Blogs on How to Invest, Gold & Silver, and Economics 101

Mike Maloney Reflects on Past, Future and Staying the Course



The WealthCycles management team recently took a few days to recharge their jets and gain a fresh perspective on the rapidly evolving economic scene. The working retreat a beautiful Lake Arrowhead, California, afforded an opportunity for Michael Maloney time to sit down for an in-depth interview with silver investor John Christian of Stella Concepts.

In this video blog, Mike takes viewers back to how he got his start as a precious metals investors, then expounds on the deeply held convictions that led him to be 100% invested in gold and silver—while the precious metals cycle continues.

The word “cycle” comes from the Greek word kyklos, meaning cycle or circle. One common definition of cycle is “a periodically repeated sequence of events.”

The idea of a cycle is symbolized by a circle, which, because there is no beginning or end, represents recurrence. The symbolic circle is often divided into segments—often two, such as the Chinese yin and yang or day/night, but more often four segments, like the seasons.

A recognition and understanding of cycles is one way human beings are able to recognize patterns in data. As early humans learned that events in nature recur over and over again with regularity, they developed the ability to plan for the future, which ultimately led to advanced civilizations.

A market in which the primary price trend is upwards 

From Wikipedia.org:

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

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Central Bankers Thrash In the Water

Misery loves company, and central bankers are no different than the rest of us.

Over the past weekend, central bankers gathered in Jackson Hole, not just to lament their impotence, but to gather and console each other with the jargon-laden terminology that accompanies these Economic Blowhard Symposia. The Wall Street Journal’s Irwin Stelzer puts it like this:

Ben Bernanke is current Chairman of the Federal Reserve Board. He succeeded Alan Greenspan as Chairman in 2006, following his nomination by former President George W. Bush. He is an economist and former professor at Princeton University. Nicknames include "the bernank," and "Helicopter Ben."  

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The Dollar Catches Dutch Disease

For decades, economists have argued that the United States’ economy is more flexible, adaptable, and entrepreneurial than any other country in the world—is this true, or simply a figment of the dollar’s global dominance as reserve currency?

Years ago, the Nederlands discovered massive reserves of natural gas in the North Sea—a windfall—that left government coffers full. But economists in their ivory towers and citizens on the streets quickly realized that the apparent blessing was anything but. While at first the windfall was beneficial, it quickly became a curse.

A fiat currency is created by a government decree. The Latin word fiat means “let it be done.” And with the stroke of a pen, or the crank of a printing press, “money” is created. Fiat currency has no inherent value—the paper that a $100 dollar bill is printed on is surely not worth $100. It might have been worth a few cents before the government ruined its utility as scrap paper by printing green words and numbers all over it! Compare this with gold, which is a precious, rare metal that is, in many cases, the only substance on earth that can be used for certain human purposes, including science, medicine, and of course—adornment.

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The Mysterious Habits of Central Banks

To look at the gold-buying habits of the Western central banks, you’d almost think they were in it to lose money. In fact, they like many investors, are depending on gold as a backstop if the global currency system implodes.

Doug Hornig of Casey Research shakes his head over an investment history that has had Western central banks consistently selling low, buying high—the exact opposite of what any sensible investor would do. Hornig writes:

A market in which the primary price trend is downward.

A fiat currency is created by a government decree. The Latin word fiat means “let it be done.” And with the stroke of a pen, or the crank of a printing press, “money” is created. Fiat currency has no inherent value—the paper that a $100 dollar bill is printed on is surely not worth $100. It might have been worth a few cents before the government ruined its utility as scrap paper by printing green words and numbers all over it! Compare this with gold, which is a precious, rare metal that is, in many cases, the only substance on earth that can be used for certain human purposes, including science, medicine, and of course—adornment.

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Margin Hikes, Upcoming Bernanke Speech Make for Wild Week

It’s been a wild week for gold investors. As always, we at WealthCycles.com don’t make predictions or give investment advice—but we will tell you what we plan to do.

As the world waits for U.S. Federal Reserve Chair Ben Bernanke’s Jackson Hole pronouncement tomorrow (see yesterday’s feature article, Twisting and Showing in Jackson Hole for more on this), the past couple of days have seen a plunge in gold prices by more than $200 per ounce from Tuesday’s record high of over $1917.90, before trending back up slightly at today’s close.

So what’s going on? Short-term “sound and fury, signifying nothing,” to quote ol‘ Billy Shakespeare.

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Choosing Your Life



This thought-provoking video from the Charles Koch Foundation posits two list of countries and asks the viewer, if you had to choose a country from one of these lists where you must live your entire life, which list would you choose: the list that includes nations such as the United States, Canada, Australia, Singapore, Chile and the UK? Or the list that includes Algeria, Burundi, Congo, Venezuela and Zimbabwe?

Most people would pick the first list.

The nations on the first list enjoy much lower rates of poverty and inflation and an income per person that averages 10 times higher than those on the second list.

But it was not inflation rates or average income that determined which nations were on which list—rather the lists were organized based on the degree of economic freedom offered by each.

“Across the globe, we see a strong relationship between economic freedom and people’s quality of life.” Nations that enjoy greater economic freedom also score higher on the happiness index, have higher environmental quality and longer average lifespan as well as lower rates of corruption, infant mortality, child labor and unemployment.

Inflation is simply an increase in the supply of currency and credit. The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling is defined by the term "price inflation." Central Banks attempt to stop deflation, a natural phenomenon which occurs in order to correct the prior inflation.

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Our Money Is Still On the Free Market

Stock prices rebounded on closing today, the Dow rising 3%, a 5.8-magnitude earthquake that rattled the Eastern Seaboard notwithstanding. The reason for the jump—the mere possibility that the U.S. Federal Reserve, responding to more bad news for the economy, might somehow pull yet another rabbit out of its hat.

Two economic reports released today—a regional manufacturing survey and new home sales nationally—showed a sharp downturn in economic growth, the Wall Street Journal reported.

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Is the Fed Buoying Stock Markets?

In the midst of Japan’s lost decades, one vocal U.S. Federal Reserve Governor argued that Japan’s central bank had not done enough—that they should be buying stocks, bonds, and real estate outright in order to not just prop those markets up—but to let investors know that those markets would be propped up. That governor was Ben Bernanke—today’s Chairman of the Federal Reserve Bank.

Bernanke is now presiding over a divided Federal Reserve. The latest minutes from the August 9 Fed meeting show that three governors: Richard Fisher, Narayana Kocherlakota, and Charles Plosser—all voted against the newest Federal Open Market Committee Statement, which included pledges to keep rates low “at least” until 2013, and had stronger language suggesting other forms of intervention, such as a third round of quantitative easing, or QE3. Three is the most dissents recorded among the Fed governors in nearly 20 years.

So what are these dissenters doing, and why are they stepping on Bernanke’s toes? A Bloomberg article helps clarify.

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Of Treason and Free Markets

GOP Presidential candidate and Texas Governor Rick Perry certainly kicked up a lot of dust the other day by calling out U.S. Federal Reserve Chair Ben Bernanke’s monetary policies as “treasonous,” to say nothing of his hints of violence should Bernanke ever set foot in the Lone Star State.

Time.com blogger Roya Wolverson, while calling for cooler heads and more civil language, nevertheless pointed out in her article (Is Rick Perry Right About a Runaway Fed?) that Perry is not by a long shot the only one concerned with the Fed’s runaway money-printing tendencies. Many rational thinkers, as they watch the dollar and the rest of the world’s fiat currencies bleed value day by day (see Wednesday’s feature article, One Big, Bad Apple, for more on this), might echo Perry’s sentiment, if not his means of expressing it.

Ben Bernanke
Ben Bernanke

Inflation is simply an increase in the supply of currency and credit. The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling is defined by the term "price inflation." Central Banks attempt to stop deflation, a natural phenomenon which occurs in order to correct the prior inflation.

Quantitative easing is central banker speak for creating currency to buy debt or other assets.

The process of quantitative easing is fairly simple—it involves printing currency and buying assets from banks—but it can take many different forms. Central banks can use Q.E. to buy relatively safe treasury securities, pumping cash into their vaults to stimulate lending; or they can buy assets that have lost value (think mortgage-backed securities) in order to make banks whole and attempt to shore up their balance sheets. Central banks can also target certain maturities of the assets they purchase, to push down the cost of short-term, medium-term, or long-term borrowing. 

A fiat currency is created by a government decree. The Latin word fiat means “let it be done.” And with the stroke of a pen, or the crank of a printing press, “money” is created. Fiat currency has no inherent value—the paper that a $100 dollar bill is printed on is surely not worth $100. It might have been worth a few cents before the government ruined its utility as scrap paper by printing green words and numbers all over it! Compare this with gold, which is a precious, rare metal that is, in many cases, the only substance on earth that can be used for certain human purposes, including science, medicine, and of course—adornment.

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Safe and Sane Investors Turn to Gold

Does anyone remember those old days when U.S.Treasuries were considered the safe haven asset, and gold was considered a quirky, volatile, fuddy-duddy, thing that tin-foil conspiracy theorists bought?

Well, either times have changed, or people have finally come to their senses. The latest salvo against the sovereign paper trade is this chart, posted by Michael A. Gayed, CFA over at The Big Picture, interestingly titled “Gold = Treasuries.” The most interesting thing is the chart. In a period of two years, gold’s correlation with Treasuries has gone up from 0.5 to 0.89, meaning that Treasuries have moved practically in lockstep with gold.     

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Wake Up Call



“If you don’t know the game and the rules that we’re playing by, you’re gonna get slaughtered!”

Presenting to an investors conference recently in Puerto Rico, Michael Maloney shares his perspective on today’s global economy and how to get ready for the greatest wealth transfer in history.

“I believe there’s going to be deflation first, and then, all of the world’s central banks will start printing like crazy to get us out of that deflation, and [U.S. Federal Reserve Chair] Ben Bernanke will be leading the charge.

The signs are clear, Mike continues:

Deflation is a contraction of the currency supply, which causes prices to fall and the value of currency to rise. When prices fall, a boom becomes a bust, and suddenly a recession becomes a depression.  Fed Chairman Ben Bernanke, a scholar of the Great Depression, knows the dangers that deflation poses to a debt-based economy.

Ben Bernanke is current Chairman of the Federal Reserve Board. He succeeded Alan Greenspan as Chairman in 2006, following his nomination by former President George W. Bush. He is an economist and former professor at Princeton University. Nicknames include "the bernank," and "Helicopter Ben."  

Simply put, bonds are debt. Bonds basically say: "I owe you (IOU) X-amount of currency, plus X-amount of interest." —Michael Maloney, Guide to Investing In Gold & Silver. But, there is more to it than that. Bonds set the cost of borrowing, determine international currency flows, and play a huge role in determining the value of each nation’s currency. That means bonds have a direct effect on the dollars, euros, pesos or yuan in your wallet or bank account.

Quantitative easing is central banker speak for creating currency to buy debt or other assets.

The process of quantitative easing is fairly simple—it involves printing currency and buying assets from banks—but it can take many different forms. Central banks can use Q.E. to buy relatively safe treasury securities, pumping cash into their vaults to stimulate lending; or they can buy assets that have lost value (think mortgage-backed securities) in order to make banks whole and attempt to shore up their balance sheets. Central banks can also target certain maturities of the assets they purchase, to push down the cost of short-term, medium-term, or long-term borrowing. 

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Why Debt Crises Destroy Banks

After the U.S. downgrade by S&P, many pundits simply guffawed that the downgrade was a sideshow—a simple distraction from the true issues of debt and default. And that's true to a certain extent—but if people actually think the downgrade is an issue—it may actually become one. A nation’s debt and the state of its banking system are intimately related. When there is a problem in one, you can be pretty sure there is a problem in the other. Any old notion of a “risk-free” government bond has quickly been laid to rest. 

In the wake of Standard & Poor’s downgrade, the stability of other “AAA” sovereigns like the United Kingdom and France has been called into question. This, of course, has repercussions in the financial markets, where countries may suddenly find that their costs have gone skyward.

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Happy Birthday Fiat



Forty years ago on this day, President Richard Nixon made this announcement, interrupting America’s most popular show, Bonanza, to make this statement to the American people:

The president’s announcement ended the last vestiges of a gold-based currency system—a system that had been slowly watered down over the course of 100 years. With Nixon’s pronouncement, gold became a relic, or more aptly—an emergency precaution—to be tucked away for 40 years. Gold’s re-emergence onto the scene isn’t a shocker—it’s simply an affirmation of Herbert Hoover’s (a president of an earlier era, reviled for other reasons) most prescient words:

“We have gold because we cannot trust governments.”

Herbert Hoover, 1933

Inflation is simply an increase in the supply of currency and credit. The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling is defined by the term "price inflation." Central Banks attempt to stop deflation, a natural phenomenon which occurs in order to correct the prior inflation.

Deflation is a contraction of the currency supply, which causes prices to fall and the value of currency to rise. When prices fall, a boom becomes a bust, and suddenly a recession becomes a depression.  Fed Chairman Ben Bernanke, a scholar of the Great Depression, knows the dangers that deflation poses to a debt-based economy.

A fiat currency is created by a government decree. The Latin word fiat means “let it be done.” And with the stroke of a pen, or the crank of a printing press, “money” is created. Fiat currency has no inherent value—the paper that a $100 dollar bill is printed on is surely not worth $100. It might have been worth a few cents before the government ruined its utility as scrap paper by printing green words and numbers all over it! Compare this with gold, which is a precious, rare metal that is, in many cases, the only substance on earth that can be used for certain human purposes, including science, medicine, and of course—adornment.

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Life in Perilous Times

Always a fickle mistress in the best of times, Wall Street today is the girlfriend with “mood swings” who ends up stalking your sister and killing your cat.

As reported in the chart below, the S&P volatility index, or VIX, is at its highest point in a decade with the exception of late 2008, and rising, with wild swings leaving traders and investors flying blind and coping as best they can.

Why the market freakout? A recent NPR Morning Edition segment alludes to an explanation: It’s not just S&P’s downgrade of U.S. bonds from triple-A to double-A; it’s all the other unknowns out there that, cumulatively or maybe even singly, could push the global economy right off the cliff.

Quantitative easing is central banker speak for creating currency to buy debt or other assets.

The process of quantitative easing is fairly simple—it involves printing currency and buying assets from banks—but it can take many different forms. Central banks can use Q.E. to buy relatively safe treasury securities, pumping cash into their vaults to stimulate lending; or they can buy assets that have lost value (think mortgage-backed securities) in order to make banks whole and attempt to shore up their balance sheets. Central banks can also target certain maturities of the assets they purchase, to push down the cost of short-term, medium-term, or long-term borrowing. 

Simply put, bonds are debt. Bonds basically say: "I owe you (IOU) X-amount of currency, plus X-amount of interest." —Michael Maloney, Guide to Investing In Gold & Silver. But, there is more to it than that. Bonds set the cost of borrowing, determine international currency flows, and play a huge role in determining the value of each nation’s currency. That means bonds have a direct effect on the dollars, euros, pesos or yuan in your wallet or bank account.

Simply put, bonds are debt. Bonds basically say: "I owe you (IOU) X-amount of currency, plus X-amount of interest." —Michael Maloney, Guide to Investing In Gold & Silver. But, there is more to it than that. Bonds set the cost of borrowing, determine international currency flows, and play a huge role in determining the value of each nation’s currency. That means bonds have a direct effect on the dollars, euros, pesos or yuan in your wallet or bank account.

Inflation is simply an increase in the supply of currency and credit. The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling is defined by the term "price inflation." Central Banks attempt to stop deflation, a natural phenomenon which occurs in order to correct the prior inflation.

The number one most used indicator for the economy is Gross Domestic Product, or GDP. GDP measures the output of all goods and services in an economy. Even if a hammer or a computer was made, but never sold and sat on a storeroom shelf, it is still included in GDP. GDP is used to determine if an economy is growing or shrinking—economies go through long cycles of expansion and recession, and the best way to tell where we have been in that cycle is with GDP.

Oftentimes it is listed as GDP per capita (output per person) or as a growth percentage. Sometimes it is listed in nominal or real (or chained) dollars. Suppose a company says it sold $11 worth of gloves, 10% more gloves than last quarters’ $10 sold. It is unclear whether they actually sold more gloves this quarter, or simply raised prices 10%. If they simply raised prices, the true volume of gloves sold is no more than last quarter, or $10. In this case, the glove factory’s nominal GDP would be $11, and its real or chained GDP would be $10, because real GDP takes out the effect of rising prices.    

GDP is a backward-looking indicator because it tells us what the economy has done, but it is limited in its ability to tell us how the economy will do in the future. It is also limited because it is not very timely—GDP in the U.S. is only released on a quarterly basis, one month after the quarter has ended. After it is released, it is revised one month later, and then annually at the end of July. These revisions almost always change the first number, making GDP at best a rough gauge of how the economy is doing.  

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Has Silver Lost Its Shine?

In one of life’s many ironies, Standard and Poor’s upgraded gold and miners today, recommending them amongst their top investment picks—just days after their downgrade of U.S. government Treasuries ignited a global financial panic. But with all the hoopla surrounding gold and its rise to near $1,800, many investors have forgotten about silver—which to us, represents a huge opportunity.

Back in late April, silver made a run to breach $49, ending up just short of the $50 nominal record, set back in January of 1980 (if you want to learn more about $50 silver, see our article on the Hunt Brothers) before falling back to $32.33 in May. Many speculate that margin hikes in futures contracts helped manipulators suppress the price.

Futures are really nothing more than IOUs. Futures contracts are just standardized agreements to deliver a specific commodity, in an agreed quantity, at an agreed price, on an agreed date, someday in the future. They are traded like stocks on numerous commodities exchanges around the world. They differ from buying stocks in that you agree to a transaction at some point in the future.

A fiat currency is created by a government decree. The Latin word fiat means “let it be done.” And with the stroke of a pen, or the crank of a printing press, “money” is created. Fiat currency has no inherent value—the paper that a $100 dollar bill is printed on is surely not worth $100. It might have been worth a few cents before the government ruined its utility as scrap paper by printing green words and numbers all over it! Compare this with gold, which is a precious, rare metal that is, in many cases, the only substance on earth that can be used for certain human purposes, including science, medicine, and of course—adornment.

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In Defense of Evil Capitalists



To what do America and the industrial world owe their high standard of living? Are our relatively high pay and abundant consumer goods the result of government regulation or labor unions? In fact, it is the free market we have to thank for our comfortable existence, according to this Economics for High School Students video tutorial produced by the Mises Institute.

The assumption of many history teachers is that “unspecified government intervention has rescued us” from low wages and exploitation of the labor force, or that we have the labor movement to thank for the prosperity of American workers, says Mises Institute lecturer Thomas E. Woods. In fact, at its height, the labor union movement only touched one in three American workers. U.S. workers are among the least unionized yet best paid workers in the world.

“The only thing government can do in terms of the average standard of living is disrupt and diminish it,” Woods continues. “It is entirely due to the ‘wicked’ private sector and the ‘wicked exploiters’ that we have the high standard of living that we enjoy.

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Are We There Yet? Are We There Yet? Are We…

En route to $1,760 gold, many naysayers have responded with calls of a bubble. Some have impatiently exited the market, moving to cash, or back into the heavily manipulated stock market.

One of our favorite things to do is put things in a historical perspective. To that we present this chart:

Even after gold hit $1,722 (on yesterday’s close), the present bull market is just a molehill when compared to the bubbles of yesteryear. 

A market in which the primary price trend is upwards 

The Problem with Illusory Wealth

You may study something your entire life and still never be prepared for what happens. On Friday, the WealthCycles late (working late, of course, in sunny California) were roiled by the news of a downgrade by Standard & Poors. We had studied it, expected it, and we were still surprised by the suddenness of it all.

In one swift stroke, the old standby safe-haven was reveled to be ridden with holes. This wasn’t a black swan event—if you have been paying attention, the United States has been in steady decline for decades.

For the past two years, we have been conned into believing that we were in the midst of a recovery. But saying something over and over again is not a recipe to making it true. The recovery, seen only by traders and bankers on Wall Street, was missing for the vast majority of global citizens. Prices of food and oil have rocketed upwards under the goosing of the Federal Reserve monetary accelerator, job growth has remained nonexistent, growth in wages has flat-lined, and suffering has gone up across the board. In short—the recovery only existed in the words of politicians and the numbers on stock market tickers.

The word “cycle” comes from the Greek word kyklos, meaning cycle or circle. One common definition of cycle is “a periodically repeated sequence of events.”

The idea of a cycle is symbolized by a circle, which, because there is no beginning or end, represents recurrence. The symbolic circle is often divided into segments—often two, such as the Chinese yin and yang or day/night, but more often four segments, like the seasons.

A recognition and understanding of cycles is one way human beings are able to recognize patterns in data. As early humans learned that events in nature recur over and over again with regularity, they developed the ability to plan for the future, which ultimately led to advanced civilizations.

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What does the S&P Downgrade of the United States mean?

Friday night, August 5, the S&P rating agency announced it had downgraded the United States debt from AAA to AA+, the first event of this kind in the last 70 years. Although the financial industry has been expecting this, it has occurred ahead of most people’s expectations. 

Readers of WealthCycles.com know we have been warning about the US being in dire financial straights for quite some time. Check out our article from January, True State of the Union. However, the US has continued its reckless borrowing and spending binge.

“So what does a downgrade mean?” Basically, one of the three major rating agencies (Standard & Poors) believes the US is more of a risk for investors than before. Rating agencies evaluate the risk of investments for investors.

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Debt Deluge and the Teeth-Clenching Roller Coaster

After all the weeks and months of Capitol Hill drama around raising the U.S. federal debt ceiling, it appears that the agonized effort may have been to no avail: Although a primary rationale for raising it was to avoid a downgraded rating on U.S. debt, it appears increasingly possible that such a downgrade may happen anyway—this shouldn’t surprise any of us.  

Wall Street has taken equity investors on a teeth-clenching roller coaster ride this week on concerns over the European debt crisis. Trading volume has broken records, according to the WSJ Market Data Group.

Deflation is a contraction of the currency supply, which causes prices to fall and the value of currency to rise. When prices fall, a boom becomes a bust, and suddenly a recession becomes a depression.  Fed Chairman Ben Bernanke, a scholar of the Great Depression, knows the dangers that deflation poses to a debt-based economy.

A fiat currency is created by a government decree. The Latin word fiat means “let it be done.” And with the stroke of a pen, or the crank of a printing press, “money” is created. Fiat currency has no inherent value—the paper that a $100 dollar bill is printed on is surely not worth $100. It might have been worth a few cents before the government ruined its utility as scrap paper by printing green words and numbers all over it! Compare this with gold, which is a precious, rare metal that is, in many cases, the only substance on earth that can be used for certain human purposes, including science, medicine, and of course—adornment.

Deflation is a contraction of the currency supply, which causes prices to fall and the value of currency to rise. When prices fall, a boom becomes a bust, and suddenly a recession becomes a depression.  Fed Chairman Ben Bernanke, a scholar of the Great Depression, knows the dangers that deflation poses to a debt-based economy.

A fiat currency is created by a government decree. The Latin word fiat means “let it be done.” And with the stroke of a pen, or the crank of a printing press, “money” is created. Fiat currency has no inherent value—the paper that a $100 dollar bill is printed on is surely not worth $100. It might have been worth a few cents before the government ruined its utility as scrap paper by printing green words and numbers all over it! Compare this with gold, which is a precious, rare metal that is, in many cases, the only substance on earth that can be used for certain human purposes, including science, medicine, and of course—adornment.

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Re-labeling the Great Recession

When it came to the most recent financial crisis, it seems like society lacked a spark of creativity. During the deflationary ’30s, we came up with the “Great Depression”—a descriptive and resounding title. The Great Depression is monumental in people’s minds—if you grew up in the Great Depression, you earned some social grit—a little toughness that we pansies in the post-Great Depression era lacked. 

So is the “Great Recession,” an unabashed rip-off of the “Great Depression,” really the best name for the financial crisis we could come up with? Ken Rogoff, one of the geniuses behind This Time is Different, has a problem with the “Great Recession,” outside of its chronic lack of creativity:

The word “cycle” comes from the Greek word kyklos, meaning cycle or circle. One common definition of cycle is “a periodically repeated sequence of events.”

The idea of a cycle is symbolized by a circle, which, because there is no beginning or end, represents recurrence. The symbolic circle is often divided into segments—often two, such as the Chinese yin and yang or day/night, but more often four segments, like the seasons.

A recognition and understanding of cycles is one way human beings are able to recognize patterns in data. As early humans learned that events in nature recur over and over again with regularity, they developed the ability to plan for the future, which ultimately led to advanced civilizations.

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Man the Life Boats



In an appearance at the Casey Research Spring Summit, Michael Maloney takes a look at the recent contraction of the money supply—it’s not pretty.

“This is an emergency – there’s something going wrong here,” Mike tells the crowd.

The dilemma of the U.S. Federal Reserve is that it’s damned if it does, damned if it doesn’t:

Quantitative easing is central banker speak for creating currency to buy debt or other assets.

The process of quantitative easing is fairly simple—it involves printing currency and buying assets from banks—but it can take many different forms. Central banks can use Q.E. to buy relatively safe treasury securities, pumping cash into their vaults to stimulate lending; or they can buy assets that have lost value (think mortgage-backed securities) in order to make banks whole and attempt to shore up their balance sheets. Central banks can also target certain maturities of the assets they purchase, to push down the cost of short-term, medium-term, or long-term borrowing. 

Deflation is a contraction of the currency supply, which causes prices to fall and the value of currency to rise. When prices fall, a boom becomes a bust, and suddenly a recession becomes a depression.  Fed Chairman Ben Bernanke, a scholar of the Great Depression, knows the dangers that deflation poses to a debt-based economy.

Ben Bernanke is current Chairman of the Federal Reserve Board. He succeeded Alan Greenspan as Chairman in 2006, following his nomination by former President George W. Bush. He is an economist and former professor at Princeton University. Nicknames include "the bernank," and "Helicopter Ben."  

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Pinpointing Gold’s Peak and Disregarding Noise

As gold hits new nominal records (again), we at WealthCycles.com find ourselves consistently defending our thought process to bulls and bears alike. The resurgence of gold has brought about a new and interesting conversation that now broaches the topic of alternative currencies and gold as real money—a topic once thought too taboo to bandy about in normal conversation. But still, gold as an investment remains a polarizing proposition—some believe that gold is in a massive bubble, and some believe that the bull market is just beginning to stretch its legs.

The Financial Times Lex Column, bearish on gold since 2007, has issued a new missive—this time an attempt to warn its readers that the stampede out of gold will be faster and more lively than the stampede in. 

A market in which the primary price trend is upwards 

A market in which the primary price trend is upwards 

Ben Bernanke is current Chairman of the Federal Reserve Board. He succeeded Alan Greenspan as Chairman in 2006, following his nomination by former President George W. Bush. He is an economist and former professor at Princeton University. Nicknames include "the bernank," and "Helicopter Ben."  

A fiat currency is created by a government decree. The Latin word fiat means “let it be done.” And with the stroke of a pen, or the crank of a printing press, “money” is created. Fiat currency has no inherent value—the paper that a $100 dollar bill is printed on is surely not worth $100. It might have been worth a few cents before the government ruined its utility as scrap paper by printing green words and numbers all over it! Compare this with gold, which is a precious, rare metal that is, in many cases, the only substance on earth that can be used for certain human purposes, including science, medicine, and of course—adornment.

Inflation is simply an increase in the supply of currency and credit. The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling is defined by the term "price inflation." Central Banks attempt to stop deflation, a natural phenomenon which occurs in order to correct the prior inflation.

The Consumer Price Index (CPI) is a measure generated by the U.S. Bureau of Labor Statistics (BLS) by tracking the cost of a standard basket of goods and services over the years. At one time, the CPI was a valid yardstick of prices, based on the actual price of the same items year after year. But for the past few decades, the CPI has been comparing apples and oranges, so to speak. Under the methodology used to calculate CPI since 1982, when the price of one item—say a pound of steak—rises significantly, BLS simply substitutes another, less costly item—say a pound of chicken breast. In other cases, BLS uses a technique called hedonic regression, by which its statisticians guesstimate, for example, that an item—say a home computer—built today is probably faster and better than a home computer built 10 years ago. So they adjust the price increase downward to compensate for the assumed higher value of the newer item.

A Speculative bubble is not just about the assets going up in value, but is more about the mentality of the individuals who invest in the asset. Are they struck with euphoria about the asset class or approaching it with a clearer head.

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The Charts The Government Doesn’t Want You To See

A healthy skepticism of government statistics is one of those self-preservation mechanisms that keeps us from hurting ourselves. Misleading official statistics too often lead people and businesses to act contrary to their own best interests and plan for scenarios that never happen.

We have always questioned what the government gives us; it’s not only a self-preservation mechanism, it’s part of our patriotic duty in the democratic system.

Take these two charts, presented by Robin Harding over at the Financial Times Money Supply blog. One is of the U.S.’s real GDP in dollars, and one is of the percent change of real GDP. The green bars are the government’s GDP estimates in June 2010, the blue are estimates from a year later in June 2011, and the red are the most recent estimates, from July 29, 2011.

What the charts are screaming is that the government has a consistent tendency to overinflate GDP numbers, and that the United States never really emerged from recession.

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