Now Available from Vending Machines… Gold

In yet another sign of the times, a German company has introduced vending machines in airports and train stations that dispense gold in lieu of the traditional soda and snacks. Even more telling is that the vending machines have received quite a positive response. What do the Germans know that we don’t? Mainly the dangers of inflation and what can happen to a currency run amok.

It seems to be one of those cases where the lack of a history of failure has inured Americans to the dangers of pushing their currency too far. After all, one would think that the logical place to put such a machine would be right here in the good old US of A where the government is running close to a two trillion dollar yearly deficit and the central bank is directly monetizing a portion of this debt. This is the logical place to put a gold vending machine, but there are none to be found in the United States- well, at least, not yet. Chalk it up to cultural differences. The hyperinflation of the Weimar Republic happened in Germany, whereas the dollar has never had any similar episode. The closest we ever came was the inflation of the 1970s, and that seems to be but a distant memory. Continue reading Now Available from Vending Machines… Gold

Signs of the Times

Here’s some interesting news that has hit the wire in the last couple of days:

  • A new hedge fund dedicated to hyper-inflation is being created. Personally, if you really believe hyper inflation is coming, wouldn’t you just buy gold? Why on Earth invest in a hedge fund that can go broke on its big leveraged bets?
  • Speaking of leveraged bets, Obama is speaking of giving the Federal Reserve yet more authority in order to regulate the financial system to make sure that the kinds of crashes don’t happen again. Let’s review folks. It wasn’t until the Federal Reserve was founded in 1913 that we had depressions in the first place. Up until then, we had plenty of downturns and panics, but never a depression. Since the founding of the Fed, we’ve had the Great Depression and, now, this. Clearly, the solution is to just keep giving more authority over to the private banking consortium known as the Federal Reserve and hope that they clear up things. That ought to work great.
  • The people who followed Dr. Lacy Hunt’s advice and bought long term US Treasuries are down quite a bit. Holders of the 30-year Treasury are down roughly 25% since the start of the year. That’s gotta hurt.

The world has been going on it’s merry way the last few months. The dollars been gradually decreasing month after month much to the chagrin of the those predicting continued deflation. Gold’s been near its high and the stock market has just meandered about. Nothing truly Earth shattering has been occurring of late, just a lot of what was expected, including the State of California going broke. It’s projected that June is the last month for California’s budget. After that, that state’s out of money.

I find it bizarre that the state with one of the most onerous tax burden’s in the one going broke first. The state has a 10% income tax tacked onto a 9.25% sales tax. In addition, the state taxes corporations that do business in its state a minimum of $700 even if they didn’t declare a profit. How did these guys go broke again? Oh, yea, excessive government spending. That’s the funny thing about budgets, they expand to fill whatever money is available for them. The state ended up spending too much on things like prisons as it the three strikes law caused more people to spend their lives in jail and their “Health and Human Services Department” (which chews up 28% of the budget. What exactly does the Health and Human Services Department do, you might ask? I’m not sure, let’s check.

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To Whom Can China Sell It’s Bonds?

There are die hard fans, then then there’s my ever loyal reader Kevin who wrote in comment to my recent blog:

KevinM :

I think you’re wrong about China, Preston. After all, to whom can they *sell* their U.S. holdings? I think that China came (back) to a world power too late, and they chose (or could not see properly) short-term profit via their economic alliance with the U.S. over long-term stability. It would seem now that their only choice is to hold on tight to their Little Red Books and hope that everything doesn’t come crashing down around *their* heads, as it surely must around ours. (Although I still maintain that we are headed to war, since that will be the only way out of this mess…)

China can attempt to sell it’s bonds to whomever wants them, and when it turns out that China has far more US bonds to sell than there are buyers for them, then the value of US Treasuries will plummet. At that point, the US would see its currency fall precipitously and it would be unable to see any more US Treasuries to fund its ongoing deficits. From that point forward, the US would have to fund the operation of its government through taxation or cut back its spending.

Many argue that China would never do this because why would China seek to devalue its own investment. That’s a separate matter. I was merely pointing out in my last blog that if China were interested in creating chaos and destroying the value of the dollar, as did the diabolical villains in Goldfinger, then all it would have to do is sell its bonds. Now, I’d like to point out that an investment that is valueless if you go to sell it is really valueless period. Suppose I sold you a piece of art that I said was worth millions. Come to find out, you could never sell it and recoup even a fraction of that. You could carry it on your personal financial statement as an asset (as many banks are now doing) but the truth is that you got a bad deal and will have to take the loss sooner or later.

China is in the same position. They got a bad deal in buying are bonds and, now that they have them, there’s no way they are going to be able to avoid taking a loss. The longer they carry them, the more the US will use the opportunity to sell even more bonds to the world market and inflate away the value of what the bonds are worth. The sooner China moves to sell them, the more it could hope to profit. That’s why I feel a collapse of the dollar is inevitable. Andrew Gause and other conspiracy theorists see the invisible hand of the illuminati behind it all and he assures us that the dollar will not collapse because it is currently the preferred currency of the Illuminati.

Personally, I’m not much of a conspiracy theorist. So I don’t put much stock into the idea that the Illuminati who control the Fed also control the Chinese and will continue to prop up the dollar so that they can use it keep us in slavery. But I suppose we should take some comfort in knowing that, if the Illuminati are out there, that they want to keep the dollar valuable. Now, failing that, you’re left with the nations of the world holding a lot of bonds that are worth far less than they paid for them and will lose even more value if any one of them should come out and liquidate them on the open market. That’s scenario where the first party to take a lose will lose far less than the last person who tries to cash out- an unstable situation that is bound to collapse at some point.

Goldfinger’s Evil Plot

I was raised by a single mom who had to care for three children. As the youngest of three brothers, I was put in their care a lot of the time, and that meant I watched whatever they watched. Which meant, instead of watching cartoons, I was raised on John Wayne Westerns and James Bond. It was an unusual childhood full of sex, violence, and Sean Connery.

Many people say he was the best Bond there ever was. Personally, I really like Daniel Craig, but it’s hard to compare the two. In hindsight, it’s interesting to note the similarities I have between the fiction I was exposed to as a child and who I became as an adult:

  • My favorite bond movie as a child was the Japanese centered You Only Live Twice
    and I took up Judo as a teenager and was strongly influenced by Sensei Vince Tamura during my formative high-school years.
  • Peter Parker (a chemist) was the fictional character with whom I identified the most, and I later got a degree in Chemistry.
  • Neither John Wayne nor James Bond showed any fear in the face of gunplay, and, as it turns out from a real life incident, neither do I. Continue reading Goldfinger’s Evil Plot