Many of us who write about the precious metals field have put out their 2011 forecasts and predictions for the New Year. This writer is no exception, but it seemed to me that it might be nice to look at my mission statement and determine if I could compose a simple story that might engage the reader to think about the current dire state of affairs in the economy and how an honest “money” system might help on an individual basis.
My mission statement is, “To teach and empower people to understand the benefits of an Honest Financial System.” Although the words gold and/or silver are not even mentioned in my mission statement, they are both very important components in an honest money system—they instill trust. And the lack of trust is the core issue of today’s economic problems. Our banking institutions and well established investment firms do not trust each other, and the system is grinding down.
Looking back in time I found some very interesting facts regarding Henry Ford and the typical North American autoworker. On January 5, 1914, Ford announced that Ford Motor Company employees would receive a minimum wage of $5 a day, more than double the average pay available at that time. This date is just within days of the Federal Reserve Act that Congress passed during the Christmas Holiday in 1913. Basically, Congress relinquished its constitutional power and duty to “coin Money and regulate the Value thereof,” to a private banking cartel, the Federal Reserve System.
Wasn’t this action was a blatant overthrow of The Coinage Act of 1792? Which had been signed into law by President Washington and defined the “dollar” as a coin containing 371.25 grains (troy) of fine silver. This Coinage Act of 1792 established the monetary system the Founders had outlined in the Constitution. (See: what is a dollar?)
So, getting back to the Ford example, what would happen these days if Ford Motor Company decided to pay their employees 5 “honest” dollars a day? Could this be accomplished? For purposes of this article let us round a real dollar to 0.75 troy ounces of silver. Additionally, I am going to use 200,000 as the Ford employee base per Ford’s website for 2009.
Therefore 200,000 employees at $5 (~3.75 troy ounces, based on the Coinage Act) per day would be equivalent to 750,000 troy ounces per day! This implies within a one-month time frame (~22 working days) a total of more than 16 million ounces. This would be ounces paid in the good old days!
What about more recent times say Of course if we check the recent data we find the average pay per employee to be around $30 per hour. We can see that the current price of silver is roughly the same $30 per ounce. So, quite easily we might state one ounces per hour, or 8 ounces per day. So we would have using current silver prices, we have 48 million ounces of silver in used as payment in ONE MONTH!
Much has been made about the “little” guy coming into the silver market and what it could do to the market. I think the above example might give pause to those of us that trust tangible money versus private script. Certainly I cannot state that any major corporation would seriously consider paying honest money to their employees for even as little as one month. But it is not entirely out of the question that 200,000 people decide to put away one month’s worth of wages in the silver market.
Times are changing rapidly and as things continue to worsen with the Federal budget some states are looking at options that might help them. We might say at a state level, people are beginning to realize that the system has failed them. In fact in the past some states have tried to enact silver coinage into legislation, so far this has failed but we note, Idaho, Nevada and New Hampshire have tried in the past, and a few years back Senate Bill 453 was purportedly introduced by Greg Walker, a state senator from Indiana.
In conclusion, 2011 may turn out to be a year where one primary question is not so much who can we trust, but what can we trust?
For endless months we have stressed the death of the dollar, and it seems the mainstream press has certainly taken up that mantra recently, talking about currency wars, currency crisis, and emergency “sessions” or meetings taking place all over the globe. In fact, we sent out a piece from the MSM (mainstream media) about China and Russia agreeing to do business in each other’s currency instead of using the U.S. dollar.
The never-ending debate revolves around inflation and deflation, but to our thinking the discussion could revolve around default. When a debt becomes too cumbersome a default is inevitable. For example, if you borrow “money” for a house purchase and lose your job and cannot afford the payments (debt service) you have defaulted on the debt. In the worst-case scenario, a sum is borrowed, no payment is made, and a total default takes place. In simple language, the money is borrowed and never paid back. There is also a partial default, where perhaps a third party will come in and pay 20 cents on the dollar to extinguish the debt.
It is no different for a nation state, and this has taken place in recent history, so the idea of a government default is valid. The inflation argument maintains that governments or specifically the U.S. government or the “Euroland” government (there is no euro government just a currency) will continue to make good on their debt obligations. In fact, this is the basic premise we have offered from the beginning—we are nearly certain that governments will do everything in their power to keep inflating (printing) to prevent a default.
This has been the case with QE2 and other efforts so far on the part of the U.S. and other nations around the world. The problem is that by continuing the game they too are defaulting. What are we discussing? Look at the end point where the currency—the euro or U.S. dollar—becomes worthless (worth = zero). You as a lender (you bought T-bills or T-notes, or T-Bonds) are “repaid” but were actually defaulted upon because the payment you received was the same as if you received no payment at all. To our thinking, an outright default is more honest because you know that your holdings devalue immediately. Whereas in keeping a time obligation, you are stuck guessing and hoping things will get better in the future.
This is the dilemma faced by the world. Those in the know can do the math; it is currently impossible to pay back what is borrowed and maintain all the current services provided by the modern state. So, currency destruction continues, while the chances of any economy being able to grow their way out of this problem become dim indeed.
However, the velocity of money is still low enough so as not to concern the debt markets greatly. This means that currency destruction is not a function of how much debt exists; more than enough debt (that cannot be paid back) exists currently without adding a penny more in interest, but at what rate is the debt exchanged (velocity) for money. In other words, as long as China, Japan, and other holders of U.S. bonds are willing to hold, the problem can be delayed, but once the sale of new debt becomes impossible (currently this is close to the case) and the Federal Reserve is buying the new debt offered by the U.S. Government, the game is getting closer to the end.
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Each new round of Quantitative Easing and gold price suppression assures an even higher potential gold price as long-term forecast target. The official policies are ruinous, and even destroy capital, eroding capital formation, and circumvent job creation. The eventual gold target in my view has moved from $5000 to $7000 in the last few months. No remedy is in the works. No solution is even pursued. No liquidation of toxic assets is underway. More stimulus is planned for the USEconomy, as home foreclosures continue and bankruptcies continue and bank closures continue and lending is obstructed. The more money the syndicates and governments in partnership create in futility, the higher the gold target becomes. Their ship is but a derelict at sea. The lifeboats consist of golden vessels. Soon no more lifeboats will be available. The clowns on the helm will be the last drowning victims.
In case you haven’t seen this clip making the rounds, a German entrepreneur has developed and branded the world’s first gold vending machine. Very interesting:
I find it incredibly bothersome to read speeches from central bankers espousing “banking freedom” and the importance of “guiding” (as some sort of benevolent watchman) the interests of a “free” society. The implication, of course, as that society cannot function/expand/innovate without bankers, and that do so would instigate a swift return to the dark ages – a world without penicillin and pasteurized milk (heaven forbid milk with nutrients!). Since propagandists in modern media drink from this fraudulent fountain of Keynesian economics, society is left gleefully unaware of the gravity of our economic crisis, created and sustained by none other than the central bank itself.
On that note, enjoy the latest words from the wizard, Ben Bernanke, at the Institute for Monetary and Economic Studies International Conference, Bank of Japan, Tokyo, Japan on May 25th:
As readers of this column know, Max Keiser and Gerald Celente are two of my favorite industry commentators – not only for their information, but also for the entertainment value. I was delighted to find them teaming up on the latest Kesier Report to discuss world trends. Topics include:
War with Iran
. . . and much more
Informative and entertaining interview:
Bloomberg released and interesting article today concerning Goldman’s performance last quarter. We have documented here many times that the four major banks, including Goldman, did not post a single losing day in the market last quarter. Conversely, Goldman’s clients, according to the article, lost as much as 14%, as seven of the firm’s nine “recommended trades for 2010” have been money losers.
The corruption is so blatant and yet little is done to enforce justice. Excerpt below:
Today’s market bloodbath offers a prime example of why gold is the asset to own as the market continues its downward trajectory. Gold lost $10 today, or 0.85% of its nominal price. Bad news? Hardly. At the same time that gold was losing ground in nominal terms, gold’s purchasing power in the market increased because it fell less on a percentage basis than all other assets. This pattern is far from a one-off anomaly. This is how gold reacts in deflationary environments; it increases in value while its nominal price falls. We saw the same pattern unfold in 2008.
Granted, this is just one day in the markets, but it is a microcosm of a bigger story unfolding.
See today’s dashboard below:
In this interview Dr. Leeb discusses the US stock market, gold, silver, energy, resource scarcity, intensifying competition for resources worldwide, quantitatvie easing and inflation/hyperinflation, the BP drilling disaster, today vs the 70s, alternative energies, the bond market and itnerest rates, reckless fiscal behavior by politicians globally and much more.
I am 100 percent sure that the U.S. will go into hyperinflation, Faber said. The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.