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CURRENT OUTLOOK ON GOLD
Click Here to Read an Article Summarizing our Basic Philosophy
October 16, 2007 Quote from The Coming Generational Storm
October 23, 2007 This Is It! By Jim Sinclair
April 12, 2007 The Federal Reserve Monopoly over Money
January 1, 2007 Straight Talk from Congressman Ron Paul
Quotes from:
Richard Russell's
Dow Theory Letters
P.O. Box 1759
La Jolla, CA 92038
www.dowtheoryletters.com
Richard's Remarks:
May 2, 2008
What about gold? I show a weekly chart of gold below. As usual, mixed signals here, but let's check 'em out. RSI (momentum) is below the neutral 50 level, but not yet at the oversold level of 30.
Weekly gold has plunged below its blue 10-week moving average but is still above its red 50-week MA, which stands now at 830. The 50-week MA should offer good support. At the bottom of the chart we see that the histograms are extremely oversold. This checks with the full stochastics, which are now down at the extreme-oversold level.
My conclusion is that gold is at, or very close to, the buying level again.
April 28, 2008
Gold -- Suddenly, everybody's an expert on gold. It appears that everybody knew gold was overbought and ready to correct. Now that gold is finally correcting, nobody knows how far down gold is going to go -- or whether is it fated to go down further at all.
One effective guide has simply been the 50-week moving average. When gold rises too far above its 50-week MA, it tends to correct. When gold drops below its 50-week MA, it tends to get "sticky" on the downside. The weekly chart of gold below shows gold and it red 50-week MA. The MA comes in now at 782, or let's call the support at 800. So will gold correct to 800? Honestly, nobody knows.
RSI. the momentum indicators, allows for gold to go lower. RSI has not declined to the 50 or neutral level yet. But MACD at the bottom of the chart shows gold to be severely oversold. So the truth -- it's anyone's guess whether gold is fated to go lower. No geniuses here.
One thought -- the dollar has suddenly turned a bit stronger. Of late, gold has reacted more to dollar strength or weakness than it has to rising inflation. A stronger dollar implies a better economy and thus higher interest rates. If the dollar does continue to strengthen and the stock market heads higher and interest rates increase, the sentiment could change to something like this -- "The stock market looks safer and higher, rates are heading higher, I'm better off in stocks or bonds. Why do I need gold?" This is not long-term thinking, this is the thinking of traders. Personally, I'm not a trader, I'm a long-term holder of gold and have been over the last eight years. I will continue to be a long-term holder of gold.
April 23, 2008
What's going on with gold? The P&F chart is straightforward. At the 915 box, gold turned near-term bearish. A second near-term bearish signal will be given if gold hits the 905 box. At 895 gold breaks below it rising blue trendline. At 875 gold lapses into a major correction. A bullish turn of events would materialize if gold can rally to the 960 box.
Suddenly, commodity funds are springing up all over. The public is into commodities. If gold does break down, I believe such action will be telling us that the commodity boom is fading. At that point, fears of inflation might well turn into fears of deflation.
My own advice for people who own gold is to treat it like an asset, like your home. You hold it until you die. You don't trade it. Ideally, you don't even quote it every day. The reason most people have made money on their homes (I'm not talking about recent buyers) is that they never ask for quotes on their homes. They don't call their broker, "Hey, Charlie, can you give me a quick quote on my home, yeah, the price at around 11:30". One year they "woke up" and the house they bought ten or 15 years ago has doubled or tripled in price.
Most people are killed by constant quotes. Which is why investors in long-term compounding programs tend to do best. Amateur traders almost always lose -- just give them time. Remember the day-trading craze? Where are they now?
April 3, 2008
Gold -- A weekly chart covering two years of gold action is shown below. Gold has been in an overbought area during most of the year 2008. Gold sank into a corrective phase beginning in mid-March. We've only gone through a month of correction so far, and on that month gold has declined to just above or below the 900 level.
The chart shows that gold is not yet oversold (note the level of RSI), although the histograms are "getting down there." The full stochastic at the bottom of the chart have further to drop if they are to reach the fully oversold 20 level. I showed the chart to wife Faye, and asked her what she thought. She surprised me with her answer -- "Gold could work off the rest of its overbought status by just trading generally sideways." Hey, that's my wife talking, the lawyer-chart reader.
March 14, 2008
Gold -- I'm writing this early in the morning before the opening of today's session. April gold (this is the active futures month) has traded as high at 1000.10, but as I write April gold is trading at 996.80. It's almost comical to see gold bouncing around the thousand dollar number -- much like a moth flitting around a candle flame. It's as if nobody wants to be the one holding thousand dollar gold for fear he will be history's highest bidder before gold heads lower, never to see 1000 again.
"Gold above one thousand dollars an ounce! You idiot, you paid too much for gold. What if gold corrects here? What if you turn out to be the ultimate greater fool? Forget about paying a thousand bucks for gold, you may spend the rest of your life waiting to get your money back."
That, I believe, is the fear and the sentiment surrounding gold at this point. Of course, if gold advances about 1000 and remains there, then sentiment will change. Once people get used to gold above 1000 the sentiment becomes, "Gosh, I remember gold under 1000 when it was selling as cheap as dirt. We should have loaded up on the yellow metal at 900 or 950 or 970. Then it was the bargain that nobody understood."
The big number like 500, 1000, 2000, always contain a psychological significance. Key historic numbers can also be significant. It reminds me of the 1929 high of Dow 381. I remember that many of us thought the Dow would never, ever climb above 381 again. Now Dow 381 is forgotten. Ask any market analyst what the significance of the number "381" is. He'll look at you blankly. But believe me, we old timers remember Dow 381 very well. Year after year we waited for the Dow to better that "impossible" 1929 high. In 1954 the miracle occurred and the Dow finally climbed over 381. By 1956 the Dow was in the 520s. We had finally put 381 behind us.
I think it will be the same with gold at 1000. Some day we'll wonder why gold ever sold below 1000. But right now the great battle of "Gold 1000" is on.
One major change has occurred between the gold bull market of the 1970s and the one we're now in. The 1970's gold bull market was essentially a US gold bull market. What happened is the US dictated what would happen with gold. Not so today.
The current bull market in gold is GLOBAL. Gold isn't rising today because Americans are loading up on gold (actually, they are not). The real impetus behind gold today is Chinese buying and Indian buying and Arab buying and worldwide buying. Gold is no longer controlled by what happens in the US futures market. What's happening to gold is a product of Asia central banks, Chinese citizens, Russian billionaires buying. As I said above, this is an international market based on people and central banks around the world accumulating wealth. This is a DIFFERENT gold bull market.
March 6, 2008
Silver has been on a tear -- at least up to today. We saw a big consolidation during 2006 and 2007. In January silver broke out to the upside, and you can see that most recent row of Xs rising from the 16.5 breakout point to the 20 box on the chart. Silver now appears a bit "stretched," but we'll see how far this column of Xs can carry before silver corrects. The same thing, by the way, applies to gold, which has struggling valiantly in trying to close above 1000.
Both silver and gold have huge short positions aligned against them by the commercials. Ordinarily, the commercials would "win" and bring both metals down. But now we have global markets and what does a buyer in China or Singapore care about when it comes to US commercials and their positions? US traders no longer "run" the markets or set the prices.
Long-time followers of silver are saying that now, today, the silver shorts are trapped and the long-awaited running of the silver shorts is on. I don't doubt this, and my suggestion over recent months is to buy SLV.
At the same time, it's clear that certain interests don't want to see gold at a thousand-dollar an ounce, and I don't doubt that there's been some manipulation. But the primary trend for the precious metals is UP, and my sense is that the upside is far from exhausted.
February 22, 2008
"Gold, gold -- you're making me old." That was my old refrain as we lived through correction after correction in the early stages of a gold bull market that never seemed clear or easy. But that has changed. Over recent years it's become obvious that gold is in a powerful bull market. And all our earlier worries and anxieties now appear to have been worth it, as the power of the great bull market becomes evident and indisputable.
The chart below traces the more recent path of gold as it advances, consolidates, corrects, and then advances again. The most recent move is a breakout on the P&F chart to the 955 box. Clearly gold is now flirting with the big number, and I'm talking about one thousand. To climb over one thousand and stay above one thousand will not be easy, but if or when it happens it will mark an historic occasion for real money. The upside "count" for gold, based on the recent P&F breakout -- is 1125.
Question -- Russell, do you think gold can make it above one thousand?
Answer -- I do. I also believe that if gold can break out above one thousand and remains stubbornly above one thousand, it's next long-term target will be two thousand.
February 14, 2008
Gold -- Here's a daily chart of gold going back one year. Meanwhile, we're told that "gold is volatile" and "gold is dangerous" and "gold is overbought" and "gold is too expensive" and "when gold is over 900 dollars, jewelers can't sell gold jewelry." Again, it's all just jaw-boning, chatter, gossip.
Instead, let's do the simple thing. Let's see if gold can hold above its current rather steep bullish trendline. The trendline would allow gold to back off to 880 and still look good, actually look powerful. Of course, on any corrective action if gold can hold above 900 so much the better.
Gold has been battling against the doubters and know-nothings for the last eight years. The great mass of Americans still prefer fiat paper currency to real money. But that will change somewhere ahead. When that changes, we'll call it the third phase of one of the greatest bull markets in history. We're not there yet, not by a long shot. Meanwhile, gold continues its silent war against "printed wealth."
February 12, 2008
"The Republican party established and will continue to uphold the gold standard and will oppose any measure which will undermine the government's credit or impair the integrity of our national currency. Relief by currency inflation is unsound in principle and dishonest in results." Republican National Platform, 1932 (quote courtesy of James Dines).
Russell Comment -- My, how times and politicians have changed.
My own investment position remains the same. I'll remain heavily invested in the market that I know is bullish. The market I'm referring to is the market of precious metals. I've been in this market since the beginning in the year 2000. I've urged my subscribers to be in the precious metals market with me. I've advocated taking a large position in gold and adding to that position during the numerous corrections. I also advocated buying platinum coins, and I advocated buying silver through SLV, the silver ETF.
I've had some "new" thoughts about the action in the precious metals. Up until recently, those of us who followed gold and silver kept an eye on the commitment of traders. The commitments consist of the small investors, the big speculators (usually the funds) and the commercials (the gold mining companies and the gold banks). To some extent, the funds and the commercials exerted a good deal of control over intermediate gold and silver prices. The commercials were almost always short the metals.
I believe the importance of this study has now declined. The US no longer fixes or controls the price of any commodity except the price of interest rates. The rest of the world outside the US has grown too large, too powerful. I don't care how short the commercials may be in gold, if steady Chinese, Indian or Middle East buying comes in, the price of gold is going to head higher. America's commodity exchanges no longer control the precious metals market -- the rest of the world does. And that's a huge change.
Below we see a P&F chart of GLD, the exchange traded fund and a proxy for gold. The picture is clear. At the 93 box gold breaks out to a new high. The primary trend of gold is bullish. The secondary trend of gold remains bullish, but will turn bearish if gold declines to the 87 box and more definitely bearish if gold declines to the 85 box.
Gold has recently broken out to new record highs against almost all the fiat currencies. The chart below shows gold moving to new highs against the euro. It may be time for gold to rest, to back off, to scare the Johnny-come-latelies, and yes -- even to give the sold-out bulls another chance to buy in once again.
The Greater Depression
byDoug Casey
It's been said that if you spend 15 minutes a year thinking about the economy, you're wasting 13 minutes. That's generally true. But as an amateur historian, I can't help myself. And I'm forced to believe that this is a time when the subject is worth some real thought.
My view is that the longest, and certainly most important, trend in history is the ascent of man. I have little doubt that it will not only continue but accelerate. But that doesn't mean there won't be nasty setbacks along the way. As I have said before, possibly the best definition of a depression is a period when most people's standard of living drops significantly. You can also define it as a period when distortions in the economy and misallocations of capital are liquidated. The distortions are almost always the result of government intervention in the economy, through things like taxes, regulation and currency inflation.
Those are the factors that caused the unpleasantness that began in 1929. Since the government is exponentially more powerful and invasive today than it was in either the 1920s or the 1970s, I expect the consequences will be much worse this time around. Things could have come unglued, and almost did, back in the 1970s. I don't see how we'll dodge the bullet this time. Although that's not really a good analogy, for reasons we don't have time to explore in depth, a depression is probably inevitable this time.
The only serious question in my mind is whether it will be essentially deflationary in nature, as it was the case in the U.S. in the 1930s, or inflationary like in Germany in the 1920s. My guess is the latter because the government is so much more powerful today. Or it could actually be both at once, in different sectors of the economy.
How?
Inflation could drive interest rates to 20%. This would collapse the bond and real estate markets, wiping out trillions of dollars of purchasing power - which is deflationary. Meanwhile, that same inflation doubles the cost of food and fuel. In other words, the opposite of what we've mostly had for the last generation, when we had "good" inflation in stocks, bonds and property, but stable or dropping prices in "cost of living" items. This time the pattern could reverse, which would be a nightmare for most people.
And as people become more focused on speculation in a generally futile attempt to stay ahead of financial chaos, they inevitably divert effort from economic production, which will decrease the general standard of living even more.
The situation isn't made easier by the possibility that we're facing Peak Oil - the start of a secular decline in world oil production. Or the fact that Americans, both individually and collectively, are deeply in debt and living on the kindness of strangers. The problem with debt is that it artificially increases our standard of living. But when we pay it off, especially with interest, it reduces our standard of living in a very real way.
Wrap this economic environment around the so-called War on Terror, which is rapidly morphing into the War on Islam, which could easily turn into World War III, and you're looking at the perfect storm. The odds of a major conflagration are very high, and it's not being adequately discounted. If Bush starts a war against Iran, or if another incident like that of 9/11 occurs, or even if the trend of the last five years accelerates, the U.S. is going to be locked down like one of its numerous new federal penitentiaries. And that will be accompanied, and compounded, by mass hysteria among Boobus Americanus.
At that point, your investment portfolio will be among your lesser concerns. People forget that, in every country and time, there's a standard distribution of sociopaths and misdirected losers. In normal times, they seem like normal people. But when the time is right, they show their colors, and they love to get jobs with the government, where they can lord it over their betters.
You may be asking yourself: Is the Greater Depression really inevitable? How bad will it be? Is there another side to the argument? Can it be avoided?
I suppose it's not absolutely inevitable. Perhaps friendly aliens will land on the roof of the White House and present the government with a magic technology that can undo all the damage it's done. But we live in a world of cause and effect where actions have consequences. That being the case, I expect truly serious financial and economic trouble. And the government will make it vastly worse by trying to "do something" instead of recognizing itself as the cause and backing off. I don't see any way out.
How bad will it be? In historical terms, the last depression was relatively short and mild. The longest depression on record was the Dark Ages. Residents of the old USSR and Mao's China suffered through a depression that lasted decades. I'm not predicting it will be that bad, if only because the U.S. has basically much sounder traditions and institutions and vastly more accumulated capital. But it's hard to overestimate how serious this could be. I sometimes joke that it will likely be worse than even I think it will be.
Getting back to whether it's truly inevitable, it's a question of degree. The recession of the late 1970s and early 1980s involved a terrible stock market, 15% inflation with interest rates to match, 10% unemployment and a near war with the USSR. But the country not only hung together, it went on to a tremendous rebound. My guess is, however, that the last 20 years of good times will later be viewed as an economic Indian Summer before a harsh winter.
The good news, of course, is that no matter what the economic conditions, technology - which is the mainspring of human progress - will keep advancing. And many individuals will continue innovating, saving and improving conditions for themselves and their associates. Also, it's entirely possible to go through even the worst of times and not get hurt. Indeed, to profit from them. If the price of a house you want now but can't afford falls 75% (as outrageous as that may sound at the moment) while your own investments in the high-quality gold stocks we follow in our International Speculator quadruple, you're much better off. That house now really only costs you one-sixteenth of what it did before. Of course it's a problem for the guy who has to sell his house... but I always prefer to look at the bright side of the equation. There's time now to structure your affairs so that you're on the right side of the trade.
Keep your eyes peeled for signs that indicate it's about to get ugly. One obvious indicator to watch is how the price of gold is running. Gold is the only financial asset left in the world that's either safe or cheap. It's also underowned and largely unrecognized, which is why the smart money has been moving into it.
Then there's the CPI itself - although I don't think it's very accurate, in that all the adjustments, exclusions, weightings and what-nots the government has insinuated into it over the years makes the CPI as much of a floating abstraction as the dollar itself. It's funny how the government plays with figures for fear of hurting confidence. They believe the economy rests mainly on confidence, which, ironically, in today's world, is true. Unfortunately, confidence can blow away like a pile of feathers in a windstorm - and we have a class-5 hurricane coming. If the economy were sound and people for some reason lost confidence, the currency and the banks would be unhurt, and the next day things would go back to normal. But that's not the world we live in. So, higher CPI numbers are another thing that could destroy confidence and supercharge the gold price. They're coming.
Higher interest rates, which we're already seeing, will inevitably burst the real estate bubble, which is floating on a sea of mostly adjustable-rate debt, a lot of it interest-only or even with negative amortization. Higher rates will also crush bonds and probably stocks. And they'll devastate the economy since everybody is deeply in debt. However, I feel the Fed will keep short-term rates - which are really the only ones they control - as low as possible for as long as possible. For one thing, they don't want a recession, which this time could snowball into the Greater Depression. For another, my guess is that they want to gradually depreciate the dollar against other currencies, in part to decrease the chronic, massive trade deficit. And because increasing the number of dollars makes people think they're richer than they really are, it can stimulate some additional spending...but these days that spending is mostly done on credit, so it is only illusionary.
The biggest single problem, however, is that there are trillions of U.S. dollars outside of the U.S. Unlike Americans, foreigners have no reason to hold them. And at some point very soon, perhaps when the Fed finally hits the wall on its ability to raise rates, these overseas dollars are going to start flooding back home, while the products and titles to real wealth flow out of America.
Therefore, when the trade deficit starts turning around - which most people will think is a good thing - that will be the real tip-off the game is over. Trillions coming back to the U.S. will skyrocket long-term interest rates and inflation. The dollar will go into freefall.
But although I think these are the things to watch, to my way of thinking it makes no sense to wait until the stampede starts to try to get out the door. If you haven't done so already, take advantage of the current correction in gold to begin repositioning your portfolio for what's next.
June 8, 2006
Doug Casey (send him mail) is the author of the best-selling Crisis Investing and The International Man and editor and publisher of the International Speculator. This first appeared on Bill Bonner's Daily Reckoning.
Copyright © 2006 Doug Casey
"Planning for Inflation"
Governors of the Federal Reserve, our nation's central bank, seldom make speeches that shock or surprise people. It's not part of their job description. But on November 21, 2002, one governor, Ben S. Bernanke, gave a speech that shocked everyone who heard it.
Addressing the National Economists Club in Washington, D.C., he spoke about deflation and all that the Federal Reserve Bank could do to combat it if it occurred. He made it clear that deflation was not an option. Our government could, and would, print as much money as needed to keep our economy in mild inflation.
"Like gold," he said, "U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent) that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."
Quote from The Coming Generational Storm by Laurence J. Kotlikoff and Scott Burns - MIT Press Cambridge, Massachusetts & London, England - 2005 paperback edition
Page 189 - Grab Your Life Jacket
This Is It!
Author: Jim Sinclair
Dear CIGAs,
Many of you have asked what exactly I mean by "This is it," so here it is in point form:
1.. There is a rampant, serious financial problem with terminal potential and no practical solution hidden just outside of the public's view (OTC Derivatives).
2.. Because central banks have gotten so out of hand and political which cannot be controlled by investors or the man in the street, we need to adjust our actions so that each person takes on the responsibilities normal to central banks for their own finances.
3.. Everything we buy is getting more expensive and many assets people have, other than gold, are losing value. Because of this credit is not a proper idea regardless of the weak dollar for the majority of people reading this.
4.. Major financial institutions, Internet financial entities and banks operate without transparency where their derivative holdings are concerned. Losses the financial institutions are publishing are considered by media as having extinguished all the risk. I do not believe this. I believe they are still marked to model, only the model is moving slowly towards reality of worthlessness.
5.. There is an acceleration of bankruptcy among financial institutions. This translates to the individual needing to act as their own financial institution by having their share investments in paper form, gold in their close possession with no one in-between and available cash. The individual must be their own bank and central bank as one has failed us and both may.
6.. The savings rate in the US is negative while the expansion of credit is totally over the top.
7.. Business is turning south so the US Federal Budget Deficit will move up exponentially.
8.. The US dollar has become a bombed out and lost battle zone. There is nothing good anyone can say fundamentally about the US dollar.
9.. Non US entities are fed up with financing the US consumer and US Federal activities. This is clear from the recent TIC report, which is now down trending.
10.. Financial privacy is non-existent.
11.. There is a model for exactly what is happening now and that is the Weimar Republic. Name war retributions as OTC derivatives and you begin to see the picture.
12.. The US dollar has now made a clear indication of the final head and shoulders; the massive formation from the absolute top is breaking down.
Number 12 is the item that impacts all of the above because of the dollar's technical position now beginning to reflect the dire fundamentals. This is it.
This is it because you now have to perform not only as your own bank but also as your own central bank. This is it because the US dollar has completed a major head and shoulders bear formation, pulled back to the underside of the neckline and thereafter declining below the major support line drawn from the beginning of the big dollar bull under Chairman Paul Volcker. Volcker made the dollar and Greenspan gave it all back to Asia.
The dollar break below the recent and most important major, major support line drawn from 1980 to now is the fundamental basis which will push Gold to $1650. The US dollar is without any doubt in my mind is going to .7200, followed by .6200.
Ladies and gentlemen, prepare to defend yourselves.
( Click on the link below to visit our website. )
www.jsmineset.com
Copyright 2007 Jim Sinclair's MineSet All rights reserved
Dollar Being Driven Down
Maintaining huge trade imbalance is only possible if foreign nations hold dollars as reserve currency
The financial press reported last week that the euro, the new currency created only five years ago and used by most European nations, has supplanted the U.S. dollar as the most widely used form of cash internationally. There are now more euros in circulation worldwide than dollars.
This alone is not necessarily troubling, as the dollar remains the world's most important reserve currency. About 65% of foreign central bank exchange reserves are still held in dollars, versus only about 25% in euros. And the European Central Bank faces the same inflationary pressures that our own Federal Reserve Bank governors face, including a growing entitlement burden that threatens economic ruin as both societies age. European politicians want to spend money just as badly as American politicians, and undoubtedly will clamor to inflate--and thus devalue--the euro to fund their creaky social welfare systems.
Still, the rise of the euro internationally is another sign that the U.S. dollar is not what it used to be. There is increasing pressure on nations to buy and sell oil in euros, and anecdotal evidence suggests that drug dealers and money launderers now prefer euros to dollars. Historically, the underground cash economy has always sought the most stable and valuable paper currency to conduct business.
More importantly, our greatest benefactors for the last 20 years--Asian central banks--have lost their appetite for holding U.S. dollars. China, Japan and Asia in general have been happy to hold U.S. debt instruments in recent decades, but they will not prop up our spending habits forever. Foreign central banks understand that American leaders do not have the discipline to maintain a stable currency. When the rest of the world finally abandons the dollar as the global reserve currency, both Congress and American consumers will find borrowing money a more expensive proposition.
Remember, America can maintain a large trade deficit only if foreign banks continue to hold large numbers of dollars as their reserve currency. Our entire consumption economy is based on the willingness of foreigners to hold U.S. debt. We face a reordering of the entire world economy if the federal government cannot print, borrow and spend money at a rate that satisfies its endless appetite for deficit spending.
At some point Americans must realize that Congress, and the Federal Reserve system that permits the creation of new money by fiat, are the real culprits in the erosion of your personal savings and buying power. Congress relentlessly spends more than the Treasury collects in taxes each year, which means the U.S. government must either borrow or print money to operate--both of which cause the value of the dollar to drop.
When we borrow a billion dollars every day simply to run the government, and when the Federal Reserve increases the money supply by trillions of dollars in just 15 years, we hardly can expect our dollars to increase in value.
Ron Paul, a medical doctor, is a Republican member of the U.S. Congress who represents the 14th District of Texas. He refuses to support policies contrary to traditional constitutional principles. Paul was the Libertarian Party presidential candidate in 1988. Call his office toll free at 1-888-322-1414 or visit his website at www.ronpaul.org.
From Richard Russell's Dow Theory Letters, April 12, 2007
Below -- the latest from Congressman Ron Paul of the great sovereign state of Texas -- a state blessed with a suitably great and patriotic representative.
The Federal Reserve Monopoly over Money
April 9, 2007
Recently I had the opportunity to question Federal Reserve Chairman Ben Bernanke when he appeared before the congressional Joint Economic committee. The topic that morning was the state of the American economy, and many of my colleagues raised questions about how the Fed might better "regulate" things to ease fears of an economic downturn. The tenor of my colleagues' questions suggested that Mr. Bernanke's job is nothing less than to run the U.S. economy, like some kind of Soviet central planner.
Certainly it's true that Mr. Bernanke can drastically affect the economy at the drop of a hat, simply by making decisions about the money supply and interest rates. But why do members of Congress assume this is good? Why do we accept without objection that a small group of people on the Federal Reserve Board wields so much power over our economic well-being? Is centralized, monopoly control over our money even compatible with a supposedly free-market economy?
Few Americans give much thought to the Federal Reserve System or monetary policy in general. But even as they strive to earn a living, and hopefully save or invest for the future, Congress and the Federal Reserve Bank are working insidiously against them. Day by day, every dollar you have is being devalued.
The greatest threat facing America today is not terrorism, or foreign economic competition, or illegal immigration. The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation. It is this one-two punch-- Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference-- that threatens to impoverish us by further destroying the value of our dollars.
The Fed's inflationary policies hurt older people the most. Older people generally rely on fixed incomes from pensions and Social Security, along with their savings. Inflation destroys the buying power of their fixed incomes, while low interest rates reduce any income from savings. So while Fed policies encourage younger people to over-borrow because interest rates are so low, they also punish thrifty older people who saved for retirement.
The financial press sometimes criticizes Federal Reserve policy, but the validity of the fiat system itself is never challenged. Both political parties want the Fed to print more money, either to support social spending or military adventurism. Politicians want the printing presses to run faster and create more credit, so that the economy will be healed like magic- or so they believe.
Fiat dollars allow us to live beyond our means, but only for so long. History shows that when the destruction of monetary value becomes rampant, nearly everyone suffers and the economic and political structure becomes unstable. Spendthrift politicians may love a system that generates more and more money for their special interest projects, but the rest of us have good reason to be concerned about our monetary system and the future value of our dollars.
www.gold.org
www.gata.org