THE LIBERTARIAN ENTERPRISE
Number 356, February 26, 2006
"Socialism is a religion of death and destruction"
Special to TLE
Gold and silver are traditional and functional safe havens from inflation. When gold is over $500 and silver over $9, as they have been for many weeks, people are worrying about inflation.
Formerly libertarian Alan Greenspan, one of Ayn Rand's inner circle, who previously wrote against fiat money inflation and in support of gold as a worthy alternative, has recently spoken about the higher price of gold. He claims that it is worry over terrorism that is causing the high price of gold. Since he was paid $120,000 for speaking for one hour and answering questions from the comfort of a New York apartment from investment management professionals at a conference in Japan (where his speech was carried live in three dimensions using holographic projectors(!)) it is unclear how ordinary people ought to react to his comments. Given Greenspan's role in creating the monetary inflation that is now wreaking havoc with the economy, it is my view that he is not trustworthy. He would, I think, likely say anything, true or untrue, to serve his masters in the banking cartel. Keep in mind that under the original Thirteenth Amendment, Sir Alan Greenspan would be politically exiled from the United States for the crime of having accepted a knighthood from the Queen of England.
His replacement killer at the Feral Reserveless System (feral because it is wild and untamed, reserveless because it is without meaningful reservesthe gold claimed to be in USA Treasury possession is one ounce for about every thirty-five thousand dollars in current circulation, or less) Ben Bernanke once remarked that to address the potential problem of monetary deflation or a liquidity crisis, the Feral Reserve would be willing to do anything, up to and including printing money by the container load and dropping it from helicopters over the major cities. So, I like to call him "Helicopter Money" Bernanke. To add to the growing body of evidence that Greenscam and Bernanke cannot be trusted, the Fed under the former chairman stopped publishing the Liquidity measure "L" in 1998, and is now (March 2006) preparing to discontinue publication of M3, one of the broadest measures of how much money is in circulation. (A very good essay on this topic is found here: by Bud Conrad of International Speculator.)
Given that the Feral Reserveless System has preached that transparency in economic matters is a good thing, and has criticized other central banks around the world for being less transparent, it is hypocritical for the Fed to stop publishing figures about how much money they are pushing into existence. So, should you be worried? Yes, of course.
Commodity Price Inflation
What is inflation? There are two things that the term inflation is used to identify. One of these things is monetary inflation, the actual growth in the supply of money. Money is like everything else that has value. Its value is determined in part by the demand for money and in part by the supply. Supply and demand charts indicate volume and price. In most cases, the price of something determines the demand. So, people want more widgets at $1 than they do at $10. Supply and demand also tell you the same thing about dollars. Dollars cost less at $10 per widget than they do at $1 per widgetyou get ten dollars for one widget in the former case.
Now, that sort of inversion is somewhat hard to think about. You may be very comfortable saying "The price of a widget is ten dollars," but you should be just as clear that the same truth is expressed, "The price of one dollar is a tenth of a widget."
So, what is monetary inflation? It is the increase in the supply of money. Very simply, the supply of money has grown enormously, and the estimates of its size have been repeatedly revised upward. It doesn't grow by itself, but is printed by the government or created out of nothing by computer keystrokes at banks. A cynical person, such as myself, would say that the actual amount of money in circulation was known to be larger, and the government didn't mention the change until much later because they wanted to quiet fears of inflation. The more the money supply increases, the more dollars there are chasing the same amount of goods and services. So, prices may rise as a result.
But, price rises don't always happen, they sometimes lag monetary inflation by months or years, and they may differ in magnitude by a great deal depending on other conditions. Prices arise from the equilibrium in supply and demand which the free market is set up to seek. So, a given thing may have a higher or lower price because of monetary inflation, or because the supply has changed, or because the demand has changed. Prices, then, reflect a lot of things in the economy.
The price of oil, for example, may rise dramatically when President Bush declares war on Iraq, or rattles his saber over Iran, or when the actual supply of oil is affected by Hurricane Katrina, or when a lot more demand for Summer travel in Sport Utility Vehicles takes place. The price of oil may drop if the supply increases, the demand decreases, rumors of war dissipate, or the supply of money is reduced.
Inevitably, the government has placed itself in charge of statistics about prices. Therefore, you should be chary of their figures. It is now well known that the Consumer Price Index (CPI) measurement of inflation published by the government is a pack of lies. The government arbitrarily swaps out one thing for another from their "basket of goods" whether margarine or butter are interchangeable or not. They may arbitrarily assert that the price of computers is less because more computing power is available for the same amount of money. And, they sometimes make "hedonic adjustments" which bear no sensible relationship to reality.
Worse, the government babbles. It really ought to be embarrassing to USA citizens. The government talks about "core inflation" as distinct from inflation in the prices of food and energy. Now, I don't know about you, but I am quite willing to embrace core inflation as a meaningful number when, and only when, the government functionaries that promote it have gone for an entire year without food or energy. If the head of the Bureau of Labor Statistics is able to live without food and without energy for one full year, then "core inflation" would be cool with me. And, if every person who works for the government attempts to go without food or energy for a full year, I would not mind a bit.
What the Government Says
The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.4 percent in December, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The December level of 196.8 (1982-84=100) was 3.4 percent higher than in December 2004.
Now, does that sound like babbling to you? It does to me. And that's their lead paragraph, which is supposed to give you the best clearest understanding of what the press release is about. Read their full release here: http://www.bls.gov/news.release/cpi.nr0.htm
But, some things stand out. First of all, they admit that prices now are nearly twice what they were in 1982-1984. That's interesting, because December 2005 was 22 years after the middle of that period. So, according to the government, prices have increased an average of 4.4% per year.
Now, what does it mean when they say that prices have decreased 0.4% in December before seasonal adjustment? To me, it doesn't mean a thing. It means that they have some batch of data they would be willing to show you that says that prices are lower. But, they also have an urge to apply some seasonal adjustment to further make a mockery of their claims. And, in case you aren't confused enough, they also tell you that prices are 3.4% higher than they were a year ago. But, somehow, prices decreased? It makes no sense, and I contend it is intended to make no sense.
Keep in mind that I'm educated in economics and have studied these issues in considerable depth. I studied economics at an Ivy League university and at an exclusive private graduate school in Texas. These are simply facts about me, not things I'm especially proud of (given the living conditions one has to endure at either school I attended, there's nothing prideful about admitting these things). On both government standardized tests (Iowa Basic Skills) and privately standardized tests (Stanford-Binet, Scholastic Aptitude, National Merit Scholarship Qualifying Test) my scores have shown up some standard deviations above the meanas high as the top one-tenth of one percentile in intelligence nationwide. And I don't have a clue what the government is saying about their consumer price index. I suggest that my inability to understand them is not a deficit in my intelligence, education, training, background, or work experience, but a deliberate lack of clarity on their part.
So, why would they lie? Well, they have a problem. They've indexed everything. The government has indexed income taxes, so if you are making more money this year than last, but the consumer price index has also risen, you get a bigger personal tax deduction and a bigger exemption. You can see those things change from one year to the next on your tax forms if you like. The government has also indexed benefits with "cost of living adjustments." Which means that the cost of screwing the taxpayers and the cost of failing to provide social welfare through confiscatory taxation and mandatory redistribution of wealth changes every year. By how much? By whatever amount the government says inflation is.
Given that they get less of your hard-earned money in taxes and have to pay out more of your hard-earned money in benefits if inflation is high, the government is motivated to assert that inflation is low. Once you understand that they don't want to tell you how much inflation is, you'll understand why they issue such confusing press releases. Really, they don't want you to know how bad inflation is, and they don't want to tell you anything in clear, easily understood language. For one thing, clever people like me would be able to challenge their assertions if we could parse their comments into easily understood language. Given the financial motives for the government to lie, you should add their figures on inflation to your list of things said by people in government which you don't believe. If your list is like mine, that list is very, very long.
These prices were taken from the first trading day in July 2005 and the first trading day in January 2006. If I've erred, please feel free to write in with corrections, as I am fallible and eager to be corrected. I used figures from six months apart, and then doubled the rate of price increase to get an annual rate. Here's what I've got:
The bad news is that for these nine commodities, prices rose an average rate of 75% per year for the six months ending at the beginning of January 2006. Now, some of those prices continued to risegold was $553 earlier today (20 February 2006) and has been higher. So, feel free to do your own analysis. For information on prices, I like Kitco.com and KitcoMetals.com and UxC.com but feel free to do your own research.
Now, is it all bad? Well, the price of nickel dropped from $6.50 to $6 over that same period, a decrease of about 15% per year. Oil rose from $58.70 to $65.51 per barrel (West Texas Intermediate, as I recall) so that's "only" 23% per year. But, of course, oil was already up since late 2001 from $18 per barrel to more than $58 per barrel, or around 63% per year for the 3.5 years ended 1 July 2005. So, it is great that the rate of increase has moderated from a much higher rate.
The same is true of nickel, which was $2/pound in late 2001 and over $7.50 per pound about June 2005. In other words, the price of nickel had been rising at a rate of nearly 79% per year. So, hurray, the price dropped a bit. It was $6.69 earlier today, so it isn't clear that price relief is going to last.
What are these commodities? Well, some of them are in things you use every day. Copper is used widely in the generation and transmission of power and in electronics. Silver is used pretty widely in some electronics components and in old-style photography. It has many other uses. Zinc, aluminium, and lead are base metals that show up in all kinds of applications like galvanized steel, beer cans, and automobile wheel-balancing. Palladium is used in catalytic converters as a substitute for platinum, and is also featured in some of those weird "cold fusion" energy experiments. Rhodium is a specialty metal, used in some high tech applications. Uranium is a fuel used in nuclear reactors, and is also popular in making bombs. Nickel is used in making vegetable oil into a poison by partially hydrogenating it, but because "poison" doesn't sell as well, the makers call it "margarine." Gold is money and so is silver, and these are always key indicators of monetary inflation because people in the markets have more sense than people in governments.
What Should You Do?
So, how can the government claim that prices dropped in December or that prices rose from December 2004 to December 2005 by something like 3.4%? Well, don't worry about what the government saysthey aren't going to tell you the truth, and if they do tell you something about the truth it won't be easy to understand what they say. When was anything the government said all that big a deal to your daily choices?
If you believe that inflation is a real threat to your prosperity, you should buy gold and silver. In inflationary periods, such as 1964 to 1980, the prices of gold and silver rise dramatically. Keep in mind that in 1964, the price of gold was set by the government at $35 per ounce. In January 1980, the intra-day price for the April 1980 future's contract reached $895 per ouncein 1980 dollars. The price of silver was also set by the government in 1964 at 371.25 grains of silver to the dollar.
What? Yes, that was actually the price set in the 1792 Mint Act. Congress decreed that a dollar was 371.25 grains of silver, or about one twentieth of an ounce of gold, or so many penny weights of copper. Okay. So, what's a grain of silver? Well, there are 480 grains in a troy ounce. Which means that the dollar was worth more than an ounce of silver in 1964. And it took about $50 to buy an ounce of silver in January 1980.
You would have done much better holding silver from 1964 to 1980 than holding dollars, or gold. Silver and gold are both good solid inflation hedges. And with some commodities running over 100% price increases per year, you should agree that there is inflation, and it is serious, today.
How can you buy gold or silver quickly and easily? I like e-gold, GoldMoney, and other digital currencies backed by gold and silver such as Pecunix and 1MDC. You can learn more about these digital gold currencies at my web site, Vertoro.com.
Or you can buy coins or bullion bars for physical delivery. One of the reasons gold is money is because it has all the useful properties that Aristotle identified with money thousands of years ago.
Gold is durable, divisible, consistent, convenient, and value in itself, and has been for thousands of years. My friend Doug Casey who writes several investor newsletters (see his site at CaseyResearch.com) spoke at the Vancouver Resource Stock convention in January 2006 and said that gold is durable, unlike wheat which rots. It is divisible into tiny units (even more so when you use computers to create digital warehouse receipts) unlike works of fine art. Gold is consistent year after year, unlike real estate. (According to G. Edward Griffin, you could buy a toga, sash, and sandals for an ounce of gold in the time of Caesar Augustus two thousand years ago; you could buy a man's suit, belt, and shoes for an ounce of gold in 1860, 1910, 1940, and today; so the purchasing power has remained remarkably consistent.) Gold is convenient or monetarily dense compared to, say, lead. And gold is value in itself compared to paper.
Ludwig von Mises once quipped that only the government can take something useful like paper and, by applying ink, make it totally worthless. Nobel laureate F.A. Hayek once noted that if we do not find ways to take the issue power of money away from government, their inflation is going to force us into a command economywhich will destroy civilization. Both men were distinguished economists who preferred free markets to coerced ones.
What else might you do? Well, if you believe that the price increases in commodities are secular rather than temporary, as investment geniuses like Clyde Harrison, Jim Rogers, Doug Casey, Rick Rule, Adrian Day, and Warren Buffet seem to think, you may want to go further.
In periods when the price of commodities are low, mining company stocks trade at a discount to the value of the minerals they have in the ground. But, as commodity prices rise, their stocks come eventually to trade at a premium. This phenomenon has been observed over and over again, not only by economists but by wealthy investors and speculators. Some of the stocks I've mentioned in my Indomitus Report (indomitus.net) have increased dramatically in price since I first suggested they would be good values. For example, Tan Range was trading at one dollar Canadian per share when I first mentioned it in 2005, and is now trading at $7.16 per share.
Another company that I've looked at very closely is Lumina Resources (LUR on the Toronto exchange). By very careful and thoroughly regulated measurements, they have measured and indicated resources including billions of pounds of copper and over ten million ounces of gold in the ground right now. These are not estimated or inferred or "probable" resources but measured and indicated by very conservative methods that comply with a Canadian regulation called 43-101. In other words, some very well trained geologists have staked their professional reputations on these estimates, which are based on actual drilling of sample cores through the ore bodies involved. Based on those numbers, I believe the resources they own, in the ground, at today's prices, are worth in excess of $600 per share. And their stock is trading at about 46 cents a share. The managementRoss Beatty and his associatesis top notch. The market is clearly not perceiving the value of this company's assetseven though they have considerable cash. And the political risk is pretty smalltheir biggest deposit is on Vancouver Island in mining-favorable Canada.
In my view, based on a fairly cursory look at some of those older stories, much of what we don't see today has been actively prevented by some government program. NASA has obviously stood directly in the path of nearly all progress in space tourism, for example. Left to ourselves, in a free market, people would do a lot more good in this world. Prices would be less, prosperity would be greater, and business cycles would not be exacerbated by fiat money inflation.
Happily, there are opportunities to help move things in the right direction. One of my friends, Bernard von NotHaus, came up with a really bright idea in 1998. He started minting his own silver and gold pieces and he started printing his own money. His group, now LibertyDollar.org, was founded to protest the Federal Reserve Act and the IRS. But, today, it offers free market moneymoney that isn't good because some government says so, but because every note they print is a warehouse receipt for actual silver or gold in a vault, carefully safeguarded and audited. You can get some of that money and use it, instead of Federal Reserve Notesor Feral Reserveless Nothings.
What you may not know is that the Federal Reserve, created in 1913 by an obviously unconstitutional act of Congress, promises to pay you nothing. Their documents, called Federal Reserve Notes, represent a claim, at best, on the ability of the USA federal government to tax the productivity of its citizens. Yes, there is some gold in the vaults, though a group called the Gold Anti Trust Action Committee (GATA.org) has analyzed government reports and concludes that there is probably thousands of tonnes less gold than is claimed.
Gold and silver are money. The Liberty Dollar is money, not because Bernard says it is, nor because some government functionary says it is, but because it is gold and silver. As Benjamin Anderson noted a long time ago, you don't have to trust a piece of gold because it has some government's stamp of approval if you don't trust the government that stamped it. You can melt it down and verify it for yourself. And, today, with Bernard's help, you can get gold and silver that is minted privately, not by any government.
Similarly, e-gold, GoldMoney, Pecunix, and 1MDC are currencies based on 400 ounce bars of gold stored in places like London, Zurich, and Dubai. They offer gold itself, circulated electronically. Both e-gold and GoldMoney have silver, as well. Not only are they offering you a way to own gold and silver, but also you can buy and sell things with their currencies online. GoldMoney, for a practical example, is accepted at GoldBarter.com the auction site, at WontonGold.com the domain registrar, and at LaissezFaireBooks.com the bookstore. You'll find e-gold is accepted at an even wider number of outlets.
I firmly believe that online money in the 21st Century is, and is going to be, gold and silver. Gold and silver are always acceptablefor the reasons Aristotle mentions. Acceptability is what makes the critical difference.
In the meantime, fiat currencies are going to inflate. My friend Clyde Harrison says, "Fiat currencies don't float. They just sink at different rates."
The war in Iraq and the saber rattling about Iran won't save the dollar. Instead, the federal budget deficit, the federal debt, and the unfunded federal programs show ever widening gaps. The trade deficit is growing. Syria and Iran are now seeking European Union euros for their oil rather than dollars. Dollars which have already been printed or created by computer keystrokes are going to come rushing back to the USA when they are no longer needed to buy oil on world markets.
(And if you have some thought to shift to the Canadian dollar as a safe haven, keep in mind that Canada already sold all its central bank gold. The Canada dollar is backed by the USA dollar. Talk about empty promises.)
A Stairway to the Stars
You may have heard that in 1990, some of my friends and I bought a contract with the Soviet Union to put an American on Mir. We announced a sweepstakes in December 1990 to give the trip away as a prize. As a result, two of us were arrested on false charges of felony gambling promotion of a lottery. My dreams of changing the way people think about space were crushed, and I was tremendously disillusioned. Happily, I was able to "beat the rap," although I did not "beat the ride."
Since then, wealthier people than me, such as Sir Richard Branson, have come up with other ways to make space tourism a reality. Branson's company, Virgin Galactic, recently gave away a trip into space with a sweepstakes co-sponsored by Volvo. A company in South Africa recently did the same. For my own part, I am very glad that these ideas are being made into a reality, even though I am disappointed that the USA government saw fit to prevent me from doing so 16 years ago.
But, I did a lot of thinking in that time, and I came to some conclusions. It seems to me that an economy based on paper promisesmostly promises to beat up peasants and take the fruit of their laborcannot prosper for very long. I've studied the history of fiat money inflation, and some of the very desperate conditions caused by previous episodes of inflationfrom Ghenghis Khan to the South Sea Bubble to the National Assembly to the Continental Congress to the Confederate States to the Republic of China to the Yugoslav dinarinflation has led to economic distress which has led to war and revolution. Hundreds of millions of people have died as a result, and billions of people have suffered.
What's more, we cannot build a lasting structure on a foundation of shifting sand. Politics is about expedience, and expedience is shifting sand. The politicians blow with the wind. To build for a prosperous future, we have to build on a solid foundation. I believe free market money represents a key ingredient, a major cornerstone of a stairway to the planets and the stars.
It is one important element, but it is not the only one. To get out into space, we also have to have free countries. Without free countriespopulated by free people who are able to engage in trade and commerce in free marketswe won't be able to do the things we want.
Even rich guys like Sir Richard have found out that their money is not enough. Branson paid Burt Rutan's Scaled Composites a hefty fee to design a space tourism vehicle. Guess what? The USA federal government said Branson couldn't see the designs he paid for because he's a foreign national and the designs are for a "controlled munitions device" or rocket. Under the International Trafficking in Arms Regulations (ITARs) the government may restrict people who make free market rocket systems from showing those designs to foreign nationals. Now, of course, Virgin Galactic has worked around that problem, somehow. But it illustrates, I think, the extent to which the government is standing in the way of the future that you and I want to live in.
Ultimately, that means that to be free, you and I have to get away from the USA government. We have to work around it, circumvent it, avoid it, leave it behind, or, if things become desperate enough, fight against it.
Well, that makes me sad. I'm saddened by this perplexing situation because I know that the united States of America was founded by liberty loving individualists who adored free marketsJohn Hancock and many of the signers of the Declaration of Independence made their fortunes by smuggling goods into the country. I know that the USA was founded after a long struggle, which started near the end of a sixty-year depression which started when the South Sea Bubblebuilt on the slave trade and fiat money inflationcollapsed in 1720. I'm sad because we've been through all this inflation-related nonsense before.
I'm sad, most of all, because the greedy, vindictive scum who run the banking cartel, and, thereby, run the major governments of the world, have foisted fiat money inflation on the rest of us over and over again. Jefferson wrote about it. Madison wrote about it. Andrew Jackson did something about it when he vetoed the Second Bank of the United States. Economists like von Mises and Hayek and Bastiat have written about it. People have suffered from fiat money for hundreds of years, and the banker scum have gotten away with a lot of our wealth because of it. As a result, they have wrecked economies, destroyed countries, started wars, and caused death and suffering on an epic scale. The waste of potential opportunities to thrive and prosper and reach the other side of the galaxy sooner is just tremendously sad.
But, don't cry. We can still triumph. We can get there, from here.
The longest journey begins with a single step. You can take one step to increase your prosperity, preserve your wealth, avoid the hidden tax of inflation, move your wealth offshore, limit your taxes, and confound the enemies of freedom. That one step is to convert your fiat dollars into some sort of free market moneygo from green to gold. You can take that step today. You can move your money out of filthy, disgusting fiat dollars and into gold and silver.
To help you do it, I've worked with friends, financiers, and free marketeers to build Vertoro.com. To help you understand why you should do it, I've written essays in this magazine and in The Indomitus Report. But, I cannot make you take that step. I can only show you the door. You have to be the one to step through it.
Free market money is the gateway to a better future. Applying the ideals and principles of the free market to the currency you tender in payment is your responsibility. It is your opportunity for greater prosperity and a better future.
I invite you to take that step. I urge you to take it seriously, with forethought, and out of your own desire to change the world. You can do it. It is presently legal. And it will make all the difference.
Change your money, and change the world.
Vertoro.com helps you go from green to gold. We offer information on gold and silver, the truth about monetary inflation, and consulting services to help you convert to free market money. Best of all, we sell gold and silver! Buy some today.