For as long as history has been researched, citizens always seem to think of their government as all-powerful. I just finished reading a book by a World War II German soldier, who, when Hitler committed suicide, and his side lost, couldn’t believe it. People who drive Chevys, Mercedes, or whatever car they love, believe others are inferior. Me too! I have always disliked GM cars, purely based on my experience with pre World War II Chevys, which I know were inferior. (ball bearings instead of roller bearings, splash oil system, terrible front suspension, etc.) They probably aren’t now, but I still don’t buy them, and of all of the seven Mercedes I have owned, no one can tell me anything bad about them. So it is with everything one believes in, whether it is logical, correct, or not. Equally true with governments. Any government, but let’s talk about ours.
The “Fed” isn’t government at all. The Federal Reserve, is not part of government, other than it steals from us and it, on a daily basis, by creating dollars out of nothing, which the government must pay back. Still, most think that the Federal Reserve has an all powerful magic potion, which can erase hard times, bring us out of depressions, and make markets prosper. All look to Sir Greenspan, and wonder what he will do next. Will he lower the rate again, and bring us back to prosperity? Will the stock market heave a blessed sigh of relief, if he acts a certain way? Oh Please Mr. Greenspan, help us! Do something to make it all OK again! Now just think about it, in a logical way, OK? Please eliminate all the media hype, CNBC bluster, and think about it. What does the Fed control? Does it control your life, your business, or your home, other than in a very indirect way? No. It controls only one thing, and that is the supply of pieces of paper with ink on them, and the rate banks charge to lend to each other, or borrow from the Fed. That’s it.
When interest rates are low for banks, they lower their rates, to keep their business percolating. When interest rates are low, and loans are easy to obtain, people borrow a lot, buy stocks, more expensive homes, new cars, and the like, which creates a bubble now being deflated possibly soon to finish its deflation. After the dirty work has been done, and the citizens have been conned into getting into debt over their heads, what can the Fed do to make it all OK again? Nothing. The bubble pop, has caused millions to loose their jobs, corporate CEOs and bookkeepers to go to jail, and the stock market to go down, down, down. This happened, because of the Fed’s actions, at least partially, and I can’t argue with that. Once it has happened, and we are in deep trouble, what can it do to fix the mess it has created? Nothing.
“Suppose it lowered the interest rate again?” The Japanese central bank has lowered its to virtually zero, and it hasn’t helped. Japanese banks have hundreds of billions of un-collectible loans on their books, and the central bank (equivalent of our Fed) is now buying Japanese stocks to try to alleviate the situation, which will not work either. In other words, easy credit got Japan into real trouble, just like it has us. The only thing the Fed can do, is further lower the interest rate, which will solve nothing. As the economy gets further into depression, and government continues to hire more, and initiate more “programs,” (is there a worse word in the English lexicon?) designed to increase governmental power over us, they have to borrow more and more. Quite simply, they have to print more.
The only power the Fed has, is to place more dollars into circulation, either officially, or unofficially. The Fed regularly announces multi billions in note sales. Nothing unusual here, as it happens all the time. This means that “officially,” multi billions of dollars will be sold in funny money to the government, which then sells it to the citizens, and the government will have to pay it back to a privately owned bank, which bank created the “money” out of thin air. Unofficially, $50 billion and a lot more, is put into circulation every week through off budget expenses, loans by the IMF and World Bank, foreign aid, and a host of other spending, of which no one could possibly know the true amount. The federal government’s books and check writing, is so out of balance, and with virtually no controls of any kind, that it can truly be likened to Germany after WW I, when reparations were ordered by the Versailles “Treaty,” which Germany didn’t agree to, so that word “treaty” is in error.
By 1924, it took a wheelbarrow full of money to buy a loaf of bread, and the presses were running night and day. Could it happen here? Of course, and it will, but when, no one knows. The buck has lost 99% of its purchasing power so far. How much lower can it go? It happened pretty quickly in Germany, because they were forced to pay the equivalent of hundreds of billions of Reichmarks continually for years. They were also prohibited from making much of anything, which kept their economy from recovering after the war. Is the US in sort of the same condition? You tell me, when only 16% of what we consume is made here, taxes are probably 75%, $50 billion a week is being added to the money supply, consumer debt is higher than the GNP, the stock market is limp, real estate has begun a decline, and we are going to war with a nation that has made no threats to us. Does this sound a bit scary? To me, it does.
In Germany, the Reichsmark was not an international currency, as is the dollar. Germany was a defeated and crushed nation, and we aren’t. We aren’t prevented from making things because of a non-treaty we didn’t agree to, but rather achieve the exact same thing, by sending our industry overseas. The price of gold, is a sure indication of the condition of the various paper currencies around the world. That price has begun its escalation (in paper currencies) as we all predicted it would. Dubya is going to war, which will make the presses run even faster, and the debt climb higher. This means less purchasing power for dollars, which of course, are merely pieces of paper imprinted with ink, and decorated with fancy engravings. Stock values depend on management, productivity, demand, honesty, and a host of other things, including reliable bookkeeping. The value (purchasing power) of the dollar depends on its supply, because the more of anything there is, the less they will be worth, (Stott’s law). Upon what does the price of gold depend? Two things, which are related; and they are supply and demand.
The world, in general, seems to be tiring of paper currencies as saving vehicles, and rightfully so. The world also, seems to be tiring of their various governments, which love to get them into wars, debase currencies, and lie continually to their citizenry. The world also seems to be getting weary of the millions of stock offerings, because of lies, lack of profits, and terrible PE ratios. What else is there other than gold and silver? The entire world is clamoring for gold and silver. China, Japan, Europe, America, and all known nations, are buying precious metals in unprecedented amounts, due to failing confidence in the above. Will confidence in various government plans, debasements, wars, and other shenanigans be restored? Doubtful. So my advice is to keep your powder dry, and stay out of paper currencies.
We all ridiculed the stock buying public, when they continued to buy stocks with no profits or very high PE ratios. Now, everyone seems to be on to mining stocks with the same characteristics. Is there a similarity? The lies by management, dilutions, negative PE ratios and profits, all seem to be an indication to me. I have sold all of mine. How many mining stocks represent actual production and profits? And if the company does have production and profits, what are the dividends which make them attractive? Is the production hedged? How much debt does the company have? Is the stock’s rise, based on the assumption that gold and silver will go up, and these stocks will go up more? If this happens, and one sells at a profit, how much in capital gains taxes will the seller be obligated to pay? I am NOT saying that you should sell your mining stocks. I am saying that you should be logical, and ask yourself the above questions. Will pieces of paper (stocks) representing a teeny ownership of a mine, be equal to owning a piece of gold which some mine produced at some time in the past? That is for you to answer. Protect yourself!