Archive for August 2010
from Casey’s Daily Despatch
Posted originally Aug 25, 2010
As the fiat money monsters are brought to bay, the price of gold can really only go higher. Overly confident? I don’t think so.
THAT’S BECAUSE WHEN PEOPLE LOSE FAITH IN A CURRENCY, AS THEY WILL BEFORE THIS CRISIS is over, they unfailingly rush to exchange the unbacked paper money for something more tangible. While pretty much anything with an intrinsic value will do – real estate, antique cars, old masters – for all the reasons that Aristotle enunciated, gold is viewed in a class of its own, and so has an unblemished history as a universally accepted store of value. And, thanks to its portability, divisibility, durability, and consistency, it has also always been looked upon as a convenient form of money.
The most pressing macro-observation I’d like to make – an observation that’s critical for investors to understand (though most don’t or won’t) – is that the tectonic monetary shift now underway is truly global in nature. And it’s not going to be over until a new and markedly different monetary regime has been implemented.
It’s like this: Throughout history governments have experimented with fiat money. They have done so because the benefits to the government and the insiders that invariably latch on to power are just so damn attractive. The Romans did it by debasing their coinage, but the modern version goes one better by completely disconnecting a currency from any value whatsoever, and then wantonly printing as politically motivated needs or wants arise.
The latest fiat system kicked off in earnest in 1944 when Uncle Scam, in Bretton Woods, NH, got the leaders of the world’s war-weary countries to agree to accept the U.S. dollar as their reserve currency. In return, the U.S. agreed that the currency notes it would subsequently issue would be convertible into a corresponding amount of gold. Then Tricky Nixon came along in 1971 and canceled the right of the bearer to swap the notes for gold. Overnight, the link between the currency and anything tangible was lost.
That, of course, opened the door to all subsequent politicians to engage in the whole print, print, print thing. The keystone asset of the former system – gold – soon became a distant memory for the new crop of central bankers and, remarkably, to the bearers of the notes.
For any number of reasons, most of which related to the illusion of increasing prosperity, people simply stopped paying attention to what Uncle Scam was up to. Of course, that illusion was largely based on the increase in nominal wealth: if one year you’re worth $100,000 and three years later you are worth $150,000, the tendency is to feel richer even if your actual purchasing power has gone up by far less or even has declined due to a debasement of the currency.
Today’s dollar is worth just 18 cents in 1971 terms. But all scams must, in time, come to an end. And that’s what’s going on now. It ends here. Before this is over, the current iteration of the U.S. dollar – the vaporous construct with no actual value – will lose its value as money.
Which brings me to an important nuance in this discussion. Most failed fiat money experiments involve a single currency. The most convenient recent example is provided by Mugabe’s Zimbabwe. Rather than actually supporting the creation of marketable goods and services in what he sees as his private fiefdom, he took the low road of energetically abusing his fiat currency to the vanishing point.
In a situation such as that, the local citizenry suffers – as well as anyone foolish enough to be holding bonds denominated in the debased currency. But that’s about it. In the current scenario, the keystone of the entire global monetary system is the U.S. dollar. Which means that the primary reserve holdings of virtually all the world’s significant central banks are at risk of going up in smoke.
And it’s even worse that, because the dollar is also the number one trade currency – which means corporations around the world are sitting on huge holdings or are dependent on commercial contracts denominated in dollars. And even that’s not the end of it. Because Uncle Scam has long served as a role model to other world leaders, those leaders have enthusiastically followed suit and universally launched fiat monetary systems of their own. It’s bad enough that the world’s reserve currency is a fiction – but the situation becomes really dire when you accept as fact that all the world’s currencies are a fiction.
by Dan Norcini
Excerpt from “Hourly Action In Gold From Trader Dan”
Posted on Jim Sinclair’s jsmineset.com
Posted originally August 27, 2010
THE EQUITY BULLS WERE SALIVATING OVER THE PROSPECT OF WATCHING ANOTHER EPISODE of “let’s take the shorts out and slaughter them all” as the world eagerly awaited the giving of the law from Mt. Jackson Hole. With claps of thunder in the background and with flashes of lightning interrupting his keen observations upon the state of the US economy, (some swear that they saw the angelic host), the prophet of Monetary religion sounded forth his prognostications and then looked upon his handiwork. He then saw that his work was good and sat down and rested on the seventh day.
Yessiree folks – Chairman Ben uttered his incantations making all well with the turbulent world and bringing light and order to darkness and chaos. I do not know about you, but I feel so much better today after Ben told us all that he is going to make sure that the recovery is safeguarded from harm. When you combine that with news that instead of the economy slowing from a growth rate of 2.4% down to 1.3% as expected, it only slowed down to a 1.6% growth rate, well, it just doesn’t get any better does it?
I mean, the first thing I immediately thought of is, “Why don’t I rush out and buy lots of copper because things are really getting better in a hurry?”. Already forgotten are the abysmal housing stats of less than a week and the further rise in foreclosures and delinguencies, not to mention the clogged condition of the bankruptcy courts. Chairman Ben has whisked all of that out of the minds of investors with one mere pronouncement.
The fact that it has taken gazillions of conjured-into-existence-out-of-no-where dollars (some call that stimulus) to produce this pitiful growth rate number for the quarter, seems to have escaped the attention of the equity perma bulls who have yet to come to grips with the consequences of all of this. My own view is that it should be a relatively easy matter to get that growth rate up to double the figure given us. All we would need to do to get to 3.2% growth rate is to print twice the number of Dollars and double the rate of government indebtedness. That should be good for another 100 point rally in the Dow. If anyone knows the number that comes after quadrillion, please send that on to Ben and company. They are going to more than likely be needing it.
Seriously, it is hard to hide my contempt of this disgusting scene. This band of fools somehow believes that prosperity can be created by printing money without any consequences whatsoever. The US is sinking under a mountain of indebtedness and the Fed chairman tells us that it stands ready to engage in even more QE should the need arise. Flash to Ben – the need shall arise. China is already balking at buying US debt meaning you are going to have to buy it all yourself Ben.
What we are witnessing is the death throes of a debt-based monetary system of which those presiding over it apparently have come to believe their own delusions. The US public is learning what our grandfathers learned as a result of the Great Depression – Debt is something to be avoided – not heaped up and accumulated. That the borrower becomes the lender’s slave and that living beyond ones own means is inherently foolish and dangerous. That saddling one’s children and grandchildren with a debt burden that they did not create is immoral and wicked. Yet, all of this is lost upon the monetary lords who have their noses so close to the ground sniffing out the scent that they cannot see the path ahead leads off the edge of an abyss from which there is no escape. Or perhaps they do see and are attempting to secure their own parachutes before leading the rest of the masses over the edge.
I repeat – if lasting prosperity could be created by printing money and giving it away, previous generations that were wiser and more frugal than ours would long ago have stumbled upon this axiom.
That brings us to the war on gold. I am still amazed that after all these years and notwithstanding all the evidence to the contrary, there are still those obtuse enough to insist that there are no official sector attempts to manage or stem the rise in the price of gold. Gold is the only currency that these debasement thieves cannot pollute by conjuring more of it into existence. It rises when distrust of paper currencies is high and confidence in the ability of those who supposedly manage monetary affairs wanes. Thus it is and always will be in direct competition with unbacked fiat currencies.
Our money masters hate the yellow metal because its rise mocks their absurd assertions and debunks their claims of being able to “manage the economy”. It strikes, dagger-like, at the very hubris of these elitists who think that they are wiser than the collective judgment of the entire market, they alone possessing such keen insight into the nature of these matters that we should entrust our financial health to their hands. Imagine the conceit of a few men who think that by pulling on this lever or pushing on this button, that they can assure continuous prosperity and lasting wealth for all. Every generation considers itself wiser than the previous one which is why history does indeed repeat itself. Arrogant men never learn for they lack the one thing essential to make one truly wise – the ability to admit that we do not know all things nor that we mere mortals can always fix what ails us.
by Dan Weil
Originally posted 15 July 2010
TOP BANKING ANALYST DICK BOVE WARNS THAT THE financial reform bill, which is poised to become law, will cost at least ten million Americans their banking services. That is because the financial penalties the bill imposes on banks will be passed along to their customers as fees. And that means many people won’t be able to afford to use a bank, he told CNBC.
Congress late Thursday sent legislation to President Barack Obama that imposes sweeping new regulations on Wall Street and creates new protections for millions of consumers. The Senate’s 60-39 vote came nearly two years after a financial crisis knocked the economy to its knees.
At a whopping 2,300 pages, the legislation is designed to rein in big banks and protect consumers in hopes of averting a repeat of the 2008 financial crisis. Its ultimate impact, however, will depend on the government regulators assigned to implement it, the Associated Press reported.
The bill places limits on leverage, proprietary trading and investments in private equity and hedge funds for the banks. It also creates a consumer protection agency to oversee areas such a mortgage lending and student loans. All of this will cost banks money, Bove points out. And they will respond by passing on fees to their customers, he warns.
But many of the customers won’t be able to afford these fees, and that’s why at least ten million will no longer have access to a bank, the Rochdale Securities analyst said. But not everyone has a dire view of the financial reform bill. Former Treasury Secretary Henry Paulson sees plenty to like in it and wishes it was in place when the financial crisis began during his tenure in 2007-08.
The bill’s most important provision may be the one setting up a systemic risk council, he told The New York Times. The council would enable government officials to share information and close troubled institutions when the system is at risk. If that rule had been in place when he was in office, “some things would hopefully have been identified earlier,” Paulson said.