Oldtent Archives 2007 - 2008

most folks don’t know the history of that song

choosing between good and evil

Thanks. That’s close in content to what I wrote to the friend who sent that to me, except I’m not as easy on Baby Boomers because Boomers are not victims.  Even though Boomers are not the base cause of today’s problems, they’re contributing factors and willing accomplices.  They also represent the possibility to help move out of this mess.  I just hope what’s happening will work to wake people from their stupor to the point of taking appropriate action, beginning with the Fed.

Gary North’s REALITY CHECK

Gold’s price:
www.GaryNorth.com/snip/300.htm

The Federal debt:
www.GaryNorth.com/snip/544.htm

To subscribe to this letter:
www.snipurl.com/subscribenow

Issue 811                                        December 2, 2008

BERNANKE’S PLAYBOOK

In the National Football League, a marginal player dreads
the request that he report to the coach and bring his playbook.
He figures he is going to be cut from the team.  The coach makes
sure the playbook does not leave with the player.

A coach’s playbook has a series of self-contained plays.
Their importance is not based on their sequence in the book.
They are implemented by the coach in specific situations.  They
may not work in any given game.  If they don’t, the team loses
the game.

Alan Greenspan never had a playbook, as far as we know.  His
famous Fedspeak was designed, not to conceal the plays from
investors, but rather to conceal the fact that he had no
playbook.

Ben Bernanke is different from Greenspan.  He has a
playbook.  He has spent his career studying Milton Friedman’s
now-dominant 1963 interpretation of the failure of Federal
Reserve Policy, 1930-33, in not reversing the Great Depression.
The FED did not inflate, Friedman said.  This was in contrast to
Murray Rothbard’s 1963 interpretation of the same era.  He argued
that the FED did inflate, 1924-29, which created the boom that
busted in 1929.  Had Bernanke studied Murray Rothbard’s 1963 book
on Federal Reserve policy as the cause of the Great Depression,
he might have had a very different career, perhaps teaching in a
community college in North Dakota.

He is not fluent in Fedspeak.  Who is?  So, he has a
different strategy.  Lay it out in deadly dull Profspeak.  Add
footnotes.  Deliver the speech to the National Economists Club,
an association of men and women who have mastered Profspeak.  No
problem.

But there was a problem.  Bernanke stole one of Friedman’s
analogies.  Friedman did not lecture in Profspeak.  He was so
confident that he was right, all the time, that he spoke in plain
English.  He dared anyone to challenge him.  Few people did.  I
did it only once.  It was always a high-risk procedure.

GaryNorth.com/snip/732.htm

The analogy Bernanke stole was the analogy of a helicopter
dropping paper money.  Bernanke said in his speech that this was
a famous analogy.  But it was not famous outside of academia.
Bernanke’s speech gave it currency (as punster David Gordon would
say).  Here is what Bernanke said.

Even if households decided not to increase consumption
but instead re-balanced their portfolios by using their
extra cash to acquire real and financial assets, the
resulting increase in asset values would lower the cost
of capital and improve the balance sheet positions of
potential borrowers. A money-financed tax cut is
essentially equivalent to Milton Friedman’s famous
“helicopter drop” of money.

www.garynorth.com/snip/733.htm

Columnists have either never read the speech (likely) or
have forgotten the source of the analogy.  Helicopter Ben was
merely advocating the helicopter designed by Helicopter Milton.

Am I exaggerating?  Hardly.  Bernanke gave this speech on
November 21, 2002.  On November 8, he had given a different
speech at a conference at the University of Chicago to honor
Friedman on his 90th birthday.  As always he delivered an
academic speech: a long, tedious summary of Friedman’s 1963 book,
“A Monetary History of the United States,” which is most famous
for its section on the Great Depression.  (Poor Milton.  What a
birthday present!)  Here is what Bernanke — along with the
entire guild of academic economists — derived from that book.

. . . the central bank of the world’s economically most
important nation in 1929 was essentially leaderless and
lacking in expertise. This situation led to decisions,
or nondecisions, which might well not have occurred
under either better leadership or a more centralized
institutional structure. And associated with these
decisions, we observe a massive collapse of money,
prices, and output.

What was lacking?  Leadership!  Also, a more centralized
institutional structure.  Does this sound like Friedman?  You bet
it does.  On central banking, Friedman was a conventional fiat
money economist, a defender of the banking cartel.  No gold coin
standard for him!

Bernanke ended his speech Happy Birthday with this:

Regarding the Great Depression. You’re right, we did
it. We’re very sorry. But thanks to you, we won’t do it
again.

www.garynorth.com/snip/734.htm

You bet they won’t!

What can you bet?  Your economic future.

Ladies and gentlemen, place your bets!

THE PROPHET BERNANKE

The playbook is buried deep in his November 21 speech,
“Deflation: Making Sure ‘It’ Doesn’t Happen Here.”  The speech
began with a statement of fact.

Since World War II, inflation–the apparently
inexorable rise in the prices of goods and
services–has been the bane of central bankers.

He then lists the explanations for inflation offered by
economists.  One of them is accurate: “an ‘inflation bias’ in the
policies of central banks.”  It was hidden in plain sight.

This is always Bernanke’s strategy: hide the needle of truth
in a haystack of academic qualifications, verbal hedging, and
footnotes.  He is not fluent in Fedspeak.  His strategy works
just as well.

He states as fact what clearly is not factual.

. . . during the 1980s and 1990s most industrial-
country central banks were able to cage, if not
entirely tame, the inflation dragon.

The inflation calculator of the Bureau of Labor Statistics
indicates that goods costing $1,000 in 1980 would have cost over
$2,000 in 1999.  The cage was way too large for my taste.

data.bls.gov/cgi-bin/cpicalc.pl

Although a number of factors converged to make this
happy outcome possible, an essential element was the
heightened understanding by central bankers and,
equally as important, by political leaders and the
public at large of the very high costs of allowing the
economy to stray too far from price stability.

Over the next four years — maybe longer — these words will
come to haunt Dr. Bernanke.

Then he moved from a discussion of inflation (rising prices)
to deflation (falling prices).

With inflation rates now quite low in the United
States, however, some have expressed concern that we
may soon face a new problem–the danger of deflation,
or falling prices.

This in retrospect is strange.  Who was worrying about
deflation in 2002?  From the day he became Chairman until the day
he left office, Greenspan had warned publicly against inflation.
Then the FED inflated.  Why this shift?  Was Bernanke trying to
shift the debate to the opposite issue?  No.  He was heading it
off at the pass.

He began with the definition of inflation common to all
schools of economic opinion except the Austrian School: rising
prices.

“Deflation is defined as a general decline in prices,
with emphasis on the word “general.”

He does not define inflation as a rise in the money supply,
with the effect being rising prices.  To define it this way would
identify the source of rising prices: the central bank and the
fractional reserve commercial banking system.

Bernanke then identified unnamed sources.  He also pulled
off one of the greatest slight-of-tongue routines in academic
history.

The sources of deflation are not a mystery. Deflation
is in almost all cases a side effect of a collapse of
aggregate demand–a drop in spending so severe that
producers must cut prices on an ongoing basis in order
to find buyers.

Did you spot it?  It’s here: “side effect.”  Falling prices
are a side effect.  A side effect of what?  He never said.

Here is where long, tedious speeches perform public
relations miracles.  They put listeners to sleep.  That is their
purpose.

He then moved in near-prophetic fashion to the American
economy in late 2008.

However, a deflationary recession may differ in one
respect from “normal” recessions in which the inflation
rate is at least modestly positive: Deflation of
sufficient magnitude may result in the nominal interest
rate declining to zero or very close to zero. Once the
nominal interest rate is at zero, no further downward
adjustment in the rate can occur, since lenders
generally will not accept a negative nominal interest
rate when it is possible instead to hold cash. At this
point, the nominal interest rate is said to have hit
the “zero bound.”

It is widely believed today that the FED will reduce the
federal funds rate to zero within the next few months — maybe
sooner.  Even since October 29, it has been 1%, down from 1.5%.

So, what happens when the rate is zero bound?  Will banks
stop lending to each other overnight?

Yes.

Then will they stop lending?  No.  Banks will not stop
lending until they stop taking deposits.  Every time a bank takes
a deposit, it is announcing: “This deposit will be lent at a
higher interest rate than we are paying.”  Banks are not in the
charity business.

The day your local bank stops taking deposits, you should
start to worry about the Great Depression 2 we hear so much
about.  You should start taking currency out of the ATM.

To take what might seem like an extreme example (though
in fact it occurred in the United States in the early
1930s), suppose that deflation is proceeding at a clip
of 10 percent per year. Then someone who borrows for a
year at a nominal interest rate of zero actually faces
a 10 percent real cost of funds, as the loan must be
repaid in dollars whose purchasing power is 10 percent
greater than that of the dollars borrowed originally.
In a period of sufficiently severe deflation, the real
cost of borrowing becomes prohibitive.

The cost of borrowing became prohibitive.  Really?  The
U.S. government had no trouble in the 1930’s getting investors to
lend it money at rates well under 1%.  So does today’s U.S.
government.  No problem!

Will banks lend to private businesses?  Maybe not.  That is
the real problem we face today: the siphoning off of capital by
the U.S. government.  Economists call this the crowding-out
effect.  Most of them deny that it exists.  Let’s see, if a
dollar is invested in T-bills, it is not invested in business.
But that’s not crowding out.  No, no, no.  It’s something else.
What, exactly?  They never say, just as Bernanke never says what
causes the side effect, falling prices.

Although deflation and the zero bound on nominal
interest rates create a significant problem for those
seeking to borrow, they impose an even greater burden
on households and firms that had accumulated
substantial debt before the onset of the deflation.
This burden arises because, even if debtors are able to
refinance their existing obligations at low nominal
interest rates, with prices falling they must still
repay the principal in dollars of increasing (perhaps
rapidly increasing) real value.

What?  Dollars increasing in real value?  What is this?
Americans have seen this only once since 1937: in 1955.

The financial distress of debtors can, in turn,
increase the fragility of the nation’s financial
system–for example, by leading to a rapid increase in
the share of bank loans that are delinquent or in
default.

This is beginning to sound remarkable prescient.  Did
Bernanke see what was coming?  Did he finally grasp the Austrian
School’s monetary theory of the business cycle?  After all, the
FedFunds rate was 1% when he delivered this speech.

Closer to home, massive financial problems, including
defaults, bankruptcies, and bank failures, were endemic
in America’s worst encounter with deflation, in the
years 1930-33–a period in which (as I mentioned) the
U.S. price level fell about 10 percent per year.

True.  This was why, in 1934, the government created the
Federal Deposit Insurance Corporation.  This is why banks are not
allowed to go bankrupt.  Bankrupt banks shrink the money supply.
Taken-over banks do not.

Because central banks conventionally conduct monetary
policy by manipulating the short-term nominal interest
rate, some observers have concluded that when that key
rate stands at or near zero, the central bank has “run
out of ammunition”–that is, it no longer has the power
to expand aggregate demand and hence economic activity.

“Run out of ammunition.”  Where have I heard that before?
There is a familiar ring to it.

It is true that once the policy rate has been driven
down to zero, a central bank can no longer use its
traditional means of stimulating aggregate demand and
thus will be operating in less familiar territory. The
central bank’s inability to use its traditional methods
may complicate the policymaking process and introduce
uncertainty in the size and timing of the economy’s
response to policy actions. Hence I agree that the
situation is one to be avoided if possible.

We are now almost there.  Two more meeting of the Federal
Open Market Committee, and we will be there.  Then what?

The playbook tells all.

NON-TRADITIONAL PLAYS

Bernanke’s playbook is governed by Friedman’s prescription:
don’t inflate more than 2% to 3% per year unless there is a
depression on the horizon, and then inflate without limit until
the crisis goes away.  Bernanke followed this playbook from his
inauguration on Feb. 1, 2006 until the fall of 2008, when events
began to look ominously like 1929.  He is now using pages from
the section on “hail Mary” plays.

However, a principal message of my talk today is that a
central bank whose accustomed policy rate has been
forced down to zero has most definitely not run out of
ammunition.  As I will discuss, a central bank, either
alone or in cooperation with other parts of the
government, retains considerable power to expand
aggregate demand and economic activity even when its
accustomed policy rate is at zero.

The central bank can take steps to inflate, despite a
FedFunds rate of zero.

As I have already emphasized, deflation is generally
the result of low and falling aggregate demand. The
basic prescription for preventing deflation is
therefore straightforward, at least in principle: Use
monetary and fiscal policy as needed to support
aggregate spending, in a manner as nearly consistent as
possible with full utilization of economic resources
and low and stable inflation.

This is being done today.  The U.S. government has
officially increased the debt by $700 billion (plus $150 billion
of pork).  The FED has increased its balance sheet by a trillion
dollars.  The government has taken over bad loans totaling close
to $5 trillion.  Congress did not vote on this.

There will be plenty of opportunities for the FED to inflate
its way out of this.  Why must it do this?  Because Prof. Irving
Fisher said to.

Irving Fisher (1933) was perhaps the first economist to
emphasize the potential connections between violent
financial crises, which lead to “fire sales” of assets
and falling asset prices, with general declines in
aggregate demand and the price level. A healthy, well
capitalized banking system and smoothly functioning
capital markets are an important line of defense
against deflationary shocks. The Fed should and does
use its regulatory and supervisory powers to ensure
that the financial system will remain resilient if
financial conditions change rapidly.

Fisher was the first modern macroeconomist.  He was the
inventor of today’s definitions of inflation and deflation.  By
1933, he was bankrupt, having run through his own fortune — he
had invented the Rolodex — and his wife’s sister’s fortune.  He
had announced in September 1929 that the stock market was not
going to fall.  He was wrong.

Irving Fisher is the patron saint of central bank policy in
the same way that John Maynard Keynes is the patron saint of
modern deficit fiscal policy.  Fisher was wrong in 1911, wrong in
1933, and wrong today.  Yet he is the most influential economist
of our day . . . still.  This is why we are in big trouble.

www.lewrockwell.com/north/north666.html

What is in store for America?  Monetary inflation on a scale
not seen since World War II.

As I have mentioned, some observers have concluded that
when the central bank’s policy rate falls to zero–its
practical minimum–monetary policy loses its ability to
further stimulate aggregate demand and the economy. At
a broad conceptual level, and in my view in practice as
well, this conclusion is clearly mistaken. Indeed,
under a fiat (that is, paper) money system, a
government (in practice, the central bank in
cooperation with other agencies) should always be able
to generate increased nominal spending and inflation,
even when the short-term nominal interest rate is at
zero. . . .

What has this got to do with monetary policy? Like
gold, U.S. dollars have value only to the extent that
they are strictly limited in supply. But the U.S.
government has a technology, called a printing press
(or, today, its electronic equivalent), that allows it
to produce as many U.S. dollars as it wishes at
essentially no cost. By increasing the number of U.S.
dollars in circulation, or even by credibly threatening
to do so, the U.S. government can also reduce the value
of a dollar in terms of goods and services, which is
equivalent to raising the prices in dollars of those
goods and services. We conclude that, under a
paper-money system, a determined government can always
generate higher spending and hence positive inflation.

Then Bernanke gave us two of his key plays from his
playbook.  Nobody paid any attention.  They pay attention now.

To stimulate aggregate spending when short-term
interest rates have reached zero, the Fed must expand
the scale of its asset purchases or, possibly, expand
the menu of assets that it buys. Alternatively, the Fed
could find other ways of injecting money into the
system–for example, by making low-interest-rate loans
to banks or cooperating with the fiscal authorities.

I therefore suggest that you take him seriously.

If we do fall into deflation, however, we can take
comfort that the logic of the printing press example
must assert itself, and sufficient injections of money
will ultimately always reverse a deflation.

He was only halfway through his speech at this point.  But
you get the idea.  He ended with his now-famous words:

A money-financed tax cut is essentially equivalent to
Milton Friedman’s famous “helicopter drop” of money.

CONCLUSION

He ended his speech with these words:

Nevertheless, I hope to have persuaded you that the
Federal Reserve and other economic policymakers would
be far from helpless in the face of deflation, even
should the federal funds rate hit its zero bound.

We are now reaching the point of the helicopter drop.  If
the FED does not reverse its policy of buying bad debt with new
money — high-powered money, as Friedman called it — we will get
mass inflation before the next Presidential election.

Bernanke told us what he would do.  Over the last six
months, the FED has done it.

It will do more.  Worse.

Dear Comrades In Golden Arms,

Taking delivery is one thing, but leaving the delivery at the COMEX is another. Leaving the gold at the COMEX warehouse does something but NOT MUCH. In order to level the playing field you must take the delivery OUT OF the COMEX warehouse.

Do not for a moment buy the disinformation that if you take delivery of a 100 ounce gold bar from the COMEX that is has to be re-assayed to sell it. That is DISINFORMATION as it is a COMEX rule put in to dissuade you from, taking delivery out of the warehouse. You get to register bars by serial number in COMEX delivery exactly how you would get from any international bank. Those bars, after examination, will not be questioned in the selling process away from the COMEX.

I am giving you today the cost of storage of gold at the Zurich Airport Free Zone in SEGREGATED FORM. A German Bank purchased this depository with offices in Switzerland. After having checked every international storage point for you, the charges are reasonable. Shipping it there is totally legal. Having valuables in a safe depository is not having a foreign account. Please confirm that point with your tax or general attorney.

You will shortly get the cost of shipment and insurance by Brinks or a similarly rated shipper of valuable as soon as I am able to compare charges to see you are treated as any other professional would be.

Jim,

I called Tom Kelly whom I spoke with this morning at Brink’s regarding storage. I spoke with him to get information just on transport to and from as follows:

NY to Zurich - he would need to have the exact business info/addresses for to and from locations. Each sealed package/container must not exceed 50-60 pounds and you would need to advise them how many there are. You need to submit this to them via email and it takes a few days to get a response.

Dar-Zurich - he would need to contact their offices with the above information and to get clarification on whether they could actually transport the gold.

Regards,
CIGA Anna

Jim Sinclair’s Commentary

With this information you need not place a financial intermediary between you and your gold. You do not need to buy certificated gold in Australia or send any money to a website.

You handle the entire situation yourself with the help of JB. I will be teaching JB how to see that the gold is properly transferred from COMEX delivery to the shipper, making your life even easier. JB has promised me that he will not solicit your business in speculative dealings but simply aid you in taking delivery and shipping to an international depository where it will be held in segregated form.

Don’t think for a moment that using Australia or the Internet offers you any privacy because if the boys want to know you can be sure the records of an Australian, Canadian or US website can be secured by the proper authority or for that matter any authority today.

I believe in doing things in the light of day.

Please be assured I have no financial relationship with either the depository, the bank that owns it or CIGA JB Slear, either directly or indirectly.

Anyone wishing a sworn affidavit concerning the above will receive it.

Click here to view the depository website for your respective country

Click here to view storage rates in PDF format

Trader Dan says:

The more buyers that can be recruited to this effort, particularly buyers of large size, the more difficult the life of the paper shorts will become. Short of taking delivery of the actual metal, preferably pulling it out of the warehouses, the shorts can reign supreme over this market. What’s more - they are doing this with impunity as they pay no price financially to do so and profit quite handsomely I might add. Strip them of the metal and they are cooked. Then they will have to compete on a level playing field like the rest of us. Who was it that said, “He who sells what isn’t his’n, must pay the price or go to prison”? If the paper shorts are selling what doesn’t exist, namely tons of actual gold, forcing them to show us the actual metal will work to modify their behavior.  This is the only way to keep the Comex gold market honest.

Speaking of deliveries, another 307 deliveries were assigned this morning. I can tell you that 43 of those were retenders by Greenwich Capital Markets. The total so far this month is 11,473 contracts or 1,147,300 ounces. I want to see the warehouse totals over the next couple of days before commenting on that. Time is needed to actually move the metal that is going out.

Thanks for the advice on the calcium and vitamin C…..I now take a multi-vitamin for men who are north of 50….hahaha. But the addition of your recos sounds like a good plan.

All the best.——-aggie.

would be an in-person answer

so some time

aurum

I am asking

TIA

At one time, Goldcorp was our “most important” stock too.  But after some less than expected performance I dumped it, and Silver Wheaton instead became our family’s “most important stock”.  For the moment, I’m sticking with that decision.  In the PM sector of our portfolio, Iamgold is now our second most important stock after Silver Wheaton.  Who knows if these are the right choices?  All I can do is hope that they are reasonable guesses.  Cheers.  Equiz.

I do have an answer if that is what you are asking.

Godot. The last look to the stars.

aurum Godot

The only stock acct. I have….even though it’s an ETF…..GDX. Does that qualify?

All the best.——aggie. 

 I’ll bite

G.to

I will post again when you explain this that still haunts me:

www.youtube.com/watch?v=PmoDMdLoUZw

aurum

Hows that for starters?

I think it’s hog wash. Babyboomers have gotten nothing but the shaft since coming of age. From Vietnam to now, they have used them for personal gain. Yes at one point the babyboomers were stupid..stupid for trusting them. They don’t want you to get any of the money”they” spent that boomers poured into SSI, they don’t want you to have any value on your property, they blew that too, they threaten many retirement pensions, and they continue to strip you of your rights. Many are trying to figure out how to pay insurance premiums. And guess what..more problems to come. But were spoiled, compared to what, a masochist? Well excuse the heck out of babyboomers for wanting to make more out of life than living in poverty and ignorance, or just supplying the elitists with a easy life at their expense. What were suppost to feel guilty for that, again for who? What they want more? Well give them a shovel and tell them to get to work..like the rest of us.

Goldtent that is off the topic of precious metals.  But I make a prediction:  if the price of gold is ever allowed to edge up to the vicinity of $1050 per ounce, then the relative numbers of off-topic postings on Goldtent will drop sharply.  I think if gold can get up to $1050 and stay there for a little while then there will be a lot of on-topic discussion about silver, gold, and precious metal shares or warrants.  Cheers.  Equiz.