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The
precious metals markets moved into high gear last week with silver up 4.5%
and new highs in gold and the HUI. Meanwhile the Wall Street Journal
explained:
“Driving the recent spate of [currency] flows has been anticipation
that the Federal Reserve will restart its efforts to stimulate growth through
purchases of government debt that inject more money into the banking system
– a practice known as quantitative easing or ‘QE.’”
“Easy
Money Churns Emerging Markets,” by Alex Frangos,
WSJ,
10-8-10, p. A-10.
Sad,
sad news in the daily paper this week. We live in a world where the
leaders of our country, and every country in the world, believe that there is
nothing more to the production of wealth than to simply create, out of
nothing, the money which symbolizes it. The Journal again:
“Investors
who had been betting on the dollar switched their wagers in the past few
weeks as they grew convinced the Fed will pump still more money into
financial markets to bolster the struggling U.S. economy – essentially
diluting the value of the dollar.”
“Dollar’s
Fall Roils World,” by Tom Lauricella, WSJ 10-8-10,
p.
A-1.
For
several years, we have watched as the precious metals markets have told us of
a truly amazing advance. Since their lows in the last century, both
gold and silver have multiplied by a factor of more than 5. Both metals
have traced out powerful up trends with repeated bullish chart patterns. And
now we know the answer why. The Government of the United States, in the
person of Ben Bernanke (and his fellow officials at the Federal Reserve), is
trying to reduce the people of America to medieval serfs, to steal their
wealth and to give it to the likes of Goldman Sachs (and a few other
institutions which have obtained their great wealth not by producing it but
by having the Government steal it for them).
The
mechanism of this historic theft is counterfeiting. Indeed, the
government has set up the counterfeiting department (the Federal Reserve
System). It prints money and gives this new money to its favorites (who
respond via bribes disguised as campaign donations and job offers).
But
as we gold bugs have been arguing, the printing of money causes the
depreciation of the currency, and this must cause all prices (denominated in
that currency) to rise. And this is taking the form of a general
increase in commodity prices, itself led by the precious metals.
Sadly,
America
was once governed by wiser men. In 1816, Thomas Jefferson commented:
"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,
and to redeem man from the original sentence of his Maker, 'in the sweat of
his brow shall he eat his bread.'" --Thomas Jefferson to Charles Yancey,
1816. ME 14:381
Jefferson
was talking about the Second Bank of the United
States. He and James Madison had
abolished the First Bank of the United States
in 1811, but Madison
backed down and allowed a second bank in 1816. This bank was later
destroyed by Andrew Jackson and Martin van Buren in 1836 (as a result of Jackson’s
overwhelming victory in the 1832 election). It was this battle against
the second bank which gave birth to the (real) Democratic Party.
If
the Democratic Party was born to destroy the central bank and if the
Democrats hold power today, then why is it we have a central bank which keeps
on printing more and more money? Indeed, in the easing of 2008 we knew
that we were being robbed for the benefit of Goldman Sachs and other Wall
Street Houses which had accumulated toxic assets. But here in late 2010
we are not even allowed to know who will receive the wealth which is being
taken from us.
Once
Jackson had destroyed the Second Bank of the United
States, the U.S.
began a period of economic growth unprecedented in human history. A cornucopia
of wealth flowed such as mankind had never seen. The human lifespan
increased. A continent was tamed. One after the other, new
machines and devices for the improvement of people’s lives poured out
of the factories of the nation.
It
should be noted that all this was accomplished without the hint of rising
prices. From 1793 to 1933, the prices of basic wholesale goods came out
the same. For most of this period, there was no word for unemployment
for the simple reason that unemployment was so low that nobody noticed it,
and nobody spoke of it.
As
Bernanke made clear his intention to counterfeit yet another round of money
(at this point no one knows how much), the dollar collapsed on the world
markets. It collapsed against gold and silver. It collapsed
against the grains. And, as the above chart shows, it even collapsed
against the other paper currencies. (All of these paper currencies are
going down, but the dollar is going down faster.) Chartists will
recognize the pattern which has been formed as a head and shoulders top, and
the price objective point is 72.
What
Jefferson was saying was that the issue of
paper money could not create real wealth. Wealth is (scarce) goods
which satisfy a human need. In simple language, wealth is stuff.
President Obama’s and President Bush’s economic advisors do not
know this. They keep saying that the printing of money will create
stuff (“stimulate the economy”). One repeatedly hears the
theory that the printing of money will so dramatically stimulate the economy
that the extra goods thus created will cause a net decline in prices.
This
theory (of a net decline in prices) is repeated throughout the financial
world. Every time this forecast is made it proves false. But the
people who hear the forecast have short memories. They forget that the
last time they heard the same forecast it was also wrong. Ditto, ditto
the time before that. They do not look at the facts. They look at
the impressive credentials of the con artists who are deceiving them.
And so they believe, again and again and again.
The
important thing to understand about this confidence game is that it only
devours its own. To be protected against it, all you have to do is to
see reality as it is. The printing of paper money does not create
wealth. Jefferson again.
"Specie
is the most perfect medium because it will preserve its own level; because,
having intrinsic and universal value, it can never die in our hands, and it
is the surest resource of reliance in time of war." --Thomas Jefferson
to John Wayles Eppes, 1813. ME 13:430
If
you wish to be protected against the depreciation of our currency by Ben
Bernanke, then specie (gold or silver) is the most perfect medium. Any
real good will provide protection. However, gold and silver have been
chosen as money for certain reasons of convenience. They are the
easiest to hold and to exchange with others. They have been used as
money for 2500 years, and they are the only legal monies under the United
States Constitution. As Ben
Bernanke destroys the (Federal Reserve note) dollar, all real goods will rise
in price, and gold and silver will lead (are leading) the way. The
people who believe the establishment and plan for “deflation”
will be destroyed. The people who believe Thomas Jefferson will be
protected.
To
assist the good people with the technical details of speculating in gold or
silver and in general dealing with the problems created by a paper currency,
I publish a fortnightly (every two weeks) newsletter, the Gold Bug.
To subscribe, go to my web site, www.thegoldspeculator.com and
press the Pay Pal button ($300). Or you may send $290 to The One-handed
Economist, 614 Nashua St. #122,
Milford, N.H.
03055 ($10 cash
discount). Our most recent issue was dated Oct. 1, 2010.
Thank
you for your interest.
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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