The Case for Gold Revisited
October 10, 2008
The Case for Gold Revisited
by Boris Morales
(FederalJack.com) – The ignorant, over-educated, bean counting central bank economy experts were, and are still wrong. What they are learning at their liberal universities about finance is not the field of economics, but the field of political policy, and what they believe the effects of government control over the real economy will be.
Real economics, as distilled in the classic school, also known to some people as the Austrian School, postulates that every government interference in the real economy will result in the opposite being achieved. It postulates that the real economy survives in spite of government controls, not because of it.
One could argue that the fancy titles some “economists” and “financiers” have are not that at all, but are degrees of high specialization in corporate governance, methodology, and intra and inter corporate transactions based on the national, or now global, regulatory climate at the time. Their understanding is restricted and biased to the belief that the regulatory zeitgeist of centrally controlled economies is effective in its control. It is within this bubble of understanding that they see the economy and the markets.
It is these “experts” who have missed the present trend, while people who have a basic understanding of classic economics have been predicting the currently unfolding events with incredible detail for a very long time. Two of the concepts of economics which have been studied and dissected the most, are the basic concepts of inflation, and credit expansion.
Within the context of a controlled economy, inflation is the injecting of more fiat currency into the market, particularly in large amounts; and credit expansion is a relaxing of lending norms above the needs of the market. Both of these result in over-investments in sectors of the economy in which they are not needed. This trends must eventually crash, many times bringing the whole economy with it.
Over the last years the result of central bank inflation and credit expansion has been the mal-investment in the housing and mortgage financing derivatives industry. The particularly scary part of the present crash, is not that the central banks and their bean counters at the top seem to not only have let it happen, but in all their elite glory, to have engineered it. It is to each of us to either believe that theory, or not. But, we are seeing a consolidation of financial power and a transfer of wealth from the “people” to the bankers via the bail outs through currency diluting inflation. An easy way to visualize this is to imagine the central bank producing wine, and then adding water to it to give a share to the bankers. The bankers keep their share at the cost of the dilution of the rest of the wine on the table.
The “bail outs” were forced to pass by the strong arm tactics of central bankers and their friends around the world. In the US, thus far non-controversial congressmen have commented on the record to have been told that unless the bail out bill passed they would wake up to martial law the next morning. Surprising? No. Shocking? Yes. It is this bail out with its accompanying *500 pages of regulations and trillion dollars worth of free money* to the connected bankers -which will surely again be mal-invested- and will restrict credit to the other real and productive parts of the economy, and the ensuing inflation that guarantee that this will not be a mere recession, but a deep and long lasting depression.
There is a lesson and silver lining in all of this; people are learning about the dangers of central banking and fiat currencies, they are learning that the only economies that work have been those based on solid metal backed currencies, they are learning that for a hundred years while the US had no private central bank, there was the longest period of growth, economic prosperity and near zero inflation.
Perhaps this will be the driving force the US and the world need to get rid of the privately owned central banks and the shills at the government doing their bidding, returning the money making power to the government as the constitution dictates. Perhaps now is the time to legalize competition from private currencies that would most likely be back by gold.
If you start hearing calls for a Canada-US-Mexico currency, or calls for a global currency, run don’t walk to gold. They would first crash all currencies, then have you start from zero.
Below I have included a few emails I have sent to my friends over the last year making the case for gold. I recommend that you read them, as the advise still holds as strong as ever. The fiat currencies are being diluted now more than we had imagined they could, the markets are getting new
regulations daily and being ham stringed. From my point of view we are not near the bottom of the markets, and there will be no upward correction in the next few years -accounting for inflation-. So, make sure to take your losses in at least a portion of your portfolio, buy physical gold you can hold and hide, and in the next few years when you start reading about the raising standards of living in the Asian countries, you cash your value holding gold and sent it east to work for you.
Best wishes to all of you,
786 486 4446
--- Email Archives --- * January 14, 2008* Gold! Why? Because people are just *beginning to get pessimistic about the economy and because prospects for any bail out would cause greater inflation which could get much worse before it turns into deflation or more correctly stagflation, because it is super cool to hold gold in your hands and know it is yours, and because even at an all time high price of $895 it is still much cheaper than the price of gold on 1980 which was about $850.00 which adjusted for inflation would be about $2150.00 in today's dollars giving it quite a bit of room to grow. * If you are investing for the l*ong term nothing beats gold, specially as a diversifying asset. With the risk of a world wide recession gold makes for a nice alternative to the stock markets which would be very difficult to predict right now as there is no upward trend for any particular segment. * Third world countries are opening their economies more every day and their standards of living will over the long term catch up to the lowering standards of Americans as they compete with a more liberal -free- agenda and America is stuck in its highly mortgaged economic and political scene. Just imagine the hundreds of millions of Chinese, Indian and Brazilian people who will reach middle class status and will want to buy gold the finite resource. *And mostly I recommended gold because a return to fundamental economic philosophies is bringing gold back to the forefront. * The internet is allowing many people to learn about solid and fundamental economic theory and all those people want to have gold as part of their portfolio of investments. Unbacked paper money which is mostly a new phenomenon is being exposed at a rapid pace through cyberspace as being worth no more than the faith traders put into it. *I guarantee you a quickly changing market over the next four years in all markets, so why not invest in gold our old friend in times of uncertainty?* Boris Morales * _______________________* *June 27, 2008* Here is a quick letter to remind you that real inflation is eating away liquid assets, and that there are no fundamentals to reinvigorate the stock market in the near future. Many people are investing their assets on dividend paying foreign markets to avoid the American collapse, but as you know; when America catches the flu everyone sneezes. Which brings me to my point: Financially it has always made sense to keep at least 5 to 10 percent of one's portfolio in metals. To me, that advice is today as timely as ever. Last we spoke you told me that you had decided not to short the metals, and now it seems that it was a very smart decision. Even under attack by the IMF, gold has had a substantial jump up. All the fundamentals seem to be aligning in favor of gold; loss of credibility in the dollar, hyper inflation, historically expensive commodities, limited production, today's gold price is about 45% of its highest price ever if measured on inflation adjusted dollars, markets around the world are settling for what appears to be a long rest, and real estate is still historically overpriced. To understand the risks associated with gold we must understand that the main danger to its price continues to be mass sale of it by government bodies such as the World Bank. But with central banks printing as much bail out money as they are, much of that money will go to absorb those sales; New money has few places it can go to now. With historical prices as indicators, and inflation cranked up to high, metal prices don't have much downward space to go to (limiting risk), and at least 50% space to go higher (based on max historical price in dollars adjusted for inflation). If I'm wrong and the economy recovers quickly, losses on the basic metals will be limited. If the analysis above is right price of gold will go up substantially and help shore up some of the losses in other sectors of your portfolio. Consider this email just a gentle reminder to keep some metals in your portfolio. Your friend, Boris Morales 786 486 4446 *_______________________* *August 25, 2008* Friends, the physical market is completely divorced from the futures price. The time to strike is now. *_______________________* *August 28, 2008* * The Case for Gold* By Boris Morales Miami. FL Gold has served us well for over 6000 years, during which we have been able to thoroughly assess its reaction to financial and general world events. The lessons learned are simple and straight forward. There are two axiomatic rules that never change: in times of stability, it remains stable, in times of instability it gains in value against paper currencies, helping smart investors mantain their purchasing power. These simple and elegant equation has somewhat been distorted over the last hundred years of international central bank manipulations. Central banks managed to depress the value of gold, first by hoarding it by confiscatory decree<http://www.the-privateer.com/1933-gold-confiscation.html>in the first half of the 20th century and byselling it off in the last half. <http://www.gata.org/node/104> Now that it has been reported that banks are running out of the physical item, -which resonates true due to utter lack of auditing- they seem to be resorting to complicated and not so complicated contract selling, and paper receipt selling manipulation<http://moderate.wordpress.com/2008/01/30/ gata-to-federal-reserve-wheres-the-gold-in-ft-knox/>s without having to avail themselves of the actual gold. The good news for gold bugs is that the colluding central banks and the dealers seem to be running short of the physical item<http://www.kitco.com/ind/Lee/aug262008.html>, with the result of 'on the street prices' divorcing themselves from 'spot' or 'market manipulated prices<http://news.silverseek.com/GoldIsMoney/1219027615.php>. Good news for gold bugs because if resourceful they can beat the manipulators by buying at their 'spot' price and waiting for physical delivery. It seems that the manipulators are seeing the last days of the game as gold becomes scarcer and investors wiser. Gold prices which reached as high as one thousand dollars this year, have dropped to about 800 over the last couple weeks. It has since then been in a slight bounce looking for a bottom. The floor appears to have held steady in the early eight hundreds and seems ready for a technical high bounce<http://www.kitco.com/ind/Holmes/holmes_aug212008.html>over the next weeks. With world currencies declining in unison due to the expected recession or depression in the horizon, gold is on standby ready to serve as a steadying, real purchasing power wealth insurance. The dollar is weak and in an economy fed by Asian dollars, any disruptions in the flow from the Asian tit<http://www.bloomberg.com/apps/news?pid=20601039 &refer=columnist_pesek&sid=aqu59cnYfsFY>would have grave consequences for the American Economy. The uncertainty in the future of the major financial institutions, make gold that much important now in any portfolio. But compound this with the risk of wars in the oil producing regions and we have quite the gold bull cocktail. Some people might argue that those wars might be a thing of the past if the Democratic candidate is elected. But on reading the positions put forth by the candidate's main foreign policy advisers<http://www.antiwar.com/justin/>, it might just get worse during a Democratic administration<http://www.antiwar.com/justin/?articleid=13183>. Lets remember that the current Democratic Congress has acted as the current administration's rubber stamp and given them a blank check to do war with Iraq, Iran and possibly Russia at will. If McCain's advisers appear to be more rabid warmongers that the Neo-cons in the White House, the Democrats getting ready for presidential power appear to be even more completely divorced from reality in their desire for more imperial wars the country can't afford. Leaving us in what seems a one party system with incestuous factions <http://www.guardian.co.uk/world/2002/aug/19/worlddispatch>presenting themselves as fighting for power. Now we have the biggest international armada since the 1991 war<http://www.globalresearch.ca/index.php?context= viewArticle&code=NAZ20061001&articleId=3361>, composed of American, French and English ships. forming in the straight of Hormuz, and threatening Iran. For good measure we have a NATO Armada within spitting distance of Russia<http://www.breitbart.com/article.php?id=D92QLT501&show_article=1>getting bigger by the day, "delivering humanitarian supplies" to the Caucus nation of Georgia. The Russian Navy and NATO ships have been making strategical moves in concert and against each other. It is a potentially catastrophic situation and an unwarranted game of nuclear brinkmanship, being advanced mostly by imperialist dogmatist in America who desire to strengthen Georgia -a western government puppet-<http://www.tiraspoltimes.com/news/arms_build_up_as_ georgia_prepares_war_on_abkhazia_south_ossetia.html>to control the Caucus region and its energy products and routes. Put all of this together, add inflation<http://seekingalpha.com/article/ 92855-the-real-secret-to-fractional-banking>and we have the perfect cocktail for a bull market in gold for the foreseeable future. To recap; the dollar is weak, bank crisis continues unabated, goldmanipulation appears to be loosing steam, technical graphs point to a rise in gold prices, world currencies are declining in unison, of course inflation joins the party, the petro regions are a cinder box filled with well armed Armadas ready to do war or posturing for war, both Democrat and Republican candidates and their advisers openly stating that the war policy will continue the same or get worse. Just one word of advise; in these uncertain times make sure you have your gold where you can touch it and where you can keep it from greedy government hands. *_______________________*