DrZero

The Dow, In Gold

This chart is suspect because gold was not a floating commodity for the first part of the chart, but had linked to the US dollar. So the first big discontinuity comes in 1932, when FDR ended gold exchange for dollars, and devalued.

Nixon took us off the international gold standard (ending exchange of dollars for gold for foreign central banks) in 1971. That's the second discontinuity.

President Ford allowed US citizens to buy gold again for the first time since 1932, a third discontinuity.

I would say that if you look at the chart from 1980 forward you are dealing with a steady state and it is more meaningful. This says perhaps the gold boom / dow bust is almost over. Somewhere around "2" it's time to sell gold and buy Dow.

What if U.S. Social Fabric Tears?

On Nov 09 02:39 PM Tom E. wrote:

> The US has traditionally had a labor shortage economy throughout
> its history. If you didn't like where you were working you could
> always go or move somewhere else and find work.
>
> As in the Depression, that has now changed. Business has helped to
> create a labor surplus through off shoring and outsourcing. This
> will undermine American's traditional support for capitalism (as
> happened in the Depression).

Good point but you are leaving out immigration as a major factor. Mexicans have displaced blacks in no-skill and low-skill jobs to the point that urban black males without degrees are essentially unemployable in most cities. The path from the lower middle class to the middle-middle class has been severed by the importation of milions of East Indians and Chinese. One only needs to look at IT departments anywhere in the USA.

The political class has shown a disregard for the native born and a strange proclivity to support foreigners first. The biggest beneficiaries of Clinton and Bush's economic policies have been China and India, not the USA. The biggest winners from China and India are the thousands of kids who got to come here and get BA's and masters degrees in American state colleges.

Essentially many Americans have worked to pay high taxes to help educate the immigrants who will displace their kids.

What if U.S. Social Fabric Tears?

On Nov 09 12:12 PM ChickenLips wrote:
> I don't see the argument that we live in a socialist economy. If
> we did, we wouldn't have the widespread misery that we encounter
> on a daily basis. Massive unemployment, declining wages and benefits:
> these don't usually go hand in hand with socialism. But they do go
> in hand with a capitalist economy run amock.

Opinions differ. The socialist economies of Cuba, Russia and China delivered far more misery than prosperity for the vast majority of their citizens for decades (in the case of the USSR, almost a century). China embraced caplitalism and has seen tremendous upsurge in the average wealth. India followed the socialist model until the 1980s, embraced capitalism and has the fastest growing middle class in the world.

There are many historical forces driving things besides the socialist or capitalist ideology of the political class. Probably almost everyhwere in the world is a hybrid of both systems at this point. It's hard to convincingly call the USA a real capitalist when we've just spent trillions to bail out banks and big corporations, when politicians are appointed to run huge enterprises they have no knowledge about (Clinton era apointees to Fannie and Freddie, including Rahm himself) etc.

Gold: You Can't Sell High If You Didn't Buy Low

Thank you Guru Mogambo! Thank you Bill Bonner! Made a very large buy at $411 several years ago based on their writings. While I'm pleased with the new high I'm not quite ready to take profits yet.

The Obscenity of Bailouts on Full Display

Nice to give Clinton a pass like that, but wasn't he the first one to put a former Goldman CEO into Treasury (Robert Rubin) and didn't another former Goldman CEO buy the Governor's seat in New Jersey (John Corazine). I think both parties have been fully corrupted at the upper reaches by the banksters. Go look at Obama's top 20 campaign contributors. Goldman, Morgan, etc are all there. Funny thing they were also on McCain's top 20 list.


On Jul 14 01:36 PM Michael Clark wrote:

> Remember International Telephone and Telegraph? They didn't create
> a global depression; but it was too big to fail; so the government
> broken them up into regional baby bells. Goldman Sachs needs to be
> eliminated, broken up into pieces and kept smaller enough so that
> they never again conceive a plan to take over the government in a
> bloodless coup. Goldman is not the only company that was allowed
> to become to big. AIG obviously was another. There are many others.
> Any company or series of companies in collusion who can throw the
> world economy into depression need to be broken up. Get out the carving
> knife.

Have You Seen the M3 Lately?

On Jul 09 08:13 AM User 443773 wrote:

> The sweeping decline
> in the broadest measures of money in the US (and elsewhere) ...

What are you talking about? A decline would mean the M3 is going down. It is not. As the chart shows it's gone from 10 to 14 Trillion over the last 4 years. The RATE OF GROWTH has slowed ... to "only" 6%. Growing at 6% is not a decline, either.

A "sweeping decline in M3" might mean it drops back to 10 Trillion. OK, *THAT* would be a decline. What the chart above shows is that we went from frenzied creation of money to merely muscular creation of money.

Social Security, June 2009 Report: Ongoing Deterioration

One effect of the recession that I have seen reported is that older workers who have been putting off retirement who become unemployed typically retire immediately, or as soon as they are eligible, rather than waiting to the "full retirement" age. Supposedly this has no long term effect on the fund (they get less each month as a result) but the short term effect is to an unexpected expenditure bubble.

Mid-Year 2009 Recap: What's Ahead

OK, he closes with this: I am quickly running out of possible scenarios to prevent a severe deflationary depression from taking place. "By "severe" I mean 20%+ U3 unemployment, GDP contraction of at least 25%, and a possible loss of federal funding capacity leading to the immediate destruction of Medicare, Medicaid and Social Security, a 50% reduction of defense spending and near-complete-elimination of all other Federal Programs due to a "sudden stop" in the ability to fund Treasury issuance. "

This assumes that the Fed will not just take up the slack in purchase of treasury bonds. But they have already signaled they will. Read his scenario again. There is NO WAY IN HELL that any US administration is going to allow Social Security to be destroyed on their watch. Particularly not a left-leaning one that fancies itself the creators of a "New New Deal". So the die is cast and the way forward is clear.

If demand for the ~$2 Trillion in US Treasury Debt isn't met by foreign governments the Fed will buy what is remaining, up to "all of 'em". Yes, this is the event that many have foretold, that has extremely predictable consequences. (ie: monitizing the debt, snake eating it's tail, printing money like no tomorrow....)

Which means that the period of deflation might still be followed by a period of very high inflation, and the gold bugs might yet be right, despite Karl's disparagement of them.

Regardless, the loss of appetite for US debt is sure to spark a loss of appetite for US dollars as the reserve curreny, which is already in play. The question is once the value of the dollar starts a steeper decline where can you go to hide your money?

But the Recession Is Over!

You amaze me with the consistently high quality and near-daily output of columns. I also appreciate your outrage, which I believe many 'normal' people share, but the CNBCs of the world refuse to discuss. The behavior of the banks is absolutely atrocious. My attitude towards banks now is approaching that of my grandfather (who lost money to depression-era bank failures). He hated them and avoided using them whenever possible.

The Myth of Gold Confiscation

The one big difference not discussed: some huge percent of Americans, perhaps 1/4 or even 1/3 are completely opposed to almost everything the government does. We are not the same nation we were in 1933. Not even close. Gold bugs tend to be among the better informed and more cynical people out there. Essentially NO ONE is going to line up to give gold to the Fed, no matter what little piece of paper Mr. Obama signs. And even mighty FedGov isn't big and bad enough to go house to house searching for gold (for they would surely find much lead in the process.)

Therefore the discussion is moot. The only confiscation I could see taking place would be the ETF's supply. That they could probably pull off. As in the Chrysler and GM deals Obama has shown that at least some courts will bow down to even his most absurd and illegal orders.

On Gold and Civil Liberties

I own lots of IAU and SLV and am happy with the returns I have achieved to date with them. I see two big advantages to them: first I can easily hold them in my personally managed IRA. If I were to take money out to buy gold to keep in my possession I would pay a 10% penalty and 33% tax on the money. In other words, for every dollar I have I would be able to buy 57 cents worth of gold. Using IAU I can get $1 of paper gold for $1 of paper money.

The other is ease of use. Easy to buy, easy to sell, Push a button, buy some gold.

Now I love physical gold and silver too, and have been increasing my physical holdings, but still have a lot less than IAU - simply because the bulk of my savings is in tax-free accounts.

Mapping TARP by States

This map is misleading.

The TARP has been a huge transfer of wealth from the West to the East Coast, especially New York. Major West Coast banks have been rolled up and given to New Yorkers for their sins (WaMu) while East Coast insider dominated banks get bailouts for their transgressions.

Many of those TARP deposits in Western states are now held by JP Morgan (Chase, WaMu), Bank of America of Charlotte and others.

A secondary effect of the New York Fed redesign of our financial system is the relative lack of regional banks in the west, something many western businessmen can tell you about. (Of course the primary effect of the redesign it to keep Citibank, JP Morgan, Goldman and BofA in the game even though any fair minded accounting would have bankrupted and siezed them, and perhaps let strong regionals rise in their place).

The strong East Coast bias in the actions of the NY Fed is a story that needs to be better told by the financial press.

Our Nation's Risk of Default

A commission? That's going to fix things? I don't think so. Anyone with a brain who cares to knows this stuff. Bush and his team understood these problems. Obama's team does to. So do the 5% of the population that can read things like this article. The other 95% will remain focused on Paris Hilton, American Idol and vote for whoever the media tell them to every four years.

A Constitutional Ammendment? Not gonna happen. The ERA could not get passed, for one thing. For another Congress ignores the Constitution every day in a million ways, so this would just be a fig-leaf, anyway.

As for default: no way. We will monitize the debt every time. We will print money like toilet paper before we default. That's never gonna happen.

People need to stop dreaming about saviors, commissions, new laws and mad plans and start visualizing the failure in more detail. The major inflation meme is a good one. One can invest using that.

Monday Morning Gold Screed

Gold has ended the year higher 8 years in a row. Not too many assett classes you can say that about. The only real question is will this be year number 9. Because lets face it, it's going to be very hard to predict which other assett class is going to end the year on a positive note. As others mentioned it's still a long term play.

As for manipulation regardless of the particulars the fact that two banks, JP Morgan and HBSC control well over 70% of the contracts on the Comex for silver and a slightly lower percentage for gold is ipso facto proof of manipulation. Name one other futures market that is dominated in this way. Morgan's trades in silver last year equaled 50% of the world mining output.

Oh, yeah. If not for FedGov JP Morgan would be a footnote in history at this point. They are a tool of the government and have been for decades.

Essentially FedGov is propping up a few big banks who turn around and "invest" in futures arbitrage, short selling (but not BANKS! We mustn't do that!!) and pillage of other groups, including smaller banks, credit card holders and small businessmen.

The questions most of us out here in fly over country have isn't whether GOLD is a good thing to have lots of, it's what the proper LEAD/GOLD ratio is. As many new stories have attested that question's answer has swung decisively in favor of Lead in the last few months.

This System Is Not Worth Saving

It is hard to tell investment banking big wigs (Robert Rubin) from disgraced commedians (Paul Rubin aka PeeWee Herman) at this point, so I can understand the mistake the author made.

Paul's momentary indescretions in a movie theatre are nothing compared to Robert's incredible mishadling of many different things in the economy, ending with Citi a burnt out shell of a a once great bank.