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The Daily Reckoning Wednesday, September 23, 2009 Gold is not a speculation for us - it's a means of saving money... The longer the rally, the more people think it's the real McCoy... The chain of reflation is broken - or at least temporarily stretched... Patrick Cox on the power of technology...and more! Buggish on Gold by Bill Bonner London, England The trouble with being a contrarian is that you can never be quite contrarian enough. We began having doubts about the 'feds inflate...gold soars' hypothesis last year. It was too easy...too obvious. And if it were that easy to inflate a nation's currency, how come the Japanese couldn't get the hang of it in the '90s?  So, we moved towards a contrarian position - inflation, yes...but not for a while. And gold? Well, we are in it for the long run. In the short run, anything could happen.  To clarify our view on gold, the Daily Reckoning is not bearish on the metal. It is not bullish on the metal either. It is buggish. We are gold bugs. In the long run, gold will retain its value. Since that's all we ask of it, we are always satisfied. Even if it is down in the short run - and it went through an 18-year downcycle from 1980 to 1998 - it will come back in the long run.  Gold is not a speculation for us; it is a means of saving money. As Richard Russell says, a man should count his wealth neither in dollars nor in euros; he should count it in ounces. Our views on gold are still contrarian. But our views on the gold market have become commonplace. Now...everyone's a contrarian. As we read the opinions and the blogs, it has become common to forecast a dip in the gold price...followed by a new, big bull market after inflation has found its footing.  And so what does gold do? It goes up! Yesterday, gold rose $11 - still comfortably above the $1,000 mark. Is gold going up because people fear inflation? Apparently not. If they were afraid of inflation we'd see it in the bond market. But instead of selling off - which is what Treasuries should do if there were any hint of inflation - bonds are going up.  Is gold going up because people are afraid of the dollar going down? Well, maybe. But that is like saying that the dollar is going down because people are afraid the price of gold is going up. Where's the chicken? Where's the egg? Which is the cause? Which is the effect? The dollar is still going down...as gold rises. Yesterday, it closed just below $1.48 per euro. It is so low now that Americans' cost of living is among the lowest in the world. The average house sells for just $160,000. That's just over 100,000 euros. Even out in the country...you would have to do some serious searching for a nice house anywhere in Europe that you could buy for $100,000 euros.  And what about the economy? Our contrarian position has remained unchanged. As we put it last week, there are few problems that enlightened central banking can solve; a credit contraction is not one of them. All the bankers can do is to make it worse - by delaying it, disguising it or diverting it in another direction (such as converting deflation into hyperinflation).  Yesterday, the Dow rose again - up 51 points. As far as we can tell, the rally is still on. And now, the news media and the statisticians are in full support.  House prices rose 0.3% in July. Hooray! Of course, the government is giving huge tax credits to new house buyers. Since that program began in January, an estimated 350,000 houses have been bought thanks to the program. Household net worth also is going up for the first time in two years - at least, that's what the papers say. Of course, what do you expect? The feds are pushing up asset prices - giving them the biggest push in the history of man. But remember, the market is also doing its usual post-crash bounce. When the bounce ends...so does the temporary wealth effect... Is this still a contrarian view? Seems to us that it's becoming more contrarian every day. The longer the rally goes on the more people think it is the real McCoy. Stay tuned... [Call it a 'rally' or a 'recovery'...no matter which way you slice it, it's a fraud...and the government is benefiting from the false sense of security many Americans are feeling because of this fake recovery. Fight the government (and turn a nice profit) with a five-part financial defense strategy, which you can get - along with the recently released Financial Reckoning Day Fallout - in our special 'Rescue and Recovery' bundle. And best of all, this bundle is free. Get yours here.] More news from The 5 Min. Forecast: "After piddling about for the last two days, markets might actually take a significant direction in the next 48 hours," writes Ian Mathias in today's issue of The 5 Min. Forecast. "And par for the course in 2009, Washington will be crackin' the whip: "First, the FOMC will reveal their latest interest rate decision today. Chances are they won't even hint at raising rates for the foreseeable future, but the Street is in knots over whether they will extend quantitative easing plans. We care, but only a little...the damage has been done. More on that in a second. "Then after the Fed, we should start hearing whispers from the G-20 meeting in Pittsburg, which officially starts tomorrow. With world leaders mostly convinced the recovery is underway, we suspect talks of reform, regulation and exit strategies. Namely, they'll be wondering what the hell to do about this: "The dollar - the money every G-20 nation holds in reserve - has quietly become little more than a carry trade currency. It's lent at one of the lowest rates in the world. The biggest financial bailouts in modern history have made prospects for dollar inflation pretty high, to say the least. And with every day of this 'recovery,' it's worse. "More QE from the Fed or dollar reserve jitters from the G-20 should mark the next move for the dollar...we'll keep an eye on it for you." Wanna make sure you get The 5 - in its entirety - sent to your inbox, every Monday through Friday? You can...by becoming a subscriber to one of Agora Financial's paid publications, such as Breakthrough Technology Alert. Their latest report details an epic piece of news that could make life better for the entire human race - and could give you your shot at incredible wealth. But you must act before tonight at midnight. This story is already breaking, and once the mainstream press catches on, the stampede of investors could crush your opportunity for profits. Hurry - time is running out. Get all the details here. And back to Bill, with more thoughts: If we are right, the massive effort by the feds will make things massively worse. That is the position taken by Arthur Laffer in a recent Wall Street Journaleditorial: "The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I'd give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s. "The Smoot-Hawley tariff of June 1930 was the catalyst that got the whole process going. It was the largest single increase in taxes on trade during peacetime and precipitated massive retaliation by foreign governments on U.S. products...beginning in 1932 the lowest personal income tax rate was raised to 4% from less than one-half of 1% while the highest rate was raised to 63% from 25%. (That's not a misprint!)... By the end of January 1934 the price of gold, most of which had been confiscated by the government, was raised to $35 per ounce. In other words, in less than one year the government confiscated as much gold as it could at $20.67 an ounce and then devalued the dollar in terms of gold by almost 60%. That's one helluva tax.... "Inflation can and did occur during a depression, and that inflation was strictly a monetary phenomenon..." "The 1933-34 devaluation of the dollar caused the money supply to grow by over 60% from April 1933 to March 1937, and over that same period the monetary base grew by over 35% and adjusted reserves grew by about 100%. Monetary policy was about as easy as it could get. The consumer price index from early 1933 through mid-1937 rose by about 15% in spite of double-digit unemployment. And that's the story." We had no doubt that inflation can occur during a depression; hey, we read the papers. Anyone who has followed the Zimbabwe story knows that you can have a deadly depression...and dizzying levels of inflation at the same time. But there's always more to the story. Devaluing the dollar in terms of gold had the immediate effect of increasing the money supply - it was like adding zeros to the currency. In our wallet is a ten trillion dollar Zimbabwean bill, with a picture of stones on it. Those words - 'ten trillion' - did not get printed on that bill by accident. We assume they got printed on their by a printer in the employ of a government that figured that the cost of printing a ten trillion dollar bill was less than the cost of not printing it.  That is, by a desperate government that had so fouled-up the economy that a period of hyperinflation might seem like an improvement. Besides, hyperinflation might have a therapeutic, purgative effect. But let us not get sidetracked by hyperinflation. It is nowhere in sight. Nor is its more civilized cousin - normal, polite inflation. The money supply in America - as measured by M2 - is contracting. The banks get money from the feds, but they don't pass it along. The chain of reflation is broken - or at least temporarily stretched. Currently, it takes a long time for money to get from one end to the other. The cash tends to get waylaid -either by the bankers...or by consumers themselves. It stays in bank vaults...or in bank accounts. Money is not being multiplied by the speed by which it changes hands. Instead, it is divided by immobility. It sits. It shrinks. It waits for a real boom. Until tomorrow, Bill Bonner The Daily Reckoning The Daily Reckoning PRESENTS: Technology's power is amazing. It can disrupt and change all facets of life - often, for the better. Patrick Cox explores... The Power of Technology by Patrick Cox Marco Island, Flordia Today, I've decided to change the topic a bit. Specifically, I want to talk about a significant bit of technological history that just happened. I assume that you know by now that the president's "green czar," Van Jones, has resigned. Jones had come to prominence by merging environmentalism with grievance politics. Pollution, he maintained, is somehow intrinsically racist. When he was appointed to his czar status, the mainstream media (MSM) did not find it worth reporting that Jones is, by his own description, a communist. The event he says turned him into a full-fledged communist was the beating of Rodney King by white police. He was not similarly moved, apparently, by the recent beating of black conservative Kenneth Gladney by SEIU union members at a town hall meeting. Regardless, it's fascinating that a self-avowed communist could be appointed to a top presidential position without notice. If a self- described Nazi were to be appointed by any administration, you can be sure we'd hear about it. Communists, however, make Nazis look like pikers in terms of pure genocidal numbers. According to the book, Le Livre noir du communisme: Crimes, terreur, répression, Communists have killed 94 million people. Originally published in 1997 in France, that book was written by ex-communists. It is now available in English under the title Black Book of Communism: Crimes, Terror, Repression. Nevertheless, you can call yourself a communist in certain "tolerant" circles and not be seen as supporter of a system that has routinely committed mass murder. So it was not the revelation that Jones is a communist that brought him down. Rather, a single unpaid blogger who goes by the name of Gateway Pundit discovered that Jones had signed a petition that, in essence, accused the Bush administration of either perpetrating or willingly failing to prevent the Sept. 11 terror attacks. It was the final straw. During the long noisy buildup to Van Jones' involuntary resignation, not one word about the controversy appeared in the paper pages of The New York Times and many other MSM outlets. Only now are those who depend on these old media outlets even hearing Jones' name; and it is often in stories that infer that he was somehow smeared.  "When we finally emerge from this government-created fiasco, it will be a far better and more profitable world. As old institutions crumble, new ones will be born, and we’ll invest in the best of them." It is a remarkable state of affairs when important news and objective fact are being discovered and reported by a lone individual using nothing but his computer and an Internet connection. Meanwhile, old media are losing money and firing reporters daily. This is the power of technology.We will continue to see this sort of disruption across the board, but this specific lesson concerns old media. Few of these old media institutions are capable of adapting. This is the silver lining to our current economic troubles. Institutions that have forged alliances with political powers to assure their dominance will fail in hard times. FCC regulators will not be able to save the old, petrified media, no matter how hard they try. Similarly, representatives of other industries that have symbiotic relationships with politicians and regulators, from automotive to pharmaceutical, will be replaced in these difficult times. When we finally emerge from this government-created fiasco, it will be a far better and more profitable world. As old institutions crumble, new ones will be born, and we'll invest in the best of them. For transformational profits, Patrick Cox for The Daily Reckoning P.S. We have found a breaking story - literally breaking today - that could change your life, and every human life in the world, for the better...and could make those fast-acting investors a lifetime of incredible wealth. But you must act fast...once the mainstream media breaks this story your window of opportunity will begin to close quickly. You have until midnight tonight - get all the info here. Editor's Note: Patrick Cox has lived deep inside the world of transformative technologies for over 25 years. In the 1980s, he worked in computer software development and manufacturing. By the mid-1990s, he worked as a consultant for Netscape - the company that handled 90% of all Internet browsing traffic at the time. InfoWorld and USA Today have featured Patrick's research many times. He's also appeared on Crossfire and Nightline. This expertise bought him to Agora Financial, where he now heads Breakthrough Technology Alert, the only place you'll find the truly transformational technologies that offer exponential gains. 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