Monday, June 30, 2008

Primer on gold coins

Want to buy gold? The late Harry Browne recommended purchasing "bullion coins" -- coins whose price represents the gold content.

From Wikipedia:

A bullion coin is a coin struck from precious metal and kept as a store of value or an investment, rather than used in day-to-day commerce. Examples include Krugerrands, British sovereigns, the American Eagle series and the Canadian Maple Leaf series.
The American Gold Eagle is a bullion coin first issued in 1986 under the Gold Bullion Coin Act of 1985. Most of the coins are produced from the West Point Mint in West Point, NY, and by law all gold used in the coins must come from "newly mined domestic sources." They carry the mint's mark ("W") beneath the date and are offered in 1/10 oz, 1/4 oz, 1/2 oz, and 1 oz denominations. They are alloyed with silver and copper for better wear-resistance.

As legal tender, these coins have a face value of $5, $10, $25, and $50, respectively. For example, the reverse side of the 1 troy ounce coin is marked with 1 OZ. FINE GOLD - 50 DOLLARS. The other denominations are marked accordingly. The market value of the coins, however, is about equal to the market value of their gold content, not their face value. Today, for instance, the 1 ounce American Gold Eagle would be worth roughly $925.

If you buy bullion coins, Harry recommended taking care of the storage yourself -- don't entrust them to a firm. He does add, though, that a bank safe deposit box is a suitable storage place.

A business owner in Las Vegas, Robert Kahre, paid his workers in gold and silver coins. They had filed income tax returns based on the face value of the coins instead of the much-higher market value. The IRS brought 161 charges against nine people, including Kahre, and failed to get a single conviction.

From the Las Vegas Review-Journal:
. . . the trial lasted four months. It relied heavily on evidence gathered in a controversial armed raid in May 2003 on several of Kahre's local business places. The raid entailed keeping more than 20 workers handcuffed, at gunpoint, in 106-degree heat without shade or water while agents collected records and equipment.
Kahre is pursuing civil actions against several parties, including the head prosecutor J. Gregory Damm and the IRS "agents."

In Making Economic Sense, Rothbard made this observation [p. 267]:
. . . there is what can only be considered a grisly joke perpetrated on us by the U.S. Treasury. The one-ounce gold coin is designated, like the pre-1933 coins, as “legal tender,” but only at $50. In other words, if you owe someone $500, you can legally pay your creditor in ten one- ounce coins. But of course you would only do so if you were an idiot, since on the market gold is now worth approximately $420 an ounce. At the designated rate, who would choose to pay their creditors in $4,200 of gold to discharge a $500 debt?

The phony, artificially low gold price, is of course designed by the U.S. Treasury so as to make sure that no one would use these golds coins as money, that is, to make payments and discharge debt. Suppose, for example, that the government designated the one-ounce coin at a bit higher than the market price, say at $500. Then, everyone would rush to exchange their dollars for gold coins, and gold would swiftly replace dollars in circulation.

All this is a pleasant fantasy, of course, but even this superior system would not solve the major problem: what to do about the Federal Reserve and the banking system.

Friday, June 27, 2008

Of War and Inflation - 1969

Time Magazine reported on Nixon's efforts to deal with soaring prices during his first days in office in 1969. Already the number of Vietnam war dead (33,641 Americans) had surpassed the Korean War total by 12, making it the fourth deadliest war in U.S. history. Aware that even with conscription a depreciating dollar was touching more people than an overseas bloodbath - "a family that had an income of $10,000 in 1965 would need $11,330 [in 1969] just to stay in place" - Nixon made controlling prices his administration's top priority.

Is War Good for the Economy?

As always, war benefits some while it impoverishes the rest of us, argues Justin Raimondo.
The false prosperity induced by the speeding up of the printing presses over at the Federal Reserve led to what Alan Greenspan once called "irrational exuberance," a delusion created by the very easy money policies he carried out as head of the Fed. No sooner had certain Beltway sages declared that the age of permanent abundance was upon us – and that this rendered the struggle against the Welfare-Warfare State irrelevant – than their economic cornucopia of limitless wealth went empty. As banks are bailed out while ordinary Americans are turned out into the streets, the manic hubris of Fukuyama's historical "endism" and prophecies of universal prosperity via "globalization" stand revealed in all their silliness.
This is one of his best articles.

Wednesday, June 25, 2008

Greenspan says recession likely

According to a Reuters article yesterday:
The U.S. economy has been hit by a credit crisis which began in the sub-prime mortgage market, prompting a series of interest rate cuts to help boost the economy. But price pressures are growing, making more rate cuts unlikely.
Isn't this a forbidden scenario, according to the More-Money-Will-Always-Save-Us outlook?
Greenspan said he did not believe arguments that the housing problems in the U.S. were due to interest rates being too low during his tenure. "As far as I'm concerned, the data do not support it (that argument). The housing bubble is clearly an international phenomenon."
Let's see, Greenspan inflated here, other central banks inflated there. A bousing bubble developed here, housing bubbles developed there. But according to Greenspan's logic, the Fed is not at fault because we had housing bubbles here and there, making it an "international phenomenon."

The author of Gold and Economic Freedom continues his intellectual free-fall. A few years ago he told Ron Paul he had re-read the article recently and still stood by it. Let's see him stand up for it now. Let's hear him repudiate the Fed and fiat money and call for an honest gold standard.

Saturday, June 21, 2008

Don't count on the Fed

"Stocks will limp into the next week at levels not seen since the Bear Stearns debacle, with no hope of a boost from the Federal Reserve."
So reads the opening paragraph of a column by Nat Worden.

Don't count on the Fed. No boost from Bernanke.

And the Bear Stearns debacle? Was that in any way related to past Fed "boosts"?

Friday, June 20, 2008

Wages must not rise!

In an interview on Bloomberg Television on June 17, former St. Louis Fed president William Poole warned "that the Fed must prevent higher inflation expectations from feeding through to a surge in wages." Do I understand him correctly? The helicopter that flew over Wall Street shouldn't be allowed to fly over Main Street? Let the little guys pay for the orgy the Fed sponsored for the big guys?

Sunday, June 15, 2008

CNNMoney's 18 Ways to Beat Inflation

With a little thought you could come up with at least 18 ways to fight higher prices, as CNNMoney did. They call it fighting inflation, but that's misleading. If they were really suggesting ways to beat inflation wouldn't they encourage their readers to tell the Fed to stop inflating? Or better yet, get their readers to call for the abolition of the Fed and the restoration of sound money?

Nowhere in their little click-and-see article do they mention where all these higher prices come from. Nowhere do they suggest putting a dagger in the Fed and its "monetary policy" of "accommodation."

Central banking threatens Asia

Central banking has infected almost every nation on earth, so it's a matter of logic that every nation prone to their bank's misallocation of resources will go through the illusory phase of good times followed by disaster. And given that more inflation is seen as the cure for past inflation, it's hardly surprising to see headlines such as "Inflation dangers 'threaten Asia.'"

Saturday, June 14, 2008

Recession culprit? No surprise


More specifically, the government's printing press, the paymaster of its unconstitutional wars, the institution dedicated to devaluing the dollar, the Federal Reserve.

Ben Beranke had a brilliant academic record. An almost-perfect SAT score, graduation from Harvard, then MIT. Teaching at Stanford, then on to Princeton where he chaired the economics department. Does his current job represent yet another step up in a brilliant career?

No, because the Fed is a scam, one of the oldest known to man.

So, what to do about the current downturn? Lew Rockwell has a sound recommendation:
What is the right response to a recession? The first rule must be to do no harm. When it comes to government, that is asking a lot and enough. Beyond that, in an ideal world, we would shut down the Fed, reduce the cost of employment, reduce taxes, zap environmental controls on exploring for and refining oil – this would be a good beginning. We could expect the recession to last less than a year under these policies. As it is, we could be in for a very long and deep recession.

Thursday, June 12, 2008

Gee, the Fed has such a tough job

An article by Money Magazine called "Inflation: 3 Big Questions" talks about price increases, the BLS' unrealistic CPI, and -- what's this? -- where inflation comes from:

When there are too many dollars chasing too few goods and services, you get inflation. And it's the Federal Reserve's job to get that balance right. When the Fed lowers rates, it pumps more cash into the economy; when it raises rates, it pulls the money back in.

"When inflation first shows up, people are always wanting to blame other things than Federal Reserve policy," says Brian Wesbury, chief economist at First Trust Advisors. "In the 1970s it was OPEC, today it's China. But in reality, our inflation is coming from easy money."

So why does the article not condemn the idea of centrally-planned monetary policy? Why isn't it calling for the abolition of the Fed and the establishment of sound money? All it does is throw some figures at us -- if inflation continues at the present 4% rate a private pension or annuity payment of
$5,000 a month will buy only $2,300 worth of goods and services in 20 years' time. If inflation jumps to 6%, the purchasing power of that retirement income will fall to $1,600 over that same period.
And if it gets far worse than either of these, then what? Will the U.S. president personally run the printing presses in a gesture of "concern"?

Why are so many people willing to let the Fed ruin us?

Monday, June 9, 2008

Rockwell on War and Inflation

The central bank's printing press is the key to the state's ability to make war, as Lew Rockwell explains. It is not possible to recommend this speech too highly.

Saturday, June 7, 2008

Harvard Class Day Speaker

Ben Bernake spoke to graduating Harvard seniors at Class Day on Thursday, telling them things aren't as bad now as they were when he was in the audience back in 1975. True, we had rising oil and food prices, and slow economic growth then as now, but there are grounds for optimism, Bernanke insisted.

Government is economically wiser since the mid-70s, he claims. Given that government has created a debacle similar to the one in the 70s, what does that say about its ability to learn from its "mistakes"?

He brought up the subject of lessons central bankers have allegedly learned since the high inflation days of the mid-70s, the most crucial of which are (1) "high inflation can seriously destabilize the economy," and (2) "the central bank must take responsibility for achieving price stability over the medium term."

And audience members complained that Bernanke wasn't entertaining?

Let's see, government contributions to our economic well-being in recent years . . . such as the shot in arm SOX (the Sarbanes-Oxley Act) gives to outsourcing?

Or the potential of SOX to "turn into a litigation time bomb"?

Or government's robust penchant for war and the horrendous costs it entails?

Yes, we don't have price ceilings on gasoline today, as he points out, but is that because of government's greater economic wisdom or political expediency? Could it be that Republicans don't relish the prospect of conducting an election with people lining up on odd or even days, as they did in the mid-70s, hoping to find gas in the pumps for the state-mandated price?

Bernanke apparently wants the world to believe that central bankers in the 1970s were unaware that high inflation is bad medicine for an economy, as if banking authorities knew nothing about post-war hyperinflations or about the persistent inflation we get when governments abandon hard money and force fiat standards and banking cartels on their economies.

Counterfeiting is one of mankind's oldest cons. Are we to believe that it took 60 years for U.S. central bankers to realize they were the government's official counterfeiters?

He also seems to believe that without a sufficently high inflation we pay a price "in terms of lost output and employment" -- which he sees as the downside of Paul Volcker's anti-inflationary policies that began in 1979. As for achieving medium-term price stability, does that means the Fed runs the presses but not too fast?

Two points to consider: Why do we need price stability over any term? The free market tends to push prices down. Why is that a bad thing?

Second, who on earth believes central bankers have behaved with restraint since the 10 percent inflation days of the mid-70s? Greenspan ran the printing presses around the clock. At the time everyone was cheering, especially Wall Street.

And today?

According to the BLS inflation calculator, which is programmed by the government, it would take $4.00 today to buy the same thing $1.00 did in 1975. Using the CPI calculator at, which uses the government's pre-Clinton method of computing the CPI, price inflation is more than double what the BLS claims. Is this what he means by maintaining stable prices over the medium term?

Is that the best performance we can expect from our money?

According to, from 1875 - 1908, a period in which the Fed was noticeably absent but gold wasn't, the annualized inflation rate was negative. In 1908, it took $.84 to buy what $1.00 would in 1875. Prices dropped during a period of explosive economic growth. Investments were funded mostly by real savings instead of Monopoly money. It was a time when people could save for their old age. They didn't have to roll the dice in a Fed-inflated stock market or depend on the government's fraudulent Social Security program. The dollar was actually a store of value.

Many students were reportedly bored with Bernanke's remarks. From the Fed's perspective, that's good. Had he sung a different song, such as the one about the Fed's deliberate dollar destruction, more people would have been awake at the end.

Kissing . . . something

Somewhat old news now, but on May 19, Forbes ran this bit about the Columbia Business School's tribute to Fed chairman Ben Bernanke:

Kissing The Ring?

Think the Federal Reserve could be doing a better job? Don’t tell that to Columbia Business School. The prestigious Ivy League graduate unit just named the 32nd recipient of its annual Distinguished Leadership in Government Award: Fed Chairman Ben S. Bernanke. He was set to get the honor this month as a big draw at a school fundraising dinner at the Waldorf-Astoria in New York. Previous recipients include Bernanke’s four immediate predecessors back to 1970, including the now controversial Alan Greenspan. Columbia declined to answer our written query asking how “distinguished leadership” differed from “mere leadership.” Noteworthy since the Fed’s recent bailout of Bear Stearns: Many of the $1,500 meal tickets have been bought by large banks and other financial entities that are subject to Bernanke’s policies. —William P. Barrett

The only surprise is how cheap the meal ticket is, given what the Fed can do for the big players.

Wednesday, June 4, 2008

How to cheat the middle classes

For institutionalized cheating, nothing beats a central bank and fiat money. Setting up the institution takes time, but the tools are right at hand.

Promote a central bank as the solution to fractional reserve banking's periodic economic crises, though without blaming or even mentioning the fractional reserve nature of banking. Instead, blame the crises on a lack of an "inelastic" currency, i.e., one that can be created by a central authority at the touch of a finger on the government's printing press. Get the country's leaders to talk up a central bank, then when most of the country isn't watching, say, around Christmas, ram the bill creating the central bank through the national legislature. After the bill is signed into law, have your pundits continue to reassure the public their financial worries are over.

Later, when the public starts to grumble that their currency doesn't buy as much as it used to, tell them speculators are ripping them off. Pass laws regulating speculators and give it headline prominence. When the next financial crisis arrives, blame it on the market again. Attack speculators for evading the laws you passed. Blame people for hoarding their gold. As punishment, take the gold out of their hands, threatening them with prison and a heavy fine if they refuse to give it up. Hoard it in government fortresses instead.

This would normally be called plunder. A few hidebound economists will in fact call it that. Dismiss them as hopelessly orthodox or as enemies of the people. Reassure the public that the better economists have thoroughly refuted the orthodox superstitions supporting a gold standard. Confiscating the people's gold, therefore, is not an act of theft. It is enlightened monetary policy. From now on money is whatever government says it is. From this point forward government will see to it that money isn't scarce.

And from this point forward the financial life of the middle class is ruled by counterfeiters who have the prestige of being called the country's bankers.

Tuesday, June 3, 2008

Gold Won't Go Away

Lew Rockwell writes about gold's political value today on
People suspect that the gold standard would disempower the nation-state as we know it, including its ability to wage endless wars. To me, this is the strongest case for reform. If we want freedom and peace, the gold standard is the topic that cannot and will not die.

Sunday, June 1, 2008

Cash drop over Indonesia

In a real-life scene similar to the one in my novel, Flight of the Barbarous Relic, an Indonesian businessman "scattered 100 million rupiah ($10,700; £5,406) in banknotes from a plane to promote his new motivational book," BBC News reported today. Tung Desem Waringin, 42, flew over Serang city, about 40 miles west of the capital city, Jakarta, "dropping four loads of bills of small denomination."

Entrepreneurship lives!

‘Pervasive inflation psychology’ developing?

“Consumers and some on Wall Street are expecting price rises to accelerate, a hint that a pervasive inflation psychology could be developing and posing a serious challenge to the Federal Reserve,” Kelly Evans of the WSJ writes.

What is so serious about this development?

On the welcome page of this blog there’s a quote from Ludwig von Mises’ Economic Freedom and Interventionism, 1951:

“What makes it possible for a government to increase its funds by inflation is the ignorance of the public.”

What relevance does this have to the Fed’s “challenge”? Here’s Mises’ statement in context:

“What makes it possible for a government to increase its funds by inflation is the ignorance of the public. The people must ignore the fact that the government has chosen inflation as a fiscal system and plans to go on with inflation endlessly. It must ascribe the general rise in prices to other causes than to the policy of the government and must assume that prices will drop again in a not-too-distant future. If this opinion fades away, inflation comes to a catastrophic breakdown.

The Housewife's Behavior

“If the housewife who needs a new frying pan reasons: ‘Now prices are too high; I will postpone the purchase until they drop again,’ inflation can still fulfill its fiscal purpose. As long as people share this view, they increase their cash holdings and bank balances, and a part of the newly created money is absorbed by these additional cash holdings and bank balances; prices on the market do not rise in proportion to the inflation.

“But then -- sooner or later -- comes a turning point. The housewife discovers that the government expects to go on inflating and that consequently prices will continue to rise more and more. Then she reasons: ‘I do not need a new frying pan today; I shall only need one next year. But I had better buy it now because next year the price will be much higher.’ If this insight spreads, inflation is done for. Then all people rush to buy. Everybody is anxious to reduce his holding of cash because he does not want to be hurt by the drop in the monetary unit's purchasing power. The phenomenon then appears which, in Europe was called the ‘flight into real values.’ People rush to exchange their depreciating paper money for something tangible, something real. The knell sounds of the currency system involved.

“In this country we have not yet reached this second and final stage of every protracted inflation. But if the authorities do not very soon abandon any further attempt to increase the amount of money in circulation and to expand credit, we shall one day come to the same unpleasant result. It is not a matter of choosing between financing the increased government expenditure by collecting taxes and borrowing from the public on the one hand and financing it by inflation on the other hand. Inflation can never be an instrument of fiscal policy over a long period of time. Continued inflation inevitably leads to catastrophe.” [All emphasis mine]

With Bernanke publicly committed to inflation as the great cure for market meltdowns, he could find himself facing a bull with two deadly horns: on the one, hyperinflation, if he runs the presses in earnest and the ignorant public gets wise to his policies, or on the other, the risk of turning the recession into a depression if he slows the presses for a protracted period. Of course, Bernanke doesn't want a financial calamity and will continue with Fed CPR to try to get the economy out of the recession without bringing on massive inflation.

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