Liberty Maven

by John Browne, Senior Market Strategist, Euro Pacific Capital

Much to the relief of jittery global markets, Greece’s chronic debt problem has been papered over in a burst of European solidarity and apparent magnanimity. But this act of mercy may cost Germany its key position of financial dominance over the European Central Bank (ECB), which, in turn, could be detrimental to the long-term health of the euro. And so even though the euro stiffened once the immediate default fears abated, the price of gold was pushed to a new all-time high in euro terms (and a five-month high in dollar terms). [i]

The euro is now second only to the U.S. dollar in importance to world commerce. It is held by most central banks and corporations as a legitimate diversification hedge against the U.S. dollar. Therefore, its stability is of key importance to international currency markets and global stability.

Increasingly, it is apparent that the Greek problem is a potential game changer for the euro. So far, the various rescue packages have failed to convince investors that Greek bonds are dependable over the long term. Despite Greece’s successful short-term debt auction on Tuesday, the premium demanded by investors to hold longer-dated Greek bonds continues to increase. Today, the yield spread between 10-year Greek and German government bonds widened to just a shade below 400 basis points. [ii]

It remains to be seen whether the latest support package offered by the EU - a three year loan of some €30 billion at around five percent interest [iii] – will suffice to cover the major economic, structural, and even attitudinal changes that are necessary. Furthermore, the potentially larger budgetary problems of many Eastern European countries and the remaining PIIGS (Spain, Portugal, Ireland and Italy) still remain to stalk the euro.

Still, there remains an even more significant threat to the euro. The eurozone finance ministers’ ‘soft’ Greek rescue package, when combined with ECB Chairman Jean-Claude Trichet’s preparedness to continue accepting Greek bonds as collateral, spells the possible demise of the Germanic sound money policies underpinning the euro.

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The three G’s are always important but their demand rises, for good reason, during times of extraordinary economic duress. America is going through such a period right now.

Unfortunately, such times also bring out the crazy and confused too. Recently, we have read about shootings at the Smithsonian and Pentagon in DC. A man flew a plane into an IRS building in Austin, TX. A militia group was arrested for plotting the killing of police officers in an attempt to cause an uprising against the U.S. government.

While some attempt to accuse and reveal loose associations between these lunatics and those of use who truly do believe in liberty, we know the truth. They never were and never will be libertarians. They acted, not in self-defense, but on their own twisted apocalyptic emotions.

Moderation should be the watchword when it comes preparation for a future darker than the past. Working on obtaining the three G’s is a good step in that direction.

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by John Browne – Senior Market Strategist, Euro Pacific Capital

The world is currently in the eye of an economic hurricane. The leading edge of the storm, which made landfall in the second quarter of 2008, raged until the first quarter of 2009, and nearly demolished the world’s financial system. By sand-bagging with trillions of freshly-printed paper currencies, fudging accounting rules, subsidizing key financial houses and markets, and calming the masses with half-baked rhetoric, a worldwide collapse was averted.

But the calm is deceptive.

Because of the lull, Western governments have allowed our structural deficits to fester. Now, their spokesmen are predicting sunny skies for the foreseeable future. The Federal Reserve Chairman speaks of “exit strategies” and President Obama asserts that his stimulus package has prevented a second Great Depression. This inability to see past the horizon means our politicians have squandered our final chance to build sturdier shelters in advance of the hurricane’s trailing edge.

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From DownsizeDC.org:

Last week we launched our campaign for the new and improved Free Competition in Currency Act. Today, please continue educating Congress about this bill.

You may copy or borrow from this letter . . .

Supporting this bill will enable you to honor your oath of office. The 10th Amendment to the Constitution limits federal powers to only those functions the Constitution specifically mentions. Congress has no power to . . .

* pass a legal tender law
* create a central bank
* create money (the Constitution only authorizes the federal government to make coins out of *existing* gold and silver money)

This means that our current system is the exact opposite of what the Constitution requires . . .     Read More »

A few weeks ago, Ron Paul introduced one of the Downsize DC Agenda bills.

Throughout 2009, DC Downsizers ALONE called for Congressman Paul to re-introduce the three “Honest Money” bills using our “End the Inflation Tax” campaign. We had specifically called for the Congressman not only to resubmit these highly important levers to destroy the government’s inflation tax and to “End the Fed,” but we’d also encouraged every member of Congress to re-introduce these three bills in ONE NEW BILL.

We applaud Ron Paul for doing exactly that. Here is the Statement of Congressman Ron Paul Introducing the Free Competition in Currency Act HR 4248 (edited for publication, with emphasis points added) . . .

Currency, or money, is what allows civilization to flourish. In the absence of money, barter is the name of the game; if the farmer needs shoes, he must trade his eggs and milk to the cobbler and hope that the cobbler needs eggs and milk. Money makes the transaction process far easier. Rather than having to search for someone with reciprocal wants, the farmer can exchange his milk and eggs for an agreed-upon medium of exchange with which he can then purchase shoes.

This medium of exchange should satisfy certain properties. It should be . . .   Read More »

by John Browne – Senior Market Strategist, Euro Pacific Capital

As a former army parachutist with a bad head for heights, I recall standing in the doorway of an aircraft while my jumping instructor shouted: “Don’t look down!” He understood that my unease with parachuting combined with the sight of thousands of feet of open air could be enough to elicit panic. Many investors in today’s American stock and bond markets appear to be getting the same advice. While in my predicament, I had a parachute and a rudimentary understanding of how to use it, I fear that American investors have nothing to break their fall.

Looking down from the lofty nominal heights of today’s American stock and bond markets, there is cause for real concern.

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Originally published January 21, 2010 at http://towneforcongress.com/economy/talk-on-monetary-policy-to-cc-upper-perkiomen-valley-for-small-government-1

Last night I delivered a talk on monetary policy to a group, the Concerned Citizens of Upper Perkiomen Valley for Smaller Government, in my district.  The talk is downloadable from Scribd here.

I’d like to thank the group for the chance to present.  During the talk there was only one deer-in-the-headlights look, but not so many questions, but I later found out that, for most of the attendees, the Federal Reserve stuff was completely new and I was able to straighten a few people out after the talk.  At any rate, everyone got the point there is a big problem with the dollar, and the government just prints money to survive from one day to the next.  It’s really that simple.

There were 25 slides, I think I only covered 16 or so in the talk, but the last few slides are new content on the game plan to get our country out of this fiscal mess, so I have them below. Like my engineering background as a professional problem solver, the same strategy I’ve used throughout my career works here as well – CONTAIN the problem, DETECT ROOT CAUSE (it’s the government!), take CORRECTIVE ACTIONS to prevent recurrence.  Kill the problem before it kills you.  For more insights, check out ‘The Government’s “War” on Main Street‘ and read some essays here.

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Originally published December 30, 2009 at http://towneforcongress.com/economy/gata-sues-the-federal-reserve-alleges-manipulation-of-the-gold-market-1

Today, GATA (the Gold Anti-Trust Action Committee) filed a lawsuit suing the Federal Reserveafter its separate FOIA request was denied.  For a decade, GATA has amassed enormous amounts of evidence that charges that the FED colludes with other central banks and bullion dealers to secretly suppress the market price of gold in order to make their own paper currencies look better.  The last time the central banks secretly manipulated the gold price was from 1961 to 1968, and ended with the violent collapse of the London Gold Pool and the bankruptcy of the post-WWII Bretton Woods global monetary system.

A year ago, Bloomberg L.P., a major financial news firm, filed a FOIA (Freedom of Information Request) from the Federal Reserve to disclose over $2 trillion in off-the-balance sheet emergency loans – funds that Congress and the President to this day have no idea how the nation’s quasi-private central bank spent.  Despite a momentary court ruling commanding the FED to release this information to the public, the FED has effectively evaded the motion.   Read More »

by John Browne, Senior Market Strategist, Euro Pacific Capital

As the price of gold has pulled back from its recent run up to $1,200, many investors are left to ponder what exactly drives the movement of such an important and financially sensitive commodity.

Most people are aware that gold prices respond to inflation expectations and that central banks, as the largest holders of gold, are big players in the market. But there is a very murky understanding as to why and how these players affect prices, and what their ultimate goal may be.

Although I profess no great insight into how central bankers from Bombay, Berlin and Beijing are looking to manage the global gold market, a better understanding of how our current system came to be provides some clue about gold’s recent behavior.

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