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Showing posts from October, 2010

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…

When will the currency wars end?

Bloomberg reports:
Finance chiefs from South Korea to South Africa signaled they may act to slow gains in their currencies, just four days after the Group of 20 vowed to soothe trade tensions in the $4 trillion-a-day foreign-exchange market.

Asian currencies fell to a one-week low after Bank of Korea Governor Kim Choong Soo said today that measures to mitigate capital flows could be “useful.” Hours later, the rand dropped as South African Finance Minister Pravin Gordhan said his government will use part of higher-than-expected tax revenue to build foreign reserves as it attempts to weaken the currency.

The shifts suggest G-20 members will keep trying to defend their economies from the slide of the dollar and capital inflows even after the group promised Oct. 23 to refrain from “competitive devaluation” and to increasingly embrace market- determined currencies.This is politics-as-usual.  As the central banks of the world engage in a race to the bottom, you should protect your wealth wit…

Did the Cream Rise to the Top - or Something Else?

Economics has been called the “dismal science” for over 150 years.  This is unfair.  Outside of the Austrian school, economics, in parroting the methodology of the hard sciences, has forfeited its claim to being “scientific.” [here, here, and here] Since World War II especially, economists have been mostly apologists for government growth and propagandists for more of the same. [Also here, here, and here]

A panel of distinguished economists recently deadpanned that the recession ended in June, 2009.   And it did end, if you believe in the power of free lunches and consumption multipliers.

Just don’t count the unemployed and underemployed and people who have given up trying to get employed - or the long-employed incubating ulcers about pink slips.  Don’t get upset with the legions of college graduates who have moved back in with their parents or are waiting tables while a staggering student loan hangs over their heads.

Never mind that the world is running out of suckers to buy governme…

Kris Kringle? No, Ben Bernanke

Kris Kringle?No, Ben Bernanke
George F. Smith
What will Ben Bernanke do to restore economic growth?He’s probably wondering the same thing.Since he holds our future in his hands, it can be helpful to think through some of the politically-acceptable options he has, to see where they might lead.
Everyone is speculating on QE2 - Quantitative Easing Two.Will he or won’t he, and if he will, how will he implement it - all at once or gradually?The financial press is convinced QE2 is a done deal in some form.They’re probably right -- aren’t they usually? -- but if I were Ben Bernanke, I would think about it extra hard.QE1 was not an American success story.You don’t improve a gross blunder by repeating it.The monetary base is at an all-time high, banks are risk-averse, corporations are loaded with cash, and the mortgage industry is in trouble again because of sloppy or fraudulent foreclosure practices.Pouring more fiat money into the banking system, therefore, would have the same effect a…

Are we destined for Third World status?

We will only reach Third World status if we don't stop the planners and spenders who rule us.  It is up to you, it is up to me.  The Left-Right agenda of big government has brought us close to collapse, and there are no indications of a trend reversal.  On the contrary, the government acts as if everything else is the problem, as it spends and regulates us into oblivion. documents: 10 Signs The U.S. is Becoming a Third World Country.

"Keep Quiet About Your Gold"

Let's say you've purchased some physical gold and/or silver.  You paid for it in cash from a local dealer who doesn't know you, thereby assuring your privacy.  You bring it home and then . . . you do what with it?

Jeff Clark of Casey Research offers some suggestions.

1.  Put it in a safety deposit box - This is the easiest method, but it compromises your privacy.  Plus, with a safety deposit box you don't have access to your metals 24/7.

2.  Bury it - Advantages: "You don’t have to worry about losing your gold to a burglar or having it damaged in a fire. A lot can happen in the world that won’t disturb buried gold."  Be sure to bury it someplace inconspicuous where you can get to it easily.  Also, put it in a protective container first.

3.  Hide it in your house or put it in a home safe - Don't hide it anyplace obvious, and consider storing it in a home safe, preferably a floor safe that can't be easily moved.  I know someone who stores his valuables …

Stronger Yuan No Threat to Gold

Last week China said it would boost the lending rate on the yuan by 25 basis points.  Contrary to expectations the dollar got stronger.  What does this mean for gold?  Rick Ackerman writes:
Gold and silver came down because speculators believe that China, the world’s remaining economic engine, will continue to tighten in the months ahead. That would be deflationary, the thinking goes, and bullion prices should ease in anticipation. The thinking is wrong, however, for the simple reason that the move toward fiscal austerity around the world, especially in euroland, is no match for the rampant monetary stimulus that is being used to counter the worst global recession since the 1930s. Beggaring-thy-neighbor via currrency devaluations is not merely in vogue, it is the Tulip-o-mania of these times. If this trend is capable of causing the price of gold and silver to fall, then pigs can fly and the world is entering a period of unprecedented peace, prosperity, harmony, with high-paying jobs fo…

Gold-to-Go coming to US

From the Sidney Morning Herald, October 23, 2010:
Apart from the gold-plated exterior - and the fact that they are bulletproof - they seem much like any other vending machine. But instead of chocolate bars, a network of ''gold-to-go'' machines dispenses 24-carat bullion.

Originally designed as a marketing device for an online gold trading business, the machines have become such a success that their inventor plans to build a global network, installing them everywhere from fitness centres to cruise ships.

The German businessman behind the machines, Thomas Geissler, said their success was the result of a rush on gold, the price of which has risen from $US250 an ounce in 1999 to about $US1330 an ounce.

''Ordinary people are starting to see its real value,'' he said.

Since the first machine was installed in May, in the lobby of Dubai's Burj Khalifa hotel, 20 gold-to-go machines have been installed across Europe. Next month the first machines will open in…


The latest unintended consequences of the Federal Reserve-fueled housing boom is the wave of foreclosure problems sweeping the mortgage industry.  When someone takes out a mortgage on a house, they sign an endless stack of papers.  The mortgage company then sells the mortgage, including the papers, to a bank like Bank of America or JPMorgan Chase.  The bank bundles the mortgage with other mortgages and sends it through a depositor to a trust such as Deutsche Bank.  The trust then hires a servicer to collect the monthly mortgage payments.

So, the mortgage moves from a mortgage company to a bank, to a depositor, to a trust, to a servicer.  At each step of the process the appropriate papers should have accompanied the mortgage to identify who owns the house and who pays the mortgage.

Now suppose the original buyers can't make their mortgage payments.  After six months the servicer comes calling and says pay up or vacate the house.  This is entirely legal, as long as the servicer can …

Trashing the dollar to pump stocks

Graham Summers writes:
What’s truly worrisome is that the Fed is hell bent on enacting the exact same policies that have created the Dollar collapse (and the rally in stocks) over the last few months, namely, additional Permanent Open Market Operations (POMO) ramp jobs. The name sounds clever, but it really just consists of the Fed buying US debt from the large private banks, which in turn take the Fed’s money and buy stocks.

Indeed, the Fed just announced it will be monetizing an additional $32 billion worth of US debt in the next few weeks. The schedule for these ramp jobs is as follows:
October 15:October 18:October 20:October 22:October 26:October 28:November 1:November 4:November 8:In plain terms, the Fed is going to keep doing what it’s been doing: trashing the US Dollar to pump stocks. And it’s going to do this to the tune of some $10 billion per week over the next month.

Thus, as ridiculous as it sounds, the stocks up/ US Dollar down trend of the last two months is likely to con…

The Campaign Against Gold

From The Gold Wars by Gary North:

The State has adopted several strategies in undermining the use of gold as coinage. Here are a few of the more common strategies.

1.    Issue paper IOU’s for gold, called gold certificates.

2.    Issue more of these certificates than there is gold to redeem all of them on demand on the same day. “Suckers!”

3.    Allow commercial banks to do the same thing. “Suckers!”

4.    Create a central bank that stands ready to issue gold to bail out any bank that experiences a gold run.

5.    Allow commercial banks to suspend redemption of gold during a national emergency. “Suckers!”

6.    Allow the central bank to confiscate the gold of the now- protected commercial banks. “Suckers!”

7.    Make the ownership of gold illegal for citizens.

8.    Create a gold-exchange system internationally in which foreign central banks buy interest-bearing bonds from one or two countries that back their currencies in gold: IOU’s for central bankers.

9.    Create a central bank f…

Government and gold

From The Gold Wars by Gary North:

Political rulers throughout recorded history have asserted a monopoly over money. They have argued that the State possesses legitimate authority over the creation and distribution of money. Because gold and silver have been widely used as money metals, the State has asserted control over the monetary uses of these two metals.

This is the origin of the war against gold. Gold is widely recognized and desired as an investment. It is a highly marketable commodity. This was far more true in 1913 than it is today. Prior to the de-monetization of gold, which began in 1914, a person could take a gold coin anywhere where international trade was common and buy just about anything. It did not matter which ruler’s image was on the coin. The coin was valuable because of its gold content. The image may have helped to convey information about the coin -- so much gold of a certain fineness -- but the face on the coin had merely a brand-name recognition effect. The Br…

Home prices and government credit

According to Robert Schiller in his book Irrational Exuberance, between 1900 and 2000 home prices in the U.S. increased by an average of 3.4 percent annually, slightly above the average inflation rate.  Prices were firmly tied to people’s ability to pay, which is a function of income and credit availability.

From 1997-2006, home prices gained an astounding 19.4 percent annually on average, yet incomes stayed mostly flat.  How could people pay so much?  The difference was credit.  Government made credit cheaper and easier to get.

Cheap credit today is made possible by our unsound monetary system.

---  From How an Economy Grows and Why It Crashes by Peter Schiff and Andrew Schiff, Chapter 15

Gold surges as Fed releases September FOMC minutes

"In minutes of the its last policy-setting session held September 21, the Fed said officials discussed several approaches to aiding the economy but focused on buying additional longer-term Treasury securities and ways to nudge the public into expecting higher levels of inflation in the future," Reuters reports.

Guess what happened to the price of gold?

"Gold sets record as Fed easing hopes hit dollar" - Reuters

"Gold Prices Rise to Record as Demand Mounts for Alternative to Currencies" - Bloomberg
“Both gold and the dollar agree that Ben Bernanke will be victorious in his quest to foment a robust rate of inflation,” said Michael Pento, a senior economist at Euro Pacific Capital in New York. . . .Gold for immediate delivery reached a record $1,374.35. Investors should be prepared for a correction in prices, Adam Sieminski, a Deutsche Bank analyst, said in a report. The 14-day relative-strength index for gold futures has been above 70 for the past three week…

FRBNY and PPT President Bill Dudley Guarantees QE2

The Fed claims to have a dual mandate: promote prosperity and keep prices stable.  In the nearly 100 years of the Fed's existence it has done neither.  The Fed works against prosperity and against stability.  Fed inflation keeps prices rising and keeps the market chasing after projects that don't make economic sense.  The pseudo-boom it creates results in a recession which it attempts to fix with more monetary inflation.  At Fed headquarters the way to dig yourself out of a hole is to dig the hole deeper.  And dig deeper still when that doesn't work.  The Fed is poised to open the monetary floodgates again by buying more assets, a move it calls "quantitative easing 2," or QE2.

How close they are to executing QE2 was signaled by Bill Dudley last Friday, October 1, 2010, in a speech at the City University of New York's Graduate School of Journalism:
Currently, my assessment is that both the current levels of unemployment and inflation and the timefram…

Why gold and silver are on the rise

Peter Degraaf explains why gold and its little brother are doing so well.  In a word, government.  In his words,
The upward pressure on price is due to fundamentals for gold that are extremely bullish and these include:

·         The US money supply is today twice as large as it was just a few years ago.
·         The Obama administration is without a clear economic policy – three out of four members of the economic team have just resigned - and the fourth, Tim Geithner, has never held a position in the business world aside from being involved in the banking business at Goldman Sachs.  The man can’t even keep correct personal income records.
·         Worldwide money supply is expanding at an average rate of 10%.
·         The US dollar is in a long-term decline against gold (see chart below).
·         The Euro is in a long-term decline when measured in gold (see chart below).
·         Gold is rising not only in US dollar terms but also as expressed in a number of currencies – this r…