The Brothers Austrian

Zero Hedge notes that gold has reached an all time high in Euros. Today, the DXY threatens to break out and Elbert Edwards of Societe Generale says that the Euro will fall 25% versus the US Dollar (I agree, but, wow, seems hard to believe with helicopter Ben at the helm). The market confusion volatility in currencies is the unfolding of a major global currency crisis.

Meanwhile, back at club med in Greece, customs agents go on strike,  exacerbating Greece’s economic woes by hindering exports. Greece’s citizens are rightfully angry that their wages and lifestyles will likely have to be trimmed back. After all, most of Greece’s citizens made the best decision for the families by working for the federal government (Fed employees are 20% of Greece’s workforce). Now they will likely have to except a pay cut or be retrained in another industry. There simply is no easy “human” decision to be made.

Meanwhile, gold is attempting to return to its real worth, zero, which would place gold at a value of 6,000 US DOLLARS! At which time the governments of the world will blissfully ask that its citizens hand over its metal in exchange for toilet paper as it did in the 1930s.

Andrew Jackson is howling from his grave as we speak, while Nicholas Biddle lies in his with a smile.

Wendall Wilkie Gold, Inflation dollar, euro, fiat currency, Gold, greece

The folks over at Matterhon Asset Management lay out the many  gold misconceptions in a fabulous paper titled–GOLD IS NOT GOING UP— PAPER MONEY IS GOING DOWN!

The US dollar has lost 98% of its value in less a 100 years, the underemployment rate is at 17%. Mr. Bernanke, you may want to rethink your list of FED accomplishments.

At the end of the day paper money returns to its intrinsic value….$0.

Wendall Wilkie Gold bernanke, fed, Gold

I constantly hear traders, commentators and economists exclaim that gold is expensive right now, but think about this… In 1980 gold hit an intraday high of $895. In current inflation adjusted dollars, that price would of $895 in 1980 is equivalent to $2310 in today’s dollars!

Wendall Wilkie Gold Gold

There are many, many, micro inputs that collectively have combined to culminate into this massive credit crisis. The creation of the Federal Reserve, coming off the gold standard, the invention of the credit card, the invention of asset backed bonds, subprime lending, etc etc etc. Who could have ever thought that all of these things would culminate into a crisis this big? Well Hazlitt knew the problem was on the horizon in the 1950’s and make no mistake, Hazlitt was woefully aware of how devastating inflationary policies could be.  Have we forgotten about what the fall of the German mark  ultimately lead to? The below statement actually strikes the fear of god into me!

“Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.”

-Henry Hazlitt (Economics in One Lesson)

· Discourage prudence and thrift- government encouraging spending ?

· Gambling and speculation -Flipping houses, LBO’s-?

· Desperate remedies-monetizing debt-?

I believe that the above statement by Hazlitt not only summarizes how we got into this “credit crisis” but also summarizes where we will end up. Monetizing debt is just the start of the desperate remedies. I fear that the impudence of the governments of the world will lead to further instability. Now, as brutal is this instability may end up being it is my job, I still look for future investing opportunities.  That’s why I have coined the GGO Investment Theory- Guns, Gold & Ordinance (perhaps we should substitute oil for ordinance?). That is not to say that I recommend running out and buying stocks, because I actually wholeheartedly believe that equity indexes will cough up another 40%–that’s right I said 40%–within a year. When the cough up comes, however, I will be ready to pick up some defense stocks on the cheap. As far as gold goes, well you better have some of that before that cough up comes, because otherwise you will be paying up to own the bullion.

Wendall Wilkie Gold, Inflation, Stock Market defense stocks, economics in one lesson, Gold, Hazlitt, Inflation, oil

I’m currently teaching President McKinley in class.  You probably know the story of McKinley and Bryan in the elections of 1896 and 1900.  I have to admit, I was somewhat disappointed to see McKinley end up at #16 on the recent survey of presidential leadership.  Not that I put much stock in this type of survey, but to see McKinley below the likes of Monroe and Polk is a tad aggravating.

I cannot say I am a total fan of McKinley politically, after all, it was in his name that the country got its all-time high protective tariff in 1890 (not to mention his later bellicosity).  The McKinley Tariff set the taxation rate on imports at a whopping 48.4%.  The insanity of such an idea bore itself out in the resulting Panic of 1893.  But after bargaining away a strict gold standard to get the tariff passed, the republican bore down on the hard money standard for the Election of 1896.  I must admit, though, that even as a congressman McKinley was not an ardent goldbug.  He voted twice for Bland Free Coinage and even put forth an platform at the 1888 Republican convention that supported both gold and silver coinage.  But in the end, when it came down to defending hard money against the bombastic William Jennings Bryan, McKinley passes muster. If we can fault McKinley for all of the above, we must recognize the importance of shunning silver in 1896.  In the midst of the ‘long depression’, diving into silver would have caused catastrophic economic problems.

But back to the survey, for me, McKinley is just one of those presidents that you pull for subjectively.  His policies were pretty flawed, but this was a good man.  A man with no extrodinary skill.  A man who lost his only two daughters before the age of five.  A man would patiently cared for his sick wife.  A man who, according to one historian, never sought political promotion in a ‘Machevellian’ manner.  A man who, as governor, paid out of his own pocket for a railroad car of food for the destitute.  A man who then spearheaded, not the largest public spending campaign, but charity drives to feed and cloth more than 10,000 people.

Teacherman Gold, History election of 1896, free coinage, Gold, mckinley tariff, panic of 1893, president, silver, william jennings bryan, william mckinley