Market fundamentals favor gold

According to standard wisdom, a strong dollar makes gold less attractive, and vice versa. But as Peter Degraaf points out, the rising dollar of recent months has failed to dampen investors' enthusiasm for gold. As he explains:

A powerful source of energy for gold and silver is the ‘real interest rate’. At the moment US T-bills are yielding 1.5%. The rate of price inflation according to Mr. John Williams at Shadowstats.com is about 5.5%. This means inflation is eating away 4% of a dollar that is invested in a T-bill for a year. That is ‘negative real interest’, and gold historically thrives under those conditions.

He goes on:

Other bullish factors for gold and silver include the accelerated increase in national debt of which Greece is just the tip of the iceberg. Next in line will be Spain, Portugal, Ireland and Iceland. There will no doubt be others. In the USA a number of states are technically bankrupt and will be looking for the Federal Government to come to the rescue (read more money printing). These include California, New York, Illinois among others.

Finally there is the realization among investors that their paper gold certificates (including futures and options) have about 1 ounce of gold backing 100 ounce commitments. This game of ‘musical chairs’ will have a bad ending, except for those of us who demand ‘stuff’ instead of ‘fluff’.

Inflation has been the policy of most governments throughout history. It has become the defining characteristic of the U.S. economy. But there is nothing wise or necessary about inflation. Like taxation, it is simply another form of theft that's been given respectability by hacks for the state. Many people still believe inflation will never be a significant problem because we have the Federal Reserve. It is precisely because of the Federal Reserve that inflation threatens the economic foundation of the world.

More prowling for revenue

From Declan McCullagh:

Amazon.com filed a lawsuit on Monday to fend off a sweeping demand from North Carolina's tax collectors: detailed records including names and addresses of customers and information about exactly what they purchased.

The lawsuit says the demand violates the privacy and First Amendment rights of Amazon's customers. North Carolina's Department of Revenue had ordered the online retailer to provide full details on nearly 50 million purchases made by state residents between 2003 and 2010.

Amazon is asking a federal judge in Seattle to rule that the demand is illegal, and left open the possibility of requesting a preliminary injunction against North Carolina's tax collectors.

Governments prowl for more revenue

Governments much prefer to acquire their revenue like thieves in the night. And like smart thieves, they take care to leave evidence implicating some other party or class. Inflation is the classic method of underhanded theft, but printing too much money has been known to hurt even the printers. A variation on the invisible tax approach is raising tax rates on the rich. Because most people aren't rich and never will be, they don't care. But one can only shake so much money from a piggy bank, even if it is a big one, and when that source dries up government can move down the line to anyone with a dime in his pocket. Democracies have always wrapped their arms around the poor, but if they start squeezing the game is over. So what can a rapacious government get away with in today's world?

Enter the Value-Added Tax (VAT). Vedran Vuk writes:

VAT works like a backdoor sales tax. Essentially, every time a producer of goods purchases raw materials, he must pay a percentage tax. When the producer sells his goods to a wholesaler, the wholesaler pays another percentage.

It sounds bad already, but here’s the worst part. Each company down the supply chain gets a tax discount based on the next company’s tax payment. Through this method, every firm in the chain has an incentive to make sure that the next one pays the full amount. If they don’t, then your company is left holding the bag.

In other words, the VAT makes every businessman an agent of the IRS. In the end, the higher cost of goods is passed down to consumers. However, unlike sales taxes, consumers will never see the bill directly on their receipts. This makes VAT far more politically efficient and insidious.

Libertarians are quick to point out that government doesn't work, but clearly it does -- for the government. The twentieth century in the U.S. saw the advent of central banking and the withholding tax, two Machiavellian methods of taking Joe's money without getting Joe to rebel. Will he put up with the VAT too?

JackLiberty.com

A young liberty supporter has alerted me to his blog, and I recommend checking it out. From what I see posted, he is far more advanced at 15 than I was at 30.

Quote of the Day from Ben Bernanke

Found here in footnote 9, at the bottom of the page:

The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

Bernanke sees "costs and distortions" trying to maintain minimum reserves, which have shrunk to almost nothing, but fails to see any distortions caused by massive injections of that famous Fed "liquidity."

NY Post publshes story exposing gold. silver price suppression

Andrew Maguire, a former Goldman Sachs trader working at the London Bullion Market Association (LBMA), gave an exclusive interview with the NY Post recently in which he claimed that JP Morgan Chase and HSBC have been playing a key role in maintaining the illusory value of the U.S. dollar. The banks do the Federal Reserve's bidding in the precious metals market, acting to keep the prices of gold and silver down to make the Fed's paper dollar look less debauched than it really is. The Post quotes Maguire as saying:

JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and/or the US taxpayer.

According to the Post,

Maguire was scheduled to testify last week before the Commodities Futures Trade Commission, which is looking into the activities of large banks in the metals market, but was knocked off the list at the last moment. So, he went public.

Bill Murphy, chairman of the Gold Antitrust Action Committee (GATA), believes the price of gold today would be around $2300/ounce if the price were allowed to move with inflation. "Maguire believes the price should be even higher given the fear trade that would have sent prices spiking during the financial crisis in 2008-09."

I am one of those who believes the fraud of fractional reserves, fiat paper money, and central banking will not end voluntarily. Notwithstanding Ron Paul's courageous fight against the Fed and his promotion of sound money, there is absolutely no political will to end it. It is the very core of modern politics and the source of enormous profits to the big banks. It will end when it self-destructs, which by its nature it cannot avoid. As Darryl Robert Schoon observes:

When the global economy collapsed in 2008, governments rescued the banks, the very ones responsible for the collapse. This is because without the banks’ debt-based paper money, governments could not spend the vast amounts they do not really have.

Politicians seek power and bankers seek profit and their collusion is responsible for the present crisis. Do not be surprised at the current state of affairs, the motives of the participants are clear and so are the consequences.

These are exceptional times and while we are helpless to prevent what is about to happen, so, too, are bankers and politicians. They have brought this state of affairs upon themselves and for this we should be grateful—for without their demise we would be enslaved forever.

What to expect from the FCIC

When government forms bipartisan "commissions" like the one investigating the causes of the 2008 crisis, we can expect anything but the truth to come out. Not because I'm cynical about government, but because the Federal Crisis Inquiry Commission is charged with finding truth in all the wrong places. It will look at the voluntary area of the economy - what little remains of it - and conclude there was insufficient regulation, and proceed to ramp up the power of the regulatory agencies that failed in 2008, with the promise that this time it will be different.

It's never different. The cause is not in the free market. The cause is the lack of a free market.

Ron Paul understands the issues perfectly. He writes:

The reality is that the Federal Reserve relentlessly expanded the money supply through artificially low interest rates for over two decades, and this expansion of easy money caused a wholly predictable bubble. To a myopic Keynesian regulator, the bubble may appear to be caused by greed, but in truth it is completely predictable that humans will act in their own perceived self interest. If the Fed wants to dole out artificially cheap money, people and businesses- including Wall Street businesses- will line up to take it. We can condemn this as greed, but the fundamental problem is Fed policy itself. There will always be demand for cheap money, but we should not allow the Fed to debase our currency and create bubbles of false prosperity to satisfy that demand.

What to do with your tax refund

Buy gold. Not paper gold, physical gold. Have it delivered into your hands and hide it. Hide it so that only you can find it. There are well-known historical reasons for this.

Gold's price has mostly idled the past few months, but don't fret. Over the past decade, the S&P 500 has lost 25 percent, while this time ten years ago gold was selling for around $300/ounce. Today it's up to $1,135/ounce. You can do the math.

But what about the future?

No one knows what will happen, but given that the world's economies are dominated by central banks and fiat paper money, and that both of these are simply tools for governments to take money from your pocket and put it someplace else, without telling you, and that every paper money scheme in history has ended in disaster, with the little guys taking the hit, I wouldn't be surprised if the current trends continue for a long time to come.

Don't be caught papering your walls with Bernanke's notes. Buy gold. If gold is too expensive or unavailable buy silver.