The View From 1776

The Next Economic Storm?

Read the disquieting Future of Gold on the Mises.org website.  Naufal Sanaullah gives a wealth of background analysis to support his belief that the Fed will soon be compelled to dump onto the market massive amounts of fiat dollars hidden, for the short term, on its balance sheet.

Posted by .(JavaScript must be enabled to view this email address) on 01/27 at 12:04 AM
  1. I have been reading a lot on how they manipulate the price of gold using "gold leasing" and short positions both here and overseas. Goldman Sachs used Tokyo for massive short positions and started moving to long positions a while back.

    At one time their were more positions in the market than the gold available. The article is good in that it details some of the things the Fed has been doing to try and stimulate things but, so far, with little success.
    Posted by JanPBurr  on  01/27  at  10:51 AM
  2. In which case, the Fed will be maintaining its own counterfeited dollars. Effect? DUMB SOLUTIONS FOR DUMB-CAUSED PROBLEMS.

    The nature of the beast will have its own increasing gravitational move: down...
    Posted by Jim Baxter  on  01/27  at  10:51 AM
  3. "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
    -- John Maynard Keynes
    (1883-1946) British economist
    Source: "The Economic Consequences Of The Peace"

    Interesting that the man many in government hold up as the solution also saw the danger and warned of it. Yet, how many times do you hear politicians quote Keynes on this?
    Posted by JanPBurr  on  01/27  at  11:50 AM
  4. That Keynes was aware of the sinister effects of inflation on personal wealth does not invalidate his other ideas and theories. Rather, it provides evidence that he knew what he was talking about.

    He knew that spending by government in recessionary times posed a danger of inflation, but also knew that doing nothing was a far worse option.
    Posted by .(JavaScript must be enabled to view this email address)  on  01/27  at  06:13 PM
  5. However, in order for his theory to be good, it needs to be money from surplus as it was for a good portion of the U.S. He also said repay it after the recovery.

    There are a couple of things wrong with his theory. One is the risk of inflation but the other is human nature both in citizens and politicians. If the spending is taken away to restore the money spent, it causes layoffs and lower profits and a recession because people who had the jobs the government created, don't want them to go away and the politicians are afraid of losing vote if they take them away.

    In other words, using artificial stimulus creates a situation where it become almost impossible to end them. Also, they usually never create the growth that can repay the debt created.

    There was a good article with charts on how each time the government has tried to balance the budget again after a recovery begins, it sends us into another recession that causes more stimulus spending before we get the debt paid back. I checked and the article on that site is no longer there. But, common sense would tell us that would be the case.

    Keynes is right in theory but not in practice because of human nature and economic factors in the recovery when you try to balance the budget. We need recessions to play out so we get rid of whatever excesses were created. If we don't, we only delay the inevitable as history has shown here over the last 70 years. Not all is the fault of his theory, of course but, it is a significant part of it.

    The reason the great depression was so bad was not what government did after it started but due to the build up of debt before it, just like now.

    The greater the excess, the greater the pain to correct it and the excess has to be gotten rid of. Delaying it only makes it worse when it does come.

    Because we worked so hard to minimize the 2001 recession, we are going to now pay a huge price. All the stimulus of Bush will now cost us dearly because we didn't let personal, city and state debt be reduced and actually encourage the increase of it to keep spending up.

    Had they not did that, we would have had a deep recession or mild depression and got it over with. Now we face many years of depression no matter what the President does. Yet, instead of getting rid of the excess, he will add to it and make the collapse worse if he does succeed in delaying it.

    Remember there is no way to pay down the debt. Congress has been warned for years in testimony there is no way to grow or tax out of it.
    Posted by JanPBurr  on  01/28  at  01:10 AM
  6. I should add. I don't expect the President or Congress to do what is needed because they would be run out of Washington on a rail. The voters are not prepared for the pain of a correction that would cleanse the system.

    I don't see any way out for the President. If he said he was going to "do nothing" and let the cleansing take place he would be impeached. That is why, I have put plans in place so that I am personally prepared for the collapse and millions of others are too. Unfortunately, only a few million are prepared.

    The vast majority will not know what hit them. No wonder they are training 30,000 troops for civil unrest and detention camps. The cities and states are running out of money and the Fed will have to "print" the money to bail them out. Yet, if the FED didn't do that, the people would throw them out.
    Posted by JanPBurr  on  01/28  at  01:21 AM
  7. Jan,

    There is no doubt some truth to your viewpoint, but it is very pessimistic. I hope your preparations do not include a loaded gun and a basement full of bean cans.

    While it seems a "long row to hoe" to pay down the debt, that has not been a practical aim of the government in my life time. They just try to stay ahead of the interest.

    Unfortunately, the other aspect you are probably correct about is that the way past administrations and this one too will address the debt is to get rid of it by inflating the currency. A dollar of debt in 1950 amounted to something. By now, a dollar is peanuts.

    When my favorite senator, Ev Dirkson, said, "A billion here, a billion there, and pretty soon you are talking real money," a billion was an unbelievable sum. Now, we throw around that term as though it were chump change.
    Posted by .(JavaScript must be enabled to view this email address)  on  01/28  at  11:56 AM
  8. The government itself says it is impossible to pay it down. I got that "pessimistic view" from the Government Accounting Office and Testimony in Congress.

    The only way out of debt is either default or hyper-inflate. There is no other choice. There is no "grow, tax or grow and tax" option available according to our government. But, the politicians aren't going to say that publicly. To do so would have voters asking why they are increasing the deficit if we already can't pay it down at some point.

    That is why I believe the G-20 is talking about a new global currency tied to a basket of currencies instead of continuing with the dollar as the world's reserve currency.

    However, that day may be months or years off. I think a lot will depend on what the Gulf nations do in June when they say they will depeg from the dollar and go with a new common currency. If they demand oil sales in that currency, then the dollar will be in deep trouble and could collapse it.

    In DAVOS, the CFR is pushing for nationalization of the U.S. Banks and/or a "good bank/bad bank." Roubini has counted up the trillions the banking sector needs and there is no way we can borrow what is needed so we will have to print the money and that will eventually cause huge problems with debt and the dollar that can't be corrected.

    Again, these are not my views. I am only relaying what our government, other governments and global economists are saying is going on and what appears to be going to happen if these trends continue.

    Unless he changes his mind, President Obama has said the trends started by Bush will not only continue but be stepped up dramatically.
    Posted by JanPBurr  on  01/28  at  12:33 PM
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