reinforce accusations that Hollande is a “gauche caviar”, or “Left-wing caviar” — the Gallic equivalent of a champagne Socialist.

Isn't hypocrisy delicious sometimes? This story was in last Friday's edition of the London Evening Standard...and is third story that I borrowed from yesterday's King Report. The link is here.

Chancellor Angela Merkel’s conservatives suffered a crushing defeat on Sunday in an election in Germany’s most populous state, a result which could embolden the left opposition to step up its criticism of her European austerity policies.

The election in North Rhine-Westphalia (NRW), a western German state with a bigger population than the Netherlands and an economy the size of Turkey, was held 18 months before a national election in which Merkel is expected to fight for a third term.

She remains popular in Germany for her steady handling of the euro zone debt crisis, but the sheer scale of her party’s defeat leaves her vulnerable at a time when a backlash against her insistence on fiscal discipline is building across Europe.

According to first projections, the centre-left Social Democrats (SPD) won 38.8 percent of the vote and will have enough to form a stable majority with the Greens, who scored 12.2 percent.

This Reuters piece was posted over at the france24.com website on Friday...and I thank Roy Stephens for sending it. The link is here.

Financial markets are hastily making preparations for a Greek exit from the euro after a day of political and economic turmoil ended with Europe's policy elite admitting for the first time that it may prove impossible to keep the single currency intact.

With attempts in Athens to form a government after last week's election looking increasingly doomed, European leaders abandoned their taboo on talking about the possibility that Greece might have to leave the euro.

Shares, oil, and the euro were all sold heavily on Monday in anticipation that anti-austerity parties would garner support in a second Greek election likely to be held next month, bringing the row between Greece and its European creditors to a climax.

This story was posted in The Guardian just after midnight in London last night...and once again I thank Roy Stephens for bringing it to our attention. The link is here.

Euro zone finance ministers dismissed talk of Greece leaving the euro zone as "propaganda and nonsense" on Monday, but said the country had to respect the terms of the bailout program agreed with the EU and the International Monetary Fund.

If Greece can form a government and that government signs up to the bailout agreement, then it is possible some of the targets in the program could be softened, the chairman of the euro zone finance ministers, Jean-Claude Juncker, said.

"I don't envisage, not even for one second, Greece leaving the euro area. This is nonsense; this is propaganda," Juncker, who also serves as Luxembourg's prime minister, told reporters, dismissing those who threaten Greece with expulsion.

This Reuters story was filed from Brussels and Athens late last night...and is another item from Roy. The link is here.

Speaking exclusively to The Sunday Telegraph, Theodoros Pangalos said he was "very much afraid of what is going to happen" after Greek voters rejected the deal in elections last Sunday.

"The majority of the people voted for a very strange mental construction," he said. "We want to be in the EU and the euro, but we don't want to pay anything for the past."

The main beneficiary of the election, the hard-Left Syriza coalition, came a startling second on a promise to tear up the deal, which promises EU loans to keep massively-indebted Greece afloat, but demands crippling spending cuts in return. Germany, the principal lender, has said it will stop payments if Greece breaks its promises on spending.

I thank Roy Stephens for this story as well...and the link is here.

After Greek voters rejected austerity in last week's election, plunging the country into a political crisis, Europe has been searching for a Plan B for Greece. It's time to admit that the EU/IMF rescue plan has failed. Greece's best hopes now lie in a return to the drachma.

Even though the country is virtually being governed by the European Commission and the IMF, Greece's debts are higher than ever and the recession is worsening. As the political situation becomes increasingly chaotic, new elections seem all the more likely.

At the Chancellery in Berlin, the television images from Athens now remind Merkel's advisers of conditions in the ill-fated Weimar Republic of 1919-1933. Back then, the Germans perceived the Treaty of Versailles as a supposed "disgrace." Now, the Greeks feel the same way about the austerity measures imposed by Brussels. And, as in the 1920s in Germany, the situation in Greece today benefits fringe parties on both the left and the right. The country's political system is unraveling, and some advisers even fear that the tense situation could lead to a military coup.

Here is another item from Roy Stephens. This one was posted on the German website spiegel.de yesterday. It's very much worth reading...and the link is here.

The euro crisis is entering its final stages. Economic pain is now interacting with political resistance to produce intense financial pressure. I expect Greece to leave the euro – and perhaps very soon.

It could happen voluntarily, but both the Greek people and Greek politicians are still clinging to the idea that they can put an end to austerity yet still stay in the euro. In order to try to achieve that, a new government may call the eurozone's bluff.

At that point, the other eurozone members would face an awkward choice. Doubtless there would be voices in favour of providing the money, willy nilly. That might well be the French position. But if the eurozone gives way on this, what chance would there be of painful austerity being continued, not just in Greece but also in Portugal, Spain, Italy and Ireland? The northern countries would face the prospect of pouring money into a bottomless pit.

This op-ed piece showed up in The Telegraph on Sunday...and is another offering from Roy Stephens. The link is here.

All key indicators of China's money supply are flashing warning signs. The broader measures have slumped to stagnation levels not seen since the late 1990s.

Narrow M1 data for April is the weakest since modern records began. Real M1 deposits – a leading indicator of economic growth six months or so ahead – have contracted since November.

They are shrinking faster that at any time during the 2008-2009 crisis, and faster than in Spain right now, according to Simon Ward at Henderson Global Investors.

If China were a normal country, it would be hurtling into a brick wall. A "hard-landing" later this year would already be baked into the pie.

Whether this hybrid system of market Leninism – with banks run by Party bosses – conforms to Western monetary theory is a hotly contested point. The issue will be settled one way or the other soon.

Ambrose Evans-Pritchard has a must read story for us. It was posted over on The Telegraph's website early on Sunday evening local time...and is Roy Stephens final item in today's column. The link is here.

India's central bank likely intervened in the foreign exchange market today, underscoring its determination to prevent the rupee from weakening below the psychologically important level of 54 to the U.S. dollar, dealers said.

The Reserve Bank of India likely started selling dollars when the greenback was trading around INR53.90, four dealers told Dow Jones Newswires.

The dollar was at INR53.80 as of 1004 GMT after the suspected intervention, down from an intraday high of INR53.91 and compared with INR53.63 late Friday in Asia. The rupee's all-time low against the dollar is 54.2925, which it touched on Dec. 15.

This subscriber-protected story appeared in The Wall Street Journal yesterday...and is posted in the clear in this GATA release. The link is here.

When the subject of quotas for the Chinese rare-earth industry comes up, we’re generally talking about export quotas, which control (in theory at least) how much material may be shipped out of China, in any given period, and by which companies. Such quotas are controlled by the Chinese Ministry of Commerce (MOC) and their existence is at the heart of the recent WTO complaints filed by the USA, Japan and the EU, against China.

There are, however, at least two other sets of quotas that affect the rare-earth industry in China. The first concerns the separation and smelting of rare-earth products, controlled by the Chinese Ministry of Industry and Information Technology (MIIT); the other concerns mining quotas, controlled by the Chinese Ministry of Land and Resources (MLR). Of the two, the mining quotas are usually the more prominent, and each year, usually sometime in March, the MLR publishes a list of the mining quotas that have been allocated to each province or region in China.

Each year that is, until this year.

This story was posted over at the techmetalsresearch.com website on Sunday...and I thank Australian reader Wesley Legrand for bringing this story to our attention. If you're into the Rare Earth Elements, this is a must read...and the link is here.

MineWeb's Shivom Seth reports that the Indian government is considering issuance of gold bonds to strengthen the rupee and "throttle" gold imports. The MineWeb story says:

"In a major effort to mobilise the vast gold in the country and to reduce imports of the precious metal, the Indian government is contemplating a proposal to issue gold bonds. India accounts for nearly one third of the total world demand for gold, though it might soon cede that position to China.

"'The idea is to throttle gold imports, but this alternative investment avenue will help savings-challenged Indian consumers with pretty much the same attributes of positive real rates of return while keeping risk to the minimum,' said an investment banker."

I borrowed this mineweb.com story from a GATA release yesterday...and the link is here.

The first is with Michael Pento. The GATA headline for this blog reads "Gold standard would discourage derivatives craziness". The second is with John Embry...and Chris Powell has given it the headline "JPM's derivatives blowup vindicates Jim Sinclair". The third blog is with Stephen Leeb...and it bears the GATA headline "Inflation will always be chosen over austerity". The last blog features Robert Fitzwilson. It's entitled "Who is Crashing the System".

Last week I held a hearing to examine the various proposals that have been put forth both to mend and to end the Fed. The purpose was to spur a vigorous and long-lasting discussion about the Fed's problems, hopefully leading to concrete actions to rein in the Fed.

First, it is important to understand the Federal Reserve System. Some people claim it is a secret cabal of elite bankers, while others claim it is part of the federal government. In reality it is a bit of both. The Federal Reserve System is the collusion of big government and big business to profit at the expense of taxpayers. The Fed's bailout of large banks during the financial crisis propped up poorly-run corporations that should have gone under, giving them a market-distorting advantage that no business in the United States should receive.

The recent news about JP Morgan is a case in point. JP Morgan, a recipient of $25 billion in bailout money, recently announced it lost another $2 billion. If a corporation shows itself to be a bottomless money pit of "errors, sloppiness and bad judgment," the Fed shouldn't have expected $25 billion in free money to change that or teach anyone a lesson in fiscal discipline. But it determined that this form of deliberate capital destruction was preferable to one business suffering bankruptcy. Clearly, some changes need to be made.

I found this story in another GATA release yesterday. Ron's headline reads "The Fed: Mend It or End It?" It's posted over at Ron Paul's website...paul.house.gov...and the link is here.

The new commentary at Coin Week by Patrick A. Heller of Liberty Coin Service in Lansing, Michigan, is a reminder that the U.S. government has a secretive financial agency, the Exchange Stabilization Fund, specifically authorized by statute to manipulate the gold market in the name of regulating the value of the dollar.

The rest of Chris Powell's preamble...and the link to the story itself...can be found in this GATA release. The link is here.

This story was posted over at the CNBS website yesterday...and is the biggest pile of horse manure that you can imagine...but that's what passes for serious 'journalism' in the precious metals field in the main stream press these days. Read it at your peril.

It was sent to me by West Virginia reader Elliot Simon...and the link is here.

At the turn of the 19th century it played host to the famed Klondike Gold Rush that drew thousands to the rugged wilderness in search of riches, but now the Yukon entertains a newer, more modern kind of mining rush.

For the past two years, mineral exploration here has been through the roof, nearly half a billion dollars spent searching for the next mother lode of gold, silver, copper, zinc, molybdenum, or tungsten and nearly 200,000 claims staked.

"From July [2011] I flew 10 months worth of hard staking and we probably single-handedly staked 25 to 30,000 claims," said Ben Drury, a pilot with Horizon Helicopters, one of the many charter services in the Yukon that benefited from the staking craze.

"We'd show up at a remote location and there were piles and piles of staking posts stacked 6 feet high waiting for us, coming in a steady stream of Twin Otter [plane] loads, 500 posts at a time."

Ah, yes...Twin Otters. I've flow on a few of those myself in the six years I spent in Canada's high Arctic back in the late 1960s and early 1970s. This rather long story showed up on Canada's nationalpost.com website on Sunday...and I 'borrowed' it from a GATA release. The link is here.

The German parliament, the Bundestag, is looking at the accounting of German gold reserves at the Bundesbank. Parliament's Budget Committee has requested, in opposition to the Bundesbank, a critical report by the Federal Audit Office, the newspaper Bild reports.

"The decision has been unanimous," the paper quoted the Christian Social Union budget expert Herbert Frankenhauser. The newspaper report alleged "account cheating" regarding the German gold reserves.

According to the Bild report, the federal auditing office complained of "inadequate diligence of the accounting of the gold reserves, which are stored in some foreign countries. Repatriation of the gold reserves is encouraged. The German gold reserves are in part held at foreign central banks.

The English translation of this German story is posted in a GATA release...along with the link to the original story. The link to the GATA release is here.

Back at the metals ranch, the whole suite has sold off over the last two weeks. Fears of further trouble in Europe and decreasing growth rates in China have copper, lead, zinc, aluminum, and other industrial minerals on the retreat, and the precious metals as well: gold, silver, platinum. But is this a problem or an opportunity?

I'd guess you know my answer.

Jeff Clark's take on gold stocks below is focused on just that one metal, and it's written with investors who are relatively new to the market and under water in their portfolios in mind. If that's not you, the article isn't for you, but if you're feeling anxious about the direction of the gold market and gold stocks, Jeff's article can still help.

Casey Research's own Louis James wrote the above 3-paragraph introduction to yesterday's edition of Casey's Daily Dispatch. Needless to say it's a must read...and the link is here.

Writing at GoldMoney, the economist Alasdair Macleod argues that when the debt trap is sprung on profligate governments, not just their bonds but their currencies too will be wrecked, and "gold bugs will be vindicated."

I borrowed the above introductory paragraph from Chris Powell...and the link to the goldmoney.com article is here.

The International Monetary Fund is planning to purchase more than $2 billion worth of gold on account of rising global risks. The IMF currently holds around 2,800 tonnes of gold at various depositories

"The Fund is facing increased credit risk in light of a surge in program lending in the context of the global crisis. While the Fund has a multi-layered framework for managing credit risks, including the strength of its lending policies and its preferred creditor status, there is a need to increase the Fund's reserves in order to help mitigate the elevated credit risks," Bloomberg quotes a report by an IMF staff while also adding that a $2.3 billion gold purchase is in the planning.

This was the most prominent story in my in-box when I got up yesterday morning. I thought it rather strange the IMF would actually announce this sort of thing in advance...as there certainly was no indication of that in the gold price...as JPMorgan et al were still stomping around in the precious metals market as I read it. A story like that would normally send the price of the 'commodity' in question roaring to the upside...and that certainly wasn't the case...a fact that I mentioned to Ted Butler in the first of our three phone calls of the day.

The story in question is headlined "IMF stresses need to increase reserves due to rising credit risk"...and was posted over at the commodityonline.com website yesterday. You will note that the story has now been "updated and corrected" to deny that the IMF is buying gold. The link is here.

A great example today of the children’s game Chinese whispers (or Telephone for our America friends) and poor journalism in the gold blogosphere (thinking the Internet is about journalism is idealistic of me, I know). I’ll focus on Zero Hedge as the example because they are a high profile website from which many other bloggers and commentators pick up stories. Knowing how influential they are, you’d expect them to at least apply some basic journalism fact checking before breaking news.

Yesterday Zero Hedge posted the following heading “Meet The Latest Converted Gold Bug: The IMF”. Its key “news” is this republished quote from a Commodity Online post, also dated the 14th:

“The International Monetary Fund (IMF) is planning to purchase more than $2 billion worth of gold on account of rising global risks.”

Rather than being the source, Commodity Online’s story is just a rehash of a May 12th Bloomberg story. Note that the above quote is Commodity Online’s take on the Bloomberg story, not a direct quote from the IMF.

Zero Hedge were aware of this, because they also quote directly from the Bloomberg story, but that is where they left what is quite significant news. As Zero Hedge themselves noted, the IMF had previously been selling its gold. You would think such a major policy shift would at least warrant some more investigative work. Apparently not.

Bron Suchecki over at The Perth Mint sent me his blog on this subject in the wee hours of this morning...and just before I posted the above story about the IMF buying gold. He has been proven correct. This is a must read...and the link is here.