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The Daily Reckoning
As if it were not strange enough! Microsoft bought a phone company with no phones for $8.5 billion. Then, the public bid up the price of another Internet company, LinkedIn, to the point where buyers were paying more than $20 for every dollar of revenue that came the company’s way. As for profits, they capitalized each one at more than 700 times. At this rate, an investor wouldn’t earn his money back until 2,711AD.
He will need luck. People don’t usually live that long; especially crazy people.
But oddities are so common now; it is as if every man you pass on the street had two heads. One out of every four American homeowners owes more on his house than it is worth. Even in desert cities, such as Las Vegas, more than 70% are underwater. Nationwide, house prices are down 33% from their peak and still falling at 1% per month. That is, the typical homeowner loses about as much on his house as he takes home from his job.
And last week, Dominique Strauss-Kahn was arrested. Who can deny that we live in a remarkable era? Odder than the charge against him was the fact that he was locked up for it. Bankers are used to getting bonuses for that sort of thing. On DSK’s watch, the IMF’s loans outstanding increased 10 times. Poor Greece was stuck with another $42 billion it couldn’t possibly repay. But at least he took the Greeks to dinner!
Richard Nixon changed the world’s monetary system back in 1971, cutting off the dollar from gold. He did it on prime time television. But the US dollar had been a reliable store of value for so long, few people imagined anything else. Only a few hard-bitten cynics, philosophers and monetary historians noticed that something very important had happened. They rolled their eyes and bought gold with both hands.
Allowed to persist, novelty becomes familiarity. Pretty soon, people begin to think that the extraordinary is normal; as for the normal, it begins to seem weird. The new system wobbled for the first 10 years, and then found its footing. Now, 40 years later, it is standing fast. It seems normal. But of all today’s oddities, nothing is odder. If the gold bugs thought the system was headed for destruction in ’71, they should see it now!
In ’71, the money base – as measured by the holdings of the US Federal Reserve bank – was only $800 billion. And it had taken nearly 60 years to get there. Yet, just since 2008, the Fed has ballooned its balance sheet up 200% to $2.5 trillion.
In ’71, the US government seemed to have thrown caution to the winds, with a deficit of $23 billion. Fiscal conservatives gasped and clutched their hearts. They’d better sit down, because today the deficit is expected to top $1.6 trillion this year alone, up 7,000%. Debt per working person rises at the rate of $115 per working day – about what the typical worker takes home.
And yet, the yield on a 10-year US Treasury note was around 6% in 1971. Today, wonder of wonders, it is only 3.13%, as if US finances had improved over the last 4 decades!
Putting ’71 and ’11 side by side you have to admit that one is strange. But which one? Surviving gold bugs – viewing these facts through their bifocals, perhaps from the comfort of their retirement homes – have begun to twitch. The price of gold has risen every year for the last 11 years. But even now, what is remarkable about the gold price is not that it is so high, but that it is so low. It is barely ordinary. Adjusted for inflation, gold sells for less today than it did in 1980. To match its previous high – set when the US ran its penultimate budget surplus and Paul Volcker had already begun to tighten credit – the price would have to climb into the mid-$2000s. But did 1981 justify a $2,500 gold price (in today’s dollars) or does 2011?
Neither quantitative easing nor the Internet had been invented in Nixon’s time. The Internet was advertised as a triumph over abnormality. With the world’s wealth of wisdom at one’s fingertips there was no further reason for mankind to err in sin and darkness. He had merely to turn on the WWW to light his way. Want to know what quantitative easing is all about…or how previous episodes of printing press money, un-backed by gold, have turned out? You have only to consult Wikipedia. It’s free.
Just look for previous examples of successful pure-paper money systems. You won’t find them. Because the gold bugs were probably right all along; removing the gold from the world’s money system is almost sure to be a prelude to disaster. It is just a matter of time. Perhaps lots of time.
Regards,
for
originally appeared in the . The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.
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By Jeff Nielson, Bullion Bulls Canada
The American media has done a wonderful job of ignoring the growing urban blight of most big cities in the United States. In many of the larger urban populations, the “inner cities” are poverty-filled, crime-filled wastelands – nearly uninhabitable. These ghettos are used to warehouse vast numbers of the U.S.’s rapidly growing minority groups.
While the U.S. media brags about the “favorable demographics” of the U.S.’s growing population (compared to much of Europe and Japan), here is the reality: almost all of the “population growth” in the U.S. is occurring among these same “minorities”.
Not only does the vast majority of this ethnic population live near or below the poverty-line, but this segment of the population suffers from a 50% high school drop-out rate. And these “minority groups” are set to become the majority of the U.S. population some time over the next 20 to 30 years. This occurs at a time when all of the good “blue collar” jobs have disappeared in the U.S., meaning that much of if not most of this segment of the population has no realistic prospect of ever escaping the poverty-trap. Obviously, the U.S.’s inner-city ghettos can only continue to grow, and spread across its cities like a cancer.
Then there are the “ex-urbs”. During the made-in-Wall-Street housing bubble, clusters of “monster homes” mushroomed all around many U.S. urban centers. Too distant to be classified as “suburbs”, they were dubbed “exurbs”. These housing units were built based upon the premises of steadily rising wealth/income levels among middle-class Americans, and permanent, cheap gasoline – to fuel the 100+ mile round-trip daily commutes in their gas-guzzling vehicles.
In other words, these homes were obsolete before many of them were even built. Millions of these housing units will simply have to be bulldozed, to put a dent in the vast oversupply of housing in the U.S. Meanwhile, the infrastructure of American cities crumbles, while cash-strapped local governments would be hard-pressed to come up with 1% of the $100’s of billions urgently needed for repairs/renovations. And as homelessness soars across the U.S., we now see “the world’s only super-power” pock-marked with “tent cities”.
All of this is invisible to the U.S.’s myopic media. What is most peculiar, however, is that their visual deficiencies don’t prevent these same pundits from being able to spot “ghost cities” across the Pacific, in China.
An article which typifies such hypocrisy reported:
“These pop-up metropolises include looping miles of highways, vast apartment blocks, sprawling cultural plazas, commercial districts, and shopping centers that are bigger than downtown Reno, Nevada. The only thing missing is people.”
The same article claimed that there are an “estimated 64 million” empty apartments in China. While that number sounds like a bit of an exaggeration, lets accept it as true. Now let’s look at the facts.
The vast majority of China’s 1.2 billion inhabitants are still rural “peasants”. As China assumes the role of the world’s manufacturing hub, it is seeking to “urbanize” (eventually) somewhere around ¾ of a billion people. This would be nearly equivalent to building (and populating) new cities for the entire populations of Europe and North America, combined. It is nothing less than the largest planned migration in human history.
Obviously there are only two scenarios to such growth. You can bring the people (first) to the sites of these new cities, and then try to build the cities around them; or you can build the cities first – and then bring the migrants to live in them. As for the “64 million empty apartments”, that’s enough housing for no more than a quarter of these migrants.
More articles from Bullion Bulls Canada….
GATA
10:50a ET Monday, May 30, 2011
Dear Friend of GATA and Gold:
A few items worth noting. …
The New York Times this week acknowledged Utah’s experiment with encouraging use of gold and silver as regular currency:
Bloomberg News reports that China’s national gold mining company wants to acquire African assets in anticipation of rising gold prices for the next three years:
http://www.bloomberg.com/news/2011-05-30/china-national-gold-seeks-afric…
MineWeb’s Rhona O’Connell finds that gold increasingly is trading as a currency rather than as a commodity:
http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=128173&sn=Deta…
And in commentary published at Al Jazeera, Chinese economist and former central banker Yu Yongding argues that greater internationalization of China’s currency will reduce the country’s need to hold U.S. dollar assets. The commentary is headlined “The Renminbi’s Journey to the World” and you can find it here:
http://www.aljazeera.com/indepth/opinion/2011/05/2011528134321176264.htm…
These items all suggest that the long-term trend for gold remains favorable.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
http://www.gata.org
To contribute to GATA, please visit:
http://www.gata.org/node/16
GATA
10:36a ET Monday, May 30, 2011
Dear Friend of GATA and Gold (and Silver):
GoldMoney’s James Turk interviewed GATA Chairman Bill Murphy just prior to Murphy’s presentation in Munich last month. They discussed GATA’s history, the organization’s difficulty in winning publicity against the interests of the world financial system, and gold’s prospects as the public gains awareness of the system’s weakness. Both video and a transcript of the interview are posted at the GoldMoney Internet site here:
http://www.goldmoney.com/video/murphy-turk-interview.html
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
http://www.gata.org
To contribute to GATA, please visit:
http://www.gata.org/node/16
GATA
10:33a ET Monday, May 30, 2011
Dear Friend of GATA and Gold (and Silver):
Zero Hedge’s Tyler Durden comments sardonically today about China’s efforts to diversify its foreign currency reserves. His conclusion:
“Slowly China is realizing the joy of an interlinked fiat world: At best it can rotate out of one insolvent regime into another. The bottom line is that all regimes are insolvent. So the only question is whether, or rather when, just like back in April 2009, when China dropped the bomb that over the past six years it had accumulated secretly 454 tons of gold, China will announce that while it has been rotating in and out of paper, the ultimate source of its $3 trillion in U.S. dollar reserves will be non-dilutable commodities, which handily double up as currencies.”
The Zero Hedge commentary is headlined “Chinese USD Diversification Continues: First Euro Bonds, Now JGBs” and you can find it here:
http://www.zerohedge.com/article/chinese-usd-diversification-continues-f…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
http://www.gata.org
To contribute to GATA, please visit:
http://www.gata.org/node/16
GATA
10:35p ET Saturday, May 28, 2011
Dear Friend of GATA and Gold:
In the weekly precious metals review at King World News, Bill Haynes of CMI Gold & Silver says retail buying eased off last week but futures market analyst Dan Norcini says big money flowed back into commodities. You can listen to their comments at King World News here:
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/5/28_KWN_W…
Meanwhile at King World News, mining entrepreneur Rob McEwen is interviewed here:
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/5/28_Rob_M…
And money manager Steven Leeb gives King World News an astounding prediction for silver in an interview here:
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/5/28_Dr._S…
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
http://www.gata.org
To contribute to GATA, please visit:
http://www.gata.org/node/16
In the realm of news for silver coins, it has been a busy couple of weeks for United States Mint 5 ounce issues. The month of June will continue the buzz as the Mint is scheduled to release the collector 2010-P Yosemite National Park 5 Ounce Silver Uncirculated Coin for California on Thursday, June 9, 2011.
The […]
Gold traded mostly slightly higher in Asia and London before it accelerated higher in New York and ended near its late session high of $1538.37 with a gain of 0.89%. Silver surged to as high as $38.18 by midmorning in New York before it fell back off a bit into the close, but it still ended with a gain of 1.42%.
Read more….
COT Silver Report – May 27, 2011
Read more….
Carbon tax is expected to increase the South Africa’s mining sector tax bill by more than R26-billion in 2012, says professional services company Deloitte.
Deloitte bases its calculation on a carbon price of R165/t of carbon dioxide equivalent (CO2e), which features in both the 2010 integrated resource plan and the carbon disclosure project.
Read more….
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