The rally in the dollar over the past few weeks serves as a good illustration of what it takes to be a good speculator. I can remember when I was new to the art of speculation. It was the early 1970s, and Richard Nixon, unilaterally and illegally, abolished the U.S. gold standard (or at least the slender, connection to gold which still existed at that time and was known as the Bretton Woods System).
It was obvious what was going to happen. The Government was abolishing the tie to gold because it wanted to print money. And as soon as Bretton Woods was destroyed, that is exactly what it did. The gold bugs of the early 1970s knew that there had to be an important rise in the price of gold because money had been created during the 1940s and again during the 1960s, and a general rise in the amount of money in society has to lead to an equivalent rise in the average price level.
I can remember that this became an issue and was widely debated. The people on the political left universally declared that printing money would not cause average prices to rise. They were literally arguing that society could create something for nothing by the simple act of counterfeiting money and that this would make the average person richer. Later, when I was able to do some research, I discovered that this exact theory had been presented in the book, The Road to Plenty, by William Trufant Foster and Waddill Catchings written in 1928.
Actually this theory had been refuted over a hundred years earlier by Thomas Jefferson, who in 1816 had written:
â€œWe 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 philosopherâ€™s stone which is to turn everything into gold [here used as a general term to refer to wealth per se], and to redeem man from the original sentence of his maker, â€˜in the sweat of his brow shall he eat his bread.â€™â€ (Jefferson, letter to Charles Yancy, Jan. 6, 1816, Writings XIV, p. 381, Jeffersonâ€™s italics.)
Jefferson fought a 41 year battle against the two American central banks (forerunners of the Federal Reserve). This battle, which did not end until after Jeffersonâ€™s death, was won in 1832 when Andrew Jackson was elected on a program to abolish the (second) central bank. He told the people that they could have:
â€œA bank and no Jackson or no bank and Jackson.â€
They chose the latter by an overwhelming majority.
This battle, by the way, was the occasion for the creation of the Democratic Party. Jefferson raised the issue of the (first) central bank and was elected President on that issue in 1800. The bank was abolished in 1811 but came back in 1816, rechartered for 20 years. The young Martin van Buren was inspired by the elderly Jefferson to take up the fight against the bank. He proved to be a political genius and created the first permanent political organization, the Democratic Party, recruited Jackson and won the election of 1828. (Up to that time, political organizations were ad hoc and dissolved immediately after an election.) The bank was bribing U.S. senators and congressmen and so controlled Congress; so to kill the bank it was necessary to elect a President who would veto the recharter. Since the charter expired in 1836, the key was the election of 1832, which Jackson won with 59.1% of the vote (not counting 3 rd parties). This was bigger than Reaganâ€™s victory in 1984, and it quickly became a rule in American politics that a central bank was beyond the pale. And indeed, when the 3 rd central bank was created in 1914, its supporters denied that it was a central bank because to admit it would have ensured their defeat.
The advocates of paper money in America have always been afraid to appeal to the people. F.D.R. in 1932 hid the fact that he intended to abolish the gold standard, as did Nixon in 1968. They understood that what they were doing was very unpopular and tried to low ball it in every way.
In 1933, F.D.R., on his very first day in office, gave the power to counterfeit money to a group of his rich friends while pretending to hate the rich and be on the side of the poor. (Actually, this counterfeiting power did not benefit the hard working, productive rich who were building the country with their success. It was exclusively for the benefit of the dishonest rich, who were making money via government favors. But it also directly contradicted the New Deal propaganda, which lumped the two kinds of rich together in a crude attempt to win support from the average working man, many of whom could not tell the difference.)
The way that this connects to the art of speculation lies in the events of the 1930s. First, the real source of the paper money theory, Foster and Catchings, was hidden. A pretentious phony from Britain, John Maynard Keynes, repackaged their theory, plagiarized it and presented it as his own. Fosters and Catchings had been identifiable conservatives, but Keynes was able to masquerade as a liberal. The pre-1932 Democratic Party had been liberal (dating from its opposition to the central bank, and thus on the side of the working man), but in nominating F.D.R. the Democratic Party became a reactionary party, which wanted to go back to the system of the past.
Second, during the 1930s and â€˜40s, a group of New York bankers recruited a collection of confidence men and frauds (such as John Kenneth Galbraith) who were willing to mouth the bankersâ€™ party line about paper money, and these bankers then bribed several of the nationâ€™s most prestigious schools to hire said frauds and give them positions of status and power. It was a good deal for the bankers. It corrupted the teaching of economics in the nationâ€™s universities, and the result has been that 99.9% of all editorial writers, columnists, etc. on the subject of economics over the past 70 years have been outright liars and frauds, nothing they have said makes any sense, and virtually none of their predictions have come true. In previous articles, I have discussed several of the most egregious of these predictions (Henry Kaufmanâ€™s prediction of depression in 1982, Ravi Batraâ€™s similar prediction for 1990, Long Term Capital Managementâ€™s bankruptcy in 1998, Glassman and Hassettâ€˜s prediction of Dow 36,000 by 2003-05, published by the New York Times, in 1999). We can be highly confident that the latest prediction from these pseudo-economists (the prediction of â€œdeflationâ€ made in late 2008) will prove equally false, and all who believe it will suffer huge losses.
How did these bankers get you to believe their lies? It was very simple. They endowed their flunkies with long, impressive titles. Now Adam Smith did not have a title in economics. (He was a professor of moral philosophy.) But 20 th century â€œeconomistsâ€ have long titles, which they think are very impressive. And indeed, they are. They are impressive to many people. These people are impressed with authority.
Belief in authority runs very deep in the human breast, and it is death to all attempts at human improvement and betterment. The greatest period in human history came in the 17 th-19 th centuries in Calvinist countries precisely because of Calvinâ€™s attack on the authority of the Catholic Church. But to you as a speculator in the financial markets this is the crucial issue. For example, when the New York Times told us, in late 2008, that the nation was in severe danger of â€œdeflation,â€ the CRB index was close to half of what it is today. Large numbers of commodity speculators believed the Times and dumped their holdings. Gold speculators sharply increased their shorts in Sept.-Oct. 2008. They shorted just about as close to the bottom ($700/oz) as it was possible to get and were run-in by first a 100 point and then a 300 point rally. Worse, the Times, had earlier bought its own stock for $40/share and saw it decline to $4/share. Who in his right mind would take their advice?
And yet millions of people did take the Timesâ€™ advice, but they did not even know it. That is, the Times is imitated by ignorant and lazy newspapers around the country, and, when an article appears in the Times, the same ideas will show up around the country, here, there, in the oddest places. Even people who do not share the crackpot politics of the Times will follow their economic advice, not knowing that this is what they are doing.
Epistemology is the branch of philosophy which answers the question, how does a human being acquire knowledge? What is the right way to acquire knowledge? Psychoepistemology is the individualâ€™s way of acquiring knowledge. A proposition in epistemology has to be true, or it does not qualify as being in the subject. But a proposition in psychoepistemology can be badly false. As speculators, if we can identify errors in our competitorsâ€™ psychoepistemologies, we can buy when they are selling (and vice versa) and thus take their money.
As noted, the psychoepistemologies of many people involve belief in authority. The Calvinist principle, â€œquestion authority,â€ gave the world a great period of human achievement. Unfortunately, it has now been adopted as a meaningless slogan by the left, which repeatedly votes to extend the power of authority and repeatedly obeys whatever absurdities their authority figures are peddling at the moment (global warming, stimulus XXV).
Right now the vast majority of speculators are operating on the same principle as the early 1970s: that the creation of large amounts of money will not cause a general rise in prices. During that decade the price of gold went from $35/oz to $875/oz. They laughed at us gold bugs (and remember that the early gold bugs only predicted a doubling of gold, from $35 to $70). Thus they were embarrassed and humiliated (because in reality they are crackpots and fools).
Well, these people have still not learned. They still blindly follow their authority figures. Upon the completion of QE2, the U.S. money supply will have approximately tripled in some 3 years. What will the results be? Well, general prices in the U.S. will approximately triple. We took their money a generation ago, and now we are going to take it again. How sweet it is.
As the above history shows, you live in a society surrounded by and immersed in lies. This is bad for most of the people, but for the astute speculator who is willing to question authority it is an opportunity. If the establishment of the 1970s was bad, the establishment of today is much worse. They intend to steal your hard-earned wealth and give it to the paper aristocracy (defined as those who profit from the depreciation of the currency and exert their political influence to make it happen). For such astute speculators, I publish a fortnightly newsletter, the One-handed Economist ($300/year), which analyses the financial markets, with special emphasis on gold and silver. OHE subscribers know that the great â€œdeflationâ€ scare of 2008-to-present is about to give way to the great â€œinflationâ€ reality. This is the reality of our day. Prices are not going down. That was a scam by the paper aristocracy and their handmaiden, the New York Times. Believe them, and they will take your money. Question authority, and you have the basic tool to fight back and take theirs. It is the job of the One-handed Economist to give you the specific indicators and recommendations to come out ahead in this little game. You may subscribe by visiting my web site, www.thegoldspeculator.com, and hitting the Pay Pal button or you may send $290 ($10 cash discount) to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055.
Thank you for your interest.
I bet when the prices of goods have tripled that gold & silver will more than have quadrupled…
Thing is, if people can’t afford to eat, then what kind of market will there be for stuff other than the essentials?
The web-bot prediction of inflation in PMs, food & energy combined with deflation in everything else makes a lot of sense.Â Markets for non-essentials will have to be drying up when people just can’t afford them.
Will wages triple as well to take up the slack- well I sure hope so because otherwise we’re all going to be in a world of hurt.Â But with unemployment so high, it is easier for employers to not give the raises due to there being so many available workers who will do the job for less…
Many employers have taken the opportunity to cut salaries and benefits with the job market being what it is.Â And with so many being cut from the roles of unemployment compensation insurance that situation will only increase, is my feeling.
I hate to say “it’s different this time around” but I think it actually is…
The inflationary periods of the 40’s and 60’s were due to massive amounts of money creation and SPENT into the economy ( mostly for the wars of the times ).
This time around, the vast majority of the “money” has been created to recapitalize the balance sheets of banks….who are NOT lending that funny money out into the economy so much.Â
They ARE buying govt bonds with it, making a profit on the carry trade of near zero FED rates and a couple percent on bonds.Â The proceeds of the govt bond sales are financing our current wars on whichever boogymen are about to get us now, but a whole lot more of it is going to entitlement spending, replacing the falling revenue on the tax side of the equation.
I think eventually, it will show up as inflation, and gold bugs will be vindicated, but I don’t think it will be the direct path as seen in the past.
Just my 2 ( or 3 ) cents as a know nothing backwoods observer.
I believe you are correct Tn.Â Only two ways to “create” (sorta of) wealth.Â Dig it out of the ground or grow it.Â Good thing we went digital on fiat, don’t have to cut up as many trees.Â I look at a gold coin & wonder how much sweat, labor, energy & lives expended it took to dig up & when.Â
QE2 is Bankster Gangster: Bailout Number TwoÂ SHTF Times
Financial collapse? No. Inflation by a thousand cuts.
forget the dollar… the dollar will remain strong when compared to other world currencies, it will be the lost stronghold all will flock too for wealth protection! till the end when the crash comes! BY GOLD AND SILVER NOW!
watch the euro… what happens in europe takes 3 to 6 months to ripple across too american markets.
europe is a good divinity rod as to what is coming to american shores.
And wake up america… this is real and you will all suffer for/ from it one way or another! protect your wealth now!
“I look at a gold coin & wonder how much sweat, labor, energy & lives expended it took to dig up & when.”
Yeah…..I have the same wonder. Â I think the people that don’t “get” gold and silver have never actually held some in their hand AND used their brain even slightly.
I have a small Greek silver coin dug up from a former Greek colony on the Black Sea…..well over 2500 years old.Â Wow…the stories that small coin could tell ! Â Then I have another Spanish “piece of eight” with a 1620 mint mark ( hand minted by a guy in Peru) that went down with the treasure galleon Attocha.Â Imagine the effort that went into mining silver at that time, then minting it, and sending it on to Spain.
Been to the grocery store lately? I just returned from one of the local ‘big-box-stores’ after shoping for food with my wife; she allows me to push the cart for her. $196.00 didn’t fill the cart even half way as we bought some meat to go along with the milk, eggs, beans, rice, etc. Funny isn’t it, how beans and rice seem to play an ever increasing role in our diet? My point being; have you also noticed just how quickly the prices for groceries are going up???
This past week I put $25.00 worth of gas into my poor little 1996 Ford Ranger …….. that $25.00 didn’t even fill the tank half full. WTF ….. over???
Soon folks won’t be robbing banks anymore; the funny green paper isn’t worth anything anyway, they will be robbing grocery stores!!! Fill that sack up with ground round and be quick about it ….. or else!!!
I fear that we as a country and a society are hosed ….. BIG TIME!!!!!!!!!!
God Bless & good luck to all …… we’re gonna need it.
TnAndy,Â I reached in and grabbed that large gold bar (before it was “reported” stolen) downÂ in Key WestÂ from of the Attocha back in the 80’s.Â Would love to touch that UHR but the plastic sensation will have to do.Â I’ve got to see some 1k oz’ers AG bricks (U.S. Treasury).Â Non TSA feel.Â It’s a lot about chemistry.
I was listening to Eric King’s interview with Rob McEwen yesterday, and found it to be an enlightening picture of hat’s to come. Rob has been selling metals for decades now, and was in Canada (I believe) during the late 70’s mania into metals. He described this perfectly, as we in turn try to describe what’s coming, to loved ones, friends, etc.
He spoke of the line of customers don the stairs, out the door, and around the block, looking to purchase ANY gold and silver they could get! But he nailed the phases of the mania perfectly:
1.) People pay not attention, until it starts getting mentioned on TV.
2.) Same people start saying, “It’s a litte high. I’ll wait itll the price goes down, and maybe get some then”.
3.) Same people again (that haven’t been listening to the rest of us, like today) say, “Aww, it’s too late. I should have bought some back when”.
4.) Prices in the supermarkets start to skyrocket, all that’s talked about on TV and in restaurants is metals, metals, metals. And FINALLY, having missed the great opportunity they have had for so long, line up down the block (as they did), and say, “I HAVE TO GET SOME OF THESE METALS!”
He said this will be no different. We are right on track to just such a mania.
Moral of the story? Would ya please get your metals already?Â 🙂