One hundred and fourscore years ago this month, President Andrew Jackson gave the following speech stipulating why he was closing the United States Bank.
A BANK OF THE UNITED STATES is in many respects convenient for the Government and useful to the people. Entertaining this opinion, and deeply impressed with the belief that some of the powers and privileges possessed by the existing Bank are unauthorized by the Constitution, subversive of the rights of the States, and dangerous to the liberties of the people, I felt it my duty, at an early period of my administration, to call the attention of Congress to the practicability of organizing an institution combining all its advantages, and obviating these objections. I sincerely regret that, in the act before me, I can perceive none of those modifications of the Bank charter which are necessary, in my opinion, to make it compatible with justice, with sound policy, or with the Constitution of our country.
Every monopoly, and all exclusive privileges, are granted at the expense of the public, which ought to receive a fair equivalent. The many millions which this act proposes to bestow on the stockholders of the existing Bank must come directly or indirectly out of the earnings of the American people. It is due to them, therefore, if their Government sell monopolies and exclusive privileges, that they should at least exact for them as much as they are worth in open market. The value of the monopoly in this case may be correctly ascertained. The twenty-eight millions of stock would probably be at an advance of fifty per cent, and command in market at least forty-two millions of dollars, subject to the payment of the present bonus. The present value of the monopoly, therefore, is seventeen millions of dollars, and this the act proposes to sell for three millions, payable in fifteen annual installments of two hundred thousand dollars each.
It is not conceivable how the present stockholders can have any claim to the special favor of the Government. The present corporation has enjoyed its monopoly during the period stipulated in the original contract. If we must have such a corporation, why should not the Government sell out the whole stock, and thus secure to the people the full market value of the privileges granted? Why should not Congress create and sell twenty-eight millions of stock, incorporating the purchasers with all the powers and privileges secured in this act, and putting the premium upon the sales into the Treasury.
It has been urged as an argument in favor of rechartering the present Bank, that the calling in its loans will produce great embarrassment and distress. The time allowed to close its concerns is ample; and if it has been well managed, its pressure will be light, and heavy only in case its management has been bad. If, therefore, it shall produce distress, the fault will be its own: and it would furnish a reason against renewing a power which has been so obviously abused. But will there ever be a time when this reason will be less powerful? To acknowledge its force is to admit that the Bank ought to be perpetual; and, as a consequence, the present stockholders, and those inheriting their rights as successors, be established a privileged order, clothed both with great political power and enjoying immense pecuniary advantages from their connection with the Government. The modifications of the existing charter, proposed by this act, are not such, in my views, as make it consistent with the rights of the States or the liberties of the people.
Is there no danger to our liberty and independence in a Bank that in its nature has so little to bind it to our country. The president of the Bank has told us that most of the State banks exist by its forbearance. Should its influence become concentered, as it may under the operation of such an act as this, in the hands of a self-elected directory, whose interests are identified with those of the foreign stockholders, will there not be cause to tremble for the purity of our elections in peace, and for the independence of our country in war. Their power would be great whenever they might choose to exert it; but if this monopoly were regularly renewed every fifteen or twenty years, on terms proposed by themselves, they might seldom in peace put forth their strength to influence elections or control the affairs of the nation. But if any private citizen or public functionary should interpose to curtail its powers, or prevent a renewal of its privileges, it cannot be doubted that he would be made to feel its influence.
Should the stock of the Bank principally pass into the hands of the subjects of a foreign country, and we should unfortunately become involved in a war with that country, what would be our condition? Of the course which would be pursued by a bank almost wholly owned by the subjects of a foreign power, and managed by those whose interests, if not affections, would run in the same direction, there can be no doubt. All its operations within would be in aid of the hostile fleets and armies without. Controlling our currency, receiving our public moneys, and holding thousands of our citizens in dependence, it would be more formidable and dangerous than the naval and military power of the enemy…
It is maintained by the advocates of the Bank, that its constitutionality, in all its features, ought to be considered as settled by precedent, and by the decision of the Supreme Court. To this conclusion I cannot assent. Mere precedent is a dangerous source of authority, and should not be regarded as deciding questions of constitutional power, except where the acquiescence of the people and the States can be considered as well settled. So far from this being the case on this subject, an argument against the Bank might be based on precedent. One Congress, in 1791, decided in favor of a bank; another, in 1811, decided against it. One Congress, in 1815, decided against a bank; another, in 1816, decided in its favor. Prior to the present Congress, therefore, the precedents drawn from that source were equal. If we resort to the States, the expressions of legislative, judicial, and executive opinions against the Bank have been probably to those in its favor as four to one. There is nothing in precedent, therefore, which, if its authority were admitted, ought to weigh in favor of the act before me.
If the opinion of the Supreme Court covered the whole ground of this act, it ought not to control the coordinate authorities of this Government. The Congress, the Executive, and the Court, must each for itself be guided by its own opinion of the Constitution. Each public officer, who takes an oath to support the Constitution, swears that he will support it as he understands it, and not as it is understood by others. It is as much the duty of the House of Representatives, of the Senate, and of the President to decide upon the constitutionality of any bill or resolution which may be presented to them for passage or approval as it is of the supreme judges when it may be brought before them for judicial decision…
It cannot be necessary to the character of the Bank as a fiscal agent of the Government that its private business should be exempted from that taxation to which all the State banks are liable; nor can I conceive it proper that the substantive and most essential powers reserved by the States shall be thus attacked and annihilated as a means of executing the powers delegated to the general government. It may be safely assumed that none of those sages who had an agency in forming or adopting our Constitution, ever imagined that any portion of the taxing power of the States, not prohibited to them nor delegated to Congress, was to be swept away and annihilated as a means of executing certain powers delegated to Congress…
Suspicions are entertained, and charges are made, of gross abuse and violation of its charter. An investigation unwillingly conceded, and so restricted in time as necessarily to make it incomplete and unsatisfactory, disclosed enough to excite suspicion and alarm. In the practices of the principal bank partially unveiled, in the absence of important witnesses, and in numerous charges confidently made, and as yet wholly uninvestigated, there was enough to induce a majority of the committee of investigation, a committee which was selected from the most able and honorable members of the House of Representatives, to recommend a suspension of further action upon the bill, and a prosecution of the inquiry. As the charter had yet four years to run, and as a renewal now was not necessary to the successful prosecution of its business, it was to have been expected that the Bank itself, conscious of its purity, and proud of its character, would have withdrawn its application for the present, and demanded the severest scrutiny into all its transactions. In their declining to do so, there seems to be an additional reason why the functionaries of the Government should proceed with less haste and more caution in the renewal of their monopoly…
I have now done my duty to my country. If sustained by my fellow citizens, I shall be grateful and happy; if not, I shall find in the motives which impel me ample grounds for contentment and peace. In the difficulties which surround us and the dangers which threaten our institutions there is cause for neither dismay nor alarm. For relief and deliverance let us firmly rely on that kind Providence which, I am sure, watches with peculiar care over the destinies of our republic, and on the intelligence and wisdom of our countrymen. Through His abundant goodness, and their patriotic devotion, our liberty and Union will be preserved.
President Andrew Jackson
Speech to Congress
July 10, 1832
Dear Citizen, and I include ALL my Leftist friends who I saw celebrating the Supreme Court’s decision yesterday. Have you even READ the damn thing? Shame on each and every one of you, and if you did, and are still supporting this pernicious bill to stand as the Law of the Land, I guess I have just inherited have a full-blown “enemies list” already built into my own Internet empire, so to speak. I have checked with Scopes on a few on these items, and yes, there is some right wing extrapolation to meet the challenge of left wing sneakiness. All sides will cry foul, but it's worth a perusal. This health bill is just plain awful, if not thoroughly evil, and surprise, surprise, my little darlings, explain to me (AS IF I DIDN'T ALREADY KNOW) why sharia-spirited Muslims and Congress are exempt...
If you have read all 2700 pages of THE AFFORDABLE HEALTH CARE ACT (for reasons of subversion I shall no longer refer to this document as Obamacare), I would not be jumping the shark to surmise that each of you are aware of the following conditions, and now a willing slave in chains and in spirit to Federal government in all its myriad of forms:
Page 29: Admission: your health care will be rationed!
Page 30: A government committee will decide what treatments and benefits you get (and, unlike an insurer, there will be no appeals process).
Page 42: The "Health Choices Commissioner" will decide health benefits for you. You will have no choice. None
Page 50: All non-US citizens, illegal or not, will be provided with free healthcare services.
Page 58: Every person will be issued a National ID Healthcard.
Page 59: The federal government will have direct, real-time access to all individual bank accounts for electronic funds transfer.
Page 65: Taxpayers will subsidize all union retiree and community organizer health plans (example: SEIU, UAW and ACORN).
Page 84: All private healthcare plans must participate in the Healthcare Exchange (i.e., total government control of private plans).
Page 91: Government mandates linguistic infrastructure for services; translation: illegal aliens.
Page 95: The Government will pay ACORN and Americorps to sign up individuals for Government-run Health Care plan.
Page 102: Those eligible for Medicaid will be automatically enrolled: you have no choice in the matter.
Page 124: No company can sue the government for price-fixing. No "judicial review" is permitted against the government monopoly. Put simply, private insurers will be crushed.
• Page 127: The AMA sold doctors out: the government will set wages.
• Page 145: An employer MUST auto-enroll employees into the government-run public plan. No alternatives.
• Page 126: Employers MUST pay healthcare bills for part-time employees AND their families.
• Page 149: Any employer with a payroll of $400K or more, who does not offer the public option, pays an 8% tax on payroll.
• Page 150: Any employer with a payroll of $250K-400K or more, who does not offer the public option, pays a 2 to 6% tax on payroll.
• Page 167: Any individual who doesn't have acceptable healthcare (according to the government) will be taxed 2.5% of income.
• Page 170: Any NON-RESIDENT alien is exempt from individual taxes (Americans will pay for them).
• Page 195: Officers and employees of Government Healthcare Bureaucracy will have access to ALL American financial and personal records.
• Page 203: "The tax imposed under this section shall not be treated as tax." Yes, it really says that.
• Page 239: Bill will reduce physician services for Medicaid. Seniors and the poor most affected."
PLUS: OBAMA'S DARING MARK OF THE BEAST
There's a jarring, startling thing in the Obamacare Bill that 95% of Americans won't like.
The Obama Health care bill under Class II (Paragraph 1, Section B) specifically includes ‘‘(ii) a class II device that is implantable." Then on page 1004 it describes what the term "data" means in paragraph 1, section B:
14 ‘‘(B) In this paragraph, the term ‘data’ refers to in
15 formation respecting a device described in paragraph (1),
16 including claims data, patient survey data, standardized
17 analytic files that allow for the pooling and analysis of
18 data from disparate data environments, electronic health
19 records, and any other data deemed appropriate by the
What exactly is a class II device that is implantable? Lets see...
Approved by the FDA, a class II implantable device is a "implantable radio frequency transponder system for patient identification and health information." The purpose of a class II device is to collect data in medical patients such as "claims data, patient survey data, standardized analytic files that allow for the pooling and analysis of data from disparate data environments, electronic health records, and any other data deemed appropriate by the Secretary."
This sort of device would be implanted in the majority of people who opt to become covered by the public health care option. With the reform of the private insurance companies, who charge outrageous rates, many people will switch their coverage to a more affordable insurance plan. This means the number of people who choose the public option will increase. This also means the number of people chipped will be plentiful as well. The adults who choose to have a chip implanted are the lucky (yes, lucky) ones in this case.
CHILDREN'S HEALTH INSURANCE PROGRAM = CHIP
Children who are "born in the United States who at the time of birth are not otherwise covered under acceptable coverage" will be qualified and placed into the CHIP or Children's Health Insurance Program (what a convenient name). Children conceived by parents who are already covered under the public option will more than likely be implanted with a chip by the consent of the parent. Eventually everyone will be implanted with a chip. And with the price and coverage of the public option being so competitive with the private companies, the private company may not survive.
We actually applaud this surprising move by former Wisconsin Democratic senator Russ Feingold (recall that Feingold was swept out of office last year in a tsunami of Tea Party expression). Just in case you're keeping score, here's the opening shot in the corporate corruption wing of the Obama School of Economic Whatevers:
IT'S EVERYTHING THAT'S WRONG with corporate power today: News broke last week that General Electric, America’s largest corporation, made $14,200,000,000 in profits last year and paid $0 in taxesthat’s right, zero dollars in taxes. At the same time, C.E.O. Jeffrey Immelt saw his compensation double. Now I hear that GE is expected to ask 15,000 of their unionized workers to make major concessions in wages and benefits.
But what really adds insult to injury is the prestigious and influential position Jeffrey Immelt holds as chair of President Obama’s Council on Jobs and Competitiveness. That’s wrong. Someone like Immelt, who has helped his company evade taxes on its huge profitsand is now looking to workers to take major pay cuts after his compensation was doubledshould not lead the administration’s effort to create jobs.
We cannot stand by and watch while we are led down this road. Mr. Immelt must step down from the president’s jobs paneland if he won’t, President Obama needs to ask for his resignation.
Help us build public pressure on GE’s Jeffrey Immelt to step down or President Obama to get his resignation from the jobs council: Sign our petition at www.ImmeltMustGo.com today!
Jeffrey Immelt is a crook and a thief. There are many like him, but for now, we are criticizing this one. He and the president seem to have a lot in common, and appear to be the best of buds.
How can someone like Immelt be given the responsibility of heading a jobs creation task force when his company has been creating more jobs overseas while reducing its American workforce? And under Immelt’s direction, GE spends hundreds of millions of dollars hiring lawyers and lobbyists to evade taxes. All of this at a time when Fox News and the right wing are demonizing public workers, like teachers, as the cause of our economic problems.
It’s time for policymakers to stop coddling corporate interests, and get to work creating jobs and wealth for Main Street. We shouldn’t reward wealthy CEOs and Wall Street for behavior that undermines the nation’s economy.
Be a part of this meaningful fight. Help us tell President Obama that if GE isn’t paying taxes or treating workers well, Immelt Must Go!
President Obama has been talking about how we must “win the future,” and I agree with him in that goal. Jeffrey Immelt is not the person for that job.
Thanks for uniting as a progressive,
Feingold, despite his generally far leftist stance on most issues, this time is right on the mark. Serenedipity. Sort of like when far leftist Dennis Kucinich and libertarian Ron Paul find themselves arguing for the same crucial point in the House. As aggressive constitutionalists, we usually find Mr. Feingold's progressive recipe for success instinctively less than desirable, having no faith in Big Government to look after my own best interests, for richer or poorer, in sickness or in health, but when it comes to the wildly dishonest, greed-gorged antics of corporate raiders who loot the land and its people without conscience, I have no choice but to drop my shoulders just enough to service my own burden and to join the call for immediate corrective measures. We call for simple and plain considerations. This just looks bad.
Jeffrey Immelt is a crook and a thief. There are many like him, but for now, we are criticizing this one. He and the president seem to have a lot in common, and appear to be the best of buds.
This nation, however, struggling against a global economic bully called the deficit, might stand a fighting chance to recover from what ails us if both men retired to their next roles as men of leisure, formerly of a certain public prestige. But since it is easier to dismiss Mr. Immelt from his awkward position right now, dismissal is exactly what should be done.
WITH ARTICLES LIKE THIS COMING OUT of Time magazine, it is inevitable that in the immediate future, the United States will be split into two partisan camps. However, this will not be the traditional schism of republicans vs. democrats, contrary to Mr. Barney Frank’s attempt to start ideological partisan warfare.
The taxpayers are becoming angrier and angrier at the net present value destruction of future opportunities of being a U.S. citizen, while investors cheer every piece of information (whether or not supported by facts) that provides a push to their current net worth, ignorant of what this may mean for the future.
There will come a point where this schism reaches a boiling point, in the meantime, the paradox is that so many of the taxpayers are also investors, who are caught in a tug of war with themselves on what the proper response to the crisis should be: happy as a result of bear market rallies, or sad when they put the facts into perspective.
What began as government social tinkeringwith implied threats to banks and mortgage companies to extend home loans to even the most marginal of borrowersled to a greed-blinded mortgage banking business and the meltdown we are experiencing today. Now we are asked by the same congressional leadership to go along with taxpayer-funded bailouts of the very banksters who, while making millions, created the mess..
Despite the trillions of dollars already expended recapitalizing banks, there is very little, if any, progress to show. Will a few trillion more do the trick? That seems to be the consensus among Congress and the banks. "They are simply too big to let fail," or are they really just too big to save? We can go back to "Plan A" and buy the toxic assets. If so, at what price? What if a few trillion does not remove enough toxic waste from the system or doesn't get credit flowing again and the economy bustling?
Some argue that it is time to help Main Street, not Wall Street. So, we should "forgive" some of the mortgages for those who are 90 days or more behind on their payments. Have you quit paying yet?
If we are to save bankers, shouldn't we at least distinguish between those who possess the intelligence to renegotiate their loans to workable terms? If we are to save homeowners, should not we first define the term "homeowner?" Perhaps it is not only someone who agreed to and signed a mortgage and is living in a house. Just perhaps, it should also include the stipulation that this individual paid some amount of a down payment: 20%, 5%, a dollar. I can tell you who is not a homeowner. It is not someone who paid zero down and ridiculously low payments for two years; that, my friend, is a renter.
The problem with all these ideas is the money is only directed at those who created or benefited from the problems. Why not attack the situation in a manner that will benefit most everyone, an approach that has been successful before and, when compared to the current course, has little downside?
Here it is. Stand back. World currencies should be devalued overnight.
It can be done on a country-by-country basis, but a coordinated devaluation would work best. A devaluation of 30% would raise the dollar value of all assets by 43%. A $200,000 home with a $230,000 mortgage would become a $286,000 home with the same mortgage. Presto! The homeowner who was $30,000 upside-down now has $56,000 equity and a good reason to make his payments. Both the homeowner and the bank are immediately better-off.
Banks would be paid with devalued dollars, but they made millions creating the mess. The current use of government stimulus through the creation of dollars will certainly lead to a similar or worse devaluation, so this is likely a net gain for the banks too.
It would even benefit those who purchased their homes responsibly, as the value of their homes would rise by the same 43%. The current course of throwing trillions of dollars at the culprits is without any benefit to those who acted responsibly.
Admittedly, this is not a solution without the price of inflation, but the inflation would be short-lived. The current course will ultimately cause massive inflation that cannot be accurately estimated, and it may not even solve the problem. Currency devaluation proved effective in ending the Great Depression. In 1930, Australia was the first to leave the gold standard, immediately devaluing the aussie by more than 40%, and the economy quickly recovered. New Zealand and Japan followed suit in 1931, each with the same result. By 1933, at least nine major economies had enacted a devaluation of their currency by removing it from the gold standard, all of whom emerged from depression.
In 1933, through a series of gold-related acts, culminating in the Gold Reserve Act of 1934, America realized a dollar devaluation of 41% when the price of gold was adjusted from $20.67 per ounce of gold to $35 per ounce. America, like the others before, had its economy bottom and recover as a result. Of the larger economies, only the French and Italians continued to adhere to the gold standard, and their economies remained depressed until finally, in 1936, they allowed their currencies to devalue, and their economies then recovered.
I see no reason to believe we would have any different result today. Only debt would remain the same. All other assets would immediately be worth more (in nominal terms), whether it be a home, a stock, an ounce of gold or a used car. Bank balance sheets would immediately improve, as many loans would be moved from non-performing to performing status. Banks would be paid with devalued dollars, but they made millions creating the mess. The current use of government stimulus through the creation of dollars will certainly lead to a similar or worse devaluation, so this is likely a net gain for the banks too.
Businesses would instantly become more profitable, and workers' pay would increase, allowing each to pay their debts more easily, even while sending more tax dollars to Washington, without raising tax rates. As assets are sold, the capital gains would send even more taxes to Washington. States and locales would receive more revenue via sales and property tax, improving the fiscal condition of school districts and local governments. The national debt would effectively be reduced by the same 25%, giving future generations a chance. Combine the move with a congressional pledge to only raise the budget by half the devaluation, and we could be on track for a balanced budget and paying down the debt.
As the old Saturday Night Live skit said, "Think of inflation as your friend. Wouldn't you like to wear $1,000 suits and smoke $100 cigars?" I know I would.
Frank Beck is Chief Investment Manager of Capital Financial Group and ProPlayer Investing in Austin, Texas, an affiliate of Partnervest Securities of Santa Barbara, Calif. Mr. Beck may be reached at Frank@FrankBeck.com.
Alan Caruba writes in the Canada Free Press that now is the time to actively call for the impeachment or resignation of the current POTUS. While we agree that the list of concerns about Barack Obama is long and severe, we also realize that in the current political climate, the kool-aid nectar still flows freely among true believers of the Obama Blitz, serving a spacious terrain littered with nervy blind followers who deny all evidence of corruption no matter how keen the odor.
As this 44th American President continues to dismantle the engines of capitalism and personal liberty, flooding the statist coffers with phony dollars, killing jobs, the economy, the future, the successes of the past, while consistently bad-mouthing on foreign soil the nation he is sworn to protect, insulting our allies and cozying up to our enemies, secure behind glaring but secret flaws and persnickety details of an incendiary public life the media helped him hide in plain sight like so many brightly painted eggs scattered along the campaign trail...
IERE'S A QUESTION I would pose to you. If the Supreme Court can act within days to approve the sale of Chrysler to Fiat, why can it not act to hear cases filed months ago regarding whether President Obama is a “natural born” citizen of the United States? Why have some lower courts refused to hear such cases citing that the parties bringing them, citizens under the rule of the Constitution, have no “standing” to do so?
The Supreme Court is famous for trying to dodge such cases. The likelihood of impeachment is zero because Democrats control Congress and only one President ever resigned from office and that was Richard M. Nixon. It took an excruciatingly long time to reach that point as anyone who lived through the Watergate scandal will tell you. The nation was shocked to learn that a President engaged in a criminal enterprise while in office.
What we have is a President who is running the government through an invisible network of people who are not answerable to the citizens of the nation, yet granted powers to determine the extent of the rights of those citizens including how much compensation they may receive.
The question of preserving and protecting the Constitution would be hard to prove except in hindsight, but by then it would be too late for the nation, ruined by excessive, unjustified taxation and borrowing that threatens the collapse of the economy.
I would argue that a President who appoints over twenty “czars” to supersede the powers of the secretaries of various federal departments; people who are apparently exempt from Congressional approval or oversight, and people who apparently do not feel the need to hold press conferences to explain what they are doing, is distinctly unconstitutional.
It will be argued that there have been various such “czars” in the past, mostly particularly “drug czars” whose purpose was to oversee and coordinate efforts to address the nation’s problems with illegal drugs, but the imposition of people to virtually replace members of the President’s cabinet is unprecedented. Cabinet officers must receive the approval of Congress, but these “czars” have not.
Even the Secretary of State, Hillary Clinton, has been reduced to a mere figurehead as various personal envoys of the President have been authorized to act for him regarding sensitive diplomatic affairs, answerable presumably only to him. What we have is a President who is running the government through an invisible network of people who are not answerable to the citizens of the nation, yet granted powers to determine the extent of the rights of those citizens including how much compensation they may receive.
This is a President who has said during a C-Span interview that the government is out of money, but who is pressing forward for legislation to impose trillions in taxes on all energy use, who advocates the borrowing of tens of billions by the nation for a proposed healthcare “reform”, and who has already signed a so-called stimulus bill of nearly 9,000 items representing $700 billion that he deemed “imperfect.”
Ie have all watched the President in action since January 20, 2009 and what we have seen and heard has been constant criticism of America that has been an affront to our great history and our defense of human rights. He has done this in one foreign nation after another.
Americans who are fearful of the havoc President Barack Obama has let loose on this nation need to flood Congress with the demand that he be removed from office for his failure to protect, preserve, and defend the Constitution.
A speech in Cairo to the worldwide Muslim community President Obama distorted the facts of American history and conflated the deliberate murder of six million European Jews in the last century with the suffering inflicted on so-called Palestinians by their fellow Arabs; the result of repeated wars on Israel. No such comparison can be made and is by definition obscene.
Within months, “tea parties”, citizen protests, occurred from coast to coast and others are being planned for July Fourth. Not since the advent of the Civil War under threat of secession has a President faced such widespread opposition after taking office.
In State after State, resolutions are being passed in opposition to his proposed legislation and policies. An organization of “Oath-Keepers”, members of the U.S. military, the reserves, the National Guard, peace officers, and veterans, has emerged to say they will not blindly “follow orders” issued by this President that are contrary to the oath to uphold the Constitution they have taken.
This is a President whose Department of Homeland Security has defined as “extremist” anyone who criticizes or disagrees with his policies.
Americans who are fearful of the havoc President Barack Obama has let loose on this nation need to flood Congress with the demand that he be removed from office for his failure to protect, preserve, and defend the Constitution. Indeed, to conclusively prove he was constitutionally qualified to run for the presidency.
The White House has to hear from Americans calling on the President to resign.
Frankly, one of the most discouraging coup d'etats that this wicked administration has committed has been the usurping of the census mechanisms, grabbing controls for the executive branch and its sorry powers of "estimating people" whereas we favor the traditional method of an aggressive head-count. As many have pointed out, this power grab is a deception geared to overlooking massive illegal aliens of various stripes while packing the numbers aimed at boosting beyond their natural numbers certain preferred groups clamoring for tax and other stealth special interest favors.
This is highly irregular for our nation of laws, and needs to be stopped, but probably won't. After all, these smarty pants leftists are convinced that the US Constitution is mere yellow parchment, a quaint curio of the past, a surreptitious political document that failed. A debatably unAmerican Barack Obama, in this viewpoint, has come to sever America from her sordid past. End of story. All praise to Mister Obama...
GARY NORTH not only has skin but he also has his head in the monetary game. Read this informative article, and prepare yourselves for the likelihood of a continuation of global financial distress. In the meantime, you may want to subscribe to his newsletter.
Issue 847 April 10, 2009
THE GOLD WAR: Will You Lose It? If you own gold, you are in a war. You are under assault. You had better figure this out early. There is a full-scale war against you. The politicians and central bankers who are conducting this war against you are determined to see that you lose money on your investment.
I have written a detailed report on this: "The Gold Wars." You can download it free of charge here: The reason why you are under assault is because you have demonstrated by your purchase of gold or a gold-related investment that you do not trust the monetary policies of your nation's central bank. If you are an American, this means you do not trust the monetary policies of the Federal Reserve System. You have taken a step that confirms your lack of trust in the government and its central bank. If you think the government and the central bank will sit quietly, while millions of citizens buy gold as a way to hedge against government and central bank policies, you are terminally naive.
A PERPETUAL WAR
Governments and central banks for almost a century have done whatever they could to keep citizens from using gold as a way to hedge their economic futures against the taxation policies of the government and the inflation policies of central banks.
The war escalated a few days after the outbreak of World War I in August of 1914. At that time, central banks authorized commercial banks to cease redeeming paper money for gold at a fixed rate of exchange. For most of the world, that prohibition extended during the war, after the war, during the Great Depression, during World War II, up to today.
The United States government forbade American citizens from owning gold, beginning in 1933 and extending to the end of 1974.
Today, no government is restrained by a gold standard. No government, no central bank, and no commercial bank is required by law to redeem paper money or bank accounts for gold at a fixed rate of exchange.
This has freed governments and central banks from the limit which the traditional gold standard had imposed on them. When they inflated the currency, people who understood what was going on would go to their local bank and exchange paper money or bank account entries for gold or silver coins. They understood that the increased money supply would lead to a rise in prices, and that gold would flow out of the commercial banks and the central bank of the nation in question. They lined up early to get their gold, so they would not be stiffed by the commercial banking system and the central bank, which they knew would be the case if the central bank continued to inflate the currency.
People who own gold coins are skeptics regarding the fiscal and monetary policies of the government. There are people who buy gold as a temporary speculation, the same way that they would buy copper, but I am talking about people who buy gold coins and take delivery. These people are professional skeptics regarding governments and central banks. They are the sworn enemies of governments and central banks. The very fact that they would go to a coin store and purchase bullion gold coins testifies to their lack of trust in governments and central banks.
Politicians and central bankers regard such people as enemies of the state. They will do whatever is possible to impose losses on these people, so that others in the society will not perceive that those who are skeptics about government fiscal policies and central bank monetary policies are making money. The worst thing that can happen from the point of view of a government or central bank is the people who are completely skeptical about governments and central banks should get rich as a result of the policies of governments and central banks.
The goal of the politicians and central bankers to make certain that the public is anesthetized regarding the disastrous effects of severe monetary inflation on the wealth of individuals. A rising price of gold sends a signal to those members of society who trust the integrity and good judgment of politicians and central bankers. The signal says: "Skeptics are making money. You're losing money. Buy gold."
FROM JOHNSON TO OBAMA
The government of the United States has had a problem with gold-buying skeptics ever since the Vietnam War. Late in Johnson's administration, foreign central banks, especially the central bank of France, began cashing in dollars and demanding delivery of gold at $35 an ounce. This led to a gold run on the Treasury, which was in effect a gold run on the Federal Reserve System. This sent a signal to investors that central banks no longer fully trusted the United States government to be able to meet its contractual obligations to governments and foreign central banks.
Nixon closed the gold window on August 15, 1971. He broke contract with all foreign nations and central banks. He did exactly what the skeptics had predicted that the government would do: refuse to deliver gold at $35 an ounce.
That sent a signal to investors that the Nixon administration was going to require the Federal Reserve System to inflate the currency. This is exactly what the Nixon administration did. So did Carter's. The 1970s were the worst period of price inflation in peacetime American history.
By the end of the decade, January 1980, gold rose for one day above $800 an ounce. But the central bank under Paul Volcker had reversed policy in October of 1979. The Federal Reserve began to tighten money. This led to the collapse of gold and silver prices in January 1980, and also to the 1980 recession. That cost Jimmy Carter his presidency.
There is a legitimate way for central banks to fight gold and inflict losses. The way to do this is for central banks to stop increasing the money supply. That is a perfectly legitimate policy. That is what the traditional gold standard required of central banks. When central banks followed policies of monetary inflation, and the price of gold rose as a result, the run on gold would begin.
Paul Volcker fought gold investors from 1979 to 1982. The Federal Reserve reduced the increase of the money supply. This was what the traditional gold standard always did. It forced central banks to stop inflating. If they did not stop inflating, there would be a run on the supply of gold by a small minority of investors. They would bring in IOUs to gold and take their gold home.
Central bankers do not want to fight gold investors in this way. They want to continue to expand the money supply but not face the consequences in the arena of public opinion. They seek ways to force down the price of gold because the price of gold is an indicator of central bank monetary policy. Central bankers today have a number of anti-gold investor policies.
ANTI-GOLD INVESTOR POLICIES
The most common policy is to lease gold to a specialized group of insiders known as bullion banks. The central banks call this leasing, but it is operationally a form of gold sales.
The central bank leases gold at well under 1% per annum to bullion banks. Bullion banks then sell the gold into the private market, take the money, and invest it in government bonds or other investments that pay far more than 1% per year.
That gold is gone. To get the gold back, the central banks would have to demand payment in gold by the bullion banks. The bullion banks could not repay this gold without going into the gold market and purchasing it. This would drive up the price of gold. It would bankrupt the bullion banks.
So, central banks do not require the bullion banks to repay the gold which the bullion banks borrowed from the central banks. The central banks simply roll the loans over, year after year, and the bullion banks invest the money that they get from selling the gold. These central bank sales are not recorded as sales by the central banks. The public remains oblivious.
The central banks maintain the fiction that they still own the gold. They report their holdings of gold as not having changed. But, from an economic standpoint, the gold is gone, and there is no possibility of central banks will ever get it back from the bullion banks.
Another way that central banks and governments battle investors in gold is to announce, from time to time, that the central bank is contemplating the sale of gold. This scares some gold investors, who sell their goal. Of course, other investors who know the name of the game buy the gold. By threatening to sell gold, central banks are attempting to push down the price of gold.
The latest example of this came at the G20 meeting on April 2. An announcement was made that the International Monetary Fund will make available special drawing rights (SDRs), which will serve as money for central banks. To raise some of this money, the IMF will sell some of its gold. That was the official announcement.
The IMF has been threatening to sell gold for several years. To do this takes a majority vote of the member nations of the IMF. It is clear that the member nations are willing to allow the IMF to do this. Previously, this was not clear.
The figure quoted by the press regarding the amount of gold be sold is 400 tonnes. World production of gold each year is in the range of 2500 tonnes. It is unlikely that the IMF will sell all of this gold at the same time. It is likely that these sales will be stretched out over at least a two-year period. So, the sales are likely to increase the supply of available gold by perhaps 8% for two years. In a time when central banks are increasing the monetary base by 100% per annum or more, this increase in the supply of gold available for purchase is not substantial.
There is another issue to consider. It is likely that most of this gold will be purchased by other central banks. If this should turn out to be the case, then the actual supply of gold coming into the public domain will not change. Nevertheless, the announcement was made that these sales will take place. This put downward pressure on the price of gold.
Why would a central bank or the IMF say in advance that it planned to sell a large portion of its gold holdings? When a large holder of commodities is going to sell the commodity into the open market, he does not announce this in advance. His goal is to maximize the amount of money he gains by the sale of the asset. If he warns the world in advance how much he plans to sell and over which time period, this will depress the price if the sale constitutes a significant quantity. It is economically irrational for a seller of commodity to say in advance how much she plans to sell. I say "economically irrational" on the assumption that the goal is to make a profit. But if the goal is not to make a profit, but rather to inflict economic harm on people who hold a particular commodity as an investment, the announcement makes eminently good sense.
The fact that the IMF sale was announced by the IMF for years preceding the G20 meeting, and the fact that it was announced at the G20 meeting, indicate the degree of the hostility of the IMF and the central bankers to people who invest in gold. They were willing to take a loss in terms of the amount of money they could have obtained for the gold by quiet, unannounced sales.
They are willing to take this loss because they believe that it is more important to create uncertainty in the gold market than it is to maximize the amount of fiat money gained by the sale of gold. So committed are these people to inflicting financial losses on gold investors that they are willing to suffer hundreds of millions of dollars of losses. After all, it's not their money.
The classic example of this was Gordon Brown's decision in the late 1990s to sell half of the gold reserves held by the Bank of England in trust for Great Britain. In terms of today's price of gold, his decision cost the government something in the range of $10 billion. He drove down the price of gold to a little under $260 an ounce in 2001. He inflicted damage on a tiny minority of investors in gold, and he inflicted enormous damage on economic reserves of his country. He did this as Chancellor of the Exchequer. Today, he is the Prime Minister. He is now pressuring the Bank of England to inflate at unprecedented rates in order to save the banking system.
Any suggestion that Gordon Brown understands economics is laughable. Any suggestion that Gordon Brown is envious against investors in gold seems to be substantiated by his public career. He is representative of virtually every national politician and every central banker. He hates the fact that investors in gold can drive up the price of gold, thereby embarrassing the government and the central bank.
The rising price of gold warns the general public that the government's tax policies and the central bank's monetary policies cannot be trusted. Worse, a rising price of gold transmits the availability of a profit opportunity: get rid of fiat money and purchase gold.
Politicians and central bankers are frantic today to keep the general public from being aware of the enormous increase this taken place in the monetary base of every Western industrial nation. They do not want the public to perceive that the central banks are in panic mode because of the disaster has taken place in commercial bank balance sheets. Large commercial banks around the Western world are bordering on bankruptcy. Central banks and governments are intervening frantically to keep the banks' doors open, in order to keep the public confused about the implications of the worldwide economic recession that has come as a result of worldwide monetary expansion by central banks from the year 2000 until 2004.
PRICES CONVEY INFORMATION
Prices convey information about economic conditions. The price of gold conveys information about the likelihood of future price inflation. This information governments and central banks want to distort. They do this by manipulating the price of gold through leases that are actually sales and sales that are announced in advance.
When an individual invests in gold, he is making a statement. He is saying that he does not trust the powers that be. The powers that be deeply resent this. So, an individual who actively takes steps to increase the price of gold, which he does by buying it, should be aware in advance that he and people like him will be the targets of deception, envy, and ridicule. Buying gold is not the same as buying other commodities. Other commodities are not perceived as touchstones of central bank monetary policy. The price of gold is, even though most of the gold in private hands winds up as jewelry to be used in dowries in India. Far more than central banks, Indian fathers set the price of gold. At the margin, however, central banks do affect the price of gold.
With the rising productivity of India, the gold market has received a long-term increase in demand. This can be offset by the worldwide recession, which is now in progress. When Indian fathers decide that times are getting better, they will start buying gold again. Today's policies of monetary expansion, which lower real wages and therefore get people back to work, will begin to affect the worldwide labor markets. This will increase the demand of gold in India.
It is unlikely that a tradition governing marriage that has prevailed for thousands of years is likely to change just because a relatively small fraction of the Indian population has moved into modern urban capitalism. On the contrary, there is likely to be increased demand for gold, because fathers will be enabled to purchase more gold for their daughters than before because they are making more money than ever before.
This is why the attempt of governments and central banks to lower the price of gold will backfire. Eventually, governments will run out of gold to sell, and so will the IMF. They will run out of gold to lease. While I do not think the politicians will ever catch on to the fact that their nations' gold is gone, leaving only IOUs for gold written by bullion banks that are on the verge of bankruptcy anyway, I do think that at some point the central banks will stop leasing gold. They will stop leasing it because they will not have enough to lease to substantially affect the price of gold.
I do not think the central banks will ever demand repayment of their gold by the bullion banks. The bullion banks would simply declare bankruptcy, and be done with it. That would publicly expose the central bankers as economic idiots, which happens to be the case, and the idiots don't want the bad publicity. So, the gold is gone, and the public will not find out that the gold is gone. The gold is nevertheless gone. Gone in the sense of outside of control by central banks. It is inside the dowries of women in India and a small handful of goldbug investors.
At some point, the number of investors who figure out that they had better buy gold is going to go from less than 1% of the public to 5%. When that happens, the supply of gold will not increase, and the price of gold will skyrocket. If as many as 10% of the investing public tries to put 10% of their assets in gold, I suspect the price of gold would go to $10,000 an ounce. The gold market is so marginal in the overall commodities market that the attempted 10% of investors to increase their holdings of gold to 10% of their assets would make today's holders of gold very rich and very happy. I think at some point this is going to happen, but I think it is going to happen in a time of price inflation so bad that the purchasing power of the currencies will decline so fast and so far that the fact that you can get rich in fiat money by selling your gold will not persuade you to sell your gold.
Who is going to win the gold wars? Holders of gold. The big winners will be Indian wives whose fathers gave them a lot of gold as a dowry. The rest of us gold bugs will also do well. The general public will never catch on in time, and by the time that it occurs to even 10% or 20% of investors that they’d better buy gold, it will cost them so much to get into the market that they will not make the kinds of profits that today's gold investors are going to make.
Governments and central banks can continue to fight the gold war by means of gold leasing, outright gold sales, and threats of gold sales, but for as long as they inflate the money supply to obfuscate the price of economic depression, they will be running out of ammunition. They are in a war in which ordinance is in fixed supply. They cannot go into the gold market and replenish the supply of gold without driving up price of gold.
Central banks are expanding the money supply, which is providing ammunition for those of us who want to fight the gold war by buying more gold. In contrast, central banks are not expanding their holdings of gold, but rather depleting them, and so they will not be able to fight this fight indefinitely.
They may be able to fight it for as long as the threat of recession hangs over the world economy. But when the recession ends, or appears to end, as a result of the massive monetary inflation and massive deficits that the governments of the world are running, there will be a new market for gold that is unprecedented in its intensity.
This does not mean that everybody is going to buy gold. It probably does not mean that even 20% of investors will buy gold. All it will take is about 10% of investors to decide to put 10% of their holdings in gold. Governments and central banks are going to lose the war on gold because they refuse to fight gold by the one technique that can give them victory: stop printing money.
As you may well perceive, there is much more to say on this vital topic. Read more here.