The precious metals markets moved into high gear last week with silver up 4.5% and new highs in gold and the HUI. Meanwhile the Wall Street Journal explained:

“Driving the recent spate of [currency] flows has been anticipation that the Federal Reserve will restart its efforts to stimulate growth through purchases of government debt that inject more money into the banking system – a practice known as quantitative easing or ‘QE.’”

“Easy Money Churns Emerging Markets,” by Alex Frangos,
WSJ, 10-8-10, p. A-10.

Sad, sad news in the daily paper this week.  We live in a world where the leaders of our country, and every country in the world, believe that there is nothing more to the production of wealth than to simply create, out of nothing, the money which symbolizes it.  The Journal again:

“Investors who had been betting on the dollar switched their wagers in the past few weeks as they grew convinced the Fed will pump still more money into financial markets to bolster the struggling U.S. economy – essentially diluting the value of the dollar.”

“Dollar’s Fall Roils World,” by Tom Lauricella, WSJ 10-8-10,
p. A-1.

For several years, we have watched as the precious metals markets have told us of a truly amazing advance.  Since their lows in the last century, both gold and silver have multiplied by a factor of more than 5.  Both metals have traced out powerful up trends with repeated bullish chart patterns. And now we know the answer why.  The Government of the United States, in the person of Ben Bernanke (and his fellow officials at the Federal Reserve), is trying to reduce the people of America to medieval serfs, to steal their wealth and to give it to the likes of Goldman Sachs (and a few other institutions which have obtained their great wealth not by producing it but by having the Government steal it for them).

The mechanism of this historic theft is counterfeiting.  Indeed, the government has set up the counterfeiting department (the Federal Reserve System).  It prints money and gives this new money to its favorites (who respond via bribes disguised as campaign donations and job offers).

But as we gold bugs have been arguing, the printing of money causes the depreciation of the currency, and this must cause all prices (denominated in that currency) to rise. And this is taking the form of a general increase in commodity prices, itself led by the precious metals.

adly, America was once governed by wiser men.  In 1816, Thomas Jefferson commented:

“We are now taught to believe that legerdemain tricks upon paper can produce as solid wealth as hard labor in the earth. It is vain for common sense to urge that nothing can produce but nothing; that it is an idle dream to believe in a philosopher’s stone which is to turn everything into gold, and to redeem man from the original sentence of his Maker, ‘in the sweat of his brow shall he eat his bread.’” –Thomas Jefferson to Charles Yancey, 1816. ME 14:381

Jefferson was talking about the Second Bank of the United States. He and James Madison had abolished the First Bank of the United States in 1811, but Madison backed down and allowed a second bank in 1816. This bank was later destroyed by Andrew Jackson and Martin van Buren in 1836 (as a result of Jackson’s overwhelming victory in the 1832 election). It was this battle against the second bank which gave birth to the (real) Democratic Party.

If the Democratic Party was born to destroy the central bank and if the Democrats hold power today, then why is it we have a central bank which keeps on printing more and more money? Indeed, in the easing of 2008 we knew that we were being robbed for the benefit of Goldman Sachs and other Wall Street Houses which had accumulated toxic assets. But here in late 2010 we are not even allowed to know who will receive the wealth which is being taken from us.

Once Jackson had destroyed the Second Bank of the United States, the U.S. began a period of economic growth unprecedented in human history. A cornucopia of wealth flowed such as mankind had never seen. The human lifespan increased. A continent was tamed. One after the other, new machines and devices for the improvement of people’s lives poured out of the factories of the nation.

It should be noted that all this was accomplished without the hint of rising prices. From 1793 to 1933, the prices of basic wholesale goods came out the same. For most of this period, there was no word for unemployment for the simple reason that unemployment was so low that nobody noticed it, and nobody spoke of it.

As Bernanke made clear his intention to counterfeit yet another round of money (at this point no one knows how much), the dollar collapsed on the world markets. It collapsed against gold and silver.  It collapsed against the grains. And, as the above chart shows, it even collapsed against the other paper currencies.  (All of these paper currencies are going down, but the dollar is going down faster.)  Chartists will recognize the pattern which has been formed as a head and shoulders top, and the price objective point is 72.

What Jefferson was saying was that the issue of paper money could not create real wealth. Wealth is (scarce) goods which satisfy a human need. In simple language, wealth is stuff. President Obama’s and President Bush’s economic advisors do not know this. They keep saying that the printing of money will create stuff (“stimulate the economy”). One repeatedly hears the theory that the printing of money will so dramatically stimulate the economy that the extra goods thus created will cause a net decline in prices.

This theory (of a net decline in prices) is repeated throughout the financial world. Every time this forecast is made it proves false. But the people who hear the forecast have short memories. They forget that the last time they heard the same forecast it was also wrong. Ditto, ditto the time before that. They do not look at the facts. They look at the impressive credentials of the con artists who are deceiving them. And so they believe, again and again and again.

The important thing to understand about this confidence game is that it only devours its own.  To be protected against it, all you have to do is to see reality as it is.  The printing of paper money does not create wealth. Jefferson again.

“Specie is the most perfect medium because it will preserve its own level; because, having intrinsic and universal value, it can never die in our hands, and it is the surest resource of reliance in time of war.” –Thomas Jefferson to John Wayles Eppes, 1813. ME 13:430

If you wish to be protected against the depreciation of our currency by Ben Bernanke, then specie (gold or silver) is the most perfect medium.  Any real good will provide protection. However, gold and silver have been chosen as money for certain reasons of convenience. They are the easiest to hold and to exchange with others.  They have been used as money for 2500 years, and they are the only legal monies under the United States Constitution.  As Ben Bernanke destroys the (Federal Reserve note) dollar, all real goods will rise in price, and gold and silver will lead (are leading) the way. The people who believe the establishment and plan for “deflation” will be destroyed. The people who believe Thomas Jefferson will be protected.

Thank you for your interest.

Howard S. Katz

****

To assist the good people with the technical details of speculating in gold or silver and in general dealing with the problems created by a paper currency, I publish a fortnightly (every two weeks) newsletter, the Gold Bug.  To subscribe, go to my web site, www.thegoldspeculator.com and press the Pay Pal button ($300).  Or you may send $290 to The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055 ($10 cash discount).  Our most recent issue was dated Oct. 1, 2010.

by Tyler Durden

By Dave Miller

Click Here To View Larger Chart

Original Source: http://solari.com/blog/?p=6416

Buy Gold Coins

Howard S. Katz
Nov 9, 2009

(Click on image to enlarge)

On November 4, gold pulled back to $1025, and that was the turn. It gained 75 points over the next 6 days, including a 30 day whopper when India bought 200 tonnes of gold from the IMF. On Friday, $1100 was breached (interday on the Comex, Dec. future).

Is it too late to become a gold bug? Are you one of those who did not listen to the one-handed economist? Worse, did you fly to “safety” in the U.S. dollar? Are you thinking, “Is it too late to buy?” The answer is in the chart above.

This is the gold bull market going back to its beginning in 1999. Even a novice can see one thing: it is going up. I am not a big fan of uptrend lines, although I have drawn the uptrend above. But you don’t even have to look at the uptrend line. All you have to notice is that each time gold goes up, it breaks to a new high, and each time gold goes down, it holds at a higher low. This is a concept that Charles Dow formalized in the Dow Theory a hundred years ago, and it is as valid today as it was then.

It is not difficult, but in this way of doing things is a very important idea. One must always keep in mind the big picture. The big money is made in the big move. The vast majority of traders are up too close to the market. They cannot see the forest for the trees. So they lose sight of the big picture. And it is the big picture which is going to bring you the big profit.

These are the technicals arguing for a big rise in gold. What are the fundamentals? The important fundamental is an event which happened on March 9, 1933. F.D.R. rammed a bill through the obedient Democratic Congress giving the privilege to counterfeit money to the commercial banks.

I know that you have been taught that F.D.R. and the Democrats were against the bankers. That is a lie, pure and simple. Through the 1920s F.D.R. had been a Wall Streeter working at 120 Broadway, the manager of a vulture fund (so called because it would swoop down on dying companies like a vulture and gobble them up.). His very first act allowed his Wall Street buddies to steal from the working people of America and use this privilege to get rich. A traitor to his class he was definitely not. The bill was rammed through Congress in one day, with no hearings, and the House of Representatives did not even have copies to read before they were required to vote. It was a travesty of the democratic process. Ever since that day, the Democrats have pretended to be the party of the working man while they robbed the working man to give to the bankers. Now how does this affect you?

With this in their pocket, the big Wall Street banks went to work. They found a group of “economists” who would advance the theory that letting the bankers print money makes the country rich. It is true that these “economists” were regarded as crackpots by the real economists of the day. No matter, the bankers’ money talked. They bribed a number of the top schools in the country to hire these crackpot economists. Crackpotism was defined as a new theory of economics. A good example is John Kenneth Galbraith, whose chair of economics at Harvard is named after a former head of the Manhattan Bank (today merged into J.P. Morgan). You probably know these crackpots by the name Keynesian. Perhaps you sent your son off to Harvard to earn a degree in crackpot economics.

I went to Harvard, but I was smarter than you or your son. I spotted the professors there as crackpots by my sophomore year. I skipped the Harvard economics courses and learned real economics by self study. This is why my record of economic prediction over the past half century is brilliant, and the record of the crackpot economists with the long titles is a joke.

But here we are in the 21st century, and you have to make a decision. Buy gold, as we gold bugs are telling you. Or buy stocks, bonds or T-bills, as the establishment is telling you. Well, here is the situation. Through the course of the 20th century the bankers were more and more successful. With the Kennedy tax cut of 1963, Nixon’s abandonment of gold in 1971 and Reaganomics in the 1980s, the issues of paper money got bigger and bigger. America had became the richest country in the world while she was on the gold standard (1788-1933). Now America is getting poorer and slipping backward toward the level of the other nations. The U.S. dollar is in full scale collapse, and there is speculation about the day that it will no longer be used as the world currency. (This happened to the British pound in 1947-48 and coincided with the collapse of the British Empire and with the fall of Britain as a world economic power.)

At the present time, both political parties follow the banker line of more paper money. Last year, the Fed created a trillion dollars out of nothing. To avoid alarming people, the Fed lied about this, reclassifying a portion of the money supply as time deposits (although the owners of these deposits were told that they were demand deposits).

The bottom line of all this is that the bankers are hungry for the Fed to create more paper money. (They are always hungry for the Fed to create more paper money.) So they have their crackpot economists writing articles in every “respectable” newspaper and magazine and locking down all the financial advisory positions in both parties. Obama is projecting trillion dollar deficits for the next 3 years. The Government does not intend to borrow these trillions of dollars from the American people. (thus putting the burden on our children). It intends to counterfeit the money (putting the burden on the people of today). (In America, paper money is illegal under the Constitution. That doesn’t seem to stop anybody, but it certainly does make their actions illegal.)

Since the crackpot theory that printing money is the road to plenty is not true, this will cause the collapse of the U.S. dollar. The vast majority of the American people will wind up poor, and the bankers will get rich. Think, we now have a Government which believes that destroying cars (Cash for Clunkers) will “stimulate the economy.” F.D.R. had a similar theory in the 1930s. Plow under crops, and kill pigs. This was considered to be the way to get us out of the “depression.”

The way to protect yourself is to get out of dollars. This means no savings accounts, T-bills, commercial paper or longer term notes and bonds. GET YOUR ASSETS INTO REAL GOODS. As the dollar goes down, the price of real goods in dollars has to go up. And anyone who tells you different is an ignoramus, a crackpot or a fraud.

Leaving aside collectables, which can be tricky, you have 3 choices: stocks, real estate and commodities. Over the (very) long term, all three of these will go up (in dollar terms) as the dollar goes down. But one of my important discoveries is the commodity pendulum. This says that commodities and stocks take turns. Commodities move down and up in waves which used to take a decade and now take two (examples 1971-80 and 2001-?). As their rise feeds through into consumer prices, the Fed is forced to tighten, and this causes a collapse in both bonds and stocks. That is what you are going to see over the next several years. The Obama price explosion is already beginning in commodities and will later feed through to consumer prices. Then the Fed will tighten, and all the establishment types who are in the stock market will feel a great deal of pain. Have you heard the advice, “Stocks go up for the long pull. They always have?” I was told this when I started trading stocks in the 1960s. From 1966 to 1982, the real value of the DJI declined by 70% in real terms. From 1970 to 1980, gold multiplied by 25 times in nominal terms and 12 times in real terms. How stupid do you have to be to get taken by the same lie twice? (When the young Jim Dines first became a gold bug in 1963, he was fired by his establishment broker. They later went bankrupt, but they never apologized.)

# # #

Howard S. Katz
email: howardkatz@hotmail.com
website: www.thegoldspeculator.com

I publish an economic newsletter, the One-handed Economist ($300/year). I have been calling the gold and other markets since 1965. To subscribe, visit my web site at www.thegoldspeculator.com. If you don’t like computers, you can subscribe directly by sending $300 to The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055. Or you can get a free sample of my writing by visiting my blog at www.thegoldspeculator.blogspot.com (no charge). This week’s blog is about the Middle East. Thank you for your interest.

Howard S. Katz holds a BA in mathematics from Harvard University. He became interested in Austrian economics and started a successful investment newsletter, The Speculator which focused on gold and gold stocks. He is a lifelong advocate of gold and gold stock investing. Later, he published The Gunslinger for investors interested in gold and gold stocks. In addition, Mr. Katz authored three books on gold, the gold standard and money in politics: “The Paper Aristocracy“, “The Warmongers” and the soon to be published “Wolf in Sheep’s Clothing”. He was involved in the Objectivist movement in New York in the 1960s and was an early member of New York’s Free Libertarian Party. Mr. Katz is a contributing author to The Ludwig von Mises Institute where his writings appear along with those of contemporaries Llewellyn H. Rockwell, Jr., Murry Rothbard and Robert Murphy, among others. He has been interviewed on numerous radio programs. He is currently Chief Investment Officer, editor and publisher of the gold and gold stock investment newsletter, The One-handed Economist.