Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future
The Daily Reckoning Weekend Edition
Saturday, February 27, 2010
Taipei, Taiwan
Joel Bowman, reporting from Taipei, Taiwan...
A while back, our colleague, Chris Mayer, employed a wonderful analogy to illustrate the passage of time from the roaring twenties through to the dustbowl thirties. The former decade, Chris explained, was captured in essence by F. Scott Fitzgerald's The Great Gatsby. It was a period ripe with wild speculation, fueled by an explosion in EZ money, and of reckless excesses in general. (If any of this sounds familiar, you can probably already guess the point at which Chris was driving.)
Then, almost as quickly as it had begun, the party ended. Black Tuesday, October 1929, was somewhat akin to calling "closing time" at the Gatsby mansion cocktail party. Markets crashed, the public panicked and central planners did everything in their power to exacerbate the situation they themselves had caused in the first place.
The decade that ensued was perhaps best captured, observed Chris, in John Steinbeck's memorable Grapes of Wrath. The parched plains..."Oakie" drifters...the all-too common hardships of the farm folk... We all remember the scenes as if we had lived through those heartbreaking years ourselves. A bit of a Steinbeck enthusiast himself, your editor has spent a good while mulling over Chris' astute comparison. The imagery contained in those two momentous works, both Steinbeck's and Fitzgerald's, are so vivid that the reader almost feels he can touch the characters, taste the champagne and, eventually, feel the anguish and despair of the stricken Joads.
If you didn't guess it earlier, the point Chris was making was simply that history tends to repeat itself. The Gatsby years, for instance, might not have been so different from those of the late 1990s - early '00s; a period of excesses, frivolity and of "irrational exuberance" as Greenspan, the man largely responsible for causing it, noted (though he did so before it had actually materialized, in a typically ill-timed speech delivered back in 1996...before the market more than doubled over the ensuing four years. Oy...). And now, with our own depression unfolding, central governments around the world move to centralize power, to clamp down on free economies and to limit the corrective forces of the marketplace...thereby virtually assuring we will enter another Steinbeck-esque stage, if we haven't already done so.
As we look around the world today, we wonder if we can't draw a few more parallels between the early to mid-20th century and the time in which we now find ourselves. And, perhaps hidden within these folds of time, we might discover some clues as to where we are headed in the not-so-distant future. If we're moving towards a Grapes of Wrath-like scenario, in other words, what comes afterwards?
While Gatsby's crowd was swinging to the smooth sounds of the roaring twenties in the USA, another man was wallowing away in a dank cell on the other side of the world. Having failed in his attempted November revolution in Munich (1923), the "political prisoner" (as he called himself), set to work dictating his life's philosophy. The Weimer Republic, still recovering from the nation's disastrous expeditions abroad during the previous decade, had just suffered through one of the most infamous hyperinflationary spirals in history. It wasn't until then foreign minister, Gustav Stresemann, issued a new currency, the Rentenmark, that his republic began what is now referred to as the "Golden Era" (1923 and 1929). But even during this period, unemployment grew in step with the republic's mounting foreign debts and discontent among the working class brewed. If ever a megalomaniacal dictator was to sway the masses, now was the time to make his stand.
Although it was published in two parts during the twenties, the prisoner's work didn't garner any real, widespread attention until its author ascended to power in 1933. That man, of course, was Adolf Hitler. His book: Mein Kampf. During the Führer's reign of terror, his book came to be available in three common editions. First, there was the Volksausgabe or "People's Edition." This was the most commonly circulated. Then came the Hochzeitsausgabe, or "Wedding Edition" which was given free to marrying couples. And finally, in 1940, the Tornister-Ausgabe was released; a compact, though unabridged edition which was available at post offices, where it could be sent to Nazi family members fighting on the front lines. Tragically for many a sorry soul, the 1940s were to be defined by the work of one of the century's most infamous authors, Adolf Hitler.
That decade, as everyone knows, was more or less an unmitigated disaster for most of the world. From the islands of Japan to the bloodied desert sands of Northern Africa...the streets of Paris to the burning gates of Stalingrad, the devastation seemed unrelenting. Track marks from Russian T-34s, German Panzers and American M4 Sherman tanks crisscrossed Europe from end to sodden end. And, in the midst of it all, a brave little girl, hidden away in a secret annex with her family in The Netherlands, sat down to pen her own prisoner's memoir.
Fast-forward to today and we find ourselves in a situation eerily similar to that of the early '30s. Tensions in Europe are once again heating up over the possible collapse of its relatively nascent monetary union experiment. Nations there have, as they are wont to do, overspent their kitty. This time it is Greece, Italy, Ireland, Portugal and Spain, whose balance sheets are coming apart at the seams, that threaten to drag the financial credibility of the whole continent asunder. Workers in Greece are on strike over austerity measures their government has undertaken to try to manage its budget. Disgruntled protestors numbering in the tens of thousands marched through the streets of Athens this week.
Elsewhere on the continent, air traffic controllers in France are off the job...as are thousands of British Airways workers over in the United Kingdom. Another 70,000 discontents thronged the squares of Madrid...and 50,000 in Barcelona. Workers in Ireland and Portugal are itching to join the queue. And that's just the kerfuffle in Europe!
Alas, that's all we've got time for today. We'll have more on our little Seeds of War musings in future Weekend Editions. Stay tuned...ALSO THIS WEEK in The Daily Reckoning...
The Trust Fund Con
By David Walker
New York, New York
Social Security is in trouble. According to the Social Security Trustees Report, the Social Security program was in a $7.7 trillion hole as of January 1, 2009. That means Washington would have needed $7.7 trillion on that date, invested at prevailing rates, to deliver for the next seventy-five-years on the promises that the federal government has made. But we actually need much more than that to keep Social Security healthy, because it will experience larger and larger deficits both in the near future and beyond the seventy-five-year accounting horizon.
The Sovereign Debt Disaster
By Egon von Greyerz
Zurich, Switzerland
Wherever we look at the world economy today, we see a wall of risk...and potential financial catastrophe. We see a large number of virtually bankrupt major sovereign states (US, UK, Spain, Italy, Greece, Japan and many more) teetering atop a financial system that is bankrupt, but is temporarily kept alive with phony valuations and unlimited money printing. Increasingly, therefore, investors will want to exchange this funny money for gold.
Go Nukes!
By Byron King
Pittsburgh, Pennsylvania
The "No Nukes" era has been replaced by the "Go Nukes" era...and uranium stocks are a great way to play the trend. The nuclear industry is about to experience a breakout, and it's going to be a major investment opportunity. Lately, I've been talking with people in the nuclear business, from uranium miners to reactor designers to government minders and check signers. Everything I've heard leads me to believe that 2010 will be a good year - finally - for the nuclear industry.
Emerging Markets Are Still a Buy
By Chris Mayer
Gaithersburg, Maryland
Oranges were once expensive luxuries in northern climes. "In 1916," Paul Fussell writes in Abroad, "oranges, like other exotic things that had to travel by sea, were excessively rare in England. If you could find them at all, they cost the shocking sum of 5d each." Today, we take for granted that we can eat apples and oranges and bananas all year round if we choose. It doesn't matter where you live. We can eat strawberries in the dead of winter. In fact, we routinely enjoy goods that come from places very far from our own doorstep.
A Propensity to Screw Up
By Bill Bonner
Baltimore, Maryland
Price movements are neither good nor bad; it depends on the cause of them. In a properly functioning economy, prices go up and down. Rising prices suggest scarcity, signaling to consumers that they should switch to substitutes. And they tell producers to get on the ball and stock the shelves with new supply. Falling prices send the opposite message...trimming profit margins and telling producers to cut back.
---------------------------------------------------------------
The Weekly Endnote: Finally this week, our executive publisher, Addison Wiggin, needs your help. A couple of days ago, Addison announced that, after seven years in the making, he is ready to launch his brand new research service, tentatively titled Apogee Advisory. The project is geared towards, in Addison's words, "Providing investment research for individual investors that will not only cover the nexus between money and politics, between Wall Street and Washington, but would crush even the finest research published by the Wall Street houses, such as they are."
Addison will begin this new service with three "beta" issues, starting next month. Importantly, he'd like to test the idea to get your feedback. To that end, he's offering these initial issues free of charge to a select group. If you're interested in providing feedback, you can get the details here. The first issue is due out in early March and, as usual, positions are limited.
Until next week...
Cheers,
Joel Bowman
Managing Editor, The Daily Reckoning The Daily Reckoning - Special Reports:
Saturday, 27 February 2010
Seeds of War
Posts
