Resist or Become Serfs

[Rajiv]

Re: Resist or Become Serfs

Well your buddy's wife is a smart gal, cause by the end of the day, silver will indeed be the new gold. It is scheduled to be depleted in minable quantities within 15-20 years and is today far scarcer above ground than gold and used in more industrial applications than all the other metals combined. It's interesting how difficult it is to convince anyone of that though. No-one believes it, because the prices are saying the exact opposite.

Yes there is another crisis that people forget about, that led to the 1972 gold default. And that was the 1964 demonetization of silver by LBJ -- and of course there was the 1873 demonetization of silver. The Crime of 1873

Back to 1971: Nixon's action was more than symbolic. It had real impact. And to conservatives of the day, the anguish caused by the closing of the gold window was dwarfed by the shock of wage and price controls simultaneously imposed by Executive Order. (Some contend that several key Southern Californian Nixon supporters never forgave him for that betrayal, and quietly swung their financial support to Ronald Reagan.)

In 1971, Nixon was preparing for his reelection campaign. He was tidying up potentially troublesome areas. Consumer and wholesale price indices were bubbling up although the increases were miniscule as compared with inflation rates nine years later. Nixon's brain trust believed controls would be politically palatable, and could head off future price increases long enough to ensure his reelection.

The closing of the gold window meant little to most Americans as citizens had been legally barred from holding the precious metal since 1933.

As part of his reelection campaign, Nixon also wanted to punish French president Charles DeGaulle. In compliance to federal direction, the US media caricaturized the elegant, aloof French hero as unappreciative. After all, American conscripts had saved the French from the Hun in two world wars. This comic opera general was greedily using American dollars to plunder our gold reserves. Putting this ingrate in his place would resonate well with US voters.

Where was the dissent? Well, there wasn't much.

The equity markets had little interest in the closing of the gold window, but wage and price controls set the stock market off to record-high percentile increases the day following the announcement. Only a few old-fashioned economists, like Murray Rothbard and Hans Senholz, shook their heads in disbelief. The failed ghost of controls had arisen once more.

And by 1971 most Americans had little first-hand memory of gold. The Depression and WW II were indelibly imprinted on their psyches and if they thought about gold at all, it was as a murky link to the hard times of the 1930s. Silver was a different story. The dimes, quarters, and half dollars minted almost continually from 1796 through 1964 were 90% silver. Most folks simply took it for granted that the coinage was silver.

Not one in a thousand reflected that one dollar's face value in silver coins contained 72 parts of a pure ounce and that at $1.29 an ounce, the price fixed by the Treasury Department, the intrinsic value was precisely one dollar. This magnificent reality went unnoticed.

1873

What is known in Populist rhetoric of the late XIX century as The Crime of 1873 was the demonetization of silver enacted by the Coinage Act of 1873. Alexander Hamilton had set the United States on a bimetallic standard in 1792 and, with the notable exception of the Civil War, the country had not moved from this system. In practice this was a continuous switching from a gold standard to a silver standard. When the legal price of gold in term of silver, that is, how many pounds of silver you get for one pound of gold, which was set by the Coinage Act at 15 for 1, was greater than the market price, then nobody would bring gold to the mint and the country would be on a de facto monometallic silver standard.

The consequences of this technical decision were enormous, and it seems to be clear in the view of recent research that many people suffered from until the end of the century. Go to the next slide to see what were those consequences.

Immediately after the United States went for a gold standard regime in 1873, the market price of gold in term of silver began to rise, starting from about 15 in 1870 to reach a maximum of about 40 in 1900.

The demonetization of silver was accompanied by several circumstances which led to a strong secular deflationary trend of about 1.7 % a year in the general CPI from 1875 to 1896.

The above led to the Long Depression.

[Scot]

Re: Resist or Become Serfs

Texas is the number two recipient of defense contracts totaling around 40 billion annually doled out to about 10k mid sized companies in Texas. I guess they can survive on cow patties, oil rigs and coal burning power plants if they cut ties in some form with the Federal Government.

I think you're projecting onto the state of Texas your own sense of dependence on the federal government and the view that, without the federal government, we'd all be lost.

Did it ever occur to you that the federal government might be dependent in part on the state of Texas? In terms of federal taxes, Texas is a net contributor to the union. I wonder if they're getting their moneys worth.

There are plenty of nations smaller and less populous than Texas that seem to do just fine without an even larger bureaucracy lording over them.

[santafe2]

Re: Resist or Become Serfs

SF - Certainly, at the level of personal preparedness, your comments make sense and I have and am making significant moves along the lines you describe. But, as you make reference to in your last paragraph, my question concerns the role we could or should play, if any, in affecting change.

Preparing yourself and reaching out to help your community is effecting change. It makes your world better and sets an example for everyone around you. You can't meaningfully change the direction of the US. Almost all of what will happen is already baked in. But you can become a productive, worthwhile citizen at the local level. If you have skills and training, use them. If not, find out what you care about and build some expertise. Get involved.

One of our neighbors is a retired physician. Every day of the work week he takes an old Chevy van that he bought for this purpose down to the river that runs through the middle of town. He starts on Monday at the east end of a one mile stretch of river and works his way to the west end by Friday. He fills bags with trash, trims trees and bushes and occasionally tends to one or more of the homeless men that make a temporary home under one of the bridges.

Carl is effecting a change. He never tells anyone else to get involved and he never asks for help. This is his calling. He's very satisfied with this mile long ad hoc community of joggers, work-a-day commuters and homeless outcasts that populate his river.

If you pay attention you'll begin to see all the various needs in your community and you'll find the thing or things that you can do better than anyone else and those things will bring you great satisfaction.

[Guest]

Re: Resist or Become Serfs

Good stuff Rajiv.

And just to stir the pot a little more on the topic of the monetary metals (true or false?) below is some more discussion around the behavior of gold and silver in inflation / deflation, prior to, and after they are demonetized. the author Landis makes frequent mention of Roy Jastram as a "well grounded" reference point, while discussing the comments of Steve Saville, who's taken a lot of interest in chronicling the demonetizations you mention below in several long articles.

Sorry this stuff is definitely wandering off topic, but what the hell.

Yes there is another crisis that people forget about, that led to the 1972 gold default. And that was the 1964 demonetization of silver by LBJ -- and of course there was the 1873 demonetization of silver. The Crime of 1873-1873 / The above led to the Long Depression.

Gold and Deflation: A Dissenting Dissection / by Bob Landis

The Commodity Theory of Gold

The flip side of the notion that gold is not money is that gold, having been demonetized, is now just another commodity. That is why it is a hedge against inflation: it can be expected to behave like other commodities.

The genesis of this viewpoint is also interesting. Professor Jastram considered the question back in 1977 [p. 178]:

Andre Sharon, head of the international research department at Drexel Burnham, Inc., notes, "the value of gold essentially derives from its capacity to preserve real capital and purchasing power." I select this particular quotation because of the prestige of the organization and the position of the spokesman, but statements in this vein can be found in great numbers. They can be traced back for generations and in many countries. / How can this proposition so contrary to statistical fact become so widely believed and quoted? Possibly because gold has preserved capital in cataclysmic cases it is easy to infer that it can be trusted to do the same in less severe circumstances. To extrapolate from gold's protection in singular catastrophes to its use as a strategy against cyclical inflation is an example of faulty inductive reasoning.

Our own take is somewhat less charitable, at least insofar as the commodity theory gained currency in the years following 1971. Rather than excuse the theory as an example of faulty inductive reasoning, we tend to think it was developed largely as spin placed on the unilateral decision by the United States no longer to honor requests to redeem its currency in gold. The commodity theory once again advances the notion that the State gives value to gold, and not vice versa, in maintaining that the unbacked paper of a defaulting debtor is in fact more valuable than the real money that backed it prior to the default. [9]

In any event, we think the commodity theory of gold is as wrong as the State Theory of Money. We turn once more to Professor Jastram, and while we get no joy from his view that gold is not money, we take comfort from his empirical evidence that gold acts like money. We turn also to common sense, and note the fundamental economic difference between other commodities and gold: all other commodities are produced for consumption, whereas gold, precisely as a function of its money-like qualities, is produced for accumulation. [10] Virtually all the gold ever produced still exists somewhere, albeit not necessarily where governments claim it does. Set aside for the moment the massive empirical evidence marshaled by Professor Jastram that demonstrates how differently gold and other commodities have behaved over time. How is it even reasonable to expect such fundamentally different things to act alike?

The Dollar Short Theory

The commodity theory of gold has a twisted sister, the “dollar short” theory. Mr. Saville alludes to it, but to his credit doesn’t hang much on it. The theory, which recently enjoyed a brief vogue among several prominent investment letters, holds that in a deflation, fiat dollars, not gold, will become precious and rare, because everyone will need them to pay off the gargantuan dollar-denominated debts that lard the planet. Effectively, the credit expansion will have left the world in a short position vis-à-vis dollars.

If the Fed didn’t invent this little gem, it should have.

__________________

and this (provocative and controversial)

The Japanese Example

Mr. Saville suggests also that gold’s performance in yen terms during the recent Japanese deflation provides further guidance as to how gold will behave in a dollar-denominated deflation. The comparison is original and provocative, but troubling in several respects.

First, Mr. Saville acknowledges that what Japan experienced is not a deflation for purposes of his analysis. But here is where the definitional issues we touched on previously become important. Because, curiously enough, the Japanese experience probably was a deflation for purposes of Professor Jastram’s study. Only not during the time frame suggested by Mr. Saville. He adopts, correctly, in our view, the Austrian conception of deflation: “Genuine deflation is a sustained contraction in the total supply of money and credit, NOT a fall in the general price level.”

But what happened in Japan appears to have been just that: a fall in price levels, not a sustained contraction in the money supply. [15]

Mr. Saville presents an ominous chart showing a steady decline in the yen-based gold price from 1990 to yearend 1995. But this timeframe does not accord with the “deflation-like” situation in Japan. It was not until 1992 that the rate of increase in M1 staged its sharp -- and short -- decline, from 8.8% to 1.9%. [16] And it was not until 1995 that the Japanese CPI first went negative; that is, what mainstream economists associate with the Japanese deflationary experience did not even begin until the last quintile in Mr. Saville’s chart, when yen-gold appears to bottom and stage a sharp recovery.

Second, the Japanese comparison ignores aggressive management of the gold price under the rubric of the “strong dollar policy” that began in earnest in the mid-nineties, precisely, it is held in some circles, because of the danger that Japan’s distress posed to the viability of the post-Bretton Woods fiat monetary system. [17]

Third, to consider in isolation the yen-gold price in the context of that still-functioning dollar-based global monetary system seems unlikely to yield analytically useful information. Gold is, and was during the period considered by Mr. Saville, priced globally in dollars. Accordingly, to show that it took fewer yen to buy gold is tantamount to showing that it took fewer yen to buy the dollars needed to buy gold; this ratio seems merely to be a more roundabout way of expressing the dollar-yen exchange rate.

In fairness, Mr. Saville freely concedes that the silver and Japanese examples are not ideal, but rationalizes their use with the observation that “they’re all we have” by way of empirical examples to suggest how gold is likely to behave in a deflation at a time when gold is not officially accepted as money. We disagree: the span considered by Professor Jastram included a number of suspensions, notably including those during the Napoleonic Wars and the First World War.

As noted above, Professor Jastram did not deem the official link to be relevant to his findings. And, for what it’s worth, our own view is that the current experiment in fiat money will turn out to have been just another suspension, and that some form of gold backing will be reintroduced to the currency unit within our lifetimes. We certainly can’t prove gold will return as official money. By the same token, however, Mr. Saville can’t prove it won’t.

Problems in Applied Theory

It is not just the thesis itself, or its components, or the examples adduced to support it, that give us pause. We are troubled also by the difficulty of applying it in the real world. Mr. Saville’s final observation, that gold can’t be a hedge against both deflation and inflation, clearly illuminates the issue. It is his position that if we are facing inflation, gold will be a good investment, but that if we are facing deflation, gold will be a poor investment. As he believes we are facing inflation, he recommends gold.

Let us ignore for present purposes the contrary holding of Professor Jastram’s work, and accept for the sake of argument the contention that things are indeed different since 1971.

There are two problems in applying the theory in practice. The first is semantic. If we’re going to make an important decision based on which intellectual category best fits the current environment, we’d better get our categories right. But how much reliance can we put on the integrity of the terms “inflation” and “deflation”? As we have seen even in this brief exercise, the terms mean different things to different people. Professor Jastram used a variant of the mainstream definitions.

Mr. Saville uses the Austrian (sustained contraction in money and credit) rather than the mainstream (lower prices) definitions of deflation. Marc Faber, in the investment letter in which Mr. Sheehan’s article was published, further distinguishes between asset inflations and consumer price inflations. While there’s a fair degree of overlap, there seems to be considerable scope for confusion.

The second is epistemological. Even if we get our categories down, how can we really know what’s going on out there? What is economic reality today? Our own view is that many economic statistics are politically motivated and transparently false, that much of what passes for market price discovery is political theater, and that the current investment landscape is little more than a reflection in a funhouse mirror in which all relevant information is savagely distorted.

But whether or not we are correct in that opinion, it is inarguable that there are many confusing cross-currents in today’s financial markets, such that even experts who spend all their time thinking about these things are at a loss as to which categories best fit the situation. We quote Doug Noland, a knowledgeable analyst who writes extensively on contemporary market phenomena [18]:

I have never experienced an environment with so many Major Uncertainties. Is the U.S. Bubble Economy slumping or in the midst of an intransigent inflationary boom? Are general inflationary pressures gaining critical mass, or is “deflation” waiting patiently to make its appearance?

If Mr. Noland is perplexed, what possible hope do the rest of us have of accurately discerning what’s happening?

Come Firewalk with Me

But our biggest problem with the inflation hedge thesis is that it takes our eye off the ball. The critical question today is not whether we face deflation or inflation, but whether and when we face monetary collapse. There was a time when just saying that would clear a room of decent, law-abiding citizens. We gold bugs had this sort of talk to ourselves. Today, however, a growing chorus of insiders is saying the very same thing, albeit in suit-speak. Consider the players and their statements:

Continues ...

[Rajiv]

Re: Resist or Become Serfs

I knew Roy (Jastram) well -- having been a teaching assistant for some of his courses. He was a real gold scholar!

[santafe2]

Re: Resist or Become Serfs

Well your buddy's wife is a smart gal, cause by the end of the day, silver will indeed be the new gold. It is scheduled to be depleted in minable quantities within 15-20 years and is today far scarcer above ground than gold and used in more industrial applications than all the other metals combined. It's interesting how difficult it is to convince anyone of that though. No-one believes it, because the prices are saying the exact opposite.

Luke, your assertion here took me back several years. I became interested in silver after the Buffet bounce 10+ years ago and a couple of years after that I became an early disciple of Ted Butler. I can still recite every major reason to own silver. But while it was a good investment, it turned out to just be one of many commodities that did very well in the early 2000s. After 2006 I began moving more into gold. You may know, the stuff is a lot more light per US$ cost. That's both a feature and a benefit...

[Guest]

Re: Resist or Become Serfs

I know Santafe2 - the bloom has come off that rose for me too and I lightened up on it a lot. But the story there looking 10-15 years out is truly awesome. Silver by 2020 will most likely not care a rat's ass whether we get hell or high water, boom, bust, inflation, deflation, fiat or gold standard, or any other damn thing. Silver going into genuine minable depletion would be a financialized commodities myth buster. Got to remind myself to have the patience to be owning a good quantity of it out there in 2017-2020.

I can just imagine Mega chiming in here: "Out in 2020!!!! F@&*k that mate - I don't have time to wait until 20 bleeding 20. I need silver and gold to go up to the moon - right the F@&*k now!!!!!??? If I have to hold this crap for ONE YEAR and it does not perform brilliantly for me, it is a CRAP investment!!!??? You hear!!??"

Luke, your assertion here took me back several years. I became interested in silver after the Buffet bounce 10+ years ago and a couple of years after that I became an early disciple of Ted Butler. I can still recite every major reason to own silver. But while it was a good investment, it turned out to just be one of many commodities that did very well in the early 2000s. After 2006 I began moving more into gold. You may know, the stuff is a lot more light per US$ cost. That's both a feature and a benefit...

[santafe2]

Re: Resist or Become Serfs

Mr. Saville uses the Austrian (sustained contraction in money and credit) rather than the mainstream (lower prices) definitions of deflation. Marc Faber, in the investment letter in which Mr. Sheehan’s article was published, further distinguishes between asset inflations and consumer price inflations. While there’s a fair degree of overlap, there seems to be considerable scope for confusion.

I don't find these points of view overlapping. At it's most basic level the Austrian macro view simply says that if the supply and velocity of currency is greater than the growth of an economy, inflation will follow. While there are lags in the follow-on events, this is mostly true.

That inflation may either attach itself to stuff or that it may attach itself to assets is a further distinction but this is built upon the above. Think of stuff and assets as consumables and stores of value.

What Faber is doing is distinguishing between consumables and stores of value. We tend to like asset based inflation but we don't like consumable based inflation. That's the good inflation / bad inflation paradigm.

Unfortunately we now going through a period where the thing inflating is currency. We don't like that because we see currency as a consumable.

[BrianL]

Re: Resist or Become Serfs

Same can be said for plenty of states. I don't know the sites biases, but here is a per-state breakdown from 1985 to 2005 of taxes vs government spending. There is plenty more to it, but some of the info is interesting.

http://www.taxfoundation.org/taxdata/show/22685.html

I'd love to see a comparison between net the federal tax/spending ratio and density of outrage over taxes. I really wonder how many of the demonstrators have a sense of what side their state is actually on.

In addition, I'd love to hear more from them about the specific budget cuts they'd make. It is one thing to complain that taxes are too high - it is another to build consensus on what services should be scaled back or terminated. And what ramifications will this have?

Until people start building a consensus on those questions, I can't see how the demonstrations are productive.

[ThePythonicCow]

Re: Resist or Become Serfs

Resist or Become Serfs by Chris Hedges

The great majority of Americans have become a liability to The Most Powerful. They have hollowed out our productive capacity. They have moved our mining, drilling and manufacturing to lower cost countries. They have hollowed out our financial strength with these cascading bubbles. They have sold our future prosperity and freedom down the river for the profits of greed and corruption. Their wealth lies elsewhere now; it has been globalized.

Whether or not I have a job flipping burgers for some real estate agent on her lunch break, or whether we are both out of work, doesn't really matter much to Them, so long as we don't get too uppidy.

I agree with the comments above encouraging a local focus. There is great strength of people and land and tradition here, which will survive the next few decades at least in many communities. The bigger stuff is rapidly going to h*ll, with the Powers That Be having less respect for us than the slaughter house manager does for the cattle passing through.

I just hope They don't find some use for our young men that involves getting hundreds of millions of people prematurely dead.

The essential moral question of the day is whether to presume that They will eventually find such a lethal use for our young men, unless we get uppidy now, even at the risk of our own life, liberty and property.

[petertribo]

Re: Resist or Become Serfs

For what it's worth, here's my free advice:
- If you haven't already, get your financial house in order. Don't be a monthly payment consumer. Set an example.
- Suggest to your family and friends that they do the same. Help them understand what that means.
- Be as self sufficient in your life as you can be. For me that was:

• Move out of a large city
• Sell the cars and consumer stuff with monthly payments
• Live and work within walking distance
• Be aggressive in buying locally to support your community
• Work with your local government to encourage them to live within their means
• Support local energy projects
• Speak regularly to various groups about ways to support the above.

For my family, that started over 12 years ago and it's been a process. For example, I used to commute an average of 200 miles a day in an SUV in Los Angeles. Now I commute 2.5 miles a day on a bike unless the weather is bad. That was a gradual change.

I'm not so interested in changing government at the national level. I think it starts with your local government and you should live somewhere where you can effect change. Everyone will have their own way of making changes and encouraging change in others but this way works for me.

Excellent post. I too have been at it for eighteen years. I have decoupled from the Centralized Monster as much as possible. I made a significant geographic move and lifestyle change. I have lots of alternatives to their centralized, debt ridden model.

And maybe a thread would be very suitable for "Support local energy projects" The last thing this Centralized System wants is for citizens to have control over their own energy. They want all the energy going through their large and antiquated transmission system. Thus all the proposals now are for the usual massive, TOO BIG TO FAIL energy plants and grids that keep the Debt Beast going on Wall Street.

I hope some company will soon produce off the shelf components with detailed documentation which can be used to build a home energy system. What I would call plug n' play. I know a fellow who bought a property cheap in the boonies because it had no power line in and there was no wiring in the farmhouse. With wind and solar he has his own energy system designed around his particular energy usage and needs. Plus he got a buy on the property because it was "undesirable" since it had no power line into it.

With such a small scale power system, one could then design a house to meld with that system rather than the traditional houses we have now with their cumbersome and costly wiring systems.

[flintlock]

Re: Resist or Become Serfs

While I suspect the Texas governor's antics are merely political grandstanding, I personally am open to the idea of secession if done right. People dismiss it outright without considering the possibilities. Not my first choice, but then I really don't see abolishing the Fed and term limits happening so what else does that leave?

[seanm123]

Re: Resist or Become Serfs

I think you're projecting onto the state of Texas your own sense of dependence on the federal government and the view that, without the federal government, we'd all be lost.

Did it ever occur to you that the federal government might be dependent in part on the state of Texas? In terms of federal taxes, Texas is a net contributor to the union. I wonder if they're getting their moneys worth.

There are plenty of nations smaller and less populous than Texas that seem to do just fine without an even larger bureaucracy lording over them.

Among the 50 states, Texas is the 8 most dependent on federal funds, with 35% of its total spending in 2006 coming from federal revenue.

Here is a breakdown, I doubt they could easily transition off of the Federal Government teat, the $150 Billion sent down to Texas from DC each year creates millions of jobs.

[Ted Q. Sipp]

Re: Resist or Become Serfs

May I recommend http://www.deserttacticalarms.com/

and

http://www.usoptics.com/

I hereby award 1 well earned eye-roll.

[flintlock]

Re: Resist or Become Serfs

The great majority of Americans have become a liability to The Most Powerful. They have hollowed out our productive capacity. They have moved our mining, drilling and manufacturing to lower cost countries. They have hollowed out our financial strength with these cascading bubbles. They have sold our future prosperity and freedom down the river for the profits of greed and corruption. Their wealth lies elsewhere now; it has been globalized.

Whether or not I have a job flipping burgers for some real estate agent on her lunch break, or whether we are both out of work, doesn't really matter much to Them, so long as we don't get too uppidy.

I agree with the comments above encouraging a local focus. There is great strength of people and land and tradition here, which will survive the next few decades at least in many communities. The bigger stuff is rapidly going to h*ll, with the Powers That Be having less respect for us than the slaughter house manager does for the cattle passing through.

I just hope They don't find some use for our young men that involves getting hundreds of millions of people prematurely dead.

The essential moral question of the day is whether to presume that They will eventually find such a lethal use for our young men, unless we get uppidy now, even at the risk of our own life, liberty and property.

You hit the nail on the head there. Average Joe is now seen as a liability pure and simple.