Why really smart people sometimes confuse us...

This article laments the loss of wealth in the US and wonders aloud “where did it all go”.   Everything in the article is accurate but unless you already know the answer you are likely left wondering what you just read because a lot of it stays in the realm of the ethereal.  

http://finance.yahoo.com/news/Where-All-That-Money-nytimes-173741017.html?x=0&sec=topStories&pos=7&asset=&ccode=

Here is an example of this from the article:

“the wealth a nation believes itself to possess is based strictly on the citizenry's expectations about the future. It is in good part a figment of the citizens' imagination.”

What is a person to take away from such a statement?  That he owns stocks of imaginary companies?  The statement is 100% true but it is nearly meaningless to most people unless more context is provided.  I’m not sure this is intentional or whether these smart people simply don’t know how to boil down all of the information into hard, actionable facts.  I half suspect that they are just cowards who use the techniques of talking around a subject and sophistry in order to avoid sounding like a conspiracy theorist. 

The author is describing a credit based Ponzi scheme.  Poor people have no idea it is happening.  Middle and upper class people participate in it out of greed and they expect that government will be able to maintain it indefinitely.  Thus they think they have wealth but the wealth only existed in the form of Wimpy Promises which is all most people are ever going to get from a Ponzi scheme.  The elite, “illuminated” people, in other words, the ones that have been let in on the scam, get out early with as much as they can take with them.  They know that, in the words of Citi’s Chuck Prince, the music will stop some day.  That is why you see the employees of Goldman Sachs gutting the company from within by taking massive bonuses that exceed the operating earnings of the company.  They know the scam is collapsing and they want out while there is still something to take with them.

In any Ponzi scheme people imagine they have wealth that never existed.  Madoff patsies thought they were rich and getting richer with every lying monthly account statement he would send them.  Yes they were Wimpy Promises but Madoff was a big man on campus, a real Wall St veteran and one time chairman of the NASDAQ stock market.  He was just too proper and well connected to be a crook.  A very large part of the wealth of the US is still held in Wimpy promises that cannot possibly all be kept.  Like goldman employees, those who lay hands on their property first will have it and others will just stare in shock and disbelief when they finally realize there is not enough to go around.  Every one of us should take some time to consider how we convert paper/ethereal wealth into something tangible that does not count on Wimpy promises from someone else.

How our government plans to add insult and injury to poverty

First off, it’s pretty clear from the real global news that Euroland is in a world of hurt.  In the past few days Greek debt has fallen to junk status and 2 year bonds are yielding 18%.  Of course, in the event of default or partial default (AKA “restructuring”) the bond holders will lose between 30 and 50% of their principal.

http://globaleconomicanalysis.blogspot.com/2010/04/how-much-is-needed-to-bail-out-greece.html

http://globaleconomicanalysis.blogspot.com/2010/04/greek-2-year-yields-hit-18-on-s-cut.html

What’s clear from the above articles is that nobody really knows how much it will cost to bail out Greece but what is clear from the past 2 months is that the number is getting bigger every week.  In other words, the Greek government has been lying about how bad the problem is and the real size is only becoming clear as more information slips out over time.  That is no accident, it is a strategy by the Greeks to avoid sticker shock in Euroland.

What’s also clear is that Greece is not alone.  Portugal and Spain are right behind it and Spain’s problem is estimated to be 4 times as large as Greece’s.  Now if you are the German people and you are looking at all of these requests for handouts and you know that you are the only one in the region with a bit of spare cash (Germany is the production/exporting powerhouse of Euroland) then you have to be getting a)nervous and b) angry about all of this.

In truth the problem is bigger than what Euroland can solve.  And if Euroland goes down, we all have an economic crash because they are one of the patsies that have been buying US debt along with China, India and the bigger players in South America like Brazil.  It’s all one big, connected global Ponzi of credit and Wimpy Promises©.

So while nobody can predict the future with much accuracy, anyone with a brain can figure out that the risk has never been higher for some sort of major global economic collapse and that brings us to what our elected leaders are doing about it.  As you can see from the EWI link below, they are preparing to create a police state that will be capable of beating down any form of dissent:

http://www.elliottwave.com/freeupdates/archives/2010/04/28/How-A-Police-State-Becomes-Legal.aspx

Our good friend Warmonger McCain is leading the charge to create a police state that will have massive power over US citizens.  In this newly proposed law, you don’t have to commit a crime.  All you have to do is to be suspected of potentially committing a crime and all your constitutional rights fly out the window.  Sort of like the division of precrime that the movie “Minority Report” warned us about except that instead of psychics picking the targets it will be anyone who doesn’t conform.  The title of the bill is "Enemy Belligerent Interrogation, Detention, and Prosecution Act of 2010".   Could it be named anything more draconian?  I guess they could add the word “persecution” in there but they probably think you would have to be a fool not to infer that anyway so why be redundant.  In any case, if this passes I guess all you have to do is become belligerent (whatever that means to some police state enforcer you happen to come across in the field) and you are a serious criminal with no rights.  

And none of this is being reported in the media.  It will all just slip into law as a sleepy population watches 200 years of freedom swirl the bowl.  All I can say is that everyone should be writing and calling his congressman about this.  I know I am.

15000 captured souls chant "raise my taxes"...

Talk about desperation.  I have never seen anything like this before.  These people know that the government is struggling and that the only way they can save their jobs is to impose a bigger burden on someone else:

http://globaleconomicanalysis.blogspot.com/2010/04/15000-illinois-protesters-chant-raise.html

As Mish says, this is not a smart strategy for government employees.  They are basically saying that they are entitled to other people’s money and that the government can just raise taxes anytime in order to pay them.  Nothing could be further from the truth.  Government knows that raising taxes is likely to be a political death sentence.  At the same time I have empathy for the government workers involved.  They don’t realize it but they have been captured by the statist welfare system which today includes a ridiculous number of unneeded government positions.  How many unneeded jobs?  This could be an indicator:

http://abcnews.go.com/GMA/sec-pornography-employees-spent-hours-surfing-porn-sites/story?id=10452544

Government jobs ensure loyalty to the government.  It would not surprise me to eventually see battle lines drawn within the US population between free economy workers and government workers.

William Black cries "conspiracy"

William Black (head investigator of the S+L crisis) basically says Bernanke and Geithner conspired to keep Lehman afloat long after they knew it should have been shut down.

Here is the full article which is rather lengthy: 

http://globaleconomicanalysis.blogspot.com/2010/04/geithner-and-ny-fed-accused-of.html

Conspiracy theory is being exposed as conspiracy fact.

Mish summarizes Black’s statements as follows:

“That is a very damning appraisal of the competence of Ben Bernanke and the entire Fed.  It is also grounds for indictment of Tim Geithner and the board of directors at Lehman. Assuming Bernanke was a willing conspirator in the ongoing coverup of Lehman, he should be indicted for criminal fraud as well.”

My favorite post of the year so far

Mish reports that EU commissioner decrees vacations a “human right” that should be subsidized 30% by the state (using debt of course) for those that cannot afford them.

http://globaleconomicanalysis.blogspot.com/2010/04/european-union-commissioner-declares.html

What better way to stay popular with the ever poorer masses than to promise everyone a cheap vacation?  These are simply amazing lengths that statist socialists in Euroland are going to in order to keep the Ponzi rolling.  At the end of the day all of these programs are paid for using wealth transfers from producers and savers to consumers and spenders.  For a while these policies seem to work OK but the pot has to be sweetened each year because, let’s face it, poor people do not go on vacation every year even if 30% of it is paid for by the state.  At some point the producers simply cannot (or will not) bear any greater a load just so that nonproducers can have better lives

Alan Greenspan wrote the following in 1966 before he flipped over to the dark side and joined the financial elite and eventually the Federal Reserve:

"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. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the 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."

- Alan Greenspan, 1966

Let me recap and interpolate Greenspan very simply:

• Governments steal from the people by printing money.  Such printing devalues savings that are stored in government mandated money.
• Governments protect their ability to steal using laws.  If something stands in its way of theft then that thing must be made illegal.
• Nothing is free but some people get free money called welfare/entitlements, etc.  Those “freebies” are not free; they are merely stolen from savers.  Government likes welfare because it buys votes.  Deficit spending enables more welfare spending.  Deficit spending (credit based spending) is a form of inflation.  Inflation is used to support the welfare state policies.  Inflation steals from savers to support vote buying.  Inflation is really about government’s ability to retain power and control.   Inflation (and its major form – deficit spending) is thus a direct enemy of anyone who values freedom.
• Governments don’t like gold or the gold standard because gold is the only thing that can call fiat currency a fraud.  Gold is a hiding place for personal wealth that governments cannot easily touch.  They cannot tax gold.  They cannot debase its value forever (even though they continually try as evidenced by GATA and many others).  They cannot control gold.  Ownership of gold puts a person outside of the hidden system of taxation known as inflation.  If the US government crashes one day, gold holders will not only be protected from financial destruction, they will probably become incredibly wealthy.

Yes, all of the above are directly implied or can easily be inferred from Greenspan’s writing and I applaud his honesty on the matter even though he eventually sold out and became an evil pawn.  While Greenspan’s words seem to look down upon fiat currency and statism, I will point out that Greenspan appeared to believe that a gold standard is actually worth something and that this belief was expressed a mere 4 years before Nixon, with the stroke of a pen, abolished the gold standard and essentially admitted that we had been cheating on it for years.  I’m not sure if that makes him incompetent or a fool.

 In truth, the most honest system is not a gold standard (AKA paper that is “good as gold”) but rather the actual exchange of gold (and silver) coins as outlined by the founding fathers and as documented in the constitution:

“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

Thus I have to disagree with Greenspan’s statement "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation”.  There is definitely a way to protect savings from confiscation though inflation even if there is no gold standard and that is to hold gold itself which, IMVHO, has many advantages over holding paper that someone else says is convertible into gold upon demand.

Having said that, I do like the concept of paper money backed by gold.  I like its convenience and many other factors associated with it.  At the same time I know that whoever is in charge of it will eventually cheat and steal with the power that controlling the currency system lends them.  History has proven time and again that gold backed currency is still just fiat currency because there is never as much gold in the vaults to cover the amount of printed paper on the streets.  A “gold standard” has always turned out to be nothing more than a wimpy promise – puffery and marketing fluff, if you will, for the crooks who want to keep the gold and give us the paper.

Perhaps we could greatly reduce the human factor of gold backed currency by enabling the automated, computerized monitoring of the nation’s gold supply (example: everyone should be able to go to the gold supply web page and see the gold 24/7/365 and look at the serial numbers online and to review the list of gold bars that the country says is backing the paper currency).  In addition, there should be a quarterly audit of the gold supply performed by a panel of common people, much as juries are selected.  They would simply follow some procedure to verify that the proper number of bars is present and then they would oversee an automated density test done on a sample of set size but of serial numbers chosen by the panel.  In other words, add enough randomness into the process so that the con men would think twice about gaming that part of the system.

Until all of that happens I think I will just continue to like gold metal in coin form in my hands. 

You know, just like the constitution says is the correct way to do things.  ;  )

First the UAE, now hong Kong recalls their gold

Some months back I reported on the fact that the UAE had gone to the trouble and expense of building its own world class gold bullion vault.  Upon completion of the storage facility, the UAE pulled all of its physical gold from London based storage facilities.  In the following article we find that Hong Kong has followed their lead and is now demanding their gold from London as well:

http://www.marketwatch.com/story/hong-kong-recalls-gold-reserves-from-london-2009-09-03

As the article says, confidence appears to be waning still.

Whoever is the last to ask for their gold will find out the hard way that it no longer exists IMO.  As usual, institutions will fare OK and it will be private citizens who are the last to know and the slowest to react.  All the signs are there.  Bottom line is that you don’t really own any gold if someone else is holding it for you.  Instead, you hold a promise to be paid your gold upon demand.  If they don't have it anymore then you aren't getting it.  In a crisis possession is 9/10ths of the law.

Chinese national explains the Chinese housing bubble.

http://globaleconomicanalysis.blogspot.com/2010/04/email-from-chinese-on-chinas-real.html

Key points:

• Government drives up real estate prices so that it can profit from real estate transaction fees.
• Government does this by using money printed from thin air to fund real estate loans.  Funny money and unkeepable promises far outweigh real money thus driving up prices.
• Corporations buy real estate on credit supplied by state controlled banks.
• Common people invest in real estate using real savings despite the fact that it is bubblized because they believe that government can always keep propping things back up by printing more money.

Lots of parallels to the US but the big difference is a really big difference:  Chinese people expect government to prop up housing prices.  How can it do that and keep food prices down at the same time?  Price controls?  That will not work because it has never worked before even though it has been tried time and again.  All it results in are product shortages that are even worse than high prices.  Chinese leaders better put a stop to the Ponzi soon or they will be dragged through the streets and set on fire when the people figure out that government was conning them the whole time about their "investments" in real estate.

Geithner begs China for inflation

For a long time we said nothing about China’s weak Yuan-USD valuation because it meant low prices for American consumers.  It effectively meant that we had a whole nation of Chinese slaves working to make our lives better.  But now that the forward threat is deflation, low prices are not what the US government wants – quite the contrary.  It now wants prices to rise on everything which will include home prices.  That way the value of homes on the books of banks will go up and banks will eventually work their way out of the insolvency (paper value of liabilities is greater than assets) in which they currently find themselves.  Too bad if it means a higher cost of living for Americans.  Of course the government also argues that doing this will chase jobs out of China back into the US.  For those that believe this fantasy I have to ask “at what pay rate will these jobs rematerialize in the US?” Chinese get paid between ¼ and 1/100^th of what we are paid here in America.  You can’t live in America even at today’s prices for what a Chinese person makes.  What corporation is going to move jobs back to America unless it has a cost advantage?

http://www.businessweek.com/news/2010-04-04/geithner-delays-currency-report-urges-flexible-yuan-for-china.html

It's clear someone is not going to get their state pension.

States are missing over 3 trillion in needed funding to pay out pension promises.  And that’s with the stock market having a massive rebound.  Clearly there are not enough chairs for everyone in the game and when the music stops someone is not going to get what was promised to them.  If there is any way to cash out early, DO IT.

http://globaleconomicanalysis.blogspot.com/2010/03/states-have-517-trillion-in-pension.html