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FIAT and CREDIT - "The Coming Financial Holocaust"
Kitco.com ^ | June 1, 2006 | Nigel Maund

Posted on 06/05/2006 10:27:21 AM PDT by Paul Ross

FIAT and CREDIT – “The coming Financial Holocaust”

 

By Nigel Maund

June 1, 2006

 

clivemaund.com

Setting the Scene

This article builds on earlier essays by the writer based on a similar theme. However, as the reader will see, this gold boom cycle will be like none before it, and, as is often the case in human affairs, events of the past, whilst similar in outline, may differ significantly from presently unfolding events. To quote Winston Churchill, they are "variants on a familiar theme". That theme is determined by repetition of man's own inherent weaknesses: lust, greed and desire for control exercised through power and his preoccupation with the here and now. Technology merely a par, albeit a very important one, of the ever changing and evolving environment within which man reenacts his greater deeds or, more often, his follies.

It should now be apparent to all readers of these pages that we are in the midst of the largest FIAT money experiment ever witnessed by an entire order of magnitude, and the first FIAT money exercise to be put to the test on a truly global scale. Hitherto, the political, economic and technological environment was not conducive to enabling such an incredible scheme to be successfully put into effect. To enable this required the presence of one hyper-economic power that also controlled a global currency and the velocity of capital movements made possible through modern communications technology. Another critical factor essential to enabling FIAT to be expanded without control was the destruction of the gold standard on which the value of all issued paper money was formerly based, and the strict financial discipline this exerted throughout the global financial system. It was, therefore, vital to the promulgators of FIAT that gold was no longer seen as a monetary instrument by the general public or, indeed, governments. The reader may be wondering why elected democracies would wish to support this vast and virtually uncontrolled expansion of paper and digital money, and the attendant explosion in inflation and associated wealth destruction of saver's funds, and for what purpose this is all intended. The reasons, as this article proposes, are as awesome as the scheme itself.

The United States has, since World War 2, dominated the world economy. Essential to this dominance was the acceptance, by proxy, of the US dollar as a global currency in which all commodities are traded and intrabank transactions settled. In a post war world, where financial stability was essential to reconstruction of a shattered Europe and Far East, this situation worked to everyone's mutual advantage. However, it enabled successive US administrations incredible global, political and economic leverage hitherto not given to any one nation state. Furthermore, through this global financial dominance and influence, the US Federal Reserve was able to influence the entire world economy and, dare one say, manipulate it to its own advantage, by either the issuance of vast amounts of new capital or by putting on the brakes through interest rate increases. Hence, the former boom and bust cycles which became as much a lynchpin of US global economic strategy and their ubiquitous and ever expanding military presence. The US finally cut all ties between the dollar and gold under the Nixon administration in 1972. This ushered in an explosion of FIAT, inflation and a surge in the gold price to its highest ever price of US$ 850 per troy ounce. This single event convinced the central bankers that gold must, by some means, be controlled and, if necessary, suppressed, otherwise it posed a major threat to their plans to embark on their own version of interstellar space's creation in the "Big Bang" with colossal expansion of credit and digital money. But, what end was this scheme designed to achieve?

The Problem

As Bill Murphy and the GATA organization has successfully demonstrated, the world gold market has been the subject of intense manipulation against all the precepts of free markets. The importance of manipulating the gold price centers on two key issues, namely: the importance of protecting the huge carry trade pyramiding profits upon the leasing of physical gold, at very low interest rates, at its foundation; secondly, the removal of the notion of gold as a monetary instrument was central to the creation of the digital money system under which we now live. This being the greatest confidence trick ever played upon a largely unwitting human race. The eventual social and political costs of this scheme are barely worth contemplating, so wide ranging are the implications.

As though to emphasize the first fact, the UK Government, amidst much hullabaloo and extreme obfuscation, purportedly centered on the proposed UN debt relief program, decided, in May 1999, to carry out a phased sell off of 50% of the UK's gold reserve, amounting to 415 tonnes, in the first sale of its type since the Napoleonic wars, with the astonishing timing of selling at the very bottom of the gold market. The sale lost the UK taxpayers in excess of 2 billion US dollars - a fact suitably glossed over by the Chancellor of the Exchequer, Gordon Brown and the Prime Minister, Tony Blair. The real reason for the gold sale was the saving of some very significant and highly influential figures at the top of the world banking system and their elaborate carry trade and gold based derivatives and tied hedging commitments. The nonsensical story about UN debt relief was nothing other than an elaborate smokescreen that simply serves to underscore the enormity of the lies told by the world's so called "leaders". It also clearly highlights who really call the shots behind the scenes. World leaders are little other than cosmetic marionettes dancing to tunes played behind the managed media curtain.

Another immense smokescreen, exposed by Bill Murphy and Frank Veneroso, centers on the supposed physical gold reserves held by the world's central banks. As Veneroso has so well documented, the Central Banks have an estimated 10 to 15,000 tonnes of physical gold and not the 31,000 tonnes they have reported. In an accounting "sleight of hand", Central Banks routinely report "gold and gold receivables" or "gold and gold deposits" as one item. This hides the fact that swapped gold is recorded as an asset when a legal change of ownership has occurred. This double counting has had the beneficial effect of inflating reserves held by Central banks. This fortuitous double accounting serves to mask the extent of the gold based carry trade and derivatives markets and the obvious conspiracy to cap the gold price.

This is only the tip of a veritable continent sized iceberg of problems manifesting in today's financial and capital markets. More than 90% of the complex interlinked and highly leveraged hedge funds and derivatives markets, which are so much arcane science to the uninitiated, carry enormous risks should interest rates increase much above current levels.

The second issue concerns FIAT currencies and the immense confidence trick attendant in their actual value and continued existence. Everyone is fully aware that all paper currency has devalued to a mere 1% of its value a century ago. Inflation has been underway and accelerating since 1913 and the creation of the US Federal Reserve Bank. However, this accelerated with the destruction of the world gold standard. Two key events caused the issuance of digital money to go through two major periods of expansion. The first, from 1982 to 1992, experienced a "modest" 8% year-on-year expansion in the money supply. However, from 1992 to 2002 expansion moved into overdrive with the deregulation of global markets with a year-on-year expansion of more than 12%. Since the 2002 post 9/11 crash, the expansion of the money supply has been running at greater than 15% with the lowest interest rates seen since in 45 years. As though to underscore the extreme rate of expansion the Fed has stopped publishing M3 money supply figures. This highly insidious move is little more than an attempt to mask the facts and raises serious questions about the honesty, integrity and objectives of the system we now live under.

The CPI figure has so little basis in factual reality that it serves only to underscore the age old adage "there are lies, damn lies and statistics". Indeed, this figure is little more than a piece of "voodoo economics" designed to fool the unwitting populace that inflation is only a third or quarter of what it really is. The objectives are merely to put intense downward pressure on labor market wage settlements. Furthermore, besides its political value, the impact of the CPI figure has complex ramifications throughout the financial markets and pension funds markets. Another bogus statistic is the unemployment figure. This is another highly tampered with set of figures designed to give a politically important "feel good factor" and disguise underlying unemployment and, more importantly, the actual structure of the labor market and mask major underlying problems by keeping them out of the political debate.

The following are a shortlist of some of the major problems facing a debt saturated world, in particular, the world's largest economy, the USA:

1. The US Government deficit now exceeds US$8 trillion. The ceiling for the deficit has recently been raised again by Congress;

2. The US needs to receive funding at the rate of US$65 bn./month or more;

3. The trade deficit is now running at an "eye popping" US$730 bn. per annum or 6.7% of GDP;

4. The derivatives and hedge fund markets top US$240 trillion;

5. The US has reached a level of debt saturation hitherto thought unimaginable and unsustainable, comprising, at its heart, mountainous mortgages and pyramiding credit card debt. More and more Americans have burdened themselves with maximum mortgages taken out with the perception of a real estate market set on an ever upwards trajectory. Most of these mortgages are at the limit that the mortgagee can support, and this sustained by ever more complex and financially dubious mortgage products increasingly designed to underwrite ARM (Adjustable Rate Mortgages) mortgages. This is little other than a horrifying scenario based on a "colossal leap of faith" in the persistence of low interest rates and economic naivety by the population at large;

6. The Feds policy of total accommodation, with interest rates falling to 1% in 2001 to 2002, to avert the inevitable major bond and stock market crash and all it implied for the world economy, was the signal for the surge in commodity prices many of which have more than doubled in price. Amongst the most prominent is the rise in the oil price from US$22 to US$65, but others, to name but a few, include: platinum, gold, silver, nickel, copper, lead, zinc, soy, sugar, coffee and cocoa. Most of these commodities are currently trading at increases of from 120% to 300% above 2002 prices. However, have all been reliably told that headline inflation rates are below 2.5%. Perhaps one needs to look at the salary and benefit increases of executives in the World's leading companies to see what they have been awarding themselves to determine what they know to be the real inflation rate. This, you will find, is running at between 12% to 15% per annum, and a lot more if other perks such as generous stock options and severance packages are factored into the equation. So much for the CPI;

7. Finally, but by no means least, we have "the forever war" on terrorism. Congress has approved the largest ever increase of some 40% in the Defense Budget to a mind boggling US$450 billion. This means that the US spends more than all the other countries in the world combined on its military. One may wonder what such expenditure might achieve if even a fraction of it were directed to such things as: US infrastructure including roads, railways, power stations, hospitals, and construction of better schools; or, medical research; development of new sources of energy; reducing the effects of pollution in the US; or if some was directed to alleviate world poverty and assist developing countries? The current Iraq war is little other than a debacle that has brought untold misery. Even worse, the ugly inheritance of Winston Churchill's policies has come back to haunt the citizens of Iraq with a fracticidal civil war now underway which is engulfing Sunni Muslims, Shi'ite Muslims and Kurds. In a nightmarish scenario, this war could well drag in Kuwait, Iran, Turkey, Jordan and Saudi Arabia. Neither the US nor the UK has a clear exit strategy for Iraq. In fact, they are linked together in a mess that neither can extricate themselves from. The full consequences of this immense policy failure will become apparent over the coming months and years. Long will the Allies live to rue the day the got involved in Iraq. History will not judge Messrs Bush and Blair kindly. Eventually, the truth will out.

The Great Crash of 2007 - 2010 and the destruction of World FIAT

Almost all analysts have suspected that a major correction or crash is coming, from Morgan Stanley's Chief Economist, Stephen Roach, to Prudent Bear's Doug Noland. However, people have given up calling the timing of the crash because so many have been wrong-footed or dumbfounded by the action of the Fed and the markets. However, this writer feels confident enough to call the timing of the crash and presents two long term charts of the DJIA (Dow Jones Industrial Average) which measures the top 30 US stocks and the technically more significant S&P 500 (Standard and Poor's 500 largest US traded stocks).

To gain a real perspective of the situation developing, the writer has looked at the past 35 years of trading activity. Superimposed on these charts are the 50, 250 and 500 day moving averages. Several important features are apparent on these charts, as follows:

1. On the long-term charts it is apparent that the current bull market in the DJIA is complex but the following features are obvious:

2. The current bull market is the largest by an entire order of magnitude from any preceding bull market;

3. The 2001 to 2006 double bull market is actually forming the largest technical 'double top formation' ever witnessed in the history of the equities markets. This market includes the Phase 1 run up from 1982 to 1992 but shows major acceleration following the deregulation of markets in 1995. The top, at 11,700 points, came in 2001 forming the immense head of what should have been the all-time classic "head and shoulders" formation. However, given such a clear technical picture and economic landscape the Fed aggressively dropped interest rates to the lowest level in 45 years to create a strong rally off the right shoulder of the head and shoulders formation thus producing the world's largest ever technical double top formation. Now, with inflation in commodities markets running an almost out of control bull market, and debt saturation close to total throughout the entire world, the scene is set for the economic and m athematical denouement;

4. With interest rates set to rise around the world and marginal FIAT currencies such as the Icelandic Krona and the New Zealand dollar in freefall against the US dollar, the dominoes have started their collapse. The next currency to fall will be the Australian dollar which is already in steady decline and then the Canadian dollar and Sterling and the Euro. This will stimulate competitive interest rate rises to halt the collapse of all currencies against the "world commodity currency", the US dollar. As the US is forced to carry on raising rates, the bond market will steadily fall, and then implode taking the US dollar, the equities markets and the dollar with it in the greatest stock and bond market crash of all time.

Dow Jones (1970)

Dow Jones (1970)

The timing of this crash can be derived by examining the 50, 250 and 500 day moving averages (MA) on the charts presented as Figures 1 and 2. It can be seen on Figure 1, of the DJIA, that the 250 day MA has now formed an unusual plateau at exactly 10,000 on the DJIA. This is diverging from the 50 day MA but closing with the still rising, due to lag, 500 day MA . This it has never done in the charts' 35 year history. On Figure 2, the 250 day has already crossed the 500 day MA in the S&P 500 index. However, the key inflexion point will be when the 50 day MA crosses the 500 day MA which should occur from 8 to 12 months from now. The 500 day MA will then complete the other side of a perfect poisson distribution curve; i.e., the downside. This will usher in the crash which should be underway from October - December 2006 and gather momentum into 2007 amidst a climate of rising interest rates, political and economic uncertainty, debt saturation, gross economic distortion and imbalances, and war.

Just how far the collapse will go is hard to predict. However, from the technical charts, a reduction in the DJIA and S&P 500 to somewhere around 10% of today's levels looks probable.

From the foregoing, those fortunate enough to own their own homes and other core assets, and possess a mix of quality gold mine stocks and physical gold will be amongst the few who survive this financial equivalent of a holocaust. The current boom in the gold price is not a boom in real terms. Gold has in fact underperformed most other commodities in relative terms and moreover in terms of general asset inflation. The gold price has barely kept pace with inflation, until very recently, over the entire period from 1999 (when it was already seriously depreciated), due to excessive manipulation by the Commercials. Indeed, according to Russia's Central Bank, gold should have been at US$750 in 2004, to have kept pace with inflation. This writer firmly believes even this is a substantial understatement. A recent report by Chevreaux's Paul Myrchreest has raised their mid-cycle gold price to US$ 900. This writer believes the venerable doyen of the markets, Richard Russell, is closer to the mark with his estimate of the gold price peaking at US$3,000. However, all this depends upon just how far the FIAT currencies collapse. There is definitely scope for a complete implosion of all the world's major currencies to levels reminiscent of the Weimar Republic's Mark where German banknotes were overprinted first in multiples of millions of marks and then billions. Gold lives on to see its final revenge on mankind's incapability to remain honest in his handling of money and other peoples hard-earned savings.

Finally, of one thing we can be sure, the coming rise of gold, silver and platinum and puncturing of the colossal credit - debt balloon, will usher in an entirely different world in which the economic and social - political landscape will have changed forever. We are witnessing one of history's great turning points. Let's hope the changes wrought will be positive!

By

Nigel H Maund 10th May 2006
BSc (Hons)Lond., MSc, DIC, MBA, MIMMM, SEG
Economic Geologist

First appeared on Clive Maund's Gold and Silver Shares site on 12th May.

*****

Clive Maund is an English technical analyst, holding a diploma from the Society of Technical Analysts, Cambridge and living in southern Bavaria, Germany.
Visit his subscription website at clivemaund.com.[You can subscribe here].
No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Copyright © 2003-2006 CliveMaund. All Rights Reserved.



TOPICS:
KEYWORDS: chickenlittle; completegarbage; cpi; crackpot; credit; doomed; fed; federal; fiat; frb; globalism; goldbug; goldbuggers; inflation; nutcase; openmarketcommfomc; preciousbodilyfluids; reserve; usdollar; uttertripe; weredoomed
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A British Gold Bug piece, but nontheless very interesting listing of facts...which fly in the face of Cato and the Usual Supspect apologizing for the mountainous twin debts. Never heard of an "Economic Geologist" before.

He coins the phrase "digital money" and castigates the same phoniness with our inflation reporting and economic measures that classical and traditional supply-siders have been condemning as confabulatory...and wishing to make it so.

1 posted on 06/05/2006 10:27:28 AM PDT by Paul Ross
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To: Paul Ross
FIAT and CREDIT

Never buy a Fiat on credit. Come to think of it, never buy a Fiat at all, buy a Lamborghini instead.

2 posted on 06/05/2006 10:29:02 AM PDT by BeHoldAPaleHorse ( ~()):~)>)
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To: Paul Ross

what the hell is FIAT?


3 posted on 06/05/2006 10:29:36 AM PDT by finnman69 (cum puella incedit minore medio corpore sub quo manifestu s globus, inflammare animos)
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To: martin_fierro; Toddsterpatriot; Tijeras_Slim; Constitution Day; Moonman62

Have you hugged your BAHOG today?


4 posted on 06/05/2006 10:30:25 AM PDT by Petronski (I just love that woman.)
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To: finnman69

Fix It Again Tony?


5 posted on 06/05/2006 10:30:49 AM PDT by Petronski (I just love that woman.)
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To: finnman69

A reference to fiat money--i.e., money that is not backed by gold.

I don't like fiat money; I much prefer Ferrari money instead. VROOM!


6 posted on 06/05/2006 10:30:55 AM PDT by BeHoldAPaleHorse ( ~()):~)>)
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To: snowsislander; headsonpikes; Alia; hosepipe; Moonman62; theBuckwheat; MadIvan; hedgetrimmer; ...

FYI


7 posted on 06/05/2006 10:31:56 AM PDT by Paul Ross (We cannot be for lawful ordinances and for an alien conspiracy at one and the same moment.-Cicero)
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To: narses; Rodney King

Gold Fever....catch it!


8 posted on 06/05/2006 10:32:55 AM PDT by Petronski (I just love that woman.)
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To: Paul Ross
Ahh, yes, the secret corporate domination of every living creature on planet Earth, who controls all, sees all, except those who somehow, through all of this vast control of just about everything, somehow manages to get their information out there for us to act upon.

I'm sorry, but the price of tin didn't go up with the price of gold, nor did lead - so I'll neither wear a tin foil hat, nor lead lined boxers, thank you very much.
9 posted on 06/05/2006 10:33:37 AM PDT by kingu (Yeah, I'll vote in 2006, just as soon as a party comes along who listens.)
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To: Paul Ross
which fly in the face of Cato

That's my one sticking point with CATO. I'm thinking of yanking my contributions because of their fauning over the Fed.

10 posted on 06/05/2006 10:33:52 AM PDT by AdamSelene235 (Truth has become so rare and precious she is always attended to by a bodyguard of lies.)
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To: finnman69
what the hell is FIAT?

Little Italian car.Responsible for more wealthy car mechanics than other other automobile ever made.

11 posted on 06/05/2006 10:34:46 AM PDT by Gay State Conservative
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To: Paul Ross
I smell something

7. Finally, but by no means least, we have "the forever war" on terrorism. Congress has approved the largest ever increase of some 40% in the Defense Budget to a mind boggling US$450 billion. This means that the US spends more than all the other countries in the world combined on its military. One may wonder what such expenditure might achieve if even a fraction of it were directed to such things as: US infrastructure including roads, railways, power stations, hospitals, and construction of better schools; or, medical research; development of new sources of energy; reducing the effects of pollution in the US; or if some was directed to alleviate world poverty and assist developing countries? The current Iraq war is little other than a debacle that has brought untold misery. Even worse, the ugly inheritance of Winston Churchill's policies has come back to haunt the citizens of Iraq with a fracticidal civil war now underway which is engulfing Sunni Muslims, Shi'ite Muslims and Kurds. In a nightmarish scenario, this war could well drag in Kuwait, Iran, Turkey, Jordan and Saudi Arabia. Neither the US nor the UK has a clear exit strategy for Iraq. In fact, they are linked together in a mess that neither can extricate themselves from. The full consequences of this immense policy failure will become apparent over the coming months and years. Long will the Allies live to rue the day the got involved in Iraq. History will not judge Messrs Bush and Blair kindly. Eventually, the truth will out.

12 posted on 06/05/2006 10:36:27 AM PDT by finnman69 (cum puella incedit minore medio corpore sub quo manifestu s globus, inflammare animos)
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To: finnman69
what the hell is FIAT?

Fix It Again Tomorrow.
13 posted on 06/05/2006 10:36:59 AM PDT by wjcsux (I would prefer to have the German army in front of me than the French army behind me- Gen. G. Patton)
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To: finnman69
I smell something...

Good thing you didn't step in it.

14 posted on 06/05/2006 10:37:24 AM PDT by Petronski (I just love that woman.)
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To: Paul Ross

FIAT, Gold, Conspiracy...this article has it all!!!


15 posted on 06/05/2006 10:37:41 AM PDT by Pondman88
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To: finnman69

fiat = a command or decree. So fiat money is money backed by edict rather than having intrinsic value.


16 posted on 06/05/2006 10:37:46 AM PDT by oblomov (Join the FR Folding@Home Team (#36120) keyword: folding@home)
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To: finnman69

good catch...

"One may wonder what such expenditure might achieve if even a fraction of it were directed to such things as: US infrastructure including roads, railways, power stations, hospitals, and construction of better schools; or, medical research"

Geeze, I hadn't noticed the Gubmint stopped doing all these things....


17 posted on 06/05/2006 10:40:39 AM PDT by Pondman88
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To: Paul Ross

Does Free Republic allow the posting of advertisements disguised as articles?


18 posted on 06/05/2006 10:48:13 AM PDT by opinionator
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To: BeHoldAPaleHorse
Never buy a Fiat on credit. Come to think of it, never buy a Fiat at all, buy a Lamborghini instead.

****ing Italians Attempting Transportation or so my uncle used to say.

19 posted on 06/05/2006 10:50:00 AM PDT by Smogger (It's the WOT Stupid)
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To: Paul Ross


The "head and shoulders", "double top formation", etc. methods of predicting markets seems to be based on wishful thinking and not real information.


20 posted on 06/05/2006 10:53:31 AM PDT by IamConservative (Who does not trust a man of principle? A man who has none.)
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To: finnman69

Interesting, to put it mildly.


21 posted on 06/05/2006 10:54:12 AM PDT by BeHoldAPaleHorse ( ~()):~)>)
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To: Paul Ross
1. The US Government deficit now exceeds US$8 trillion. The ceiling for the deficit has recently been raised again by Congress;

If you don't know the difference between deficit (annual amount) and debt (total accumulated), I have no reason to take any of the rest of your economic theories seriously.

The CPI figure has so little basis in factual reality that it serves only to underscore the age old adage "there are lies, damn lies and statistics". Indeed, this figure is little more than a piece of "voodoo economics" designed to fool the unwitting populace that inflation is only a third or quarter of what it really is.

Serious economists might argue that inflation is really 5% instead of 4%, but to claim that it is 3-4 times higher, or 12-16%, is just not backed up by the evidence.

22 posted on 06/05/2006 10:54:54 AM PDT by KarlInOhio (Never ask a Kennedy if he'll have another drink. It's nobody's business how much he's had already.)
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To: finnman69

The utter ruination of what otherwise might have a decent analysis.


23 posted on 06/05/2006 10:56:26 AM PDT by bvw
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To: Pondman88

No, he never quite got around to claiming Christ fathered 26 kids. He's leaving that one until the next installment.


24 posted on 06/05/2006 10:56:42 AM PDT by .cnI redruM (Black holes are where God divided by zero. - Steven Wright)
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To: Paul Ross
6. The Feds policy of total accommodation, with interest rates falling to 1% in 2001 to 2002, to avert the inevitable major bond and stock market crash and all it implied for the world economy, was the signal for the surge in commodity prices many of which have more than doubled in price. Amongst the most prominent is the rise in the oil price from US$22 to US$65, but others, to name but a few, include: platinum, gold, silver, nickel, copper, lead, zinc, soy, sugar, coffee and cocoa. Most of these commodities are currently trading at increases of from 120% to 300% above 2002 prices. However, have all been reliably told that headline inflation rates are below 2.5%. Perhaps one needs to look at the salary and benefit increases of executives in the World's leading companies to see what they have been awarding themselves to determine what they know to be the real inflation rate. This, you will find, is running at between 12% to 15% per annum, and a lot more if other perks such as generous stock options and severance packages are factored into the equation. So much for the CPI;

In 2002, I was part of a team that was expanding a plant. We had a lot of steel bought and staged on site when the expansion was put on hold. 6 months later, that steel pipe and such had almost doubled in value. This has been played out in most commodity markets, yet we keep hearing that inflation is "low".

There is a lot of hype and slant in the article though. Gold is good, but in the end is no more a measure of wealth than fiat currency. Gold has been manipulated in the past in much the same way as fiat money. The biggest difference is that gold is easier to convert between countries.

25 posted on 06/05/2006 11:07:37 AM PDT by redgolum ("God is dead" -- Nietzsche. "Nietzsche is dead" -- God.)
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To: KarlInOhio
Bob Brinker says that inflation in the price of oil is deflationary, net. Why? Fuel spending has a large inelastic component -- you buy so many gallons a year of gas and fuel oil (or KWH and mcf). So people have less to spend on other things.

Wars are usually inflationary. Some wars not. For example the US Indian Wars, I'm guessing, were anti-inflationary. So too, for similar reasons big picture, is the War On Terror.

For example, the Russians are finding that our War in Iraq has just about quenched the Chechnian terrors. Terrorism is a form of coin-clipping, economically. A tax enforced by irregulars -- outlaws, terrs. Inflationary de facto.

We've not only freed Russia from the central oligrachic socialist fascism of the USSR, we've freed it from terror. Very anti-inlfationary, not only for Russia. And for us indirectly in many ways from that benefit to Russia.

Similar to the corruption tax -- the inflation driven by corrupt officials in nearly every non-Scottish Law heritage nation.

26 posted on 06/05/2006 11:09:06 AM PDT by bvw
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To: finnman69
Yeah. That is really a silly point being made by the author (indeed stinky, but probably more widely held than not in the U.K., and likely even here) .

That being said, I do think a heck of a lot of the money appropriated is being wasted .

I'm sorry to say, but the Defense Budget certainly isn't sufficient to even fund recapitalization of our strategic defense infrastructure: the Navy keeps shrinking, both surface, carrier, and submarine fleets, our nuclear aramements are vanishing unilaterally (and W did this all without debate or mandate...i.e., popular consent), and we can't seem to budget replacement of the F-15 in any serious quantity of F-22's to be bought.

But, to help countervail the "expense of the war" arguments of the GoldBugs, Liberal Appeasers, Democrat pacifists and so on, we really should be expecting the Iraqis to pay for this thing themselves. And lean hard on them. They have a moral obligation. They are RICH. It isn't like they aren't sitting on a mountain of black gold. They don't want us to leave...okay, fine...then hand over the rights to a set equivalent quantity of oil reserves in the undeveloped South of Iraq...and every month we stay...we charge an extra 5 percent of the fields output for 4 years, or whatever actually compensates us for our financial outlays to defend the secularists against the jihadists. We bury the lines from fields and make them sabotage resistant. The books balance, end of their argument. And the world then also knows we expect compensation if we have to rescue their sorry butts.

And no amount of oil really compensates for the blood of our patriots. So the "cause" better damn well be worth it...and that means we expect friends...not fair weather friends either. We don't want to see them rushing off to see our boys convicted, etc. E.g., They should be running down the Zarquawi agents who set up Haditha for example...rather than demanding 'justice' against our troops.

27 posted on 06/05/2006 11:10:10 AM PDT by Paul Ross (We cannot be for lawful ordinances and for an alien conspiracy at one and the same moment.-Cicero)
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To: Paul Ross

So I should trade in all of my green pieces of paper for a piece of metal that humans only value for its beauty?


28 posted on 06/05/2006 11:10:32 AM PDT by opinionator
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To: BeHoldAPaleHorse

I had a Fiat once, X1/9, worst car I've ever owned..........The pistons were in backwards.........


29 posted on 06/05/2006 11:16:57 AM PDT by Red Badger (Liberals ignore criminal behavior, reward sloth and revere incompetence...........)
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To: Paul Ross
Copyright © 2003-2006

So he's been flogging this story for 3 years, and this time he is right?

30 posted on 06/05/2006 11:17:15 AM PDT by PAR35
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To: Red Badger

So, in Fiat money, the serial numbers would be printed backwards? :)


31 posted on 06/05/2006 11:18:34 AM PDT by BeHoldAPaleHorse ( ~()):~)>)
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To: opinionator
...a piece of metal that humans only value for its beauty?

It is valued for its constancy and relative rarity. ........

32 posted on 06/05/2006 11:18:35 AM PDT by Red Badger (Liberals ignore criminal behavior, reward sloth and revere incompetence...........)
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To: BeHoldAPaleHorse
Never buy a Fiat on credit. Come to think of it, never buy a Fiat at all, buy a Lamborghini instead.

No, never buy an Italian car under ANY circumstances. They are pretty, but they'll spend more time on the lift than on the highway.

33 posted on 06/05/2006 11:18:57 AM PDT by PAR35
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To: BeHoldAPaleHorse

No, the pictures...........


34 posted on 06/05/2006 11:19:10 AM PDT by Red Badger (Liberals ignore criminal behavior, reward sloth and revere incompetence...........)
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To: Paul Ross

"The US finally cut all ties between the dollar and gold under the Nixon administration in 1972. This ushered in an explosion of FIAT, inflation and a surge in the gold price to its highest ever price of US$ 850 per troy ounce."



That was 34 years ago. And the price of gold has gone down and up during that time quite a lot. Inflation has more to do with the price of oil than the price of gold.


And actually, the main statement that we cut ties with gold in 1972 is incorrect. That actually happened during the Depression. In 1972, we abandoned the fixed exchange rate regime of the Bretton Woods Agreement. That did not really have much to do with gold.


35 posted on 06/05/2006 11:19:53 AM PDT by Brilliant
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To: Gay State Conservative

Fiat: FIX IT AGAIN TONY!........


36 posted on 06/05/2006 11:19:59 AM PDT by Red Badger (Liberals ignore criminal behavior, reward sloth and revere incompetence...........)
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To: Brilliant
The US finally cut all ties between the dollar and gold under the Nixon administration in 1972. This ushered in an explosion of FIAT

Yeah, a friend of mine had his Fiat explode right after Nixon did that.

37 posted on 06/05/2006 11:21:12 AM PDT by BeHoldAPaleHorse ( ~()):~)>)
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To: PAR35

I heard a horror story from the 1990s: a Countach was speeding in rural Kansas, multi-county pursuit...

Some genius laid down a spike strip. Do you have any idea what happens to a car doing 150MPH that gets four tires blown out? Toto, we're not on I-70 anymore!


38 posted on 06/05/2006 11:24:24 AM PDT by BeHoldAPaleHorse ( ~()):~)>)
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To: opinionator
It was the article, and any facts adduced therein, not the "advertising" that was the burden of the post. If you note, I pointed out that this appeared to be a piece of GoldBug produced analysis.

As for you exchanging your pretty pieces of green paper, for metal, sheesh, do whatever you like. Or don't. It's a Free Republic.

But if you're asking for my advice, I am not a GoldBug...and I am extremely leery of the very things this author alludes to...then forgets about:

The manipulation by governmental interference in the gold market. I would note those very factors appear to be in play even now, as the 'powers-that-be' have apparently deemed that Gold is "fully valued"...they never say how they come to that conclusion...but they appear to be able to back it up with some 'umpppfh' to make it so...as Captain Picard always said...


39 posted on 06/05/2006 11:26:56 AM PDT by Paul Ross (We cannot be for lawful ordinances and for an alien conspiracy at one and the same moment.-Cicero)
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To: PAR35
So he's been flogging this story for 3 years, and this time he is right?

Must be the latest revision!

40 posted on 06/05/2006 11:31:49 AM PDT by Paul Ross (We cannot be for lawful ordinances and for an alien conspiracy at one and the same moment.-Cicero)
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To: Paul Ross
From the foregoing, those fortunate enough to own their own homes and other core assets, and possess a mix of quality gold mine stocks and physical gold will be amongst the few who survive this financial equivalent of a holocaust

ROFLMAO. This sounds like a chump who has way too much gold in his portfolio and is squealing like a stuck pig that everyone should BUY gold now, which would of course save his tremendous impending losses.
41 posted on 06/05/2006 11:49:41 AM PDT by Pox
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To: Pox
ROFLMAO. This sounds like a chump who has way too much gold in his portfolio and is squealing like a stuck pig that everyone should BUY gold now, which would of course save his tremendous impending losses.

When you hear Swiss America Trading commercials 24/7 on the radio, that's a sign that the gold market is near its peak, and the gold retailers are looking for chumps--er, fresh customers and first-time investors--to take the losses instead of themselves.

42 posted on 06/05/2006 11:52:37 AM PDT by BeHoldAPaleHorse ( ~()):~)>)
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To: finnman69

FIAT = fix it again tony


43 posted on 06/05/2006 12:03:10 PM PDT by Proud_USA_Republican (We're going to take things away from you on behalf of the common good. - Hillary Clinton)
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To: Red Badger
I had a Fiat once, X1/9, worst car I've ever owned..........The pistons were in backwards.........

So you got one of the well made ones, then. I had one urinate on my leg one time. (Remember how the hoses to the heater ran through the passenger compartment?)

44 posted on 06/05/2006 12:06:55 PM PDT by PAR35
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To: Brilliant
That did not really have much to do with gold.

Didn't it? France and other nations were piling up dollars that were supposedly redeemable, but it was France who was going to stand up and redeem them for gold. We didn't have enough to honor the obligation. So we dishonored and let the dollar float against other currencies. There wasn't much anyone could do about that but complain.

On another issue, some of you have been defining FIAT as paper money that is made so by government decree.

I would suggest that years ago when a gold or silver coin was legal tender, that was also fiat money. When disputes about payment arose, a creditor may have preferred gold more than silver or silver more than gold, or some other commodity yet, or the debtor may have wanted to pay with the currency of another colony or a commodity such as tobacco. The law would enforce payment in the legal tender, gold coin if that is what it was at the time, by fiat. Roger Sherman is the man responsible for Article 1 Section 10, Clause 1. He wrote, "A Caveat Against Injustice," that had to deal with the problems of diverse currencies in the colonies.

I would suggest that gold and silver coin as fiat money would have been the best way to stay and squares with the U.S. Constitution; and that the recent development (1913) of the debt of a central bank as fiat money is less preferable, and repugnant to the U.S. Constitution.

45 posted on 06/05/2006 12:10:53 PM PDT by Jason_b
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To: PAR35

We had one explode while going down the road. It was in the engine compartment between the water pump and the block. Sounded like a bomb going off!............


46 posted on 06/05/2006 12:15:34 PM PDT by Red Badger (Liberals ignore criminal behavior, reward sloth and revere incompetence...........)
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To: Jason_b

"We didn't have enough to honor the obligation."



True, but not the full story. We've never had enough gold to redeem all of the outstanding dollars. The value of the dollar does not derive from gold. It derives from trust.

By the time Nixon became President in 1969, we had not been backing the dollar with gold for more than 35 years. One of the first things Roosevelt did after he became President was push thru a law that said we would not honor our promise to exchange gold for gold certificates. He even banned private US citizens from owning gold altogether. It went up to the Supreme Court, and the Supreme Court agreed that the law was Constitutional.

So it was Roosevelt who ended the connection to gold, not Nixon. And after Roosevelt ended the connection to gold, was there a deluge of rampant inflation? Absolutely not. We were in fact in the middle of one of the most extended periods of deflation in history: The Great Depression.

So we were not even on the gold standard at the time Nixon became President. Rather, what Nixon did was abrogate the Bretton Woods Accord, which said among other things that the dollar had to trade in a certain range, vis a vis other currencies, and that the US Treasury was required to intervene to make sure that it did.

When it did intervene, however, it did not do so with gold. What it did was intervene in the financial markets. The reason Nixon was forced to abandon the Accord was that the monetary pressures were simply so great that he'd have had to cause another depression in order to maintain the US obligations under the Bretton Woods Accord, and he wasn't willing to do that.

I'd have to say that it may be the one and only thing that Nixon did correctly during his Presidency. I think that virtually every economist would agree that it was the right move, regardless of political affiliation.


47 posted on 06/05/2006 12:35:43 PM PDT by Brilliant
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To: Paul Ross

OTOH, there are some who believe that the boys are set up to run gold up, and only then to bring in retail.

Check out this article from Australia : http://www.smh.com.au/news/business/big-buyers-of-gold-slip-under-radar/2006/06/05/1149359675190.html


From the linked article:

"THE world's big-money brigade is snapping up gold bullion at eight times the rate originally thought, according to UBS, the world's biggest gold trader.

The huge sums entering precious metals below the radar are likely to help to put a floor under the gold price after the dramatic fall of $US112 an ounce in late May, the sharpest correction since the bull market began five years ago.

The Swiss bank said information from its trading floor suggested that funds and investors were allocating 20 per cent of their commodity portfolios to precious metals.

This is far more than the index-tracking funds run by Goldman Sachs, Dow Jones-AIG and others that are usually taken to be a guide to overall investment flows.

UBS said these indices gave a deeply misleading impression, obscuring a silent shift of funds from oil into gold."

Let me tell you this: the move up in Canadian Venture Exchange stocks over the last year is being driven by institutional buying. I have never seen so many block trades in juniors as this past year.

Brokers assure me that Joe 6-Pack is definitely not in this market. The stocks themselves have lagged the metals due to scepticism about the sustainability of the general upward move in metals prices.

I suspect we will soon see another significant rally in gold, probably taking a shot at the old $850 level by year-end.

Own the stocks, they're undervalued. ;^)

Just kidding - stay away from my market!


48 posted on 06/05/2006 1:01:13 PM PDT by headsonpikes (Genocide is the highest sacrament of socialism.)
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To: Paul Ross

The CPI figure has so little basis in factual reality that it serves only to underscore the age old adage "there are lies, damn lies and statistics". Indeed, this figure is little more than a piece of "voodoo economics" designed to fool the unwitting populace that inflation is only a third or quarter of what it really is. The objectives are merely to put intense downward pressure on labor market wage settlements.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

I came to essentially the same conclusion years ago. I am amazed at how little understanding of the truth of inflation is displayed by the younger people I meet. I have asked some of them what their impression of inflation over the last forty years is. Most of them seem to think that a dollar today buys about one third of what it would buy forty years ago, I certainly wish that were true, I would be living high on the hog indeed.


49 posted on 06/05/2006 6:31:43 PM PDT by RipSawyer (Growing grumpier by the minute.)
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To: bvw
>>
Why? Fuel spending has a large inelastic component -- you buy so many gallons a year of gas and fuel oil (or KWH and mcf). So people have less to spend on other things.
<<

Not exactly. Because of substitution, adaption and improvements, the US economy uses about 1/2 the oil to produce the same amount of GDP as it did 30 years ago. IOW, the US has gotten twice as energy efficient.

People don't "have less to spend on other things", because they don't spend double on energy if energy prices double. Higher prices for energy send the signal that energy is more precious than say, a gigabyte of hard disk capacity.

People *choose* to reduce their energy spending by finding ways to adapt, improvise and overcome. For starters, they drive less, sometimes a lot less. The data I've seen stated that gasoline sales during the post-Katrina price spike fell 6% in some markets. For another example that runs contrary to the the theory that petroleum usage is "inelastic", wood heat is now somewhat more popular than just a few years ago.

Even so, wood heat is not nearly as popular today as it was in during the "energy crisis" of the 1970s. That simple anecdotal observation demonstrates the effects of our creeping prosperity, where at an average of 3% increase in annual wages over the last three decades has roughly doubled the standard of living of a lot of people.

Another factor of energy pricing has to do with convertibility. In my parent's youth, many people heated with coal. Today, you can still find houses in metropolitan areas that have an outside door for the coal chute going to the coal bin in the basement even. The elementary school I went to had a chimney for its coal furnace, although by the time I attended, they had converted the boiler to burn fuel oil.

But people who have an "all electric" home, cannot burn coal directly, no matter how inexpensive it may be. They are indirectly burning whatever the utility selects, and if they have the emissions permits, they may burn coal, fuel oil or natural gas depending on the cost per BTU at the time. Alternatives abound. A nearby power plant burns worn out tires in with the coal, and they get paid to do so.

But right now, coal costs a fraction per BTU than does natural gas. Not everyone can switch, and that issue keeps the markets limited and therefore the price per BTU cannot ever be the same.

A friend who owns a printing business replaced his natural gas furnace and installed a corn-burning stove in the press area. His loading dock now has pallets of sacks of corn along with pallets of paper and ink. He says that he has reduced his heating costs by about 2/3. As a result, he actually has more, not less, to spend on "other things" than when he was heating with "low cost" natural gas.
50 posted on 06/05/2006 9:22:03 PM PDT by theBuckwheat
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