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-- Posted Monday, 6 October 2008 | Digg This Article | Source: GoldSeek.com
By: Howard S. Katz “If you can keep your head when all about you Are losing theirs and blaming it on you;” “If” by Rudyard Kipling Rudyard Kipling would probably have made a good gold bug because he certainly called what has been happening in the financial markets over the past two weeks. The media have been full of wild exaggerations and outright lies all designed to create a panic among the people and get them to support the Wall Street bailout bill which passed Congress last week. For example, when I punched out the gold stocks this (Monday) morning, gold itself was up 3˝% and the average gold stock (represented by the HUI) was down 5%. The ratio of the HUI to the price of gold was down to 0.29. Since this ratio averaged 0.50 for most of the bull market of this century, this gives you a chance to buy the gold stocks for little more than half price. Why are there people willing to sell gold stocks to us so cheaply? Because they believe the media. People all about us have lost their heads and are blaming it on us. Now the reason that one buys a newspaper or listens to the TV news is to get the news, i.e., to find out what is happening in the world. Do you want some news? Do you want some real news? Cast your eyes on the chart below: 
Now hard core gold bugs will immediately grasp the significance of this data (the source for which, by the way is the Federal Reserve Report of Oct. 2, 2008 and back issues, available at the Federal Reserve’s website, release H.4.1). But for new gold bugs, let me give the following explanation. Money is created in the U.S. (and has been since March 9, 1933) in two steps. In the first step, the Federal Reserve simply prints money, in the same manner as a counterfeiter. This money is usually lent to the U.S. Treasury. This is strange because it is one agency of the Government lending money to another agency, but the purpose of this complication is to hide from people the fact that the Government itself is printing money. This Federal Reserve money is slightly over half of the nation’s money supply (and is why the dollar bills in your wallet carry the inscription “Federal Reserve Note.” In the second step, the Federal Reserve money is spent and much of it is deposited in the nation’s banks. The banks are legally allowed to give this money a special status (called reserves) and to create new money on their reserve base. This is done as the bank makes loans. (And here you thought that the bank attracted loanable funds by paying interest to depositors.) This process may take a year or two. The last 3 weeks saw a 57% increase in the Federal Reserve’s money. This translates into approximately a 30% increase in the nation’s money supply. If the Fed stops here and does no more, then over the next year or two the nation’s banks will build on this new money, and the total increase in the money supply will be, order of magnitude, more than 50%. What will follow? $5.00/gal for gasoline; $3.00 for a copy of the Wall Street Journal; $30,000 for an inexpensive car. America is currently in a period of a raging depreciation of its currency. This is due to all the money created by Volcker and Greenspan in the 1980s and ‘90s. This did not come home to roost at the time because commodity prices were declining. But commodity prices got way oversold around the turn of the century. They are in a powerful bull market, and this is feeding through into consumer prices. To engineer a 50%+ increase in the money supply on top of this is pouring gasoline on the fire. This increase in money is the most important fact of the year (and probably of the decade), but you will not find it in any of the nation’s media. They do not report the news. They act as shills for Wall Street and the nation’s banks (who together with their associated vested interests I call the paper aristocracy). Their “news” consists of a package of lies, and they cause most of the people in the country to lose their heads. But you will find this true news in some of the better gold bugs sites. This chart appeared in the 10-3-08 issue of the One-handed Economist. It is crucial to my thinking and should be to yours. How can you not be in gold when the Government is printing money at such a rate? We gold bugs are used to such media lies temporarily distorting the markets. We know that you have to have a tough skin and a contrary-opinion mentality to withstand the media pressure. We remember Richard Nixon’s abolition of the gold standard in 1971 and his imposition of price controls. The nation rejoiced that the President was acting decisively to fight inflation. And then Nixon started printing money like it grew on trees. On the initial reaction, there was a $3 drop in the price of gold. Over the next 8˝ years, there was an $834 rise in the price of gold. We kept our heads when all about us were losing theirs and blaming it on us. However, there is a social aspect to this. The original concept of the New Deal was to rob from the rich and give to the poor. Robbery is wrong no matter how you cut it. But robbing to benefit the poor is not a serious threat to the country for the simple reason that the poor do not have that much political power. (In fact, even as the Government robbed the rich to give to the poor via tax policy, it robbed the poor and gave to the rich by goosing the stock market with paper money and easy credit.) But the new policy of openly robbing the people of this country to bail out the super rich is 100 times more dangerous. Visit my web site, www.thegoldbug.net,” (no charge). In the two previous blogs (“Thou Shalt Not Steal” I and II) I demonstrate that there is no such thing as a collapse of an economic system as Henry Paulson alleged and that the only danger to the economy in relation to the bailout bill was that it provided a huge incentive for the ambitious people in the country to get rich by taking exorbitant risks and for the ordinary people to just give up. This is not economic collapse, but it is slow and steady economic decline, which has already been going on since 1972. In this week’s blog, I have an open letter to the good guys (the Congressmen and Senators who voted against the bailout) discussing a new strategy for political victory. I can tell you that America was not always like this. This is a weird and perverted chapter in our history. Americans have fought many battles against the bankers. Thomas Jefferson was elected President by running against the first central bank. Andrew Jackson was elected President by running against the second central bank. McKinley defeated Bryan in 1896 because McKinley was for the gold standard, and Bryan was against it. And by the way, 1896 was the year that Adolph Ochs took over the New York Times and made it into a great paper, and you know what? Adolph Ochs (and the editorial position of the Times of that day) was for the gold standard. What a shame that his descendents do not have his character. If you are looking for ways to protect yourself from the depreciation of our currency, as per above, then you will be interested in my newsletter, the One-handed Economist ($300 per year). This is an 8 page fortnightly publication (plus special bulletins) which analyses all of the financial markets and makes specific stock or commodity recommendations to best profit by what I see coming. I was a gold bug from the late 1960s through the ‘70s and caught the exact top for gold on Jan. 21, 1980. I then became a stock bug from 1982 until 2007. I became a gold bug again in 2002 when gold broke out from a saucer formation and expect this gold bull market to continue for quite some time. We live in troubled times. Those about us are losing their heads and blaming it on us. To survive we must see reality as it is not as it is presented in the media. Whatever your decision, best of luck. - Howard S. Katz
-- Posted Monday, 6 October 2008 | Digg This Article | Source: GoldSeek.com
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