Liberty Maven

by John Browne, Senior Market Strategist at Euro Pacific Capital

As the recession and resultant stimulus packages add to higher unemployment and increasing public-sector deficits, the government is seeking to boost the value of overseas earnings that are accrued by US corporations. To aid in this effort, the Fed is being pressured to erode the value of the US dollar, thereby making foreign sales more lucrative in nominal terms. But this form of stealth protectionism will fail just as surely as more overt trade barriers.

Like all commodities, the relative value of currencies is influenced by reward, risk, and future expectations.

The interest rate earned by holding a particular currency represents the ‘reward’ end of the equation. Assuming similar risk profiles, money tends to flow towards the currencies with higher interest rates.

Relative risk is in the eye of the beholder and often is difficult to quantify. In the main, investors view a nation’s balance of payments deficit as a major risk factor in evaluating the relative value of its currency.

Another long-term measure of risk is government debt as a percentage of Gross Domestic Product (GDP). If a large national trade deficit is accompanied by a relatively large debt-to-GDP ratio, the level of risk is increased.

Given the current state of the global economy, it should be clear to all that the US dollar is being priced higher than is warranted and the Chinese yuan is priced lower.

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by Peter Schiff, CEO of Euro Pacific Precious Metals and author of the hit economic fable How an Economy Grows and Why It Crashes

Much of the content of the latest Fed statement, released on September 21, echoes the central bank’s previous post-credit crunch pronouncements: there is still too much slack in the economy, interest rates are still going to be near-zero for an “extended period,” and the Fed will continue to use payments from its Treasury purchases to buy yet more Treasuries.

But this recent statement uses a new turn of phrase that should have Americans very upset. The Fed says that “measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate.” Though the wording treads lightly, it should not be taken lightly. It may signal the final push toward dollar collapse.

The Fed’s dual mandate, since an amendment in 1977, has been to promote “price stability” and “maximum employment.” While often discussed as if both goals are complementary facets of one mandate, they tend to have been at odds during every recession since the Great Depression.

The problem is that central banks tend to keep interest rates too low for too long (usually to create a feeling of prosperity credited to the government), which then causes major asset bubbles. When the bubbles pop, there is a period of high unemployment during which prices are supposed to fall. Then, the central bank must choose between boosting short-term employment through inflation or defending price stability by allowing assets to return to a reasonable market value. Aside from the early 1980s chairmanship of Paul Volcker, the Fed has always chosen more inflation.

But they’ve never admitted it.

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by Peter Schiff, president of Euro Pacific Capital and author of the new best-selling economic fable, How an Economy Grows and Why It Crashes

Since the US economy has failed to recover as widely predicted, pressure on the Federal Reserve to conjure a solution has increased. In fact, the Fed now faces the hardest choices in its history. It can either redouble its past efforts to re-inflate America’s bubble economy (risking the destruction of the US dollar) or it can stop pumping and let the economy deflate to a self-sustaining level. Unfortunately, both choices guarantee severe economic pain – but only one offers the possibility of ultimate success.

Today’s news that the economy lost 95,000 jobs in September confirms that record doses of stimulus have failed to create a real recovery. The loss of 159,000 government jobs in the month could have been a positive if those lost positions had been replaced by wealth-generating private sector jobs. But the 65,000 jobs generated by businesses didn’t come close. Worse still, most of these jobs came from the goods-consuming service sector rather than the goods-producing manufacturing sector (which lost another 6,000 jobs). The unemployment rate has now been above 9.5% for 14 consecutive months, the longest such streak since monthly records began in 1948. More importantly, the real unemployment rate, which factors in discouraged and under-employed workers, rose from 16.7% to 17.1%.

Armed with this weak jobs report, the Fed seems poised to make good on its plan for other round of quantitative easing (in English: printing money). Recent statement from top Fed governors have made that sentiment clear. Apparently they feel that they must do something, even though Fed inaction would be far better for the economy. At a time when we should be trusting the markets to grind out three yards in a cloud of dust, we have put our faith in the Fed’s ability to fling a Hail Mary pass, even though all previous attempts have failed.

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by Neeraj Chaudhary, Investment Consultant in the Los Angeles branch of Euro Pacific Capital

A few weeks ago Nouriel Roubini, widely regarded as one of the more pessimistic figures on Wall Street, made headlines by raising his forecasted likelihood of a “double dip recession” to a terrifying 40%. The vast majority of “mainstream” economists (although I would argue Roubini himself is part of that pack) described these predictions as far too gloomy.

Although there are some dubious current statistics that the desperate could cite to make an optimistic case, many simply are falling back on the extreme rarity of past “double dips.” But, in an unprecedented time, the lack of historical precedent hardly seems to matter. What is far more significant is a raft of new data that point downward.  As the high from last year’s monetary and fiscal stimulus wears off, there is a good deal of evidence that shows the U.S. economy plunging into an abyss.

Unemployment continues to batter the nation. Last week alone, the Labor Department announced that initial claims for unemployment benefits fell to a mere 473,000. While US stock index futures rallied briefly on this news, these numbers are not far off the peak of the 2001-2002 recession.

We’ve spent trillions of dollars on bailouts, stimulus programs, and Cash-for-You-Name-It programs, and we still have nearly half a million new people filing for unemployment every week. As Billy Joel would have asked:  Is that all we get for our money?

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Libertarian Party press release:

WASHINGTON – Looking toward the 9/12 Tea Party events in Washington, DC, Libertarian Party executive director Wes Benedict issued the following warning to Tea Partiers: “Republicans are trying to fool you again.”

“There are two kinds of Tea Partiers,” said Benedict. “One kind is so blinded by its hatred of Obama and Democrats that it cannot see fault with Republicans. It’s the other kind the Libertarian Party is reaching out to.”

Libertarian Party staff and volunteers will participate in the Washington, DC Tea Party events on September 12. They will distribute flyers pointing out how the Top 10 Disasters of the 2009-2010 Obama administration mirror the Top 10 Disasters of the 2001-2008 Bush administration.

Benedict continued, “Libertarians have much in common with Tea Party goals of reducing government spending and taxes. While many Tea Party supporters will admit that George W. Bush’s administration grew government, Libertarians want to remind Tea Partiers about previous Republican administrations that loved big government.

“Republican Newt Gingrich and the Contract with America promised to eliminate the Departments of Education and Energy. Yet once Republicans took control of Congress, they failed even to reduce the spending on those departments.

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In this message . . . why increased federal spending destroys more jobs than it creates.

President Obama has unveiled yet another, $50 billion government program to “create” more jobs.

But, as the letter below indicates, government spending actually destroys more jobs than it creates!

This is why Obama’s new program should be opposed, and why Congress should take immediate steps to cut federal spending.

Please use DownsizeDC.org’s Educate the Powerful System to tell Congress to stop this next stimulus plan and cut spending.

You may borrow from or copy this letter . . .

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by Michael Pento, Senior Economist of Euro Pacific Capital

Word on the street is that the Fed is now “out of bullets.” Many economists fear that in its efforts to spur recovery, the Fed may have already exhausted its array of monetary ammunition and that it has nothing left of significance to fire at the steadily advancing recession. They believe that since interest rates are already near zero and Fed policies have failed to inspire banks to expand commercial and consumer lending (despite ample bank reserves), the tools traditionally employed by the Fed have been rendered impotent.

To their credit, these commentators are 100% correct in asserting that the Fed can’t help the economy by printing more money. But it’s not because the Fed policy is without consequence, but because the Fed has always been incapable of creating real growth. All it can do is manipulate the purchasing power of money. By keeping prices from falling more that they would have naturally, Fed intervention has created a burden. Lower prices would have cushioned the effects of the recession for many people.

However, because it failed to spark faster GDP growth, most people now agree that Fed’s traditional ordnance, namely purchases of short-duration Treasuries from primary dealers in order to depress the yield curve, has lost effectiveness. But the Fed is never… ever… ever… out of ammo. In fact, according to Mr. Bernanke himself, the central bank may be about to unleash the heavy artillery.

Our central bank controls the printing press, so it has the ability to create money at will and use it to purchase anything it desires. It can and does purchase longer-dated Treasuries and other bank assets like home loans. If these funds are falling into the black hole of the banking system, there are ways for the Fed to cut out the middle man.

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by Peter Schiff, president of Euro Pacific Capital and author of the new best-selling economic fable, How an Economy Grows and Why It Crashes

Watching economists and media analysts react to breaking economic news is a bit like looking at a flock of pigeons flying over the New York skyline. A true wonder of the urban landscape, the flocks can include hundreds of individuals who show an uncanny ability to stay in tight formation as the group quickly zig-zags between buildings. What may be even more remarkable than their ability to randomly fly while maintaining cohesion is the flock’s refusal to stick to any particular direction for very long, and their determination to fly feverishly without actually going anywhere. Sound familiar?

Today’s weak GDP numbers have finally caused the mass of economists to revise downward their formerly optimistic recovery forecasts, with many finally entertaining the possibility of a “double dip” recession. It should be obvious by now that these economists only have the capacity to describe where the economy is moving in the short-term…they have no ability to explain the reasons behind the macro trends or make predictions that go beyond the next data release. But economics is not dart throwing. It can be understood and properly forecast.

Once again Rand Paul was kind enough to agree to be interviewed by Liberty Maven as the latest and perhaps greatest money bomb of his campaign approaches.

Be sure to pledge at ISupportRandPaul.com and donate on August 19th and August 20th (Thursday and Friday) at RandPaul2010.com.

Now the interview…

LM: With the overblown “Aqua Buddha” story spreading around the media like wildfire, it’s obvious your opponent’s attack machine is in full gear. How beneficial is it to respond to attacks of this kind? If your campaign staff find any “dirt” about Jack Conway’s past, will you respond in kind?

Rand Paul: No matter how the drive by media tries to distract from the issues in this race – the real issues facing Americans every day – we are committed to running a campaign of substance and real issues, and we will not engage in the politics of character assassination.

LM: When you become the next U.S. Senator from Kentucky what specific legislation would you introduce in your first year in office? How will that legislation benefit Kentuckians?

Rand Paul: There are a few things I want to do, for one I will propose and force a vote on an Enumerated Powers Act, to force Congress to point to the part of the Constitution that justifies their bills. That would benefit not only Kentuckians but everyone who has been affected by this out-of-control government forcing unconstitutional laws on us like Obamacare. Another will be a Balanced Budget Amendment with strict tax and spending limits.

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by Peter Schiff, president of Euro Pacific Capital and author of the new best-selling economic fable, How an Economy Grows and Why It Crashes

This week, national attention was fixated on JetBlue flight attendant Steven Slater, whose bold, creative, and controversial exit strategy could revitalize his future prospects. Not nearly as noticed was the Federal Reserve’s decision on Tuesday to avoid finding an exit strategy for its own never-ending career trap. Unfortunately, the Fed’s choices affect our lives much more than Slater’s.

Just a few weeks ago, pundits were asking how Ben Bernanke would shrink the Fed’s bloated post-crisis balance sheet. But in its August 10th decision, the Fed signaled that it would “recycle” its debt holdings; in other words, there would be no exit strategy for the foreseeable future. Given the fact that monetary stimulus will not only fail to spark a genuine recovery, but create a never-ending need for successively larger doses, Bernanke should grab a few beers and head for the nearest available emergency slide.

About a year ago, economic forecasters claiming insight into Fed deliberations spread the word that the central bank had devised a methodical exit strategy to unwind its balance sheet. The only question they thought worth discussing was when the plan would begin. Some even speculated that it already secretly had. In a July 2009 commentary entitled “No Exit for Ben,” I argued that Bernanke and his cohorts never had any serious intention of implementing such a policy. I suggested that the Fed would continue to play the role of money-pusher – making sure the addicts were never denied a fix, even if an overdose threatened.

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