"Contrary to widespread belief, inflation is not too much money chasing too few goods, but rather too much money." -- James Grant, 11/1/10, addressing the HSBC Asia Global Commodities Conference, Singapore
Dear All,
I refrain from gratuitously posting any of the videos of Americans trampling one another on 'Black Friday' for the sake of purchasing crap on sale. You've undoubtedly seen these videos. I do mention them though for two reasons:
1) Americans by and large have absolutely no sense of the world around them or the one that awaits them. Their sole historical reference point is the world that has been their immediate past, which they believe is on a brief vacation and returning shortly. Hence, there has been relatively little change in their priorities or behavior, other than when dictated by the restrictions attendant to unemployment.
2) If they'll riot for electronic gadgets imagine what they'll do for food.
Somewhere during the post World War II era and despite platitudes to the contrary, the U.S. populace decided that consumption was a goal more worthy than self-education. I use the term "self-education" because it is a quite different and far more valuable endeavor than formal education, which has grown immensely but with rapidly diminishing result. Despite increased educational spending and a growing number of Americans with college and advanced degrees, we live in very uneducated nation. Somewhere post mid-century the desire for self-education simply stopped, replaced by emotional cravings and intemperate consumption.
We are witnesses here in this place to what happens to the collective intellect of a country whose powerful economy and currency are ruined by among other things, an incessant credit driven consumer culture. The curiosity about history that begets an understanding of what their future holds is now missing from Boobus americanus' (I've attributed this term to Doug Casey but in actuality it was H.L. Mencken who coined it)) DNA. Ignorant of civics, Austrian economics or the larger world and lacking in curiosity, Americans are frozen in a state of intellectual non-development. America is today a land of puerility -- one of perpetual adolescence inhabited by middle-aged philistines. Lacking any historical context of their plight and awareness of how women and men were impacted in the past by similar circumstances, they are doomed rats on a sinking ship willing to believe that the captain and crew have their interests at heart. Meanwhile, they buy gadgets and watch reality television.
In a terrific piece entitled Lies Across America, James Quinn includes these photographs with his comments on the notion that Americans comprehend how their world has changed:
Austerity – Circa 1932
Austerity – Circa 2010
Everywhere there is criticism of QE2 -- the current phase of the Fed's monetization orgy, and the likelihood of its succeeding in stimulating the economy where QE1 failed. For sure there here will be a QE3 once QE2 is deemed to have "failed", followed by endless subsequent Q installments. Why would that be? These are not stupid people, these Fed governors. Why would they continue to create hoards of new currency in a failed effort to spur the economy and create jobs while succeeding only at ultimately lowering the purchasing power and living standards of retirees and those Americans who are employed?
Could it be that stimulating the economy is not the true purpose of Quantitative Easing? Writing in the November 15th issue of 'Crosscurrents' Alan Newman opines, "There is now considerable reason for us to speculate that QE2’s primary objective was to ensure a safety net for both JPM [JPMorgan] and BAC [Bank of America]. A recent interview between reporter Aaron Task and economist John Galbraith has Galbraith perplexed,saying “"what [QE2] has to do with restoring economic growth is a complete mystery to me.” If that’s not enough, (see http://tinyurl.com/2cr9rfp) for Pragmatic Capitalism’s compelling point-of-view, “QE2 was never intended to boost Main Street. It is entirely focused on helping the banks.” QE2 is certainly not designed to create any jobs, a really pathetic development."
Virtually nowhere to be found in the financial press is an acknowledgement of the real purpose of Quantitative Easing. QE is an ongoing banking system rescue which in a climate of bank bailout fatigue, the Fed and Treasury dare not identify as such . This though is precisely what it is and the pundits by and large haven't a clue.
Lexapro Alert!: President Obama has announced that the gravy train of huge salary and benefit increases for federal workers will temporarily be frozen. He could have shut the barn door when he took office. Instead, he contributed to this perversion in the midst of a financial crisis. USAToday: Federal workers earning + $150,000 has doubled under Obama. In the past five years the number of federal workers earning over $150,000 has grown ten-fold. Federal workers earning over $180,000 have grown twenty-fold. Federal compensation has increased 36.9% since 2000 compared with 8.8% for private workers.
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Source: Zerohedge
And...Zerohedge: In Entitlement America, Head of Household of Four Making Minimum Wage, Makes More than a Family Making $60,000. per Year. Wait, it gets worse. Should the provider decide to cut back and work only 12 weeks per year at minimum wage, the family's net disposable income would still be 92 percent as much as a provider grossing $60,000 a year.
For now this is largely below the radar. The PBGC paid out $5.6 billion in benefits to participants in 147 company pension plans that failed in the fiscal year ended Sept. 30th, 2010. There's a bailout coming. For many who are approaching retirement it won't much matter whether their pension plans default or are bailed out. The bailout funds they receive will be in debased dollars. Either way, the living standard they expect will not come to pass. WashingtonPost: Pension Benefit Guarantee Corp. reports wider loss
In August of 2008, approximately 29 million Americans, or 9.7% of the population received food stamps. As of August 2010 over 42 million Americans are participating in the food stamp program. In the past two years 13 million Americans have been added to the program. 13.7% of Americans now receive food stamps and disturbingly, the number has grown in each of the past 24 months.
Here's an example of how legislation works. The Senate today passed bill S.510. Under the pretense of making our overall food supply safer, the bill intends to centralize agriculture under federal control, eliminate small farms and ranches and potentially regulate farmer's markets. It is a federal power grab that will have no positive effect on food safety yet expand the FDA's ineptitude while creating increased overlap between it, the Dept. of Agriculture and numerous other federal agencies. In order to facilitate passage the bill needed a palatable title and so in this case we have the "Food Safety Modernization Act" Euphemisms provide cover for legislators to accept money for their votes and few are ever the wiser. GovTrackInsider: S.510 Oversight or Overreach?
This list of the payments to Senators for their votes on S.510 tells the story of how the votes were purchased. Senate S.510 $$ contribution list
Don't expect to read this in the mainstream press: Nobel Laureate Jumps off Global Warming ‘Titanic’
The trend:
Bloomberg: China Considers Gradual Increase in Gold Reserve Holdings
ChinaDaily: China, Russia quit dollar
Telegraph: Putin - World should move away from "dollar reserve currency monopoly"
Regarding gold...
The perfect storm I have alluded to continues to build. Europe is in turmoil and the sovereign crisis will not remain confined to the so called PIIGS countries. Spain's economy is three times the size of those of Iceland, Greece and Ireland's combined and Italy's economy is four times their combined size. Spreads are already widening on Italian bonds. There is military tension on the Korean peninsula with very little geopolitical risk priced into gold. The entire financial system is a disaster and central banks are impotent. Quantitative easing is a permanent way of life now and there is no exit strategy. Slowly the investment world is coming to understand this.
Gold is not a day-to-day game. That losing battle belongs to hedge funds -- collectively Wall Street's dumb money. Much of the gold volatility is hedge fund induced momentum. The sharp price action you see is simply a picture of their desperation in chasing the investment thesis du jour. For the entire silver and gold bull market they have had their clocks cleaned, moving in and out with the wind and missing the wonderful returns that stillness and patience can bring. I have yet to meet a hedge fund investor who has done as well for the past decade as she would have by simply holding silver and gold, not to mention a basket of good precious metals companies.
Gold closed at all-time highs today against the Euro, Pound and Yen and made a record monthly close against the dollar. Silver closed at a record high against most currencies. Expect increased volitility on the way to sharply higher prices. If you're fully invested keep your finger off the sell trigger.
All the best,
Jeff