Liberty Maven

by Jeff Clark of Casey Research

Warren Buffett recently remarked that you can’t value gold like an oil company or farmland, so we should forget gold and buy equities. But he misses the point! Gold doesn’t produce value because it is value; in other words, gold is money.

It’s sad to see Mr. Buffett go to the dark side. But, as I’m about to show, he’s losing company when it comes to his views on gold.

It’s difficult to fathom why a professional money manager – someone who looks at markets all day long and tries to make money for his clients – doesn’t see the in-your-face arguments for buying precious metals. It’s borderline irresponsible. You may think that’s a strong statement, but I ask: what would you do if you were responsible for investing other people’s money and found yourself in the following investment environment:

• The US government had printed more money in the past two years than at any other time in world history. Then, they printed more.

• Government spending exceeded revenues by obscene margins, and, in the most recent year, the US ran a budget deficit of $1.4 trillion.

• Interest rates were at 40-year lows.

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by Peter Schiff

If you’ve spent enough time in the gold community, you might be under the impression that the most imminent threat to the average American isn’t terrorism or unemployment, but rather gold confiscation. Starting with the fact that FDR confiscated gold during the last Great Depression, and continuing to the quite accurate forecast that we are headed into an even Greater Depression, unscrupulous coin dealers have been pushing investors to buy expensive “numismatic” or “collectible” coins that they claim would be protected from government seizure. The only problems are that the original motive for confiscation no longer applies and the “protection” offered by major coin dealers wouldn’t actually help you keep your gold.

THE TYRANT’S ORDER

In 1933, President Roosevelt issued Executive Order 6102, prohibiting the private holding of gold and requiring US citizens to turn over their gold bullion or face a $10,000 fine ($167,700 in today’s dollars) or 10 years imprisonment.

Gold coin and gold certificates in an amount not exceeding in the aggregate $100 [about 5 troy ounces at that time] belonging to any one person; and gold coins having a recognized special value to collectors of rare and unusual coins.

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by Peter Schiff

As the world awaits another $600 billion flood from Bernanke’s printing press, central bank governors from Brasília to Tokyo are preparing to respond in kind. This is the monetary equivalent of a nuclear war, except instead of radiation, bombs of inflation threaten to make the world economy uninhabitable for saving and productive enterprise.

While much of the attention has been focused on China and accusations that it is a “currency manipulator,” the first shot in this war was clearly fired by the US Federal Reserve. Last month, the Fed came out with a statement that, for the first time ever, said inflation is rising at a rate “below its mandate.” That is, they acknowledged that the deflation threat had passed, that prices were stable – but they still intended to send prices higher.

Since the Bretton Woods Agreement was signed in the wake of World War II, the global monetary system has been based on the US dollar. This means that when the Fed decides to create trillions of dollars of inflation, other countries can’t simply say, “let them dig their own grave.” Instead, because their international transactions are denominated in dollars, they feel a pressure to maintain relatively stable exchange rates between their currencies and the dollar.

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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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Quote of the Day: “Are Mr. Weiner and Chairman Bernanke also going to agree to print on every dollar the reasonable expectation that its value will be eroded by inflation?” — Ira Stoll, writing about Representative Weiner’s anti-gold witch hunt

Representative Anthony Weiner, a Democrat from New York, plans to hold Congressional hearings to investigate gold dealers who advertise on TV.

Is it a coincidence that these gold dealers just happen to advertise on shows like Glenn Beck that tend to oppose Democratic polices? Of course not. This hearing is clearly intended to intimidate. Representative Weiner wants to chill speech for a partisan purpose. But it get’s worse . . .

Weiner is also proposing legislation that would require gold companies to disclose “the reasonable resale value of items being sold (so that the companies) would no longer be able to hide behind false promises of profitability.” This makes it perfectly clear that Mr. Weiner has no idea how a free market works.

Prices rise and fall. No future price can be guaranteed by anyone for anything. Imagine what would happen if, for instance, Mr. Weiner’s idea was applied to the stock market, or . . . to the future price of government bonds?

Would people like Representative Weiner go to prison if the government’s promises about the future value of its bonds turned out to be overly optimistic? Of course not. But this is exactly how he wants to treat gold dealers.

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by Mary Anne and Pamela Aden, authors of The Aden Forecast; written for Peter Schiff’s Gold Report, a newsletter devoted to the precious metals market.

Gold is looking good. Since its summer low of $1160 in late June, it has surged to $1275. That’s a nearly 10% gain in less than two months, and even though gold has again broken its all-time record high, it’s poised to move still higher.

What’s Driving the Gold Price Up?

There are several key factors coming together at the same time and all of them are bullish for gold. But if we had to boil it down, the bottom line is uncertainty. This makes investors nervous, which has always been good for gold. But is this response rational?

We think so. Gold is the ultimate safe haven and as the economy stumbles, demand for gold has grown. That’s been the case for almost a decade. In the second quarter of 2010, for instance, the economic indicators were down and gold demand was up 36%.

Investors are concerned. Not only did the economy falter this month, but the stock market declined as well. This has fueled uncertainty about the government’s policies, the potential for a “double dip” recession, and the danger of a deflationary period.

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by Michael Pento, Senior Economist and Vice President of Managed Products, Euro Pacific Capital

There are three primary reasons why the US is suffering from structurally high unemployment: a pervasively irresponsible monetary policy, the continued attenuation of our manufacturing base, and an overleveraged consumer who must now reconcile his balance sheet. In reality, the latter two conditions are a direct result of the first. They are the result of a government that seeks to micromanage the cost of money and the rate of economic growth.

When the Fed prints money and monetizes debt in order to drag interest rates down, it necessarily encourages excess consumption. The boom in lending and spending results in rising prices, which misallocate what little genuine savings and investment remain. Since inflation is never evenly distributed throughout an economy, it usually gets concentrated into a particular asset bubble (whether NASDAQ stocks, real estate, or tulips).

If interest rates and the money supply are left to market forces (i.e. interest rates are a function of savings vs. the demand for money and money supply is restricted by the mine supply of precious metals), then resources tend to be allocated in the most efficient manner. However, when the Fed distorts these forces, employment gains are most prevalent in the building and servicing of the asset bubbles they help create. This means labor capital is not deployed evenly throughout the economy. It is concentrated on flipping stocks or houses, instead of expanding productivity or strengthening the economy’s manufacturing base. But these behaviors are unsustainable. Once the bubble is popped, the economy must go through a period of deleveraging before labor can be reallocated in a way that makes economic sense.

As an illustration of this point, from January 2000 thru today, the US has lost over 6.6 million goods-producing jobs! Some make the excuse that higher productivity means less workers are needed to produce the same amount of goods. If that were true, then manufacturing would not have declined from 14.2% to 11% of GDP over the same period. Meanwhile, jobs in the housing and service sectors were doing much better. From January 2000 through June 2006, the economy added 261,000 jobs in real estate alone. And from 2000 through today, the service sector as a whole added over 5 million jobs.

Some will claim that the prescription for boosting manufacturing output and employment is to destroy the dollar at an even greater pace. But the answer can’t be found by simply forcing the Chinese to float their currency or by devaluing the US dollar further. History clearly shows the currency manipulation strategy to be a complete failure. The most important factors in balancing trade are wages, taxes, and regulations within a country. A current account deficit cannot be balanced by lowering the value of a currency.

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by John Browne, Senior Market Strategist, Euro Pacific Capital

In the first few days of July, the prices of gold and silver appeared to break a five-month upward trend by drawing back about five per cent from the record June peaks. Despite many similar corrections that have occurred frequently during the long bull market in precious metals, pundits nevertheless looked to draw bold and significant conclusions from the drop. But just as investors were getting comfortable with the leading explanation – that a looming double dip recession will prevent inflation and thereby dampen demand for precious metals – the markets for both metals stabilized.

Most investors still credit the accepted orthodoxy that metals will only gain if inflation is widespread or a financial crisis encourages investors to seek safe havens. The failure of both metals to break below their upward trend lines, despite the lack of news on both fronts, should lay to rest these canards. Unfortunately, nothing appears more resilient than the belief in a gold bubble.

In my opinion, the current rise of precious metals is the direct result of the evident profligacy of governments the world over. Spendthrift politicians in Washington, London, and Tokyo, have caused people to lose faith in paper currencies. Investors, as well as an increasing number of lay citizens, understand that debts cannot be accumulated forever and that the most tempting solution will be to simply print more currency. The only alternative is an unpalatable tax hike that will only serve to reduce long-term revenue, as explained by the famed Laffer Curve.

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Ron Paul has often come out in support of abolishing legal tender laws and the idea of having other currencies compete with the dollar.  Well, in Michigan the legal tender laws may still be in place but many businesses now accept alternative currency such as gold, silver, and copper coins when doing business:

New types of money are popping up across Mid-Michigan and supporters say, it’s not counterfeit, but rather a competing currency.

Right now, you can buy a meal or visit a chiropractor without using actual U.S. legal tender.

They sound like real money and look like real money. But you can’t take them to the bank because they’re not made at a government mint. They’re made at private mints.

“I sell three or four every single day and then I get one or two back a week,” said Dave Gillie, owner of Gillies Coney Island Restaurant in Genesee Township.

Gillie also accepts silver, gold, copper and other precious metals to pay for food.

Read the rest of the story and watch a short news clip on this topic.

Ron Paul, in his Texas Straight Talk column, discusses the failure of Keynesianism and why the founding fathers insisted on only gold as silver as currency:

This past week several emerging and ongoing crises took attention away from the ongoing sovereign debt problems in Greece.  The bailouts are merely kicking the can down the road and making things worse for taxpaying citizens, here and abroad.   Greece is unfortunately not unique in its irresponsible spending habits.  Greek-style debt explosions are quickly spreading to other nations one by one, and yes, the United States is one of the dominoes on down the line.

Time and again it has been proven that the Keynesian system of big government and fiat paper money are abject failures in the long run.  However, the nature of government is to ignore reality when there is an avenue that allows growth in power and control. Thus, most politicians and economists will ignore the long-term damage of Keynesianism in the early stage of a bubble when there is the illusion of prosperity, suggesting that the basic laws of economics had been repealed.  In fact, one way to tell if a bubble is about to burst is if economists start talking about how the government and the Central Bank have repealed the business cycle.

The truth is the laws of economics are constant and real, no matter how inconvenient they might be to politicians and bankers.  This reality is setting in and the bills are coming due.  In the mean time, countries that have no money have bailed out other countries that have no money, except for the phony money created by politicians, bureaucrats, and their partners-in-crime at the central banks.  This may be preventing big well-connected banks from having to take on massive losses, but it is all at the expense of the taxpaying citizen.

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