 | | The Daily Reckoning | Wednesday, May 2, 2012 |
- Four years of Obamanomics: From “Yes We Can!” to “We can’t Wait!”
- Jeffrey Tucker on the long tradition of defying the Constitution,
- Plus, Bill Bonner on that other creature from Jekyll Island and plenty more...
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The Great Comeback No One Is Expecting
A shift is under way that has been so subtle I’d wager not one in 10 Americans is aware of it.
The effects of this mounting trend will be felt from Topeka, Kan., to Shanghai, China.
If you play this shift correctly, you could grow wealthy. If you miss it, you’ll sacrifice a fortune. Get the full story here.
|  | | | | A Matter of Perspective | | Examining the Long-Term Benefits of Gold Investing | | |  | | Joel Bowman |
Reckoning today from Buenos Aires, Argentina...
Dow down, but only by a bit. Gold off, but only by a touch. Oil lower too, but just by a smidge.
We don’t go in for daily numbers, Fellow Reckoner. They’re too volatile. Too capricious. Too whimsical. One minute, stocks are on an upward tear. The next they’re crashing down again. Then you take a step back and realize the chart you’re looking at tracks movements by the fractions of a point. It’s like watching footage from a tiny camera, strapped to the back of an ant...at an IMAX theatre. Comfortably navigable ground suddenly becomes a terrifying terrain of Himalayan proportions. Who needs the headache, the vertigo or the motion sickness?
A nose-on-screen perspective is fine — necessary even — if you are day trading in and out of stocks...but your editor has neither the discipline nor the stomach for such demanding activity. Besides, it’s hard to really glean much from a second-by-second analysis of events. The sheer amount of information is simply too much for the human brain to process, much less to arrange in any meaningful kind of pattern.
The price of gold, for example, might have been cheap a few minutes ago...when compared to the price a few more minutes ago. Then, compared to the price yesterday, it’s cheaper still. About $8 bucks cheaper an ounce. (And even that number will have changed by the time you read this.) But so what? One year ago, you could have bought an ounce for about $180 less than today. That would seem to make today’s price expensive, no? But wait. Five years ago, you could have bought two and a half ounces for the same price it costs you to buy just one today. And ten years ago, you could have bought five and a half ounces. Does that make gold cheap, or expensive? A buy, or a sell?
It depends on your perspective. We’ve all wished we could go back in time and buy ’90s shares of Apple, acres of unpopulated beachfront and unloved ounces of gold. Alas, time marches in one direction and one direction only. So where will gold be tomorrow...a year from now...next decade?
Central bankers seem to be betting on a higher price — perhaps a much higher price — in the months and years ahead. Perhaps they’re looking at the divergence between the paper gold market — largely dominated by exchange traded funds and futures — and the physical, stuff-you-can-touch-and-feel market. Reads the April letter from Sprott Asset Management (courtesy of Dave Gonigam over at The 5- Minute Forecast):
“Although the paper gold price has been range-bound over the past month, the physical gold market has been undergoing staggering change...
“It was revealed,” write Eric Sprott and David Baker, “that Hong Kong gold imports into China totaled nearly 40 tonnes in the month of February, representing a 13-fold increase over the same month last year... There isn’t a physical market on Earth that can withstand that type of demand increase without higher prices over the long run.”
Adds Dave, always hard on the story for The 5’s loyal readers, “And that’s not a one-off event; Chinese gold imports during the last eight months have grown nearly eight-fold year over year. And as we noted a few days ago, China’s hardly alone: The IMF says 12 countries bought 58 tonnes last month — with Mexico, Turkey, Russia and Kazakhstan leading the charge.”
“Meanwhile,” continues Dave, “Cheviot Asset Management reckons for every one bar of physical gold, there are 100 open positions in the ‘paper gold’ market.”
“The paper market for gold can continue its charade,” conclude Sprott and Baker in their report, “but demand in the physical market will soon overpower it through sheer momentum — there’s only so much physical to go around, and it appears that there are some very large buyers that are eager to take it.”
We have no idea where gold is ultimately going, Fellow Reckoner...only that, throughout history, the Midas Metal has proved a tremendously successful insurance against central banker folly. That’s a fact onto which even the central bankers themselves appear to be cottoning. Don’t let them beat you to the punch.
[Ed. Note: Sprott Asset Management member and renowned resource expert, Rick Rule, will again take to the podium this year for Agora Financial’s annual Investment Symposium in Vancouver, British Columbia. Rick will be joined by perhaps our very best lineup yet...one that includes Marc Faber, editor of the essential Gloom, Boom and Doom Report, and historian Niall Ferguson, author of The Ascent of Money: A Financial History of the World and Civilization: The West and the Rest.
Last year’s Symposium was sold out by Memorial Day. This year, we anticipate it happening even sooner. If you would like to join us this year, we urge you to be nimble. The $300, early bird discount expires tonight. Please let us know if you’d like us to reserve you a spot. Details here.]
“Tucker Tuesday was too short lived!” complained one reader after Jeffrey Tucker’s conspicuous absence from these pages yesterday. It’s true, Fellow Reckoner. Due to a behind-the-scenes scheduling mix up (and confusing, back-to-back public holidays here in Argentina), we neglected to run an essay of Mr. Tucker’s we had earmarked for Tuesday’s issue. But fear not! We include below a rare and collectible “Tucker Wednesday” edition. Think of it like an Inverted Jenny stamp...only with inarguably right side up logic. Please enjoy...
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Washington’s Dirty Little Secret
Social Security: TERMINATED.
Medicare: CANCELLED.
Our cities: SUBJECTED.
Our families: COMPLIANT.
Startling new video evidence that Washington is preparing to confiscate your wealth and abolish many of your most cherished personal liberties...
Click here to watch...
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| | The Daily Reckoning Presents | | What Is or Should Be the Law? | | |  | | Jeffrey Tucker |
It seems that the president is frustrated with Congress. What kind of legislature is this, he asks, that fails to immediately enact the will of the executive? The executive has been using a slightly different approach these days: He uses an executive order. Forget all that stuff you have read in the civics texts about checks and balances and the branches of government. The executive order bypasses them all.
The White House even has a name for this: “We Can’t Wait.” There is even an official “.gov” website. Hey, if you are going to shred the Constitution and pass laws like a dictator, the best approach is to do it out in the open. “If Congress refuses to act,” he says, “I’ll continue to do everything in my power to act without them.”
To be fair, he is hardly the first. The president before him did it, and the president before that and so on back to World War I and before. Every new guy cites the precedent of the old guy, as if that alone provides justification. Defying the Constitution has a long tradition, don’t you know.
But you know what this tells me? What this country needs is a good theory of law. We even lack the language to talk about what is happening to us. One party denounces the other but only in ways that exempt itself from criticism. As a result, the “man on the street” is not even prepared to talk about fundamental questions.
Example: Where did law come from, and what should it do? Sure, people get annoyed at the police, irritated by the TSA or startled to read about periodic injustices of public policy. One party gets annoyed when the other party’s president enacts laws without regard to any constitutional conventions.
But what is the law, and what should it be? These are the bigger questions that are not part of public consciousness.
The same was true in the time of Frédéric Bastiat (1801-50). At the very end of his life, he wrote an impassioned plea on the topic. He tried to get people to think hard about what was happening and how law had become an instrument of plunder, rather than a protector of property.
He writes:
It is not true that the function of law is to regulate our consciences, our ideas, our wills, our education, our opinions, our work, our trade, our talents or our pleasures. The function of law is to protect the free exercise of these rights, and to prevent any person from interfering with the free exercise of these same rights by any other person. |
This is from Bastiat’s The Law, one of the great political essays to emerge from the whole Continental world of the 19th century. It vanished into obscurity in France, was resurrected in late 19th century English, and then disappeared again, only to reappear in the United States in the 1950s, thanks to the efforts of the Foundation of Economic Education.
This essay asks fundamental questions that most people go through life never having thought about. This book is part of Laissez Faire Books’ set of new works that seeks to find what is essential in the literature and distribute it in new ways. (It also has the coolest cover ever for this book.)
The problem is that most people accept the law as a given, a fundamental fact. As a member of society, you obey or face the consequences. It is not safe to question why. This is because the enforcement arm of the law is the state, that peculiar agency with a unique power in society to use legal force against life and property. The state says what the law is — however this decision was made — and that settles it.
Bastiat could not accept this. He wanted to know what the law is, apart from what the state says it is. He saw that the purpose of law is, most fundamentally, to protect private property and life against invasion, or at least to ensure that justice is done in cases in which such invasions do take place. This is hardly a unique idea; it is a summary of what philosophers, jurists and theologians have thought in most times and places.
Then he takes that next step, the one that opens the reader’s eyes as nothing else. He subjects the state itself to the test of whether it, the state itself, complies with that idea of law.
He takes notice, even from the first paragraph, that the state itself turns out to be a lawbreaker in the name of law keeping. It does the very thing that law is supposed to prevent. Instead of protecting private property, it invades it. Instead of protecting life, it destroys it. Instead of guarding liberty, it violates it. And as the state advances and grows, it does this ever more, until it becomes a threat to the well-being of society itself.
Even more tellingly, Bastiat observes that when you subject the state to the same standards that the law uses to judge relations between individuals, the state fails. He concludes that when this is the case, the law has been perverted in the hands of the governing elites. It is employed to do the very thing that the law is designed to prevent. The enforcer turns out to be the main violator of its own standards.
The passion, the fire, the relentless logic have the power to shake up most any reader. Nothing is the same. This is why this monograph is rightly famous. It is capable of shaking up whole systems of government and whole societies. What a beautiful illustration of the power of the pen.
But take notice of Bastiat’s rhetorical approach here. His conclusion is at the beginning. Why? He did not have that much time (he died not long after writing The Law). He knew that the reader didn’t, either. He wanted to raise consciousness and persuade in the most-effective way. Even from a stylistic point of view, there is much to learn from his approach.
Laissez Faire Books is honored to give new life to this remarkable document in this edition, which revives the translation by Dean Russell. It also includes an introduction by Bill Bonner, who gets my vote for the most-underrated voice in defense of old-style liberalism in the world today. He explains how Bastiat’s essay opened his eyes to see the world in a new way.
It is a habit of every generation to underestimate the importance and power of ideas. Yet the whole world that we live in is built by them. Nothing outside pure nature exists in this world that did not begin as an idea held by human beings. This is why a book like this is so powerful and important. It helps you see injustices that surround us, which we are otherwise inclined to ignore. And seeing is the first step to changing.
That’s why it continues to be printed and circulated and why every living soul should read it. If we are to see a renewed appreciation of the idea of liberty in our lifetimes, this monograph written so long ago in a country so far away will deserve a great deal of the credit.
Regards,
Jeffrey Tucker,
for The Daily Reckoning
Joel’s Note: How can we know if an action is “lawful” in the sense that Bastiat defines it? The Frenchman provides a kind of litmus test worth applying, first and foremost, to the state that presumes the right to enact (and enforce) the laws it writes. Wrote he:
See if the law take from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what that citizen himself cannot do without committing a crime. |
In a world of state-sponsored lawlessness, where government benefits directly from doing what its subjects would be imprisoned for doing (counterfeiting, theft, fraud, kidnapping, etc., etc., etc...) it can be difficult for freedom-seeking individuals to see a time when this might not be the case. What can be done? they ask, shoulders slouched, spirit broken.
Before action, Fellow Reckoner, we must have ideas. Ludwig von Mises gave us that. Before we can ever hope to live in a free world, in other words, we must first spread theidea of freedom; its powerful, undefeatable precursor. That, in a nutshell, is the mission of the Laissez-Faire Club, the first truly dynamic digital community dedicated to exploring and sharing ideas about liberty and the best ways to realize it in our lifetimes.
Last week we sent 1,000 copies of Rose Wilder Lane’s The Discovery of Freedom to readers around the world. Every Friday we’ll send another pivotal text — free — to members of the rapidly growing Laissez-Faire Club.
We’re building a community, Fellow Reckoner. And we’d love for you to be part of it. Find out all you need to know, right here.
P.S. New members immediately receive a copy of Bastiat’s magnificent monograph, The Law...in addition to the Economics in One Library set, including works by F.A. Hayek, Henry Hazlitt and Garet Garrett. As if you needed another reason to join us.
| | | | | The “Pension-Program” D.C. Won’t Tell You About |
It turns out, there’s an easy way you CAN transform your retirement so it’s government-backed. Some have been collecting from this OTHER Government backed “pension program” since 1972!
But don’t expect anyone in D.C. to tell you about it.
I’ve put together this special FREE video presentation that will. Be sure to watch it all the way through — it could be the smartest move you make this year.
Click here to watch it instantly.
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| | | | | And now over to Bill Bonner who has the rest of today’s reckoning from Sea Island, Georgia... | | How to Invest With a Declining US Dollar | | |  | | Bill Bonner |
Yesterday, we got a glimpse.
Yes, dear reader, we were on our way to Sea Island. We looked across the bridge at another island — Jekyll Island. You know Jekyll Island, don’t you? It’s where the monster was created...
A group of the nation’s richest, biggest, and most powerful bankers got together there — in secret — in November, 1910. They figured it was time to put in place a system that would make it a little easier for them to make money. Instead of competing head to head, without any backstop to protect them when things got rough, they decided to set up a central bank.
The meeting was so cloaked in secrecy few believed it ever took place. Implausibly, it was first reported by the poet Ezra Pound. How Pound learned of it...and why he reported it...we don’t know. But that’s the word on the street.
B. C. Forbes reported in 1916:
Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundreds of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance. I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written... The utmost secrecy was enjoined upon all. The public must not glean a hint of what was to be done. Senator Aldrich notified each one to go quietly into a private car of which the railroad had received orders to draw up on an unfrequented platform. Off the party set. New York’s ubiquitous reporters had been foiled... Nelson (Aldrich) had confided to Henry, Frank, Paul and Piatt that he was to keep them locked up at Jekyll Island, out of the rest of the world, until they had evolved and compiled a scientific currency system for the United States, the real birth of the present Federal Reserve System, the plan done on Jekyll Island in the conference with Paul, Frank and Henry... Warburg is the link that binds the Aldrich system and the present system together. He more than any one man has made the system possible as a working reality. |
And now it’s official. Ben Bernanke went there to give a speech in 2010, marking the 100th year of the meeting.
The role of the Fed...apart from greasing the skids for rich bankers...was supposed to be to protect the value of the dollar. Why the dollar needed protection was never explained. For the previous 100 years, it had been solid enough — except for during the War Between the States, when Lincoln printed up far too many of them in order to pay for his attack on the South. But Lincoln’s paper dollars came and went. And on the day the Fed was officially set up, in 1913, the dollar was still worth about as much as it had been when Napoleon Bonaparte set off for Russia.
Whatever the Fed was supposed do to, what it did not do was protect the greenback. Instead, the dollar slipped and slid throughout the 20th century and is now worth only about 3 cents.
Which is why we return to yesterday’s theme. There’s no guarantee. But we have a feeling that the dollar will continue to lose ground. Maybe not right away. But sooner or later.
And if someone will lend you money at the lowest mortgage rates in history...in advance of what could be the greatest inflation in US history...perhaps you should take it.
We’re down here at a financial conference. Among the attendees is colleague Steve Sjuggerud, who believes US real estate may be the best investment of all time. Adjusted for inflation, housing prices are back to 1979 levels, he says. But they’re much better deals now. Because mortgage rates in ’79 were 3 times higher.
“If you took out a mortgage in 1979,” says Steve, “you’d be paying 15% to 20% interest. So, over the life of a $200,000 mortgage, you’d pay as much as $700,000, including interest.
“And you got a lot less house for your money in 1979,” he continues. “The typical house sold in ’79 had only 1,600 square feet of living space. Today, the average is about 2,200 sq. ft. It’s a much bigger house.
“So, in terms of dollars per square foot, you’re paying about $75 now compared to about $100 back then.
In terms of affordability, and value per dollar, the US house is a better deal now than it has ever been, Steve concludes. It would have to increase in value by $100,000 just to get to normal affordability levels.
“There are unbelievable bargains around,” Steve goes on. He found a farm in Florida that had been appraised at more than $10 million in 2006. Now, the owner is bankrupt and the bank is desperate to get rid of it.
What bid will it take to buy it?
“Maybe less than $1 million,” says Steve.
There’s a time to be a borrower and a time to be a lender. As long as the Great Correction continues (and we think it will continue for a few more years...perhaps 10) it will be a good time to be a lender. Interest rates will tend to go down, not up. That is the lesson of Japan, where bonds have been the only decent investment for the last 22 years.
But thanks to that clandestine meeting on Jekyll Island 102 years ago, we probably won’t stay in a Japan-like rut forever. Ben Bernanke promises. He has ‘a little technology’ called a printing press. And he knows how to use it!
And more thoughts...
Your editor is not a good example. He bought a house and paid more than he needed to pay. But he was buying a house, not an investment. At least that’s what he told himself.
Still, he figures that he will mortgage the place and let Ben Bernanke help make it a better deal. It may be a good time to be a lender now, but we will borrow anyway. The borrowers’ time must be coming.
What are the odds that a dollar’s worth of debt...at 4% interest...will still be worth a dollar 10 years...20 years...30 years from now? The odds can’t be very high.
The headline story over the weekend was that GDP growth in America, in the last quarter, was “disappointing.” Which just goes to show how little people understand what is going on.
The Great Correction began 5 years ago. The feds have been fighting it ever since — with trillions of dollars’ worth of fiscal and monetary stimulus. You can see what good this does. Just look at the Dow. After Lehman went broke the index dropped to the 6,000 level. Then, the feds began dumping in money. Remember TARP? And tax cut extensions. And ‘cash for clunkers’? And ZIRP? And QEI, QEII, and now...the Twist?
Naturally, the markets...and the economy...react. GDP growth resumed in 2009. But most of the growth depends on further spending and money-creation by the feds. We don’t know how much of it...maybe all of it.
There is no ‘recovery.’ Instead, the private sector is correcting...or trying to...and the economy is merely returning to its trend. GDP growth rates have been going down for 40 years. Growth rates averaged about 4% in the ’70s...3% in the ’80s and ’90s...and then about 2% in the ’00s. On a 10-year trailing average basis, they are down to about 1.6% now. And they still seem to be headed lower.
What caused this drop off in growth is a matter of debate. (We have our ideas!) But the decline in the last quarter was right in line with what has been going on for more than a generation.
As long as growth is disappointing, the feds will fight it...and they’ll fight the Great Correction too. The US government borrows a trillion dollars a year...with no end in sight.
And last year, 61% of that money came from...Ben Bernanke’s printing press.
Keep up the fight, Ben! And our long-term fixed-rate mortgage will eventually be worthless.
Regards,
Bill Bonner
for The Daily Reckoning
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