Last Updated: Oct 22nd, 2010 - 15:35:08 Newsletters : 2009 Newsletters : 4 December 2009 Thought for the Day It is not possible for a nation to improve its prosperity by increasing its taxes. In REAL Economics we know that people follow the incentives that they perceive around them. We also know that the private sector generates the wealth of the nation and the public sector takes what it can and redistributes the money so that the party in power has a better chance of being elected next time. If there is more incentive to work in the public arena than in the private arena then that is where the people will strive to be. If taxes reduce incentives to generate wealth then the people in the private sector will generate less wealth. This is exactly what I predicted would be the result of Michael Cullen's "Welfare for Workers" interference in the tax system. And so it has come to pass. If we hope to catch up with Australia we must lower the burden of taxes on the workers in the private sector. Our only solution is to reduce the size of the public sector. Our government must reduce its size to meet the amount of tax it takes from the private sector. We are currently borrowing $250,000,000 per week to keep the bureaucracy that Helen and Michael built up in the boom times. The people have become heavily indebted over the easy money times and will struggle to reduce the debt in the years ahead. It will not help us to also have to pay the debts racked up by an overly large government. It is time to bite the bullet. Dec 2, 2009, 12:21 Newsletters : 2009 Newsletters : 4 December 2009 Learning I thought perhaps that I should explain what I am trying to do in writing this newsletter, for those of you that may be puzzled about our articles from time to time. For instance I received this email from a former reader recently: "Please remove me from your e mailing list. Your nutty obsession with Gold is driving me mad! Why is one commodity more important than a whole basket of goods and services (i.e. the CPI)? Aren’t you forgetting that the gold standard was dropped for good reasons? Why would you think that gold miners are better at managing the money supply than economists??" - I apologised for irritating him. REAL Economics teaches us that gold is money and paper money as printed by governments is currency. Gold retains its value and paper currency does not. Progress of our economies and increases in wealth are gained by using capital to its best advantage. Capital is the difference between income and expenditure - ie savings. This capital and innovative technology can then be employed to increase our productivity and thus our wealth. Gold (and silver) is the means whereby the value of capital (savings) is maintained and transferred from buyers to sellers. Currency which is not 100% backed by gold dilutes the worth of the capital as governments print more and more of it, thus destroying the means of improving our wealth. New Zealanders try to protect their wealth by buying the only REAL Asset they know - property. Who can blame them for that? What I am trying to do is to discuss the principles of Austrian Economics by illustrating how they work in the REAL world. This is why I call it REAL Economics. It enables us to understand the REAL World and thus make predictions about what will happen in the future. This understanding enabled me to predict the housing bubble in the US and we saw the results. I am now doing the same thing for the money system of the world to show what will happen. It is inevitable that paper money will descend to the value of the paper on which it is printed. Our theory predicts this and every instance in the history of the world of paper currency not backed by gold has ended with the demise of the paper currency. Since the whole world is now using paper money and our Central Bankers are synchronising their efforts the major currencies will tend to reach zero in value simultaneously. To circumvent this event some countries are starting to move towards gold. For decades the central banks have been selling gold to suppress the price and thus discourage people from thinking that gold is useful or valuable. But they can now see what we can see. Central banks have now become net buyers of gold. China has become the biggest gold producer in the world and all this production stays in the country. They have recently opened gold and silver money shops all around the country and are advertising on TV encouraging the population to protect their savings by buying gold and silver. America is printing trillions of paper dollars and posting billions of dollars out to the population telling them to spend up and get the economy inflating again. What should we be doing here in New Zealand? Remember gold is in limited supply and the artificial depression in its price has resulted in mines closing and less exploration being done. Same with silver. Demand for both is now exceeding supply and "surprise, surprise" the price is rising. Can the USA suppress the price again? That is the $64,000 question. But even if they do manage to short the gold market and lease off some more Fort Knox gold for JP Morgan to sell they cannot continue to do this indefinitely. Meanwhile China, India and Russia are buying up as much gold as they can while the price is still artificially depressed. Did you know that gold is five times more (yes, more) plentiful in storage above ground than silver. Shouldn't silver be five times more expensive - especially as industrial uses for silver are proliferating? All this has been discussed in detail over the last few years. The results are inevitable. It is just the timing we can't predict. Some of our readers understand what is happening and are using these principles to make very successful investments and profit form their studies. Congratulations to them. *** *** *** "We didn’t need a central bank when we were on the Gold Standard. People would buy and sell gold and the markets would do what the Fed does now." Alan Greenspan Dec 4, 2009, 07:46 Newsletters : 2009 Newsletters : 4 December 2009 The Federal Reserve Becomes the ‘Buyer of Last Resort’ New Zealand is a small player on the world financial stage. Various speculators and bankers buy and sell our currency in such large quantities that our exchange rate is very unstable. This makes things difficult for our wealth generating sector to sell our goods overseas for a profit. This affects everyone in the country. Imagine how difficult things are going to be if the US Federal Reserve Bank fails. It is a private bank owned by various bankers in America. It may not even be solvent at this point in time. The Fed is supposedly saving the American Government but the question may be, "Can the American Government save the Fed?" If both are broke and hugely in debt then who can save them both? [ Visit Website ] Dec 2, 2009, 11:17 Newsletters : 2009 Newsletters : 4 December 2009 The Fed Will Self Destruct When It Destroys the Dollar Ron Paul has been solidly ignored by the main TV studios for his whole time in Congress until now. He has established a very sound reputation for truth and common sense. The US Federal Reserve is bankrupt according to some analysts. That is its debts outweigh its assets and its capital. But it is very hard to tell as they are telling no-one how much they paid for the dodgy mortgages they got from Fannie and Freddie. And as for AIG that is a big question mark. Ron Paul wants an audit of the Fed. But it is interesting that he says, and obviously firmly believes, that the Fed is about to self destruct. Such an event will be cataclysmic on the world financial scene. Ron's is the voice of enlightenment and at last he is getting some solid air time. [ Visit Website ] Dec 2, 2009, 11:02 Newsletters : 2009 Newsletters : 4 December 2009 Climategate: Science Corrupted This British MP and physicist has examined the evidence of Climategate and takes an interesting point of view. [ Visit Website ] Dec 1, 2009, 17:49 Newsletters : 2009 Newsletters : 4 December 2009 Climate Change: This is the Worst Scientific Scandal of Our Generation Authorities have a long record of not listening to scientists and in recent years some scientists have paid more attention to those who were paying for their research than to the scientific truth which we had come to expect from the men and women in the white coats. There have been scientific studies pointing out these discrepancies in other fields of endeavour but the problem is now occuring in basic temperature measurements. We now find the scientists at the centre of the Global Warming study embroiled in falsifying results. Unfortunately this will cause hugely increased costs for taxpayers around the world and has caused much agricultural effort to be diverted from growing food for the starving to growing bio-fuel. These scientists are now carrying a heavy load on their collective conscience. [ Visit Website ] Dec 1, 2009, 09:38 Newsletters : 2009 Newsletters : 4 December 2009 The Forgotten Depression of 1920 This article contains the complete description necessary to understand the basics of our boom/bust economic existence: "Note also that the precipitating factor of the business cycle is not some phenomenon inherent in the free market. It is intervention into the market that brings about the cycle of unsustainable boom and inevitable bust. As business-cycle theorist Roger Garrison succinctly puts it, "Savings gets us genuine growth; credit expansion gets us boom and bust." Government is the problem and then they insist on making it worse. If you understand the lessons from this article you will know why politicians around the world are making our world wide bust even worse. You will also know more than the majority of economists! [ Visit Website ] Nov 28, 2009, 15:16 Newsletters : 2009 Newsletters : 4 December 2009 China, Gold, And The Civilization Shift Ambrose is starting to get the point. If only he understood the Austrian Economists he would know how close he is to a full understanding of the future. Nov 27, 2009, 10:46 Newsletters : 2009 Newsletters : 4 December 2009 Push For Auditing Fed Aids Gold Rally Main stream reporters are starting to get the point. More and more people are starting to not trust the Federal Reserve but they also don't trust the politicians. They are beginning to see that the combination will only produce lots of paper money and subsequently, inflation. Gold, like REAL Estate is the only protection we have. Nov 27, 2009, 10:14 Newsletters : 2009 Newsletters : 4 December 2009 “Gold is not an ‘investment’. It is money.” This is an interview with James Turk in which he says, amongst other things: "It is my view that right now we are in the eye of the hurricane. I expect the second half of the storm to hit in 2010, but it will be much worse. Not only will the creditworthiness of banks be questioned, but also that of many governments, particularly the US, UK and Japan." He also said: "There is an essential point made in John Locke’s treatise on silver in 1697, which is particularly illuminating when it is read in conjunction with his two treatises on government. The basic principal he explained then of course remains true today. It is that human freedom and precious metals are inseparable." We can learn a lot form this man. [ Visit Website ] Nov 25, 2009, 11:29 Newsletters : 2009 Newsletters : 4 December 2009 Viva la Restoration The website link will take you to the Golden Sextant which provides a list of articles to read. Click on the one labelled, "Recent Speech by Bob Landis". This will give you a very good explanation of REAL Economics. [ Visit Website ] Nov 25, 2009, 11:15 Newsletters : 2009 Newsletters : 4 December 2009 Welcome to Stage Two of Gold's Bull Market REAL Economics deals with reality. This gives us a big advantage when it comes to investing. We might as well use our knowledge of REAL Economics to make some REAL Money. James Turk sums it up rather nicely. The mania phase will be truly amazing! [ Visit Website ] Nov 25, 2009, 11:05 Newsletters : 2009 Newsletters : 4 December 2009 The Politicians Are in Charge - Help! This story came to me from the USA. Hard to believe but I am assured, true. "Check out this actual note from a senior-level person at Chrysler, dated Sunday, July 19, 2009.": Monday morning, I attended a breakfast meeting where the speaker/guest was David E. Cole, Chairman Center for Automotive Research (CAR and Professor at the University of Michigan). You have all likely heard CAR quoted or referred to in the auto industry news lately. Mr. Cole, who is an engineer by training, told many stories of the difficulty of working with the folks that the Obama administration has sent to save the auto industry. There have been many meetings where a 30+ year experienced automotive expert has to listen to a newcomer to the industry, someone with zero manufacturing experience, zero auto industry experience, zero finance experience and zero engineering experience, tell them how to run their business. Mr. Cole's favorite story is as follows: There was a team of Obama people speaking to Mr. Cole (engineer, automotive experience of 40+ years, and Chairman of CAR). They were explaining to Mr. Cole that the auto companies needed to make a car that was electric and liquid natural gas (LNG) with enough combined fuel to go 500 miles so we wouldn't "need" so many gas stations (a whole other topic). They were quoting BTUs of LNG and battery life that they had looked up on some website. Mr. Cole explained that to do this you would need a TRUNK FULL of batteries and a LNG tank as big as the car to make that happen, and that there were problems related to the laws of physics that prevented them from... The Obama person interrupted and said (and I am quoting here): "These laws of physics? Whose rules are those? We need to change that." (Some of the others wrote down the law name so they could look it up.) "We have the Congress and administration. We can repeal that law, amend it, or use an executive order to get rid of that problem. That's why we are here, to fix these sorts of issues." ..... And these are the same people who are going to fix healthcare?! Nov 24, 2009, 11:53 Newsletters : 2009 Newsletters : 4 December 2009 The Fed Versus the Gold Standard I have written occasionally that "capitalism" seems to get the blame when politicians cause problems in our economies. Capitalism is scarcely allowed to work its wealth creating magic before national leaders leap in to "adjust" it so their voters get a benefit - to the detriment of everyone else. The magic of capitalism is best seen in the world at the moment in communist China! But, of course, this is not free capitalism but controlled capitalism and the controls will slowly strangle the benefits. In China it could get messy. It is nice to see, however, that some students are starting to get the message and think for themselves. Nov 23, 2009, 12:33 Newsletters : 2009 Newsletters : 4 December 2009 Global Systemic Crisis "States faced with three brutal options in 2010: inflation, high taxation or default." Just as predicted. Now others are starting to see the problems. The world has a major economic problem. There is no easy way out. [ Visit Website ] Nov 21, 2009, 13:48 Newsletters : 2009 Newsletters : 4 December 2009 Principles of Economics, Translated Listen to this guy and you won't call Economics dismal anymore. [ Visit Website ] Nov 20, 2009, 19:20 Newsletters : 2009 Newsletters : 4 December 2009 Quote for the Week I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. Winston Churchill Nov 19, 2009, 11:56