With the fundamental underpinnings of the dollar becoming increasingly suspect, we see
more and more countries seeking to "diversify" their foreign currency holdings not only into euros and yen, but quietly and
surely into gold. Some countries like China are doing all they can to encourage their citizens to buy gold, even as Wall Street
stupidly and ignorantly looks at the yellow metal as a barbaric relic. That's because Wall Street can reallocate wealth from
the rest of the world much more rapidly through the systemic theft of fiat money than it can through honest, hard work. Our
corrupt fiat money system is serving to damn our nation by bidding the best and brightest talent in America away from Main
Street, where they used to work creating and building products that enrich lives rather than engaging in speculative activities
that falsely promise we can get rich without working.
Conflicts are often about money. One factor that might account for the Bush administration's
hostility toward Iran is Iran's plan to open a bourse – an oil exchange – in March in which Iranian oil will be sold for euros,
not dollars.
So, you MUST accept your central bank notes as final payment for goods and services rendered,
you CANNOT accept gold (in most cases) and you DO NOT determine interest rates. The net result is that these steps enable
a central bank to control and coordinate expansions in the quantity of money that cause large variations in the value of money
and the business cycle (boom-bust) which depletes real savings pools (capital decumulation) and redistributes wealth from
the savers and fixed wage earners to speculators, bankers and the state.
Gold has doubled in price under Bush to $550 an ounce, a sign of sinking confidence in
a currency. In late January, the Commerce Department reported the U.S. savings rate had fallen to the lowest levels since
1932 and 1933, the last years of Hoover, when folks had to spend their savings to survive. In the fourth quarter of 2005,
U.S. consumers did not save a dime. They spent all they earned and more. Household debt, corporate debt, foreign debt are
at records.
According to the Financial Times, the top international-affairs official at the US
Treasury warned that if the United States were to instigate policies to rein in the consumer, it would plunge the country
into a deep depression; fallout to other countries would also be severe. While we have explained in the past why the US has
no interest in a consumer slowdown, this is the first time we have heard the US Treasury warn about the risk of a depression.
Money is a form of computation: As money is transferred from one eager owner to another,
it computes the value of goods and services. At its best, the machine automatically arbitrages the value of goods and services
between different monetary systems. Money fluctuates in value against other currencies, sometimes wildly. We cannot invent
a stable money any more than we have ever invented a fully stable computer operating system. Why? Because we don't want fully
stable computers.
The 38% drop in December net foreign flows was largely due to the 66% decline in net purchases
of Treasuries, which was caused by a 76% decline in non-official institutions' purchases (usually hedge funds) of US treasuries.
The role of private institutions is especially essential considering that they accounted for 69% of the foreign purchases
of Treasuries. The over-concentration of private flows into US assets raises the question of sustainability regarding the
US financing of the US trade gap.
In plain language, central banking sees as its prime function the management of the money
supply to fit the transactional needs of the economy, instead of fixing the amount of money in circulation by the amount of
gold held by the money-issuing authority.
Wake up America! Oil's only one minor symptom. We are a nation of addicts, in denial of
so many threats external to our bubble world. Mentally we are at greater risk than with the irrational exuberance of 2000.
Except this time the threat is global, systemic and potentially catastrophic, far outside the box of our mega-rational economic
models and market forecasting systems. Soon your denial system may no longer work, reality will implode.
On November 18th, 2004 the first gold exchange-traded fund in the United States started
trading. Known as GLD, this trust spearheaded by the World Gold Council granted American stock investors the opportunity
to buy a stock-like asset designed “to track the price of gold”.
Others questioned Mr Greenspan’s willingness to speak to a small audience of hedge fund
luminaries such as Stanley Druckenmiller of Soros Fund Managment. “I thought it was somewhat innopportune on Greenspan’s part
to go to a forum that he knew could cause ripples,” said Mr Karydakis. “It was inevitable, and Greenspan should have known
that. If he didn’t, he could be accused of naivete.”
Often, in the media - folks speak of either the growing rate of indebtedness as a percentage
of GDP [Gross Domestic Product or value of all goods and services produced in the U.S. economy in a year] being "too much"
or "unsustainable." What I would like to discuss or attempt to explain - is how we know or ascertain that indebtedness is
in fact too much, unsustainable or near a breaking point - since anyone who would be old enough to read this excerpt would
most assuredly have heard these claims for as long as they remember.
From the center to the furthest garrisons on the periphery, from the lowest
rank to the highest, everyone willingly, happily, and proudly participates in one of the greatest deceits of all time. The
wage slaves squander borrowed money on imported doodads and gamble their homes on adjustable-rate mortgages. The patricians
gamble on hedge funds that speculate on treasury debt and Miami condos.
And right at the top is Alan Greenspan himself, with a smile on his face,
passing the bottle to Ben Bernanke.
Given a current account deficit in excess of 6% of gross domestic product (GDP), many
fear the US dollar must decline. At the World Economic Forum in Davos, policy makers disagreed as to the severity of the risk,
its causes and cures. In a nutshell, the United States does not export enough to the rest of the world to balance its own
appetite for cheap Asian imports. The American consumer spends too much and saves too little. As a result, dollars are leaving
the US in return for goods and services. Unless those dollars are reinvested in US denominated assets at a rate in excess
of $2 billion a day, the dollar will decline.
We occasionally read that deflation is inevitable because the total amount of debt in
the system is so huge. The point will eventually be reached, according to those who are forecasting a deflationary outcome,
when the amount of debt carried by the average person and the interest burden associated with the debt is so large relative
to his/her income that he/she will be unwilling or unable to take-on additional debt; and at that time the total amount of
money and credit in the system will begin to contract. That is, deflation* will occur.
A new year has changed little. That is, nothing that would alter the long-term optimism
for Gold. The state of the U.S. financial system did not change suddenly and miraculously in January. Those trend we identified,
now over five years ago, that were seen as sending $Gold to over US$1,200 are still in place. What was not foreseen is that
our patience would be rewarded with a new, wonderful Chairman of the Federal Reserve. A leader has been appointed for the
U.S. central bank that will not hesitate to destroy the value of the U.S. dollar when the Mortgage Bubble collapses. Investors
in Gold and Silver could not have found a better friend if they had done the selection.
First, there is an old saying by the old timer's in the investment world. They say, "Watch
the banking industry, because if it is in trouble, the market isn't very far behind."
So, let's look at the Banking Index over the last 15 months and compare it to the S&P
in the chart below.
I drew green trend lines on each on the chart below. Note that the ones I drew where when
the action of the Banking Index was DIVERGENT with the S&P's price.
Experts of Standard & Poor's forecast a global economic collapse. The collapse will
be caused with the demise of the US dollar rate against the European currency by more than 30 percent. The dollar, specialists
say, may lose almost 45 percent of its current value against the euro. However, it is obvious that even a 30 percent reduction
will affect the international economy greatly.
If you ask me to name the proudest distinction
of Americans, I would choose- because it contains all the others . . . the fact that they were the people who created
the phrase "to make money." No other language or nation had ever used these words before; men had always thought of
wealth as a static quantity . . . to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were
the first to understand that wealth has to be created.
