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Got Gold?

03/23/2009

Gold prices are on the upswing over the past 5 years, especially recently due to the struggles for the dollar on the horizon.  As the Fed produces greenbacks, a trillion at a time, the value of the dollar will drop since there is nothing of value backing them up.  In the words of one presidential candidate, “They must think you’re stupid!”

Are we really to believe that spending more and more is how to get out of a financial crisis?  As we sell securities to other countries, we are promising to pay them off at some point.  Committing future generations to that task is not moral.  It is generational theft in a sense as we commit future tax dollars, that being the fruit of someone else’s labor, to pay off our debt.  It is not much different than someone knocking on your door and informing you that you are now responsible for the debt that I have accumulated over the past ten years.  Sounds fair, eh?

In July of 2003, gold was in the mid 350’s.  Today it is at $941.87 according to a chart on goldprice.org.  When people with the money are moving to gold, it is to hedge against inflation.  Gold was at about $650 in July of ’07, up $300 in 4 years.  In July of ’08 it was approximately $950, and it has been bouncing up and down since then.  The point is that as the stocks crashed, gold remained up.  Gold tumbled just a bit with the bear market rally of the past week, but it should remain high as the threat of inflation becomes more evident.

In a recent article, Economist Peter Schiff wrote, “Now that the Fed has recklessly shown its hand, the mad dash to get out of Treasuries and dollars should not be far off. The more the Fed prints to buy bonds the less the dollar is worth. Holders of our debt (read China and Japan) understand this dynamic. We must expect that they will not only refuse to buy new bonds, but they will look to unload those bonds they already own.

Under normal circumstances, if creditors grew concerned that inflation was eating into their returns, the Fed would raise interest rates to entice them to buy. However, the Fed will avoid this course of action as it fears higher rates are too heavy a burden for our debt-laden economy to bear. To maintain artificially low rates, the Fed will be forced to purchase trillions more debt then it expects as it becomes the only buyer in a seller’s market.”

The Fed prints the money and uses it to buy the securities.  What is backing the new dollars they print?  Nothing.  Adding to the money supply simply devalues the cash that already existed.  Too much of this activity will destroy the dollar until one day it is worthless.  As the dollar drops in value, purchasing power is weakened.  The end result is prices rise, thus requiring more of the devalued dollars to buy goods and services.

It’s the hocus-pocus of our day.  Government believes we exist and work in order to finance the programs it desires to create.  No matter how good or worthwhile the program seems to be, the workerbees, that is us, are expected to produce so the queenbee, that is government, can implement the desired plan by confiscating the fruit of our labor, that is our wages, through taxation.  Government operates under the belief that the wealth of the nation is property of the government and they will let us know how much we can keep for our trouble.

Even if the economy somehow rebounds in less than a year, don’t be deceived into thinking that everything is rosy.  The damage being done is far reaching and will take a very long time to pay off.  As we keep moving closer to the European model of Socialism, our lifestyles will fall off and our disposable income will whither away.  The haves will be increasingly taxed, directly and indirectly, and the have nots will be given a cut of the booty to survive well enough to vote the culprits back into office.

The tactic of the Left is to make everything a crisis, get the masses worked up by redirecting the blame for the crisis, then appearing to save the masses from the crisis.  I say appearing because in the current case, they appear to be resolving the issue, but in reality, they are causing a new problem without actually dealing with the root causes of the original problem.  This also took place in the AIG bailout plan.  The legislation grandfathered in the bonuses, then the very people that made the bonus payments possible feigned outrage at the payouts.  In our sound bite age, the masses had their anger turned toward the AIG executives.

Back to the point, gold is up and the dollar appears to be on life support.  I wish I had some cash left to invest in gold.  Unfortunately, I’m more likely to be shutting down my trucking operation rather than expanding in the coming year.  How about you?

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