After all, we have been predicting that people in the US and most of the western world will soon find themselves living in a Terminator-esque world where they will be tracked every moment of the day (US Government Builds World’s Biggest Domestic Spy Complex), 1 the US Government can jail indefinitely and even kill its own citizens (NDAA Bill Can Send Americans to Prison Indefinitely Without Trial), that the assets of westerners will be taken and consumed by their vampire overlords (France mulls 100% tax rate), they will be restricted in their ability to travel outside the country (Congress about to pass a bill that restricts travel and revokes passports with no trial) and it will be impossible to get your money outside of the country to protect it from confiscation (capital controls).

On the topic of capital controls we had predicted what is now happening. We’ve been writing about it for some time. The only thing that has surprised us is the speed in which it is all happening. We are rarely shocked but we have been surprised at the speed with which the world’s banks have stopped accepting US citizens as clients.

It was only a few weeks ago that we penned, “International Banking Options for Americans Closing Down Fast” and stated that our sources had notified us of at least one bank (in Latvia) which has stopped accepting US clients because of the rules put in place by the IRS in the Foreign Account Tax Compliance Act.

That was then, this is now. Here is just one man’s recent statement:

“I don’t open U.S. accounts, period,” said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia’s largest lender, who described regulatory attitudes toward U.S. clients as “Draconian.”

The phone has been ringing off the hook at TDV Media and Service’s headquarters. Nearly hourly word has come in of another bank that has stopped accepting US clients. Some have even started closing accounts for US clients… a trend we definitely expect to continue.

Don’t believe us? Check out this article from the San Francisco Chronicle. They only got one thing wrong. The title of the article is “U.S. Millionaires Shunned by Banks as Tax-Evasion Law Looms”. But, it’s not just millionaires. It’s all US citizens with a foreign bank account.

BLOODBATH

It’s a bloodbath. People who make their living off of helping US citizens set-up foreign bank accounts to diversify some of their assets outside of the country are closing shop… all in the last few weeks. They are walking away from their honest, often decades-old business like victims of a bomb blast… in shock.

We feel very bad for them but we knew this was coming and have been hiring people almost daily to help out with the demand. If you are a US citizen and have money in a foreign bank account that you would like to keep there, expect a call any moment. It’ll be the bank and they’ll tell you that you have 72 hours to close your account and to tell them where to send the funds. If you don’t want to send it back to the US where Barack O’Bomber already has grand plans for how to spend it then your options are seriously limited.

But, here’s the good news, there is still options. Here are just a few options that are still on the table:

• There is at least one bank in the Caribbean that is still willing to accept US clients. If you get a call from your bank that you must move funds immediately and do not want to repatriate them then you can open an account with them. We have already identified the bank and have set-up relationships to get your account opened and processed all via the internet within 24-48 hours . Contact info1@tdvoffshore.com for more information
• You may still have a few months before your bank contacts you. In that time, we have found a number of ways to get a second, foreign passport inside of 30-60 days. Once you have a passport other than a US passport you can then convert your foreign bank accounts to your new citizenship and avoid having your accounts closed or reported to the IRS. Contact info1@tdvpassports.com for a consultation on the best solution for you.
• You can also convert a significant portion of your cash into precious metals… which is a very smart move to begin with… you can easily buy and/or transport these assets to a number of international destinations where property rights are respected and the governments are not in massive debt and in need of confiscating your assets. This includes Singapore, Switzerland, Hong Kong, Uruguay and many more. See “Getting Your Gold Out Of Dodge” for specific, detailed actionable info on doing this.

Even if you don’t need any of these types of services at this time, but it is finally dawning on you that the fiscal cliff is approaching very quickly and want to be prepared for what is to come, all of this type of information is the main focus of The Dollar Vigilante newsletter. Subscribers are regularly updated with news, analysis and info for how to survive the coming western financial system collapse.

SELF INTERESTED SCARE MONGERING?

You may be thinking, “this guy just seems to be trying to scare us and promote his own products”. If you’ve followed my writing for any length of time you will know that I’ve been writing about these events for years. And, up until recently we didn’t even offer products. We began writing The Dollar Vigilante two years ago because the writing on the wall had become clear and we wanted to help as many as possible to survive the coming western nation-state and financial system collapse… but we were inundated with emails asking us, “Ok, we agree with your prognosis but what can we do to protect ourselves?”

It was then that we began scouring the world looking for second passport and offshore bank account services and found them lacking. We looked for other information such as is included in Getting Your Gold Out Of Dodge and came up empty. That’s when, as good entrepreneurs and capitalists, we decided to offer the products ourselves. That’s what good capitalism is about… finding ways to help people in need.

The monetary system that the world has lived under for the last 41 years, since the US went off the pseudo-gold standard in 1971, is entering the end game. And we are sorry if we need to be so abrupt in trying to wake you up to it. But, to show you the kind of brainwashing and psychological issues we are regularly up against, here is a conversation we recently had from a woman who had called us to see if she really needed to make her move to protect herself ASAP:

Jane: I just don’t believe it is that urgent. There is nothing on the nightly news about this… and my financial advisor says there are green shoots and we are in recovery.

TDV: What would it take you to realize that it was time to get out of the US?

Jane: I’m not leaving until they shut down the border.

We sat there speechless for about a minute after that one. She has normalcy bias. And, normalcy bias is very dangerous in times like these when everything is about to change.
We suggest you don’t wait until the borders close to get out. And, this is not just a US phenomenon. The entire west will follow in its footsteps… and other nationals as well, such as the Chinese, also should see the need to internationalize themselves (and they do, “China’s Millionaires Looking For Way Out”). There is already a wall around China, don’t wait until there is one around you before you start taking the steps necessary to protect yourself from leviathan.

Regards,

Jeff Berwick

Hear That? It’s The Sound Of The Doors Closing For Americans was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Not to be outdone, Buffet’s partner in crime Charlie Munger recently declared “gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939 but civilized people don’t buy gold – they invest in productive businesses.”

And now, Bill Gates went on CNBS today to try and explain the great error in investing in the barbarous relic. It’s like they’re trotting out the billionaire boys club to scare people back into Berkshire and Microsoft stock.

As they should. Bill’s Microsoft has been absolutely decimated vis-a-vis gold for 12 years straight and running.

Both Buffet and Gates concede that paper money will continue to be debased as long as central banks hold the legal monopoly to print it. What they won’t mention is that such blatant fraud is conducted to finance government deficits and prop up a virtually zombified banking sector.

Gates in particular tries to tie his bumbling rant together by declaring gold has a kind of psychological value to it. That those who buy it are motivated by it because “people in the future will think it’s worth more than it’s worth today.” Gates goes on to point out that as more people flood to the gold market, the more the gold mining sector will develop which will subsequently increase the supply and put downward pressure on prices.

Congratulations Bill, you have stumbled onto some of the most basic lessons of economics.
First, since the value of all goods and services are determined solely by the purely subjective perceptions of utility amongst market participants, gold is no different from any other investment. Many perceive it is a viable currency alternative to the current state of affairs.

Those who put their money in equities do so because they believe it will yield them a return. “Psychological” factors play just as much of a part in this thinking than they do in those who purchase precious metals.

Second, if an investor’s marginal profit is exceedingly high, this is a signal to other market participants that there is money to be made in whatever sector in paying out at such a rate. People move to where they can make a profit. They don’t sit idly by making negligible returns. Supplies increase, prices adjust, and so does the market.

None of that diminishes the purpose of gold which not only acts as an investment but a hedge against the profligacy of governments. The pressure on central banks to flood the world with liquidity is enormous. The practice of fractional reserve banking has left much of the world’s major financial institutions insolvent. Central bankers know of no other solution from their Keynesian instruction guide than “print, print, and print some more.”

If Gates really wants to speak to psychological factors, why not say a word on why inflationary monetary policies are employed to begin with? Indeed, if money printing actually created just one iota of wealth, then Emperor Diocletian (whom Paul Krugman looks to for policy advice) would have led Rome into a period of material abundance rather than wreak havoc on a once thriving market economy.

But of course inflation is purposefully resorted to in order to both aid the first receivers of money and create the perception of prosperity. With some prices boosted relative to others, there is the appearance of ‘feeling richer.” The overall supply of goods hasn’t increased; only the amount of pieces of paper with dead Presidents in circulation. The short term boost in confidence comes at the cost of long term stability as capital is consumed with little savings being accumulated for replenishment. The inevitable bust, as Ludwig von Mises showed, cannot be avoided.

THE END OF THE MONETARY SYSTEM AS WE KNOW IT (TEOTMSAWKI)

As governments continue to binge on endless servings of liquidity financing, there is little threat to gold’s price in the long term. Short term fluctuations are an inherent feature of a market system based on the ever-changing value judgments of billions. There is no conceivable end in sight to inflating currency supplies. If central banks were to stop inflating the house of cards that is the global banking system would collapse.

The question is where you put your trust? In the promises of highway robbers who climb their way into public office through lies and vicious personal attacks? Or in a commodity that has thousands of years of historical usage to prove its functionality as a means of exchange?

Bill Gates puts his faith in the goodness of scoundrels.

IMITATOR, FOLLOWER AND SEARCHING FOR A PURPOSE

The fact of the matter about Bill Gates is that he has never innovated. The only thing he has ever done that paid off incredibly well is this: he finagled his way decades ago into the position of being the sole accepted computer operating system at the very start of the personal computing revolution. Since then he has lived off of having that incredibly powerful position.

He was incredibly slow to realize the power of the internet, he was always second to the party with inferior products like Internet Exploder, Zune and countless other copycat, failed products. He installed a completely insane man to manage Microsoft after he left. And now that he has some extra time on his hands he has decided that

a) the planet needs to be depopulated and

b) he will use a significant amount of his time and power to help depopulate it.

He is pathetically searching for a purpose. And, since he has no idea how economics works, nor money, as he shows in his interview on gold above, he has decided to make depopulation his purpose as he shows in this awkward, ridiculous speech given at TED where he uses all kinds of incorrect premises such as manmade global warming being real to come up with this unbelievably absurd “mathematical” formula:

CO2 = People x Services x Energy Per Service x CO2 Per Energy Unit.

Then he adds that in order to get CO2 to zero, “probably one of these numbers is going to have to get pretty close to zero.” And given that he is spending much of his free time with famous misanthropes such as Ted “A total population of 250-300 million people, a 95% decline from present levels, would be ideal,” Turner, it is pretty clear which one will be the top priority.
It’s the most absurd premise based on the most absurd assumptions I think I have ever heard in my entire life. And his understanding of gold is just as flawed.

Bill Gates, Warren Buffet and Charlie Munger may have once had some sort of relevance. But, today they are globalist shills pathetically trying to keep an immoral and violence/theft based system alive by which their importance and life’s work are tied. The world is leaving them behind… and they will work to enslave it (the Buffet Rule) or genocidally kill it if they have to in order to maintain their sense of self-importance.

Buy gold, sell MSFT and Berkshire Hathaway and fiat dollars, sit tight and be right. The fact they are all running to CNBS in the last few days must mean they are getting desperate.

Regards,

Jeff Berwick

Stick to Depopulating the Planet, Bill Gates was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Nobody knows what the future will bring. I don’t know what will happen to the gold price in the next week, the next month or for the rest of this year. I don’t even know what 2013 will bring. But please remember, neither do all the ‘experts’ out there who are much less squeamish about giving investment advice than I am.

When you invest your wealth you are alone. You have to make up your own mind. And accept the consequences of your decisions.

Having said this, I can assure you that, personally, I remain a big fan of gold. I consider it the number one asset out there. It remains head-to-shoulder above anything else.

Gold has not been trading that well recently. Measured in the world’s number one paper money the precious metal reached an all-time high of slightly more than $1,900 per ounce in September of last year but then retreated and has mainly been trading sideways in a wide range since. Considering the ongoing tensions in European debt and banking markets and considering that the global financial system seems forever dependent on super-low policy rates, one could have reasonably expected gold to do better.

The reasons for the somewhat disappointing ‘price action’ of late are not quite clear but could be manifold. Maybe it is a bit of rally fatigue. Don’t forget, gold traded below $300 ten years ago and had just been through a decade-long, unprecedented bull run. In one of gold’s biggest markets – India – the government recently introduced new taxes and regulations to discourage investment in gold (surprise, surprise), and international central banks are not believed to match their healthy buying of recent years.

But the optimists will say it is something else: things are getting better so there is less need for a crisis-asset.

This is how the Wall Street Journal put it:

“Gold is still benefiting from the view the global economy is fragile, but the idea has been shaken by signs that conditions are stabilizing in the U.S.”

Naturally, the financial and political establishment is rejoicing at the prospect of gold losing its luster. After all, the phenomenal ten-year bull market was the equivalent of a raised middle finger in the face of the international paper money bureaucracy. Ben Bernanke, the money-printer-in-chief, famously answered Ron Paul’s question if gold was money by saying he thought it wasn’t…

“I think the reason people hold gold is as a protection against what we call ‘tail risk’ – really, really bad outcomes…To the extent that the last few years have made people more worried about the potential of a major crisis, then they have gold as a protection.”

–Ben “Helicopter” Bernanke

And this is precisely why the establishment hates gold so much. The modern policy elite, people like Bernanke and his fellow central bankers, are tasked with avoiding bad outcomes, and they have at their disposal a body of theories (in large part faulty) and an interventionist tool kit that did not exist through most of gold’s three-thousand year history as the entire world’s monetary asset of choice.

This tool kit, not least of which is the printing press, is supposed to enable the policy establishment to run the economy smoothly and efficiently and save us from depression and crisis. For the public to turn back to the “barbarous relic” of gold certainly means a major vote of no-confidence for the modern financial architecture and all its supposed safety-valves.

The brilliant Jim Grant calls our post-1971 unrestricted paper money system astutely the “PhD-Standard”: We are asked to no longer rely on the apolitical and disinterested firmness of a precious metal to anchor the monetary system and to thus prevent financial extravagance and excess. Instead we are to put our economic fate in the hands of a bunch of self-confident and proactive intellectuals and bureaucrats who learnt how the world works by shuffling academic papers in the MIT economics department.

Understandably, many people have more trust in gold.

(By the way, this explains why the Financial Times, which adores and celebrates the policy establishment like no other media outlet I know of, only writes about gold when it goes down, when the gold ‘bubble’ is once again ‘bursting’, providing the FT with another opportunity to remind you that gold does not pay a dividend.)

Funny how Bernanke puts it with his “really, really bad outcomes” and “tail risk”. He makes it sound as if you have to be a pessimist of biblical proportions to buy gold. Things must get “really, really bad” because for anything else we have the Federal Reserve. Relax!

Limited understanding meets unlimited power to print

But the problem runs deeper than Bernanke implies. Much deeper.

While Bernanke’s quote contains some truth it also reveals an embarrassing misunderstanding of the nature of the problem, a misunderstanding that he shares with the majority of his policy-buddies.

He implies that these “really, really bad outcomes” are just random and uncontrollable events, unquantifiable statistical outliers, freak occurrences that simply happen, that capitalism in its mysterious unpredictability occasionally throws at us. This is nonsense. But this distorted worldview also shone through clearly in Bernanke’s recent lecture series.

According to Bernanke, inflations, recessions, depressions, asset “bubbles” – all these things come over us like acts of God, like droughts and hailstorms, and Bernanke & Co. are charged with dealing with them on our behalf. The rising gold price is merely an indication that some folks fail to appreciate the establishment’s good work. Hell, can nobody get any respect any more?

No, the problem runs much deeper than Bernanke seems to grasp, and that is precisely why gold is such a great asset in this environment. His limited understanding coupled with his unlimited power to produce paper money is indeed the number one argument for owning gold.

The present crisis is not an accident of capitalism but the inevitable product of the fiat money system and the faulty theories and counterproductive policies of Bernanke & Co. The present crisis is not just another business cycle (and business cycles are, of course, also created by central banks) but the unavoidable consequence of the political decision to abandon a gold standard and to adopt a system (as of 1971) of unrestricted fiat money creation.

As I explain in detail in my book Paper Money Collapse – The Folly of Elastic Money and the Coming Monetary Breakdown such a system, while appearing stable for a long time, inevitably accumulates imbalances as it systematically distorts capital formation and asset pricing.

Though central bankers and their crony economists falsely deem moderate inflation to be good, the constant artificial cheapening of credit through ongoing money injection must culminate in the present horror show of bloated banks, inflated asset prices and an unsustainable debt load.

The really, really bad outcome is entirely home-made and the fully guaranteed by-product of decades of mild to medium inflationism, i.e. the modus operandi of modern central banking. The crisis is built into the system; it is part of the game.

Bernanke still believes that his ongoing money printing is saving the world when it is indeed the root cause of this entire disaster. While Mr. Bernanke poses confidently (and I believe sincerely) as a firefighter, he is really an arsonist. His “stimulus” is adding ever more fuel to the fire.

We should not buy gold because Bernanke’s policy (and that of other central bankers) is ineffectual but because it is so very effective. This policy preserves the accumulated imbalances. It sabotages their dissolution and liquidation, and it constantly funds new imbalances.

Bernanke’s policy is guaranteeing the never-ending crisis. Well, I should say almost never-ending, as it will end in a currency catastrophe when the public begins to shun his fiat money and when paper money becomes a hot potato.

We do not own gold because we fear that Bernanke may stop his policy of saving the government and Wall Street. We own gold because we think he won’t stop saving them.

Could Bernanke derail the gold bull market? Sure! But he would have to abandon his policy activism and become passive. Bernanke may want to look at how Paul Volcker successfully ended a gold rally (or, more accurately, put it to rest for 20 years). It wasn’t by by using the printing press to bail out the world a la Bernanke & Co.

Au contraire, Volcker did it by stopping the printing press altogether and allowing high real interest rates to cleanse the system of the imbalances from previous money production. That is what ended the last gold bull market and it is still the major threat to today’s bull market.

Bernanke, alas, is no Volcker, and stopping the printing presses today will create bigger challenges than in 1979.

The financial crisis is not the reason people seek safety in gold. It is central policy response to the crisis that they seek protection from.

If gold is retreating for now, it is because the investing public sees less need for it with monetary and fiscal stimulus presently sustaining the impression – the illusion, really – of stability and sustainability. So this is a great opportunity to buy gold.

In defense of “hoarding”

Let’s look at the logic of investing in gold. When doing so we immediately are confronted with widespread antipathy towards it founded on ignorance and misunderstanding: We gold bugs are not only pessimists who want to make money when the world goes to hell in a handbasket. We even remove our spending power from the markets for consumer and producer goods and invest our wealth in “barren” and “unproductive” monetary assets. Shame on us!

I use the term “monetary asset” as I do not want here to go into the debate about whether gold is presently money or not. I know that you cannot buy a bus ticket with a gold coin but that is not what we are discussing here.

For the purpose of this investigation gold is (almost) equivalent to physical paper money, i.e. to cash under the mattress. The person who invests in bullion does so for the same reason that somebody may hold a large pile of banknotes in a safe, namely to not commit this part of his wealth to consumer goods that may fulfill his present consumption needs or to producer goods that promise an investment return (dividends and interest).

He is holding money – that is, gold or physical cash- because he wants to conserve his purchasing power. He wants to retain the flexibility of spending that purchasing power on consumer and producer goods some time later but still at the drop of a hat (i.e. remain “liquid”).

Money is the most fungible good, the one that can most easily be traded for goods and services. People hold money because they value that flexibility and the maintenance of their purchasing power higher than what they can get for their money at present prices, including what they can get for it in terms of investment goods at present prices.

There are, of course, important differences between gold and cash. The latter is presently slightly more fungible. Remember the bus ticket. On the other hand, there is no limit to how much paper money central banks can produce today. For the paper money holder debasement is not only a risk it is almost a certainty as it is the declared goal of those in charge of the money franchise. (I come back to that later.)

Keynes had a keen eye for widespread prejudices (against the rentier class, against saving and against money hoarding) and was not above providing pseudo-scientific justifications for these prejudices. Thus, his silly “liquidity preference theory” in his General Theory (in particular chapter 15), according to which it is okay to hold money to be ready for immediate transactions but not okay to hold money because you simply want to sit on the sidelines and retain purchasing power.

This is, of course, complete nonsense. Money, like any other asset, is only an asset because it fulfils the needs of its owners. Consumer goods fulfil consumption needs, investment goods promise monetary return, and money provides flexibility and security (at least honest money does) in an uncertain world.

As Henry Hazlitt has pointed out so well in his critique of Keynesianism, the “hoarder” of money does not speculate in money, as Keynes alleges, but simply refuses to speculate in bonds and stocks and other assets at prevailing prices. He has absolutely nothing against investing in “productive assets”; he just does not want to buy them at the current inflated and artificial prices.

Concerns about the stability of the overall economy and the sustainability of high asset prices are most prevalent at the end of credit booms when cheap money has created a false sense of prosperity and economic vitality, and when the prices of bonds, stocks and real estate are elevated by years of easy credit.

In a system of inelastic money, such as a gold standard, growing demand for money at that late stage of the cycle will cause money’s purchasing power to rise and the money-prices of goods and services to fall (deflation). At the new and lower prices demand shifts back from money to other, non-monetary assets. “Hoarding” ends naturally; it is self-correcting. When money’s purchasing power rises, the opportunity costs of holding wealth in the form of money rise, and so does the attraction of spending that money on consumer or producer goods.

["Deflation" is also just money becoming more valuable...which happens naturally in an expanding economy when money is a real commodity whose supply doesn't grow at a central bankers whim. Prices fall over time and savings are rewarded. Ain't nothin' wrong with that.--Ed.]

That money is not an unproductive asset has been argued by W.H. Hutt in his seminal essay “The Yield from Money Held” from 1956. For an excellent exposition of this view see this speech by Hans-Hermann Hoppe on the same topic. Holding money – and in particular inelastic money proper – is a sensible, legitimate, rational and by no means destructive strategy.

We have had an “on-and-off” but mainly “on” fiat money boom for 40 years. Capital misallocations and asset price distortions have become massive as a result. How big they are and where precisely they are located, nobody can tell. We would have to stop printing money and let the market expose the dislocations and then liquidate them but that is the one thing that authorities do not want to let happen.

Be that as it may, the public’s desire to step back from inflated and systematically manipulated asset markets is understandable and entirely justified and naturally translates into demand for money. Not the “flexible” kind under control of the central planners, but the honest kind, i.e. gold.

But Bernanke & Co., just likes Keynes in his time, does not want you to disengage from speculation in bonds and stocks and real estate. Moving to the sidelines is strictly verboten. You have to keep playing – with your own hard earned savings.

The policy establishment believes that it can manipulate the economy by manipulating your desire for assets through the manipulation of interest rates via the printing of money. These manipulations have to be ever more blatant, direct and heavy-handed.

Manipulation used to be conducted in a roundabout way by just administratively easing the refinancing conditions for banks and then waiting for the ‘stimulus’ to play out in the wider capital markets and the economy. Now that this policy has brought us the aforementioned imbalances, the central banks have to manipulate asset prices openly and ever more directly via ‘quantitative easing’.

Here is Bernanke defending the practice in 2010:

“This approach (quantitative easing) eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

If you believe that this brazen manipulation by the paper money bureaucracy is going to work and that it will restore and then guarantee stability and prosperity, you can do without gold. Jump right back in. Put your savings at the mercy of the Great Manipulator! Good luck!

I would only feel comfortable participating in these asset markets if I were confident they were not rigged. It is not a good idea to invest in assets whose prices are artificially inflated for political reasons. The biggest danger, in my view, presently exists in bond markets, in particular in government bonds. As to equity markets, where would they trade without zero interest rates? Where will they trade when inflation picks up?

Sitting on the sidelines makes a lot of sense to me. I want to hold money but it cannot be paper money or bank deposits, as both represent state fiat money that the policy establishment will continue to create like confetti. Additionally, a bank deposit may be your asset…but it is equally the bank’s liability. And let me remind you that banks everywhere are on life-support. Therefore, you have to go back to the eternal and international form of money: gold, which is not anybody’s liability but just your asset.

What about other ‘real assets’, such as property or farmland? Well, I guess you have to have considerable wealth to invest meaningfully in farmland. Also, the yield on farmland in places like Europe is very low and often dependent on state subsidies. With governments everywhere going bankrupt you have to expect those subsidies to be cut at some point with potentially adverse consequences for the value of that land.

Be that as it may, I think it is generally a bad idea to invest in a way that makes you dependent on government spending. Additionally – and this is something that applies to all forms of real estate – you have to expect the level of property taxes to rise. This is low-hanging fruit for the taxman as things are getting desperate for him, too.

All major central banks are in pretty much the same sticky position. None of them have an exit strategy. The Fed has not expanded the monetary base since June of last year. That is not because monetary prudence has set in but because the steroids from the last round of QE are still working. Banks are doing the money creation themselves again. M1 has expanded by 14 percent since last summer, non-annualized. No deleveraging here. Additionally, the myth of Treasurys as safe assets is still alive and kicking, against all evidence to the contrary and probably thanks to the present fixation with Europe. When banks and sovereigns come under pressure again the monetary floodgates will be opened. Just look at the ECB and their recent €1 trillion-plus money injection.

“We’re on crack,” as John Hathaway, the manager of the Tocqueville Gold Fund put is so astutely in the Wall Street Journal. The financial community is completely addicted to cheap money and ongoing stimulus. Just wait for the withdrawal symptoms to set in and you can rely on another round from Bernanke & Co. Unless I see a Volcker-like figure emerging, the avenger of the paper standard, I am happy to sit with eternal money.

Regards,

Detlev Schlichter

Why Gold Is Still My Favorite Asset was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

“Sharp falls in the gold price have prompted some bears or pessimists to predict it will plunge below $1,000 (£625) an ounce.”

…

“Goldcore priced bullion at $1,721 or £1,079 per ounce this morning, compared to yesterday’s fix of $1,788 or £1,121 per ounce. A spokesman said: ‘The massacre is attributed to a host of different reasons — from month end book squaring to Bernanke’s suggestion that ultra loose monetary policies may soon come to an end.’“

…

“Brian Dennehy of independent financial advisers (IFAs) Dennehy Weller commented: “Yet again the ‘safe haven’ myth of gold has exploded. It went down during intraday trading by about $100.

“‘This doesn’t mean the bull market has ended. It just means that when you buy gold you must do so with your eyes open — it is a highly volatile fringe asset.

“‘Our technical analysis suggests one of two possibilities. That the bull run is over and the price will eventually work its way down into the $700 to $1,000 range — or one final high lies just ahead before that large correction towards $1,000 will begin.’”

Source: Telegraph

The only serious reason given for this recent volatility and rapid drop in the price of gold is that Fed Chairman Ben Bernanke promised he wouldn’t engage in more money printing. However, as is generally the case when discussing capital flows of hundreds of billions of dollars, things are just a bit more complicated than that.

It’s no secret that the gold markets are completely manipulated by large financial institutions and interested parties within our government that are intent on keeping the price as low and/or volatile as possible.

What better way to scare the masses away from true value than to create such extreme price swings in both directions that the misperception of risk and constant attacks by mainstream media experts diverts capital from one of the few true safe havens into the fabricated safety of, say, US dollar backed Treasury bonds? After all, unlike the US dollar which is backed by the full faith and credit of the United States, gold is backed by nothing!

For those paying attention, there is a distinct effort by high level public officials and influential financial leaders to marginalize the value of gold as a safe haven asset. Ben Bernanke, for example, in testimony before Congress last year, made it clear that he does not believe gold is money.

Yet, any time that US dollar hegemony is threatened anywhere in the world, be it because of gold or oil, the response by financial institutions and government alike is unmistakable and severe. Sadaam Hussein’s demise is a direct result of his unwillingness to cooperate. Bernard Von NotHaus was labeled a domestic terrorist and imprisoned by the Department of Justice for his attempts to introduce a purely precious metals based system of exchange in the US. And most recently the Pan Asian Gold Exchange, which promised to level the playing field and allow for fair global price discovery of precious metals, was curtailed before it ever had a chance to get off the ground because, as SGT Report details, it “posed an enormous threat to the existing fractional reserve bullion banks.”

We advised our readers to expect exactly these manipulations:

“It will be an extremely volatile ride going forward, perhaps to the point where you’ll hate your gold so much you’ll want to spit on it. But don’t sell unless you’re sure that global crisis has turned to recovery and growth.

“Gold will eventually become the ultimate bubble — you can bet on it!”

Via: You’ll Hate Your Gold So Much You’ll Want to Spit On It [July 2010]

So, while we will hear that the gold bubble has burst, and that gold is a relic of the past, and that the economies of the world are recovering, remember that we have been told nothing but lies for decades. Ben Bernanke’s promises to limit monetary intervention mean absolutely nothing. Remember when he told us that there was no risk of a bubble in real estate? Or when he said that the collapse of sub-prime mortgages was contained? Keep that in mind as you take in all of the expert opinions from or benevolent leaders.

Trillions of dollars are being stolen as we speak. Governments around the world are collapsing. Instability, not recovery, is the order of the day. Thus, when the experts make a promise about something, you can fully expect exactly the opposite.

Yes, there will be volatility in gold, especially if we see a collapse in Europe, or if the government is able to maintain the perception of recovery among the masses. But be assured that if gold collapses, it won’t be alone. Asset price volatility is one of the few predictions we can make as the global economic, financial and political systems seize up.

However, unlike most assets, gold and silver have stood the test of time, especially during economic and political climates such as that in which we find ourselves today.

Given that we’ve been forced by a debilitated and collapse-prone global environment to make the choice of where to invest our time-energy yield (i.e. money), we feel much more confident investing in commodities that carry no counter-party risk, as opposed to assets denominated in paper receipts and derivatives of those receipts.

Investments like precious metals, food, personal energy production, and individual skills development, are the few assets we’re willing to consider.

Yes, there’s always the possibility of ‘losing’ value in our investment, but at least those assets will NEVER go to zero.

Regards,

Mac Slavo

SHTFPlan

Analysts Predict Gold Will Plunge Below $1000 was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

And they ain’t lyin’!

Writing for Forbes Louis Woodhill gets this seeming contradiction right. He views the price of gas not in terms of the depreciating monopoly money issued by the politically-empowered central bank…but in terms of the market’s favorite money: gold.

When viewed in relation to gold, gas prices are low…only 82% of their average over the past 41 years.

Gas prices aren’t high. The dollar is just falling, its value being undermined by politically-driven over-issue. So if you count the Fed-issued dollars as money — and are actually using it as a savings vehicles — then your world is being rocked by rising gas prices (and rising prices in everything else, too, except for computing power).

But it’s not just the rising prices of everything that threaten all of us. In his article Mr. Woodhill reminds us:

“Right now, the threat posed by rising gasoline prices is not just to family budgets. An even greater danger is that the government will use escalating oil prices as an excuse to do something stupid.

“After President Nixon abrogated the Bretton Woods monetary arrangement in stages starting in September 1971, both gold prices and oil prices started to rise. The government responded by imposing wage-price controls. This made a bad situation much worse.

“This time around, the stupid policies being considered to ‘deal with’ rising gasoline prices include additional cuts in payroll taxes and higher taxes on energy producers.

“During the 1970s, the toxic combination of a weak dollar, high tax rates, and onerous regulations introduced a new word into America’s economic vocabulary: stagflation. Reaganomics banished this word to the history books. Now, President Obama and Fed Chairman Bernanke are teaming up to give stagflation another try. It is not likely that Americans will like it any more this time around than they did 40 years ago.”

Source

It amuses us that the “gold is for nutters” crowd loves to point out when a mere 250 of their beloved dollars could acquire the gold they hate so much. Yet they seem to forget that their dollars could buy more than ten times as much in the past — back before the Federal Reserve was established.

They also write off those times when gold reveals the inherent weakness of their treasured paper currency…like when the gold price surged to $850 in 1980…and now as the price of gold hovers near $2000 thirty years later.

If you look at it the right way — in terms of the eternal golden money — it’s the dollar’s periods of strength that are the aberration.

It’s not gold and silver prices that are volatile. Those have been incredibly consistent for thousands of years in terms of commodities they could buy. And because of the increasing standard of living being raised by free market economies, in a very real sense these eternal monies actually buy more. It’s the dollar that has been erratic in its overall declining trend ever since it’s been cut loose from gold (and silver).

Again, people looking at the cost of a gallon of gas, or of milk, or the cost of a nice suit, or rent from behind their piles of gold and silver are finding very little to worry about. In fact, to them, prices are lower than normal and declining.

Also the price of oil has tended to track the price of silver awfully closely for about as long as oil has been industrially useful. And so it’s no mistake that you can still get a gallon of gas for about about $0.20…as long as that $0.20 is composed of a pre-1964 90% silver dimes.

Or you could use a pre-1964 90% silver quarter for that gallon of gas and get back some change.

You see, the pre-1965 quarter is worth $6.38 as I type this. The pre-1965 dime is worth $2.55. These coins hail from a time when the dollar was still tied to gold (at the official price of $35 per ounce prior to Nixon nixing the gold standard). The dollar was still as good as gold — even though Americans themselves were forbidden to own gold bullion from 1933 till 1974 — and there was actual silver in the coinage until that content was reduced in 1964 and eliminated in 1965.

Those old silver coins shine the harsh light on the strength of the currency and the abuse that currency suffers from the feds and the Federal Reserve.

If you’d been saving in gold, then from your point of view gas prices have been coming down for the past few years. If you’d been saving in that old “junk” silver (pre-1965 quarters, dimes and half dollars), then gas prices are a downright bargain, too.

(In fact, we strongly believe that silver is still severely undervalued. While gold is more than twice its 1980 high in terms of dollars, silver still hasn’t quite hit its 1980 all-time high when less than an ounce of silver could buy a barrel of light sweet crude. Silver may be more expensive in dollar terms than it was ten years ago…but it’s still incredibly cheap in terms of both gold and in terms of oil…

…Back in 1980 at silver’s peak it took less than one ounce of silver to buy a barrel of oil. Oil is going higher…and silver is likely to try to play catch up and outpace both oil and gold. Silver is just as much a monetary metal as gold…and just as much a vital industrial commodity as oil. Yet again, silver is severely underpriced in relation to both gold and oil. And it stands to gain more than both as both climb higher. So physical silver has been and continues to be our favorite, simple way to hedge against the demise of the dollar.

We turn now to the Wall Street Journal where they find U.S. monetary policy more than a little at fault for the rising dollar cost of gas…

“Oil is traded in dollars, and its price therefore rises when the value of the dollar falls, all else being equal. The Federal Reserve throughout Mr. Obama’s term has pursued the easiest monetary policy in modern times, expressly to revive the housing market. It has done so with the private support and urging of the White House and through Mr. Obama’s appointees who are now a majority on the Fed’s Board of Governors.

“Oil staged its last price surge along with other commodity prices when the Fed revved up its second burst of “quantitative easing” in 2010-2011. Prices stabilized when QE2 ended. But in recent months the Fed has again signaled its commitment to near-zero interest rates first through 2013, and recently through 2014. Commodity prices, including oil, have since begun another surge, and hedge funds have begun to bet on commodity plays again. John Paulson says he’s betting on gold, the ultimate hedge against a falling dollar.

“Fed officials and Mr. Obama want to take credit for easy money if stock-market and housing prices rise, but then deny any responsibility if commodity prices rise too, causing food and energy prices to soar for consumers. They can’t have it both ways, as not-so-stupid Americans intuitively understand when they buy groceries or gas. This is the double-edged sword of an economic recovery ‘built to last’ on easy money rather than on sound fiscal and regulatory policies.”

Source

It seems so simple to us. The politicians want to prop up certain markets with inflation from the central bank…while keeping it easy for the government to borrow. But like any man-made abomination worth its salt, those newly created dollars don’t ever behave exactly how their creators want.

Stock and house prices are mostly flat or outright falling. The dollars meant to be puffing them up are instead spilling over into everything else.

The housing market is like a sad, burst balloon. Air just flows in and right back out. The stock market seems to be filled to capacity, its size delineated by annoying fundamentals like earnings. The price for these earnings is just too high right now and more new money in the economy just can’t drive those stock prices much higher.

That new money — the various QEs — is having an affect on other prices though. All the stuff you use to live. If you insist on believing in the dollar — and writing gold and silver off as barbaric nonsense — then you will be able to afford less and less of the life you want and to which you’ve become accustomed. Further if the history of paper monies is any kind, you could find yourself completely wiped out if you store your wealth in dollars or euros or pesos or whatever other paper lie is set to unravel next.

They will tell you that creating new money is necessary to keep the economy growing, to fight unemployment, to promote the general welfare, etc, etc.

But all it does is destroy your savings and make it easier for the feds to keep on borrowing to pay for welfare and wars. If you want to make sure the dollars you earn today can pay for the same amount of food and energy down the pike, trade those dollars for something of real value right now. We heartily recommend the type of money that actually fulfills that “reliable store of value” function.

Regards,

Gary Gibson

Why Gas Prices Are Actually Falling was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Just how committed should you be to holding gold (and silver)? Are you holding too much gold as it is…and not enough U.S. dollars?

Or should you be holding anything BUT gold (and silver)? Beyond the cash you need to pay your monthly living expenses, should you hold cash at all? Should every bit of your savings be held in ounces of precious metals? And every bit of your investments be in shares of the companies that drag those precious metals out of the ground?

It might have seemed like an extreme position a few years ago. Heck, it may seem extreme now! But Jeff Berwick is here to explain why it could be the most sensible, most conservative thing in the world to do…

The Fear of Gold

I was on a panel at the recent California Investment Conference in Palm Springs and the question was asked, “What percentage of your portfolio should be in gold bullion?”

The first panelist answered 20%. The second panelist said, up to 30%. Then it came to me.

“I have no problem with someone having 100% of their portfolio in gold,” I stated bluntly. Many in the crowd laughed. Their laughter confused me. What’s so funny about that, I thought?

I went on, “I think it’s weird that people find my answer weird.”

GOLD IS REAL MONEY

After all, we are talking about time tested and true money. The only money that has lasted for thousands of years and is still fully accepted worldwide as a store of wealth. Even Warren Buffet had to recently admit that “Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”

And that from a man who hates gold the way Whitney Houston fans hate Bobby Brown. So, by stating that I have no problem with someone having 100% of their portfolio in gold I am making an ultra conservative statement. I am stating that I’d have no problem with someone having their entire portfolio in “cash”. In real money.

What would you rather hold “for eternity”? US dollars? A paper debt obligation of a bankrupt nation state?

The fact that so many found that to be a shocking statement says a lot about where we are in this current process of the collapse of the fiat currency system.

THE FEAR OF GOLD

There is such a “fear of gold” amongst most people that it must be due to statist indoctrination and propaganda. It makes no rational sense to have such a fear of such a time tested and true store of wealth.

The same people who fear gold seem to have no problem holding a significant amount of their assets in euros in a European bank as Europe burns around them, both figuratively and literally. The euro might not exist 12 months from now but no one seems too concerned. They act like its been around forever and always will be, but it only was dreamt up by globalists in 1999.

YOUR BROKER FEARS GOLD

Near the end of 2007 a good friend of mine who had been wanting to sell her house called me. I had been telling her for a few months to sell her house and buy gold because a big housing crash was coming.

She said she had received a good offer for her house and checked with me to make sure I was certain about her selling, buying gold with the proceeds, and renting for a few years. I told her, emphatically, yes.

So she sold her house. At the time gold was around $750 per ounce. We fell out of touch for a few years and she contacted me last year around when gold was near $2,000 per ounce. I smiled when she called, waiting for her to tell me about the fortune she made.

“So?” I asked, waiting for the exaltation.

“What?” she also asked, confused.

“How’d that trade work out for you?” I asked.

“Oh. Well I sold the house. And I put the funds into my brokerage account with my (government registered) financial advisor,” she responded.

My heart sank. I knew what she was going to say.

Her financial advisor had talked her out of it. He said putting all her assets into gold was far too risky. Where in the government training manuals does it tell you to even own any gold!

She got worried too and less than a year after selling, under pressure from her old Chinese parents, bought another house. It was a bit cheaper but after transaction and moving costs it was a loss.

GOLD IS IN A BUBBLE

Of course, now, with gold over $1,700, it is nearly impossible to get anyone from the general public to buy gold. It’s gone too high, they cry! CNBC says it was a bubble, they repeat like trained seals.

It’s gone from near $300 to nearly $2,000 in the last decade. Surely that is a bubble and if it hasn’t already popped it soon will, right?

No. That’s not right. This is the problem with watching the value of anything in terms of constantly depreciating US Federal Reserve Notes. In the following chart, when looking at the price of gold in nominal dollar terms it looks like an insane rocket ride of epic proportions. But, when adjusted by the US Government’s own, heavily massaged inflation statistic (the Consumer Price Index, or CPI), the price of gold has just finally reached nearly the same level it was at in 1980 and looks far less spectacular.

PORTFOLIO ALLOCATIONS

Getting back to the initial question posed on the panel as to what percentage we recommend people hold gold bullion as a percentage of their portfolio. While I stated I’d have no problem with 100%, we actually recommend to our subscribers is to hold 30% of their portfolio in bullion – both gold and silver.

We also recommend, at this time holding 20% of your portfolio in gold mining juniors and 15% in gold mining major stocks amongst other things. That’s because we are expecting all the monetary printing going on with abandon in the western world to foment a true bubble, not only in the price of gold but even moreso in the price of the mining shares, especially the juniors. We are expecting a mania for the ages in these stocks. And, how will we know when to sell? When I am asked what percentage of their portfolio should be held in gold bullion and I say 100% and no one laughs.

Best,

Jeff Berwick

The Dollar Vigilante

P.S. The tech bubble is dead. The housing bubble is dead. And the bubble in government debt is in its death throes. What will be the final bubble? It will be in gold and silver mining stocks.
But even if you are wisely invested in these stocks, are you sure that YOU really own “your” share?

It is one of the dirtiest little secrets in the brokerage business. And 99.9% of people have no idea it is even being done to them. It’s called “street name registration” and it’s how the brokerage where you hold your stocks “registers” your shares. To save money and time, and to allow your shares to be included as assets that THEY can use to do what they want with, your brokerage never actually registers you as an owner of the shares.

Street name registration allows your broker to lend your shares to short sellers, thereby driving down the price of your own stocks. Additionally, this method allows your broker to “re-hypothecate” your assets–meaning it allows your broker to borrow money against your shares and speculate in the derivatives market!

These hidden risks are planting the seeds of tomorrow’s ultimate collapse — In which there may be a system-wide collapse of broker dealers, taking down millions of investors, and ensuring permanent non-recoverable losses to an entire generation!

So how can we safely invest in gold and silver mining shares and avoid the collapse brought on by the coming broker dealer crisis?

There are two methods of owning stocks your broker-dealer will never tell you about. These two methods completely remove the broker dealer counter party risk attached to your shares — effectively removing them from “the system.”

These two methods deprive your broker dealer the abilities to sell your stocks short and to “re-hypothecate” them. Your broker dealer will never willingly tell you about these methods – because they make more money when your shares are in their hands – precisely where risks are greatest to you.

These methods are so safe, that even if your broker dealer collapsed tomorrow, and stole every penny from every client investment account you would be able to sleep safe and sound, knowing your stocks are far out of reach, and legally unavailable to access by your broker-dealer.

This means everyone — all brokers in the Unites States and Canada. If every broker collapsed tomorrow due to waves of bankruptcies, these ownership methods will protect you 100%. You will be able to sleep safe and sound at night, knowing your shares are carrying zero counter party risk.

We’ve put together a complete research paper outlining the process to register your shares and giving you all the info you need to know to do it easily, quickly and properly. We’ve spent hundreds of hours dealing with broker dealers, transfer agents, public companies, and the SIPC in researching and finding out all the details on how to get your shares outside of the system.

We’ve put all his research together into a Special Report called “BulletProof Shares”. To find out more… and to get your copy… just click here.

A Parting Shot:

We have a tale of woe similar to Jeff’s story about his home-buying friend…

We told both our mother and our sister to sell their homes back throughout 2005 and 2006.

“Sell your homes. Buy silver…please!” we urged. We might as well have been asking them

Mom ended up taking out a second mortgage on her existing home, while Sis and her boyfriend kept their old home to rent out even as they bought a bigger place.

Neither of those proved to be particular good ideas. Unless the intention was to lose as much money as possible.

The value of those homes is between a quarter and a half lower. Meanwhile silver multiplied in price. Even after tumbling from its 2011 highs, silver is still about five or six times as much in dollar terms than it was seven years ago.

And of course, our loved ones still won’t buy a single solitary ounce of silver. Even after seeing how much ignoring our advice cost them. They still impressively rationalize their staying in the Fed-goosed real estate market…and they somehow sleep well at night while continuing to ignore precious metals.

We are a little offended. It seems that they’d rather listen to the bobbleheads on news than listen to us and to our Austrian school friends about the dangers inherent in saving in the currency of a bankrupt empire.

Today we’d like to leave you with a few words from our friend Mac Slavo of SHTFPlan.com:

“Over the last half decade or so, as the price of gold and silver have steadily risen, financial experts, advisers and pundits have often argued that gold is a bubble. They said it in the spring of 2008, as gold approached $900 per ounce. Likewise, as gold surpassed its nominal 1980′s high and went above $1000, those same analysts were screaming sell recommendations. To this day, with gold nearing $2000, they are still all marching to the same tune.

“Headlines for the last three years have been heavily weighted against gold, with every price spike being met with bubble talk. When George Soros said in January of 2010 that gold was the ultimate bubble, the media pounced on it as evidence that precious metals were through. Of course, Soros had been acquiring millions of dollars worth of gold assets (and continues to do so today). His message was completely misconstrued. Gold, like any other asset that involves a buying frenzy, will eventually become a bubble. And given the reasons for why people buy gold — inflation protection and as a hedge against the loss of confidence in government stability — we can be fairly certain that gold and precious metals in general will eventually reach exorbitant levels and ‘pop.’

“But, as Daniel Ameduri of Future Money Trends points out in the following micro-documentary, we’re nowhere near bubble territory yet.

“It’s important to note that 1980 was the end of the gold run that started when Nixon closed the gold window in 1971. That was roughly a ten year run up in the price from $35 to over $800 per ounce.

“This, however, isn’t 1980. Our debt-to-GDP ratio [Tuesday] morning hit 101% and is going much higher. We’ve added more federal debt in the last 7 months of 2011 than all of the years from 1776 to 1980 combined. The policy of our government is not to curb inflation is it was in 1980, but rather, to stimulate it, as evidenced by 0% fed funds rates (in the 1980′s it was in the teens!) and the massive monetary printing over the last few years.

“1980, even though the end of the recessionary environment was still a couple years away, is when the people felt confident that crisis of the past decade was coming to a close.”

Back in 1980 Fed Chairman Paul Volcker’s actions curbed — and then killed — the rise in gold and silver prices. Today Ben Bernanke’s actions are just adding fuel to the rocket ship that will carry gold and silver prices to undreamed of highs…and the dollar to unspeakable lows.

While the best time to start buying gold would when it was under $300 (and silver back when it was under $6) just a few years ago, that doesn’t mean you shouldn’t be adding to your gold and silver holdings.

It also doesn’t mean that you’ve missed out on getting in at a great time to make gains from gold’s (and silver’s) rise…

The gold price still has much, much further to go. The price of silver may have even further to go! To see how much…and to set yourself up for even bigger gains based on the rise in precious metals… just click here.

Or don’t click. After all, you may believe the mainstream reports about gold being in a bubble. You may believe that the price of gold has nowhere to go but down. You may want to sell your gold and gold-related investments right now. As Mac continues…

“If you feel like our current economic, financial, monetary, and social crises are wrapping up, then by all means sell your gold.

“But we urge you to consider what Future Money Trends has to say about it before you do.

Micro Documentary: Gold 1980 Vs. Today

We hope you watch the video, good patron. And we hope you can agree with us — and with Mac on this one. Again Mac Slavo:

“Despite what the experts in the media and on television tell us, there is no bubble in gold — not yet, at least.

“You see, bubbles require emotionally driven buying (just like bubble pops require emotionally driven panic selling). When all of those family members, neighbors and acquaintances you know who still reject the notion that our economic and social paradigms are shifting; when they start buying gold and silver at rapidly rising premiums and prices (as opposed to their current selling of precious metals to rip off outfits that include ‘We Buy Gold’ shops) and when they all become experts on inflation, safe haven assets, and gold investing, then it’s a bubble.

“Look around. We’re not even close.

“Gold is going up so long as the governments of the world keep printing money and so long as the public’s confidence continue to deteriorate.”

From SHTFPLan

Regards,

Gary Gibson

Managing editor, Whiskey & Gunpowder

ggibsonagora@gmail.com

The Fear of Gold was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Let me make a secret confession right here. For years, the producer of my radio talk show and I would draw straws each January to see who would “have the high privilege and distinct honor” of watching the president’s State of the Union address.

Do I have to clarify that the loser had to watch?

In case the president said something important – which almost never happened – I felt an obligation to play some audio clips and talk about it on the show the next morning. But, personally, watching Republican and Democrat presidents recite their laundry list of promised giveaways for the year ahead was more than I could bear.

I learned early on that I could avoid all of the ovations and applause, save time, and still capture what substance there might have been in a written paragraph or two. Soon, I’ll give you such a written account, a perennial synopsis that will allow you to watch something else – like American Idol – and still have a handle on what the president says.

And you might even have time left over to keep an eye on the real news.

While We Were Watching…

The State of the Union is treated with utmost seriousness by the dominant news media. All four major TV networks and the cable news channels carry the event. My local newspaper devoted most of the front page and big chunks of the inside pages to its coverage: photos, accounts, sidebars, response, and analysis.

But it’s actually a spectacle that crowds out the real news. News about the impact American diplomacy is having on our future standard of living. News about the U.S. dollar’s reserve status winding down.

On the day of the State of the Union address, news flashed around the world – but not on your favorite network or in your morning paper – that India and Iran have agreed to end-run the U.S.-imposed sanctions on Iran.

They will use gold to do so.

Those [U.S.] sanctions, which have now been agreed to by the European Union as well, will ratchet up in July. Their enforcement means that banks and financial institutions involved in oil transactions with Iran will be barred from doing any business with financial institutions in the United States and Europe.

According DEBKAfile, a news source based in Israel, Iran has taken steps to bypass American and European banks and their currency desks altogether, agreeing instead to sell its oil to India for gold. China is expected to soon agree to use gold in buying oil from Iran as well. It’s a move that would leave the long-standing global dollar pricing of petroleum in tatters.

The gold-for-oil agreement means a three things:

1. It hastens the unwinding of the U.S. dollar’s global reserve currency status.

The rest of the world is actively developing alternatives to the U.S. dollar. Although it will mean a falling standard of living for the American people, U.S. policies and secretaries of state, like Condoleezza Rice and Hillary Clinton, have spurred what will become a stampede away from the dollar. DEBKAfile also reports that both China and Russia have secret mechanisms already in place to pay Iran in non-dollar currencies for its oil. And only a month ago, China and Japan, the world’s second- and third-largest economies, agreed to develop direct yen/yuan trading, forgoing the dollar as the reserve currency intermediary.

2. It accelerates the global monetization of gold.

Both China and India have been aggressively adding to their gold reserves. Other countries are following suit. The Keynesians, who have been in charge of American monetary policy, having destroyed the value of the dollar and enabled our ruinous debt, may actually believe that gold is a “barbarous relic.” But it is clear that their opinions have little functional value in the real world. The world is turning to gold more and more as U.S. debt continues to mount. Indeed, is there a better alternative monetary unit to be found? Certainly, it’s not the euro. Jim Grant of Grant’s Interest Rate Observer says gold is the only answer to the question, “if not the dollar, then what?”

3. It reveals the growing global impotence of the U.S.

Long able to enforce reluctant countries to adhere in its missions and embargoes around the world, the U.S. is finding its will frustrated. Nations that once had to weigh the favor of the U.S. against their own commercial and domestic political interests are increasingly ignoring the global dictates of the U.S. State Department. In 2003, Turkey, where the prospect of a U.S. invasion of Iraq was wildly unpopular, refused even bribes to allow the U.S. to stage the invasion from its soil. Today, the threat of a U.S. or Israeli strike on Iran is meeting with growing disapproval, especially from countries like China and India which rely heavily on Iranian oil.

Routine. Tired. Repetitive.

It may be that the State of the Union’s falling ratings – Obama’s speech the other night was down 12 percent from the year before, and was down 21 percent from 2010 – are a sign that people in large numbers have discovered there are better sources of important news than network television and Washington’s lapdog press.

Or, even better, maybe they’ve had about enough of the Washington party.

Or, maybe it’s simply because it’s all so routine, so tired, so repetitive. Even American Idol, entering its 11th season, has more surprises than the State of the Union. Consider:

Obama, who clearly doesn’t understand anything about markets, offered to have the government interfere with the real estate market in brand new ways in 2012. What could be more predictable than some president announcing a scheme to screw up the real estate market again in the new year?

It’s so routine. So tired. So repetitive.

And while the contestants on American Idol are fresh every year, the promises that make up the State of the Union are just reruns, season after season.

Now, if you’d like to be free to pay attention to the real news that actually affects your freedom and prosperity, let me provide you the following short, beginning-to-end account of this year’s State of the Union. You’ll be able to refer to it year after year, so that while you’ll still be informed about the president’s address, you can skip the show and save yourself time.

Time to follow the real news. Or to watch American Idol.

“Thank you so much. Thank you very much. Thank you. Thank you.”

The president agreed to do something for (to?) homeowners. He also has decided to help teachers. And students. And women. Workers, too. The president wants to help workers, for sure. And jobs galore. The president is all about creating jobs in 2012. And more jobs in energy. Oh, they’ll be clean ones for sure!

Plus, he’s going to reform regulations so that regulators will be able to regulate better. And he wants to get a handle on the bureaucracy. And he wants to reform education. And both make government more effective and still grow the economy. Did he forget men and women in uniform? The president most certainly did not!

“Thank you, God bless you, and may God bless the United States of America.”

Regards,

Charles Goyette

Source

The State of the Union, Just Another Reality Show was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

The U.S. government holds it and reports it on their balance sheets. The International Monetary Fund, the European Central Bank, China, Germany, Russia, India — they all hold gold. Turkey bought about 41.3 tons of gold for official reserves in November. Goldman Sachs is expecting central banks to buy 600 tons this year. Look at the combined official holdings to date: 30,744 tons.

Why?

Contrary to public mythology, gold has no statutory role in the monetary system at all. The paper standard has ruled since 1973, though most people are still slow to figure that out. Sure, it is an asset but so are many things that governments and central banks own: computers, land, buildings, mortgage-back securities however toxic, and many other things. There is no special reason why gold should be reported, listed, touted, purchased in scary times, but not these other assets.

The truth is that gold does have a huge and continuing role to play. And it is more than purely psychological. It is deeply embedded in the history of money itself and in the development of the world economy as we know it. Governments destroyed the gold standard long ago but they know better than anyone that there is no surer means of financial security, proven over nearly all times and all places.

But here is an interesting question. What precisely are governments and central banks seeking to protect with their gold holdings and acquisitions? It is not you and me. It is about their system and their interests. As much as they love foisting the paper stuff on the population, risking even the destruction of the means by which we earn, save, and provide for ourselves, when it comes to government and central bank finance, gold serves serves them well. They deny it publicly but their actions speak more loudly than their press conferences.

This is one reason among a million that you can’t trust government to manage or even make the money that runs the economy. This should and could be the job of the private sector. The first time that I heard Murray Rothbard make this claim, I was amazed. Doesn’t everyone know that this is a primary function of government? But he was not only correct about this; fantastic research his book on this topic came out (What Has Government Done to Our Money?) has reinforced the point.

The leading historian of private coinage is George Selgin. His book Good Money is one of the most fascinating books on monetary history ever written. The country is England and the time is the Industrial Revolution. The official Mint was cranking out only large denomination coins suitable for old-world trade by large companies, but this was a time when the bourgeoisie was being born. Small manufacturers all over the country needed small denominations to pay their workers. They didn’t wait for the government to make the stuff. Button makers jumped at the chance to mint small denomination coins for factories to pay their workers.

What emerged from this event was a highly developed and extremely sophisticated system of private coinage at the very heart of England’s birth into the modern world. Selgin’s book tells the entire story in remarkable detail, and the publisher went all out with this book to provide a large section of beautiful color images of many of the private coins of the period, with even a comparison to the government’s unimaginative and often ugly coins. The free market picked up where government left off!

You can guess what happened. The result was the same as today when private traders have come up with digital currencies to compete with the government: the state shut them down. Don’t mint your own money; the government hates the competition! Selgin’s book covers the drama with energy and wit, revealing a slice of history that is hardly known by anyone.

Laissez-Faire Books is the only source for the hardbound version of this fascinating book, and there is a limited number still available. And this format is precisely what you want in a book of this importance: the format alone turns treatise to treasure. Never let anyone tell you that the private sector can’t be wholly in charge of the monetary system. Selgin has demonstrated otherwise.

This is the history but what about the future? In 1982, the Reagan administration pushed through a bill that created a U.S. Gold Commission to look into the question. It was the great missed opportunity, because — no surprise — the fix was in on what the commission would decide. Ron Paul and Lewis Lehrman were both on the committee, and they dissented from the majority opinion.

The dissenting opinion wasn’t just an opinion paper; it was a wonderful book on the past, present, and future of gold as a monetary unit. It ends with a detailed plan for restoring sound money and liberating us from the tyranny of paper. The book is out in a special edition of Laissez-Faire Books: The Case for Gold.

Can gold really be the money of the future? Nathan Lewis thinks so and he makes the case in Gold: The Once and Future Money. He points out that without a gold standard, with money that is sound and tied down to strict limits on production, the whole theoretical apparatus of government finance stops making any sense. What does it matter how much debt you run up if you can just print the money to pay for it? Perhaps this might have something to do with why government can’t seem to control its spending. And how can we even have a rational discussion of tax policy and its likely affect on revenue streams and the government deficit so long as any revenue shortfall can be made up for through the magical powers of the central bank?

The absence of gold, Lewis argues, has introduce irrationality and fiscal chaos into government finance. Nor has it served the population well. It is directly responsible for the creation of the boom and bust cycle — paper gives the central bank massive power to manipulate interest rates — as well as the relentless declines in the value of the dollar. The system has failed, he says, and if governments don’t repair the money, the private sector will respond, just as it did in the early years of the industrial revolution.

Growing economies are about change. Industries are born and industries die. Business come and go, and even seeming Goliaths are often slayed by start ups. The jobs we do change. The types of production that nations specialize in are constantly in motion. All this global enterprise changes the face of the earth every half century or so. Thanks goodness for change: without it, there would be no supporting the 7 billion people who inhabit this place.

There are very few things in this world that do not change, but one of them is the perception and reality that sound money is rooted in the gold standard. Powerful presidents could not kill it, though more than a dozen have tried. Elite economists have tried to wish its place in the world away but couldn’t do so. It is the ultimate immovable object in the world of economics. That gold as a monetary unit will outlive us all is one of history’s few sure bets.

Regards,

Jeffrey Tucker

The Monetary Metal That Won’t Die was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Addison,

I am not given to hyperbole. This is the most important message I have ever sent. I urge you to read it and to share it with others.

Earlier this week, I attended the Utah Monetary Summit in Salt Lake City, Utah. As you may know, the state of Utah passed a Legal Tender Act earlier this year authorizing the use of federally minted gold and silver coins as money in the state of Utah. Now legislators in other states, many of whom attended the Monetary Summit, are evaluating similar legislation.

Among other things, this means the United States is approaching a constitutional crisis because states are beginning to financially break away from the federal government. This is no less serious than the American War of Independence or the War Between the States. The Utah Monetary Declaration (below) is a financial declaration of independence whereby states are beginning to opt out of the Federal Reserve System. A major confrontation seems inevitable.

The issues underlying this historic development include:

1. The unsound condition of large U.S. banks, which have inaccurate and crumbling balance sheets along with $250 trillion in high-risk OTC derivatives contracts.

2. The unstable nature of the U.S. and world financial systems, characterized by unworkable levels of sovereign debt and private debt and by over $600 trillion in OTC derivatives liabilities.

3. The excessive levels of federal government debt and unfunded liabilities combined with falling federal tax revenues prior to the start of the double-dip recession that began in the second half of 2011.

4. The radically inflationary monetary policies of the federal government and of the Federal Reserve, which promise high inflation or hyperinflation in the future.

5. The worsening condition of the real U.S. economy outside of large banks, multinational corporations and Wall Street firms, where federal government bailouts and Federal Reserve monetary easing (money printing) transfer wealth from proverbial Main Street to literal Wall Street.

6. The rapidly escalating polarization of the distribution of wealth, which threatens not only the economic stability of the United States, but also its social and political stability.

7. That the current highly inflationary monetary system is plainly unfair and fundamentally immoral.

As a consequence of these grave, ongoing and growing problems, which are being largely ignored by the mainstream news media, state governments must take immediate action to ensure the functioning of local economies and of state governments, should the federal government/Federal Reserve System break down. Specifically, there is an urgent requirement for an alternative currency to the privately issued Federal Reserve Note, which is erroneously referred to as the “U.S. dollar.”

Replacing a stable form of money with ever expanding debt and inflation undermines capitalism and destroys jobs. The monopolistic monetary system of the United States today is inherently inflationary because it must continually expand in order to prevent a deflationary collapse. The underlying structure and root cause of the monetary system’s inherent and inescapable inflationary bias is the legal construction of money as debt with no direct link to real economic activity. Debt levels in the economy and bank profits are simply out of line with reality.

In addition to the unsustainable and unstable nature of such a system, an inherently inflationary monetary system destroys savings by devaluing the currency. Savings, which are the result of excess production, precisely define the term “capital.” Replacing capital with debt, while highly beneficial for banks that create money out of thin air (through lending), is a deeply flawed concept responsible for the systematic and ongoing breakdown of capitalism in America. This deep structural problem is the absolute root cause of chronic, irremediable unemployment. As a consequence, there will be no genuine economic recovery in the U.S. and jobs will not return unless and until the monetary system is fundamentally reformed.

An ultimately more important issue is also garnering attention among state legislators, prominent (non-Keynesian) economists, religious leaders, political activists and voters. Inflation, particularly if it is systematically understated by the federal government or Federal Reserve, robs savers of the proceeds of past labor and robs workers of the spending power of their wages, living standards and financial futures. Inflation robs the elderly of their retirement and robs investors of their capital by facilitating taxes on alleged gains created solely by currency debasement. Legal tender, created as debt, results in ever larger debt burdens thrust upon innocent future generations that will experience progressively lower living standards and reduced economic opportunity. Generations to come will be born into debt bondage. Thus, the monetary system is at the center of a profound moral crisis.

The morally and literally bankrupt nature of the current U.S. financial system is transforming America into a dog-eat-dog society where every person seeks to live at the expense of someone else, rather than by producing wealth, because production is systematically stolen by the federal government and by banks through the clever device of an inflationary monetary system. The monetary system operates by exchanging fictitious “wealth” (debt-based money created out of thin air by private banks) for the real wealth of borrowers, i.e., the proceeds of their labor. In effect, the monetary system is a massive scam purported to be legal but lacking any demonstrable legal authority. Specifically, there is no constitutional or other legal basis upon which the federal government can force a private monetary monopoly on the states. In fact, the Constitution of the United States explicitly establishes the exact opposite.

The oversized banking system and federal government have grown in an unholy alliance in lock step and now consume so much of the U.S. economy that, together, they not only pillage the real economy, but threaten to kill, once and for all, what is left of the free country founded by the Declaration of Independence. The moral precedent and example set at the highest levels of the federal government and of the banking cartel is that profit, fame, success and wealth are (either directly or indirectly) rewards for immoral acts, rather than for honesty in business. Moral corruption at the top — embedded in the very structure of the monetary system — has slowly spread its gangrenous effect, undermining totally the founding principles of the United States of America, enshrined in the Constitution of the United States and in the Bill of Rights. Rather than liberty, America’s legacy is fast becoming one of moral turpitude enshrined in financial injustice and oppression.

The challenge before our nation today — our moment in history — is not merely a financial or economic or political or legal/constitutional crisis. It is also, and primarily, a moral crisis that could literally destroy theUnited States of America and all that it has stood for in more than two centuries. A stable society requires sound principles. A moral society requires sound money. Today, the United States of America has neither.

This message is a call to action. In the words of poet Dylan Thomas, let us say for America, “Do not go gentle into that good night / Rage, rage against the dying of the light.”

I am personally asking you to read the Utah Monetary Declaration (below), which I, among many others, signed on Monday evening, Sept. 26, 2011, in the Post Chapel on the University of Utah campus at Salt Lake City, and to forward it to all, especially to your state officials. Time is of the essence. Although its duration and pace are as yet unclear, the crisis is already upon us. Please act now and do not delay.

Ron

Utah Monetary Declaration

WHEREAS, money, as a medium of exchange, a store of value and a unit of measure promotes economic activity, growth and productivity by facilitating specialization and trade, the accumulation of wealth and its long-term investment, as well as accountability in setting prices, tracking progress, and settling accounts;

WHEREAS, natural money — precious metal coin — by virtue of its inherent qualities of recognizability, measurability, uniformity, divisibility, durability, portability and scarcity has reliably retained its purchasing power, notwithstanding periodic fluctuations, over the centuries and millennia of human history, serving as an effective medium of exchange and store of value often without any governmental declaration to require, legitimize or perpetuate its adoption and operation as such;

WHEREAS, sound money, by retaining stable purchasing power over time, best serves societal needs by substantially reducing the uncertainty of inflation risk for creditors and deflation risk for debtors as well as encouraging saving and investment among the general populace and benefiting the economic zone in which it circulates by stimulating the economy and by attracting foreign capital and commerce to the region;

WHEREAS, history attests that monopolistic monetary systems frequently engender currency debasement, resulting in serious consequences such as lost purchasing power, inequitable wealth redistributions, misallocation of productive resources and chronic unemployment, and that, as the cornerstone of a free market and society, the right to choose, whether between suppliers of goods and services, political parties and candidates, or between alternative media of exchange, effectively promotes the general welfare;

WHEREAS, for the equal protection of all people, rich and poor, the open circulation of complementary and competing currencies should be fostered and promoted by every sovereign state, including those of the United States of America pursuant to their monetary powers (expressly reserved in article 1, § 10 and in the 10th Amendment of the United States Constitution) to monetize gold and silver coin as an alternative, voluntary medium of exchange, and as an effective check and balance against debasement of the national currency by the national government which is constitutionally precluded from demonetizing state legal tender, through disparate tax treatment, discriminatory regulation, the threat of suppression and seizure or otherwise;

NOW THEREFORE, we the undersigned hereby declare and affirm that:

1. As an essential element of true liberty and of the pursuit of happiness in a free society, all people enjoy the inherent and unalienable right to lawfully acquire, hold and use as a medium of exchange whatever form or forms of money they may prefer, including especially gold and silver coin.

2. All free and sovereign states bear the moral, political and legal obligation not only to refrain from debasing their own currencies (except under the most exigent circumstances) and from erecting barriers to the unfettered circulation of monies issued under the authority of their sovereign trading partners, but also to affirmatively defend and protect against fraud, counterfeiting, uttering, passing off, embezzlement, theft or neglect by requiring full transparency and accountability of all state-chartered financial institutions.

3. No tax liability nor any regulatory scheme promoting one form of money over another should apply to: (a) the holding of any form of money, in a financial institution or otherwise; (b) the exchange of one form of money for any other; or (c) the actual or imputed increase in the purchasing power of one form of money as compared to another.

4. Except in the case of governmentally assessed taxes, fees, duties, imposts, excises, dues, fines or penalties, the authority of government should never be used to compel payment of any obligation, contract or private debt in any specific form of money inconsistent with the parties’ written, verbal or implied agreement, or to frustrate the intent of contracting parties or impair contractual obligations by invalidating the application of a discount or surcharge agreed to be dependent upon the particular medium of exchange or method of payment employed.

5. The extent and composition of a person’s monetary holdings, including those on deposit with any financial institution, should not be subject to disclosure, search or seizure except upon adherence to due process safeguards such as requiring an adequate showing of probable cause to support the issuance by a court of competent jurisdiction of a lawful warrant or writ executed by legally authorized law enforcement officers.

We hereby urge business leaders, educators, members of the media, legislators, government officials as well as judicial and law enforcement officers to use their best combined efforts to reinstate and promote the legal and commercial framework necessary to establishing and maintaining well-functioning, sound monetary systems based on choice in currency.

The signatories hereto concur in the general principles expressed in the foregoing declaration notwithstanding specific reservations some may have as to how such principles should be interpreted and applied in practice.

Next week, the folks over at the Heritage Foundation are putting on their own request for a stable currency… They want a good old debate, to see if there’s anything one can do to stabilize the U.S. dollar.

We’re sending three of our best from the Baltimore office down to Pentagon City next week for Heritage’s two-day event. Expect commentary and coverage from Addison Wiggin, Doug Hill and Samantha Buker.

They’ll let us know what prescriptions are on the table. After all, the dollar is one sick puppy, as Detlev and Ron Hera know. Heritage advertises plenty of hope by calling it the Conference on a Stable Dollar: Why We Need It and How to Achieve It.

All good Whiskey patrons know why a sound currency is great, but do we think it’s gonna happen before all hell breaks loose? That’s the question that the likes of an ex-Fed Reserve president, a Wall Street Journal reporter, a whole slew of university economists and longtime investor and “interest rate observer” Jim Grant will address.

Case for Gold co-author Louis Lerhman and billionaire publisher Steve Forbes will take center stage. We think we know what they’ll argue for, but stay tuned next week, Shooters!

Regards,

Gary Gibson

Notes From the Utah Monetary Summit was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Mr. Wolf correctly identifies the problem: Most sovereign states are bust and so are the banks, which are today a protectorate of the state and have repaid the generosity of their protectors by lending excessively to them. Mr. Wolf is too skilled and sophisticated a writer to put it this bluntly, but if you read his article, that is what it boils down to:

“The emergence of doubt about the ability of sovereigns to manage their debt undermines the perceived soundness of the banks, both directly, because the latter hold much of the debt of the former, and indirectly, via the dwindling value of the sovereign insurance.”

And why are we in this mess? Because some time ago we adopted a system of limitless and constantly expanding fiat money. In such a system, the privileged money producers — the state and the banks — apparently never have to shrink and can conduct their financial affairs in the comforting knowledge of unlimited access to the printing press.

No credit contraction, no bank failures, no sovereign defaults. Whenever the money runs out, we simply lower interest rates, create more bank reserves out of nothing and off we go again. This has worked for 40 years.

Alas, no more.

The present problems, the unsustainable bank balance sheets, the out-of-control budget deficits and the mind-boggling levels of public debt, are inconceivable without a system of constant fiat money creation and extended periods of artificially low interest rates courtesy of the central banks.

Or to put it the other way ’round, a monetary system like ours, in which interest rates can be set administratively to encourage bank lending and to underwrite the constant growth of state and banks, must ultimately lead to a bloated public sector and a bloated banking industry. The fiat money system is feeding its own disintegration.

[Ed. note: Savers in the U.S. have seen the results of QE on their savings with rates less than 1%. And now it's a global money printing party... And investors and savers are stuck footing the bill.

The scam governments are perpetrating on their citizens seems to have no boundaries.

Chris Mayer has a report for you today that exposes their scam and shows you the simple steps you can take to plan for the coming tidal wave of cash. Click to get the story from Chris, here.]

Bail Me out Again, Sam

Mr. Wolf offers two solutions. Both are dangerously misguided, which means that both stand an excellent chance of becoming policy.

Apparently, Mr. Wolf does not want to deprive the banks and the states of their special status. They lent too much and they borrowed too much, but the laws of economics, the laws of gravity and the laws of logic are still not supposed to apply to them. They should be saved again.

Wolf says the banks should be “recapitalized.”

Wait a minute. These are failed corporations. They lent billions to corrupt Greek politicians. They put their chips on red and black came. They lost.

For capitalism to work it requires that the market be cleansed of failed corporations, not that these corporations get “recapitalized.” We are simply perpetuating the bad habits of our fundamentally flawed and anti-capitalist monetary system by shielding the banking industry from its mistakes and never allowing market forces to shrink it. This is not only a mistake for reasons of “moral hazard.” That is the least of it.

After a 40-year fiat money binge, the banking industry is too big. It is now sized for a never-ending credit boom when we have entered the credit bust. We should not be relying for our economic future on an ever more bizarrely propped-up banking sector.

But this “solution” begs another question: Who is going to pay for this? We just learned that the state is bust, too.

Well, while he is at it, Mr. Wolf also wants to save the state. How? Via a super-sized EFSF (European Financial Stability Facility) — a mega bailout fund. Mr. Wolf joins his buddy, Tim Geithner, in recommending “shock and awe” — not that this term conjures many positive memories.

In short, more money is needed. Much more.

“Given the funding needs of banks and sovereigns, this translates into well more than €1,000 billion, and, quite plausibly, several times that number.”

Bring Your bazooka

Several trillion? — Methinks that Mr. Wolf has been hanging out it in Washington too much. I am convinced that in the macho atmosphere of IMF and World Bank power banquets, you are now looked down upon as a policymaking lightweight if you are still content with assigning only billion-dollar price tags to your pathetic policy initiatives. “Trillion” is the new denomination for the grown-ups in the policy elite. Hey, Europeans, if you want to be players, you better add a few zeros!

But again, where does the money come from?

Here is Wolf again, warming to the military theme:

“The eurozone needs a much bigger bazooka. Apparently, five different plans are under discussion. These involve leveraging up the EFSF’s money, by issuing guarantees rather than loans, or borrowing from the European Central Bank or by borrowing in the markets. But if action needs to be immediate, as it does, the only entity able to supply the needed funds is the central bank.”

Ah, here we are. The central bank. Finally.

After all the elegant prose, the bureaucracy worship and the habitual name-dropping, the bottom-line is this: Turn on the printing press! Print more money! Print! Print!

This is madness, so I do think it is precisely what will happen. Mr. Wolf will get his way. Because the policy elite thinks just like he does. Default is not an option. Banks cannot be allowed to fail. States — at least if they are not called Greece, for which this comes too late — cannot be allowed to fail, either. We rather try to print our way out of this. Everybody gets bailed out — via the printing press.

Believe me, it will not work. It will lead to complete disaster. But it will be tried.

Mr. Wolf looks at it in hope. I look at it in horror. Once this gets implemented and the market realizes what is going on, it will dump government bonds, real yields will shoot up and confidence in state paper money will evaporate. What will the central banks do then? Print money faster, as the overstretched system cannot cope with higher real yields.

So what should you do to protect yourself? Well, I don’t want to give investment advice, so please treat this carefully — I could be wrong, so this may not work, but I think it wouldn’t be unreasonable to ditch government bonds, and while you are at it, ALL bonds, and man the lifeboats, which consist of gold and silver.

As my good friend, the Swiss-based bon vivant and intellectual, Tristan Geschex said to me, there are a couple of explanations for the drop in gold:

First, while gold remains, first and foremost, eternal money and is always the monetary asset of choice when paper money dies, it is also still an industrial commodity. I suspect that only a small portion of its present market value reflects compensation for industrial use, but when industrial commodities get hammered because of a weak economic outlook, that element of the gold price — even if it is a minor element — will get “adjusted,” as well.

Second, there are market dynamics. Gold is held alongside other assets in the diverse portfolios of hedge funds and other institutional investors. When those take a hit in some markets, they may also reduce positions in other markets, in particular those where they can still realize a profit, and investors most certainly could still take profits last week on their long gold positions.

Sharp sell-offs in equity markets initiate balance-sheet reductions and traditional derisking (i.e., returns to the paper dollar base) at financial firms and leveraged funds. These also tend to affect gold, at least in the short term. In the second half of 2008, gold famously took a big dive, although it then rallied sharply when the market woke up to what the policy response would be.

Third, the rehabilitation of paper money as a result of the Fed’s reluctance to print more money. This is the most serious threat to anybody who is holding gold as a monetary asset, as the ultimate self-defence in an economy characterized by weak banks, overburdened sovereigns and excessive debt loads, in which the printing press is already being used to postpone the inevitable.

Is the Fed now finally becoming reluctant to print more money? Sadly, I don’t think so. I think they should stop the printing press, but I don’t think they will.

Gold Wins — in Inflation and Deflation

There is no indication whatsoever that Bernanke and other central bankers have stopped believing in the power of monetary stimulus or in the need to avoid asset price corrections, slowdowns in money growth or deflation. There is no sign whatsoever that they now believe that the market should finally be allowed to set interest rates, determine asset prices and cleanse the system of never-to-be-repaid debt. After all, they still consider themselves to be the Lords of Finance.

[Ed note: They may consider themselves to be Lords of Finance, but we think "scam artists" is more accurate.

To see what the scam is, click here for this special report.

You can also learn what else you'll need to do besides stocking up on gold and silver. To find out what, just click here.]

But even if that were to happen and the printing presses were finally turned off, I would still see no reason to ditch gold. Given the size of present imbalances, this would unleash a massive deflationary correction. As Mr. Wolf has so elegantly explained in his article, this would mean banks and states would face default. The paper dollars and the paper euros in your pockets would then no longer be debased — their purchasing power would actually rise.

But how much wealth can be stored in paper cash? And in such a scenario, bank deposits and government bonds would certainly become highly dangerous assets, indeed — and gold would again be an important self-defence asset, even in a deflation.

I do believe that in both an inflationary and a deflationary crisis, gold is a lifeboat. But I am not being facetious if I say that Mr. Wolf has his finger on the pulse of the establishment. What he suggests for the eurozone — saving it via the printing press — also applies to the U.S. It is the position that the global policy bureaucracy will most easily drift toward. The logic on display in that article is the logic of the policy elite.

As to Mr. Napier’s assertion that practical limits to money printing exist — I think he is wrong. For a “determined” central bank, a leverage ratio of 50-to-1 is no hindrance whatsoever. Look at the balance sheet of the People’s Bank of China. Its leverage ratio is 1,200-to-1, which makes it undoubtedly the most heavily geared institution on the planet. That is where we’ll be going.

That must be what Mr. Wolf calls a proper bazooka.

In the meantime, the debasement of paper money continues.

Regards,

Detlev Schlichter

Faster, Pussycat! Print! Print! was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.