Man Killed by Crowd Full of Holiday Cheer

Yesterday was Thanksgiving. I had a wonderful time with my girlfriend Auby, our roommate Julie, my ex-girlfriend Erin, and Erin’s family and friends (which included two other ex-boyfriends of hers). It might seem a motley crew, but we all enjoyed each other’s company and had a really good time.

Today is “Black Friday.” The day where retail operations that had been running all day in the “red” suddenly swing into the “black” by a massive way of Christmas shopping. For me it seems yet another American ritual I haven’t had much use for. I tend to wait till the week before to go out and buy Christmas things. The lines aren’t as long and I can take my time. And, as it turns out, I can avoid being trampled to death by holiday shoppers as one 34-year-old man was in New York this morning. He was employed by Wal-Mart and was charged with opening the doors and unleashing the horde. Turns out he might have needed a co-worked with a cattle prod to do it safely.

When the crowd was reportedly told to leave because the store had now become a crime scene, the crowd would not disperse. To quote the yahoo story: “When they were saying they had to leave, that an employee got killed, people were yelling ‘I’ve been on line since yesterday morning,'” she said. “They kept shopping.”

So many things about this story are bizarre. I can’t imagine being in line since “yesterday morning” which would mean you had spent the entire day of Thanksgiving lined up in the cold in pursuit of bargains. Like the dedication of certain “World of Warcraft” players, I’m never sure whether I should feel impressed by their dedication or bewilderment at how the chose to waste the time they have been given to live their lives in pursuit of something I find completely meaningless. Part of me wonders if this story should simply be chalked up to the selfishness of New Yorkers, or whether this is representative of how serious our entire culture takes consumerism. Consumerism seemed to be America’s secret weapon in the “War on Terror”. We would not let terrorism keep us from shopping, and therefore out country would prosper. Except that we didn’t prosper, we went deeper in debt.

I have a feeling that years, when consumerism and conspicuous consumption have gone very much out of style, this Wal-Mart employee will be remembered as a martyr who gave his life so that others could shop. What an excellent example of the bizarre senselessness we seem to be convinced is the American way of life.

Genworth Financial Wants in Under the TARP

It’s a hard time to be in the financial business. Particularly, if you’re not classified as “too big to fail.”

Pity poor Genworth Financial. They insured a lot of Mortgage Backed Securities (MBS) and have been taking on a lot of losses as the housing market turned south. Just the kind of firm that the government bailout was supposed to help, but they’ve been getting some pretty rough treatment until recently. S&P downgraded their credit rating to A-, which caused the Fed to cut off their access to the Commercial Paper Funding Facility (CPFF). This has sent its shares into a tailspin in the last couple of weeks, declining from a share price that was in the mid-teens just a couple of months ago to close at $1.30 today.

Back at the start of October when the Troubled Asset Relief Program (TARP) was first rolled out, I would have thought that Genworth was just the kind of company that would’ve benefited. After all, it seems like they have some troubled assets on their books that they’d like to get rid of. It’s a rather telling sign about who runs things in this country. Seems you need to be a bank — not an insurance company — to get in under the TARP. But it also seems like they’re in the process of fixing that. Genworth just announced that it has purchased an S&L and submitted an application to the US government to receive some of those billions of dollars Congress set aside to buy troubled assets.

Who knows how this application will go? In a couple of months it won’t be Hank Paulson’s TARP anymore, but instead Obama’s Secretary Geithner’s. In this uncertain time, while Genworth seeks relief from the brutal forces of liquidation that are at work in today’s down market, it would seem the poor company can hardly catch a break. It’s a sign of the times I suppose, but an A- credit rating is not the same as “likely to go out of business tomorrow.” And yet, that’s how the company is being treated in the market. Not only is its stock dipping under $1, but its bonds that are maturing in May and June can be bought for 86 cents on the dollar. That translates to an annualized yield of north of 39% — a yield so attractive, it seems like they can’t even resist it themselves; the company recently borrowed close to a billion dollars towards buying up a lot of them due to mature in just a few months.

I’m a big believer in the long-term prospects of gold, the death of the dollar, and of mining companies like Barrick, but a yield like that might be hard for even me to pass up.

DISCLAIMER: I don’t currently own anything from Genworth, but I might be buying some of their bonds soon. Consult with your own investment professional before you invest any of your own money. (I.E., reading this blog doesn’t count.)

Obama, Keynes, and the Perpetual Motion Machine

Obama is calling for government deficits over the next couple of years to avoid a “deep recession.” I’m not sure if he said it explicitly, but conversations with Democratic friends has shown me that it appears to be a widely held belief that the money can all be made up from tax revenue off of the booming economy that should result after a couple of years or deficit spending. It harks back to what I’ve heard many a Keynesian say; the government needs to run deficits in the down years and surpluses in the up years. “It would only work,” they say, “except that politicians can never bring themselves to reign in their spending.”

Just as markets work towards the betterment of all involved if they perform rationally and with good information, governments would be the perfect guardians of our welfare if only they were somehow free of corruption and not run by power-hungry politicians. Except that we don’t live in an ideal world, so we must make do with the best that we have. However, even if perfection were somehow available, Keynesianism would still be nothing but an intellectual fraud because it’s basically promising the economic equivalent of the perpetual motion machine.

For those of you who don’t know, the perpetual motion machine was a mythical device that, once set in motion, would continue to run forever without requiring any additional energy inputs. There were many attempts in the Middle Ages to create such a device, but they all failed. You can’t get something for nothing, you see. If a machine is to be in motion, then it will require energy. One can not derive more energy from the machine’s motion than it requires to set it in motion and run it. This was not understood at the time, because no one had yet devised the First Law of Thermodynamics which stated that “Energy can neither be created nor destroyed.” 

Similarly, Keynes promises similar benefits to the perpetual motion machine by theorizing that economic downturns are caused by a lack of demand and that the government can step in to become the prime demander, and thereby set in motion a chain of events by which the economy will start booming again. Keynes figured that money put into the system to get the demand humming again could later be taken back out. There’s a reason why Keynes’s system has never worked, and it doesn’t just have to do with greedy politicians. Just as in thermodynamics, you can not prime the pump of commerce and magically create a fountain of wealth from which you can withdraw far more than you put in. As my momma used to tell me growing up, “There ain’t no free lunch.”

Even if the government did exactly as Keynes said, it still wouldn’t work, because Keynes was wrong. Pure and simple. Economic downturns are not caused by “insufficient demand.” Indeed, insufficient demand is impossible, as Jean Baptist Say had started over a century earlier (and I’m paraphrasing), “There is not a supply, which is not also a demand.” That is to say that in order to make a product such as as car, I will demand inputs from labor as well as raw materials of all kinds. If the demand where not there for the car, then the demand would also not be there for the labor for the car or the raw materials. Keynes looked at this situation and said that we needed to stimulate demand for the car in order to employ the autoworkers, but what he didn’t seem to understand was that it is impossible, as a whole, for society to have inadequate demand for anything. Keynes attacked Says law as not being able to explain economic downturns, but Say himself actually clearly states that economic downturns are possible but will be hastened towards ending if the government and people are quickly willing to allow the market to find market clearing prices. (For a clearer understanding of Say’s Law, and the failures of Keynesianism, I’d refer readers to Rehabilitation of Say’s Law.

Try to picture it for a minute. How is inadequate demand possible? If people stopped demanding cars, it must be because they were demanding something else other than cars with the money they were spending the buy the cars. Thus demand lost in one arena is picked up in another. “But what if the consumer simply stopped demanding altogether?” you might ask. In that case, they will be looking for an excellent vehicle with which to park their savings gained by not consuming. As savings accumulates across society, interest rates are lowered because of all the money available to lend. Cheap money, as Keynes could tell you, leads to economic boom times as entrepreneurs can now go out and borrow the savings of the others and demand both labor and raw materials for their new venture. 

What, you still don’t believe me? What if no one ever, ever consumed enough to justify investing? Outside of being nonsense, let’s take a look at that scenario for a minute. Let’s simply it down so we can understand it easily, and let’s look at the economy of Robinson Crusoe who, incidentally, has been the target of so many economics texts that I’ve been tempted to pick up the book. One man alone one a desert island demand food and water, and so he must use his labor to create his the objects he demands. To do otherwise, is to starve and die. Now Crusoe demands other things as well as food and water: shelter, clothing, a boat namely. But to acquire those things, he must also build them himself. So in our economy of one, time spent is the only medium of exchange. Crusoe is free to do what he will with the time he has, but he will starve unless he uses at least some of the time to fish and gather water just as he will be without shelter if he does not spend the necessary time to make a house for himself. Even in our economy of one, Crusoe’s demands are far more than his ability to actually consume given the time he has, and so it is with all of humanity. Our wants are limitless. The idea of insufficient demand, is just a Keynesian fairy tale. 

Keynes wanted to explain the business cycle by saying that consumers weren’t demanding enough, but people always have wants for more than their ability to satisfy. As long as people have money, they will want to spend it and it is only interest rates offering us even more goods in the future if we would but forgo present consumption that incentives us to save at all. An across the board reduction in the demand for all goods is only possible when there has been an expansion of the money supply because then people go from having access to lots of credit in order to buy things to suddenly having less access to credit as they have taken on more and more debt. And so it is not the lack of demand that causes economic downturns, but rather the natural after effect of a previous credit expansion. Where the previous credit expansion to never have happened, then there would have been a far more even flow of demand across time instead of people demanding more than they could afford at one time and demand less in the future when the bill came due from past excesses. 

The reason I go into this is so that we could now understand just how ridiculous Keynesianism is. Credit expansions cause a surge in demand that must later be “corrected” when that source of credit is exhausted. Keynes proposed that the government could expand credit to gain great multiples of extra demand and revenue in the future, but that’s clearly impossible. The demand will naturally fall back to its natural level after the credit runs out, and if the government were to ever withdraw some of the credit in the future in order to try to follow Keynes’s advice to run surpluses in boom times, then the system would crash even harder. And so the source of continual budget deficits is not due to the greed or incompetence of politicians, but rather because credit expansions, once started, must continually be supplied with additional credit lest they collapse in on themselves. 

Some economists understood this. In his book, Human Action: A Treatise on Economics Ludwig von Mises wrote that, “The wavelike movement effecting the economic system, the recurrence of periods of boom which are followed by periods of depression is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion.” Yet here we are, decades after Keynesianism failed to bring us out of the Great Depression or Japan out of it’s “lost decade”, still seeing the same ideas spouted by politicians. Neurosis is the tendency to do the same thing over and over again and expect different results. It would seem we are a very neurotic people.

The Next Move in the End Game: Obama Bonds

Barack Obama is going to face some tough choices next year. The US government has been running the largest deficits ever in the past couple of months; the official number was $237.2 Billion in the month of October alone and that doesn’t include the money the Fed has been creating and lending and going forward is probably going to be more of the same. Barack Obama said that the government will do “whatever it takes” to get the economy going again and that “we shouldn’t worry about the deficit next year or even the year after.” 

But that begs the question of where all this money is going to come from. We can certainly have the Fed print it up for us, and that would certainly take care of our deflation problem, but hyperinflation is such a poor way to start our a new Presidency. So we are going to need the majority of this money to be loaned to us from other countries the old fashioned way. But therein lies the problem, the US Dollar has increased in value lately as various investments had to be liquidated to repay the US Dollar denominated loans. That’s of course a rather unstable situation, because after the liquidation ends, the Dollar should return to it’s regularly scheduled collapse trajectory that it was on for the majority of this year.

Knowing that the long term value of the dollar is anything but a sure thing, foreign lenders will be reticent to loan us ever increasing amounts of money to fund our Keynesian efforts to spend our way out of this recession. So much so in fact that now the previously unthinkable is being considered: denominated US Government bond obligations in foreign currencies. They are being called Obama bonds and the Japanese Economist Kazuo Mizuno says they are inevitable because “the U.S. cannot finance its deficit by itself. The U.S. financial system cannot survive without foreign investors. We will see ‘Obama Bonds’ in the future”

That’s bad news for the US Dollar. As mentioned previously in this blog, it is only a matter of time before the dollar is no longer the world’s sole reserve currency and being reduced to issuing US bonds in foreign currencies would go a long way towards making that a reality. The main feature of a reserve currency is that it can be used to pay virtually any debt and here the US government would be issuing debts it could not pay in its own currency. Practically, that would require the Federal Reserve to hold other currencies in its foreign exchange reserves; an obligation that it has not be required to do in any meaningful way so far.   Symbolically, it would signify that the US was quickly becoming just like any other debtor nation. How much longer before it starts to get treated in kind on the world stage?

BARRICK!!!!

It’s days like today that I live for; Barrick was up 31.31% over the course of today’s trading session, and I made over $6,500 today. It feels really nice.

I’m not a huge market technician, but I pick up a few tricks here and there. You look at a chart like that, and a technician would tell you that Barrick was in a trading range over the course of the month from lows in the $17’s to highs in the $25’s. Then, it suddenly breaks out in one huge burst on high volume, and the stock seems poised to go even higher. If you happen to have loaded up on the stock near the bottom of the trading range, then you’re suddenly transformed from a rational person into a spectator at a horse race: screaming, “GO, BABY, GO!”

Putting all that aside for a minute, I felt the whole week was pretty strong for Barrick. The stock market as a whole was reaching new lows over the last couple of days, but Barrick was holding steady in the low $20’s and not budging. That’s an encouraging sign because, as I wrote in prior posts, it indicates that the stock is starting to no longer follow the broader market trends. The reason I feel that’s important is because I feel that the overall stock market still has further to fall, while gold has nowhere to go but up.

Next week I’ll be interested to see if Barrick falls back into its old trading range or if it continues to move higher into a new one. Obviously, I would be elated if that happened. Here’s hoping Santa Claus is coming early.

Disclaimer: If anyone out there is stupid enough to follow what I’m doing with their own money and you end up with losses — don’t blame me. I’m not advised as to your situation and I’m certainly not legally in a position to be making recommendations to anyone.

Conversations with Ben Peal

For those of you who don’t know me in my personal life, I have some pretty geeky interests. One of them is collectible card games (CCGs); specifically I enjoy the White Wolf card game Vampire: the Eternal Struggle. Unlike other CCGs, VTES is a multiplayer game which requires the manipulation of the other players rather than simply “playing your deck.” 

My book was a big hit at the last North American Championship in Montreal. Among the players that bought a copy was Ben Peal, who went on to become the only person to win the VTES NAC for a third time with his win this year. He sent me this email, and gave me permission to share it with all of you.

 

 Heya!

 Yeah, I just finished it last night, and I was trying to track you
 down to talk about it.  :)  Definitely a fun and useful read.  While
 I’m not a Libertarian and not a laissez-faire capitalist, I do share
 many of the same concerns you have about where our economy is 
 headed.

 I’m petrified of deficit spending and our national debt, which is
 flat-out running riot.  I’m likewise petrified of the impending
 Social Security problem.  I need to prepare for that two-fold 
 disaster, and the topic of your book definitely caught my attention.
 The book is a very helpful primer on the way our economy actually
 operates, Even if you factor out the national debt and Social
 Security, I think you still illustrate that the cycle of our 
 economy is such that a Depression-level economic disaster is 
 still looming.  Some questions I have:

 Obviously gold (and specie in general) is what you recommend.
 A lot of what you explain in the book is how economics is about 
 the transfer of real goods and services, which is why you focus
 on gold (and also because it’s transportable).  Are there other
 commodities that are worthwhile investments?  It seems as though
 commodities in general would be a good investment in preparation
 for a deflationary period, as they are real goods.

 You describe the conditions under which we can expect to see
 a deflationary period start.  What resources are available for
 one to monitor these conditions?

 Speaking of which, you do a great job of describing how we’ll
 get to the deflationary breaking point, but what happens when
 it’s going on?  How will the banks and government respond?  How
 have they traditionally responded?  What should we be doing
 during this time?

 Who do I sell gold bullion to?  Having managed a game store,
 I know that the whole idea is for a company to buy at less than
 market value and sell at market value or higher.  If I’m selling
 my gold, how can I get market value or higher for it?  

 When do I buy gold?  Under what conditions can I expect the price
 of gold to drop?  Are there price cycles for gold?  What is a 
 good price for gold?

 What conditions lead to an economy getting out of a deflationary 
 period?

 Argh…gotta get back to work…I’ll be more than happy to chat
 with you at some point about what I dislike about laissez-faire 
 markets.  😉

 – Ben

 Here is my reply:

Hey Ben,

Happy to hear you read the book. I try to blog everyday to give people stuff to read. If it’s Ok with you I’d love to post your questions to the blog and my answer to them.

You wanted to know what other commodities are worthwhile investments. You already know my feelings on gold, but strong arguments can be made for oil and silver. The personal investment I’m fascinated with right now (and I’m not legally allowed to recommend investments mind you) is Barrick Gold. They are a Canadian company, and the largest gold miners in the world. They have invested in expanding capacity, and have a solid balance sheet that will allow them to wait out any downturns. Not that there’s been any downturns in the physical gold market- demand has been going up as the economic crisis has worsened. Today it’s trading at PE ratio of 10 and close to their fifteen year low. So I like gold stocks.

Other people (bears) disagree with me. They feel that you either have to hold the physical gold bullion or be an active trader who is willing to get in and out in anticipation of where the market is going. If the market is going down, they want to be short the market to make profits off of the decline- which has been a great place to be. The feel that the pain involved in riding out a downturn in the stock market is just as intense if you’re in gold mining stocks than if you’re in google. The more I look at it, there’s no right answer. There’s all kinds of money to be made in investing with all kinds of different philosophies. So people are long term investors and don’t care where the price goes short-term. Others know exactly when they’re going to get out before they ever get in. Different philosophies. Who can say who’s better. I talk about this in one of my blog posts: http://www.prestonpoulter.com/wordpress/?p=296

That is to say, I see lots of opportunities to make money off of the decline, but what you have to do is decide what kind of investor you want to be and what your strategy is. I can recommend some books and services that I’ve found helpful in that regard, or point you to some other money managers who have similar philosophies. 

In terms of monitoring the progress of a deflationary crisis, it classically goes in three stages: in the first stage, the borrowers go broke; in the second stage, the lenders go broke; in the third stage, the nation goes broke. In terms of monitoring how the stages have progressed, you’d monitor stage one by level of consumer indebtedness compared to income. The easiest statistic to monitor for that is the percent of income saved. If you’re an Econgeek, you can check out the tables yourself at the Bureau of Economic Analysis. Here’s there latest report (http://www.bea.gov/national/nipaweb/Nipa-Frb.asp). If you see that saving’s rates are going down, then people are taking on more debt, which should be inflationary. If saving’s rates plateau or start to rise, then that means that consumer credit is no longer expanding. While not necessarily an direct indicator of economic calamity, it could signal the onset of deflation. The next thing to watch would be rates of credit card and mortgage defaults. I’m not sure a good source of data on this, but you can use google to see if the rates are rising. Other things to monitor are the prices of major asset classes such as real estate and the stock market. Rising savings and falling asset values or a rise in defaults signal that stage one of deflation has begun. 

As for state two, where the lender go broke, you need to follow LIBOR. The London Interbank Overnight Rate. As loans start to go bad, banks start to become insolvent and need to take on cash in order to stay solvent and in business. That would cause a rise rate of interest they loan money out to each other. It also indicates that banks are starting to worry about the solvency of other banks- they don’t want to lend money out if they might not get it back when the bank goes under. Also, the credit spread between US Treasuries and other debt is an indicator of faith investors have in the economy. If the spread is low, then people trust that businesses will do well with their money and only demand a few basis points over US Treasury rates to make it worth their while to take on the extra risk. As people become more fearful, the spread between the yield on US Treasuries and corporate debt will rise. As stage two progresses, you will start to see more and more institutions require bailouts or simply go broke. 

In the final stage of deflation, the government has taken on so much debt, in part due to the inflationary mechanisms that I talked about in my book and in part because of taking on more and more debt in an effort to bail out the various institutions that international investors fear for the solvency of the country itself. The thing to monitor here is the exchange rate of the country’s currency and the interest rate yield on its bonds. As the yields rise on government bonds, investors are trying to make up for the fact that the bonds are riskier and the currency in question is losing purchasing power. 

In terms of how to position yourself for each stage of deflation, cash is a good place to be in stage 1 and 2. Gold or foreign currency assets are best for stage three. Of course, it’s hard to know when to change positions. Things can come up on your pretty quick. This year is going to go down as the worst year in stock market history since 1937, and most of it materialized in the month of October. If you’re a long term investor or just a concerned citizen, then holding gold bullion is an excellent way to protect yourself.

If you’re trying to make profits trading at each stage of the deflationary event, then it’s much harder to adopt a winning strategy because you’re trying to outguess a lot of other people who are trying to do the same thing. And hedge funds greatly complicate things because they take sensible investing advice (such as, “buy gold” for instance) and leverage themselves up in an effort to squeeze the return out of it. Then when the hedge funds go south, they have to unload all of their positions as they get liquidated because of the debt they’ve taken on to stake their positions and you have weird things like Barrick Gold falling almost 50% of it’s market cap at a time when the demand for physical gold is unprecedented. Not to discourage you, I just want you to know the risks of the game. In terms of buying and selling gold, theirs not a ton of margin on gold bullion products such as coins. Ebay is one of the best places to sell your coins to get the best value and, as most bullion dealers are having a hard time keeping up with demand, one of the best places to get the product itself. Right now there’s a fairly dramatic price difference between paper claims to gold (i.e. Commodity market or COMEX trades) and the prices paid for physical gold. I discuss this in a few of my blogs, here is the latest (http://www.prestonpoulter.com/wordpress/?p=366).

If one had deep enough pockets, then you could buy a paper claim to gold and take physical delivery in which case you’d get it at a significant discount. Although, as I’ve also discussed in my blogs, the reason for the price discrepancy is most likely due to an effort to depress the price of gold as so they may deny delivery to all but the best customers in an effort to keep that paper gold market going. Like with gaming, the best margins on products are made in purchasing from the consumer who wishes to trade in his product. That’s where dealers of everything from bullion to comic books have tended to make their profits is off of buying from those who aren’t professionals. I’ve also been hearing of businesses advertised over the radio who will take your gold jewelry and give you cash for it. I’m sure they’re making good margin. As for me, I still feel gold mining companies are one of the best values, but, as I’ve also mentioned, other bears disagree with me. In terms of your last question, I feel the best thing to get out of deflation is to simply let it happen. As Treasury Mellon reportedly told Hoover, “Liquidate labour, liquidate stocks, liquidate the farmers, liquidate real estate. Purge the rottenness out of the system. High costs of living and high living will come down… enterprising people will pick up the wrecks from less competent people.” It was advice hat Hoover ignored. As you now know from the book, we’ve had many an economic crisis over our history, but they have all been fairly brief with the exception of when we’ve had large central banks trying to manage their way out of them. Japan seems to have made it’s deflationary downturn go on for almost two decades now. We need to stop socializing loses and just allow companies to fail. Traditionally this process has taken a good 6-18 months, but I’d prefer that to what Japan has gone through. 


I look forward to hearing from you. 

Take Care,
Preston

Liquidation Returns to the Stock Market

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate … It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”

That statement was reportedly attributed to Andrew W. Mellon, Secretary of the Treasury under Herbert Hoover. October has historically been a horrible month for stocks, but it seems that this November is moving stocks even lower. Today, the Dow and S&P both closed at five-year lows. I was lucky to actually not lose much at all; Barrick Gold (ticker symbol=ABX) closed up .33%. Big relief for me, actually. For the last couple of months, it seemed Barrick has been performing at multiples of the stock market: the market would move one way 5%, and Barrick would move the same way 10%. Today, the Dow closed down 5.1%, but Barrick finished up. I find that very encouraging. To me, it seems like gold and gold miners are starting to divorce themselves from the larger market.

Gold has traditionally been a safe haven in troubled times, and any step back in that direction makes the market seem more sane to me. The month of October saw a lot of good stocks and assets being liquidated with the bad as hedge funds had to meet margin calls. Rumor also has it that banks flooded the COMEX with paper gold sales in an effort to raise money, in the hopes that they wouldn’t have to make physical delivery. Today, the COMEX spot price of gold itself was essentially unchanged on a day of rather pronounced liquidation. Citigroup, by comparison example, declined 23%.

It also makes sense that on a day when stocks are seeing a huge sell-off, just after the Fed hints that it’s about to lower interest rates again to less than 1%, that gold would start to rally. And I’m all for returning to a market that actually makes sense to me as opposed to the month of October, where everything fell but the dollar during a time when the dollar was being printed at the largest quantity in history. If this turns out to be a bottom for COMEX paper gold and Barrick stock, then it will make for a very happy holiday season for me.

The above reasons to rally in gold are not even counting the amount of new Socialist policies that have the potential to be introduced in the next two years under the Obama administration. And speaking of Socialist policies — whatever happened to the TARP bailout? You remember — that bailout Bush, Bernanke, and Paulson were telling us were necessary to buy up all the troubled assets on bank balance sheets? Except, it turns out that none of the money apportioned to do so actually went to buying up troubled assets. Which was … y’know … the whole justification for the program to begin with.

Why, I remember way back in the far-off days of last month when the whole justification for the bailout was that the taxpayers would show a profit by buying these troubled assets. Oh, well. You can’t trust the government to actually use the money they raised for the program on which they claimed the money was to be spent.

You heard it here first folks.

Printing Presses: Maximum Warp!

The auto industry was really pressing for a bailout today. They’ve tried everything from appealing directly to Congress, to posting videos on YouTube. I’m tempted to say, “give it to ’em.” After a $750 billion bailout of Wall Street, plus an extra $2 trillion in lending in the last couple of months, what’s an extra $25 billion? Honestly, these numbers all start to seem quite meaningless; they’re thrown around with such casual aplomb. I printed a book back in September that said the US national debt was roughly $9.5 trillion dollars, but now, two months later, and it’s $10.6 trillion.

So much for my book being up to date!

We went through a trillion dollars in a couple of months — and that doesn’t even include the liabilities that Fannie Mae and Freddie Mac may have on their balance sheets! Now that we’ve gotten started with the big earth-shattering figures, here come the also-rans in the auto industry trying to get in on the action. Of course, if the auto makers get their bailout, then will come another group equally deserving. It seems everyone is too big to fail these days.

Where will it end?

I say, it shouldn’t end anywhere. We should all get bailed out. Everyone of us. Why not?

Oh, wait … I know why not. Because society doesn’t work like that.

Government does not have a great font of wealth that it can dispense as it pleases to those who deserve it. All they have is a printing press, and every time they run it, it’s a tax that we are all being made to pay. Perhaps now we can realize that Frederic Bastiat was right when he wrote, “government is the great fiction through which everybody endeavors to live at the expense of everybody else.” Never have truer words been written.

But right now, no one seems to understand that. We are seem to be living under the illusion that the government can come to rescue us with wealth that did not originate with us to begin with, and Ben Bernanke is certainly helping work to make that happen.

According to John Williams at Shadow Government Statistics, the money supply has grown 38% this year over its level the previous year. That means that for every 1 US dollar floating around out there in electronic IOU-land last year, there are $1.38 today.

That seems like a lot.

Now, I understand why everyone is freaking out about deflation — because the stock market is going down as well as the COMEX price of gold. But fear not, I say. With monetary inflation like that going on, it’s not going to be the greater buying power of the US dollar that we need to concern ourselves with.

Don’t believe me? Well, why not let Ben Bernanke tell you himself? In a speech he gave that is now right on the Fed’s website:

“Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

Well said, Ben.

Trust me, with 38% monetary inflation year-over-year, it’s not deflation that we’re going to need to concern ourselves with. And so right now Ben’s got the printing presses going in high gear, and it seems that it’s drawing petitioners for government largesse the way blood in the water draws sharks. Everybody wants a piece of those fresh dollars coming piping hot, right off the press.

And, I am once again reminded of the words of Bastiat; who wrote:

“Finally … we shall see the entire people transformed into petitioners. Landed property, agriculture, industry, commerce, shipping, industrial companies, all will bestir themselves to claim favors from the state. The public treasury will be literally pillaged. Everyone will have good reasons to prove that legal fraternity should be interpreted in this sense: “Let me have the benefits, and let others pay the costs.” Everyone’s effort will be directed toward snatching a scrap of fraternal privilege from the legislature. The suffering classes, although having the greatest claim, will not always have the greatest success.”

For someone who died in 1850, he certainly seemed to know how these things would turn out.

I suppose the problems we face are not as new as we like to make believe. I’d recommend that we pick up a copy of the Bastiat Collection and get familiar with the ideas that he expressed. We’re in the process of a getting a first-hand education in them.

The Main Focus of this Meeting is … to Schedule Another Meeting.

The leaders of the G-20 nations met in Washington DC over the weekend. The discussions that were had were in secret, but it seems that the main result of the meeting was the schedule the next. You see, these talks were not attended by President-Elect Obama. Instead, the assembled leaders had to make do with George W. Bush who will only be in office for another couple of months. That would make it rather hard to get any serious business done.

Politically, I think it was the right decision for Obama to not attend. The goal of the meeting was not going to be desirable to the United States. The roster of G-20 leaders basically amounts to countries the US owes money, who want less protectionism  in order to help their own economies, and those who have been burned by buying “toxic debt” from us. Often, a single country can be filed in more than one of these categories. What is happening here is nothing short of an intervention. As if the friends and family of the US were forcing it to sit down and listen so that it might come to understand: “you have a problem.” And, after interventions, discipline and recovery is supposed to follow.

Really, who wants that?

Obama is in a particularly hard situation. He was elected on the Democratic ticket and they are already calling for a bailout of GM. Of course, by doing so, they will be protecting the jobs of autoworkers who have been one of the most ardent supports of the Democrats for decades. So Obama is caught between the nations of the world who want to have a “talk” with him and his own party that is basically saying “The Republicans have thrown money at their backers for too long; it’s time we get to throw money at ours!” It’s a no-win situation. By not attending, he’s at least playing hard-to-get.

I can’t imagine a worse time to be President than right now. While I feel that Obama will play the politician and negotiator, and try to say as little as possible for as long as possible, the forces at work can’t be kept waiting forever. They will want an answer. GM wants a bailout, and the G-20 wants the US to get its financial house in order. Doing both isn’t possible and neither is putting the question off forever. Returning the US to the path of financial discipline is an unpopular one in the best of times; today, doing so would involve alienating the very party that got you elected. Meanwhile, throwing more and more money at the collapsing economy will just hasten the collapse of the dollar on the world stage. The G-20 leaders, seeing that the US is not ready to end its addiction, will start making plans for how they will alienate the addict and instead do business with one another. And that can’t be good.

This is most likely the beginning of the end for the dollar.

The US is simply in denial regarding how bad the situation is, and the G-20 isn’t going to be able to penetrate a denial of that magnitude. Regardless of how many incidents you try to recount to the addict, until they’ve bottomed out, there is just no talking sense to them. I’m sure Obama can be made to see the reality of what is happening, but I doubt he has the ability to convince a nation that now’s the time to kick the “print more money” habit that has seemingly played out so well for it. Failing that, what else can really be done but to delay the inevitable?

And so the chase has begun — between our creditors who want to schedule a serious meeting so that we can have a little talk — with the REAL President in attendance this time — and the man who cannot, try as he might, find a win-win solution to all of this.

Who’s Afraid of the Big, Bad Robber Barons

As I’ve discussed in this blog before, I am a fan of what’s viewed as “shock radio.” Specifically, I really enjoy both Howard Stern and Bubba the Love Sponge on Sirius Channel 101. I’ve been a Sirius subscriber since 2005 and I’ve really enjoyed it; I’m listening to Sirius Pops right now as I compose this blog. My only complaint with them is that they might not resign Bubba whose contract ends in December, and that would really annoy me. I’m hoping they won’t do that. If you’re looking for a good Christmas present this year, I do heartily recommend that you give the gift of Sirius

The reason I bring Bubba up is because he often discusses politics and “Spice Boy”, one of the shows cast members, lamented that the “Republicans just know how to work better.” Work in the parlance of that particular radio show meant that they knew how to lie well and present a convincing story for others to believe. This is just another way of restating the rather old joke, “No, I don’t belong to an organized political party. I’m a Democrat.”

Case in point, a right-wing friend of mine just sent me this story about how Barack Obama won’t let any gun owners be part of his administration. Well, at least that’s what the Illinois State Rifle Association says because apparently some questionnaire asks:

“Do you or any members of your immediate family own a gun? If so, provide complete ownership and registration information. Has the registration ever lapsed? Please also describe how and by whom it is used and whether it has been the cause of any personal injuries or property damage.”

Therefore, Barack hates gun owners. Therefore, he’s coming to confiscate everyone’s guns. Of course, these days the President of the United States is a rather powerful person; you know, “Leader of the Free World” and all of that jazz. So it stands to reason that there might be people out there who might try to do the President harm- hence the Secret Service and all.  And it does stand to reason that perhaps Barack’s security team might want to know about firearms an applicant has access to and whether they’ve ever caused any “personal injuries”. I don’t know. If I were going to be President (and I’m thankful I’m not ever going to be) I’d probably want to ask that question to. 

To me, what this story really sheds light on is the gullibility of the Republican base. They seem to get worked up by all kinds of stories about Barack’s radical Muslim heritage or his ties to black radicals that clearly mean that he hates America. Now I know that the Democrats have their fair share of ignorant voters as well, as the Howard Stern show’s Sal Governale recently showed. I’m sure that the Republican attack stories, which are mostly not true or grossly exaggerated, will continue to make the rounds, but the Republicans soundly lost the last election so I expect I will start hearing a lot more left wing lies than right wing for the next few years.

Case in point, I recently called the Randi Rhodes show. I used to listen to her on the now defunct Air America radio in Dallas back in 2003 and 2004. Yes, you heard me correctly. I so hated the Bush Administration and his legion of flag-waving minions that I was driven into the arms of the any who would have common cause with me, and in this case the arms happened to be Randi’s. Her show was a bit hard to take, even back then. She doesn’t seem to know when a bit has gone to long and she just beats her audience over the head with her parody elements and impersonations. That, and it seems like at least 40% of her on air time is devoted to commercials. 

Well, things didn’t work out to well for Randi. She got kicked off of Air America radio for calling Hillary Clinton a “whore”. Probably just as well, Air America went bankrupt. Well now Randi’s doing Podcast and a streaming radio show over the internet. Yesterday she was talking about AIG and the bank bailout and I thought I’d give her a call. Randi kept saying that the only way to prevent abuses in the banking industry was through regulation. In fact, she said that’s all a government could do. 

That seemed an absurd assertion. You can’t regulate away human greed. As I pointed out in my call to her, industries that are prone to greed and abuse will simply take control of the agencies that are supposed to be watchdogging them as the drug industry has done with the FDA. Truly, if she wants to end the reign of the few powerful organizations such as AIG, then what we need is not a bailout, but a liquidation. If allowed to fail, the big organizations would cease to exist. Their assets would be sold to the remaining companies who are hopefully more virtuous (or at least better funded) and life continues on. If instead, the government bails the industry out, then the big are not only allowed to grow bigger, but now they have the implied guarantee of future government bailouts the next time they get into trouble. Honestly, you Democrats, if big companies are what you fear, then you should become cheerleaders for liquidation, not advocates for endless bailouts!

Randi cut me off. She told such talk would lead back to the bad old days of the “Robber Barons.” That Barack Obama was someone who could regulate away the abuses of the system caused by greed because he had come without lobbyists and would therefore take Washington control away from the evil corporations and give it back to the people. She wouldn’t let me get a word in edgewise, then she went to commercial break… again.

I find two things vaguely humorous about this. The first is that Randi had just been saying that we need to keep our expectations of Barack down because “He’s only human.” Yet she then went on to tell me how he, free from lobbyist control, was going to liberate the Washington world from the greedy bankers. The second was the whole “Robber Baron” thing is a huge Democrat talking point. We can’t go back to the days before the Federal Reserve and the New Deal, and all those other wonderful government programs. Hell no! That’s back when the Robber Barons robbed us blind! Except they didn’t. The later half of the 1800s was one of the most prosperous times for us all as a people. The real wages of the average worker increased year after year despite the fact that there was no minimum wage laws. People were far more free to do as they pleased when it came to the wonderful vice laws of today’s society.  Really, when you look over the history of the time, I don’t see the part where the evil Robber Barons swoop in and take away everyone’s money- probably because it never happened. 

The Robber Barons are just an old Democratic chestnut. They are the equivalent as the Bogeyman: a shadowy figure who is up to no good and will get you when you least expect it. This is, of course, merely a lie put forth so that people will seek the protection of the government. The Robber Baron is the Democratic equivalent of the Islamic Terrorist; he is that figure who is so terrible that we must look to the government for protection. Here’s a question, who can name one? Come on, think hard. If they were so terrible, certainly we should be able to remember at least one.

Well here’s one for you, Jay Gould. As it turns out, he really wasn’t such a bad guy. Sure, he tried to take money from people, but not the working man. He didn’t have much worth taking. No, Mr. Gould was a Wall Street raider. He endeavored to take money from the other people that had it: the Rockefellers,  Morgans, and Vanderbilts. Don’t believe me, here, read it for yourself in Dark Genius of Wall Street: The Misunderstood Life of Jay Gould, King of the Robber Barons. Now I’m sure Mr. Gould would have loved to own a monopoly and rip off the average consumer, but that’s not what he did. Instead, that’s what the bankers did. 

The real mustache twirling villains in the tales of the late 1800s are not the Jay Goulds of the world, but rather the “money trust” of Rockefeller and Morgan. The banking families had huge wealth, but they wanted more. They wanted a lock on the power to create money and government protection in case their organizations were ever in danger. So they set about creating what G Edward Griffin called the The Creature from Jekyll Island.  And it is a monopoly far worse than anything Jay Gould or Bill Gates could put together. What’s worse, it had a mandate from our government that says it gets to basically do whatever it deems necessary to make sure that its member banks stay profitable. 

So really Randi, who’s afraid of the Robber Barons of the 1800s. Not me. I’m more afraid of the ones who are with us today… and have the power to print our money.