In a recently declassified lot of FED papers from a top secret cache, a batch of very old photographs were discovered, which -after scrutiny- leave no doubt about its previous Chairman’s true origins…
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December 8, 2009
December 7, 2009
Egon von Greyerz: “Gold is not going up – Paper money is going down”
Posted by oikonomikablog under Egon von Greyerz, economic crisisLeave a Comment
Chances are you may be thinking gold is just another bursting bubble…. Well, then Matterhorn Asset Management’s Egon von Greyerz monthly newsletter has news for you. It’s titled “Gold is not going up. Paper money is going down” and I’ve included a juicy snippet as “hor’s d’oeuvre“….
“We have in the last few years made clear to our investors and readers that there will be very serious consequences arising from the actions of the government:
Please click HERE for full article.
December 2, 2009
Anthony Deden: «Reflections on the Role of Gold in Investment Practice»
Posted by oikonomikablog under gold, marketsLeave a Comment
If Bob Landis’s address to the Nov. 17, Zurich Gold Conference (appended two posts down) has whetted your appetite for more sane economic approaches to true capital preservation and solid investment practices, then you will certainly enjoy Tony Deden’s sage musings:
“Reflections on the Role of Gold in Investment Practice”
“..Despite of what the program says, I do not see myself as an expert. This is why I have added the word «Reflections» to the title. What I will share with you in the next twenty minutes are merely my own ideas on the subject – each of them, in fact, significant enough to demand far more discourse. Finally, I will also try to summarize my own recent practice with respect to gold and the reasoning that it entails.
First, let us define the terms. By the word «gold», I do not mean gold futures contracts, or a structured note, or a warrant, or a gold certificate. I do not mean gold mining stocks or most gold ETFs. By the word «gold» I mean just that – the old-fashioned kind that shines.
Secondly, let us define «investment practice». Forget the dictionary for a moment. In a city like Zurich, you have bankers, private bankers, asset managers, wealth managers, fund managers, portfolio managers, and the assorted variety of investment types. They are all investors. For the purposes of this talk, let us put them into two broad categories:
- Those who work with other people’s money, savings, pensions and are obsessed with the idea of achieving results, money and fame on the basis of how markets do, others do or what the expectations of their customers are.
- Those who look after money and capital that belongs to people they love (i.e. themselves, a father, an uncle, a grandmother, an old neighbor and so on) and who can not afford to lose it. These people are responsible for irreplaceable money.
On the surface, the jobs sound similar. But this is where the similarities end. If you are in the first category, most of my talk tonight may seem trivial and perhaps even irrelevant. If you are in the second category, welcome home.
«What matters is not securities prices, but what your 1975 savings can purchase in today’s world.»
For the last 25 years, I have found myself in the second category of investors and have focused exclusively in a rather unpopular segment: Capital preservation. For some of the audience here, capital preservation means low correlation to market. For others, it may mean bonds and other fixed income instruments. For others it may mean cash under the mattress. And yet for others it may mean gold in the vault. All of the answers are wrong.
Unfortunately, it is not so simple.
Suppose you were a successful businessman who sold his business in 1975 for 2 million francs. Or suppose you were just a simple man who managed to save (yes, save) some of his earnings, on retirement, in 1975, say 100’000 francs. Both of these sums were quite substantial back then. What matters is not securities prices, but what your 1975 savings can purchase in today’s world. Nearly 35 years later, in Swiss franc terms, you must have more than doubled your savings just to keep pace with the prices at Migros. In the end, what matters is the preservation of such capital – in the minimum.
These two imaginary men are witnesses to the fact that the job of capital preservation has nothing to do with alpha or beta or correlations or modern risk management. After all, we do not measure our health on the basis of an index of the collective health of others, but on an absolute basis. Absolute means – purchasing power. But what is absolute? We all end up measuring results in terms of a changing – depreciating money unit. There was a time when our man would put his savings in a bank and could count on the interest he received to meet his needs in retirement. But that was when money had substance. And it was a long time ago.
«I see my job in capital preservation much differently than you would imagine.»
In capital preservation, the problem we face is that we own a fixed amount of money capital – while the central bank produces, at virtually no cost, increasing amounts of the same thing, and in so doing, it reduces the value of what we have saved. On a compounded basis, after only a short period of time, we become impoverished.
I see my job in capital preservation much differently than you would imagine. You may be surprised to know that in 25 years of practice, in different times and for different reasons, I have been a value investor, a fixed income investor, a contrarian, a growth investor, a cash investor, top-down, bottom-up and so on. Starting only in 1998, very slowly, I have also employed gold and gold components in my portfolio, for reasons I will explain in a few moments. What seems to be lack of focus, or perhaps «style drift», is nothing more than a result of the absolute necessity in adapting to the changing circumstances that define both opportunities and risks – those known, those unknown, as well as the risks that come from not knowing what we do not know.
So far, in money terms, I have been more than successful in the pursuit of this mandate and have accomplished the goal to which I have aimed. There have been long periods during which I have owned a preponderance of common stocks, other periods during which I have held as much as 90% of assets in cash, yet others during which I have bought all the long-term government bonds I could, and finally, other periods during which I have held gold. I have accomplished the goal of capital preservation by owning at different times, some lengthy and some short, such diverse assets, as oil royalties, shares in Swatch, Straumann, Microsoft and so on, government bonds, and gold.
«Knowing that the source of all wealth is entrepreneurial activity.»
Starting with the elementary idea of scarcity and choice – and knowing that the source of all wealth is entrepreneurial activity, the general principle of my pursuit has been motivated by an understanding of value. I do not mean value in the sense of a lower P/E ratio or some Graham & Dodd formula or other comparative measure, even if all such notions are helpful. I describe value in its proper definition of being subjective and subject to personal interpretation. Overall, in so doing, I have sought to avoid large errors and have sought to identify significant trends. I have also sought to avoid the considerable errors that are generated by looking at prices rather than causes as a determining factor.
Let me explain – if the money price of an asset rises or falls substantially, one is tempted to look at this price and rationalize it in terms of where the price used to be, where other similar prices may be and so on. But that is really inadequate and misleading. The presence of a «bubble» or a bargain cannot be concluded until one understands the factors that have contributed in the rise or fall of prices.
So, if uncertainty is part of life and since we cannot forecast the future, how are we to be successful over a long period of time? In my view, we need two important possessions: firstly, the agility of an entrepreneur in avoiding errors that would put him out of business, while embracing opportunism and the understanding of value. Moreover, we also need certain intellectual ingredients – considerable knowledge, interest, wisdom and learning on four topics:
1. The nature of money – its history, its significance in financial and economic matters and its role in investment issues.
2. The nature of wealth and capital – how it is generated, how it is destroyed, what risks it confronts and how to value it – subjectively but deliberately. For example, I do not believe that wealth is made in the stock market—which, at best, is a reflection of wealth – and generally, prices of common stocks, like money, are also a function of confidence rather than inherent value. The standard of living of a nation or a family does not depend on the quantity of money, but on the productive capital it possesses.
3. The nature of business cycles – in solid economic theory that makes sense and passes the smell-test of history. I speak of theory as in the Austrian School theory in contrast to the gobbledygook – the confidence cum consumption game that passes for mainstream economics today.
4. Finally, knowledge of oneself is a critical subject as well.
«There is nothing magic about gold.»
Armed with such understanding, an intelligent person is able to make a start in looking after such irreplaceable money.
There is nothing magic about gold. In and of itself, it has no value. There is no one in history that made a fortune by investing in it. Its history is a matter of public record. Up until 15 August 1971, the price of gold was irrelevant for investment purposes. Then came this 10-year period that brought this extraordinary rise—from $35 per ounce to a record of $850 – only to be followed by a brutal 20-year decline from $850 to $257 in 2001. For 20 years, it was the world’s most rotten investment idea. Silver was even worse: It went from $50 to $4 per ounce. And yet, all this while a steady monetary inflation pushed consumer prices in dollar terms by 100%. Contemplate this for a moment.
Instead of looking at an ounce of gold in money price – start thinking in terms of the value of money you hold. This is not about gold, but about money. And this is a simple observation that is impossibly difficult to understand. We live in a world where money defines everything – it is hardly possible to ask ourselves: What is our money worth?
Despite a long rise in price since 2001, gold is actually quite unknown, misunderstood and feared. From the pension fund consultant and trustee to the man on the street, gold remains a relic of a bygone era. The rise of the finance economy in the last 30 years, the inflationary impact on asset prices that have masqueraded as capital gains and the general intellectual impoverishment of modern man have all contributed to our society having lost the skills we once had in detecting the devices and schemes designed to defraud – fraud and theft being the very evil nature of central banking.
«I saw gold ownership increasingly as insurance rather than as an investment.»
In my own practice, since 1998, the role of gold in portfolio construction has taken different forms.
Between 1998 and 2001 – I came to conclude that it was mispriced and that the capital of those companies engaged in the sector was also wildly mispriced. I saw it at that time as either an enormous bargain of gigantic proportions, or as a business about to go extinct. I bet on the former. And so, for the years 1998 to 2001, I viewed gold purely as an investment.
The situation continued to change. Over the ensuing years, in the aftermath of the great Greenspan liquidity of the Y2K scam and the momentous money creation that followed 9/11, it became clear that
- (a) the dollar, as a reserve currency would eventually have to be re-examined,
- (b) the financial situation in the US would deteriorate rapidly,
- (c) the gap between mine supply and traditional demand was growing and
- (d) central banks had become large speculators in the gold markets via the leasing mechanism.
It was only appropriate to re-consider my ownership in gold, not merely as an investment, but also as an insurance policy against a monetary collapse, a crisis in the payment system or a geopolitical conflict. I saw gold ownership increasingly as insurance rather than as an investment.
This continued until more recent times. On reflection, it became evident that a global currency debasement was being orchestrated – in fact, one of unprecedented magnitude and scope. I became convinced that governments would not allow a free market solution to the crisis (i.e. a cleansing), but would pursue what is politically expedient. Further additions to our portfolio coupled with the need to maintain large cash balances, were the basis for a completely new view. I now view gold not merely as insurance, but indeed as cash substitute. More than 45% of our net assets are in precious metals. Holding paper cash subjects me to credit risk, counterparty risk, foreign exchange risk, political and inflation risk. I can avoid most, if not all these, by substituting with gold. It simply means that I trust nominal money less and less.
«Can you point me to any honest money anywhere in the world?»
We are being told that gold is not a productive resource and has no industrial use. What a brilliant thought. I agree, of course. But how much greater is really the economic value of holding government bonds or cash? Or, what sort of industrial uses can be made out of treasury bills? Or structured products?
We are also told that gold is merely a great hedge against a lower dollar. It is true, but not completely. Can you point me to any honest money anywhere in the world? It escapes the superficial observer, but gold is, without doubt, a hedge against the real risk – perhaps a certainty – that none of our ancestors would even imagine – a monetary system at the brink of collapse.
There is much to read about the correlation of gold with commodities indices, oil and so forth. These comparisons may result in clues, but not in wisdom. Yes, when the Chinese money bubble finally breaks, as it will, all hell will break loose for commodities and even for gold. The dollar will rise. But just ask yourself «then what?» and «for how long?».
Finally, there is this common advice that «for insurance purposes, a 5% to 10% exposure to gold would be sufficient». Firstly, these back-of-the-napkin asset allocation models are complete bunk. Secondly, if we are indeed to speak of insurance, prior to making a deal with the insurer, we have to assess the risk. So, what sort of risks are we speaking of? Earlier, I gave you my own list of such risks. None of which seems even close to solution.
«If cheaper currency is the source of wealth, where has Bangladesh gone wrong?»
The price of this metal in money prices has outperformed all other classes for many years in a row. It is understandable that people would want to explain it in hindsight, and it is also quite reasonable among honest men to have differences of opinion. But by asking about gold in terms of price, we miss the greater lesson to be learned in this whole period of crisis.
Frankly, we now have two generations of economic agents who are entirely ignorant about the nature of money. We welcome rising prices and see them as wealth even as they are merely the result of inflation. We demand more cash to save the system, instead of allowing those who fail to go bankrupt, so that more efficient competitors can emerge. We have tolerated the Swiss National Bank sale of our gold reserves in exchange for American paper money and promises.
We demand cheaper currency to stay competitive because we do not know the true nature of competitiveness. If cheaper currency is the source of wealth, where has Bangladesh gone wrong? If cheaper money means economic prosperity, why not just print as much as we can and give it out to everyone? We have become fools. The customers know nothing and the advisers know even less. And then we have the idiot economists—the neo-classical, Keynesian variety with solutions to problems they did not even anticipate; solutions that have, in fact, long been discredited. And so we lurch from crisis to crisis—eating our meager capital in the hopes of becoming rich in money. It’s a pity.
«I see gold as a tool in the same manner I see common stocks, bonds, or just any other type of asset.»
To be an investor in our times without an understanding of history, classic economic theory or the common sense of our grandfathers is a recipe for disaster. And there is more disaster to come.
Here is my summary: In pursuing my goals in capital preservation, I am interested in tangible assets – not promises, not claims, not contracts, not confidence and not hope. I will continue to pursue wealth creation by participating in the capital of the few remaining outstanding entrepreneurs. And I will continue holding cash for a while, expecting to find opportunities to use the latter to purchase more of the former. I do not really trust the money issued by governments. And so, I see gold as a tool in the same manner I see common stocks, bonds, or just any other type of asset.
Let me be very blunt: the discovery of value and/or wise speculation becomes extremely difficult, if not impossible, in an irrational and dysfunctional economic system.
And so, at different times, for different reasons, in different amounts and for different purposes, none of which are suited for a simple explanation or a model—I seek to have such a mixture so as to pursue a noble cause in the economic life of those I serve—capital owners and savers—that of seeking to protect their savings from the rent-seekers, the fools, thieves and assorted charlatans that clutter our world.
Thank you.
A speech from the 1st Gold Conference in Zurich, presented by finews.ch
Tony Deden, born 1957 in Athens, Greece, was educated in Mathematics and Chemistry, University of California but has remained a lifelong student of history, economics and political economy.
Since 1985, at the age of 28, he has been in private practice as investment counselor to families, and since 2001, the manager of Bermuda-registered Edelweiss Fund whose intellectual and practical purpose is the preservation of capital and whose record of total return since inception is at the 99,6th percentile of all unleveraged and diversified investment companies. He serves as Chairman and Chief Investment Officer of Sage Capital Zürich.
November 28, 2009
Max Keiser: Dubai crisis awakes storm
Posted by oikonomikablog under financial crisisLeave a Comment
Interviewed by the “Russia Today” channel about problems in the world financial system, international journalist Max Keiser remarked that the Dubai crisis could create an avalanche -or rather a sandstorm- of defaults across the board.
Furthermore, Max’s sources at Germany’s central bank, the Bundesbank, have told him that the “Buba” is about to join other central banks in announcing gold purchases…
November 26, 2009
Bob Landis: “Long Live the Restoration” (of gold)
Posted by oikonomikablog under Austrian Economics, Bob Landis, goldLeave a Comment
Appended is Bob Landis’s erudite and memorable speech at the Nov. 17 Zurich Gold Conference, titled “Viva la Restoration“
“… It is an honor and a pleasure to be here among so many good friends and great minds. I feel a special affinity for Zurich. It was the home of my friend and inspiration Ferdi Lips. It is the home of other friends like Tony Deden. It was also the ancestral home of the Landis family.
In fact, this ancestral tie makes me a little nervous at the prospect of a question and answer session. The last time a Landis preaching a dissident message was questioned in Zurich, it was while he was stretched out on the rack. His answers irritated his questioners. So they cut off his head.
Hans Landis was a radical Protestant who denied the authority of the Pope and preached strict fundamentalism. In the passions of the early 1600’s, that was like being a gold bug who denies the legitimacy of the central bank and preaches sound money.
And so, as I stand before you this evening, I sincerely hope that over the course of the last four hundred years, Zurich has mellowed out.
Tonight I’m going to approach the subject of gold from a somewhat oblique angle. Please bear with me as I circle in on it.
*
«My personal favorite, the ABCPMMFLF.»
Just over a year ago, the United States underwent a seemingly radical change, seemingly overnight. Its financial system had been revealed as insolvent under the weight of huge liabilities and worthless assets. The government refused to allow all the bankrupt institutions to fail, and thus permit the market to do its job of purging the rot from the system.
Instead, the authorities saved their favorites, effectively merging bank with state. They did so under cover of a witches’ brew of subsidies, guarantees and quasi-nationalizations bearing bizarre acronyms like TARP; PDCF; TAF; TSLF; and my personal favorite, the ABCPMMFLF, otherwise known as the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility.
And those were just the visible programs. The Fed, our central bank, dropped interest rates to zero and monetized additional trillions of dollars worth of problem assets, away from prying eyes. The nature and source of these assets remain matters of speculation, because the Fed to this day refuses to tell us what it bought and from whom.
*
«The events were taking us from freedom to fascism.»
When the smoke cleared, we Americans found ourselves the subjects of a gangster state, in thrall to a clutch of greedy, corrupt and incompetent banks which only days before had failed. We were now the guarantors of trillions of dollars in worthless assets that had generated billions in profits for those same banks in recent years. Their gains remained their gains; but their losses were now our losses. Our money, the reserve currency of the world, was now backed by toxic waste.
The events of last fall were, to all appearances, a bloodless coup, taking us from freedom to fascism virtually overnight. And all without a shot fired, or even, with few exceptions, an authoritative voice raised in protest.
How was such a thing possible in the United States, the supposed bastion of free market capitalism? The nation that had led the free world in the defeat of fascism some sixty years earlier, and in the defeat of Marxism-Leninism less than 20 years earlier?
And more importantly, how do we get out of this mess?
To understand how we got here, we must first understand that what seemed like major change, was actually just the illumination of existing reality. Bank and state had been a unitary phenomenon for many years. And what seemed abrupt, was actually the outcome of a gradual, accretive process.
*
«Ideas have consequences, bad ideas have bad consequences.»
What happened last fall can be seen as the aftermath of a war of ideas fought long ago, in which the wrong side won, decisively.
The vanquished were the heirs of a noble intellectual tradition, the English empiricist philosophers who developed in the modern era the concepts of private property and voluntary exchange. This tradition, which informed, among other things, the United States Constitution, was reinvigorated in the late nineteenth century by a remarkable succession of economists originally based in Vienna, hence the term «Austrian School» of economics. The Austrians, whose greatest exponent was Ludwig von Mises, and whose American voice was Murray Rothbard, developed a theory of economics based entirely on individual choice.
The victors were the heirs of a far less noble tradition, a long line of intellectual quacks and panderers to power. The line began with a Scotsman, John Law, reached a vigorous maturity in an Englishman, John Maynard Keynes, and entered a final, flamboyant decrepitude in the policies, if not the public posturing, of former Fed Chairman Alan Greenspan. In this tradition, the relevant analytic units are aggregates, broad abstractions. The individual scarcely warrants mention. Public power, not private property, is the heart of this tradition.
Keynesian economics is just a modern mutation of inflationism, a stealth tax levied by powerful insiders on ordinary people who can’t see it happening until it is too late. It is music to the ears of interventionist governments, because it ratifies what, if unchecked, they will do anyway, and it preys on the greed and gullibility of its victims, who are more than willing to believe you can get something for nothing.
*
«The quacks had the field to themselves.»
Now I must concede, as a matter of historical fact, I’ve overdrawn the point. It wasn’t much of a fight, much less a war. The quacks had the field to themselves. They told powerful people what they wanted to hear, validating the intervention and deficit spending that was already occurring. They also had a head start of some 20 years, since it was not until relatively late in the day when the Austrians’ theories were even translated into English.
Nevertheless, I believe the events of last fall, and the road ahead, can best be understood in terms of the interplay between these two schools of economic thought.
Now, a detailed comparison of the two schools is just a bit beyond us this evening. But there are two contrasting theories that I’d like to mention briefly.
The first such contrast is the theory of depressions. In Austrian teaching, so-called business cycles are caused by official interference with money and credit creation. This interference – for example, setting interest rates below market – fools individual actors into overproducing, creating supply that exceeds actual demand. A depression is merely the process of clearing the resulting imbalance. It is inevitable, and it is necessary. Left to itself, the market will clear the excess of supply over demand through price adjustments. Government at this point has no role to play; it has done quite enough already.
In Keynesian teaching, by contrast, government is blameless in the business cycle, which just occurs naturally. In a depression, markets can’t be trusted to clear themselves through price adjustment. The government must step in and stimulate additional demand by means of deficit spending, more money creation, and more credit expansion.
*
«Why do we tolerate unaccountable power in government.»
The policy responses of last fall illustrate perfectly Keynesian doctrine in action. Our authorities refused to let the markets clear. Instead, they panicked, and attempted to prop up prices, reignite the credit expansion, and stimulate demand. All this is obvious to anyone who follows the news.
What is less obvious is how the crisis came about. Keynesians treat it like an act of God. Virtually no one in authority saw it coming. Applying Austrian theory, we see that the crisis was caused by Government intervention, decades of relentless credit expansion. It was entirely predictable. And, indeed, it was predicted. The nature and timing of the inevitable crash were endlessly debated for years all over the Internet by ordinary people unburdened by false doctrine.
A more important question, however, is why we tolerate unaccountable power in government. Why do we find it acceptable that government has the power to intervene so massively in the market that it can cause such a crisis in the first place? And why do we now tolerate more of the same, a putative cure that is doing even more damage?
This brings us to the other contrasting theory, the concept of money itself.
In Austrian teaching, money originates in the market: …all money has originated, and must originate, in a useful commodity chosen by the free market as a medium of exchange. The unit of money is basically just a unit of weight of the monetary commodity – usually a metal, such as gold or silver. Government has no role in the definition or selection of money, let alone its creation, price or quantity. That is the market’s function.
*
«Keynes was so delighted with the State Theory of Money...»
In Keynesian theory, by contrast, money originates in the state. Government has a total monopoly on money, starting with its very definition. It is not chosen in free exchange, it is imposed by force.
Keynes got his idea for state control of the means of exchange in the writings of a Prussian academic named Friedrich Knapp. Herr Knapp was the author of a book entitled the State Theory of Money, published in 1905.
According to Knapp’s theory, money is a creature of law, of state power. Money is whatever the state is willing to accept as payment for its taxes. It derives its value exclusively from the state.
Keynes was so delighted with the State Theory of Money that in 1924 he sponsored its first translation into English. In 1930, he adopted it explicitly in his Treatise on Money.
Now, it is a measure of the success of the Keynesian indoctrination to which we have all been subjected that this insidious theory strikes most people, even some who fancy themselves free market in orientation, as unobjectionable. They prefer to concentrate on other fallacies of Keynesian doctrine. Many of us are so used to hearing that the state properly has a monopoly on money that we have come to think it natural.
In fact, the State Theory was already defunct long before Keynes appropriated it. It had been demolished in theory as early as 1912 by Mises in his classic Theory of Money and Credit. It had been discredited in practice by its association with the German hyperinflation of the 1920’s. But inconvenient truth did not deter Lord Keynes. The State Theory was quietly incorporated into Keynesian dogma without further ado.
And there it sits, to this day, malignant and unexamined, a false theoretical postulate at the foundation of the entire corrupt edifice of inflationist theory and practice.
*
«How do we get out of this mess?»
So why is this bit of intellectual history relevant?
Because bad ideas have bad consequences.
The State Theory of money, the obscure foundation of modern inflationism, left us intellectually defenseless against our government’s incremental shift to fiat money and away from any practical limitations on its power.
It left us defenseless against the depredations of our central bank, whose grotesque mispricing of money and credit over the years led in a straight line to the catastrophic serial bubbles in assets and credit whose threatened collapse triggered the open interventions of last fall.
And, unless we drag it out into the open and drive a stake through its heart, the State Theory will leave us defenseless still as we grope for a way out. If our assumptions are so flawed that we cannot properly articulate the conceptual problem, we will never understand, let alone fix, the institutional and behavioral problems.
Or, more to the point, defend ourselves against the next wave of monetary swindles by powerful insiders.
And so we come to the second question: how do we get out of this mess?
The short answer is, we don’t. There is no saving the dollar or the monetary system now based upon it.
Not that we should want to. Absolute power, Lord Acton famously observed, corrupts absolutely. The power to print a reserve currency out of thin air is the greatest power on Earth. Its very existence attracts and empowers people who wish to control other people. It corrupts all who enjoy it.
*
«As a society, we Americans have reached a dead end.»
You have had direct exposure to the truth of this observation. Consider the relentless attacks on your gold by our authorities, and the relentless attacks on your bank secrecy laws by nearly everybody. The very same laws, ironically, that were developed in the 1930’s for the express purpose of protecting clients who were nationals of fascist states.
I believe it fair to say that as a society, we Americans have reached a dead end. We are bankrupt, and not just financially. Our leading institutions are corrupt and discredited. Our leadership class has betrayed its trust, openly and repeatedly.
Our financial and economic crisis will in due course lead to an intellectual and cultural crisis. We may yet avoid the fury and violence that have attended other paradigm shifts, other imperial collapses. But we will need to be very lucky indeed. That’s because on the one hand, this is about power which will not be voluntarily relinquished, and on the other, there is no reasoning with an angry mob.
So I believe it is a waste of time to talk about reform of the existing monetary system. There is no historical precedent for a fiat money surviving more than a brief span of years; and, in any event, the experience of the Soviet Union teaches that an economic system built upon a false dogma cannot survive.
*
«In the meantime, what keeps the current system going?»
We should instead focus on regeneration, the task of rebuilding out of the wreckage on the other side of that final monetary collapse. At that time, and not before, we will have the opportunity, however brief, to drive out these disastrous ideas along with those who used them to control and impoverish us. Only then will we have an opportunity, however long the odds, to restore our Constitutional republic.
In the meantime, what keeps the current system going?
You do.
You, meaning foreign investors, still lend us your savings. This just enables us to prolong the process, defer the resolution, and increase its ultimate cost.
When will it end?
Wherever you cut us off.
At some point, foreign holders will sell our debt in earnest, and buy gold with a conviction resembling panic.
*
«It’s impossible to understand gold without understanding its political dimension.»
And so, finally, I come to gold. This is, after all, a gold conference. Why then do I talk so much about politics?
Because I think it’s impossible to understand gold without understanding its political dimension. Gold is permanent, natural money, the antithesis of money made from nothing, money backed by force alone. It is a potent symbol of private property; of voluntary exchange taking place outside the control of the state; of limits on state power; and of resistance to the runaway state.
Left to its own devices, gold is the ultimate barometer of public confidence in government. It is also the ultimate means for ordinary citizens to opt-out of an oppressive, fraudulent system.
That is why gangsters who wield power in the name of the “people” always make ownership of gold a crime. So it was in France during the Revolution, in Germany during the Nazi era, in Russia during the Soviet era, in China during Mao’s rule, and in the United States from 1933 through 1974. It is why, even during periods when the ownership of gold is not outlawed, its price is ‘governed’, as one commentator puts it, or officially manipulated, as others of us put it.
It’s often hard for practical men of affairs to understand the vehemence of those of us who assert, seemingly ad nauseam, that gold is money. The truth is, our passion has more to do with the concept of liberty than with that of money. We know from history and experience that once the free market has lost control over the definition and creation of money, individuals have lost their liberty.
*
«Money must be real, tangible, circulating.»
That’s why neither a central bank nor fiat money find support in the Constitution of the United States, and why our monetary system, which has these two elements as its very foundation, is unconstitutional on its face.
It’s also why, as we rebuild our institutions from the wreckage of the final monetary collapse, control over money must at all costs be kept away from government. It is not enough that gold return as money; government must keep its hands off.
Money must be real, tangible, circulating. As Mises wrote when considering the subject of monetary reform back in the 1950’s, «Everybody must see gold coins changing hands, must be used to having gold coins in his pockets, to receiving gold coins when he cashes his paycheck, and to spending gold coins when he buys in a store.» And I’m sure he would have added an approving reference to digital gold had the technology then existed.
Now, just to be clear, people must be free to choose whatever they want to use as money. We believe they will choose gold, given a chance, simply because people have already done so over thousands of years, and for very good reasons.
But creating the conditions within which an informed choice can be made, even – or perhaps especially – after the collapse of the system and the discrediting of its false ideology, will be extremely difficult.
We are beset by propaganda, falsehood and spin from all sides. Truth is of no consequence; the Fed has bought and paid for virtually the entire economics profession in the United States.
*
«I hope that we will see a new initiative in the very near future.»
Our universities are riddled with apparatchiks who at the very least must toe the party line to advance in their careers, and in many cases are directly dependent on Fed largesse.
The financial press, now concentrated in ever fewer hands, is captive to the same false dogma, and is little more than an apologist for the current monetary regime.
We desperately need credible new sources of information on money if we are going to have any shot at a sustainable regeneration.
In this connection, I have reason to hope that from the talent assembled here this evening, we will see a new initiative in the very near future. Stay tuned.
Thank you. “
***
Robert Landis is a private investor and a member of «Golden Sextant Advisors», commentators on the gold market. He is Chairman of Amarillo Gold Corporation.
He was a founder and former President of Northern Lights Investors, a private investment company operating in Poland, and a former Managing Director of Schooner Capital International, a Boston-based investment company operating in Poland and the Former Soviet Union.
From January 1984 through June 1994, Mr. Landis held a variety of positions within Merrill Lynch & Co.’s Investment Banking Group, most recently as a Director in the Financial Institutions/M&A Department.
Before joining Merrill Lynch, Mr. Landis was an attorney with the New York firm of Simpson Thacher & Bartlett, where he practiced corporate and securities law in New York and London. Mr. Landis is a graduate of Princeton University and Harvard Law School, and is a member of the New York Bar.
November 23, 2009
Orlandini doesn’t mince his words when it comes to the credit crisis
Posted by oikonomikablog under Enrico Orlandini, FED, financial crisisLeave a Comment
Here’s a very enlightening excerpt from Enrico Orlandini’s weekly missive, “Dow Theory Analysis”, regarding the credit crisis:
“..For those of you who haven’t figured it out yet, the credit crisis and resulting bail outs had nothing to do with concern for the general public.
Two ex-Goldman Sachs men, the Treasury Secretary Henry Paulson and then President of the New York Federal Reserve Bank Timmy Geithner, got together and figured out a way to consolidate Goldman’s power and rid them of the competition at the same time.
They waited until early March of this year when things looked dismal and, in a blaze of cell phone calls between Geithner and Goldman (twenty-one in one day) it was decided that Lehman Brothers and Merrill would disappear, and Goldman would take over the lucrative parts of their business. Bear Stearns was already gone, so Goldman would be the power house and Morgan would get a bone or two thrown its way.
The failure of Lehman was the key though, as it forced Congress to commit to TARP money that would eventually fill Goldman’s coffers. Lehman drew the short stick even though they all were more or less equally leveraged.
Both the Fed and Treasury now clear everything through Goldman, allowing them to make trading profits on 89 out of 92 days in the third quarter, a phenomenal accomplishment to say the least. You, of course, paid for all of this, you have little or no knowledge of it, and you’re not going to receive a single benefit. Your taxes will be raised, you may lose your job, the currency you earn is worth less every day, and they may come and foreclose on your house. How do you like them apples?..”
November 23, 2009
November 19, 2009
French bank tells clients how to prepare for ‘global collapse’
Posted by oikonomikablog under Ambrose Evans Pritchard, economic crisisLeave a Comment
By Ambrose Evans-Pritchard
The Telegraph, London
Wednesday, November 18, 2009
Societe Generale has advised clients to be ready for a possible “global economic collapse” over the next two years, mapping a strategy of defensive investments to avoid wealth destruction.
In a report entitled “Worst-Case Debt Scenario,” the bank’s asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.
Overall debt is still far too high in almost all rich economies as a share of GDP (350 percent in the US), whether public or private. It must be reduced by the hard slog of “deleveraging.” for years.
“As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse,” said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.
Under the French bank’s “Bear Case” scenario, the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.
Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105 percent of GDP in the UK, 125 percent in the US and the eurozone, and 270 percent in Japan. Worldwide state debt would reach $45 trillion, up 2 1/2 times in a decade.
(UK figures look low because debt started from a low base. Mr Ferman said the UK would converge with Europe at 130 percent of GDP by 2015 under the bear case).
The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Aging populations will make it harder to erode debt through growth. “High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt,” the report said.
Inflating debt away might be seen by some governments as a lesser of evils.
If so, gold would go “up, and up, and up” as the only safe haven from fiat paper money. Private debt is also crippling. Even if the US savings rate stabilises at 7 percent and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s.
The bank said the current crisis displays “compelling similarities” with Japan during its Lost Decade (or two), with a big difference: Japan was able to stay afloat by exporting into a robust global economy and by letting the yen fall. It is not possible for half the world to pursue this strategy at the same time.
SocGen advises bears to sell the dollar and to “short” cyclical equities such as technology, auto, and travel to avoid being caught in the “inherent deflationary spiral.” Emerging markets would not be spared. Paradoxically, they are more leveraged to the US growth than Wall Street itself. Farm commodities would hold up well, led by sugar.
Mr Fermon said junk bonds would lose 31 percent of their value in 2010 alone. However, sovereign bonds would “generate turbo-charged returns” mimicking the secular slide in yields seen in Japan as the slump ground on. At one point Japan’s 10-year yield dropped to 0.40 percent. The Fed would hold down yields by purchasing more bonds. The European Central Bank would do less, for political reasons.
SocGen’s case for buying sovereign bonds is controversial. A number of funds doubt whether the Japan scenario will be repeated, not least because Tokyo itself may be on the cusp of a debt compound crisis.
Mr Fermon said his report had electrified clients on both sides of the Atlantic. “Everybody wants to know what the impact will be. A lot of hedge funds and bankers are worried,” he said.
* * *
November 17, 2009
FOFOA: Is the Dollar “Good as Tungsten”?
Posted by oikonomikablog under GATA, central banks, gold, market manipulationLeave a Comment
“It has been speculated by many people over the past decade that once we are in the heat of the fire the US Treasury’s gold will be employed in defense of the dollar.
Perhaps this was what some of the Giants were counting on. Before 1971 the dollar was considered to be “good as gold”.
Since then it was considered to be “hard currency” amongst a world full of soft currencies. Perhaps now it will be considered to be “Good as Tungsten“?
I wonder how this will affect the next move from the People’s Republic of China. Hmm….”
Read all about the dark art of tungsten alchemy at FOFOA’s blog HERE
November 10, 2009
“Rich Dad”: Gold should reach $15,000/oz
Posted by oikonomikablog under gold, inflationLeave a Comment
Robert Kiyosaki, along with friend, and author of the Rich Dad Advisor Book, Guide to Investing in Gold and Silver, Mike Maloney, explains why gold and silver are vital investments for todays economy.
November 6, 2009
James West: “Gold Price is No Bubble”
Posted by oikonomikablog under fiat money, financial crisis, goldLeave a Comment
The price performance of gold recently has all sorts of armchair economists waxing philosophical on the idea that this is the advent of a price “bubble”. While certainly everyone has and is entitled to their opinion, there are other features of humanity that we all possess, and much like many opinions, are best obscured from view.
Declaring that gold is in a “bubble” demonstrates complete ignorance of or disregard for the fundamental drivers of the almost ten year ascent of gold. And saying that the price is forming a bubble implies that, like the real estate bubble, the tech bubble, and the tulip bubble, the price must necessarily “pop” and return to a sustainable long term average.
During each of the bubbles of recent and distant history, the cause of the meteoric price ascents of these various asset classes were all predicated by the same string of events.
Supply was far outstripped by demand because the public perception emerged that the asset class in question was the ultimate asset class at that point in time. Disproportionately high levels of capital were directed to them, and upon the eventual discovery that supply could easily meet and exceed demand, the bubble pops, the price declines, and the herd mentality resumes its frantic search for the next ‘ultimate’ asset class.
Homes, technology and tulips are all a product of effort. With increased effort, more of each of these can be created. Supply can easily be ramped up to meet demand.
Not so much, in the case of gold. The availability of economic concentrations of gold in deposits near to the surface of terra firma is finite. Increased effort might guarantee the temporary increase in supply from known deposits, but each deposit is eventually exhausted, and no amount of increased effort can bring back the gold.
Gold, for the most part, is not used up. It is fabricated into jewellery or bullion or coins, and hoarded and preserved.
Technology, real estate, and tulips, on the other hand, are consumed and replaced. Technology becomes obsolete, homes wear out, tulips die and are reborn each spring.
Gold? Gold goes nowhere. Gold stays put. Gold is passed from generation to generation in last wills and as heirloom collectors items. Gold is recognized as a store of value that is not temporary.
The only way to diminish that is through government interference, such as the various legislative actions that have historically capped gold’s value at a fixed price, or if, for some reason, humanity decided to abandon its greedy predisposition to hoard value against future financial calamity.
The latter is just as improbable as the former.
The idea of capping the price of gold through international agreements flies in the face of the entire concept of free markets, now the near universally accepted preferred economic style. And the innate fear of not having enough that is a basic element of the human cerebral infrastructure is eternal, or at least, that’s how it seems.
So what could, for arguments sake, cause the price of gold to plummet suddenly, thus obviating the recent spike as a bubble?
Well, the forces of supply and demand are always dominant. If those who want to buy gold and are willing to pay the market price for it exceed the number of those who have gold and are willing to sell it, the price will be forced upward. Just as elementally, if sellers outnumber buyers, the price must needs decline. So simple.
And who’s selling gold?
Well we can point to the International Monetary Funds plan to divest itself of 400 tonnes of gold, ostensibly to finance the stimulus of nations unable to underwrite their own economic stimulus. But just as soon as the proposed sale is announced, India steps up to the plate to take half. In one transaction. The largest single lot of gold made available since the onset of the secular bull market, and a buyer is found easily.
Russia, the economic basket case of the world thanks to its national inability to govern itself with laws and reason as opposed to brute force, recently announced the necessity of a sale. But that is clearly necessitated by the national hands’ inability to refrain from raiding its own pockets. A genetic defect, it would appear.
Who else has sufficient gold to sell, that might drastically influence the supply/demand matrix to cause a popular abandonment of gold? China, the United States, and various G7 nations. But none of them are selling. Indeed, China has revealed that it has been the principle sovereign accumulator of gold for over 5 years.
Even during and post economic crisis, the impetus was to retain and accumulate, not sell gold.
No. The bubble we are immersed in at present is the currency bubble. Led by the disingenuous United States, the world has temporarily forgotten that despite the fact it is possible to print currency easily and with abandon, the laws of supply and demand will definitely re-assert themselves in due course. And that is what we are seeing now with the gold price.
The confidence in a dollar printed on paper being able to obtain a dollar’s worth of merchandise is fading with every treasury auction. The popular perception is growing that gold is indeed a monetary standard, and a store of value that can be trusted in both turbulent and stable economic conditions.
There is nothing on the economic horizon that can change this. We are in the period of descent for the American empire and its feeble dollar. The nation is bankrupt, morally and economically. It can no longer bamboozle the world into accepting its counterfeit currency in exchange for trade. Only nations who are forced by their vast holdings of the monopoly dough to entertain the notion that it has value participate in the illusion, because the alternative would necessitate a drastic re-valuation of their own financial integrity.
So on the supply side, there is no availability. No one is selling. The miners are mining as much as they can as fast as they can and still the buyers are lining up.
On the demand side, nothing but more, more and more demand. No trustworthy currency in sight (except perhaps the renmibi, increasingly a gold-backed currency), no asset class alternative that is comparable, no new bubble to chase.
I suppose its good to have alternative viewpoints in media. Its important to listen to all sides of a story. But if the issuing orifice declaring a bubble inhabits a region below the waist, those who act on such advice will find themselves duly smeared in good time.
Gold price bubble? Give me a break!
James West
October 31, 2009
Salinas Price: It’s time to end World War II
Posted by oikonomikablog under Hugo Salinas Price, fiat money, goldLeave a Comment
It’s time to end World War II
Hugo Salinas Price
Oct 29, 2009
The shooting, the bombing and the killing of World War II stopped in August of 1945, and the War was formally over.
The United States and Britain knew the War was won, in 1944.
At that time, a Conference was called among the 44 Allied Powers, to determine the nature of the world’s monetary and financial system after the fighting was over. It was held at Bretton Woods, New Hampshire, USA, in July of 1944.
As a result of the Conference, a set of Agreements were signed.
The most important of all the agreements was the one that established that gold should be the money to be used to settle all trade deficits between nations, but in lieu of gold, dollars could be used to settle these deficits; at the option of all Central Banks, these banks could demand gold from the United States Treasury at a redemption rate of $35 dollars for each ounce demanded.
Thus, the United States could pay for its trade deficits either in gold or in dollars. No other nation was allowed to pay for its trade deficits in its own currency; for all other nations, settlement of trade deficits had to be done with gold or with dollars previously acquired in the course of trade with the U.S. or with other nations who had dollars. In other words, dollars – and only dollars – were as good as gold.
General de Gaulle (President of France, 1959 – 1969) has been quoted as saying that this was “an exorbitant privilege”. And so it was, a privilege of the victor in World War II.
Under the rules of war, a country at war may loot and plunder its enemy, if it can do so. Booty has always been a great incentive to get soldiers to fight, and World War II was no exception. When a war is over the looting and plunder stops and nations renew commercial relations, exchanging their goods in peaceful international trade.
In forcing on the Bretton Woods Agreements the acceptance of the dollar as a means of settling international debts, along with gold, the US established the will of a victorious power to continue to loot and plunder the whole world.
Formally, World War II was over. But in fact, World War II was not only not over, but the US had implicitly declared war on the whole rest of the world by imposing the dollar as a means of settling trade deficits, along with gold.
By running huge trade deficits which arose out of its expansion of credit and consequent money-printing, the US was able to leverage its gold holdings and send abroad masses of dollars to pay for imports. The exporting countries received dollars – not gold – for their export surpluses to the US. The dollars began to pile up in foreign Central Banks as “Reserves”. The exporting countries, not being nuclear powers, were afraid to demand gold in payment of their export surpluses, since such a request would very probably irritate the great power, and nobody wanted to offend the USA.
All this export of dollars in payment of trade deficits finally moved General de Gaulle to demand gold for dollars held by the Banque de France. This annoyed the US government and shortly thereafter, not coincidentally, there was an outbreak of rioting in France which threatened to unseat President de Gaulle, who had offended the US by simply asking for France’s gold.
The US, by means of the “dollar as good as gold” provision of the Bretton Woods Agreements, has been looting and plundering the rest of the world, non-stop, since the end of World War II. Very subtly, based on Bretton Woods, the US has continued to act as the triumphant victor in a war; it has never since the end of World War II ” [reassumed] among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle” it, as expressed in the Declaration of Independence, 1776.
The US has not assumed an equal station among the powers of the earth, since World War II came to a formal end. It has continued to impose its Imperial Will upon the rest of the world, as vassal states, and has been duly exacting tribute from the rest of the world, by means of its paying its trade deficits with dollars, which are nothing at all since 1971. The US did not truly “normalize” relations, neither with the Axis powers when World War II was declared formally over, nor with the rest of the world.
Commerce is an eminently peaceful activity. The seller forces no one to buy; the buyer forces no one to sell. The means of payment of commerce, since written history began, has been either goods for goods, i.e., barter, or goods for gold – a perfected form of barter. Silver has also worked well, as a means of payment of commerce. But anything else, any innovation, anything decreed to be a means of payment by anybody whatsoever, cannot be anything but an imposition, a violation of the rules of commerce.
The present ruinous condition of the world’s finances and its lopsided industrial development has not yet corrected itself. If anything, we are in the “eye of the hurricane” for the moment.
If all governments in the world were to collapse, commerce would not disappear; it would arise out of the disorder, and its money would be gold or silver, or both. Gold and silver are the natural means of payment for humans. Such is the intellectual decline in the world, that those in power have forgotten this; they and their paid lackeys in the financial press and financial media are dreaming when they think that they can come up with some effective but artificial, fiat means of payment, decreed by some governmental body. Any such fiat means of payment will inevitably preserve privileges for some, and impose burdens on others. Commerce cannot thrive under those conditions; it will go into permanent decline, along with our industrial civilization.
“Regionalizing” fiat currencies will only have the result of pitting region against region – as illustrated in Orwell’s “1984″. This is the fallacy underlying all talk about a “multi-polar world” while ignoring the need for a neutral, real and time-tested medium for exchange of goods.
The world’s principal powers should convene and come to an agreement for the establishment of the world’s monetary and financial system on the basis of gold as the exclusive medium for settlement of international trade deficits – a neutral, real and objective medium for commerce and finance.
If the governments of individual nations want to allow their banking systems to diddle with fractional banking and inflation, it is their right to do so. But when it comes to settling accounts with other nations, they must come up with the required gold.
Only then will we be able to say that World War II has ended.
###
27 Oct, 2009
Hugo Salinas Price
President
Asociación Cívica Mexicana Pro Plata, A.C.
Mexico City
email: plata@plata.com.mx
website: http://www.plata.com.mx
