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Nice Government Men

Posted Friday, September 16, 2011, at 10:37 PM

 

It looks like the political season is here to stay for the next 14 months or so. Such is life in these United States.

At this point, there is not much that excites me in presidential politics. The President has fouled the punch bowl for Democrats and no one can steal defeat from the jaws of victory like the Republicans. At the moment, I count my self as one of the many "Honkies for Herman" Cain. Ron Paul also intrigues me.

Herman Cain, the long-shot candidate from Georgia, has degrees in mathematics and physics. His first post college job was for the United States Navy developing fire control systems. He made pizzas with his own hands before he became the CEO of Godfather's Pizza. He made Whoppers with his own hands before becoming the CEO of Burger King. He even was president of the board of directors for the Federal Reserve Bank of Kansas City. Experience, which may be timely these days. He has never held any elected office.

However, at this point, it is not the campaign for president that has captured my political interests. Rather, it is how those nice government men, frantically trying to save us, who are systematically destroying our economy, and thus, eventually, our country.

For something close to 100 years, the U.S. stock market has been the barometer by which the average person predicts the economic weather. Whether invested or not, the average American sees a rising stock market as a good economic sign with better times ahead. In my opinion, that is exactly why the nice government men have been manipulating the stock market. To me, it looks like the stock market is being held artificially high.

If you want to see the raw data your self, a little time with an Internet search engine should yield you more information than the average person would want to read.

When I look to matters economic, I make decisions and predictions based on "fundamentals." Other people are "chartists," who rely on patterns in charts to predict where any given market is headed. I have learned to study charts to be aware of what the people who rely on them are thinking. But the fact is, historical charts seem to show that there is currently significant manipulation in most investment markets. These are the footprints of the nice government men who say they only want to help us.

Market manipulation goes right to the heart of the debate between Austrian economists and Keynesian economists. Unfortunately for the Keynesians, markets are just too big to be manipulated too much for too long. It looks to me that sooner or later; stocks are set for a deep and lengthy tumble.

Those same nice government men have been successfully manipulating the Silver market and have been able to make distortions in the gold market. Nice government men (N.G.M.) don't like gold and silver. People put their money there when they lose faith in governments; this is very bad for the N.G.M. The nice government men have been trying to hold gold and silver prices down by manipulating margin requirements, what qualifies as margin collateral, and timed buys and sells. But sooner or later, natural market forces will overwhelm the manipulations. Gold and silver seem likely to go up even though they have recently moved down, especially silver.

The nice government men have also been desperately trying to manipulate the oil and other energy markets. Energy prices affect stocks, agriculture, precious metals, and acts as bell weather to economic health in the same way that the DOW Jones Industrial Average does for the stock market. Energy markets have been largely successfully manipulated for all of my life. I have no idea where energy prices are headed, but my hunch is that it will be generally up relative to a declining U.S. dollar.

The currency markets have also been successfully manipulated for my entire life. However, it appears that the manipulation is in the process of failing as we all watch.

It is highly unlikely that even the best efforts of the very nicest of government men will be able to sustain the Euro in the long term. To help the nice government men in Europe, as well as for their own selfish interests, the dollar has intentionally been driven lower in a race to the bottom. On Aug. 15, 1971, President Nixon cut the last link of the dollar to gold. I am not aware of any other currency not backed with silver or gold lasting any more than 40 years. The future of today's dollar is not exactly bright. The only reason the dollar has ticked up these past two weeks is that the Swiss have decided to devalue their money. The Swiss franc was the most secure alternative to the Euro, which leaves only the dollar.

Historically, as investors become nervous, or even less risk tolerant with age, they tend to move into the most secure instruments like bonds, treasury bills, and certificates of deposit. Historically, as gold moves up, interest rates move up, as they are both affected by the same forces. It is blatantly obvious that the nice government men have been manipulating interest rates forcing them to be astoundingly low.

As gold has been rising, interest rates have been falling. Currently, everyone who invests in interest paying instruments is getting a smaller return than their losses to the rate of inflation; even the bogus, rigged, ridiculously low, "official" inflation rate. This means all of your savings are "earning" negative interest and losing money every day that you continue to save. Picking pennies off the ground gives you a higher return than the interest on your savings.

The nice government men are trying to force us into the risky stock market. When we lose our shirts, we should be happy to know that the nice government men were convinced that it was all for the greater good of our country.

But markets are just too big to be able to be manipulated for long. In the end, those nice government men who try to save us from ourselves, virtually always distort markets with the result of eventually making things worse. This is particularly true as computers continue open U.S. investment markets to virtually everyone in the world. As the manipulation becomes more obvious and more protracted, more people are going to lose faith. When people have lost faith, when they are looking for security during difficult times, when interest rates are negative to inflation, they leave stocks, bonds, energy markets, and currencies, and turn to tangible assets like gold, silver, and real estate.

As I mentioned in a comment to an earlier column, I am basically a conservative with libertarian tendencies and a student of the Austrian theory of economics. That said, as a 44-year-old, I am more risk tolerant than a 55- or 65-year-old should be. These are just my thoughts on these subjects and you follow them at your own risk. It is always a bad idea to invest in what you do not understand. People should do their own research before making investment decisions.


Comments
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I have had minor disagreements with some of your positions in the past, but I find this analysis "spot on". I only wish more citizens had heard of Austrian economics, let alone studied it. If we had a truly informed electorate, many of our problems would be voted out. While living in Texas in 1980 I recall writing my Congressman urging him to vote against the Monetary Control Act of 1980, which gave the Federal Reserve the authority to monetize any debt, foreign or domestic, public or private. His response made it obvious he didn't even know what I was talking about, but voted in favor of the act anyway. We see the results some 30 years later of this kind of thinking. As this economic house of cards comes tumbling down, gold will remain as it always has, the last refuge, while the dollar will become only a footnote in history. Thanks to those NGM.

-- Posted by Bob E on Sun, Sep 18, 2011, at 4:06 PM

Waddya know. Now we can form the Austruan Economics Club suggested in a comment in an earlier post!

That said, the fact that you don't agree with everything I write proves you are a deeply thoughtful person. It should be nearly impossible for any two people who really think about something to some to the exact same conclusion.

CH

-- Posted by Charles Hear on Mon, Sep 19, 2011, at 6:05 PM


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