Tag Archives: The Fed

Money for Nothing (Inside the Federal Reserve)

Producer discusses the above movie–a good discussion about the U.S. Dollar https://youtu.be/6Ad9jtn2kOc

How do you like the Fed’s ability to stabilize the dollar (stable money) and the economy?


Worth the time to study the above.  Pop Quiz: What Exactly Backs the dollar?

Hint: 1. 8,000 tonnes of gold (hopefully!) and…………?

Hey, Joe!



Hey Joe by Pining 4 the Fjords                                      December 23, 2013

This essay was inspired by a deceptively simple question: At what point will people decide they have had enough? By this, I mean at what point will a plurality of citizens look around them, examine their situation, and come to the realization that the present system is not working to their benefit and indeed, is likely working to their detriment?  Does the frog really sit in the pot while the heat is slowly turned up, content until the moment where it is too late and he cooks to death? Or does the frog in fact realize at some point that heat is on, he is getting extremely uncomfortable, and that he better jump if he wants to live?

Here’s why I wonder about this.

Just six short years ago, the median net worth of middle class US households was $120,000.  Today, it has fallen a whopping 45% to just $66,000 (http://www.nytimes.com/2013/09/19/business/americas-sinking-middle-class.html?_r=0).  The number of working-age Americans stuck in part-time employment has more than doubled during the last six years from four million to nine million, and this number is about to take another major leap upwards as Obamacare mandates incentivize companies to cut previously full-time worker to below 30 hours per week, above which the government now requires companies to provide coverage.

Speaking of Obamacare, its initial impact has been to raise premiums nationwide, amounting to a massive middle class tax-hike, while five and a half million people who used to have health coverage have now lost it.  When the employer mandates really kick in next year, some estimate that based on numbers provided by the Department of Health and Human Services, between 50 to 90 million additional Americans may lose their current coverage (http://hotair.com/archives/2013/10/31/did-hhs-estimate-that-93-million-americans-will-lose-their-insurance/).  Hope and change!

So play along with me here.  Pretend you are an average Joe.  Joe has just seen his net worth nearly halved in the last six years.  He just lost the health insurance that his employer used to provide, and because Joe has a spouse and kids he is suddenly looking at an additional 15% of his yearly salary to cover health insurance.  Joe didn’t expect or plan for this.  He starts doing the math and realizes that he already pays 1/3rd of what he earns in State, Federal, and various local taxes.  Now Joe suddenly has all these additional health care costs, real inflation is making everyday items like gas and clothing more expensive, and at this point, he doesn’t honestly know how he is going to pay the bills… assuming Joe is able to keep his job. In the past, Joe managed to set aside about five grand per year because he foregoes expensive vacations and always buys used cars, yet he has seen the real purchasing power of the money he set aside ten years ago decline by 30% over that time…  $1,500 of every $5,000 he managed to save has been confiscated via inflation and lower purchasing power.

But the futility of saving doesn’t really matter much to him right now, because not only is he not going to be able to save anything this year, he may have to start cannibalizing what savings he does have.  Joe starts to get scared because he just doesn’t know how he is going to make this work. He hasn’t done anything wrong, he is working harder than ever, yet he is drowning.

So how about it, Joe?  Still think the system works to your net benefit? Just how long are you going to keep taking this? How much more CAN you take?

bully gets slammed by fat kid

Joe may indeed be pissed.  He might be mad as hell and isn’t particularly inclined to take it anymore. But here’s the problem: chances are that Joe doesn’t even know who he should be mad at for this.  Depending on his previous voting history, he might blame one party or the other but he needs to understand that neither party is going to fix this thing under the present system.  He might want to blame general groups like “welfare queens” or “greedy corporations” but he needs to understand that ultimately they both feed from the same trough- him and his labor, through the inherent wealth confiscation of fiat creation over time.

Joe probably doesn’t quite understand the symbiosis between the Federal Reserve, big banks, and big government.  He knows he is being screwed by the system in some way, but he doesn’t really comprehend that it is fiat money creation that is both causing his current difficulties AND is strengthening and enabling the Leviathan powers beyond his control to screw him at every turn.  He doesn’t yet get it… but for the first time in his life, he might be ready to hear a few things and not dismiss them out of hand.

Maybe, if you see him this Christmas, you can gently direct Joe to Mike Maloney’s series on money http://hiddensecretsofmoney.com/. Maybe you can buy him a copy of The Creature from Jekyll Island.  Maybe you can just quietly talk about why these things are happening and how sound money acts as a check on both corporate AND governmental power, each of which is accrued at his expense. Who knows, maybe you can even sneak the word Liberty into the conversation.

Small things like this might just have a bigger impact than you can imagine. In his bestselling book The Tipping Point, author Malcolm Gladwell notes that social changes often take place with surprising ferocity, when an invisible but crucial point is reached that destabilizes the current paradigm.  Everyone takes the status quo for granted… right up until the moment that a critical mass of people (nowhere near a majority, just a sizeable percentage) shift their behavior.  Then a tipping point is reached and everything changes.

Gladwell notes three major factors that precipitate such tipping points.  First, he describes the “Stickiness Factor”, referring to the power of a simple slogan or idea that distills the movement into a memorable and instantly comprehensible core.  Additionally, he ascribes great importance to “The Power of Context”, outlining how such sweeping changes can take place only in an atmosphere fertile for change where people are receptive to new ideas or practices.

Finally and most crucially, he notes “The Power of the Few”.  It doesn’t take many to precipitate a tipping point, but those involved have special skills that Gladwell breaks into three categories. Connectors are people who thrive on social information and interpersonal relations, and they have a unique capacity for making connections between large numbers of people with complementary skills. Connectors function as the social equivalent of a computer hub- they always know a guy who knows a guy, and are great at putting people together.  Salesmen have the special knack for communicating a message and getting people to go along with them.  Charismatic and persuasive, they are powerful negotiators and have an indefinable knack for influencing people to agree with them.  Finally, Mavens are amazing repositories of information and knowledge.  They possess a deep understanding of issues and facts, and are exceptionally skilled at solving problems.

Here’s the deal: If the Great Keynesian Experiment really is in its death throes, if seventy years of malinvestment and easy money really are coming home to roost in a decrepit and dying system, then something is going to have to take its place.  Maybe the motto “Prepare Accordingly” might not just be solely applicable to gold and silver investing. Maybe we should be out there trying to plant some memes and prepare some intellectual battle space.  Maybe we should do our best to talk to a few folks, if we have the opportunity.  Maybe they’re ready to listen.

Hey, Joe.       http://www.tfmetalsreport.com/blog/5348/hey-joe

I am second: http://www.iamsecond.com/seconds/the-robertsons/

What do you think? Does anyone question why the economy is weakening (mortgage applications plummeting, anemic sub 1% real growth, etc.) while the stock market makes new highs (for now…). What might be the tipping point. Will the fiat currency system be replaced and by what?  How much do you think Joe can take?

The Fed in Concert

Never have so few plundered so much from so many (Winston Churchill on the Federal Reserve System)

“I have 100% confidence in being able to control things.” Ben Bernanke

“My models didn’t work!” Alan Greenspan

When a country wants to create some currency, the government sells a bond to their central bank. The central bank writes a check against a zero balance in their checking account for however many dollars, euros, yen, or whatever the government wants, and it buys the bond. The currency has now sprung into existence, and later can be used to redeem the bond. Therefore, the bond is an IOU for the currency. But since the currency is also a claim check to redeem the bond when it matures, the currency is an IOU for the bond. Get it? No, me neither. If YOU did that, you would be accused of fraud. Welcome to the rabbit hole, welcome to our fiat-based, debt soaked monetary system.


What has the Government Done to our Money_Rothbard
Gold Dollar by Rothbard

“This will not end well,” Chicago Slim.

The Fed and Your Money; Who Called the Housing Bust?

bubble and the fed

The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in iniquity and born in sin. Bankers own the earth. Take it away from them, but leave them the power to create money and control credit, and with a flick of a pen, they will create enough money to buy it back again. But if you want to continue as the slavers of bankers and pay the cost of your own slavery, let them continue to create money, and to control credit. –Sir Josiah Stamp, Director The Bank of England. 

How the Federal Reserve System Works (Short Video-MUST WATCH) http://www.hiddensecretsofmoney.com/

If you are unclear about what you see in the above video, then  read more:

The Case Against The Fed by Murray Rothbard: http://mises.org/books/fed.pdf

For the most detailed study of banking and credit cycles: http://mises.org/books/desoto.pdf

Question: Why aren’t you rioting in the streets over this?

Who Predicted the Housing Bubbles? 

Monetary policy during the 2000s: http://mises.org/daily/2936

thornton13 and Debate between Austrian and Mainstream

A reader asked about CEF:


One of the best sentiment gauges for precious metals is whether investors are paying a premium, or if they are buying precious metals at a discount.

Central Fund of Canada (CEF) is a closed-end mutual fund that owns gold and silver exclusively — the metals, not stocks — at a ratio of about 45 oz. of silver to 1 oz. of gold. Closed-end funds trade based upon the bid and ask, without regard to their net asset value (NAV). Because of this, they can trade at a price that is at a premium or discount to their NAV. By tracking the premium or discount we can get an idea of bullish or bearish sentiment regarding precious metals.

Very recently CEF has been selling at about a –7.5% discount to the net asset value of the gold and silver it owns. Considering that CEF has experienced a -54% decline from its 2011 top, that is a remarkably small discount when compared to historical discounts of -15% to -20%. Even more remarkable it the fact that after the -50% CEF correction in 2008, CEF was still selling at about a +15% premium!

Analyst Handbook Chapter 1: What is Investing?


Gold is not necessary. I have no interest in gold. We’ll build a solid state, without an ounce of gold behind it. Anyone who sells above the set prices, let him be marched off to a concentration. That’s the bastion of money.~Adolf Hitler

There are about three hundred economists in the world who are against gold, and they think that gold is a barbarous relic – and they might be right. Unfortunately, there are three billion inhabitants of the world who believe in gold.~Janos Fekete

Chapter 1: Analyst Book for CSInvesting_Chapter 1_What is Investing


  1. Chapter 20_Margin of Safety Concept
  2. Mr Market by Ben Graham
  3. Mises on Money_Vol_3 by Gary North

Postscript (Adding)  Montier


Read–Financials: Opportunity or Value Trap   on 13 August 2008. Mr. Montier does a good analysis at trying to find a margin of safety in banking stocks on the eve of the 2008/2009 credit crisis. 

Thank you for your prior comments on the introductory chapter. My main takeaways were: 1. many liked the commentary in the case study and 2. Perhaps break up the large intro into smaller sections.

Listen carefully to this interview with Paul Singer

Paul Singer





Creature from Jekyll Island (The Fed’s History)

U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called the printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” –Ben Bernanke

The problem is that, as the 2007-2008 experience teaches, the lag between financial turbulence and economic damage may be fairly long, of the order of a year or more. In the meantime, the economic indicators may remain positive.” –Stephen Lewis.

The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved. — Confucius (551 BC – 479 BC)

The Gold and Debt over the next decade chart shows the projection of U.S. debt, assuming gold will continue the same close relationship with debt as demonstrated in the historical gold and debt chart discussed earlier.


Gold’s price is directly proportionate to the massive amount of debt that is being created to keep the current fiat system alive. This will likely continue until a crisis, such as a severe global recession or hyperinflation, strikes one of the major developed economies. Either event will be bullish for the gold price, but for different reasons. The price is being driven by the physical market in the developing countries, especially India and China. China has to continue buying as much physical gold as possible if they expect to eventually compete for world reserve currency status.

CSInvestor: Do you see any problems with the above analysis?

Klarman Takes a Hit on Gold Miners; The Leather Apron; Fed Action During 1987 Crisis


Some Investors Gettin’ Hammered in Gold Miners

In October, Marcel “Mac” DeGuire became president and chief operating officer of Guyana Goldfields, an exploration-stage company listed on the Toronto Stock Exchange that has been losing money trying to develop gold mines in South America for years. Within a few weeks DeGuire was helping to convince investors to buy into a Guyana Goldfields financing for C$3.40 a share, a significant fund raise for the company of some $100 million that closed in February. Eleven days later, however, DeGuire resigned from Guyana Goldfields, citing “personal reasons.” The stock has plunged by more than 60% in 2013 and is now changing hands for C$1.24.

It might be surprising for some market watchers to learn that Guyana Goldfields’ biggest shareholder is the Baupost Group, the massive Boston hedge fund firm run by Seth Klarman. Baupost owns 19.7% of Guyana Goldfields, a stake recently worth about $30 million. A billionaire hedge fund genius, Klarman is one of the most revered money managers of his generation, a value investor who likes to steer clear of controversy and public attention, keep his head down and concentrate on his investments. His track record and reputation are stellar, which makes it a little strange that Baupost has gotten behind Guyana Goldfields and some other long shot, some might even say iffy, gold mining ventures with penny stocks and high executive pay. These companies often make sure to point out that Baupost is a major investor in their shares in investment presentations.

Shares of gold mining companies have been hammered this year as the price of gold has tumbled. Most gold mining companies are facing a serious cash crunch as the economics of their industry get upended. The fall of gold and gold miners has publicly embarrassed investors who made big bets on the sector, like billionaire John Paulson, who has been so frustrated with the shadow his decimated and relatively small gold hedge fund has cast on the rest of his hedge fund operation that he has stopped sending out his gold fund’s financial returns to investors in his other funds. Klarman’s gold mining investments have also been clobbered, losing between $150 million and $200 million in value in 2013. That’s hardly an insurmountable loss for Klarman since Baupost manages $28 billion and, unlike Paulson, Klarman does not separate out his gold-related investments in a separate fund. Still, Klarman’s gold mining losses, which have not received any public attention this year, are among the biggest to have hit a major U.S. hedge fund this year.

Read more: http://www.forbes.com/sites/nathanvardi/2013/07/10/seth-klarmans-baupost-hedge-fund-loses-more-than-150-million-on-gold-miners/

Mr. Klarman must be quite bullish on the future price of gold in U.S. Dollars because his investments in the Junior resource sector require much higher gold prices to be profitable. Note the high capex costs.  Remember that it is not the size of a deposit but the cost to bring ozs. into production that matters. 

I prefer the royalty/streamer companies like RGLD, SLW, FNV, SAND that are already profitable with low fixed costs and little operational risk. Those firms  can make money even if gold goes lower.  When you read about “famous” investors losing money in a sector, a lot of bad news is long in the tooth, IMHO.

John Doody on July 10, 2013 discusses the gold mining sector (Audio): fsn2013-071013

A Good Read: The-Leather-Apron-Letter-07-12-2013

The Fed and the Crisis of 1987 (Financial History) 152107746-Fed-1987


Perpetual Wealth

Wealth Program Reviews | Wealthy Affiliate, Profit Lance & Rich Jerk  I am beside myself with admiration for my recent idea–a way to create perpetual wealth without effort. Normally, one must be humble when involved with markets. However, who will have the fatal conceit to deny my brilliance?

Perpetual Wealth

The Federal Reserve can finance the consumption of all Americans’ wants through bond purchases with money created from a computer keystroke.  The Fed, in turn, could sell those bonds to banks. Since the U.S. Dollar is the  world’s reserve currency, Americans can buy from foreign suppliers who then can invest in our government debt. As Americans buy ever more goods, since everything would be free, our trading partners would take the Fed’s money and buy more U.S. government debt.  More bond buying lowers interest rates–creating more profits from buying bonds–a perpetual benign circle of growth and wealth.

Say Americans want free gasoline. Let’s create a paradise. A government agency can buy gasoline from foreign suppliers at market prices and then sell to the consumer at $0.00 per gallon.  This “gift” or subsidy–rather than tax the populace–the government issues gasoline bonds which the Fed purchases. In turn, the Fed just creates the money through a computer key stroke saving precious paper and cloth.  The Fed can choose to hold these bonds or sell them to others. I estimate that the Fed could easily buy two trillion dollars of bonds PER MONTH to finance a doubling of America’s economy. Let’s go from a $11 trillion economy to $22 trillion.

Demand would explode causing foreign economies to boom. With the world economy growing wars would become obsolete. Foreign aid redundant. Americans could just consume.

Why hasn’t another thought of this? Do you think because of ignorance, sloth or stupidity? Do you think my Nobel Peace Prize is assured?

For anyone rash enough to criticize, can you compare and contrast my plan with the Fed’s current operations?

Your thoughts welcome!

Play It Again Sam (How the Fed Manipulates Credit)

The above video gives you a short analysis of the causes of the financial crisis from a businessman’s perspective.

Books on the Federal Reserve and Banking

The books below will make you an expert on how the FED and the banking system work to create fiat, irredeemable money and credit out of “thin air” or by key-stroke.

After reading those books, can YOU tell me how the central bankers EXIT strategy will work?  Watch Japan for a preview.

Here is Jim Grant

Inflation is a state of affairs in which there is too much money. It’s not too much money chasing too few goods. It’s too much money, the thing that this money chases is variable. And in this particular cycle and for some time, it has chased commercial real estate, bonds, stocks, financial assets of all kinds. Iowa farm land. There is a huge excess of liquidity in the world. Central banks furnish this, they stuff us with it. In the interest of levitating markets that will, they think

On the Equity rally:

Yes there are terrific companies generating terrific cash flows. That is certainly true. But beneath the surface of things or not so far beneath the surface of things, as far as central banks, practicing not original policies but original sin. This is these policies are not so original. They go back to the time of Revolutionary France. You know the idea of creating currency with which to create human happiness is as old as the hills.

On Gold:

Gold has been in a bull market for 12 years. Gold is this rare thing in which you can be bullish and yet contrary and also with the trend. There is I think a general fatigue animus towards gold. The gold prices are reciprocal of the world’s view of the competence of central banks. The greater the world’s confidence in the Ben Bernanke’s of the world, the weaker the gold market. The less the world holds confidence in the institution of managed currencies, the stronger the gold market. And to me the confidence is utterly misplaced,

See videos:


The Horror!http://www.federalreserve.gov/monetarypolicy/fomcminutes20121212.htm

Next post on Wed………..Have a Great Weekend!

Free Live Lectures on Monetary Mayhem


..But the proof that these were unsustainable bubbles fostered by the state rather than real growth and prosperity arising from the free market became acutely evident after the turn of the century. Then another round of Greenspan bubble finance and the George W. Bush fiscal profligacy converged in a temporary spree of phony prosperity: the domestic consumption boom and the real estate bubble. Yet now that these have gone resoundingly  bust, the data starkly reveal that the nation’s economic fundamentals have relentlessly deteriorated for more than a decade.

Long-term investment has grown by less than 1 percent annually since 2000 and the nonfarm payroll count has hardly increased at all for 12 years. Likewise, the real incomes of the middle class have fallen back to 1996 levels–even as the American economy has tumbled into a frightful debt to the rest of the world. In short, the American economy did not falter due to a mysterious “contagion” in September 2008. It had been heading for a crash landing for the better part of three decades. — David Stockman in The Great Deformation (2013)

Monetary Mayhem Lectures

All Times are Central Standard Time or 1 hour behind Eastern (New York) Time, but double-check to be sure. Go to www.mises.org

Watch These AERC Lectures Live,

Wednesday, March 20th, 2013

The 2013 Austrian Economics Research Conference starts tomorrow. The following lectures will be broadcast live. You can watch them either on our Ustream channel page or through the embedded feed on the Mises.org home page.

We’ll also be live-tweeting these lectures. Follow us on Twitter @mises. We’ll be using the hashtag #AERC.

All times Central Time.                                                    Friday, March 22

1:30 – 2:30 p.m.  The F.A. Hayek Memorial Lecture sponsored by Toby Baxendale (Austrian Hedge Fund Manager). Nikolay Gertchev, European Commission Brussels “From Monetary Nationalism to Monetary Imperialism: Fractional-Reserve Banking and the Inter-Government Cooperation”

4:30 – 5:30 p.m.  The Murray N. Rothbard Memorial Lecture sponsored by Helio Beltrao Brendan Brown Mitsubishi UFJ Securities “The Global Curse of the Federal Reserve: How Its Monetary Virus Stimulates Destructive Waves of Irrational Exuberance and Depression”

The Ultimate Effects of the Fed’s Policies

How the Federal Reserve’s policies are destroying social trust (must read) here:http://www.zerohedge.com/news/2013-03-11/dylan-grice-explains-how-crackpot-central-bankers-are-destroying-human-society

and…..destroying wealth: “Contrary to popular thinking, loose monetary policy, which leads to a misallocation of resources, weakens the economy’s ability to generate final goods and services, i.e., real wealth.

This means that loose monetary policy not only cannot provide support to the economy, but on the contrary undermines the foundations for economic growth.

The so-called recovery that Bernanke and most commentators are referring to is nothing more than the revival of various unproductive or bubble activities, which in a true free market environment wouldn’t emerge in the first place.” More…http://www.mises.org/daily/6385/Should-Bernanke-Park-the-Helicopter

A traditional economist’s view: Why so gloomy? All is well.


http://scottgrannis.blogspot.com/2013/03/the-fed-is-not-printing-money.html (True, but no mention of the massive distortions caused by the Fed’s zero interest rate policies or don’t prices mean anything?)

PS: I will tackle the three valuations this weekend. Right now I am too busy researching mining stocks.

Be careful: http://greenbackd.com/2013/03/21/sp-500-operating-eps-estimates-are-too-optimistic-and-the-market-is-expensive/



Fireside chat with Buffett on payment systems: http://vimeo.com/62209937

Van den Berg’s Investment outlook: http://centman.com/insights/2013/03/arnold-van-den-berg-speaks-at-the-texpers-annual-conference/