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September 18th, 2014

Another call for a Fed'l Reserve audit.
    ITEM:  The House on Wednesday passed legislation to audit the Federal Reserve System. Passed 333-92, the bill would require the comptroller general to conduct an audit of the Federal Reserve´s board of governors and banks within one year and submit a report to Congress on the findings. A total of 106 Democrats joined all but one Republican in support of the measure. A version of the bill sponsored by then-Rep. Ron Paul (R-Texas) passed in 2012 by a vote of 327-98. Paul´s son, Sen. Rand Paul (R-Ky.), has introduced companion legislation in the Senate. < We've been down this road before.  Getting the U.S. Senate on board is probably not possible.  Anything that even hints at an impediment to their ability to run unpayable deficits gives senators the jitters.

     Not only is getting a bill to audit the Fed through the Senate and under the pen of President Obama doubtful, but so are the calls for a public accounting of the government gold claimed to be stowed at Ft. Knox and elsewhere.


Stock prices set a record yesterday after Fed Chief Janet Yellen said the Fed would keep interest rates close to zero for a considerable length of time.  The Fed's main issue is joblessness.  There is too much of it and the Fed can't do anything about it except play the low interest card.  However, that won't work unless citizens and corporations step up their borrowing.  

   In response to Ms. Yellen's remarks a Wall Street Journal editorial today says "We'll come right out and admit we have no idea what [this] says about the future of monetary policy.  We doubt even Fed Chair Janet Yellen knows." 

   The Journal may not know what the future holds but stock pickers believe they figured it out.  The Dow Jones Industrial Average soared to another record high Wednesday. Our contrarian instincts tell us a stock price bubble has occurred and it'll sorely sting gamblers who believe a DOW of 20,000 or higher is just ahead. The DOW at mid-day Thursday had established yet another record.   

. . 


   Simon Black, "The Sovereign Man," writes: "The fact that millions of people in Scotland are even considering rocking the boat and radically change is very telling. It shows there is a deep, deep dissatisfaction with the status quo. People are sick and tired of the way things are. The system has completely failed them. And they want change.

   "This is huge. And it's a sign of things to come.

   "The dissatisfaction is growing worldwide. The latest Gallup poll numbers show that only 23% of Americans are satisfied with the direction of the country. Change is coming. And not just any change. Deep, radical change-- a fundamental reset in the way we do business, the way we organize ourselves as societies, and the way we view money.

   "There's tremendous opportunity for people who understand this trend and stay in front of it. And frankly I think this makes it a very exciting time to be alive."   The Sovereign Man  

   Mr. Black wanders the world quite a lot and has a better perspective of financial/monetary trends than those of us who stay mostly in one place and get our information from TV, newspapers, and the Internet.  We agree this is an exciting time to be alive because the pace of change is picking up and and no one seems really sure what's ahead or how it will unfold.  

   One little hint for Social Security recipients.  Don't look for much of an increase in your monthly checks in 2015.  The amount is based on the September rate of inflation and it is expected to be very low.  YESTERDAY's REPORT ON THE AUGUST CONSUMER PRICE INDEX MAY BE A PREVIEW OF SEPTEMBER.  IT FELL  0.2 PERCENT IN AUGUST...THE FIRST DIP INTO NEGATIVE TERRITORY IN A YEAR AND A HALF.  HOWEVER, THIS IS ONLY A WHIFF OF DEFLATION.  THE OVERALL PRICE INFLATION RATE FROM AUGUST 2013 TO AUGUST 201`4 IS 1.7 PER CENT.   THIS POSES A PROBLEM FOR THE FEDERAL RESERVE BECAUSE ITS EXPECTED INCREASE IN INTEREST RATES COULD TIP THE ECONOMY INTO A  DEFLATIONARY DEPRESSION RECESSION, WHICH IS NOT ITS AIM.


   "The idea that the Obama administration has the budget deficit under control is a complete and total lie," asserts Michael Snyder.  National Debt

   Snyder's article is on a web site devoted to dredging up evidence that the United States is in for it because of its loose fiscal policies and skyrocketing public debt.  Many readers will be turned off by the idea that the USA is headed for bankruptcy and economic depression, but the Federal Reserve chart at left clearly shows there have been seven periods of recession since the late 1960s and the worst one was the most recent.  Notice the steepness of the public debt since it began!

   Debt never vanishes into thin air.  It is ALWAYS paid...either by the borrower or the lender.  Somehow this truth is entirely overlooked by the boys and girls we have sent to Congress.  They believe their mission is to spend money as freely as possible and let the chips fall where they may. 



The November 30th vote on gold.
Not here. In Switzerland.
   "On November 30th, voters in Switzerland will head to the polls to vote in a referendum on gold. On the ballot is a measure to prohibit the Swiss National Bank (SNB) from further gold sales, to repatriate Swiss-owned gold to Switzerland, and to mandate that gold make up at least 20 percent of the SNB’s assets. Arising from popular sentiment similar to movements in the United States, Germany, and the Netherlands, this referendum is an attempt to bring more oversight and accountability to the SNB, Switzerland’s central bank." Swiss Gold Vote < John Keynes called gold a "barbarous relic" 80 years ago and it's still held in general contempt by so-called Keynesian economists, which include financial scholars whose methods have pushed the U.S. into a monetary trap.  

     There will be plenty of articles in the mainstream press about the uselessness of gold prior to the November vote, and plenty of commotion among central bankers if the Swiss choose to require the Swiss National Bank to hold at least 20 percent of its assets in gold.  "Barbaric" or not, gold is more attractive than paper promises.


In his 15th year Fred Reed got drunk.
It still pains him to think about it.

   "I had never drunk before, but wasn’t going to admit it, and so simulated the worldliness of a French rake. The others bought beer but I didn’t like the taste.  I somehow got a bottle of a ghastly purple substance, later determined to be sloe gin.  The others were showing off by chugging beers.  So I too chugged…oh God. Oh God.  Even now it hurts, a half century later. Perish forfend, a hangover so bad that I began to retch if I blinked. I was sure I was going to die. I hoped so." When We Were America

   The irascible Fred Reed waxes nostalgic about his teen years as he prepares to attend his 50th high school reunion.  This indicates he escaped high school in 1964.  We and the Missus graduated several years earlier.  We were classmates.  But our graduating class stopped having reunions after #65 on the grounds there weren't enough classmates left who were able to attend.  Time does take its toll!

   Fred's point: profound changes have occurred in the nation since our youth.  Not all of them for the better.  Small wonder there are so many graying, balding curmudgeons loose on the Internet.


    Liberal economist Paul Krugman, in his latest New York Times column writes, "The big problem with economic policy is not  that conventional economics doesn’t tell us what to do. In fact, the world would be in much better shape than it is if real-world policy had reflected the lessons of Econ 101. If we’ve made a hash of things — and we have — the fault lies not in our textbooks, but in ourselves."

    Well, Krugman is right in the sense that we-the-people are at fault for the present economic predicament.  But we are at fault for having let Krugman and his ilk lead us astray, persuading us to believe that the government can miraculously create wealth for us all by printing up little slips of paper and calling them "money".  In fact, the physical printing of currency is not so much relied upon any more.  This pseudo-wealth can be created with just a few strokes on a computer keyboard.  

    Doctor Krugman, et al, fail to understand that the Federal Reserve notes and computer data are not wealth at all, but merely uncertain promises of wealth.  The transition from sound money to fiat currency has been going on for more than 80 years.  The economists who believed in sound money are dead. 

 


          Theological Concepts at War. 

          "Consider the major difference between Sunnis and Shi'ites.  They both believe in one God, Allah.  The Shi'ites also believe in the infallibility of their Imams who interpret the text of the Holy Qur'an.  Sunnis frown upon that line of thinking.  They believe every word in the Qur'an and are bent out of shape by people who don't.  Moreover, Sunnis think they will see God (Allah) when they die and Shi'ites don't think he will be visible in the Hereafter.   Shi'ism, in the eye of Sunnis, is a separate religion founded on bad tenets - - hence the unending feud.  

         "Can we afford to get into the middle of all that?  No." Religious Violence

                      Our staff curmudgeon looked into this conflict in October, 2006.  A lot of blood has been spilled since then and no peace between these two factions is expected.  It's reported IS (Islamic State) is raising some $3 million a day through the sale of crude oil, muman trafficking of women and children, and other methods people of peaceful disposition would never consider


(Reuters) - The European Union sought ways on Saturday to marshal billions of euros into its sluggish economy without getting deeper into debt, casting the net wide to consider options from a pan-European capital market to a huge investment fund.

Finance ministers from the bloc's 28 countries are fleshing out a host of ideas circulating in European capitals. With interest rates already at record lows, ministers need radical steps to help growth at a time of near record unemployment.

Talk about your tangled webs!  The Eurozone is trying to find an escape hatch from a serious economic slump.  The euro has lost parity against the U.S. dollar...interest rates are very low...economic activity is sluggish...a classic picture of deflation knocking at Europe's door.  

The U.S. is having its own problems with a strong deflationary tendency with gold prices at an eight month low, the dollar showing new strength, and the Fed poised to stop its emergency bond buying program next month.  (The Fed will surely push their deadline into November to avoid any unintended consequences prior to the mid-term elections.)

 What should the consumer do?  Tough question.  Common sense dictates that a deflationary scenario means scarcer, stronger dollars.  Debt becomes a greater struggle to pay off.  Unemployment increases and a pervasive gloom prevails.  The person with little or no debt and an accumulation of real wealth is a winner. 

But Congress and the Federal Reserve has been inflating the money supply for years.  That tends to drive prices higher (price inflation) and favors debtors because they can clear their obligations with cheaper dollars, although when and if inflation gets out of control and runs into double and triple digits dollars eventually become worthless and chaos prevails.  

No money inflation in the history of humankind has ever "not ended."  The trick is to be in a relatively safe position when it occurs.


Should the minimum wage be raised to $15.00 per hour?
Well meaning people believe this to be true. They're wrong.

   The year we and the Missus were married Professor Thomas Sowell was a 16 year old black dropout from high school.  What prompted him to follow the path to understanding that government price setting leads to fewer jobs, not more? 

   "In 1948, the year I left home, the unemployment rate among black 16-year-olds and 17-year-olds was 9.4 percent, slightly lower than that for white kids the same ages, which was 10.2 percent."  Minimum Wage

  "Don't buy gold.  The government will confiscate it."
Bull feathers!  Uncle Sam has no more right to your Krugerrand than he does your wrist watch. 

   Yes, FDR called in the nation's privately held gold in 1933 - but gold was money then.  And he did not CONFISCATE it.  He paid the mint price, $20.67 per troy ounce.  It's unlikely the federal government would pay the present market price of $1,240.00 per ounce in order to rake in gold.  

   Gold is not "money" now.  Besides, what claim could the U.S. Treasury Department have on a gold coin you bought from, say, Canada, Australia, China, or So

uth Africa?  

   Long-time bullion dealer Don Stott puts it this way:  

   "The feds are so busy lying about wars, inflation, and a million other things which bother them, and which make the whole establishment look silly, believe me, they could care less about your few ounces of gold. To conduct a search of everyone who may have bought some gold or silver, is so silly, as to be ridiculous, even if they could get the courts to approve of such a move. The costs would be astronomical, and the whole thing would be futile. If you think government is so powerful, and has the ability to stop what they may not like, how about the "war on drugs?" How about the world's oldest profession, prostitution? How about guns, if the truth be known? To even imagine that the government will force anyone to divulge who has bought a few ounces of gold, and then to attempt to seize it, is preposterous.

    "As far as taxes are concerned, if you sell something at a profit, be it a Model T Ford, king size bed, or 1835 stamp, and it is a profit, will you pay capital gains taxes or income taxes on the sale? I guess that's up to you. If you sell anything at a profit, technically you owe a tax on it, I suppose. One shouldn't drive over the speed limit either. Do you?"  Colorado Gold

  What's the scoop on gold these days?  There's been a substantial deflation in the prices of gold and silver which means this may be a good time to swap some surplus cash for precious metal.  If you can buy gold at $1,240.00 why wait 'til the price pops to $1,500.00 or higher?  

  Why buy gold at all?  Because it has a better track record for preserving purchasing power over the long run than debt-based fiat currency.  


    "I saw a year by year graph of the dollar’s value since the Fed was created at Jekyll Island, in 1913. The graph showed the amount it took to equal $1 in 1913.. Go on, take a guess what that amount is now (well, as of 2012)… Give up? It now takes $23.27 to equal $1 in 1913… That’s right folks, don’t argue with me on this! HA! There’s only one period of time since 1913 where prices fell… from 1920 through 1950… Hmm… wonder what we were doing right back then… Oh, yeah, that’s right, we didn’t have debt up to our eyeballs! We didn’t have entitlement programs to choke a horse, and we didn’t have nearly ½ of Americans receiving Gov’t assistance."  ~Chuck Butler, EverBank's currency guru.

   Curious about the effect of inflation on the dollar through the years?  The Federal Reserve maintains a calculator which compares any prices between 1913 and 2014.  You'll find it here. . . . Fed Calculator


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