CHAMPION OF FUDGED FIGURES
I was listening to Ben Bernanke sharing the great news of the economic recovery. Its all sham. Analyzing the facts probably by looking at it by the numbers, some of which are reported to be improving is really questionable. But let's come back to the numbers later and start with fundamentals. The first order of business, as usual, is a definition: a depression is a period of time in which the average standard of living declines significantly. I believe that's what we're seeing now, whatever the numbers produced by the politicians may seem to share with the press or the media. They are all fudged facts by President Obama and Helicopter Ben Bernanke to play the biggest gamble in the financial markets. Fed Chairman Ben Bernanke is manipulating the market. People often ask me this question: are the markets manipulated? The answer is simple: The markets are manipulated by the central banks globally. Ben Bernanke is manipulating the bond market by keeping interest rates low, stock market with excess liquidity, housing market to give momentum by QE and above all the Gold market by trying to give artificial strength to the US Dollar. You can read the book AFTERSHOCK –Revised edition by Robert Wiedemer, Cindy Spitzer and David Wiedemer. Read pages from 279 to 285 to get market insights about the manipulation patterns executed by Ben and his smart team. It is an eye opener for many investors globally.
Look at economic history. Actually, the trend towards both partners in a marriage having to work really started in the early '70s – after Nixon cut all links between the dollar and gold in August of 1971. Before then, in the "Leave It to Beaver" era, the average family got by quite well with only the husband working. If he got sick or lost his job, the wife was a financial backup system. Now, if something happens to either one, the family is messed up.
I think, from a very long-term perspective, historians will one day see the '60s as the peak of American prosperity – certainly relative to the rest of the world… but perhaps even in absolute terms, even taking continued advances in technology into account. Maybe the '59 Cadillac was the bell ringing at the top of that civilization market.
Frank Trotter, president of EverBank, was just sharing with my friend in Chicago that the net worth of the median US citizen is only $6,000. That's the median, meaning that half of the people have less than that. Most people don't even have enough stashed away to buy the cheapest new car without going into debt. It used to be that people bought cars out of savings, with cash. Now they have to finance them over at least five years… or lease them – which means they never ever have even that trivial asset, but a liability in the form of a lease.
The bulk of the 49 percent below this guy don't even have that – with the concentration of wealth among the top one percent, most of those below average have seriously negative net worth, at least compared to their earning capacity. In other words, the US, Europe, and other so-called First-World countries are in a wealth-liquidation cycle that will be as profound as it will be protracted.
By that I mean that people are on average consuming more than they produce. That can only be done by living out of capital – consuming savings – or accumulating debt. For a time, this may drive corporate earnings up, and give this dead-man-walking economy the appearance of returning health, but it's essentially, necessarily, and absolutely unsustainable. This is an illusion of recovery we're seeing – the result of our Wrong-Way Corrigan politicians continuing to encourage people to do the exact opposite of what they should do.
Saving helps in the long run. People should save more. People shouldn't be getting new cars, new TVs, and new clothes. They should be cutting expenses to the bone. Well, the governments themselves have spent way more than they had or ever will have, and that's par for the course when you believe spending is a virtue. However, it's the false signals government interference sends to the market that caused the huge mal-investments that only began to go into liquidation in 2008. That has to do with another definition of a depression: It's a period of time when distortions and mal-investments in the economy are liquidated.
Unfortunately, that process has barely even started. In fact, since the bailouts started in 2008, these things have gotten much worse. If the government had gone cold turkey back then, cut its spending by at least 50% for openers, and encouraged the public to do the same, the depression would already be over, and it is the American way to real prosperity. But they did just the opposite. So Americans haven't yet entered the real meat grinder…
CURRENT ECONOMIC TURMOIL FOR OBAMA
The Obama administration, just like the Baby Bush administration before it – there really is no great difference between the Evil Party and the Stupid Party – and its minions in the US and its cronies around the world, stubbornly stick to the bankrupt idea that economic growth is driven by consumption. This is confusing cause and effect. Healthy consumption follows profitable production in excess of consumption, resulting in savings – accumulated capital – that can either be spent without harm or invested in future growth. Consumption doesn't cause an economy to grow at all. To paraphrase: "It's productivity that creates wealth.
Yes, and Helicopter Ben's foolish leadership in the wholesale printing of trillions of currency units all around the world – I don't really want to call dollars, euros, yen, and so forth money anymore. When individuals and corporations get those currency units, they think they're wealthier than they really are and consume accordingly. Worse, those currency units flow first to the state – which feeds it power – and favored corporations, which get to spend it at old values. It's very corrupting. There is also an ongoing regulatory onslaught – the government has to show it's "doing something" – which makes it much harder for entrepreneurs to produce.
In addition, keeping interest rates low encourages borrowing and discourages saving – just the opposite of what's needed. I don't believe in any state intervention in the economy whatsoever, but in the crisis of the early 1980s, then-Fed Chairman Paul Volcker headed off a depression and set the stage for a strong recovery by keeping rates very high – on the order of 15-18%. They can't do that now, of course, because with the acknowledged government debt at $16 trillion, those kind of rates would mean $2.5 trillion in annual interest alone – more than the government takes in taxes.
At this point, there's no way out. And there's much more tinkering with the system ahead, at the hands of fools who remain convinced they know what they're doing, regardless of how abject their past failures have been. Anyway, it would be much less of a catastrophe than the way it is currently heading.
Here in the US, the twelve-month fiscal deficit is still over $1.37 trillion, an extreme situation that is gutting the value of the dollar, because it's mostly financed by the Fed buying US debt. It's temporarily expanded the eye of the storm it is currently embroiled in, but it's done nothing to dissipate the storm itself. Their easy-money policies may have bought them a little more time, but it will only make it worse when we do exit the eye of the storm. It is like money from the heaven leading to economic path of hell. US dollar has lost 39% of its value since 2002 in the US Index number. US dollar has lost 98% of its value against gold since 1913.
There's a third definition of a depression that I use: a depression is the end phenomenon of an inflation-caused business cycle. Inflation is the sole cause of business cycles, and inflation is caused by governments and their central banks printing money. The government – the state – is 100% responsible for society's economic problems. But it arrogantly represents itself as the cure. And people believe it. There's no hope until the psychology of the average person changes.
Job data is good for few people to brag about. Yes, but look at the jobs that have been spawned; they are mostly service sector. Such jobs can create wealth for certain individuals – it looks like USA has put more lawyers to work again, as well as waiters and paper-pushers – but they don't amount to increased production for the whole economy. They just reshuffle the bits around within the economy.
Yes, unlike mining, which was more of an exception than the rule in those numbers. But that's making the mistake of taking the government at its word on employment figures. As I have discussed before, if you look at John Williams' Shadow Stats, which show various economic figures as the US government itself used to calculate them, unemployment has actually reached Great Depression levels.
The US government is dishonestly fudging the figures as badly as the Argentine government – which is, justifiably, viewed as an economic laughingstock in most parts of the world. One reason things are going to get much worse in the US is that many of those with economic decision-making power think Cristina Fernandez Kirchner is a genius. A little while ago, there was an editorial in the New York Times – the mouthpiece for the establishment – written by someone named Ian Mount. Get a load of this. I've got it in front of me. If you can believe it, the author actually says: "Argentina has regained prosperity thanks to smart economic measures." The Argentine government "intervened to keep the value of its currency low, which boosts local industry by making Argentina's exports cheaper abroad while keeping foreign imports expensive. Argentina offers valuable lessons … government spending to promote local industry, pro-job infrastructure programs and unemployment benefits does not turn a country into a kind of Soviet parody."
Argentina is hardly a perfect parallel for the United States. But the stark difference between its austere policies and low growth of the late 1990s and the pro-government, high-growth 2000s offers a test case for how to get an economy moving again. Washington would do well to pay attention."
When I first read the article, I thought I was reading a parody in The Onion. I love Argentina and would like to spend my holidays there next year if I get time. It's a fantastic place to live – but not because of the government's economic policies. Its only competition in state is Brazil, which regularly destroys its currency REAL.
There are potentially many, but generally, the appearance of economic activity picking up is bullish for commodities, especially energy and raw materials like industrial metals and lumber. That's not true for gold and silver, so we might see more weakness in the precious metals in the months ahead. I wouldn't count on that, however, because government policy is obviously inflationary to anyone with any grasp of sound economics. That will keep many investors on the buy side.
Plus, the central banks of the developing world – China, India, Russia, and many others – are constantly trading their dollars for gold. There are perhaps seven trillion dollars outside the US, and about $600 billion more are sent out each year via the US trade deficit.
WEALTH PROTECTION STRATEGY.
That's the logical thing to do, given the fundamental realities we started this conversation with, but a lot of people will be scared into selling if gold does retreat. A good number will sell low, after buying high – happens every time, and is a big part of why commodities have such a tricky reputation. I look forward to the day when I can sell my gold for quality growth stocks – but we're nowhere near that point. But silver might correct less than gold if gold corrects due to the appearance of economic recovery – silver is, after all, an industrial metal as well as a monetary one.
The devil is always in the details – it's dangerous to oversimplify things, painting with a broad brush, as in, "A recovering economy will be bad for gold" or "A recovering economy will be good for energy." You have to understand these markets well enough to really see how different forces and factors will affect them. Well, just because USA might see signs of a temporary economic recovery, that doesn't mean she will – and even if she does, there could easily be swept aside by any number of events, such as Europe taking another turn for the worse, or Japan or China starting to come apart at the seams. But, as a hedge, some near-term bets on industrial metals might not be a bad thing.
Gold & Silver remain the only financial asset that is not simultaneously someone else's liability. Chinese Yuan, Canadian Dollar, Norwegian Krone, Yen and Singaporean Dollar are few good financial assets to hold in these turbulent times according to your risk-reward strategy. Anyone who thinks they have any measure of financial security without owning any Gold or Silver – especially in the post-2008 world – is either ignorant, naïve, foolish, or all three.
Look, I saw it coming, but everyone in the world could see Humpty Dumpty fall off the wall in 2008. Now we're just waiting for the crash at the bottom, and no amount of wishful thinking otherwise is going to change that. It's a truly dangerous world out there, and blue chips are no longer the safe investments they once seemed to be. You don't have to be a gold bug to see the wisdom of allocating some capital – and not just a token amount – to cover the possibility that I'm right about what's coming. There's some opportunity cost associated with taking out this kind of insurance, but it's not catastrophic if I'm wrong, and the cost of failing to do so if I'm right is catastrophic. That really is the bottom line.
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK