Wednesday, December 29, 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.

Thursday, December 23, 2010

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 that allowed them to be bailed out at the expense of taxpayers and dollar holders.  It happened because many people have read Ron Paul's End the Fed and the countless articles he's written on money and banking, and have concluded he not only understands the issues, but has the political will to make things right.  It happened because people are starting to accept the truth that central banking is a counterfeiting racket that benefits government and privileged insiders at the expense of the rest of us.  It happened because  people are sick of deficits and unsound money, which are inflating the power of the state over our lives, destroying what's left of the republic, and threatening to bring about a complete economic collapse.  It happened because people are taking an interest in monetary issues for the first time since the Great Depression.  And this time, they're not going to be suckered into accepting the notion that gold is our enemy and an elastic currency our savior. 

For a more balanced assessment of Krugman's column, see Robert P. Murphy's article, "Rise of the Free-Market Zombies."

Wednesday, December 15, 2010

Monday, December 13, 2010

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 legislation that he considers unconstitutional, even on issues as ceremonial as granting Mother Teresa a Congressional Gold Medal. His colleagues have dubbed him “Dr. No,” but his wife will insist that they have the spelling wrong: he is really Dr. Know.

Now it appears others are beginning to credit him with some wisdom — or at least acknowledging his passionate following.

After years of blocking him from a leadership position, Mr. Paul’s fellow Republicans have named him chairman of the House subcommittee on domestic monetary policy, which oversees the Federal Reserve as well as the currency and the valuation of the dollar.

Mr. Paul has strong views on those issues. He has written a book called “End the Fed”; he embraces Austrian economic thought, which holds that the government has no role in regulating the economy; and he advocates a return to the gold standard.

Many of the new Republicans in the next Congress campaigned on precisely the issues that Mr. Paul has been talking about for 40 years: forbidding Congress from any action not explicitly authorized in the Constitution, eliminating entire federal departments as unconstitutional and checking the power of the Fed.

He has been called the “intellectual godfather of the Tea Party,” but he also is the real father of the Tea Party movement’s most high-profile winner, Senator-elect Rand Paul of Kentucky. (The two will be roommates in Ron Paul’s Virginia condominium. “I told him as long as he didn’t expect me to cook,” the elder Mr. Paul said. “I’m not going to take care of him the way his mother did.”)

Republicans had blocked Mr. Paul from leading the monetary policy panel once before, and banking executives reportedly urged them to do so again. But Republicans on Capitol Hill increasingly recognize that Mr. Paul has a following — among his supporters from 2008 and within the Tea Party, which helped the Republicans recapture the House majority by picking up Mr. Paul’s longstanding and highly vocal opposition to the federal debt.

Aides, supporters and television interviewers now use words like “vindicated” to describe him — a term Mr. Paul, a 75-year-old obstetrician with the manner of a country doctor, brushes off.
“I don’t think it’s very personal,” he said in an interview in his office on the Hill, where he has represented the 14th District of Texas on and off since 1976. “People are really worried about what’s happening, so they’re searching, and I think they see that we’ve been offering answers.”

If there is vindication here, Mr. Paul says, it is for Austrian economic theory — an anti-Keynesian model that many mainstream economists consider radical and dismiss as magical thinking.

The theory argues that markets operate properly only when they are unfettered by government regulation and intervention. It holds that the government should not have a central bank or dictate economic or monetary policy. Once the government begins any economic planning, such thinking goes, it ends up making all the economic decisions for its citizens, essentially enslaving them.

The walls of Mr. Paul’s Congressional office are devoid of the usual pictures with presidents and other dignitaries. Instead, there are portraits of Ludwig von Mises and Murray Rothbard, titans of the Austrian school. For years, Mr. Paul would talk about their ideas and eyes would glaze over. But during his presidential campaign, he said he began to notice a glimmer of recognition among those who attended his events, particularly on college campuses.

Mr. Paul now views his exchange with Mr. Giuliani in 2008 as a crucial moment in his drive for more supporters. “A lot of them said, ‘I’d never heard of you, and I liked what you said and I went and checked your voting record and you’d actually voted that way,’ ” he said. “They’d see that the thing that everybody on the House floor considered a liability for 20 years, my single ‘no’ votes, they’d say, ‘He did that himself; he really must believe this.’ ”

His campaign that year attracted a coalition that even he recognizes does not always stand together: young people who liked his advocacy of greater civil liberties and the decriminalization of marijuana; conservatives who nodded at his antidebt message; and others who agreed with his opposition to the Iraq war.

READ the rest.

Thursday, December 9, 2010

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

Wednesday, December 8, 2010

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 denominated in dollars.

Friday, December 3, 2010

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.  It is the money.  The banks issue  IOUs for the money.  When they issue more IOUs than they have gold on hand, they're cheating.

Roubini also says that a "gold standard limits the flexibility and range of actions that central banks can take."  That alone should recommend it.  He thinks it's a shortcoming.

A gold standard doesn't need Roubini.  It doesn't need Bernanke.  It doesn't need Congress.  It doesn't need the World Bank or the International Monetary Fund.  It just needs to be left alone.

The gold standard "requires nothing else than that the government abstain from deliberately sabotaging it," Ludwig von Mises wrote in The Theory of Money and Credit:
What all the enemies of the gold standard spurn as its main vice is precisely the same thing that in the eyes of the advocates of the gold standard is its main virtue, namely its incompatibility with a policy of credit expansion.  The nucleus of all the effusions of the anti-gold authors and politicians is the expansionist fallacy. (p. 421)
Credit expansion - inflation - is indispensable to a growing government. Which is why every government hates the gold standard - especially an autonomous, market-controlled gold standard.  From Human Action:
The gold standard removes the determination of cash-induced changes in purchasing power from the political arena. Its general acceptance requires the acknowledgment of the truth that one cannot make all people richer by printing money. The abhorrence of the gold standard is inspired by the superstition that omnipotent governments can create wealth out of little scraps of paper. (pp. 471-472)
If wealth could be created out of scraps of paper, world poverty would be a thing of the past.

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