Well people, we are here. I am here. Gold is here.
But the question, dear reader, is are you here?
Gold is going to turn and punch through the $1000 barrier like it was not there. The U.S. dollar is going to drop like a stone. And yet, the vast majority of people are walking around in a daze. When I talk to ordinary Americans, they tell me that things are bad. This is their way of agreeing with the consensus media position of last fall which confuses falling prices with economic bad and buys the whole media line of that time.
You want to see bad? You are going to see bad. But it is not the bad of falling prices. By the time the current Administration is over, the average American will beg for falling prices. No, we are going to see the bad of rising prices, as they have just seen in Zimbabwe.
Do you know what has happened in Zimbabwe over the past few years? The dictator of the country engaged in a massive campaign of printing money. Cato has an interesting article on it. In one month, November 2008, prices (in terms of Zimbabwe dollars) were going up at a rate of 79,600,000,000%. That is another way of saying that prices were multiplying by (a little less than) 800 million times per month. That is, they were doubling every day.
It became impossible to earn money in Zimbabwe because no matter how hard you worked and no matter how much you earned, the amount of goods you could buy dropped to almost nothing. People escaped over the border to South Africa to earn a little (real) money to buy food for their families. There are pictures of starving Zimbabweans who are little more than skin and bones. A law was passed saying that you could not draw your own money out of your bank account in amounts of more than $2 per day (in U.S. money). Finally, in late 2008, the hospital workers walked off their jobs because their salaries had dropped to little more than zero. And then a wave of cholera swept the nation. That seemed to be the trigger. The people of Zimbabwe finally rose up against the evil dictator Mugabe and put a stop to his rule and to the new issues of money. Today U.S. dollars are circulating as the Zimbabwe currency.
Now things are not as bad here in the U.S. But they are heading in the same direction. Over the past year, the amount of money in the U.S. has increased by almost exactly $1 trillion. This is a 70% increase from a year ago. And it will cause an approximately 70% increase in prices with a 1-2 year lag time. The greatest price increase in American history was 13.3%, in 1979. One year later, Americans threw the party in power out of office and instituted a political revolution. I will give you three guesses about what will happen in 2012.
The thing you have to keep firmly in mind is that there are many people in the world who want to steal your wealth. They go about it in many ways. The common thief is the most widely known, but he is not very successful. The police come and lock him away. As a result, more sophisticated methods of stealing are developed. For example, during the Middle Ages, the average person was reduced to being a serf. This meant that he had to go into the occupation of his father and was not allowed to quit his job. His feudal lord allowed him a bare subsistence and took the rest for himself. This was considered legal until, in the 17th century, the people rose up, established a democracy and voted in a Bill of Rights.
Ever since that time, a group of evil people have been trying to reestablish the hold which the medieval aristocracy had over their serfs. They have only been partially successful. Here in the United States, this group succeeded in obtaining the special privilege of printing money (i.e., of doing what would be called counterfeiting if anyone else did it). This was enacted on March 9, 1933 (The Emergency Banking Bill of 1933), the very first act of the new F.D.R. Administration. This gave the commercial bankers the privilege to create money. Savings banks got the privilege in the 1980s. And the banks’ big corporate loan customers benefit from the privilege indirectly (via lower interest rates). In a general sense, people who get special privileges from the government which enable them to steal your wealth are called a power structure. A power structure should be thought of as a watered down version of the medieval aristocracy. They are always dangerous. They want your wealth, and they want your freedom.
As noted, the power structure in the United States today operates by issuing paper money. They donate to both political parties and thereby get their agents installed as economic advisors. For example, Henry Paulson was the agent of Goldman Sachs, installed as the economic advisor to President Bush. It seems to run in the Bush family to know nothing about economics.
Greenspan, to curry favor with the power structure, eased credit from 6% in 2000 to 1% in 2003. At the same time he printed large amounts of money. This caused the housing bubble, which, for quite a while, made lots of money for Goldman Sachs and many other banks and Wall Street firms. It also made houses too expensive for the average American to afford. When there was finally a pause in the printing of money, housing prices collapsed. This caused what is called the sub-prime crisis and revealed Goldman Sachs and the other Wall Street houses for what they were – a collection of frauds.
It was the number one priority of Henry Paulson to prevent the collapse of his old buddies. They were in (a well deserved) crisis. So he ran to President Bush and shouted that the country was in crisis. Bush picked it up. The media picked it up. There was an atmosphere of hysteria created, and using this atmosphere of hysteria the power structure rammed through the bank bailout of October 2008.
This was called a taxpayer bailout of the banks, but there was no tax increase associated with it, and the media’s reference to it as a taxpayer bailout was another in a layer of lies. The average American did pay for the money given to the banks and Wall Street, but not via a tax increase. In fact, the money was created out of nothing by the Federal Reserve from Sept. to Dec. of last year as you can see in the above chart.
At the present time, it is better to use the monetary base as a measure of what is going on because the Federal Reserve is lying about the money supply. They are reporting the nation’s money supply as smaller than the monetary base when in fact the base is a part of the money supply.
Liar, liar, pants on fire.
So to sum up what is happening, the modern American power structure is trying to rob you. They squandered enormous amounts of wealth in the early years of this decade (because they are incompetent fools). They don’t want to pay for it. They want you to pay for it. That was the “crisis” of 2008. Their technique is to control both parties via campaign donations and get whoever is elected to steal from you for their benefit.
But their only method of stealing is via the paper money process. That is, they are counterfeiters, not conventional thieves. This is a weakness. It means that you can protect yourself from the depreciation of the (paper) currency by using gold as a store of value.
But if too many Americans protect themselves, then the power structure cannot benefit. Therefore, they dominate the media and get a cartload of lies dumped on the American people. Let us examine some of these lies:
- The decline in housing prices was an unmitigated disaster. Of course, when a house changes hands there is a buyer and a seller. The buyer wants a lower price; the seller wants a higher price. To say that lower prices are bad is to say that home buyers are not a part of America. And the truth is that they are just as important to the country as anyone else. In fact, in March 2007 housing prices had gotten too high, and homes were not affordable for the average person. The housing decline of 2007-08 was a good thing.
- The decline in gasoline prices from over $4.00/gal in July 2008to $1.60/gal around the turn of the year did not happen. After all the screaming and yelling about $4.00 gas over last summer, you might have thought that the media would give a big hurrah to sharply lower gas prices in 2009. But this would have been very embarrassing for them. After all, if the high gas prices were caused by the evil nature of the oil companies, then were the low gas prices caused by the good nature of the oil companies? And if the oil companies are evil and have complete control, then how could the decline in prices have happened? That, of course, is the media’s answer. “If we don’t admit that gasoline prices declined in autumn 2008, then it will not have happened.”
- The imminent threat to the U.S. economy is that prices will decline. Well, I will tell you. With the money supply exploding to the upside, then prices are not going to decline. No how, no way. And anyone who tells you different is either a liar or a fool. (And plenty of both are in ample supply.) The media scared people so badly last year that there was a speculative sell-off. But that just creates opportunity for the intelligent speculator. We can buy as they sell. Watch the commodity market, led by gold, spring back into new all-time high ground. Watch these commodity prices pass through into consumer prices.
Here is the bottom line. To take our wealth, the power structure has to lie to us. Those who believe the power structure (whose voice comes to them via their local newspaper and the TV news) will be robbed. They will not buy gold. They will have their assets in paper money. And they will be destroyed. The few, the proud, the gold bugs…will hold their heads high. The power structure will not have stolen any of their wealth.
The important thing to understand about the Bush Administration is that they panicked and supported the bank bailout of last year, leaving the country with a deficit of over $1 trillion for 2009. The important thing to understand about the Obama Administration is that it has somehow increased spending so as to project trillion dollar deficits as far as the eye can see.
Now here is something that is very important to understand (and yet is understood by virtually no one). Every time the government runs a deficit (of any size at all) it creates money. This began with the origin of democracy (in England in 1689). The new democratic government wanted to spend money like water, as the old monarchical government had done. But unlike the old monarchical government the new democratic government was subject to the legislature, and the legislature was subject to the will of the people. The people said, “NO NEW TAXES.”
So the new government invented the paper money system. The Bank of England was created (1694). It printed up paper money and lent this to the government. The paper money caused an increase in prices. Thus the people paid for the new spending via higher prices for the necessities of life when they had just refused to pay via taxes.
That is the system under which we live. The power structure still exploits us, but it does so by fraud rather than by brute force. Those who understand this can be free men and keep for themselves the product of their labor.
By my figuring, the U.S. money supply has increased from $1.3 trillion in May 2008 to $2.3 trillion in May 2009 (not the reported figure). This is a 70% increase There will be (approximately) another $trillion created in 2010 to finance that deficit, taking the money supply up to $3.3 trillion, then another $trillion in 2011 up to $4.3 trillion and then another $trillion in 2012 up to $5.3 trillion. In 2013, there is at least hope for a new administration which will balance the budget.
You know how hard it is to cut a budget deficit. One side screams against any cut in government spending. The other side screams against any increase in taxes. We have just estimated a 4-fold increase in the money supply over the next 4 years. Prices follow the money supply by 1-2 years. How would you like to see your everyday prices multiply 4-fold by 2014? Gas at $10/gallon, the median home price at $800,000, the Wall Street Journal at $8.00/day. Notice that the Wall Street Journal keeps warning us of the threat of deflation but keeps raising its price. Its business department is too smart to believe what is printed in their own paper.
I consider myself a small voice in this economic wilderness to warn people how to protect themselves from the power structure’s plan to steal their wealth. To predict $4,000 gold by 2014 is in the bag, with worse to come afterwards. To this end, I publish an economic letter called the One-handed Economist and ask the modest subscription fee of $300/year. (It will probably go up, in line with general prices, to $400 by 2010. The WSJ costs $624 at the newsstand, and they are telling you lies. Lies would be too expensive even at half the price.) If you want a subscription, then visit my web site, www.thegoldbug.net. You can read my blog at no charge. This week’s blog is “The White Race,” a comment on the nomination of Sonia Sotomayor to the Supreme Court.
Thank you for your interest.
Howard S. Katz
Howard S. Katz was one of the early gold bugs of the late ‘60s and ‘70s, turning bullish on gold in 1965. His favorite gold stock, Lake Shore Mines, went from $3/share to $39/share over the course of the seventies (sold at $31). Katz turned increasingly skeptical about gold as it mounted its final rise in 1979, and he called the top after the close on Jan. 21, 1980 (with gold at $825.50/oz.). Katz traded gold in and out during the ‘80s and ‘90s and once again turned long term bullish in Dec. 2002. His thoughts on commodities, stocks, bonds and real estate are available in a letter entitled The One-handed Economist and published every two weeks giving specific advice on trades in stocks and futures. This letter is available (both electronic and paper copy) for $300/year with a 3-month trial for $100. Send to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055. (Include both electronic and mailing address.)