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The Daily Reckoning | Thursday, October 6, 2011 Japan teaches the US how to play the money game... Investing in gold and silver before the bubble hits... Plus, Bill Bonner on an entertaining empire and much more... ------------------------------------------------------- Here’s How Ronald Reagan Saved Your Retirement from Obama’s Grimy Clutches Way back in October of 1986, the Gipper signed a law that could be your one retirement savior. It may be the only way you can protect yourself — and recover — from the ravages Team Obama have thrust on your future. Here’s the urgent expose that uncovers this important act of Reagan. When Credit Goes Bad A Tight Grip on the Excessive Debt Grenade Bill Bonner Reckoning from Paris France... Japan...wither thou goest... The US and other developed countries continue to follow Japan. The Dow rose 131 points yesterday. The 10-year note fell, to yield 1.9%. Gold rose $25. What to make of it? Some reports tell us that Europe is getting close to a deal that will save Greece and other ‘Olive Country’ debtors. Maybe, but IMF chief Christine Lagarde says they have a $3 trillion hole to fill. That’s probably the one and only thing she is right about. The size of the problem is big...bigger than anyone realized. Some of the biggest banks, for example, have tried to buy time by underestimating the size of their losses. Societe Generale has written off 21% of its Greek debt. But Mr. Market says it’s down more than 50%. And what about the rest of them? Spain, Italy, Portugal...they’ve got big losses too. “You can’t trust Greeks,” said a friend last night. “That’s just the way they operate. It’s probably some Mediterranean genetic code. The Southern Italians are just as bad. It’s crazy to think that they can operate with the same currency and the same interest rates as the Dutch and the Germans.” “Well, I’m not so sure...” we replied. “People from California and New York share the same currency.” “Yeah...and you can’t trust either one of them, either.” “And what about Ireland? They don’t even have olive trees. But they’re probably in as deep a hole as anyone.” “Yeah...but you can trust the Irish. They’re not crooks. They’re just stupid. “I don’t know...but this whole mess is going to explode. People owe too much money. You can talk about bailing them out, but that doesn’t make the debt go away. It just moves it around. And even if the Germans could and would pick up the whole tab, so what? It’s still got to be paid or written off. “I don’t know what they can do...except what Japan has done. The Japanese savers lent money to the government so it could keep spending and keep the economy going.” Our friend was making a good point. Debt doesn’t go away. Even if you succeed in managing it, you still have to take the debt and subtract it from someone’s balance sheet. Excess debt is a like a hand-grenade after you’ve pulled the pin. You can pass it around the table. But, it’s going to explode anyway. In theory, it doesn’t matter who has the debt. Debt is debt. It is a claim on wealth. Current wealth or future earnings. When growth rates decline, debt gets heavier. Growth would make the debt seem lighter and smaller. Without growth, debt must be subtracted from current wealth...not future wealth. That’s what a write down or default is all about. The debtor admits he cannot pay. The creditor admits that he has been a fool... Many economists have the wrong idea about debt. For every debit there is a credit, they say. Don’t worry about it. But what about when the credit goes bad? The lender lent money. The debtor used the money to buy resources...and use them up. Then, the debtor has no more resources...the debt can’t be paid...and the creditor realizes that he should have held onto his money. The credit disappears...the debt disappears...the resources have long since disappeared...and the lender blows his brains out. He’s broke and disgraced. Well, he would be taking this thing far too seriously. But sometimes people get more worked up about money than they should. C’mon...it’s just a game! It’s supposed to be fun... Besides, the Japanese have been playing the game for two decades. Instead of forcing borrowers to admit they couldn’t pay, the Japanese feds lent everybody money...and spent a lot of money themselves. This kept the economy turning over. Our Daily Reckoning best guess is that that is what Europe and America will do too... They will go where the Japanese went. But wait...what happened to all that money that Japanese savers lent to the government? How will they get it back? Doesn’t the Japanese government get stuck holding the hand-grenade...and won’t those poor mom and pop savers have to admit that they were fools? Yes...of course. But we’ll worry about that later... What To Do If Gas Hits $8 and Oil Soars to $300... Think we’re “done” with exploding gas and oil prices? Maybe Obama and Congress want you to look elsewhere, but the truth is...there’s a whole new and secret “Saudi Timebomb” that’s set to blow, as early as the end of this year. When it goes, even today’s high gas prices could look like a bargain compared to what’s ahead. Millions of Americans could take a financial hit...but a few could come out way ahead. Find out how in this urgent new report... The Daily Reckoning Presents Gold is Not in a Bubble...Yet! Jeff Clark An interview with Mike Maloney, founder of GoldSilver.com Jeff Clark, editor of BIG GOLD, caught up recently with Mike Maloney to get his latest thoughts on the gold and silver market. Was the recent selloff in the precious metals sector the beginning of the end of the Great Gold Bull Market? Or merely the end of the beginning? Mike’s perspective may surprise you... Jeff Clark: For those who don’t know you, why is Mike Maloney such a big believer in gold and silver? Mike Maloney: Around 1999, my mother needed help with the estate my father had left her. My sister and I interviewed a dozen financial planners and picked the one that had the most glowing recommendations and gave him control of the assets. He lost about 50% of them in the next year and a half. What I’ve found is most financial planners get it wrong. They’re always chasing yesterday’s news. To be fair, there was a market crash, but with 50% of her assets gone by 2001, I ripped everything away from him, moved it to cash, and started studying the economy like crazy. I discovered that the people concerned about budget deficits and trade imbalances at that time were in the precious metals sector, the hard money advocates. All the rest of the economists and newsletter writers didn’t really care. Concerns about international trade imbalances and how they were going to come back to bite us one day were coming from the hard money analysts. They also wrote about monetary history, something I just fell in love with. The fact that things just repeat over and over again is amazing. I have hard data from 1918 to today, and anecdotal evidence before 1918, that shows that throughout history a society has a certain amount of real money — gold and silver. Then they either come out with debased coinage, or paper representations of gold and silver and expand the currency supply, which eventually cause prices to rise. People then realize there was something wrong with the currency and they rush back toward gold and silver to protect their purchasing power...and in doing so, they bid up the value of the gold and silver in the country until it matches the value of the circulating medium. It appears to me this process has been going on since 407 BC, with the first great inflation in Athens. I have charts in my book, Guide to Investing in Gold and Silver, starting in the year 1918, showing the value of the gold held at the United States Treasury compared to the value of all of the base money or paper currency, and it was a 1:1 ratio. Jeff: So history shows that the value of gold eventually equals the value of all paper money in circulation? Mike: Yes. Back then, the US dollar was a claim check on real money — gold. Base money was the number of US Treasury gold notes in circulation. Before World War I, base money equaled the value of the gold held at the US Treasury. Then we established the Federal Reserve and did a bunch of deficit spending for WWI, expanding the currency supply, so now there wasn’t enough gold to cover all the dollars they printed. In 1934 the price of gold was changed to $35 per ounce and the values of base money and gold at the Treasury were once again in equilibrium. Then we expanded the currency supply to pay for WWII, Korea, and Vietnam, and in the ’70s the price of gold rose until its value at the Treasury exceeded base money. But, for a short time in 1980, the value of gold at the Treasury not only exceeded the base money, it surpassed base money plus outstanding credit card balances. This is important because credit cards are replacing cash in circulation, so you must include it if you want to estimate a price target. Jeff: So how high do gold and silver go? Mike: When I finished the book, it required a $6,000 gold price to cover base money plus outstanding revolving credit. I’m not saying that that’s going to happen, but if history were to repeat, that would be the price. However, since the book was written, Bernanke created a whole bunch of base money to bail out the banks, and now it takes a $15,000 to $20,000 gold price. One caveat is that $1.6 trillion of excess currency is sitting on banks’ balance sheets. It has yet to enter circulation, and if it never does, then this price target changes. My point is that prices are a moving target. Putting a dollar figure on them is an exercise in stupidity, I think, because the dollar is always changing. You can’t use it as a measuring stick. My target for gold is that it should be equivalent to 1/40 of a single-family, medium-priced home, or two shares of the Dow. So gold will probably buy you about 12 times more stocks and 3 times more real estate in the future than it does now. So those are my prices. And silver will leverage you to that. There is more gold on the exchanges and with the dealers that investors can buy than there is silver. Their current prices do not reflect this. Gold is way too cheap compared to dollars, and silver is too cheap compared to gold. Jeff: Sounds like it’s not too late to buy gold and silver. Mike: No. What investors need to be aware of is that we are on the last legs of our currency system. History shows that the world sees a brand-new monetary system every 30-40 years — and ours is 40 years old. Right now all currencies on the planet are backed by debt. All of the previous transitions were baby steps from something (gold) to nothing (debt). In order to give confidence back to the currencies, we’ll have to go from nothing (debt) to something (most likely gold again) in one big, huge, gigantic leap. This will cause an economic convulsion the likes of which the world has never seen. The end of this precious metals bull market will be marked by panic buying. Gold and silver will be going into an astronomical bubble one day, probably the biggest bubble in financial history. That is why I think gold and silver are still fundamentally undervalued. Jeff: Investors reading this might be a little skeptical that a bullion dealer is telling them to buy gold and silver. Do you mind sharing what percentage of your assets is held in gold and silver? Mike: My personal portfolio is 100% in gold and silver. I have no other investments. I am completely committed to this because I absolutely believe it. I spent 2-1/2 years writing what is now a bestselling book on gold, and I opened a precious metals dealership. There isn’t anything I do, no action I take, that isn’t somehow connected to gold and silver. Jeff: What separates GoldSilver.com from other bullion dealers? Mike: Everybody at GoldSilver.com invests in gold and silver. They have all been invested in precious metals since I started the company in 2005. Everyone is absolutely committed and very knowledgeable. So we are all on the same side of the boat as Casey Research. If you become a gold and silver client, you’ll know we’re invested just like you are. We’re walking the walk and talking the talk. We also have a team of researchers who are constantly analyzing where we are in this bull market. It’s in our best interest to try to find the top of this bull market and sell when the time is right. I believe we can multiply your winnings by letting you know what we’re doing when it comes time to sell. The way I’ve set up my company is that if you don’t win, I don’t win. Another thing you should know is that I am not a gold or silver bug. I couldn’t care less about these metals. They are just in their cycle right now and will be the best performing asset for the coming years — period — just based on history. There are these brief moments in history where the safe-haven asset also becomes the asset class with the single greatest potential gains in absolute purchasing power. We’re in one of these cycles right now; as the currency supply gets ramped up and people realize there is something wrong with it, they’ll rush back toward gold and silver and bid the price up until it matches the value of the currency supply. Jeff: You’re increasing the number of storage facilities outside the US; why should a US citizen consider storing bullion outside the country? Mike: Some investors are concerned about “confiscation,” which is technically incorrect. The US government never confiscated gold; they “nationalized” it. In 1933, they bought it from US citizens at full face so that the Treasury could hold it as an asset for the entire nation. That’s the very definition of nationalization. Jeff: Are you saying you don’t think gold could be confiscated? Mike: It’s possible, but I don’t believe it would happen in the United States. More than half of our currency resides outside the border. We’re the only country in that situation. If Obama passed an executive order today once again nationalizing gold, I believe that banks and brokerage houses around the world would suspect something was wrong with the dollar, and they would immediately dump their dollars and buy gold and silver. That would cause the dollar to fall to zero and send gold and silver to infinity in a matter of weeks. I would hope there is someone in the government smart enough to know this. If so, then it makes nationalization very unlikely. Jeff: Good point. Mike: But I do believe that it is good to have some geographical diversity. I think we’re going to see governments trying to limit our financial freedom even more than we’ve seen since 9/11. They’ll do this by instituting such draconian capital controls that today’s IRS will seem magnanimous by comparison. I want to be able to travel freely and have access to my funds no matter what happens. Therefore, I keep some of my gold in offshore storage accounts in several countries. Jeff: But why go to the hassle and bother with the reporting requirements? Mike: Because if you’ve got ownership outside the country, you may be able to retain it, even in a nationalization. The point is, we don’t know the future. All we can do is look at what’s happening, try to figure out what governments are going to do, and then protect ourselves with a little bit of diversity. And of all the assets you could own offshore, I believe none are safer than physical gold or silver. Jeff: Do you think foreign storage puts a target on my back with government officials? Mike: Well, they want to make sure you’re declaring any capital gain. And I do think that precious metals investors will see some sort of windfall profit tax when the government tries to punish those nasty gold speculators that caused the dollar to crash. They will always point the finger anywhere but where it belongs — which is squarely at the government and the Federal Reserve. People are just trying to protect themselves from government stupidity and the Fed by buying gold and silver. I think the reason they require the reporting is to make it difficult for people to cheat on their taxes. I don’t think it’s going to make you any more of a target than anybody else if you report everything. If you play within the rules, you’re not a target. I myself walk the straight and narrow. I make sure I comply with everything the IRS and the Treasury require. Jeff: What about the small investor? Do you have any advice for the person who has limited funds? Mike: Yes. It only takes $40 to become a silver investor. Regardless of what your income level is, you’re going to come out much better in the end. And once you take the leap and become an investor, your mindset changes and you find yourself starting to plan. A lot of people are not really planning on the future that much — but once you buy an ounce of silver and become educated, you give yourself a tremendous advantage over the rest of the population. So just buy small quantities of silver. It has such leverage to it. And silver will probably go into some sort of super-spike that you will want to catch, which means you probably need some sort of guidance. That’s where subscribing to newsletters such as yours is very, very important for anybody who’s going to get into this. Jeff: Thanks for your time, Mike. And we appreciate the discount you’re offering our readers. Mike: You’re very welcome. [Want to take advantage of the special discount on storing bullion outside the US? GoldSilver.com is giving us six months’ free storage at a non-bank, Canadian vault. And the normal storage fees are the cheapest we’ve seen, with an order process as easy as buying bullion. Get the referral code with a risk-free trial to BIG GOLD. The savings from this one order alone will more than pay for your subscription, and more importantly, allow you to easily internationalize your bullion storage.] NEWSFLASH: It’s Too Late to “Save America” It’s too late to “save” America as we know it. But that’s actually good news for you. How? Watch this urgent new briefing right now — and witness the ONE REASON America’s next big collapse could be great news...for Americans. Bill Bonner The US Empire: A Tragic Comedy in Three Acts Bill Bonner What a delight it is to have an empire! Do the Swiss get to send out drones to kill people they don’t know in countries they’ve never been? No! The poor yodelers go around with long faces and visit their shrinks. Americans have troops in 170 countries. Where are the Swiss? Only in Switzerland and the Vatican. Alas, they will never know the joys of nation building and people murdering. We hear that Ron Paul was booed in the Republican presidential debates. Why? He suggested that we get out of the empire business, bring the troops home and become a civilized nation again. What a party pooper...a wet blanket...a killjoy! An empire is so much more entertaining. We already have three wars going on...at last count...and quasi-wars in several other places. Having an empire is like having a football team that plays for mortal stakes. It’s fun to watch...at least when your team is winning. And now, Team USA is kicking butts all over the planet. That’s why at football games, for example, (or so we’ve heard) images of the football team are sometimes mixed with images of US combat troops. The flag flies. The lumpen salute. They don’t want to think about it; they just want the homeland team to win! And we have so much to look forward to. At least, we moral historians and ironic economists do. Gone is habeus corpus...forgotten is the presumption of innocence...into the wastebasket has been thrown the spirit of liberty. All that guff is in the past. In their place are hit squads and precision guided assassins. Now, the killer drones are only used abroad. But as the empire matures it is only a matter of time before they are used on more dangerous enemies — those at home! Yes, dear reader, if you can kill US citizens overseas, without any charges filed, let alone proved, you can certainly kill them where they might do the most damage — in the homeland. It is just a matter of time before the drones fly in Los Angeles and Baltimore, so watch out, Ron Paul. You want to know what lies ahead? Just read the classics...particularly the history of Rome. Empires have roles to play too. They have scripts to follow. They have plots they must respect...and destinies they must fulfill. For example, in the US, it is probably only a matter of time before a weak president is replaced by a strong emperor. A senate may be able to rule a constitutional democracy, but a real empire needs a real emperor, someone who can make decisions without getting caught in the gridlock of Congress. Besides, the public will love it. Yes, a popular general is sure to cross the Potomac sooner or later...from the Pentagon to the White house. The crowds will cheer. Garlands will be hung. Flowers will be strewn in his path. Finally, someone will bring order to the US...slay its enemies and reward its friends with war booty (military contracts). And then, of course, there will be civil war. Once a government can be taken by force, rather than the fraud that is customary in democracy, force will be used to compete for it. Perhaps the Democrats will have their military men...the Republicans will have their own forces. They will fight it out for control of the empire. And then, to stop the killing and the destruction, the army will get together and decide to put its own man in the top position. Inevitably, this will lead to more struggles for power... ..and much comedy. The military forces will choose even bigger morons than the voters. They will come and go quickly...with two, three...maybe a dozen new leaders in a single year. Some will be dangerously incompetent. Others will be dangerously able. Some will be lunatics. How long will it be before an American Caligula appears? Will he force the senators’ wives to become prostitutes? Will he proclaim himself a god? Will he be murdered by his own guards and companions? We hope so. Of course, it won’t the America we knew. Or even the one we want. But it should be a treasure trove for future historians and stand-up comedians. Below, a former Assistant Secretary of the Treasury, from the Reagan administration, pinpoints the moment when America, as we knew it, died... Regards, Bill Bonner for The Daily Reckoning The Day America Died Paul Craig Roberts September 30, 2011 was the day America was assassinated. Many expected President Obama to re-establish the accountability of government to law. Instead, he went further than Bush/Cheney and asserted the unconstitutional power not only to hold American citizens indefinitely in prison without bringing charges, but also to take their lives without convicting them in a court of law. Obama asserts that the US Constitution notwithstanding, he has the authority to assassinate US citizens, who he deems to be a “threat,” without due process of law. In other words, any American citizen who is moved into the threat category has no rights and can be executed without trial or evidence. On September 30 Obama used this asserted new power of the president and had two American citizens, Anwar Awlaki and Samir Khan murdered. Khan was a wacky character associated with Inspire Magazine and does not readily come to mind as a serious threat. Awlaki was a moderate American Muslim cleric who served as an advisor to the US government after 9/11 on ways to counter Muslim extremism. Awlaki was gradually radicalized by Washington’s use of lies to justify military attacks on Muslim countries. He became a critic of the US government and told Muslims that they did not have to passively accept American aggression and had the right to resist and to fight back. As a result Awlaki was demonized and became a threat. All we know that Awlaki did was to give sermons critical of Washington’s indiscriminate assaults on Muslim peoples. Washington’s argument is that his sermons might have had an influence on some who are accused of attempting terrorist acts, thus making Awlaki responsible for the attempts. Obama’s assertion that Awlaki was some kind of high-level Al Qaeda operative is merely an assertion. Jason Ditz concluded that the reason Awlaki was murdered rather than brought to trial is that the US government had no real evidence that Awlaki was an Al Qaeda operative. Having murdered its critic, the Obama Regime is working hard to posthumously promote Awlaki to a leadership position in Al Qaeda. The presstitutes and the worshippers of America’s First Black President have fallen in line and regurgitated the assertions that Awlaki was a high-level dangerous Al Qaeda terrorist. If Al Qaeda sees value in Awlaki as a martyr, the organization will give credence to these claims. However, so far no one has provided any evidence. Keep in mind that all we know about Awlaki is what Washington claims and that the US has been at war for a decade based on false claims. But what Awlaki did or might have done is beside the point. The US Constitution requires that even the worst murderer cannot be punished until he is convicted in a court of law. When the American Civil Liberties Union challenged in federal court Obama’s assertion that he had the power to order assassinations of American citizens, the Obama Justice (sic) Department argued that Obama’s decision to have Americans murdered was an executive power beyond the reach of the judiciary. In a decision that sealed America’s fate, federal district court judge John Bates ignored the Constitution’s requirement that no person shall be deprived of life without due process of law and dismissed the case, saying that it was up to Congress to decide. Obama acted before an appeal could be heard, thus using Judge Bates’ acquiescence to establish the power and advance the transformation of the president into a Caesar that began under George W. Bush. Attorneys Glenn Greenwald and Jonathan Turley point out that Awlaki’s assassination terminated the Constitution’s restraint on the power of government. Now the US government not only can seize a US citizen and confine him in prison for the rest of his life without ever presenting evidence and obtaining a conviction, but also can have him shot down in the street or blown up by a drone. Before some readers write to declare that Awlaki’s murder is no big deal because the US government has always had people murdered, keep in mind that CIA assassinations were of foreign opponents and were not publicly proclaimed events, much less a claim by the president to be above the law. Indeed, such assassinations were denied, not claimed as legitimate actions of the President of the United States. The Ohio National Guardsmen who shot Kent State students as they protested the US invasion of Cambodia in 1970 made no claim to be carrying out an executive branch decision. Eight of the guardsmen were indicted by a grand jury. The guardsmen entered a self-defense plea. Most Americans were angry at war protestors and blamed the students. The judiciary got the message, and the criminal case was eventually dismissed. The civil case (wrongful death and injury) was settled for $675,000 and a statement of regret by the defendants. The point isn’t that the government killed people. The point is that never prior to President Obama has a President asserted the power to murder citizens. Regards, Paul Craig Roberts