Sunday, July 22, 2012

Fiat Versus Gold...L&C

The status quo for fiat banking have all the elements on their side. They control through central banks that paper is currency and gold is a barbaric relic. They have joined with national media's in depicting gold bugs has fanatics of doom. They control all laws governing currency and through this aspect have outlawed gold as a vehicle of exchange and no bank will pay interest on it like paper money. When Ron Paul recently asked Ben Bernanke if gold was money, he said no. I could go on-and-on, but I think that picture has been painted. So, why gold?
Well, if I had a blog back in 2000, I would have recommended gold under $300 per ounce and you would be very happy today. However, I am going a different way this week as I will quote various people and you get a second opinion in a round-about way.
In leading up to the parade of observations, some basic facts need to recognised. The leading central banks of the world have increased their money supply by $12 trillion to spur their economies. So far. they are failing as only China with a questionable 7.6% growth rate is growing. The US is less than 2%, Europe is in recession and the emerging markets are stuck in neutral. I say China is questionable because the central Communist Party dictates that certain quotas must be met and regional managers are known to fluff the books to obtain those results along with other previous facts about the Chinese economy that I have written about in the past.
On the 15th of August 2012 will be the 41st anniversary of fiat banking control of money supply. At present the UK central bank has created the most money out of thin air at an 382% since the year 2000. We are not the worst, yet. The Swiss National Bank expanded money at an 212% clip and all central banks together at a 15% growth rate. According to Ludwig von Mises of the Austrian School of economics, this is inflation.
I predict that sometime during the 42cd year a financial crisis will occur as Herbert Stein once said,"If something can't go on forever, it will stop." I base my prediction on this comment from Ayn Rand,"You can avoid reality, but you cannot avoid the consequences of avoiding reality."
Do you save? Have a CD? It is tough when banks and treasuries only pay negative interest rates. Negative rates are those that won't pay enough interest to cover inflation and or the value of the attached currency. With that in mind I defer to my pisan brother of old, Leonardo DaVinci, "Simplicity is the ultimate sophistication." Gold is simple. It is backed by nothing, but everything else seeks to be backed by gold. Compare gold with the modern paper device the derivative. These financial credits are so complex that they cannot even be explained or understood.
Weapons of Mass Financial Destruction
as Warren Buffett once said about derivatives. This paper device is also a form of credit and according to the Austrian School of Economic which I favor, credit is the source of inflation. It is not the higher price of food, fuel or other needs that spur inflation. They are only the visible results, but credit is the cause. Money printing is credit as Samuel Johnson says,"The future is purchased by the present." How about going to the mouth of the horse? In this tidbit from Dennis Lockhart, Federal Reserve of Bank of Atlanta,"In theory, there is no limit to central bank expanding its balance sheet."
Well, Dennis, consider this, if interest rates return to normal historical rates of just 5%, it will result in over a 12% cost to our federal budget. You don't want the math at higher rates. Like my birthday buddy, Ben Franklin said,"He who goes borrowing, goes sorrowing." Our founders would agree with Mises(Austrian School) because they chose gold to be our currency based on history of monetary stability. Even aristocrats agree like Otto von Habsburg who adds,"History is a teacher nobody listens to." Even further back in time, Aristotle favored good money which he defined as having a high cost of production whereby all knew and respected its value. How about today? Alan Greenspan. Yes, the former chief of the Fed who in March 2011 said,"Gold, unlike all other commodities, is a currency(did you hear that Bernanke?) escape from what is perceived to be a fiat money system, paper money that seems to be deteriorating." Not a fan of Mises? How about John Stuart Mill who says the same thing in a different way. "Prices do not destroy capital, they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." Common sense tells you that at some point something has to give or change. Two modern researchers, Reinhart and Rogoff call this concept the
"Bang Point."
 It is based on the fact that government revenues do not meet expenses causing a collapse in confidence of credit. I believe Aldous Huxley said the same thing with his,"Facts do not cease to exist because they are ignored." Taxes can't help this problem because the numbers are in disproportion to reality like Austin O'Malley once said,"In levying taxes and in shearing sheep, it is well to stop when you get down to skin."  
Bottom Line:
The bankers in charge only know one thing and that is expansion of money to generate economic growth. Albert Einstein would say, "problems cannot be solved by the same rationale that created them." There you have it. Ultimately, it is your choice, but after the disaster in Colorado movie theater, I defer to my good buddy, JL who says,"Not every day is gold, but it's all good." You see the lost soul did not understand this is God's world and it is up to us to leave it better not worse.
LIARS and CROOKS: This week goes to NIA who have been pumping the stock that I also wrote about, Synacur(SYNC). I think that it is possible that a new scam has developed whereby one group buys a stock on margin and this allows another group to sell it or short the same stock as they feed each other. The original stock purchase is covered because of the low entry buy point and thus, every and anyone who buys after that price is at risk to be ripped off like me and countless others. Too bad because the company is solid. The 1919 Sox scandel lives anew. It wasn't baseball, just the players.