Liberty Maven

D o w n s i z e r – D i s p a t c h

Quote of the Day: “We are in danger of being overwhelmed with irredeemable paper, mere paper, representing not gold nor silver; no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people.” — Daniel Webster (1782-1852), US Senator Source: speech in the Senate, 1833

What was the purpose of this $9 trillion? Who got how much, and why did they get it? No one knows. Congress doesn’t know, and neither does the Inspector General charged with monitoring the Fed, as you can hear for yourself in the video embedded in a blog post by David Theroux of the Independent Institute.

Likewise, neither Congress nor the Inspector General knows anything about the profits or losses the Fed may have experienced from the $2 trillion that is reported on its balance sheet.

Add up the numbers — the Fed has done things in your name with $11 trillion. This is only a few trillion shy of the total annual gross domestic product of the United States. It’s also several times the total annual spending of the federal government.

Would it be an exaggeration to say that the Federal Reserve has become a shadow government, several times the size of the entity that’s supposed to be our real government? If we can judge by the resources involved then we would have to answer yes. The Federal Reserve seems to be disposing of more of your wealth than even your cancerous elected government does.

But apparently, neither you nor the people you elected is even allowed to know what the Fed is doing, let alone exert any control over it. This is a strong argument in favor of Congressman Ron Paul’s bill to audit the Fed — the Federal Reserve Transparency Act of 2009 (HR 1207).

There’s good news in this regard. HR 1207 now has 200-cosponsors, which is 46% of the entire House of Representatives.

But there’s also bad news. Read More »

D o w n s i z e r – D i s p a t c h

Quote of the Day: “This is my long-run forecast in brief: The material conditions of life will continue to get better for most people, in most countries, most of the time, indefinitely. Within a century or two, all nations, and most of humanity, will be at or above today’s Western living standards. I also speculate, however, that many people will continue to think and say that the conditions of life are getting worse.” — Julian Simon

Major intellectuals talked of limits to growth and a bleak future that might even include an ice age. It was common in those days to think that things could only get worse, but a man named Julian Simon thought otherwise…

In 1980 Simon bet Paul Ehrlich, one of the prophets of doom and gloom, that the future would be more abundant, not more impoverished.

If Ehrlich was right, and limits to growth were near at hand, then prices would rise as resources depleted. But Simon argued that our greatest resource is human ingenuity — the power of billions of human minds to constantly devise ways to do more with less.

Ehrlich bet that the price of five metals would be higher a decade later. Simon bet that they would be lower.

Simon won the bet. And so did humanity.

Things got much better after the 1970s, exactly for the reasons Simon proposed. Human minds figured out how to do more with less, but…

It’s important to note a stipulation of Simon’s bet with Ehrlich. The resources on which the bet was based had to be non-government controlled. The reason is simple…

* A few hundred politicians, or a few thousand bureaucrats, cannot possibly have sufficient knowledge to manage complex economics, solve complex problems, or match the brain power of billions of people operating in a free market.
* But politicians do have the power to distort the price signals that coordinate the free market, and that provide the incentives to accomplish more with less.

Simon won his bet because the free market is nothing less that the combined operation of billions of human minds coordinated by free floating prices. The bleak 70s turned into the prosperous 80s and 90s precisely because politicians and bureaucrats, both in the U.S., and around the world, stopped doing specific things to hamper the many-minds of the free market. Here in the U.S. …

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Last month I described the collapse of the American banking system as “Off a Cliff with No Airbags.” Are we already in mid-air?

by Jake Towne, the Champion of the Constitution

Originally published on Thursday, May 21, 2009 at http://www.nolanchart.com/article6448.html

Today BankUnited FSB became the nation’s 34th bank to fail this year.  Bank failures are nothing new, but this one will cost the FDIC $4.9 Billion per the  FDIC press release issued Thursday, May 21.  BankUnited had assets of $12.8 Billion and deposits of $8.6 Billion.

The takeover group is led by the infamous Carlyle and Blackstone investment groups.  The take-away for the average Joe Public – is this:

The FDIC started 2008 with $53 Billion in its insurance fund, and this number is now less than $11 Billion.  This translates to mean that less than a quarter of every $100 you have in a bank account is now FDIC “insured.”

It does not take a genius to predict that the FDIC insurance fund will be depleted this year, and a public bank closing (or “bank holiday” – as if it were some sort of twisted vacation) is likely this year.  (Photo courtesy Luc Viator)

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“What can I do to protect my family?” – Arthur Burns, Federal Reserve Chairman, 1978

by Jake Towne, the Champion of the Constitution
Originally published Sunday, May 17, 2009 at http://www.nolanchart.com/article6430.html

The following is a message from Alan Greenspan’s “vaunted Federal Reserve” to the “Average Man.”  (Hat-tip to LeMetropoleCafe.com for the lead.)  (photo)

On January 17th, 1978, Federal Reserve Chairman Arthur Burns stated from the meeting transcript (emphasis mine):

“You know, the American public, in contrast to some or many of our politicians–perhaps most of them–is very deeply concerned about inflation. People all over the country have been asking themselves the question:

“The average man is also capable of judging neighborhoods. All he has to do is get into an automobile or walk and he can locate areas where the prospect of maintaining good conditions in the neighborhood or some improvement are pretty good over the next ten years or twenty years. People can do that. And they’re doing it in increasing numbers. It’s surprising to me. I hear it from college professors; I hear it from young people; I hear it from my own children.”

“What can I do to protect my family? What can I do to protect my children, my family, and myself against the ravages of inflation? And gradually the thought has evolved and is spreading rapidly that, on the negative side, putting money in the bank or a savings and loan account is no protection.

“What will he turn to? Well, there is farm real estate, a remarkable record there. But the average man doesn’t know how to buy farm real estate. He realizes that location can make an enormous difference. But there’s one thing the average man is capable of doing. If he doesn’t have a home, he can buy a home. If he already has a home, he can buy another.

“Buying bonds, Treasury bonds or corporate bonds, is no protection. Buying common stocks is no protection. It used to be a major protection but it no longer is.

“Then what is left? Well, gold or paintings. But the average man cannot invest in gold; he doesn’t know how. It’s not something he’s accustomed to. Likewise with paintings.

Frankly speaking, Chairman Burns is either something of a simpleton or quite the deceiver, much the same as I when I proved his current successor, Ben Bernanke is a liar in “Bernanke’s Great Lie – The “Gold Standard” and the Great Depression (PART 2/2).”  Why?

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Jeff Cherry is Ron Paul’s 2010 Republican primary opponent. He represents precisely the kind Republican values that were just soundly defeated by Barack Obama. Cherry is a neo-conservative. He is a poster boy for all that is wrong with the Republican Party today. It turns out he’s also not quite the sharpest knife in the drawer when it comes to campaign strategy.

Cherry put up a web site attempting to trash Ron Paul, but one page on the site could easily be a page designed by the Paul campaign against Cherry. Perhaps the only exception would be that the design of the page is completely unpolished and unprofessional looking.

Here are a few of the things that Cherry thinks are horrible things that Ron Paul believes in, from http://www.doyouknowronpaul.com/

1. Wants to get rid of the Federal Reserve and return to the Gold Standard (see note below)
2. Wants to get rid of the Department of Education
3. Wants to get rid of the IRS
4. Voted against and does not support the Patriot Act.
5. Voted against the Foreign Intelligence Surveillance Act

Surely there are Ron Paul haters within the GOP that are smarter than this? Or probably not.

NOTE: Ron Paul does not advocate returning to the “Gold Standard”. He wants to permit competing currencies which can be backed by something tangible like gold, silver, or other commodities. These currencies could compete with the fiat dollars floating around. This is a gradual approach toward sound money and away from the fiat system we have now. This is not your great-grandparent’s version of the gold standard.

“Except for U.S. Treasuries, what can you hold? Gold?” – Leading Chinese central banker, February 2009

by Jake, the Champion of the Constitution
Originally published May 5, 2009 at http://www.nolanchart.com/article6385.html

NEW YORK CITY, FEBRUARY 11, 2009 – Luo Ping, director-general at the China Banking Regulatory Commission, gave what may be a landmark quote in the years to come ahead. Besides chastising the United States for its “laissez-faire capitalism” – at which point I distinctly remember choking on my breakfast of delicious jiaozi (I was in Shanghai eating Chinese dumplings) since Ping obviously understands that corporate cronyism is NOT laissez-faire capitalism as fellow columnist Steven McDuffie recently reminds – in retrospect another part of his speech may prove to be the most prophetic. From Reuters:

“Except for US Treasuries, what can you hold? Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

As I related in “China Nearly Doubles its Official Gold Reserves“, China revised its official gold holding from 600 tons in 2003 to 1,054 tons last month. However, the very fact that China reported no increase for 6 years and then suddenly doubled should prove one thing – the Chinese are abiding by the IMF Articles of Agreement only as it pleases them. For instance, the state-owned banks can hold as much gold as they wish without reporting, although this gold is de facto the Chinese government’s.  Please understand that subtlety, not brazen statements like Bush’s sad “Mission Accomplished” ceremony or Obama’s 100 Days congratulation party, is the Chinese way.

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Got Gold? Let’s audit the FED and find out.

by Jake, the Champion of the Constitution

Originally published Friday, April 24, 2009 at http://www.nolanchart.com/article6335.html

The People’s Republic of China announced a rise in its official holdings from 600 metric tons to 1,054 tons, making the country the world’s #5 holder of gold reserves.  The 600 metric ton level had remained constant since 2003. While a rise of 454 tons sounds like a lot, at $900 USD per troy ounce, this is “only” $13 billion.

The United States has reported the largest reserves – over 8,100 tons, but GATA (the Gold Anti-Trust Committee) reports these holdings may not exist as they are strangely reported as “Deep Storage Gold.”  Congressman Ron Paul’s bill, HR 1207, the Federal Reserve Transparency Act, will audit the Federal Reserve, including our gold supply.  This week over 20 more co-sponsors joined, bringing the bill to 88 co-sponsors [Note: Now there are said to be 92 cosponsors]

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July 24, 1998, was an epic day for the global financial system. Federal Reserve Chairman Alan Greenspan stood before Congress’s Banking and Financial Services and testified. This article and the next part will focus on these two testimony excerpts concerning derivative regulation and the gold market.

by Jake, the Champion of the Constitution

Originally published April 7, 2009 at http://www.nolanchart.com/article6266.html

WASHINGTON D.C. – July 24, 1998, was an epic day for the global financial system. Federal Reserve Chairman Alan Greenspan stood before Congress’s Banking and Financial Services and testified. This article and the next part will focus on these two excerpts from this testimony.

“In conclusion, the [Federal Reserve] Board continues to believe that, aside from safety and soundness regulation of derivatives dealers under the banking or securities laws, regulation of derivatives transactions that are privately negotiated by professionals is unnecessary.”

“Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.”

In his testimony, Greenspan recommended to Congress that regulation of Over-The-Counter (OTC) derivatives between private parties was not necessary. These derivatives are referred to as “dark derivatives” as they take place away from exchanges where the terms could be made public and the companies examined by the exchange for counterparty risk – the risk that a company would be insolvent or bankrupted by the time when the derivative comes due. For instance, the metal commodity markets like the NYMEX require a 100% cover of all deliverable contracts (leverage transactions still require a 90% cover per 17 CFR 31.8), and examine the solvency of both parties. The remainder of this article will delve into the consequences of this action.

Less than two months after Greenspan’s testimony, the failure of the hedge fund Long Term Capital Management nearly deflated the developing stock market bubble as it took $4.6 billion USD in derivative-based losses. The Federal Reserve leapt to the rescue, leading a cabal of investment banks to pony up $3.6 billion USD. Goldman Sach’s CEO Jon Corzine was forced out shortly afterwards by the future Secretary of the Treasury, Henry Paulson. Corzine would move on to become a US senator and is the current governor of New Jersey. Bear Stearns refused to cooperate and later became the first major casualty of the Panic of 2008.

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The title above should be the proper title of a recent Q and A article at EWI. Instead the title is, “Does GOLD Equal Wealth Preservation?“.

Instead of answering the question directly the author analyzes the behavior of gold during times of inflation. The conclusion is that gold (at times) goes down during inflationary events:

Zoom out and the big picture gets even more interesting: The March 20, 2009 high in gold is below the February 20 high, which itself was well beneath the March 2008 all-time peak. Since then, the Fed’s campaign to breathe new life into the economy via cash infusions and credit creation has been tireless. (Last estimate: $12.8 trillion.)

In the end, the evidence speaks for itself. Gold has not fulfilled its promise as hedge against “inflation,” or an economic safe-haven. This scenario, while shocking to the bevy of gold bugs who swarmed around the metal at the onset of the Fed’s bailout binge — is no surprise to EWI subscribers.

While the stats given do not lie, I take issue with the general claim that “Gold has not fulfilled its promise as hedge[sic] against inflation or an economic safe-haven“. The author makes the mistake of assuming that “trading” in gold is the same as accumulating gold for wealth preservation. Sure, if the value of gold goes down it is worth less and those who are trying to trade gold for profit are going to be hurt. But those of us accumulating gold will just purchase more.

Why? The simple answer is, because gold always has value. It certainly has fluctuations in value, but it has always had value and it will likely always have value. No one can make that claim about fiat currencies with a straight face.

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Silver finally slips out of backwardation. Any guesses on who the new custodian for SLV is?

by Jake, the Champion of the Constitution
Originally published on Sunday, March 29, 2009 at http://www.nolanchart.com/article6226.html

This article and charts is an update to an earlier article “18 Days and Counting – Silver Backwardation Persists in the London Market Place“. In “Silver and Gold ARE Money (PART 1/2)“, I charged that both silver and gold are money and shared information on the very important concept of gold’s “stocks-to-flow” ratio and the size of the LBMA markets for both metals.

[In case you do not yet understand futures markets, "backwardation" means that silver to be delivered today is now being priced higher than metal to be delivered later. This article refers to the LBMA, or London Bullion Market Association's futures market in London, England. For more details on backwardation, please refer to my five-part December series which starts here "The End for the Dollar and all Fiat Currencies (1/5)". Contango is the opposite of backwardation and exists when futures price is higher than the spot price as I explained for those new to futures terminology here "The Money Matrix - What the Heck Are Derivatives? (PART 10/15)". [As you read, please also note that I am NOT a commodities trader, I am just an engineer by trade, so feel free to help me out with my analysis or mistakes.] ( Photo) (2)

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