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Showing posts from 2010

Richard Russell's Observations on the Current Gold Bull

Today's gold bull market, Russell writes, is "one of the greatest and least appreciated bull markets in history.  Take in this series, you may never see its like again.

2000 -- $273.60
2001 -- $279.00
2002 -- $348.20
2003 -- $416.10
2004 -- $438.40
2005 -- $518.90
2006 -- $638.00
2007 -- $838.00
2008 -- $889.00
2009 -- $1118.40
2010 -- ?

"I've been around a long time, and I've studied many primary bull markets.  And now I want to venture a few of my observations.

"In markets, I have never seen a series like the above end with a whimper or a fizzle.  The end or the wind-up of such a series usually arrives with an upside 'explosion,' as those who have failed to participate in the series finally rush in to join in the apparent endless advance. . . .

"A great primary bull market is an expression of something changing in a very fundamental and meaningful way.  Following a great bull market, the world is never quite the same."

Read the rest.

Why Ron Paul? Krugman asks

Paul Krugman's article When Zombies Win, published last Sunday, claims that free-market fundamentalists have been a dominant political force in D.C.  In Krugman's words,
When historians look back at 2008–10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything — yet they now dominate the political scene more thoroughly than ever.Krugman takes aim at Ron Paul, who is set to chair the congressional subcommittee that oversees the Fed.   Krugman asks,
How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says "I don't think we need regulators," about to take over a key House panel overseeing the Fed?Krugman is not asking a serious question, but we can take him seriously for a moment.  How did that happen?

The short answer is: By popular demand.

It happened because of growing distrust of the big banks and of the government tha…

iPad & iPhone Christmas Concert

Proof that Bernanke and pals can't stop youthful creativity:

Charlie Rose interviews three gold experts

New York Times acknowledges Ron Paul

Rep. Ron Paul, G.O.P. Loner, Comes In From Cold


Published: December 12, 2010

WASHINGTON — As virtually all of Washington was declaring WikiLeaks’s disclosures of secret diplomatic cables an act of treason, Representative Ron Paul was applauding the organization for exposing the United States’ “delusional foreign policy.”

For this, the conservative blog RedState dubbed him “Al Qaeda’s favorite member of Congress.”

It was hardly the first time that Mr. Paul had marched to his own beat. During his campaign for the Republican presidential nomination in 2008, he was best remembered for declaring in a debate that the 9/11 attacks were the Muslim world’s response to American military intervention around the globe. A fellow candidate, former Mayor Rudolph W. Giuliani of New York, interrupted and demanded that he take back the words — a request that Mr. Paul refused.

During his 20 years in Congress, Mr. Paul has staked out the lonely end of 434-to-1 votes against legi…

Ron Paul Claims Chairmanship of Monetary Policy Subcommittee

As reported by Mike Shedlock (Mish) with an accompanying YouTube video:
Proving that on occasion the little guy can indeed win, Ron Paul announced tonight that he will be named Chairman of the Monetary Policy Subcommittee.

When asked if he would take over chairmanship of the subcommittee, Paul replied "The chairman of the financial services subcommittee, Spencer Bachus, has told me today verbally that I will be the chairman of that subcommittee. He was the one who appointed me as the ranking member and he is sticking to his guns and that I will have responsibility of that committee."

When asked about subpoenas and "audit the Fed", Paul went on to say that he can issue subpoenas but would need agreement from the chairman [Bachus] as well as speaker.Needing such agreement might render Paul's appointment toothless.  But it's a move in the right direction.

Also from Mish: Bloomberg Poll Shows More Than Half of Americans Want Fed Reined In or Abolished

Obama cuts deal, offers to extend tax cuts

From Bloomberg:
The dollar rose to near a 10-week high versus the yen as speculation that extended U.S. tax cuts will bolster the economy drove Treasury yields higher and boosted demand for assets denominated in the greenback.

The U.S. currency gained against most of its other major counterparts as 10-year Treasury yields surged to a six-month high after President Barack Obama late Dec. 6 agreed to extend tax reductions for two years. . . .

Obama said he would accept lower tax rates on high earners’ income, dividends, capital gains and multimillion dollar estates for the next two years in exchange for extending federal unemployment insurance. The tax rates, enacted in 2001 and 2003, were set to increase on Dec. 31.Where are the spending cuts?  Is Obama going to pay for all this with Bernanke's QE?  This only guarantees more price inflation (i.e., dollar devaluation).  Gold and silver may have dipped in recent days but long-range their trend is consistent with everything else denomi…

An Essay on Sound Monetary Policy

This will be a short essay, appropriate to the topic at hand.  It consists of a quote from Milton Friedman, found in Joseph Salerno's outstanding book, Money, Sound and Unsound, p. 366:
If a domestic money consists of a commodity, [such as] a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself.  [emphasis added]
Imagine that.  If we have sound money we don't need the Fed.  Or Congress.  We just need sound money.

End of essay.


Economist Nouriel Roubini recently attacked the gold standard.
Roubini raises the following question: If you are on a gold standard, or modified gold standard, what do you do in the event of a bank run—if you don't have enough gold to fully back the currency?Translated: What happens if the banks have created bogus IOUs for their depositors' gold?  Suggestion: Have them indicted as embezzlers.  Gold doesn't "back" anything.  …

Gold: Inflationary, Deflationary, or Something Else?

From my article, "Government's Perennial Enemy":
It's very difficult to inflate sound money because sound money, by its nature, is difficult to create. It emerges in trade as a highly marketable commodity, but one that's also relatively scarce. Sound money starves the state but not the economy as long as prices are allowed to fluctuate. Yet there was once some confusion about gold's character. As Mises wrote in The Theory of Money and Credit (p. 416): When in the 'fifties of the nineteenth century gold production increased considerably in California and Australia, people attacked the gold standard as inflationary. . . But later these criticisms subsided. The gold standard was no longer denounced as inflationary but on the contrary as deflationary.It was considered insufficiently 'elastic' (deflationary) even during the period 1896-1914, when gold discoveries in Alaska and South Africa spurred an annual inflation rate of two percent. But clearly, the…

Bond Basics

Understanding bonds is crucial if you are to understand the market's moves in response to Federal Reserve statements and actions. (For example, see Robert Murphy's article Can the Fed Become Insolvent?)  Investopedia has a tutorial on bonds but it's spread over multiple pages with various "floating" pop-ups and animated ads that can be distracting.  In the interest of education, I've combined the tutorial into one document, presented here.

Bond Basics: Introduction

The first thing that comes to most people's minds when they think of investing is the stock market. After all, stocks are exciting. The swings in the market are scrutinized in the newspapers and even covered by local evening newscasts. Stories of investors gaining great wealth in the stock market are common. 

Bonds, on the other hand, don't have the same sex appeal. The lingo seems arcane and confusing to the average person. Plus, bonds are much more boring - especially during raging bull mark…

Give gold & silver coins this Christmas

For those on your shopping list who seem to have everything, consider giving them gold or silver coins.  Even if they have nothing, giving them gold and silver would be thoughtful, though they might appreciate getting something useful as well.  I have experience with only one company, but compared to the rules others have imposed on sales of gold & silver this one I can recommend for people who don't have a lot of money to invest.  The company I've dealt with is Camino Coin of Burlingame, California.  Call them at (800)-348-8001 and ask to speak to someone about buying bullion coins.  Once you reach an agreement about what to buy, they will give you a total price, including any shipping charges, along with a contract number.  You then write a check for that amount and get it in the mail within 24 hours.  Once it clears they will fill your order and ship it registered mail in thoroughly secure packaging.

Not many people alive today have held real gold or silver coins in the…

Fifth Edition of "The Creature"

The fifth edition of G. Edward Griffin's masterpiece, The Creature from Jekyll Island, will start shipping Monday, November 22, 2010.

According to Mr. Griffin's website, Reality Zone,
The 5th Edition includes a no-holds barred analysis of bank bailouts under the Bush and Obama Administrations that are shown to be nothing less than legalized plunder of the American people. Many other updates have been added, including a revision to the list of those who attended the historic meeting at Jekyll Island where the Federal Reserve was created.Originally published in 1994, Creature has undergone 26 printings.  If you have not read the book, your Federal Reserve education is incomplete.  It is a compelling read throughout - except for his use of intrinsic value.  He says gold possesses intrinsic value.  I disagree.  Value is in the beholder of the thing valued, not the thing itself.  It is subjective. 

There is nothing mystical about gold, he writes on page 145 (fourth edition, hardboun…

Is the Fed a Great Success Story?

As a public cartel, the Federal Reserve can count on the government to protect it from competition and to shield it from legal action.  The purpose of a cartel is to create above-market rates of return for its members, in this case the largest commercial banks.  The justification given for cartels is that competition would thwart the higher standards sought by cartel members.  Since the goal of higher standards is supposed to benefit the public, the public will pay a high price.  In asking if the Federal Reserve has been successful, therefore, we also need to ask: From whose perspective?  Has the Fed made life better for the general public?

The answer can only be: Are you kidding?

1.  The Fed was sold to the public as a means to eliminate recessions and depressions, which prior to 1913 were called Panics.  Recessions have their origins in fractional reserve banking.  Far from eliminating this practice, central banks were created to protect it.  Why do they protect it?  Because it prov…

Still Have Faith in Interventionism?

The government "bubble" has grown quite a bit over the last two years, as Steve Saville reminds us.  Drawing on an article by Robert Murphy and adding some points of his own, he notes:
The government seized Fannie and Freddie, thereby effectively nationalizing a large portion of the entire US housing marketThe Fed nationalized AIGThe treasury secretary told everybody that he needed $700 billion pronto to patch up the financial sector or the world would end; the treasury secretary then proceeded to partially nationalize the US financial sectorThe federal government took over two of the Big Three car companies and threw traditional creditor rights out the windowThe Fed more than doubled the monetary base in six months' timeThe new Obama administration borrowed almost $800 billion to spend on "stimulus"The federal government has taken a giant leap forward to socialized medicineThe federal government also banned offshore drilling (though the rules are yet again unde…

How Americans Gave Up Their Gold

Have you ever wondered how the American people could surrender their one means of keeping government at bay?  Garet Garrett gives us some details in his 1953 book, The People's Pottage (pp. 33-41):
In view of further intentions not yet disclosed it was imperative for the government to get possession of all the gold. With a lot of gold in private hands its control of money, banking, and credit could have been seriously challenged. All that the government asked for at first was possession of the gold, as if it were a trust. For their gold as they gave it up people received paper money, but this paper money was still gold standard money—that is to say, it had always been exchangeable for gold dollar for dollar, and people supposed that it would be so again, when the crisis passed. Not a word had yet been said about devaluing the dollar or repudiating the gold standard. The idea held out was that as people surrendered their gold they were supporting the nation's credit.

This decree…

Name the Party, Candidate, and Election Year

Excerpts from the Party platform:
"1. An immediate and drastic reduction of governmental expenditures by abolishing useless commissions and offices, consolidating departments and bureaus and eliminating extravagance, to accomplish a saving of not less than 25 per cent in the cost of Federal government. . .

"2. Maintenance of the national credit by a Federal budget annually balanced. . . .

"3. A sound currency to be maintained at all hazards."In his campaign for the presidency, the candidate said:
"I accuse the present Administration of being the greatest spending Administration in peace time in all American history—one which piled bureau on bureau, commission on commission, and has failed to anticipate the dire needs or reduced earning power of the people. Bureaus and bureaucrats have been retained at the expense of the taxpayer. . . . We are spending altogether too much money for government services which are neither practical nor necessary. In addition to this…

Policies are made for the sheppards, not the sheep

The Fed exists to keep the big banks profitable and to help fund government's massive spending programs.  QE II is an open policy of monetary inflation to help achieve these ends, but the Fed has been QE'ing all along.  Andy Sutton reports:
The Fed has been backdoor monetizing for some time now. There are many different ways they’ve done this such as using currency swaps with the ECB, and other ‘facilities’ in foreign jurisdictions like the UK to make their purchases for them. Notice at around the same time China started cutting back on its exposure that Great Britain, broke as a stone, started ramping up bond purchases. It is a pretty safe bet that this is none other than Mr. Bernanke and Co. at work. This has been going on and will continue. However, the shift towards overt monetization should tell us that the Fed is stuck and is beginning to panic. The stimulus didn’t work. The last round of asset purchases, totaling nearly $2 Trillion that we know of, only fattened bank bal…

The Experts Give Us QE II

The Fed's $600 billion promised purchase of Treasury bonds over the next eight months gathered the headlines, but the fine print adds an additional $35 billion per month to purchase more Treasury debt with proceeds from mortgage bonds the Fed plans to retire.  Total money created from nothing for the next eight-month period: $900 billion. 

The stock market is trying to figure out if this is good or bad.  On Wednesday the Dow rose 26 points, and so far today it's up 188.83 points, currently sitting at 11,403.96 as of 3 PM. EDT.

But gold buyers reacted with horror to the Fed's plans.  Adrian Ash reports:
THE PRICE OF GOLD in wholesale dealing lept at the start of US trading on Thursday, extending an overnight rise to within 0.5% of last month's record highs – and gaining $50 per ounce inside 21 hours – as the US Dollar sank in response to the Federal Reserve's hotly-anticipated "QEII" asset purchase program.

"Currency devaluation remains firmly en vogue…

A Cross of Gold

This is a long read - 23 pages - but a very worthwhile one.  Edwin Vieira clarifies many ideas about money, both sound and unsound.
Astute Americans need to envision, and then to bring about, a new monetary system in which no one talks about “the price of gold”, but only of “prices in gold”.  No “price of gold” exists when a fixed weight of gold is the actual unit of money. Under those circumstances, all prices are stated in terms of gold. When a fixed weight of gold is the unit of money, “the price of gold” is a meaningless concept, or at best a tautology: namely, “the price of a unit of gold” is precisely “a unit of gold”. In that context, asking what is “the price of gold” would be as sensible as asking today what is “the price of a nominal 'one-dollar' Federal Reserve Note”.

Is Deflation the Danger?

According to the Bureau of Labor Statistics the official inflation rate (CPI) from August, 2009 to August, 2010 was 1.1%.  Conclusion: prices haven't risen much, and in fact we could be in a deflationary spiral, which Chairman Bernanke and other Keynesians view with horror and which is why it's a virtual certainty the Fed will try another round of aggressive counterfeiting known as Quantitative Easing Two - QE2.

But does the official inflation rate mean the cost of living has only gone up 1.1%?  Only if you don't count food and energy, which the government excludes as too volatile.

Jake Weber, editor of the Casey Report, has produced a chart that shows how much prices have risen for things people actually buy, year over year to October, 2010.
On average, our basic food costs have increased by an incredible 48% over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23% on average (heating o…

Beware of "Paper Gold"

Fractional-reserve banking is not limited to national currencies.  The London Bullion Market Association (LBMA) runs the biggest "physical gold" market in the world.  But at least one expert on the LBMA, Jeffrey Christian of the CPM Group, filed a report in 2000 that the "London bullion market is actually a fractional-reserve gold banking system built on the presumption that most gold buyers will never take delivery of their metal but rather leave it on deposit with the LBMA members from whom they bought it."  GATA's Chris Powell explains:
GATA board member Adrian Douglas has studied the LBMA statistics and Christian's work and estimates that the great majority of gold sold by LBMA members doesn't exist -- that most gold sales by LBMA members are highly leveraged. How leveraged? How much gold is due from LBMA members that doesn't really exist? The LBMA doesn't report that. Like the Fed's gold swap arrangements, the world mustn't be permit…