A Bank that Will Live in Infamy
Have you noticed the choppiness in the markets?
Over the past few years, there have been a lot more days when the market opens and freefalls down and then the next day the market will open and shoot straight up.
All of this movement is generating motion sickness along the way and for little to no obvious reason.
Some experts will attribute this volatility to the dynamics of global markets.
Since markets are always and forever in a process of price discovery, torn between demand for lower prices from buyers on one side, and the profit motive from sellers on the other, it is reasonable to expect some jostling as two parties, in a global market come together to exchange their goods and services. In other words, they "discover" an agreeable price at which everyone finds value. This is what the free market does naturally.
Low prices invite demand...driving prices higher. High prices invite competition (supply)...driving prices lower. However, have you ever wondered why we now have all these big and bigger waves and less and less predictability?
What the many experts will not say is that this type of volatility is what you get when the marketplace is full of an over-supply, or has an excessive amount, of money provided by the Federal Reserve. What you get as buyers and sellers with too much funny money jostle for position, is multi-hundred point daily swings in the stock, futures, commodity, and currency markets.
In a normal marketplace, why would gold jump $20 to $30 or more in a 24-hour period?
Back in 1913 when the Federal Reserve Bank was created to provide a central banking system, $20 bought you an ounce of gold. When FDR confiscated all the gold in the land back in 1933, an ounce of gold was revalued to $35 an ounce, thereby devaluing the dollar to 1/35th an ounce of gold.
The point is, a $20 or $30 movement in the price of gold back then would have been unthinkable. Today (circa April 2011), with gold priced at $1,510, the dollar has been beaten and bludgeoned down to less than 1/1,500th an ounce of gold, so twenty bucks here or there is hardly worth mentioning. This is what happens when the world's leading provider of fiat money supplies too much paper money into the economy generating a weaker dollar.
This is the magic and downside to modern central banking.
Remember, the Federal Reserve Bank is a private bank, part of the banking industry, with a supposedly public purpose. It is not owned by or controlled by the US Government but its role is to provide a trustworthy currency and promote full employment.
Let's look at how the Federal Reserve is doing in terms of providing a trustworthy currency. In the approximate 100 years since it's founding, consumer prices are up 33 times (using the price of gold as an indicator). What you could buy in 1913 now costs 33 times as much in 2011. What costs one dollar in 1913 now costs 33 dollars. Why the increased or inflated cost? ... too much paper money supplied by the printing presses of the Federal Reserve. The dictionary definition of inflation is an increased price of a good or service due to an increase in the supply of money used to purchase the good or service.
So, what grade would you give the Federal Reserve in providing a trustworthy and stable currency?
As to employment, before 1913, there virtually was no unemployment. Why? Because there was a free market in labor and if you needed to work, you took whatever work you could get at the then-prevailing wage; end of story. There were no subsidies for people who were unemployed. No minimum wages. No safety nets. It was just supply and demand. When the demand for labor increased, so did wages. When it decreased, wages went down. Except for brief periods of adjustment, there was no unemployment.
As to employment now (circa April 2011), approximately 100 years after establishment of the Federal Reserve, the US is experiencing record unemployment rates. Official unemployment rates are in the 9% range. When all the people who want jobs but are no longer counted among the unemployed, the number doubles to 18%.
So, I ask again, what grade would you give the Federal Reserve in promoting full employment?
You might ask, what is the real mission of the Fed? As part of the banking industry, its real mission is to make sure the banks stay in business and make a profit ... and a handsome profit at that. How does it do it? It just prints up currency and provides it to the banks of course with approval by politicians using programs such as Quantitative Easing, TARP, and Fiscal Stimulus (federal government spending). Who pays the bill? The citizens and taxpayers of the USA as the additional currency added to the money supply reduces the value of all currency.
The reduced value of currency causes a reduction in purchasing power of money. As mentioned previously, it now takes $33 dollars to buy a good or service that cost $1 dollar a hundred years ago, which was when the Federal Reserve Bank was established.
The inflated cost of goods and services is called the hidden tax on the citizens and taxpayers of a nation as a result of a central banking system.
Remember the phrase from FDR when Pearl Harbor was bombed, "A day that will live in infamy."
When you look in the dictionary, infamy is described as notoriety, shameful, or criminal conduct.
Look at who is at the center of the inflation racket to rob American citizens of its money ... the central banking system run by the Federal Reserve Bank ... indeed a bank that will live in infamy.
I know it's easy to kick the can down the road but the political and economic support for a central banking system has spread around the globe with the establishment of various central banks including the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada, the Reserve Bank of Australia and even the People's Bank of China; as such I would urge you to take action immediately.
What to do? Obtain more financial education and learn how to protect yourself during these trying times and purchase precious metals including gold to hedge or protect your net worth against the decreasing value of the US Dollar, which is just paper money.
I favor a quote from Steve Forbes ... Forbes says that pursuing additional financial education and the resulting increase in our financial literacy will open our eyes to being savvy with our money and using alternative wealth creating strategies; this will be they key to resolving our financial crisis.
To gain the necessary financial education, it is best to pursue association with, access to, and membership in, a wealth creation community. As a result, you will learn about alternative wealth creating strategies and consider investments in non-dollar denominated assets ... perhaps emerging markets ... perhaps energy assets that are inherently useful like oil rigs, hydropower, or methanol plants ... perhaps precious metals, rare earths, water rights, oil, natural gas, potash mines, or gold mines ... things hard to build, difficult to replace, and costly to substitute ... definitely not financial stocks, definitely not retail stocks, definitely not commercial property.
For those wanting protection of their purchasing power in gold, there are several ways that may be appropriate to obtain this protection. These include direct ownership in minted coins, use of gold exchange traded funds, gold mutual funds, and junior gold stocks. Many are investigating having part of their IRAs in gold, silver, precious metals, and non-dollar denominated currencies.
In addition, for those that truly believe sovereign risk is the greatest risk we all face, it is wise to learn how to implement a multiple flag strategy to diversify this risk or provide protection against higher taxes, capital controls, hyperinflation, civil unrest, erosion of personal liberty, and the rise of a police state. With a multiple flag system, you consider taking preparations like, but not limited to, establishing a foreign bank account, purchasing some real estate overseas, seeking alternate sources of income, dual citizenship, and carrying multiple passports.
I will continue to provide examples of things we need to learn, the secrets of the insiders, as part of being savvy with our money, and introduce alternative wealth creating strategies, in future articles and updates at my blog over the next few weeks.
In addition, a good book to read would be "Bad Money" by Kevin Phillips; it describes Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism.
Finally, I want to thank Bill Bonner and Joel Bowman of Agora Financial as they were the source of some of the materials mentioned in this post.
Have a question for Michael? Ask or leave a comment below!