It’s Kitt to the rescue, finally!

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According to the latest RBNZ news release there is a new inflation busting piece of technology called KITT, no not the Kitt above (Sorry Micheal) I’m talking about Kiwi Inflation Targeting Technology (KITT).

Quote:
“The new Reserve Bank economic model. KITT replaces the decade-old Forecasting and Policy System (FPS) model, and will be an important tool for Reserve Bank forecasting and economic assessment into the future.”
Wow sounds impressive…

But wait there’s more…
According to the news release there are more tools at the RBNZ’s disposal other than KITT, yes they can extrapolate the statistical patterns in available economic data, but wait there’s more and I quote: “Another way the Bank obtains information for its economic assessments is through economic indicators. There are thousands of these indicators, covering New Zealand and elsewhere, which demand expert and careful analysis to distil the meaning.” Wow that sounds like alchemy , I sure hope they distil the right meaning and don’t blow themselves up!

I don’t know about you, but while they are trying to make Gold out of Lead, I think I would rather just buy the real thing.

And more:
The fourth article, "looks in detail at how public views on inflation are formed, discussing demographic evidence about how households consistently over-estimate inflation. The Reserve Bank's inflation analysis depends heavily on understanding how the public expects the economy to develop”

Yes it’s all about expectation and opinions, that’s where I went wrong, it has nothing to do with logic.

However that last statement says a lot about the nature of central banking, many people wrongly think it takes an expert in mathematics, a logic expert to guide a countries finances, after all money is just numbers on paper or computers, but actually it turns out it’s all about mixing expectations with some financial wizardry.

I can’t help but comment on the statement “households consistently over-estimate inflation” what a joke, the reserve banks job is to create inflation without anyone noticing it, they are part of the grand illusion. Do readers here believe the CPLie reports the real rate of inflation? Give me a break… (CPLie is my name for the CPI)

To be fair, the RBNZ and other central bankers around the world are fighting a big battle here, the battle against logic, so they need all the help they can get! It’s not easy to have debts mean nothing and money to mean something at the same time, some might ask “why do I work for money if debts in same said money don’t matter?”

Yes it is getting difficult for central bankers to maintain the illusion, just read the previous release from the RBNZ:

"We expect the economy to begin growing again toward the end of the year, but the recovery is likely to be slow and drawn out. It could also be erratic. To many households it may not feel like a recovery at all, with lower employment, house prices and wage increases into next year."

So they are expecting a recovery but no one will know it, you just have to believe it OK, do you have faith in the RBNZ or not?


Stay tuned…

Will KITT be able to inflate away debts and at the same time provide low inflation?
Will KITT be able to maintain the credibility illusion and escape the inflation monster?
Will KITT be able to make debts worth less and at the same time maintain the value of the currency they are in??!
In other words…Will KITT be able to defy logic??!

Tune in next week to find out…

Did the gold standard cause the great depression?

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Part 1

I think it is important to have a grasp on this subject, history is a great teacher, it is foolish to think of past events as inconsequential, however, to think this modern generation would not make the same mistakes is common, i.e. "we have laptop computers and far more access to data, we will not make the same mistakes", while history tells a different story, a repeating one.

Modern “Central banker types” seem naturally inclined to think the gold standard caused the Great Depression, gold is their enemy. Seriously gold is their nemesis as it puts power in the hands of “the people” rather than theirs. Without a gold standard they have the power to print money along with a complicated swath of activities to go with it, making them feel important “the wizards of finance” remember “the maestro” Alan Greenspan?

Without his monetary policy America might not have got where it is today… But maybe not all readers here will realize that Alan Greenspan is a closet Gold bug, below is a quote from Alan Greenspan from a 1967 article entitled Gold and Economic Freedo:

“The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

This was a wise and telling statement, but why did Alan not talk like this while running the FED? Unfortunately I think he corrupted his logic to be in the position he was, as Chairman of the federal reserve, pushing the gold standard would have made him very unpopular with politicians, who want to give people social benefits without taxing for them, in other words to get voted in, also Alan’s ego was massaged, he was held up as a genius. But really it does take a genius to hold together money based on nothing, to give them there due, it is not easy to hold up a piece of paper and declare it has real value or worth, and even that it’s worth is what ever they say it is, they are clever illusionists no doubt. (Alan was not the only old school central banker who recognized the discipline and benefits of the gold standard, see John Exter.

The new Fed Chairman does not have even a hint of gold bug about him, there are no pro gold speech in his past to drag out, no just the opposite, Ben Bernanke considers himself a scholar of the great depression and what caused it, yes he thinks a lack of liquidity was at the root of it, and the gold standard was the restricting factor.

Referring to his speech in 2002 "Deflation: Making Sure "It" Doesn't Happen Here" I quote:

"the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

So we can be quite clear that Ben Bernanke will inflate or bust, but to what end?

It is far beneath the modern central banker to have a gold standard, it is too simple, it does not require a series of degrees to work out gold backed money, it does not take a genius to work out you can’t spend more than you earn, so they don’t like it, they like a system that does take a genius.

So is Bernanke right? Did a lack of liquidity caused by the inflexible gold standard stop the “wizards of finance” working their magic, namely printing money without gold backing. Because of the gold standard they were unable to flood the market with money. They say it was lack of liquidity that was at the root of the problem. But in reality they did not get to the root of the problem they only made it from the branches down to the truck and stopped there, they needed to look deeper.

So now Ben and the others have their chance to shine, and they are going about it “hammer and tongs”, bailing this, buying that, money is really no object, there is no limit, they will stop deflation I’m sure. But here is the trillion dollars question: they may stop deflation but will they stop a 2nd Great Depression? Well the scene is set and the actors are in place we will soon see if the modern central backers are right.

As for me I’m one of those people who does not expect more from men than has been demonstrated in the last 4000 years! The studies I have carried out on the Great Depression surprised me in some ways but not in others. I was surprised to find out that debt was the major issue and root of the problem, people exhibited similar behavior in the 1920’s compared to 2000-7. On the other hand I was unsurprised in that it made logical sense rather than just saying “it was the gold standard”. We tend to think people were far more restrained back in the “good old days” that they were sensible about debt, they stayed away from it. But actually that’s the problem we weren’t looking far enough back to the bad old days, or deep enough to uncover the realities that are not in the central banker text books. The older generations I know or knew (being in my 30’s) avoided debt because of the hangover from the Great depression, while folks back in the roaring 20’s had a different attitude, one that was yet unchanged by what was to come.

King Solomon once declared:

"That which has been is what will be,
That which is done is what will be done,
And there is nothing new under the sun.”

(Ecclesiastes 1:9) Here he was speaking I think of the human condition….

So were the roots of the Great Depression the same as our current developing financial crisis? In both cases a major cause was plain old debt, yes the debt of today has fancier names, and takes more bureaucrats to manage but debt is debt.




Following are some excerpts from the book “Brother can you spare a Dime” (I highly recommend reading this book)










“The Roaring 20’s” Quote:

Appeals to buy were dinned in their ears hour after hour on radio, and the movies teased them with fantasies of beautiful people living frivolous lives in luxurious surroundings. Yet no matter how alluring the advertisements of new products, how could they buy?
Salesmen had an answer: offer the goods on credit. Soon almost anything could be bought on the installment plan. By 1929 three out of every four cars were being financed on time. The cautious American habit of buying only what could be paid for in cash gave way to a philosophy of “a dollar down and a dollar forever.” You took a chance on buying now because you believed business would keep prospering, and you, too, would have more money. So why not buy that Model T today, while you were young? Gambling on the stock market was another way of gambling on the future. Speculation was so widespread.

Sound familiar! Quote:

When the newspapers were not heralding heroes such as Charles Lindbergh, who flew the Atlantic, or Babe Ruth, who hit 60 homers in one season, they were front- paging the sex scandals of millionaires and movie stars. Publicity and advertising ballyhooed everything from an imported Chinese game, mah-jongg, to bathing beauty contests at Atlantic City to real estate in Florida, where swampy lots sometimes changed hands 10 times in one day, selling at prices incredibly above their real value. The stock market was soaring and prosperity was in full flood in 1928.

So, then as now there were many distractions in the media to cover up the real issues going on , these days the media has far more technology at there disposal to distract, and yes the real-estate boom sounds familiar, right!

Quote:

Herbert Hoover took office in March 1929, confident in his own campaign prediction that the policies he had helped shape over the preceding eight years would soon banish poverty from the nation.
In the New York Times of May 7, 1929, a full-page advertisement placed by True Story magazine trumpeted:
You business executives sitting at your desks, you have been making a fairy tale come true. Within ten years you have done more toward the sum total of human happiness than has ever been done before in all the centuries of historical time.
Yes, the twenties were a very good time for many Americans. More were doing well and living comfortably than ever before. Business profits spiraled rapidly upward, over 80% in that decade, climbing much higher than productivity.

This is an important point to understand, profits climbed higher also after the year 2000 because people were borrowing money to buy, so corperates made money without paying the wages to support the spending! This happened in the 20’s too. Also governments get a cut of the debt in the form of taxes as money changes hands, then trumpet their brilliant management of things.

Quote:

It was a time to get rich quickly, and it looked like it could be done without much effort. A speculative fever took hold. Even the collapse of the Florida land boom in mid-decade did not cool it off. Those who gave up gambling on the Florida climate believed they could get rich just as effortlessly by gambling on the stock market.

The 1929 crash may have had its groundings in the real estate fall, but it did not trigger the collapse, people went into stocks next. As it turns out this time in 2007/8 they both went down together, I think this is just the start of things to come, at least for the “Western World”.

Of course, there were working people who had no extra funds to play with. In 1929 the Brookings Institution, an economic research group, made a national study of family income. Of the country’s 27.5 million families, 21.5 million, or 78%, were not doing so well. They earned under $3,000 a year. Among them were 6 million families with incomes under $1,000 a year.
The 21.5 million families earning under $3,000, the study reported, were able to save nothing at all.

Sound familiar? So in the "roaring 20's" the middle class was actually under pressure, while all was well in the media, “just borrow and get what you need now”.

In part 2 I will draw some conclusions on the question "did the gold standard cause the great depression?"

Note to subscribers: this article will become part of the precious metals FAQ section.

THE DAMS A BUST'N

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Today Goldmeasures is very pleased to present a guest essay form Steve (Known as SRSrocco) A respected poster on the Jason Hommel Forum:

WATCH OUT....FIREWORKS IN THE US TREASURY-BOND MARKETS


Many of you might not be aware....or on the other hand...maybe you are. The treasury and bond markets are blowing up as we speak. This is not a normal correction...or what happens in response to the stock markets. We all know, that when the stock markets head higher, so do the treasury and bond rates. The opposite is true as well. We have to remember, that when treasury-bond rates head higher...the yields head lower...thus these investors lose money.

The fed is trying to keep long rates down...by buying 10 year treasuries. Also, the 30 year bond rate (which is not that important as the 10 year) has importance on the mortgage rates as well. So 10 year and 30 year treasuries-bonds are what determines the mortgage rates. In just 2 days 30 year mortgage rates went up from 4.75% to now 5.25-5.5%. Many of those who were getting refinancing just got kicked out of their loan application ...now unable to qualify for the loan.

Not only are long term treasury and bond rates heading higher, but so are the short term ones. This is highly problematic for the fed, treasury and the fiat dollar. Take a look at the different treasury rates:

6 MONTH TREASURY

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1 YEAR TREASURY

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2 YEAR TREASURY

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10 YEAR TREASURY

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30 YEAR BOND

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If you look at the shorter treasuries (6 month, 1 yr, 2yr) you will notice that on Friday last week they just went off the charts. Treasuries don't move in this fashion. Furthermore, the longer treasuries and bonds are not moving up as fast but are still heading higher as the stock market heads lower or stays the same. Today, even though the stock market was down most of the day, most of the treasury rates went higher.

Bob Chapman who is on the discount gold & silver trading show on mon-wed-fri, stated that the govt is losing control of the treasury markets. The treasury market is many times larger than the stock market. If you have not listened to his Friday show on June 5th, here is the link:

BOB CHAPMAN FRIDAY JUNE 5:

http://libertyarchives.com/farlive/FS2_FRI.MP3

BOB CHAPMAN TODAY JUNE 8:

http://libertyarchives.com/farlive/FS2_MON.MP3

Folks, we are coming to a significant dislocation in the markets. Within the next 2-4 months the whole sha-bang could come to an end...and that is the US dollar, and us treasury markets.

Furthermore, the bric countries are having a meeting on June 16 to discuss global markets:

BRIC countries (Brazil, Russia, India and China): A new global order emerging!

Quote:
On June 16, at Brazil’s urging, BRIC leaders will meet in Russia to discuss an ambitious agenda: overhauling the international financial system, enlarging the United Nations Security Council and dumping the dollar as the world’s reserve currency.
http://ceoworld.biz/ceo/2009/06/08/b...rder-emerging/

It’s only a matter of time folks before gold and silver take off, too many nails against the US dollar and treasury markets.

I will show in my next post the real reason that silver and gold got clobbered last year. Remember this....it was on July 15. That is the key...it won't happen again this year. No more bullets left.

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Looking forward to the follow up post Steve, thank you!

The "other" reason why Gold (and Silver) is money

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What makes Gold & Silver suitable as money?
Lets start with the standard reasons:

1. Durable – Gold & Silver are “Noble metals” they do not corrode, or change over time.

2. Portable – Gold & Silver have a high amount of 'worth' relative to their weight and size (This is why for example oil is not very practical as money)

3. Divisible – Gold & Silver can be separated or recombined without affecting intrinsic value. (This is why Diamonds for example are not practical as money)

4. Fungible – In layman terms this means one piece of pure Gold / Silver is like another, it is interchangeable and replaceable. (Unlike for example Diamonds that could easily be valued differently by weight, where as Gold is Gold.

5. Intrinsic Value – Gold & Silver are limited in supply unlike paper money, they are rare “Precious metals” that took time and effort to dig out of the ground and refine, they are also useful in many applications, so unlike paper money that is a promise to pay, Gold & Silver are payment (The “Bill” part of “dollar bill” is not there by accident)

The above five reasons were the bases of Gold & Silver as money for thousands of years and these points were reasoned out by the likes of Aristotle (384-322 BC) teacher of Alexander the Great. Gold is actually mentioned well before Aristotle in the first Book of the Bible here is one example: Genesis 24:35.
The Hebrew word for money is derived from Silver, see strongs 3701: From kacaph; silver (from its pale color); by implication, money -- money, price, silver(-ling).
Also in Italian, Spanish and French the words for 'money' and 'silver' can be interchanged, apparently this is true for some fifty languages.

It is only in the last 50 or so years that Gold has been abandoned as money (It is proving to be a failed short term experiment)

Now for the “other” less known reason why both Gold & Silver are money:

6. Gold & Silver pay no interest – To many people his might sound counterintuitive until an understanding is gained of why paper (Fiat) money pays interest. The reality is paper money pays interest because intrinsically it is worthless! Why would you store something that is worthless if it did not pay interest? While Gold & Silver don’t pay interest because they have intrinsic value, they require effort to produce and are limited in supply, they are useful in their own right.

Put another way - If you receive interest payments on money you hold, you receive those payments because it is actually someone’s debt or obligation being held by you! While Gold & Silver are real money rather than debt, they are payment rather than a promise to pay.

This is a very important point to understand, and can even explain why all paper fiat currencies fail eventually. See my article “fiat debt money how it drives countries and lives” for my reasoning here.

Because paper money pays interest it is mathematically set-up for failure due to its inherent compounding usury payments. Gold & Silver are honest weights & measures, while paper fiat is a dishonest scale and measurement with a rubber-band!

Lets face it, man cannot be trusted with a printing press, it’s just too tempting to print more money. There is always a “good” reason like giving the masses what they ask for without increasing taxes, (leading to high inflation) or going to war when there is no money to do so. While on the other hand Gold & Silver increase through mining by an average of 2% per year, this matches population growth quite well over time. Using Gold & Silver as money is one of the best ways to keep governments honest and their power in check.

Note to subscribers, this article will end up in a new section called “getting started - precious metals” on goldmeasures.com

Yours truly,

Andrew



 

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