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The
rally in the dollar over the past few weeks serves as a good illustration of
what it takes to be a good speculator.
I can remember when I was new to the art of speculation. It was the early 1970s, and Richard
Nixon, unilaterally and illegally, abolished the U.S.
gold standard (or at least the slender, connection to gold which still
existed at that time and was known as the Bretton
Woods System).
It
was obvious what was going to happen.
The Government was abolishing the tie to gold because it wanted to
print money. And as soon as Bretton Woods was destroyed, that is exactly what it
did. The gold bugs of the early
1970s knew that there had to be an important rise in the price of gold
because money had been created during the 1940s and again during the 1960s,
and a general rise in the amount of money in society has to lead to an
equivalent rise in the average price level.
I
can remember that this became an issue and was widely debated. The people on the political left
universally declared that printing money would not cause average prices to
rise. They were literally arguing
that society could create something for nothing by the simple act of
counterfeiting money and that this would make the average person richer. Later, when I was able to do some
research, I discovered that this exact theory had been presented in the book,
The Road to Plenty, by William Trufant Foster and Waddill Catchings written in 1928.
Actually
this theory had been refuted over a hundred years earlier by Thomas
Jefferson, who in 1816 had written:
“We are
now taught to believe that legerdemain tricks upon paper can produce as solid
wealth as hard labor in the earth.
It is vain for common sense to urge that nothing can produce but nothing;
that it is an idle dream to believe in a philosopher’s stone which is
to turn everything into gold [here used as a general term to refer to wealth
per se], and to redeem man from the original sentence of his maker, ‘in
the sweat of his brow shall he eat his bread.’” (Jefferson, letter to Charles Yancy, Jan. 6, 1816, Writings
XIV, p. 381, Jefferson’s italics.)
Jefferson fought a 41
year battle against the two American central banks (forerunners of the
Federal Reserve). This battle,
which did not end until after Jefferson’s
death, was won in 1832 when Andrew Jackson was elected on a program to
abolish the (second) central bank.
He told the people that they could have:
“A bank
and no Jackson or no bank and Jackson.”
They chose the latter by an overwhelming majority.
This
battle, by the way, was the occasion for the creation of the Democratic
Party. Jefferson
raised the issue of the (first) central bank and was elected President on
that issue in 1800. The bank was
abolished in 1811 but came back in 1816, rechartered
for 20 years. The young Martin
van Buren was inspired by the elderly Jefferson
to take up the fight against the bank.
He proved to be a political genius and created the first permanent
political organization, the Democratic Party, recruited Jackson
and won the election of 1828. (Up
to that time, political organizations were ad hoc and dissolved immediately
after an election.) The bank was
bribing U.S.
senators and congressmen and so controlled Congress; so to kill the bank it
was necessary to elect a President who would veto the recharter. Since the charter expired in 1836, the
key was the election of 1832, which Jackson
won with 59.1% of the vote (not counting 3rd parties). This was bigger than Reagan’s
victory in 1984, and it quickly became a rule in American politics that a
central bank was beyond the pale.
And indeed, when the 3rd central bank was created in 1914,
its supporters denied that it was a central bank because to admit it would
have ensured their defeat.
The
advocates of paper money in America
have always been afraid to appeal to the people. F.D.R. in 1932 hid the fact that he
intended to abolish the gold standard, as did Nixon in 1968. They understood that what they were
doing was very unpopular and tried to low ball it in every way.
In
1933, F.D.R., on his very first day in office, gave the power to counterfeit
money to a group of his rich friends while pretending to hate the rich and be
on the side of the poor.
(Actually, this counterfeiting power did not benefit the hard working,
productive rich who were building the country with their success. It was exclusively for the benefit of
the dishonest rich, who were making money via government favors. But it also directly contradicted the
New Deal propaganda, which lumped the two kinds of
rich together in a crude attempt to win support from the average working man,
many of whom could not tell the difference.)
The
way that this connects to the art of speculation lies in the events of the
1930s. First, the real source of
the paper money theory, Foster and Catchings, was
hidden. A pretentious phony from Britain,
John Maynard Keynes, repackaged their theory, plagiarized it and presented it
as his own. Fosters and Catchings had been identifiable conservatives, but Keynes
was able to masquerade as a liberal.
The pre-1932 Democratic Party had been liberal (dating from its
opposition to the central bank, and thus on the side of the working man), but
in nominating F.D.R. the Democratic Party became a reactionary party, which
wanted to go back to the system of the past.
Second,
during the 1930s and ‘40s, a group of New York bankers recruited a
collection of confidence men and frauds (such as John Kenneth Galbraith) who
were willing to mouth the bankers’ party line about paper money, and
these bankers then bribed several of the nation’s most prestigious
schools to hire said frauds and give them positions of status and power. It was a good deal for the
bankers. It corrupted the
teaching of economics in the nation’s universities, and the result has
been that 99.9% of all editorial writers, columnists, etc. on the subject of
economics over the past 70 years have been outright liars and frauds, nothing
they have said makes any sense, and virtually none of their predictions have
come true. In previous articles,
I have discussed several of the most egregious of these predictions (Henry
Kaufman’s prediction of depression in 1982, Ravi Batra’s
similar prediction for 1990, Long Term Capital Management’s bankruptcy
in 1998, Glassman and Hassett‘s prediction of
Dow 36,000 by 2003-05, published by
the New York Times, in 1999). We can be highly confident that the
latest prediction from these pseudo-economists (the prediction of
“deflation” made in late 2008) will prove equally false, and all
who believe it will suffer huge losses.
How
did these bankers get you to believe their lies? It was very simple. They endowed their flunkies with long,
impressive titles. Now Adam Smith
did not have a title in economics.
(He was a professor of moral philosophy.) But 20th century
“economists” have long titles, which they think are very
impressive. And indeed, they
are. They are impressive to many
people. These people are
impressed with authority.
Belief
in authority runs very deep in the human breast, and it is death to all
attempts at human improvement and betterment. The greatest period in human history
came in the 17th-19th centuries in Calvinist countries
precisely because of Calvin’s attack on the authority of the Catholic
Church. But to you as a
speculator in the financial markets this is the crucial issue. For example, when the New York Times told us, in late 2008,
that the nation was in severe danger of “deflation,” the CRB
index was close to half of what it is today. Large numbers of commodity speculators
believed the Times and dumped their
holdings. Gold speculators
sharply increased their shorts in Sept.-Oct. 2008. They shorted just about as close to
the bottom ($700/oz) as it was possible to get and were run-in by first a 100
point and then a 300 point rally.
Worse, the Times,
had earlier bought its own stock for $40/share and saw it decline to
$4/share. Who in his right mind
would take their advice?
And
yet millions of people did take the Times’
advice, but they did not even know
it. That is, the Times is imitated by ignorant and lazy
newspapers around the country, and, when an article appears in the Times, the same ideas will show up
around the country, here, there, in the oddest places. Even people who do not share the
crackpot politics of the Times will
follow their economic advice, not
knowing that this is what they are doing.
Epistemology
is the branch of philosophy which answers the question, how does a human
being acquire knowledge? What is
the right way to acquire knowledge?
Psychoepistemology is the individual’s way of acquiring
knowledge. A proposition in
epistemology has to be true, or it does not qualify as being in the
subject. But a proposition in psychoepistemology can be badly false. As speculators, if we can identify
errors in our competitors’ psychoepistemologies,
we can buy when they are selling (and vice versa) and thus take their money.
As
noted, the psychoepistemologies of many people
involve belief in authority. The
Calvinist principle, “question authority,” gave the world a great
period of human achievement.
Unfortunately, it has now been adopted as a meaningless slogan by the
left, which repeatedly votes to extend the power of authority and repeatedly
obeys whatever absurdities their authority figures are peddling at the moment
(global warming, stimulus XXV).
Right
now the vast majority of speculators are operating on the same principle as
the early 1970s: that the creation of large amounts of money will not cause a
general rise in prices. During
that decade the price of gold went from $35/oz to $875/oz. They laughed at us gold bugs (and
remember that the early gold bugs only predicted a doubling of gold, from $35
to $70). Thus they were
embarrassed and humiliated (because in reality they are crackpots and fools).
Well,
these people have still not learned.
They still blindly follow their authority figures. Upon the completion of QE2, the U.S.
money supply will have approximately tripled in some 3 years. What will the results be? Well, general prices in the U.S.
will approximately triple. We
took their money a generation ago, and now we are going to take it
again. How sweet it is.
As
the above history shows, you live in a society surrounded by and immersed in
lies. This is bad for most of the
people, but for the astute speculator who is willing to question authority it
is an opportunity. If the
establishment of the 1970s was bad, the establishment of today is much
worse. They intend to steal your
hard-earned wealth and give it to the paper aristocracy (defined as those who
profit from the depreciation of the currency and exert their political
influence to make it happen). For
such astute speculators, I publish a fortnightly newsletter, the One-handed Economist ($300/year),
which analyses the financial markets, with special emphasis on gold and
silver. OHE subscribers know that
the great “deflation” scare of 2008-to-present is about to give
way to the great “inflation” reality. This is the reality of our day. Prices are not going down. That was a scam by the paper
aristocracy and their handmaiden, the New
York Times. Believe them, and
they will take your money.
Question authority, and you have the basic tool to fight back and take
theirs. It is the job of the One-handed Economist to give you the
specific indicators and recommendations to come out ahead in this little
game. You may subscribe by
visiting my web site, www.thegoldspeculator.com, and hitting
the Pay Pal button or you may send $290 ($10 cash discount) to: The
One-handed Economist, 614
Nashua St. #122,
Milford, N.H.
03055.
Howard Katz
The Gold Speculator
Howard
S. Katz is the editor/publisher of the One-handed Economist, a financial
letter which combines fundamental and technical analysis. He was a bug on
gold in the 1970s and became a bug on gold again in late 2002.
Subscribe to the
Gold Speculator (the One Handed Economist)
You
can subscribe to Howard Katz’s thoughts on commodities, stocks, bonds
and real estate are available in a letter entitled The One-handed Economist
and published every two weeks giving specific advice on trades in stocks and
futures. This letter is available (both electronic and paper copy) for
$300/year with a 3-month trial for $100. Send to: The One-handed Economist,
614 Nashua St. #122, Milford, N.H. 03055.(Include both
electronic and mailing address.)
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