Eric Sprott: Paper Vs Physical Gold

Friday, April 20th, 2012

While Eric Sprott obviously has a modest axe to grind, his open and honest discussion with Charles Biderman on the difference between gold ETFs methods of owning gold, so-called physical vs paper gold, is noteworthy given the depth he goes into. After explaining the concerns of GLD, Pisani’s putterings, and tax-related differences, Eric goes on to discuss his and other physical trusts and how he started down this route. The latter end of the discussion shifts from the practicalities of owning ‘sound money’ or ‘hard assets’ to the thesis for doing so – the debasement of fiat currency and the printing press fanaticism being exhibited globally. Concluding with his thoughts on what could change this thesis, he sees the greatest risk that “we come to our financial senses” – a highly unlikely scenario given the dominoes likely to fall should that occur.

Tags: Assets, Axe, Debasement, Dominoes, Eric Sprott, Fanaticism, fiat, Fiat Currency, Paper Gold, physical gold, Pisani, Printing Press, risk, Senses, Sound Money, Thesis, Trusts
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Is Capitalism Dead or Simply Dying?

Thursday, April 19th, 2012

Noted financial author Richard Duncan says Capitalism is Dead, Credit New King.

The world needs to clue in to changes to its economic system, including the death of capitalism, according to noted financial author Richard Duncan, who warns that attempts to turn back the clock on our credit-driven economies could be cataclysmic

Recognizing that the world operates on a different set of rules from the laissez-faire capitalism of the 19th century is among the key arguments in Duncan’s 2012 book, “The New Depression: The Breakdown of the Paper Money Economy.”

Stuck with ‘Creditism’

Duncan sees the global economy as having undergone a fundamental transformation during the past 43 years. Since changes in 1968 that freed the Federal Reserve from holding physical gold in reserve against dollars in circulation, total global credit has expanded 50 times, or from about $1 trillion to $50 trillion in 2007.

Over that period, credit creation and consumption, or what Duncan calls “creditism,” took hold as the growth dynamic behind the global economy, displacing capitalism, which he says relied upon sound money, hard work and capital accumulation.

Attempts to break the global economy’s reliance on credit creation as a driver and reboot back to earlier ways won’t work, said Duncan, who sees “sound money” policy recommendations as a recipe for disaster.

Duncan believes that true capitalism died in 1914, when nations across Europe abandoned gold-backed currencies, running up huge deficits in preparation for what would come to be known as the Great War.

“I’m recommending making use of this new economic system. Borrow money at the government level at very low interest rates and then invest that money and change our world for the better.” Duncan said.

Building a national solar-energy grid that could tap the arid landscapes of Nevada are among Duncan’s recommendations.

Duncan said he first outlined his thinking on government-led investment in a 2008 book. On speaking tours, he encountered the “greatest push-back” from free-market, libertarian thinkers who are skeptical of government involvement in the economy.

He says many libertarians “are with me along through the argument” on causes of the global crisis, but that they tend to be “very surprised” by his conclusion that part of the solution requires governments to spend more — not less.

Monetary Madness

Duncan is yet another author who predicted a financial crisis but whose solutions can only be described as monetary madness.

“Glutted with excess industrial capacity and a banking system laden with massive loans that will never be paid back, China faces difficult decisions much as Japan did” says Duncan.

Indeed!

Then like an economic madman, Duncan wants the US government to undertake massive infrastructure projects just like the ones that bankrupted Japan and China’s State-Owned-Enterprises (SOEs).

Obama’s Excursions Into Clean Energy

Look at Obama’s backing of Green Energy companies Ener1, Solyndra Inc., and Beacon Power, all three now bankrupt as noted in Another Obama-Backed Green Energy Company Goes Bankrupt.

Solar Energy Madness in Europe

In an effort to spur solar energy in France, Germany, Spain and other European countries, bureaucratic dunces decided to pay as much as 10 times market rates for those supplying energy to the power grid.

In response, farmers in France have started building “barns” that serve no other purpose than a place to put solar panels. Supermarkets put solar panels on their roofs and unused sections of parking lots.

It has been a boom to solar panel makers (China), but it is costing the French power company Electricite de France SA more than a billion euros ($1.3 billion) a year to meet government mandated pledges to accept solar energy from those supplying the grid.

At the end of 2010, EDF received 3,000 applications a day to connect panels to the grid. In 2008, the number of applications was 7,100 for the entire year.

The results should have been easy to predict in advance, but you can never explain anything to economic illiterates interfering in the free markets hoping to make things better. They never do.

For more details, please consider EDF’s Solar ‘Time Bomb’ Will Tick On After France Pops Bubble

Is Capitalism Dead?

If capitalism is dead, it is because socialists, fascists, bureaucratic fools, and central-planner advocates like Duncan destroyed it via foolish proposals to improve on it.

The idea that governments can invest wisely in technology, at reasonable costs, and the free market cannot is downright absurd as the US, Japan, China, and Europe have proven in spades. In short, Duncan has lost his mind.

Mike “Mish” Shedlock

http://globaleconomicanalysis.blogspot.com

Tags: Arid Landscapes, Capital Accumulation, Credit Creation, Driven Economies, Economic System, Energy Grid, Financial Author, Fundamental Transformation, Global Credit, Global Economy, Government Level, Laissez Faire Capitalism, Low Interest Rates, Money Economy, Money Policy, Paper Money, physical gold, Policy Recommendations, Richard Duncan, Sound Money
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Is the Dollar a Zombie?

Saturday, June 5th, 2010

by Frank Holmes, Chief Investment Strategist, U.S. Global Investors

The title of this entry is the same as the theme for the spring meeting of the Committee for Monetary Research and Education (CMRE) in New York in late May. CMRE is an educational group made of economists, journalists, think-tank researchers, investors and others interested in the principles of sound money.

Given the possible ramifications of the massive sovereign debt loads in western Europe, a better title for CMRE might have been “Is the Euro a Zombie?”

Pessimism prevailed at the podium. Here’s a sampler from some of the speakers.

Market historian Bob Hoye: The people in charge of financial policy reform know little about markets. The stock market rebound from March 2009 low was, historically speaking, a classic bounce-back from a financial crash, and it had to come to an end. Senior gold stocks will see much higher value in the future, and the Dow will be much lower. Junior gold stocks in the future will be much like tech stocks of early 1990s – the big party for that sector is yet to come

Investment manager David Tice: There will be higher interest rates and lower standards of living around the world, and higher gold prices. The inflation vs. deflation debate is yet to be settled. The big question is “What happens when people no longer trust their money?”

Former U.S. Comptroller General David Walker: Government is too big, it has promised too much and it has waited too long to try to fix its problems. The U.S. can’t grow its way out of the current troubles, and it can’t inflate its way out. Reliance on foreign bankers (50 percent of U.S. public debt is held overseas) is not in the nation’s long-term interest.

Heritage Foundation’s Bill Beach: Many governments enjoy creating dependent populations, and part of the dependency culture in the U.S. is that a high percentage of the population pays no federal taxes. This percentage is rising. To pay for growing entitlement programs, the U.S. government will likely turn to more deficit spending in the medium term and much higher levels of taxation in the longer term.

Barron’s columnist Jack Willoughby: The European monetary union can’t hold over time because there is not enough political integration in the eurozone. The U.S. is heavily exposed to the euro crisis through hundreds of billions of dollars worth of currency “swap lines” that the Federal Reserve made available to Europe.

Now I’m not necessarily endorsing any of these viewpoints, but they are well-thought-out by experienced observers, and they are worth offering up for discussion to a broad audience.

Copyright (c) U.S. Global Investors

Tags: Chief Investment Strategist, Cmre, Comptroller General David, Comptroller General David Walker, Debt Loads, Dependency Culture, Dependent Populations, Educational Group, Federal Taxes, Financial Crash, Frank Holmes, Gold, Gold Prices, gold stocks, Heritage Foundation, Investment Manager, Market Rebound, Monetary Research, Sound Money, Sovereign Debt, U S Global Investors
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‘Encouraged by a wicked wizard, Greenspan, Bernanke toils at his printing press’

Friday, November 28th, 2008

The Guardian has published below, an insight-full essay by Hugh Hendry, CIO, Eclectica Asset Management. Hendry’s brash and eloquent commentary has earned him a reputation which he best personally describes as heresy, as many in the City of London have tried at times to dismiss his bold and controversial views.

Again, Hendry closes in on his decision to be long the long government bonds, as he contends that long term rates will come down as central banks globally, have little choice but to follow the Fed to lower interest rates over the next year or two.

As markets liquidated in the deleveraging fervour that has proliferated this year, investors have piled into short term treasury bills and money market instruments. As sentiment for equity markets and commodities continues to wane, its starting to appear more likely that short term bond money will go in search of yield further along the yield curve, and as it does the rather steep yield curves should flatten.

Here’s another thought. What incentive does the US government have for reviving the stock market? After all, where else are they going to get the money to pay for a trillion-dollar war and a trillion-dollar bailout, but the bond market? It would serve government if an entire segment of investors fled into the longer (duration) end of bond the market for capital safety so as to indemnify those at the printing presses.

The Wizard of Oz must be one of the creepiest stories ever told.

“The past 30 years of economic history may have produced a daunting sequel to the original Wizard of Oz, written by Frank Baum.

By Hugh Hendry
Last Updated: 10:59AM GMT 27 Nov 2008

Follow the yellow brick road to get a picture of where we are

People blame this crisis on cheap money and greedy bankers. They certainly cannot be exempted. But I take a more fatalist point of view. There has to be a reason for humans to die off in their 70s and 80s. I believe it is so that the memory of a generation’s mistakes is erased, allowing future ages to repeat the folly of greed and fear.

Because of this, I spend a lot of time reflecting on social mood and behaviour. Popular fiction is a particular fascination; I believe it provides a mind map of the social conscience. The Wizard of Oz is a personal favourite. I would contend that bullish markets produce feel-good films, like Disney animation; that bear markets produce depictions of horror and foreboding (think Hammer House of Horror in the 1970s and SAW, its modern equivalent); and that social mood is linked to stock market patterns.

The original Frank Baum story was written as a political allegory of America’s entry on to the gold standard in 1879. The strictures of sound money coincided with a vibrant post Civil War economy. The result was deflation: prices fell by 1.7pc pa between 1875 and 1896. The farmer, as depicted by the scarecrow, was held captive by falling agricultural prices and mortgages owed to the big banks, the wicked witch of the east. The spell of tight monetary policy cast a pall over the poor tin woodsman: every time he swung his axe, he chopped off part of his body. It was a depiction of the economy’s shuttered and rusting factories.

The easy-money crowd, Bernanke and Greenspan’s great grandfathers perhaps, argued the responsibility for the economy’s woes lay with an insufficient monetary response. The gold market had a scarcity that choked the US economy into serfdom.

Instead, the populists’ manifesto called for the readmission of more plentiful silver coinage into the system – a point captured by Dorothy’s silver slippers (Hollywood changed them to ruby) as she skipped along the yellow brick road (the gold standard). Print more money and remove us from penury. Consecutive presidential elections were contested on such a return to bimetallism in 1896 and 1900. Surprisingly, the easy-money crowd, proved unsuccessful; they were defeated by powerful bankers such as JP Morgan. However, the story ends with the good witch of the south (the populace) prophesying that Dorothy’s silver slippers (easy-money policy) are so powerful they can fulfil her every wish. This utopia was made possible just 13 years later with the formation of the Federal Reserve. The tin man and the scarecrow would have a more forgiving lender of last resort after all and 71 years later the wizard, called Nixon, went one step further and abolished the need for gold and silver ounces (Oz) when the US reneged on its Bretton Woods commitment to sound money.

Of course, today we could be watching a comparable parable unfold. The past 30 years of economic history may have produced a daunting sequel. I would suggest tomorrow’s fiction will prove much darker, perhaps in the image of Goethe’s Faust.

The story would feature an apprentice printer called Bernanke. Encouraged by a wicked wizard, Greenspan, he toils at his printing press night and day producing reams of paper money. At first his monetary accommodation seems to bring unbridled prosperity. Boom follows boom, as the business cycle is seemingly abolished, house prices grow to the sky and his political stock rises. In time, the scarecrow is bought-off by crop subsidy; the tin man vacations in Vegas, having refinanced his mortgage for the 13th time. And the sorcerer’s apprentice is promoted to top wizard.

However, Greenspan, now in retirement, finally reveals his scheme has brought only “bogus riches”. The printing presses have created a “zero-sum game” where dollars lose their purchasing power against God’s brew of precious metals. The populace begins to save. Spending is reined in. Even the corporate sector suffers. With consumers no longer spending, there are no profits. Shares slump and the fiat kingdom collapses in anarchy.

And that is pretty much where we are today.

I withdrew my hard-earned money from a bank this summer. But it may surprise you to learn that I bought government bonds of long duration. Surely I should have bought gold? Except that I believe the way to make money is to seek opportunities through paradox.

And therein lies our brinkmanship: everyone has skipped our story and read the conclusion. They fear financial anarchy. Gold coins are sold out. Everyone is in. And yet the price of gold has fallen this year. So, for now, I would stick with the bonds. The 18-year British gilt yields 4.8pc but, with the Bank of England likely to follow the Fed and slash rates to 1pc, I believe we could see gilt yields below 3pc. And I promise you that if bond yields broke 3pc there would be a stampede to buy.

At this stage gold might trade close to $500, and those who missed its rally from 2002 would have the solace of schadenfreude when in reality they should be buying the stuff and selling their bonds. What delicious irony: deflationists and inflationists could both claim to be right. But how many will have profited?

Hugh Hendry is the co-founder of Eclectica Asset Management.”

Tags: Agricultural Prices, America, Animation, Bailout, bank, Bank Of England, Banks, Bear Market, Bear Markets, Bernanke, Bond Market, Bond Money, Bond Yields, Bonds, Br, BRIC, Central Banks, Cheap Money, Cio, City Of London, Co Founder, Collapse, Commodities, Controversial Views, Deflation, Desc, Disney Animation, Dollar, Dollar War, Dow, Eclectica, Eclectica Asset Management, Eco, Economy, Eloquent Commentary, Equity Market, farmer, Fed, Federal Reserve, fiat, Frank Baum, Gold, Good Films, Government Bonds, Greed And Fear, Greenspan, Hammer House of Horror, Hugh Hendry, Img, inflation, interest rates, Investors, Jp Morgan, Loc, London, Market Patterns, Markets, Metals, Monetary Policy, Money, Money Crowd, Money Market Instruments, Mortgage, oil, People, Political Allegory, Post Civil War, precious metals, printing press night, Printing Presses, Prosperity, Rally, REW, risk, Scarcity, Sentiment, Silver, SMI, Social Conscience, Social Mood, Sound Money, Stock Market, Stuff, Term Bond, The Guardian, The Wizard of Oz, Tight Monetary Policy, Tin Woodsman, Treasury Bill, Treasury Bills, Trillion, UK, United States, Us Federal Reserve, Us Government, usd, War Economy, Wicked Witch Of The East, Wicked Wizard, Wizard Of Oz, Yellow Brick Road, Yield Curve, Yield Curves
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The Age of Prosperity is Over: Arthur Laffer

Thursday, October 30th, 2008

Arthur Laffer, the Reagan-era economist, famous for defining Supply-Side economics and developing what is now referred to as the Laffer Curve, has written an Op-Ed piece in the Wall Street Journal (October 27, 2008).

The Age of Prosperity is Over, October 27, 2008. This is a must read.

Seymour Schulich provides a foreword to this article:

“This piece from an American friend gives a clear picture of where the U.S. is heading and the price to be paid for allowing unregulated hedge funds and derivative activity.

The next commodity boom will set new price records. It is galling to see the u.s. dollar sell at a huge premium. I think our Canadian dollar is the best buy in the world today.”

Best Regards, Seymour Schulich

Here are some excerpts:

When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.

No one likes to see people lose their homes when housing prices fall and they can’t afford to pay their mortgages; nor does any one of us enjoy watching banks go belly-up for making subprime loans without enough equity. But the taxpayers had nothing to do with either side of the mortgage transaction. If the house’s value had appreciated, believe you me the overleveraged homeowner and the overly aggressive bank would never have shared their gain with taxpayers. Housing price declines and their consequences are signals to the market to stop building so many houses, pure and simple.

Regarding past Presidents and central bankers:

The stock market is forward looking, reflecting the current value of future expected after-tax profits. An improving economy carries with it the prospects of enhanced profitability as well as higher employment, higher wages, more productivity and more output. Just look at the era beginning with President Reagan’s tax cuts, Paul Volcker’s sound money, and all the other pro-growth, supply-side policies.

Bill Clinton and Alan Greenspan added their efforts to strengthen what had begun under President Reagan. President Clinton signed into law welfare reform, so people actually have to look for a job before being eligible for welfare. He ended the “retirement test” for Social Security benefits (a huge tax cut for elderly workers), pushed the North American Free Trade Agreement through Congress against his union supporters and many of his own party members, signed the largest capital gains tax cut ever (which exempted owner-occupied homes from capital gains taxes), and finally reduced government spending as a share of GDP by an amazing three percentage points (more than the next four best presidents combined). The stock market loved Mr. Clinton as it had loved Reagan, and for good reasons.

Hat Tip: John Budden, BeEarly.com

The Age of Prosperity is Over, Wall Street Journal, October 27, 2008.

Tags: aggressive bank, Alan Greenspan, Arthur Laffer, Banks, Bill Clinton, Canadian Market, Commodity, Congress, Dollar, Economics, Economist, Economy, Excerpts, GDP, Good Reason, government spending, Hedge Fund, Hedge Funds, law welfare reform, Markets, Mortgage, Paul Volcker, president, Reagan, REW, risk, Sound Money, the Wall Street Journal, United States, Value, Wages, Wall Street, Wall Street Journal
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