The Final Collapse of the Economy

[ACCT]

“Why gold has been accepted as money for several thousand years cannot be appreciated without looking at the unique role performed by gold as money and the alternatives to gold….Ancient gold coins were widely accepted in primitive times because of the weight of gold they were known to contain. It was the physical qualities of gold, the known content of gold of a particular fineness, the fact the coinage could not easily be expanded in supply or debased and counterfeited, the durability of gold, that made gold universally accepted (Sutton).”

Milton Friedman, Nobel Prize-winning economist, had this to say about the American dollar: “…each accepts them because he is confident others will. The pieces of green paper have value because everybody thinks they have value, and everybody thinks they have value because in his experience they have had value. Paper money “is a social convention which owes it very existence to the mutual acceptance of what from one point of view is a fiction.”

 

[Ridgerunner]

Ridgerunner;9162164:

I agree with everything except #6. Keep in mind, ever since the gold standard was abolished, all fiat currencies have ultimately been destroyed by policymakers — systematically devalued to inflate away fiscal imprudence (budget deficits), and bad debts, both public and private.

I do not disagree with you totally, any more than I disagree with Von Mises totally. But I think governments have more ways of dealing with such things that we often believe.

I had the experience of seeing what happened to gold in the late 1970s and early 1980s. Gold, at its height, was about $1,000/ounce, equivalent to about $2,000 today. It was there because people knew the currency was deflating and they felt that was the only way of preserving value.

But then interest rates skyrocketed. Cash could earn enormous returns, both in the way of interest rates and in the way of creditor concessions. Gold plummeted to about $200/ounce and stayed low until fairly recently. So, a person who bought gold back then and kept it until now has made a gain of about 62%. But it took thirty years to get there; about a 2% annual return.

Why did people abandon gold back then? Because they could see that the value of their cash was increasing; not if it was in a sock somewhere, but if it was earning the high interest rates. Moreover, the interest they received could be spent, which the appreciation in gold could not be.

So, you might be right in thinking it’s the ultimate wealth preserver. I am not similarly persuaded, precisely because there is no doubt in my mind that a massive increase in interest rates is not far away. If that happens, people will abandon gold, whether it’s wise or foolish in the long term. They will do it anyway. Markets are made on what people think, not on monetary theories, however meritorious those theories might be.

 

[ACCT]

ACCT;9164924:

I do not disagree with you totally, any more than I disagree with Von Mises totally. But I think governments have more ways of dealing with such things that we often believe.

I had the experience of seeing what happened to gold in the late 1970s and early 1980s. Gold, at its height, was about $1,000/ounce, equivalent to about $2,000 today. It was there because people knew the currency was deflating and they felt that was the only way of preserving value.

But then interest rates skyrocketed. Cash could earn enormous returns, both in the way of interest rates and in the way of creditor concessions. Gold plummeted to about $200/ounce and stayed low until fairly recently. So, a person who bought gold back then and kept it until now has made a gain of about 62%. But it took thirty years to get there; about a 2% annual return.

Why did people abandon gold back then? Because they could see that the value of their cash was increasing; not if it was in a sock somewhere, but if it was earning the high interest rates. Moreover, the interest they received could be spent, which the appreciation in gold could not be.

So, you might be right in thinking it’s the ultimate wealth preserver. I am not similarly persuaded, precisely because there is no doubt in my mind that a massive increase in interest rates is not far away. If that happens, people will abandon gold, whether it’s wise or foolish in the long term. They will do it anyway. Markets are made on what people think, not on monetary theories, however meritorious those theories might be.

Federal Reserve Chief Ben Bernanke is setting what may be the perfect trap for unwitting investors.

He has poured 1.6 trillion newly-printed dollars directly into the economy.

He has cut interest rates to their lowest point in history and sworn he’ll keep rates this low NOT just through 2012 … NOT just through 2013 … but AT LEAST through 2014.

He has caused U.S. banks to flood the economy with trillions more unbacked paper dollars.

He and his accomplices in Washington have made it possible for the banks to borrow money from the Fed for free, then invest that money in stocks.

And now, he’s threatening to crank up the Fed’s printing presses again at the slightest hint of trouble.

With all that newly created Fed funny money sloshing around in the economy, it’s no wonder that the stock market has been rising lately!

But never forget …

What goes up must, INEVITABLY, come down!

The Fed cannot possibly continue on this path. Not even the mighty Fed can pour trillions of dollars into the economy and the stock market forever.

Especially not in this election year: Increasingly angry voters are already straining under the back-breaking burden of sky-high gasoline prices. Food prices have shot the moon.

For now, stocks are rising, too. But sooner or later, the Fed’s unprecedented juicing of the economy must end.

And mark my words: When this gravy train ends, millions of investors will give back everything they’ve made in this rally — and if history is any guide, they’ll lose far more than they made.

M.L.

 

[Ridgerunner]

Ridgerunner;9165078:

Federal Reserve Chief Ben Bernanke is setting what may be the perfect trap for unwitting investors.

He has poured 1.6 trillion newly-printed dollars directly into the economy.

He has cut interest rates to their lowest point in history and sworn he’ll keep rates this low NOT just through 2012 … NOT just through 2013 … but AT LEAST through 2014.

He has caused U.S. banks to flood the economy with trillions more unbacked paper dollars.

He and his accomplices in Washington have made it possible for the banks to borrow money from the Fed for free, then invest that money in stocks.

And now, he’s threatening to crank up the Fed’s printing presses again at the slightest hint of trouble.

With all that newly created Fed funny money sloshing around in the economy, it’s no wonder that the stock market has been rising lately!

But never forget …

What goes up must, INEVITABLY, come down!

The Fed cannot possibly continue on this path. Not even the mighty Fed can pour trillions of dollars into the economy and the stock market forever.

Especially not in this election year: Increasingly angry voters are already straining under the back-breaking burden of sky-high gasoline prices. Food prices have shot the moon.

For now, stocks are rising, too. But sooner or later, the Fed’s unprecedented juicing of the economy must end.

And mark my words: When this gravy train ends, millions of investors will give back everything they’ve made in this rally — and if history is any guide, they’ll lose far more than they made.

M.L.

Hmmm. The above post is attributed to me, though i didn’t write it. Oh well.

I’m not sure all investors will get eaten up. Bondholders sure will if interest rates go up substantially. (and I see no way out of that, eventually) But owners of gold will get trimmed too if rates go up a lot.

 

[ACCT]

ACCT;9165301:

Hmmm. The above post is attributed to me, though i didn’t write it. Oh well.

I’m not sure all investors will get eaten up. Bondholders sure will if interest rates go up substantially. (and I see no way out of that, eventually) But owners of gold will get trimmed too if rates go up a lot.

Long-term interest rates are already going up. Bonds will implode.

After going up for 11 straight years, it is time for gold to take a rest and to go down. However, we are still in a long-term bull market for gold. When the dollar is on its death bed, gold will still be very strong. Gold will always be real money, as opposed to the funny money that governments create.

Gold has to go up to $2,300 to reach its inflation adjusted price of $800 in 1980. We are nowhere near a blow off in the price of gold like we were in January 1980.

President Reagan and Fed Chairman Volker are no longer around. The socialists are in power and they are destroying the dollar. Anything is possible. The price of gold just reflects the very dangerous world financial situation.

Fasten you seat belts. We are in for a wild ride in the next 3 - 4 years!

 

[Ridgerunner]

Ridgerunner;9165431:

Long-term interest rates are already going up. Bonds will implode.

After going up for 11 straight years, it is time for gold to take a rest and to go down. However, we are still in a long-term bull market for gold. When the dollar is on its death bed, gold will still be very strong. Gold will always be real money, as opposed to the funny money that governments create.

Gold has to go up to $2,300 to reach its inflation adjusted price of $800 in 1980. We are nowhere near a blow off in the price of gold like we were in January 1980.

President Reagan and Fed Chairman Volker are no longer around. The socialists are in power and they are destroying the dollar. Anything is possible. The price of gold just reflects the very dangerous world financial situation.

Fasten you seat belts. We are in for a wild ride in the next 3 - 4 years!

I agree we’re in for a wild ride. I fully expect it. But how do you know Obama didn’t cut a deal with Bernanke to secure reappointment? “Wait until after 2012, Ben, that’s all I ask.”
Remember, Bernanke actually did try to disinflate the bubble in 2007/2008, but the bubble burst the moment he touched it. It was too late. No one should assume he will not raise rates again. The only question is when.

No one should wonder why the latest employment numbers are discouraging, particularly when one considers the “quit looking” and “underemployment” numbers. Businesses, particularly small businesses, are very reluctant to borrow and, when they do, they try to keep it short-term. “I’ll borrow to buy this machine only if I can pay it off within six months.” Businesses are afraid of the inevitable upsurge in interest rates. Because the Fed has been accommodative, they can’t even factor that increase in. It’s just a thing sitting out there. Obamacare is the same way. Nobody knows how to factor that into business decisions because Obamacare is fundamentally an executive wild card. They can do anything with it they want to do. Same with fuel. Nobody can figure out his future fuel or transportation costs. Nobody can figure out his regulatory costs.

So nobody does anything forward-looking, including hiring other than to replace attrition and, to the extent possible, not even that.

Obama is playing a vote-buying game that is extremely dangerous for the public. But I suppose for people like Soros, that’s exactly the environment in which he has done the best in the past. Short America. How, even in 2008, anybody could think putting Soros’ man in the White House was a good idea is just jaw-droppingly astonishing.

Ultimately, this country is going to pay a very heavy price for its romance with the radical left. And the worst affected of all are going to be those ordinary people who were most in love with it.

 

[ACCT]

ACCT;9166214:

I agree we’re in for a wild ride. I fully expect it. But how do you know Obama didn’t cut a deal with Bernanke to secure reappointment? “Wait until after 2012, Ben, that’s all I ask.”
Remember, Bernanke actually did try to disinflate the bubble in 2007/2008, but the bubble burst the moment he touched it. It was too late. No one should assume he will not raise rates again. The only question is when.

No one should wonder why the latest employment numbers are discouraging, particularly when one considers the “quit looking” and “underemployment” numbers. Businesses, particularly small businesses, are very reluctant to borrow and, when they do, they try to keep it short-term. “I’ll borrow to buy this machine only if I can pay it off within six months.” Businesses are afraid of the inevitable upsurge in interest rates. Because the Fed has been accommodative, they can’t even factor that increase in. It’s just a thing sitting out there. Obamacare is the same way. Nobody knows how to factor that into business decisions because Obamacare is fundamentally an executive wild card. They can do anything with it they want to do. Same with fuel. Nobody can figure out his future fuel or transportation costs. Nobody can figure out his regulatory costs.

So nobody does anything forward-looking, including hiring other than to replace attrition and, to the extent possible, not even that.

Obama is playing a vote-buying game that is extremely dangerous for the public. But I suppose for people like Soros, that’s exactly the environment in which he has done the best in the past. Short America. How, even in 2008, anybody could think putting Soros’ man in the White House was a good idea is just jaw-droppingly astonishing.

Ultimately, this country is going to pay a very heavy price for its romance with the radical left. And the worst affected of all are going to be those ordinary people who were most in love with it.

The Federal Reserve can only keep short-term interest rates down. They cannot control the rising interest rates that the free market puts on bonds, even government bonds.

 

[ACCT]

Monetary Policy and the Federal Reserve

2002

Federal Reserve (the Fed) officials keep a close eye on spending and the U.S. money supply. They are not happy when people spend too little, likewise they are party-poopers when people spend too much. When spending is too high the Fed takes actions to slow it down, when its too low they act to speed it up. For the Fed, too much or too little.

The Fed’s Federal Open Market Committee (FOMC) meets about once a month to determine if interest rates should be raised, lowered, or left unchanged. If the economy is weak, they might lower rates. If inflation is a “risk,” they might raise rates. If the economy looks good, they leave rates alone. After their meetings, the FOMC issues a statement containing their assessment of the economy. On August 13, 2002, for example, they left the federal funds rate unchanged at 1 3/4 percent and issued the following statement,
The current accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, should be sufficient to foster an improving business climate over time.
Nonetheless, the Committee recognizes that, for the foreseeable future, against the background of its long run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness.
The last time they raised rates was after their May 2000 meeting. This was their statement,
Against the background of its long-term goals of price stability and sustainable economic growth and of the information already available, the Committee believes the risks are weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future.
The Fed’s actions affect all of us in one way or another. Take me, for example. I own an apartment house with a variable interest rate mortgage on it. Every December the interest rate on this mortgage is adjusted. In December 2001, the interest rate on my mortgage fell from 9.875 percent to 7.875 percent. Why did this happen? Well my new friend, Alan Greenspan, who is chairman of the FOMC, thought people (like me and you) were not spending enough. Consequently, Mr. Greenspan and the FOMC lowered interest rates in an effort to get us to spend more. For me, the FOMC’s actions caused the interest rate on my mortgage to fall, which puts more money in my pocket. If I (and millions of others like me) fulfilled our patriotic duty and spent this money, then both the economy and Mr. Greenspan’s creditability would get a boost!

Interest rates boost or dampen the economy–output, inflation and employment–in other ways too.

 

[ACCT]

Does the monetary unit, the American dollar, “faithfully represent what it purports to represent?” My answer is no. The American dollar changes in value everyday. It is not a store of value. On the other hand, gold is a store of value. “Even in ancient times, with primitive communications among vastly different peoples and customs, gold coins generated worldwide confidence…Recognizing the essential requirement of confidence, ancient empires kept the value of their money constant for long periods without debasement (Sutton).” Gold is a reliable monetary unit. Governments cannot create more gold by fiat.

 

[Ridgerunner]

Does the monetary unit, the American dollar, “faithfully represent what it purports to represent?” My answer is no. The American dollar changes in value everyday. It is not a store of value. On the other hand, gold is a store of value. “Even in ancient times, with primitive communications among vastly different peoples and customs, gold coins generated worldwide confidence…Recognizing the essential requirement of confidence, ancient empires kept the value of their money constant for long periods without debasement (Sutton).” Gold is a reliable monetary unit. Governments cannot create more gold by fiat.

The price of gold changes daily as well. Same with every other commodity. And its quantity most definitely can be changed by government policies. That has happened in U.S. history. FDR, for example, played with gold prices (oddly) and those price changes also changed the quantity. If he bumped it up, those with mines bumped up production. We actually don’t know how much recoverable gold there is, nor do we know how much is hidden. It has been said that there is more gold buried and forgotten in the backyards of France than in Fort Knox. Maybe that’s true and maybe it isn’t, but I also recall when Bunker Hunt and some Arab oil people decided to corner silver and lost the game because there was more silver on the arms of women in India than Hunt and his co-venturers had. There wasn’t enough money by a long way to buy it all up.

 

[ACCT]

The price of gold changes daily as well. Same with every other commodity. And its quantity most definitely can be changed by government policies. That has happened in U.S. history. FDR, for example, played with gold prices (oddly) and those price changes also changed the quantity. If he bumped it up, those with mines bumped up production. We actually don’t know how much recoverable gold there is, nor do we know how much is hidden. It has been said that there is more gold buried and forgotten in the backyards of France than in Fort Knox. Maybe that’s true and maybe it isn’t, but I also recall when Bunker Hunt and some Arab oil people decided to corner silver and lost the game because there was more silver on the arms of women in India than Hunt and his co-venturers had. There wasn’t enough money by a long way to buy it all up.

The Price of a Dollar

I am going to turn your world upside down. I price everything, including the dollar, in the weight of gold (real money). A dwt. of gold is still a dwt. of gold, just like it was 5,000 years ago in ancient Egypt.

It sounds strange to say that a dollar has a price. However, it is true. Supply and demand determine the dollar’s price. “…The value of currencies in the foreign exchange market is determined by market forces. Just as the forces of supply and demand determine other prices, so do they determine the exchange-rate value of currencies in the absence of government intervention (Gwartney, Stroup, Sobel).”

When looking at the foreign exchange rates, we can say that the dollar price of the pound is $1.50. The inverse is also true, the pound price of the dollar is 0.67 pounds.

The American dollar is the reserve currency of the world; therefore, the price of gold is in terms of American dollars. If gold was the reserve currency of the world, a financial commentator might say, “Today the price of the dollar dropped by 1/10 of a dwt of gold.” It all depends on what you are use to hearing and how you look at things. Gold will always be real money long after the dollar goes the way of the Confederate dollar.

 

[Ridgerunner]

The Price of a Dollar

I am going to turn your world upside down. I price everything, including the dollar, in the weight of gold (real money). A dwt. of gold is still a dwt. of gold, just like it was 5,000 years ago in ancient Egypt.

It sounds strange to say that a dollar has a price. However, it is true. Supply and demand determine the dollar’s price. “…The value of currencies in the foreign exchange market is determined by market forces. Just as the forces of supply and demand determine other prices, so do they determine the exchange-rate value of currencies in the absence of government intervention (Gwartney, Stroup, Sobel).”

When looking at the foreign exchange rates, we can say that the dollar price of the pound is $1.50. The inverse is also true, the pound price of the dollar is 0.67 pounds.

The American dollar is the reserve currency of the world; therefore, the price of gold is in terms of American dollars. If gold was the reserve currency of the world, a financial commentator might say, “Today the price of the dollar dropped by 1/10 of a dwt of gold.” It all depends on what you are use to hearing and how you look at things. Gold will always be real money long after the dollar goes the way of the Confederate dollar.

My world is still right side up. Of course the dollar has a price. Never said it didn’t.

And if the U.S. government balanced it’s budget, you would see the dollar price of gold drop like it fell into a hole, and relative to the price of goods and services as well.

I’m not saying dollar devaluation is impossible, or a good thing, or that it isn’t happening. But is gold really the answer?

Historically, the value of gold relative to other things has not been a constant. One can remember the howling inflation (and lowered value of gold) when Spain brought in all the gold from the Americas. Shouldn’t have happened if gold value was a stable thing. We can also remember how the value of gold plummeted relative to goods and services in the otherwise deflationary period following the Black Death. Roosevelt’s (seemingly inane) playing with gold prices really did affect the monetary systems of other countries, but it also encouraged the production of gold, and the supply really did increase. The U.S. government found itself awash in gold, but to no beneficial effect on the economy whatever.

As little as some might think so, gold as currency is also a “convention” just like paper money. To the extent it is used as currency, it’s “fiat” money too. It’s valued because it’s valued. Its value goes up or down in other fiat currency based on what people think about paper or electronic money at the time, just like the dollar rises or falls against the pound depending on what people think about both of them at the time.

I remember a guy who studied the thunder out of the historic relationship between the price of gold and that of silver. He had, or thought he had, absolute historic proof that it was always some ratio. So, since there was a wider gap than that at the time, he went long on silver. Lost his backside doing it, too. History tells us some things, but it doesn’t tell us everything.

Have you priced a real Confederate dollar lately? It’s a lot more than a U.S. dollar.

 

[moster]

I could see it, and an expert I am not.
Beats by Dr. Dre powerbeats

 

[ACCT]

My world is still right side up. Of course the dollar has a price. Never said it didn’t.

And if the U.S. government balanced it’s budget, you would see the dollar price of gold drop like it fell into a hole, and relative to the price of goods and services as well.

I’m not saying dollar devaluation is impossible, or a good thing, or that it isn’t happening. But is gold really the answer?

Historically, the value of gold relative to other things has not been a constant. One can remember the howling inflation (and lowered value of gold) when Spain brought in all the gold from the Americas. Shouldn’t have happened if gold value was a stable thing. We can also remember how the value of gold plummeted relative to goods and services in the otherwise deflationary period following the Black Death. Roosevelt’s (seemingly inane) playing with gold prices really did affect the monetary systems of other countries, but it also encouraged the production of gold, and the supply really did increase. The U.S. government found itself awash in gold, but to no beneficial effect on the economy whatever.

As little as some might think so, gold as currency is also a “convention” just like paper money. To the extent it is used as currency, it’s “fiat” money too. It’s valued because it’s valued. Its value goes up or down in other fiat currency based on what people think about paper or electronic money at the time, just like the dollar rises or falls against the pound depending on what people think about both of them at the time.

I remember a guy who studied the thunder out of the historic relationship between the price of gold and that of silver. He had, or thought he had, absolute historic proof that it was always some ratio. So, since there was a wider gap than that at the time, he went long on silver. Lost his backside doing it, too. History tells us some things, but it doesn’t tell us everything.

Have you priced a real Confederate dollar lately? It’s a lot more than a U.S. dollar.

When the dollar was backed by gold and silver, all you had to worry about was the number of dollars that you had (nominal dollars). Now you have to worry more than just about nominal dollars. You also have to worry real dollars (the purchasing power of you dollars).

If gold is not real money, then I do not know what real moneyis. Gold can never be fiat currency because governments cannot create gold out of nothing. God created gold and silver. Gold and silver are here to stay. The same cannot be said of man’s creations, such as the dollar. Man created fiat currencies, such as the dollar.

Concepts 5 in accounting (AICPA) mentions ounces of gold and purchasing power! “Also, preparation and use of financial statements is simpler with nominal units than with other units of measure, such as…units of a commodity (for example, ounces of gold). However, as rates of change in general purchasing power increase, financial statements expressed in nominal units of money become progressively less useful and less comparable.” CON 5says succinctly what I have been struggling to say.

We will not be able to continue to use the dollar as the monetary unit on financial statements when inflation reaches double and tripole digits. We will have to swithch to pooh-pooh accounting (purchasing power) or to gold because only the weight of gold gives us a constant yardstick.

 

[exoflare]

And if the U.S. government balanced it’s budget, you would see the dollar price of gold drop like it fell into a hole, and relative to the price of goods and services as well.

Do you think this is actually possible?

 

[BobCatholic]

Do you think this is actually possible?

Not as long as we have a morally bankrupt government.

 

[ACCT]

Do you think this is actually possible?

We are past the point of no return. The national debt will never be repaid! It’s a shell game, but at your expense. That’s why I consider it absolutely mandatory that you understand this process. Your only chance of financially surviving it is to understand the mechanism, and what the government is doing to your money.

October 11, 2004

Debt

Debt is a huge time bomb. The United States is the greatest debtor nation in the history of mankind. Senator John Kerry highlighted the problem of deficit spending in the Presidential debates. He said that President Bush “added more debt to the debt of the United States in four years than all the way from George Washington to Ronald Regan put together.” The government also does not count the billions that they borrow from the Social Security Fund, or increased funding for the war in Iraq. Additionally, the average credit card debt in America is at a record $8,500. Household mortgage debt is also at an all time high. By any standard, we are in the middle of the greatest debt bubble of all time.

 

[ProVobis]

I agree we’re in for a wild ride. I fully expect it. But how do you know Obama didn’t cut a deal with Bernanke to secure reappointment? “Wait until after 2012, Ben, that’s all I ask.”

There may be some truth to that. After all Bush I blamed Greenspan for his failure to win reelection in 92.

 

[ProVobis]

But is gold really the answer?

Perhaps 10% of your portfolio should be in delivered gold or silver. I’d stay away from GLD or SLV which are too volatile for my risk tolerance level. I’d wait for a dip or two, buy and hold it for prosperity. It may go down in terms of the dollar but you still have the gold.

 

[ACCT]

Perhaps 10% of your portfolio should be in delivered gold or silver. I’d stay away from GLD or SLV which are too volatile for my risk tolerance level. I’d wait for a dip or two, buy and hold it for prosperity. It may go down in terms of the dollar but you still have the gold.

GLD is what I call paper gold. It is good for your Roth IRA. The dollar is not on its death bed yet; however, I expect the dollar to lose 50% of its purchasing power in the next 3 - 4 years.