Tag Archives: money

Why Gold?

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I agree that we are probably going to see a continued decline in commodity prices especially PMs.  However, given the increases in the monetary supply I forsee this trend reversing.  When the trend reverses, which isn’t going to happen immediately because we are headed towards a major recession, with unemployment rising, and more likely interest rates as well, inflation will be severe.

The Money Supply graphs are frightening.  Once that money goes into the system I wouldn’t be surprised if we start to see hyperinflation.   For all of our sakes I don’t want that to happen.

As for investing in PMs I think there are two types of people who purchase them.  The first is the speculator, and the other the long term purchaser regardless of price. (I’m leaving out purchasers for industry and jewelry).  As much as I don’t like to see the value in relation to fiat currency of my PMs decline my intent on owning them is for more of the oh shit situation.   Throughout time gold, and silver to a lesser degree have held up as a store of value.  They aren’t going to be worthless as can a paper currency backed by nothing. Politicians and those involved in the government don’t like PMs as they aren’t easily created.  Having a currency backed by a scarce resource means that they have to control spending as they can’t print money to pay for various expenditures.

So, why gold and silver?  What happens if the fiat currency fails?  All of a sudden you and I have a bunch of roman numerals in our bank accounts.  Sure we can go get paper currency, but it is better to use as heat.  If this happens chaos will ensue until another solution is created or we go back to a currency backed by PMs.  I doubt the latter case would occur as bureaucrats aren’t going to want that option. 

My other concern is war with Iran, which is looking more and more likely.  In this scenario gold and oil will skyrocket.  Oil will also be much harder to obtain and the government will probably institute a rationing scheme instead of letting the price rise.   I’d rather pay $50.00 a gallon for gas then not be able to get it or to have to wait in line for days.  I presume many of you don’t agree, but gas or no gas you pick!  Would I drive much NO… however, if I needed to go somewhere I could get the fuel I needed.   

Lastely, beyond Gold and Oil we all need food and water.  Don’t forget food.

 

-T 

Look at the Fed Goooooooooooooooooooooo

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I found this on www.chrismartenson.com and couldn’t resist posting it here especially after my post about the dollar.  How the dollar is going to survive after this much cash is pushed into the system I really don’t know.  A inflationary depression seems to be looking more and more likely.  It would explain why gold is so scarce on the physical market.  People are losing faith in fiat currency and want hard currency that has some store of value.  Paper is easily printed, and as Voltaire said

“Paper money eventually returns to its intrinsic value – zero”

Is it just me or is that line going almost STRAIGHT up.  If that isn’t a sign of complete and utter panic well I don’t know what is.  They are going to put as much liquidity into the system as possible.  Will this mean that you house will go back up in value?  Perhaps, but your purchasing power will decline severely.  Jim Rogers said the US currency is doomed, and I agree.  It is only a matter of when, and not if.

 

The US Dollar gaining? What?

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Hyperinflation, inflation, deflation, depression, recession, stagflation… well which is it? I have no clue, but there is a massive monetary inflation occurring, and a looming recession.  Hmmm so does this mean a inflationary depression?  Yikes.

Last week I took a break from overwhelming myself about the markets and the state of the economy. The timing wasn’t perfect, but I had personal reasons.

Before I start on the quest of exploring our present situation of the potententional…”ion”s I want to make sure we are on the same page. Therefore lets have a defining moment:

Money: Easily exchangeable, is relatively scarce, and is a store of value.

Inflation: An increase in the money supply
Deflation: A decrease in the money supply
Hyperinflation: A self-perpetuating unstoppable (more or less) state of inflation
Recession: A significant decline in business activity, mainly a contraction in the economy or slowing of growth
Depression: A long-term economic state characterized by unemployment and low prices and low levels of trade and investment
Stagflation: A period of time characterized by high inflation and recessionary conditions.

I’ve been looking at calls for the vaious scenarios and needed some clarification as to what happens in the various situations.  For the most part it seems obvious, but I’ve been struggling with the increase in the value of the United States dollar.  Our national debt is above 10 trillion and rising rapidly as the recent bailouts continue, and the most recent increase in military spending added another $612 billion that we have to pay for.

Why is the risk of deflation so frightening that the Fed, Treasury, governments, and foreign central banks will do anything to stave it off?  Deflation is like the grim reaper knocking on your door for a fiat currency.  A fiat currency survives on debt and inflation (credit expansion).  Too much inflation and it can become worthless, and negative inflation (deflation) and it gains value.  That sounds like a good thing but it isn’t.  As the currency gains in value debt becomes more expensive, and thus more difficult to pay off.  Imagine taking out a $100,000.00 loan with todays dollars and paying it off with dollars from 1930.  Good luck! During deflation prices also fall due to the decrease in the money supply and as there is no longer credit being handed out for people to use to consume and invest.  The whole system comes tumbling down and the reaper walks in the door to say hello!

When credit is created (a loan) that is an increase in the money supply, and when it is paid off that is a decrease in the money supply.  Say the loan is $100.00.  That is $100.00 of money put into existance with a very small percentage actually backing it.  Now I repay my $100.00 loan and that credit is erased and the money supply contracts.  This is the normal situation that occurs daily.  However, if people don’t want to lend or borrow then we have a problem.

No credit means no ability to borrow, which means no abilty to purchase goods and services.  Everything is based on debt today.  The change began in 1913 with the Fed, and the ultimate shift to fiat money was in 1972 during the Nixon presidency when we abandoned the gold standard and thus savers were punished from that day forward.

Okay this leads to me to the strengthening of the United States Dollar…  Why I ask is it getting stronger.  Many argue that it is because Europe is weakening, which may be part of the picture.  However, I read something that made a clear point that because European banks are required to hold dollars for various toxic debt they hold denominated in dollars they normally use the interbank markets based on the LIBOR rate.  However, that market is seized up and nobody wants to lend so they start using the EUR / USD credit swap market.  As they purchase dollars its value goes up.  Notice today that the Euro gained against the dollar when the Fed decided to start purchasing short-term commercial paper.  They are stepping in and becoming the new mainstay for that market: which one?  EVERY MARKET <Interesting…>

And tomorrow is a new day!

Why America Rocks!

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Many of us worry about our own personal bubble or world within.  We sometimes forget that we are part of a larger system.  No, I’m not talking about anything spiritual or religious, but a system as a whole… The Earth is a system and for everything on Earth to function there are interdependencies.  Those interdependencies begin to break-down when a system fails or is interrupted.  

For example: When people feel scared or helpless they look towards authority for the answers.  Folks, the answer is within yourself and everyone around you.  Why not talk to the person next to you at the street crossing, in line, on the bus, airplane, or train?  

CarrotMob came up with an idea that coordinates a group to make a difference or change.  I like the idea of giving a business, customers, in exchange for something.  In this instance it is a ton of customers for 22% of profits to go towards improving energy efficiency of the store.

Say on a normal day you pull in $2000.00, but on the day CarrotMob comes around you pull in $9000.00.  Okay so now you are taking 22% of your profits and putting them towards a long-term energy conservation program that is directly benefiting you the store.  

Let’s have some fun with numbers (these are only an example to illustrate a point):

Normal Day:
Sales: 2000.00 @ 25% profit margin = $500.00 Gross Profit

CarrotMob Day!
Sales: 9000.00 @ 25% profit margin = $2250.00 profit – 22% = $495.00
           == Gross Profit $1755 

Whoa!  Even after giving away 22% of profits they still made more in that one day than a normal day and they now have long-term energy savings.

Now, watch the video…


Carrotmob Makes It Rain from carrotmob on Vimeo.

 

Crazy right?  NO 
I think we have forgotten, but are starting to wake-up that as a group of individuals we have the ability to do anything. 

Let’s now take this to a bigger scale as CarrotMob does at the end of the video.  What if a hundred thousand people went to a solar manufacturer and said hey we all want solar for our houses.  If we guarantee 100,000 orders will you give us a discount?

This isn’t a new idea… collective pooling of money to make purchases.  However, what makes me excited is that this isn’t a Business – Business transaction, but a Group – Business transaction.  Sure there are more complexities involved when you are dealing with 100,000 orders versus a bunch of orders for one company, but it is possible.  

We are a nation founded on thinking outside the box to come up with innovative and new ideas.  The energy crisis that we are and will be facing isn’t outside the grasp of an entrepreneur.  Unfortunately there is a big BUT here…

What motivates an entrepreneur? :: wealth
What inhibits an entrepreneur? :: regulations and taxes

You say that regulations are necessary… perhaps, but what happens when there is a corn subsidy or ethanol subsidy?  – Money that may have gone towards an innovative idea is redirected towards corn and ethanol, which may not be the best solution.  I don’t know about you, but I highly doubt a few individuals are capable of deciding what is for the greater good, using public money.  There are unforeseen consequences of such actions.  

It is what we don’t see that concerns me.  What could be manufactured instead of ethanol plants?  We may never know to the full extent because the path of least resistance leads companies to produce ethanol.  If I’m guaranteed certain monies from the gov’t, if I do this (the entrepreneurial idea with no subsidy) or that (governmental idea with subsidy), of course I’ll do that because it is easier and has an implicit profit regardless of the profitability of the company. 

In looking at the present bailout package… my concern is what we are missing and not seeing.  If this package or a variation thereof passes what could that money have been used for?  $700 bn dollars is a lot of money.  We are going to be over a trillion dollars in debt after it is passed and that is only for THIS year.  

The bankers and government officials “employed” by the bankers don’t want you nor I to truly understand how the present system works.  Just take a look at my previous post.  

In conclusion I hope that you realize that as a group of individuals we can do anything.  Fear will keep us paralyzed, major traumatic events allow the Constitution to be thrown out the window, and the media feeds us a story they want us to believe.  We are a nation of entrepreneurs! You have a choice.

Force FED chickens…

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Ironic that WaMu’s collapse happens to coincide perfectly with this bailout proposal trying to be hurriedly pushed through Congress.  It will for sure pass now <that was my take last night><now we are seeing major hiccups in the process (thankfully)>.  We have been sold out by various individuals in the United States Government.  Very unfortunate indeed, and some say the greatest looting operation ever in history.  Mark my word it isn’t over and will continue to spread to regional banks.  I find it interesting that Goldman Sachs and JP Morgan are the golden children in this whole mess, not to mention that Paulson used to be CEO of Goldman.  Coincidence?

In the EXTREME case you are going to want to have food and water on hand.  A decent supply.  I don’t know if it will get to that, but there is a lot of uncertainty in people’s minds.  When they are fearful they do stupid things.  Besides it never hurts to be prepared for an earthquake. I’m concerned about a run on the dollar starting abroad than at home.

Yes, I realize I sound like a doomsdayer, but  I’m just taking a pragmatic approach to the whole thing.  Show me some good news in this mess and I might be willing to alter my view slightly.
Has it occurred to you that we were fed the same crap with respect to going into Iraq about weapons of mass destruction?  This administration has been credited with being stupid, but I’m starting to wonder if that was all a line.  They have systematically destroyed the dollar, taken us to a never ending war – Iraq, allowed the credit bubble to get as big as it did, and in the end who gets to pay the bill?   The taxpayer.

And I’ll now step off my soapbox :)

-T

And don’t forget about Voltaire!

“Paper money eventually returns to its intrinsic value – zero”

~ Voltaire – 1729

Fed inflating with no restraint – Hyperinflation?

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A picture is worth a trillion words…

 

Money Supply 09/25/2008

Money Supply 09/25/2008

Frankly I’m not surprise to see what the Fed is doing and can only imagine what this is going to look like if this bailout goes through.  There is a precedent throughout time that inflating the monetary supply only prolongs the inevitable.  This is a sad state of affairs and I see only troubled times ahead for the once mighty dollar.  Like the Romans who clipped their gold and silver coins the United States is creating more and more money from nothing.  Why do we need a bailout package when we can just print money?  It isn’t actually printed anymore, but issued through treasuries between the Fed, the Treasury, and private banks.  

We are headed towards a recession if we aren’t already in one.  Inflating the money supply while in a recession presumably means higher prices.  The contraction in prices we recently saw was perhaps a byproduct of the Fed contracting the money supply, which it has now reversed course.  During the Great Depression of 1929 many banks tried using their depositor’s money to help keep the market afloat just as the Fed is now doing… The outcome?  You know what happened…  

Now we are taking the opposite position and inflating.  What happened to Rome… and thanks to Mike Hewitt at dollardaze.org he lists many countries plagued by hyperinflation. 

  • Angola (1991-1999)
  • Argentina (1975-1991)
  • Austria (1921-1922)
  • Belarus (1994-2002)
  • Bolivia (1984-1986)
  • Brazil (1986-1994)
  • Bosnia-Herzegovina (1993)
  • Bulgaria (1991-1997)
  • Chile (1971-1973)
  • China (1939-1950)
  • Free City of Danzig (1923)
  • Ecuador (2000)
  • England
  • Greece (1944-1953)
  • France (1789-1797)
  • Georgia (1995)
  • Germany (1923-1924, 1945-1948)
  • Greece (1944-1953)
  • Hungary (1922-1924, 1944-1946)
  • Israel (1979-1985)
  • Japan (1944-1948)
  • Krajina (1993)
  • Madagascar (2004)
  • Mexico (2004)
  • Nicaragua (1987-1990)
  • Persian Empire (1294)
  • Peru (1984-1990)
  • Poland (1922-1924, 1990-1993)
  • Romania (2000-2005)
  • Ancient Rome
  • Russia (1921-1922, 1992-1994)
  • Taiwan (late-1940′s)
  • Turkey (1990′s)
  • Ukraine (1993-1995)
  • United States (1812-1814, 1861-1865)
  • Yap (late 1800′s)
  • Yugoslavia (1989-1994)
  • Zaire (1989-1996)
  • Zimbabwe (1999 – present)

The fiat money system that we presently have, which in its present form has only been in existence since 1971 when we went off the gold standard.  To say that we have a precedent for what may or may not happen is incorrect.  We are now in uncharted territory, however history has its lessons.

Copperfield & Houdini for Presidency!

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I’ve attended a few performances by David Copperfield and he has performed the unbelievable.  Before my very own eyes a group of thirty people vanished into thin air.  Where did they go?  I watched the unbelievable made real right in front of me.  How could this be an illusion created to fool me into belief?  I ask you… HOW?

David Copperfield and Harry Houdini would probably be a better pair to run the government at this point.  At least they would give us a good show.  The current officials in office make my gut wrench.  We have migrated from the land of the free to nationalization of private property in the name of free markets.  Whoa… okay let’s get something straight.  WE DO NOT HAVE FREE MARKETS… NOT EVEN CLOSE  

If we actually had a system that represented free markets the Federal Reserve (a PRIVATE bank made up of member banks that are also PRIVATE) would not exist, we would still be on the gold standard, and the government wouldn’t even consider a bailout of the taxpayer’s funding, and the United States Treasury would not be proposing this amazing relief package for those who are mainly responsible for getting us into this mess.  

So, I mentioned two masters of illusion… Why?  What is being pulled off at the moment is happening in front of our eyes and for some like me is atrocious.  However, for others they think it is essential to the integrity of financial markets, financial institutions, and YOUR house.  The entire bailout is being purported as a bailout for the helpless homeowner, the saver, the middle class.  

The problem is that nobody knows how much any of this debt is actually worth.  Say the government buys $700,000,000,000,000.00 worth of debt at $0.20 on the dollar, which is great discount.  If that debt is in reality worth less than that we have a problem.  When will these notes be paid back, and in what form are the notes?  

Chris Martenson managed to grab part of an article that later disappeared from Bloomberg that said:

“The Treasury’s thinking is to make it as big and wide as possible so they have the flexibility to act if need be,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which manages about $108 billion. “There have been losses on a whole range of U.S. debts and as the economy deteriorates in response to the housing slump those losses could escalate.” 

Treasury officials now propose buying what they term troubled assets, without specifying the type, according to a document obtained by Bloomberg News and confirmed by a congressional aide.

This effectively means any type of debt.  Let’s take a moment to see what forms of debt exist:

  • Credit Card DEBT
  • Mortgage DEBT
  • Automobile DEBT
  • Bond DEBT

………. and the list goes on ………….

So, we have the United States government wanting to take on all this debt in the name of saving the financial markets.  Let’s just take the debt from the banks to clear up their balance sheets so they don’t have to write it off, which would cause them to have to increase their reserves because their assets are now below the minimum.  We could lower that further, but it has already been lowered to 3% of total assets.  That means they most likely loaned out the other 97%.  

As the Fed creates money our dollar is worth less and less.  Where is the Federal Government going to come up with $700 Billion dollars?  They will create it from nothing, which the Federal Reserve is great at doing.  Inflation will not solve the problem, only exacerbate it.  Newt Gingrich opposes it, and admits that if he is wrong in not supporting it that it is the lesser of two evils.  

If this bill passes please say goodbye to the dollar as we know it.  Foreigners might finally reach the breaking point to where they are afraid to purchase dollars and realize that buying them to keep their currency less expensive is futile.

Stocks for the LONG LONG LONG term

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“The best therapeutic move for long-term investors is to turn off your TV so as not to get caught up in all of the sensational headlines. The stock market has been and will continue to be the best source for wealth creation over the long-term.”

–Patrick J O’Hare, Briefing.com

I love hearing that the stock market for the long term is the way to make money. Close your eyes and prey. Whoa… Did you close your eyes and watch the money flow into your pockets when you labored every day for what you have invested?

What happens if you are in individual stocks and some of them go bankrupt? The indices adjust and find another company to take the failed ones place. Yes, the market has gone up in the long term, but what if you invested at one of the tops before the crash and had to wait 16 years to get your money back? I don’t know about you but I’d rather sit on the sidelines and wait it out. There are ways to see the hurricane of in the distance, but if you are unwilling or unable it will hit you.

When Columbus was making landfall the natives didn’t see his ships because they weren’t part of their reality. If we can’t adjust our thoughts to accept something new or different then how are we going to prepare for a possible change of future direction?

Read the following article… There is a grim reality facing us all. Investment banks have used up their ability to lend to businesses. Considering that the growth of our economy depends on the ability of credit we are facing a MAJOR did I say MAJOR issue in front of us.

Money Central Article

I’m also hearing local news radio having discussions about what to do with your money to keep it safe. Last night I heard someone saying that this is the time to start thinking about buying. Sure there is the old adage that when there is blood in the streets buy. When if the blood is only at a trickle when it will be a river?

You just purchased AIG… Did you have a choice?

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The Fed is Heralded as a savior.  

 

 

 

I’d like to present a dissenting opinion and it will only take a moment.  The Fed is a quasi-governmental entity — read private bank.  It is a very large private bank that oversees the money flows between banks with the exclusive privilege of creating and destroying money granted per the United States government.  I don’t know when the destroying of money has actually ever occurred since 1913 when the Fed was created.  

Tomorrow (9/17/2008) will be a grand day for the markets as they celebrate the saving of AIG, which if left alone would have hurt a many people and companies.  In the long run it would have been better for everyone and helped people realize that the income’s of taxpayers aren’t for sale <pillaging> if they were left to fail.  It would also have prevented a precedent from being created that the Fed can and will purchase anyone if need or desire be.

However, the Fed is able to say they are “rescuing” AIG, Freddie, and Fannie all in a very short period.  Here is a thought to ponder…

If I am able to create money out of nothing or thin air then why wouldn’t I want to seem like a savior and help out distressed companies in the name of helping the economy?  I don’t have a great answer why I wouldn’t.  If I can shave a few cents off of everyone’s dollar who will notice?  At first it won’t be apparent, but eventually there will be consequences, and at the end of the day I will be the savior.  The consequences won’t be traced back to me.  Like committing a crime knowing you won’t be caught… do you commit the crime?

Revisiting the notion of buying low (through fictitious money that is treated as real money)… I’m the Fed and create $85 billion dollars to purchase 80% of AIG.  Great so now I own 80% of its liabilities and assets. No, not so great because nobody knows what the actual value of the assets are. <Remember I can create money>  For someone who can’t create money this is a problem, and the exact problem AIG ran into.  However, with the ability to create money I can now continue to add more “cash” to AIG’s balance sheet helping it though the crisis.  At the end of the day AIG, Freddie, or Fannie have been saved all though Monopoly money.  They will once again be players in the “free market”, but purchased at a unbelievably low cost. FREE  

Conclusion:  You and I purchased AIG, Fannie, and Freddie… however we will never see a dime of profit in return.  Do you see a problem with this?  Yet, the Fed will be treated like a king for saving the financial markets.  Perhaps the right thing to say would be using someone else’s money to purchase a failing company and then profiting without ever returning that money to the “lender”.  

That is Default. Fraud. Theft. Robbery. 

Final thought:

Do you think that income taxes are legal and necessary according to the constitution of the United States?