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In its June 29, 2009 issue, Business Week ran an article, by
Peter Coy, entitled “Why the Fed Isn’t Igniting
Inflation.” This perfectly illustrates how the paper aristocracy
lies to the American people, the purpose being to steal their (meaning your)
wealth. Today I want to point out the lies and the doubletalk involved
in this article and why it is absolute crucial (for your own well being) that
you understand what is going on.
Before we get into the nitty-gritty, there are two things which are
absolutely crucial for you to understand. First, almost everyone in the
world wants wealth. There is an expression to this effect:
“I’ve been rich, and I’ve been poor. And rich is
better.” There were a few hermits in the Middle Ages and a few
hobos from time to time. But the vast majority of human beings on
planet Earth want wealth.
So far, so good. Second, some of these people want wealth but do not
want to do work to produce it. They want to take from the other people
around them (meaning you). Most of these people are common thieves, and
we deal with them by creating a police force and putting them in jail.
However, a small group of these thieves have figured out a better
angle. You can understand this technique by studying the medieval
aristocracy. They had seized all of the arable land in Europe by the
sword, and they enserfed the average guy to work the land, produce food for
him and other goods. In those days, if you didn’t like your boss
(the land lord), it was against the law to quit your job. If your
boss’ son wanted to rape your daughter, there were no police or courts
to stop him. And he had an armed gang of thugs to beat you up (with a
session of torture thrown in for good measure).
Yes, things were bad. But here is the problem. The common people
outnumbered the aristocrats by 100 to 1. I don’t care if the
aristocrats had weapons and armed thugs. Why couldn’t the common
person simply rise up and overthrow these aristocrats by sheer force of
numbers? Ultimately they did, and there were a series of revolutions
(of which the American Revolution is an example). But my point is that
they didn’t for a long, long time. The people of Europe went over
a thousand years working as serfs (in incredible poverty and misery) for
their feudal lords. Even the use of the word “lord” to
describe these people shows the imbalance because this is the same word we
use for God. These people were looked upon as little gods, and all they
were were thieves. This leaves us with two questions. Since the
people were ultimately able to overthrow the medieval aristocrat, how come
they went on for a thousand years working as serfs? And when they did
successfully rebel, how did they do it?
This brings us to the third crucial point. The way that the successful
thieves got away with their robbery was via a class of intellectuals.
This is an incredible story, and it proves that the pen is mightier than the
sword. Take as an example the peasant’s revolt of 1381, the first
well-known case of the people’s attempt to win their freedom. On
one fine day, the King of England looked out and saw 60,000 angry peasants,
armed and knocking at the gates of London. The gates of the city were
thrown open to them by 40,000 Londoners, and an army of 100,000 angry people
faced the king (who had been caught by surprise and had no army). They
were demanding the abolition of serfdom (meaning the right to quit their
jobs). Caught off guard, the king lied to the people and pretended to
grant their demand. Then when they had dispersed, the king raised an army,
reneged on his promises and crushed the peasant opposition. The
peasants were defeated, but their movement (called Lollardry) went
underground. There it simmered for a century-and-a-half and finally
emerged victorious in the early 1500s, where it is known as the Protestant
Reformation.
The reason the aristocrats were successful from about 400 AD to about 1400 AD
was that a class of intellectuals, in the form of the priests of the Catholic
Church, preached on the side of the aristocrats. They told the peasant
that God wanted him to meekly turn the other cheek and submit to outrageous
injustices. For saying this, the priests were given a privileged
position by the aristocrats (vow of poverty be damned). The feudal lord
simply passed on to them a small portion of the wealth that he stole from the
peasants.
This system started to collapse, as noted, with the Protestant
Reformation. The new Protestant ministers were a different class of
intellectuals. They were on the side of the people. They preached
freedom and defiance of the aristocracy. By the mid-1600s, half the
people of Britain (the more dedicated Protestants) were for freedom, and half
the people (the Catholics and their sympathizers) were for the king.
There was then a war (the English Civil War, 1642-46) in which the people
(led by the Protestants) rose up and fought for democracy. Our own
American Revolution of 1776 was based on this war, and the slogan “no
taxation without representation” comes from this period in English
history. The democrats won the war, chopped off the king’s head
and tried to set up a democracy in England. Unfortunately, they had no
understanding of politics. Although their intentions were good, they
fell to quarreling among themselves, and this democracy collapsed in
1660. However, they did not give up heart. There was a second
revolution in 1688 (the Glorious Revolution). The king was thrown out,
and England became a democracy for good.
Now let us apply these principles to our own day. Again we are faced
with a group of thieves who want to steal our wealth. Again these
thieves are especially dangerous because they have a group of intellectuals
on their side. However, today the intellectuals are not priests; they
are Keynesian economists. And the way they steal our wealth is not by
enserfing us to the land; it is by the counterfeiting of money. The
most important event, the event determining the character of the world in
which we live, was the enactment of the Emergency Banking Bill of 1933, on
March 9, 1933 by the Democratic Congress on the first day of the
Administration of F.D.R. This took the country off the gold standard
and created a new money (the legal tender Federal Reserve note) which was
issued by a group of (private and government) bankers. Since that time
there has been a steady creation of money and a steady decline in the value
of money. Today’s dollar is worth about 6¢ (using official
figures, which are suspect).
Ludwig von Mises pointed out that, when money is created, the people who get
it first benefit. The people who get it last lose. The privilege
to create money is a form of stealing. Because the United
States Constitution (via the 10th amendment) prohibits paper
money, the Emergency Banking Bill of 1933 is null and void, and the
entire paper money system is illegal. Our government is now only a
democracy in name. In fact, we have returned to the Middle Ages whereby
an aristocratic class steals our wealth. Instead of the medieval aristocracy
we have the paper aristocracy.
Right now the combination of presidents Bush and Obama have just created a
trillion new paper dollars, a 70% increase over the money supply of last May
($1.3 trillion). Trillion dollar deficits are planned as far as the eye
can see. These deficits will be monetized. There is no deficit of
any size in the history of the United States, or any other democracy (in
name) which has not been monetized. The idea that government finances
its deficits by borrowing from the people is a lie, pure and simple.
All deficits (except very small ones) are financed by the printing of
money. If the U.S. prints a trillion dollars for each of the next 3
years, then the money supply will increase from $1.3 trillion to $5.3
trillion, and this will lead to a 4-fold multiple of prices. Pretty it
will not be.
This is the point of the Peter Coy article in Business Week.
He is one of the class of new intellectuals who act as apologists for the
paper aristocracy and help them to steal our wealth. His job is to lie
to the average American (that’s you).
With the money supply about to multiply by a factor of 4 times, there is one
way to protect yourself. You must place your wealth in real
assets. The best asset for this purpose is gold, as has been proven for
the past 2½ millennia. It is not exactly rocket science to see
that, with the nation’s money supply about to quadruple, one has to
move one’s assets into gold. We have not been reduced to the
level of the medieval serf. We still have a considerable amount of
freedom. There is a world-wide functioning gold market. There are
gold coin shops in every city of any size. Anybody can see that, as the
currency depreciates, prices expressed in that currency have to go up.
But prices expressed in a gold currency have remained the same for
two-and-a-half thousand years. (U.S. statistics, by the way, prove
that, while the United States was on a gold standard, from 1788 to 1933, the
Wholesale Price Index was unchanged over the period, that is, from 1793-1933
the WPI came out exactly the same.)
So it is Peter Coy’s job to serve the paper aristocracy by convincing
us not to buy gold. He even admits the enormous expansion of the money
supply:
“The nation’s monetary base –
consisting of bills and coins in circulation plus banks’ deposits at
the Fed – has climbed 114% over the past year through May.”
Peter Coy, “Why the Fed Isn’t Igniting Inflation,”
Business Week, 6-29-09, p. 20.
First a little background here. Every time in
economic history that there has been a significant increase in the supply of
money there has been a corresponding decline in the value of the money.
(By the way, the use of “inflation,” meaning a rise in goods,
rather than “depreciation,” meaning a fall in money was an early
example of intellectuals twisting language to confuse us. There is
nothing wrong with goods that causes prices to rise. It is always an
increase in money.) There is a perfect correlation here. EVERY
TIME THEY HAVE PRINTED MONEY PRICES HAVE GONE UP. There is
not a single exception. Every real economist has studied the money
fluctuations of American history. Here is the record.
During the gold standard period (1788-1933), it was not a perfect gold
standard. There were 3 interruptions. The Government used paper
money (from the banks) to finance the War of 1812. The banks of the
Middle Atlantic states and the South created money and lent it to the Federal
Government. New England was anti-war, and its banks did not create
money. Daniel Webster notes that Washington D.C. bank notes had dropped
to 75% of their nominal value (meaning that prices in D.C. had risen by
33%). Prices in New England did not rise. After the war ended, a
hard money faction (led by Andrew Jackson and Martin van Buren) came to
power, abolished the central bank and put the gold standard on a firmer footing.
During the Civil War, Lincoln financed the war by issuing greenbacks.
The money supply doubled, and so did the price level. After the war,
the greenbacks were retired, and the price level subsided. By 1879,
prices were back to their 1860 level and the gold standard had been
restored. And finally in WWI, the money supply also doubled, and prices
doubled also. Cigars went from 5¢ to 10¢, leading to the
famous Republican policy of “a good 5¢ cigar.” To implement
this policy, the Republicans reduced the money supply and brought prices back
down. By 1933, the WPI was back to its 1914 level (which by the way was
the same as its 1793 level).
Mr. Coy’s argument is as follows: “the inflationary effects
of the new money are being fully offset, or more than offset, by the
far-reaching and long-lasting impact of household debt repayments.
…Americans have abruptly switched…to…working down the
debts.” [Peter Coy, Ibid.]
 
So I went to the current Fed website and checked the
statistics on the rate at which Americans are paying down their debts.
Household debt repayments are not going up. THEY ARE GOING DOWN.
Americans are not paying off their debts more rapidly. They are paying
their debts more slowly.
In general, there has been a small contraction in outstanding loans since
mid-2008, but this is normal in every “recession” and does not
approach the degree of monetization by the Fed. Normal Fed expansion
overwhelms this minor contraction at every turning point, and the result is
an increase in prices. However, the current Fed monetization is
gigantic. The monetary base is up by over 100% from a year ago, and I
estimate the money supply proper as up 70%. This will result in a
massive rise in prices – far, far beyond what this country has ever
seen.
You have to protect yourself. Peter Coy is trying to lull you to sleep
so that his bosses can steal your wealth. They benefit from the Fed
easing. For them to benefit, the average guy must lose. There are
times when one can protect one’s self by going long stocks. (I
was a stock bug in 1982.) BUT THIS IS NOT ONE OF THOSE TIMES. We
are in the (upswing of the) commodity pendulum. Commodities are going
to be the beneficiary of the Fed’s monetization. And gold is the
most user friendly commodity there is.
To help the average person protect himself from the paper aristocracy in these
evil times, I publish a financial letter, the One-handed
Economist. It costs $300/year and discusses specific stocks
(in the context of general market analysis). My web site is temporarily
down, but you can subscribe by mailing $300 to: The One-handed Economist, 614
Nashua St. #122, Milford, N.H. (include regular and e-mail addresses).
And you can still reach my blog (but not the rest of the website) at www.thegoldbugnet.blogspot.com
This week’s blog is on socialized medicine. Thank you for your
interest.
# # #
Howard Katz
The Gold Speculator
Howard S. Katz was one of the early gold bugs of the
late ‘60s and ‘70s, turning bullish on gold in 1965. His favorite
gold stock, Lake Shore Mines, went from $3/share in 1970 to $39/share in 1980
(sold at $31).
He turned increasingly skeptical about gold as it
mounted its final rise in 1979, and he called the top after the close on Jan.
21, 1980 (with gold at $825.50/oz.). Katz traded gold in and out during the
‘80s and ‘90s and once again turned long term bullish in Dec.
2002.
His thoughts on commodities, stocks, bonds and real
estate are available in The One-handed Economist that is published every two
weeks giving specific advice on trades in stocks and futures. He went to
Harvard, but rather than turn left, he refused to take courses from the
Harvard Economics Department and studied economics on his own, concentrating
on the classical economists and the Austrian school.
He has published several letters, to include The
Speculator (1964- 1972), The Gold Bug (1973-1986) and The One- handed
Economist (1996-present). He is the author of 3 (published) books on money:
The Paper Aristocracy (1976), The Warmongers (1979) and Honest Money –
Now! (1979).
He was the head of the Committee to Establish the
Gold Standard and worked with Congressman Ron Paul for the passage of the
American eagle gold coin bill of 1986. He is at present an advisor for
Kenneth J Gerbino & Company, a Beverly Hills money manager.
Subscribe to the
Gold Speculator (the One Handed Economist)
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