-- Posted Monday, 22 December 2008 | | Source: GoldSeek.com
by Howard S. Katz
12-22-08
The country is not on a gold standard. Nevertheless, gold has played a leading role in the past 2 months in frustrating the plans of the paper aristocracy to triple the U.S. money supply and revive the housing bubble of 1997-2006.
As my regular readers know, starting in mid-September, the nation’s media, led by the New York Times, conjured up an economic crisis of a “deflationary” nature. This had pretty much the same character as the Salem witchcraft crisis of 1693. For the benefit of new readers, let me reiterate 3 points:
- Economic crises do not come out of nowhere. Aside from those caused by an obvious catastrophe, such as a war or a natural disaster, all economic crises in history have been caused by government, in most cases either by increasing or decreasing the money supply. For example, the economic crisis of the 1930s was caused by the Republican policy of “a good, 5¢ cigar.” This was a policy, adopted circa 1920, to shrink the money supply and reduce prices (which had doubled during WWI) back to their 1914 level. The money supply shrank by 30% from 1930-32. This caused prices to decline. Wages declined also, but not as rapidly, leaving real wages too high. It was this high level of real wages which caused the high unemployment of the early 1930s.
- It is the established policy of the paper aristocracy to play by opposites. If they want to increase the money supply, they shout and scream that there is a “recession” or “deflationary” crisis. This tactic was used skillfully in 1982 when they promoted Dr. Doom (Henry Kaufman) with his bearish prognostications and kept most people from buying stocks right at the bottom (DJI 800) preceding the greatest bull market in modern history. It was used again almost a decade later when they promoted Ravi Batra with his book, The Great Depression of 1990. That was another great buying opportunity.
- No arguments were presented for this great “deflation” when it was first announced (Sept. 15). And the only arguments since have been caused by people’s belief in the media. That is, the media declare a crisis. People believe and rush to sell stocks. The DJI drops 3,000 points in 7 trading days. Then the media point to the stock market decline as “proof” of their crisis. The stock and commodity declines were of this nature, as were the drop in retail sales and the rise in unemployment. People believed we were in a “recession;” so they acted like it was a “recession.” This is what is called a self-fulfilling hypothesis. Because people believe it they act in a way which makes it seem true even though it is not.
In economics, these self-fulfilling phenomena have a fairly short life span. What really moves the economic world is rational self interest. People want stuff. The idea that people will suddenly sit on their money and stuff it in their mattresses is a crackpot idea. It has never happened, and as noted above it did not happen in the 1930s. As noted, what happened in the 1930s was that the Republicans reduced the money supply of the country by 30% in 3 years.
Economists who preach a boosting of the money supply are a collection of phonies and frauds. America was put on a gold standard by the Founding Fathers in 1788, and it remained on a gold standard for the better part of 145 years. During this time America was the greatest, most productive, fastest growing economy in human history. Yet the money supply never grew any faster than the population leaving the per capita money supply flat.
Compare this with countries which relied on the printing of money to “stimulate” their economies. One case was Germany, 1914-1923. During this period prices rose by 1 trillion times (That’s not a typographical error.). The savings of the middle class were wiped out. People were so angry and bitter that they turned and voted for Hitler. Another case is present day Zimbabwe. Official “inflation” rate is 231 million percent per year; unofficial rate is 516 quintillion percent per year. Schools have closed because the teachers’ pay shrunk to an insignificant amount. Hospitals have closed for the same reason. Now a cholera epidemic is sweeping the country. Jobs are extremely scarce, and many people travel by bus to South Africa, work for a week or two, and bring the “hard” money home.
Ben Bernanke is not as bad as Zimbabwe. Here is his solution to the American financial “crisis.”
Right now the people of Europe are making the opposite decision. They are converting to the euro, which is based on the old deutschmark (the strongest currency in the post-war world). Faced with demands to stimulate the German economy by printing money, Chancellor Angela Merkel earned the nickname “Madam No.” The New York Times reported:
“Mrs. Merkel, displaying a defiant streak that in the French news media has earned her the sobriquet, ‘Madame Non;’ refuses to crank up the printing presses in earnest.”
“Allies See Germany Trying Bailout With a Thimble,” NYT,
12-17-08, p. A-13.
All this leaves the American paper aristocracy in an over-extended and vulnerable position. All of the phenomena upon which they are basing their hopes of a “recession” require that people believe the paper aristocracy’s propaganda and disregard their own rational self interest. As self interest begins to reassert itself, the various markets will start to snap back.
Gold was the first market to snap back. It hit bottom 2 months ago and has already recovered half of its summer/autumn loss. Many of the gold stocks are forming good solid bullish patterns, such as head and shoulders bottoms and double bottoms. Gold itself has a double bottom. Silver just broke out last week from a small saucer bottom. Platinum has not yet broken out, but it appears to be on the edge.
The stock market looks as though it is on the up-leg of a V bottom. The right-hand (up) leg of a V is interrupted by a sideways movement, called the handle. We have to wait to be sure, but it looks as though we are in the handle of a V on the DJI..
As these downtrends reverse, one by one, the psychology will turn. The declines in the various commodities over the summer/autumn were large speculative moves. Take gold as an example. The large speculator (commodity fund) net position went from +212,259 on Feb. 19, 2008 to +63,959 on Nov. 11, 2008. The history of these large speculators is that the last 50,000 of them, who hold on through thick and thin, do well in the long run. The other 100,000 to 150,000 rush in and buy near the intermediate tops and then sell out near the intermediate bottoms. They are the weak hands, and the New York Times has scared them into selling.
But the big Kaduna in the current economic picture is the U.S. dollar. The 12-12-08 issue of the One-handed Economist begins with a chart of the dollar which states:
“Head and shoulders pattern predicts decline in dollar and probable rally in most commodities…minimum price objective of 80½-81.”
In the next 3½ days, the dollar fell over 4 points; gold rallied $60; and silver rallied over $1.00.
The establishment’s argument for the dollar was that the “recession” was world-wide, that all countries would have to “stimulate” their economies, and in such a situation it was safer to be in a large, well-traded and widely respected currency. This argument was dominant for most of the autumn. Now the argument, and the dollar with it, is collapsing.
I will give the U.S. dollar a return to its neckline at 86. From then on, it will be downhill. As the dollar falls, the commodity rally will spread out, and more commodities will form bottoms. Stocks will complete their V pattern with an upside breakout. Gradually, more and more people will realize, “I’ve been suckered.”
Don’t you see? On March 9, 1933, the bankers acquired the privilege to create money. Since that time, they have used this privilege to steal your wealth. They control academic economics and, through this means, control most of what is said about economics in the media. They use this to steal from you and your fellow Americans. But your fellows keep voting for the Demopublicans who are robbing them. Maybe they will wake up some day, but in the meantime you have to protect yourself. You need the truth about the economy, not the lies printed in newspapers and served up on the TV networks. The truth is that we are not headed for any “deflationary” event. Just the opposite. We face a horrendous rise in prices – the greatest in American history. If Dallas Fed chief Richard Fisher is to be believed, this will amount to a tripling of prices in a relatively short (3-4 year) time frame. All the working people of the country will be robbed as their wages fail to keep up. All the savers of the country will be robbed as the value of their savings falls by 2/3. All the people engaging in the flight to “safety” will be destroyed. The retired will go back to work. When these people talk about stimulating the economy, they mean that the economy is them, NOT YOU. It is easy for Bernanke to stimulate “the economy.” He counterfeits money. The paper aristocracy gets rich at your expense. And they then declare a successful stimulation. And no matter what happens, they never admit that they were wrong.
I remember what the paper aristocracy was saying in the late 1960s. They ridiculed the gold bugs and advised people to buy “good, sound stocks for the long pull.” By 1982, the DJI had fallen by over 70% in real terms. The price of gold was 1100% higher in real terms. They never admitted they were wrong.
I started the One-handed Economist to help people like yourself see what is going to happen. I’m not always right, but my record is very good. I was a gold bug through the ‘70s, a stock bug in the ‘80s and ‘90s and turned long term bullish on gold again in 2002. In the words of Voltaire, the existing establishment “has learned nothing and forgotten nothing.”
The One-handed Economist costs $300 for a year’s subscription. (Regular issue every two weeks, special bulletins when necessary.) It discusses the best financial moves for you to make here and now to increase your wealth. If you want to get a feel for my writing, check out www.thegoldbug.net and read my blog. This is on social issues from an economist’s viewpoint. This week’s blog is on the Fed’s move to a 0 nominal interest rate. It presents a short history of banking and paper money and how America got into her present situation. I think you will find it an effective overview to understand what is happening today.
Thank you for your interest.
-- Posted Monday, 22 December 2008 | Digg This Article
| Source: GoldSeek.com
