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Disinformation and Silver Confiscation: Opinion ~ Jeff Nielson
March 18 , 2011
Issue 92
Today's Gold/Silver Ratio: 40/1

Issue 100

Gold: $1419.70/ Silver: $35.28

SGS Notes: Be sure to read the entire article in this week's main editorial…
The title is misleading and you may be surprised at what they author is actually saying… Nevertheless, we took the 'risk' of presenting it because we want you to be well informed.

Disinformation and Silver Confiscation: Opinion
Jeff Nielson, BullionBulls , Canada

VANCOUVER (Bullion Bulls Canada) -- There have been two trends in precious metals markets in recent weeks that I find very alarming. On the one hand, we see the large "shorts" (JPMorgan and HSBC) in the bullion market ratcheting up their short positions again.

Understand that these short positions are tremendously underwater, and once the 100:1 paper-leverage of these financial terrorists is factored in, their short positions already represent large enough losses to ensure the bankruptcy of both of these vampires. Thus the fact that these "life-threatening" short positions are increasing (and being allowed to increase) tells us two things.

First, it is confirmation that the hopelessly corrupt U.S. Commodity Futures Trading Commission is simply going to defy the law, which requires these banker-slaves to institute "position limits" against the very Oligarchs they have dedicated their careers to serving. It is also apparent that JPMorgan and HSBC are now openly charging toward their own bullion-Armageddon: default events in the silver market (and possibly the gold market as well) which would lead to their financial annihilation -- in the absence of any government intervention.

Obviously the key phrase in that paragraph is "in the absence of government intervention." I will return to that point later.
The other recent trend which I find equally disturbing is the sudden explosion of rhetorical rants on the internet, which specifically revolve around the battle-cry of "taking down JPMorgan" or even the entire U.S. financial system. As a silver bull, there are many reasons for me to be dismayed by this rabid and incessant rhetoric.

For one thing, it adds nothing to the "debate" about silver manipulation, nor does it do anything to inform investors -- most especially the new investors streaming into this sector. Indeed, the emotional excesses of these writers are likely only to frighten new arrivals to this sector, who were looking for an "investment" not a "war."

In addition, this totally misrepresents how and why the original investors came to this sector: it was not to "attack" the rapacious U.S. Banker Oligarchs, it was to protect ourselves from them. Silver isn't (to use the term coined by Warren Buffett) a "financial weapon of mass destruction," like the $1.5 quadrillion paper time-bomb which these Oligarchs have created in their derivatives market. It is a "suit of armor" -- to make us invulnerable to banker blood-sucking.

Thus the rabid-ranters are in no way representative of the vast majority of silver investors. The bankers are doing a perfectly fine job of destroying themselves -- and they need no "assistance" from us to finish their greed-induced suicide. In fact, I am convinced that most of these "mouths that roar" are in fact paid tools of the bankers, performing an invaluable service for them: demonizing silver investors in the eyes of the (ignorant) general public.

Readers must realize that among any even semi-informed individuals, "precious metals manipulation" no longer represents a "question mark." It is an obvious reality, which has been documented by many (including myself). It includes not only obvious statistical evidence of manipulation, but a plethora of confessions from various "insiders" and (somewhat more recently) a bona fide "whistleblower" (Andrew Maguire ) with decades of experience in bullion-trading. However, with respect to the general public (i.e. the sheep) "manipulation" represents just another "conspiracy theory" -- which the sheep have been carefully programmed to automatically ignore.

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Other Articles      


US Dollar Fails Annual Cycle

The Great US Collapse Nears
John Williams, ShadowStats

Gold Hoarded In Tokyo Exodus
ZeroHedge

Preventing Government
From Stealing Your Gold

Jeff Nielson

The Great Silver Mystery
Bix Weir

The Silver Door Is Closing
Silver Shield

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The Constraints of Silver Supply
Bob Quartermain,
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Why I'm Buying Silver at $30 ~ Jeff Clark
February 24, 2011
Issue 92
Today's Gold/Silver Ratio: 42/1

Issue 97

Gold: $1409.60 / Silver: $33.38

Why  I'm Buying Silver at $30
Jeff Clark, BIG GOLD

The silver price has bounced 27% since January 28, a huge advance for a measly 16 trading days. It's already soared past its 2010 high and was selling for less than $16 this time last year, a double in 12 months. So, is it pricy? Or should we ignore the run-up and keep buying?

I've read a few articles that say we should expect silver to drop to the $25 level, and one pinpointed $22. Others, of course, see bullish tea leaves for the near term and believe it's headed higher. Of those that assert silver will decline, most believe it will be temporary, though one writer claims the bull market in precious metals is over (I think he's a holdout from the gold-is-a-bubble camp).

These authors could be right about a near-term decline, but I'm less concerned with what the price does this month or even the next few months, and more focused on where it's likely headed over the next few years. Caution: the chart ahead may cause excitement.
While there are lots of reasons to be bullish on silver, what everyone really wants to know is how high the price can go. Here's one hint, based strictly on historical price performance.

Silver rose an incredible 3,646% from the November 1971 low of $1.32 to its January 21, 1980 high of $49.45 (London PM fix prices). Our current advance, through February 4, is 596%. At $30, silver would have to climb over five times to match the last great bull market. If it did, the price would hit $160.89 per ounce (from its bottom of $4.295 on March 30, 2001).

You'll also notice silver has a record of outperforming gold in these two bull markets. In spite of the price dropping 26.9% in 2008 (while gold gained 5%), the metal has outrun its yellow cousin by 38.6% since their respective lows in 2001.

Gold advanced 2,333% in the 1970s; it's currently up 430%. If it matched the last run, the price would hit $6,227.26 per ounce, a return of four-and-a-half times the gold you buy today.

From solely a historical price perspective, the chart certainly suggests we've got a long way to go with both metals. The question is if the fundamentals support such price advances (show me a healthy dollar and no threat of inflation, and we'll talk), but my point for the moment is that there is an established precedence for the price of these metals to climb much higher. And just as important, to keep one's eye on the big picture.

So, yes, I'm buying silver at $30, in part because I think the potential for enormous gains is high.

However, I'll add that I'm not draining my cash account to do so. I think it's important for the precious metals investor to always be in the game, but given silver's volatility and the precarious nature of most markets right now, prudence suggests we keep some powder dry as well.
Let's say one of the soothsayers noted above is correct and silver temporarily falls to $25. If you snag it at that level, your endgame return would be 543%, vs. the 436% gain from $30 (excluding premiums and storage costs). That's more than another 100% gain on your original investment.

But how does one buy silver not knowing if the price will plummet or soar? For example, silver could take off from these levels, never to see $30 again, leaving those of you waiting for a sell-off out of the market. Or it could sink to $25, making investors who went all in now regret they didn't wait for a better price. Or it could trade sideways until, say, next fall, leaving both parties uncertain and on the sidelines.

In my opinion, there's a one-word answer to the question. It solves all dilemmas - it keeps you in the market, while simultaneously letting you buy at lower prices if that occurs. It lets you build your position bigger and bigger without the worry of whether you're getting a good price.
That one-word verb is, accumulate. Or in the vernacular made popular in the '80s by the financial planning community, dollar cost average. In other words, buy a little now, buy a little next month, etc., until you have a position sufficient in size to fight off inflation and any other economic woe we're likely to encounter over the next few years.

So my advice is, buy, hold, repeat. Because if our silver market ends up looking anything like that left bar in the chart, you may regret not having bought at $30, too.

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Quote of the Week                               

"The expense of our civil government we have always borne, and can easily bear, because it is small. A virtuous and laborious people may be cheaply governed. Determining, as we do, to have no offices of profit, nor any sinecures or useless appointments, so common in ancient or corrupted states, we can govern ourselves a year for the sum you [Englishmen] pay in a single department, or for what one jobbing contractor, by the favor of a minister, can cheat you out of in a single article."

Benjamin Franklin, 1778 

Other Articles      

China Embraces The Gold Standard
The New American
 

$400 Silver, Backwardation…
James Turk

Professor Antal E. Fekete
Silver Summit 2011

Kirsty Hogg

Silver Default Looms
Jason Hommel

Silver Can Double In A Week
Bill Murphy - GATA

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The Government Lied...
There is No More Silver!

Manipulation Fails
Metals Spike over $34

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Physical Gold and Silver Supplies Are Tighter Than Reported ~ Patrick A. Heller
January 28, 2011
Issue 92
 
Issue 93

Physical Gold and Silver Supplies Are Tighter Than Reported
By Patrick A. Heller

There are two main markets for trading gold and silver: the London Bullion Market Exchange and the COMEX in New York. London by far has the higher volume. There are other exchanges elsewhere in the US and around the globe, but large traders tend to buy and sell in these two markets.

The London market is supposed to be for purchasing contracts for delivery of the physical metal at the maturity of the contract. In theory, there is supposed to be enough physical gold and silver in the London vaults to fulfill 100% of the outstanding contracts. This has not been true for some time. At the Commodity Futures Trading Commission March 25, 2010 hearings on gold and silver regulations, both Jeffrey Christian and Adrian Douglas testified that the London vaults only have enough gold and silver to cover 1-3% of open contracts.

The COMEX, in contrast, is more meant for the trading of paper contracts by investors who do not want to take physical delivery (although they can). The COMEX warehouses only have a fraction of the physical gold and silver that would needed if all long positions demanded delivery of physical metal at contract maturity. Realizing this potential problem, the COMEX allows contracts to be settled for cash rather than the commodity. Gold and silver contracts can also now be settled, at the option of the seller of the contract, with shares of exchange traded funds for the same metal.

In normal commodity markets, the price of future contracts trade at higher prices than those maturing this month. The price difference normally reflects the prevailing interest rate minus a bit for the cost of storage. This typical market order is called contango…

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Quote of the Week                               

"If you want to remain slaves of the bankers and pay for the costs of your own slavery, let them continue to create money and control the nation's credit."

- Sir Josiah Stamp [1880-1941]   

Other Articles      

Buy When There Is Blood In The Streets
By: Clive Maund

How gold became politically correct
Michael J. Kosares

Silver: Supply & Demand
Silver Institute

Silver in Backwardation:
Price Set To Explode

James Turk

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Silver Eagle Shortage
David Morgan & Mike Maloney

Too Much Gold Paper
Not Enough Metal

John Hathaway

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Shock And Awe in Precious Metals ~ Jeff Nielson
December 3, 2010 
Issue 87


SGS Notes: I trust you all had a wonderful Thanksgiving weekend... If you've been following silver and gold pricing since the weekend, you know that there has been a rapid rise in price of both metals... silver is now pushing $30 per ounce spot and gold is almost at $1415 per ounce...

Shock & Awe in Precious Metals
Jeff Nielson
December 1, 2010

Earlier this month, precious metals investors witnessed arguably the most concerted take-down of the precious metals sector since the Crash of ’08. First, investors were lathered-up into a mania, after World Bank head Robert Zoellick planted a piece in the Financial Times where he feigned interest in having a gold standard re-instituted.

Then the ambush took place.

This time, China was clearly participating as the ‘tag-team’ partner of the U.S. government. It began by raising reserve requirements for its banks – a move always seen as restraining the growth of an economy (and reducing commodities demand). Then the Chinese government leaked word that it was “planning interest rate increases” (even more bearish for commodities), all within the span of a couple of days.

What launched the “ambush”, however, was the utterly unprecedented move by the CME Group (owner of the Comex exchange) to radically increase margin requirements for silver halfway through a trading session. Clearly, the intent was to get precious metals investors as over-extended as possible – and then to “drop the hammer” on them at literally the best (i.e. most-damaging) moment.

This was immediately followed by yet another increase in bank reserves by China’s government, mere days after the previous reserve-increase was announced. With the U.S. having already taken radical action to curb commodities markets, it is simply not plausible that the Chinese government suddenly decided that further tightening was necessary. Instead, this was a move purely intended to generate more downside momentum in commodities by China, the world’s largest consumer of those commodities (including precious metals). And when those moves still did not generate the downward momentum desired by these market-manipulators, the CME Group announced yet another reduction of “margin” – this time for both gold and silver.

In previous years, a premeditated, orchestrated take-down of precious metals of this magnitude would derail the market for many weeks, if not months. However, that era is over.

Following the inevitable plunge of these commodities markets (as margin players were driven out), gold and silver quickly bottomed and firmed. This epitomizes the entirely different attitude of precious metals buyers. Whereas before such ambushes would create fear among investors that a “top” had occurred in the market, today all that goes through the minds of investors when precious metals go lower is “gold and silver are on sale!”

Buyers gleefully soaked-up every ounce of cheap bullion which the bullion banks chose to bestow upon them (as an early Christmas present). And now, with the month over, and “delivery” due in the Comex, those buyers are saying “give us our gold and silver.” While the numbers bounce around day-to-day, at present these buyers are wanting to take delivery on a large portion of total, available gold inventories and nearly ¾ of all available silver in Comex inventories.

Though it was the bankster cabal which launched this ‘shock’ on the precious metals market (and precious metals investors), the only ‘awe’ that was experienced was that of the banksters, themselves, as buyers are now holding out their hands and demanding that the bullion banks deliver most of their dwindling supplies of real bullion. Much like pointing a bazooka at someone – and not noticing that you were holding it backwards – this ambush has now blown up in the faces of these bankers.

If these manipulative buffoons had the slightest understanding of these markets, the spectacular failure of their attempt to (once again) “cap” precious metals would have come as no surprise. As I write regularly, anything under-priced (like precious metals) will be over-consumed. Push the price even lower, and inventories will disappear that much quicker.

The example I have used previously is chocolate bars. Price chocolate bars at 10 cents each (which was their price before 40 years of banker-produced inflation destroyed the value of our currency) and store shelves will be quickly stripped bare. Yet in the convoluted fantasy-world of the bullion banks, if they saw store shelves being cleaned-out with chocolate bars at 10 cents apiece, their “strategy” would be to attempt to kill demand by pricing them at 5 cents.

In previous years, the banksters could avoid being punished for their total ignorance of commodity fundamentals. Armed with countless tons of bullion which Western central banks had foolishly leased to them, when the cabal drove down precious metals prices and buyers stepped in to load-up, they would simply drive prices even lower (by dumping yet more bullion onto the market) – until even the most ardent bulls capitulated.


Other Articles of Interest

The Dumping Begins:
Chinese Reserve Managers Notified That Any Non-USG Guaranteed Securities Must Be Divested

Zerohedge

China, Russia Quit Dollar
China Daily

Why Governments Will
Buy Silver

SilverSeek


 


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This Week's Video

The Day The Dollar Died

By InflationUs

 

 

 

Those days are gone, because the bullion is gone. Today, when bullion prices are driven down, and buyers step in to buy, it is the bullion banks who are now forced to capitulate. Much like a thug who points a revolver at someone – after the sixth shot is fired – the banksters now frighten no one in the precious metals market.

In the case of silver, the only “gun” now pointing at anyone is the gun which the bullion bankers are holding against their own temple (with a “silver bullet” in the chamber). As regular readers know, most of the total global stockpiles of silver (accumulated over roughly 5,000 years) are now gone. Used-up (in tiny amounts) in an infinite number of consumer and industrial goods, that silver can now never be economically recovered – unless/until the price rises to many multiples of the current price. Put another way, with gold now priced at roughly 50 times the price of silver, at some point before silver reaches $1400/oz, it will finally become valuable enough that industrial users will take measures to recover this silver, much like virtually 100% of all gold is recovered/recycled.

At the present time, the only message being sent (by the bankers) to silver’s multitude of industrial users is “silver is cheap”. With the bankers ensuring that silver is grossly under-priced, industrial demand is predictably soaring – up 18% year-over-year.

Readers must realize that these industrial users can obviously never be “frightened off” by cheap silver, but instead will simply increase their buying (as they have done). Having gotten industrial users ‘addicted’ to cheap silver, it is now up to the bullion banks to produce enough real bullion to satisfy the rabid appetite for industrial silver – or face the consequences: their own economic annihilation.

“Short” 100’s of millions of ounces of silver, JP Morgan is already facing $billions in losses on that part of their holdings, alone. However, after squandering their bullion inventories, the banksters turned to the derivatives market to use paper leverage to continue to manipulate prices.

Thanks to the CPM Group’s Jeffrey Christian, we have a rough idea of precisely how leveraged is that short position: about 100:1. So when JP Morgan starts with $billions in losses, and leverages that 100:1, the bottom-line is bankruptcy. And the harder these knuckle-draggers push-down on the market (thinking they are limiting their losses), the sooner the last bar of silver is gone – and with it, JP Morgan.

With available silver now nearly gone, we are very close to (if not already at) the point in time where industrial users make a frantic effort to buy and hoard every ounce of silver that they can lay their hands on, and soaring prices will only make them buy faster. Understand that the pretext of raising margin requirements in the silver market was to restore “order” to that market. Instead, because this move was motivated by corruption and malice rather than market fundamentals, raising margin requirements (and creating a “sale” for silver) is creating much more disorder – and rapidly setting the stage for an actual default (a fail to “deliver”) in the silver market.

It is because of this total reversal in attitudes (and the depletion of bullion inventories) that I continue to urge investors to “think like the big buyers”. They want to see bullion prices fall, because they know inventories are depleted, and any pull-backs will be shorter and shorter.

When bullion prices fall, gold and silver are “on sale”. Period. And as we are always reminded when any retailer advertises a sale, buy now – because quantities are limited.

 

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Will the CFTC Actually ACT to Protect Silver Investors? ~ Tradeplacer.com
October 29, 2010 
Issue 83

S&GS Notes: There has been more developing this week on the issue of manipulation of the gold & silver markets. While we've covered this topic in the past, we felt it best to devote this week's newsletter to an update on what is happening on this scene to keep our subscribers informed.

What does this have to do with silver investing you may well ask? Well, it's been driving the price points for some time now; and the more pressure is brought to bear on the guilty parties, we may well see significant spikes in the pricing as they try to cover their short positions, and the downward manipulation of price ends due to public pressure and possible CFTC regulatory activity. Grab your silver and hang on for the ride…

Will the CFTC Actually ACT to Protect Silver Investors?
from Tradeplacer.com

The silver market has seen a lot of surprises this year, and the statement today made by CFTC Commissioner Bart Chilton is probably the most unexpected yet. After more than two years of "investigation" into the silver market with no acknowledgment of structural issues, Chilton gave a public meeting in which he was quoted as saying "There have been fraudulent efforts to persuade and deviously control that price... the public deserves some answers to their concerns that silver markets are being, and have been, manipulated." He went on to state that the CFTC would be introducing new regulations to curb manipulation in the precious metals markets. Silver rose nearly 80 cents from its intraday low on the news.

Silver analyst Ted Butler has been writing letters and warning the CFTC of the consequences of manipulation in the silver market for more than 20 years. Not many people would bother to warn of these issues when ignored and ridiculed, however Butler persisted with his call for action to remove manipulators from the market. Up until recently, these warnings have been completely ignored.

As Butler and others have documented, a concentrated group of four to eight traders have been responsible for nearly 70 percent of all short positions in silver on the COMEX. These traders have consistently traded in unison to move prices while collecting large profits along the way. It is suspected that JP Morgan holds the majority of these short positions; however the CTFC has refused to acknowledge this and trading positions are not publicly disclosed.

Why Now? What does the CFTC and the short commercial banks know that we don't?

It doesn't take 20 years, or 2 years for that matter, to realize that there are obvious structural problems with the silver market - especially when the issues are spoon fed by letters from thousands of individuals. Given the reactive nature of the CFTC, it is unlikely that Chilton is acting preemptively to protect the small investor. It is more likely that the CFTC position is changing due to the structural change in the silver market. In 2008 weak long speculators were categorically replaced with blood thirsty hedge funds, wealthy investors, and developing nations who buy in cash.

(click to enlarge)

As previously documented on Tradeplacer.com, the commercial banks began to cover their short positions in a rising market about four weeks ago which is highly unusual. While silver has oscillated between $23 and $25 over the last month, the banks have continued to quietly cover. Perhaps Chilten means what he says and the banks began to cover in anticipation of further regulation by the CFTC.

Is it too late?

As of October 19th, the commercial traders were still net short 58,150 contracts - roughly 290 million ounces of silver. There are currently only 52 million registered ounces and 59 million eligible ounces held in COMEX warehouses. It would not be possible to remove the short commercials from the silver market in an orderly fashion. The majority of contracts would have to be settled in paper at much higher prices. As pointed out by Butler, the worst case scenario - and increasingly likely - would be a closure of the paper precious metals markets. If that occurs physical silver would likely trade in multiples of its previous paper price and would be unavailable to most buyers. The apparent choice by the CFTC to act is most likely no choice at all. It is a desperate move to maintain the status quo and a reaction to an eminent emergence of either physical shortages or dollar devaluation instigated by a wave of quantitative easing.

Jeff Lewis, of Silver Coin Investor, has the following perspective on this week's announcement by Bart Chilton:

"Almost every major financial media entity ran the story about CFTC regulator, Bart Chilton's statement regarding silver manipulation.

This is quite a remarkable event for our small, yet growing community. 

But given the fact that governments have little incentive to prevent a crisis, I believe this was a very well-crafted and strategic announcement.

Yes, I'm feeling a bit cynical about it.
 


Other Articles of Interest

Commercials Begin To
Cover Silver Short Position
s

Tradeplacer.com

Could This Be It?
David Bond, Publisher

Traders Accuse HSBC,
JP Morgan
of Silver Manipulation

Forbes Magazine

Silver to 30 In 18 Days
James Turk

The Return to Good Money
Jeff Nielson


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SGS: We saw a 'correction' briefly this past week in the price of silver/gold… this was more likely the combination of manipulative activity plus the drop that usually accompanies the gold/silver options expiration date each month (Oct 26). We see this over and over… when these dips happen, buying RETRACTS… it is the old 'loss of confidence' phenomenon… wise investors don't let themselves get caught by this…. BUYING SHOULD SURGE on the price dips…

SGS Volume Discounts

SGS has received several inquiries of late regarding our volume discount program. Our volume discounts apply only to non-numismatic rounds and begin with quantities of 200 ounces or more as follows:

200 -500 oz - $1.00 / oz discount
501 - 1000 oz - $1.50 / oz discount
1001 or more - $2.00 / oz discount

Volume orders will need to be placed by phone at present. We welcome individuals to enlist acquaintances to join them in a group order to take advantage of these discounts.

 



 

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"This fiat currency experiment will end badly in a currency crisis, and when that happens, as it surely will, gold will go parabolic and silver along with it but even more so as the gold/silver ratio adjusts itself to a more historical correlation. The wealthiest people in the world will be those who put 10% to 15% (or perhaps more, much more!) of their portfolios into physical silver today."

Lorimore Wilson
Editor Financial Article Summaries today


 


 

Dollar, Silver, GDP, QE2, elections
Peter Schiff - Schiff Report

 


On the surface, The Wall Street Journal's 'C1' article provided one of the most compelling and in-depth accounts:

http://online.wsj.com/article/SB10001424052702303341904575576203310056046.html

There was mention of the concentrated short position.
They named the major players -- HSBC and JP Morgan.
Many of the other reports were phrased in such a way that it almost sounded like prices were being manipulated higher, not lower.

But not this one.
And to top it all off, we are now considered 'manipulation theorists', rather than 'conspiracy theorists' - which has a more credible sounding ring….
I don't mean to diminish the significance of this event, but...

Below the surface of this news, I believe we are witnessing a political announcement meant to create the sense that we are being protected by regulators.

If and when the price of silver explodes, the noise from this statement may serve to position blame in such a way that the call for more regulation will once again have the political will of the people behind it.
Recall the politics surrounding the formation of the Federal Reserve Act.

The bill was presented as a way of protecting the people from a crisis caused by banks.
Look what that got us.
I want to believe this is a step in the right direction in terms of the general awareness created in the mainstream.
However, the reactionary nature of governments to form committees after the fact leaves me suspicious.
And the natural laws of supply and demand will come to pass, despite efforts to interfere - for or against. "

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An Encore Presentation ~ Art Cashin
October 22, 2010 
Issue 82

An Encore Presentation
by Art Cashin 10/12/2010

(Today we will revisit one of the most devastating economic events in recorded history.It all began with the efforts of a few, well-intentioned government officials.)

Originally, on this day (-2) in 1922, the German Central Bank and the German Treasury took an inevitable step in a process which had begun with their previous effort to "jump start" a stagnant economy. Many months earlier they had decided that what was needed was easier money. Their initial efforts brought little response. So, using the governmental "more is better" theory they simply created more and more money.

But economic stagnation continued and so did the money growth. They kept making money more available. No reaction. Then, suddenly prices began to explode unbelievably (but, perversely, not business activity).
So, on this day government officials decided to bring figures in line with market realities. They devalued the mark. The new value would be 2 billion marks to a dollar. At the start of World War I the exchange rate had been a mere 4.2 marks to the dollar. In simple terms you needed 4.2 marks in order to get one dollar. Now it was 2 billion marks to get one dollar. And thirteen months from this date (late November 1923) you would need 4.2 trillion marks to get one dollar. In ten years the amount of money had increased a trillion fold.

Numbers like billions and trillions tend to numb the mind. They are too large to grasp in any "real" sense. Thirty years ago an older member of the NYSE (there were some then) gave me a graphic and memorable (at least for me) example. "Young man," he said, "would you like a million dollars?" "I sure would, sir!", I replied anxiously. "Then just put aside $500 every week for the next 40 years." I have never forgotten that a million dollars is enough to pay you $500 per week for 40 years (and that's without benefit of interest). To get a billion dollars you would have to set aside $500,000 dollars per week for 40 years. And a…..trillion that would require $500 million every week for 40 years. Even with these examples, the enormity is difficult to grasp.

Let's take a different tack. To understand the incomprehensible scope of the German inflation maybe it's best to start with something basic….like a loaf of bread. (To keep things simple we'll substitute dollars and cents in place of marks and pfennigs. You'll get the picture.) In the middle of 1914, just before the war, a one pound loaf of bread cost 13 cents. Two years later it was 19 cents. Two years more and it sold for 22 cents. By 1919 it was 26 cents. Now the fun begins.

In 1920, a loaf of bread soared to $1.20, and then in 1921 it hit $1.35. By the middle of 1922 it was $3.50. At the start of 1923 it rocketed to $700 a loaf. Five months later a loaf went for $1200. By September it was $2 million. A month later it was $670 million (wide spread rioting broke out). The next month it hit $3 billion. By mid month it was $100 billion. Then it all collapsed.
Let's go back to "marks". In 1913, the total currency of Germany was a grand total of 6 billion marks. In November of 1923 that loaf of bread we just talked about cost 428 billion marks. A kilo of fresh butter cost 6000 billion marks (as you will note that kilo of butter cost 1000 times more than the entire money supply of the nations just 10 years earlier).

How Could This All Happen? - In 1913 Germany had a solid, prosperous, advanced culture and population. Like much of Europe it was a monarchy (under the Kaiser). Then, following the assassination of the Archduke Franz Ferdinand in Sarajevo in 1914, the world moved toward war. Each side was convinced the other would not dare go to war. So, in a global game of chicken they stumbled into the Great War.

The German General Staff thought the war would be short and sweet and that they could finance the costs with the post war reparations that they, as victors, would exact. The war was long. The flower of their manhood was killed or injured. They lost and, thus, it was they who had to pay reparations rather than receive them.
Things did not go badly instantly. Yes, the deficit soared but much of it was borne by foreign and domestic bond buyers. As had been noted by scholars….."The foreign and domestic public willingly purchased new debt issues when it believed that the government could run future surpluses to offset contemporaneous deficits." In layman's English that means foreign bond buyers said - "Hey this is a great nation and this is probably just a speed bump in the economy." (Can you imagine such a thing happening again?)


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When things began to disintegrate, no one dared to take away the punchbowl. They feared shutting off the monetary heroin would lead to riots, civil war, and, worst of all communism. So, realizing that what they were doing was destructive, they kept doing it out of fear that stopping would be even more destructive.

Currencies, Culture And Chaos - If it is difficult to grasp the enormity of the numbers in this tale of hyper-inflation, it is far more difficult to grasp how it destroyed a culture, a nation and, almost, the world.

People's savings were suddenly worthless. Pensions were meaningless. If you had a 400 mark monthly pension, you went from comfortable to penniless in a matter of months. People demanded to be paid daily so they would not have their wages devalued by a few days passing. Ultimately, they demanded their pay twice daily just to cover changes in trolley fare. People heated their homes by burning money instead of coal. (It was more plentiful and cheaper to get.)

The middle class was destroyed. It was an age of renters, not of home ownership, so thousands became homeless.

But the cultural collapse may have had other more pernicious effects.

Some sociologists note that it was still an era of arranged marriages. Families scrimped and saved for years to build a dowry so that their daughter might marry well. Suddenly, the dowry was worthless - wiped out. And with it was gone all hope of marriage. Girls who had stayed prim and proper awaiting some future Prince Charming now had no hope at all. Social morality began to collapse. The roar of the roaring twenties began to rumble.

All hope and belief in systems, governmental or otherwise, collapsed. With its culture and its economy disintegrating, Germany saw a guy named Hitler begin a ten year effort to come to power by trading on the chaos and street rioting. And then came World War II.
We think it's best to close this review with a statement from a man whom many consider (probably incorrectly) the father of modern inflation with his endorsement of deficit spending. Here's what John Maynard Keynes said on the topic:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some…..Those to whom the system brings windfalls….become profiteers.

To convert the business man into a profiteer is to strike a blow at capitalism, because it destroys the psychological equilibrium which permits the perpetuance of unequal rewards.

Lenin was certainly right. There is no subtler, no surer means of over-turning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose….By combining a popular hatred of the class of entrepreneurs with the blow already given to social security by the violent and arbitrary disturbance of contract….governments are fast rendering impossible a continuance of the social and economic order of the nineteenth century.

To celebrate, have a jagermeister or two at the Pre Fuhrer Lounge and try to explain that for over half a century America's trauma has been depression-era unemployment and deflation while Germany's trauma has been runaway inflation. But drink fast, prices change radically after happy hour. And, tell Fed Chairman Bernanke that it was the "German Experience" that caused many folks to raise an eyebrow when he alluded to the power of the "printing press" a few years ago. But, rest assured that no one would let it happen again.
 

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