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, we are attempting too many functions and we need a simplification of what the Federal government is giving to the people."

For the answer, see 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 balance sheets and did almost nothing to help Main Street. I am inclined to believe that was the whole idea though since the Fed has been incentivizing the banks NOT to expand lending.

One of those incentives is the interest the Fed pays banks on their reserves.

What about consumers?  Won't some of this new money help them out?  More money in the economy usually means higher prices, the very reason the Fed is inflating, making it more difficult for consumers to maintain their lifestyle without borrowing.  Banks love it when you borrow.

. . . much of our ‘growth’ the past few decades has been derived from a service oriented, consumption driven model. The fuel for that growth has been the expansion of consumer credit, so much that consumer credit outstanding and GDP have marched in near lock step since the turn of the century. This tells us that our ‘growth’ has been borrowed, and is in fact, not growth. Throw in the inflation of the early part of this decade and there has been negative growth across the board. The prosperity has been put on plastic and now hangs like a boat anchor around the necks of most Americans.

Graphically, it looks like this:

Sutton adds:

The current contraction, which is showing signs of exhaustion, has only clipped 6.49% off the total consumer debt outstanding.  While this is significant in that it is unprecedented, it is not enough to substantially decrease the costs of servicing the debt for consumers. Since being bailed out, banks have continued to raise rates on many forms of revolving debt to keep profits steady.

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," said one London bullion dealer this morning.

Currently, gold is selling for $1,384 per ounce, according to Kitco. 

In a Washington Post Op-Ed piece, Ben Bernanke justified QE II this way:

Today, most measures of underlying inflation are running somewhat below 2 percent, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run. Although low inflation is generally good, inflation that is too low can pose risks to the economy - especially when the economy is struggling. In the most extreme case, very low inflation can morph into deflation (falling prices and wages), which can contribute to long periods of economic stagnation.

Even absent such risks, low and falling inflation indicate that the economy has considerable spare capacity, implying that there is scope for monetary policy to support further gains in employment without risking economic overheating. The FOMC decided this week that, with unemployment high and inflation very low, further support to the economy is needed. With short-term interest rates already about as low as they can go, the FOMC agreed to deliver that support by purchasing additional longer-term securities, as it did in 2008 and 2009. The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011 and will continue to reinvest repayments of principal on its holdings of securities, as it has been doing since August.

And Mish's Global Economic Trend Analysis mentions the views of Dr. El-Erian, CEO and co-CIO of PIMCO, who predicts QE II will fail for at least three reasons:

1. The Fed is going it alone, without meaningful structural reforms
2. Emerging economies burdened by capital inflows in the wake of QEII will react with currency wars, protectionism, and capital controls
3. Resultant commodity price increases will increase input costs and reduce earnings of American companies

The only structural reform that would help us would be to de-structure the Fed entirely, along with every other organization in Washington.  Mish offers his own analysis:

Add a junk bond bubble to the list of consequences (unintended or otherwise).

Bernanke is clearly misguided enough and arrogant enough to purposely blow a junk bond bubble as an "intended consequence", even though the housing bubble bust proves without a doubt the asininity of such policies.

Thus, it's hard to say if Bernanke wants a junk bond bubble or is merely willing to live with one.

Then again, Bernanke is dense enough to not have any clues about what is happening. He did not see the housing bubble, the recession, the huge rise in unemployment, and any number of other things that happened. In fact, he even denied there was a housing bubble.

In the academic wonderland in which Bernanke lives, it is perfectly possible he is oblivious to the bubbles he is creating.

However, looking at things from every angle, given that Bernanke Admits Targeting Stock Prices, I am leaning towards the first option: Bernanke is misguided enough and arrogant enough to purposely blow more asset bubbles as an "intended consequence", hoping he can deal with them later.

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”.

Who Will Pay for ForeclosureGate?

Is that really a question?

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 oil, gasoline, natural gas). A little protein at dinner is now 39% higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36% since last October. . . .

It is because stashing wheat and cotton in the garage is an impractical way to protect purchasing power that investors are increasingly looking to protect themselves with the monetary metals – a trend that is now very much in motion.

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 permitted to know. The consequences might be catastrophic for the banking interests that run the world.

For then the world might understand why even at its recent price above $1,300 per ounce gold has not come close to keeping up with the inflation, the currency debasement, of the last few decades, why gold has not fulfilled its function of hedging against inflation. That is, gold's enemies figured out how to increase its supply by vast amounts without going through the trouble of digging it out of the ground. They invented "paper gold" -- gold that doesn't exist but that many buyers accepted, never suspecting that major financial institutions might deceive or defraud them.

Adrian Douglas adds:

I have recently written a series of exposes of the LBMA (see References 1-4 below) using the association's own data to show that the LBMA's bullion banks are operating on a "fractional reserve" basis. My analysis indicates that the bullion banks are holding only 1 real ounce for about every 45 ounces of gold that they have sold, a reserve ratio of just 2.3 percent.