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

Suppressing Reality

In our premium articles, we have written extensively on the topic of market manipulation (see The Strange Manifestations of Free Market Manipulation)…. While it is always tempting to “correct” the naturally efficient free market, the effort always backfires by displacing something else. It’s like the old game of Whac-A-Mole, a game where whacking one mole only leads to more moles popping out.

The government-engineered suppression of gold prices has long been thought the realm of tin-foil hatters by the mainstream media—but new evidence, and new doubt being cast on the Fed, has lent credence to the theory.

Alan Greenspan is an economist and former Chairman of the Federal Reserve Board. He was appointed Chairman by Ronald Reagan in 1987 and remained in his position until his retirement in 2006. 

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 Fed’s Dark Secrets

When you combine a private central bank with the ability to create currency out of thin air with its corrupt bank owners, what do you get? The answer is you get trillions in dark loans made under the table in corrupt deals outside the auspices of the law. Bloomberg, in its Fed’s Secret Liquidity Lifelines, scoured through thousands of pages of Federal Reserve spreadsheets, which the Fed and banks fought for years to keep secret, to put together picture of what really happened during the huge bank bailouts between 2007 and 2009. 

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Can Consumers Borrow Economy Into Black?

Black Friday is here—historically the heaviest shopping day of the year and the day many retailers count upon to move their balance sheets from the red into the black. At a macroeconomic level, the U.S. Federal Reserve and government also wait with fingers crossed to learn how many consumers responded to Early Bird specials and how much they spent—preferably via credit card.

As regular WealthCycles readers understand, debt is necessary in order for the U.S and global economies to grow. Some 70% of the U.S. economy comes from consumer spending, and most consumer spending is debt-based.

But the crisis of 2008-2009 took the wind out of the sails of U.S. consumer spending. U.S. credit card debt is down 11% in 2011, following a 10% drop in 2010, as reported by the San Diego Union Tribune. But even as more people, spooked by high unemployment or upside down in home loans, keep their plastic in their pockets, average credit scores also have fallen, making it more difficult for consumers to buy holiday gifts on credit, buy new cars or refinance home mortgages.

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Does the Fed Pay Taxes?

A fairly logical question came into our email box today from Sylvia, who asked:

“Since the Federal Reserve is a Private organization that lends to the USA, do they pay business taxes like all other businesses?”

The Federal Reserve gives all the answers on its website. However their answers are fairly confusing for even the most sophisticated readers.

Officially, the Federal Reserve is not geared to make a profit. From the Fed’s website:

“Federal Reserve Banks are not, however, operated for a profit, and each year they return to the U.S. Treasury all earnings in excess of Federal Reserve operating and other expenses.”

So if the Fed just happens to make a profit, the money is returned to the United States Government. Of course, this is minus the Federal Reserve’s expenses. Also from the Federal Reserve’s website: “(The Federal Reserve) is not ‘owned’ by anyone and is not a private, profit-making institution.”

A dividend is an annual payment made to stockholders from the company’s profits. The dividend yield is calculated by dividing the annual dividend by the price paid for the stock, to determine the percentage dividend yield. For example, if you pay $10 per share for a stock and receive $0.60 in dividend payments annually, then your dividend yield is 6%.  

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ECB Resists Call to Fire Up Presses

Unlike the U.S. Federal Reserve and Fed Chair Ben Bernanke, the leaders of the European Central Bank have so far resisted the siren call to fire up its printing presses and flood Eurozone economies with paper. From its inception, the ECB has been led by conservative forces and strongly influenced by the regional power economy, Germany.

Nevertheless, Eurozone politicos, besieged by angry citizens and faced with the necessity of politically unpalatable austerity measures, are ramping up the pressure on the ECB, demanding that newly appointed ECB governor Mario Draghi  come to the rescue. As reported by the New York Times yesterday:

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.

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.

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.

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The Most Confusing Answer of All Time

A relatively simple question on the Federal Reserves website seems to have the most confusing answer of all time.

Question: “Is the Federal Reserve printing money in order to buy Treasury securities?

Answer: “No.”

Surprisingly to most people, that answer is correct. This is because the Federal Reserve can only print currency—not money! (As WealthCycle.com readers know, there is a big difference between the two.)

But lets assume this was a slip of the keyboard and that the Fed communicators meant to say that no, they don’t print currency. Lets show the graph of the monetary base from the Federal Reserve Bank of St. Louis

The giant spike in the above chart is called “printing currency.” Moving on:

Monetary base is another measure of  the amount of money in the economy. The monetary base is highly liquid currency that consists of coins, paper money (both as cash in banks' vaults and as currency in general circulation) and commercial banks' reserves parked at their central bank.

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Russian Central Bank Buys 100 Tons of Gold

We have said it before. We’ll say it again. Central banks buying gold is a game changer.

Unlike the 1970s bull market, in which central banks were net sellers throughout the bull market, in today’s gold bull, central banks are net buyers.

The latest thread in this story is Russian Central Bank is buying 100 tons of gold in 2011.

(Russian Central Bank Gold Reserves Since 1993)

A market in which the primary price trend is upwards 

Lead Us Not Into Temptation

60 Minutes just released a segment that is getting a lot of heat, no doubt due to the fact that it targets high-ranking members of Congress.

In short, the report says Congress members have the ability to trade off insider information and that this insider trading is not illegal (Click here to see the full video).

In fact, the report implies that this information is one of the many ways Congress members are able to leave Congress multimillionaires.

For anyone else, insider trading is highly illegal. The Martha Stewart insider trading case is one of the better known examples. In the early 2000s, Martha Stewart received information not yet made public (i.e. insider information) from her stockbroker about a drug company—information that would drastically and negatively affect the stock price. Based on her broker’s tip, Martha sold her stock before the information became public, committing insider trading. On March 5, 2004, she was found guilty; she spent roughly five months in federal prison and another five months under house arrest.

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Don’t Be Distracted By Eurozone Drama

The headlines continue to be all about the European financial crisis, heads of governments falling on their swords in order to ensure passage of austerity packages and the looming threat of a debt-induced collapse. But many economists and analysts maintain that the real danger to the global economy is not the Eurozone, but the United States.

Investor Jim Rogers has been warning for weeks that the U.S. economy is in worse shape than Europe’s—despite U.S. Treasury Secretary Tim Geithner’s penchant for scolding his Eurozone peers about their need to shape up.

“Europe has a few bad, bankrupt states, so does America,” Rogers said in a September CNBC interview. “We've got Illinois, which is bigger than Greece, we've got California, we've got New York; you know those are pretty big states that have serious economic problems. We have pension plans in America that are terribly under water.”

The CNBC report continued:

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Is this what it has come to?

By now you probably have seen the gaff Rick Perry made last night (if not watch it here), stating he wanted to abolish three agencies of government, “Commerce, education, and ah, what’s the third one…?”

We are guessing that Rick Perry just had a “senior” moment, or at least we hope so. But this illustrates a larger problem in America.

We all hold certain views and beliefs. And we believe our views are the best, or at least the best that we know of.

The problem is we rarely question our own beliefs. Even if we do, it seems we tend to come to the conclusion that we were right all along.

The difficulty with challenging our own beliefs is we may find ourselves to be wrong. What happens if you find out your viewpoints, which you have espoused to your friends and family, are wrong?

Some viewpoints are easy to change.  If a movie is coming out that you thought would be great but turns out to be substandard, your viewpoint on that movie is easy to change. And, unless you’re in the film industry, most of your friends and family won’t care if you were wrong.

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German Gold “Untouchable”

Over the past couple of decades, we’ve heard numerous stories emanating from 33 Liberty Street—the home of the Federal Reserve Bank of New York, where lies a vault built 50 feet below Manhattan’s bedrock. Inside the vault is held thousands of tons of the gold of 36 sovereign countries, including the gold of the Bundesbank, Germany’s central bank. But since the origins of banking itself, a sleight of hand has accompanied every transaction—and possibly even the Fed’s deal with the Bundesbank.

Germany’s sovereign gold reserves are the second largest on the planet, second only to the mythical gold reserves of the Fed in the U.S.

But as gold has risen in price, it has become politically popular for people to demand that a central bank or finance ministry sell its gold. A year ago, there was a brief trend for the United States to sell its gold to reduce its indebtedness. Edwin S. Truman, a Senior Fellow at the Peterson Institute for International Economics, opined in the Financial Times:

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.

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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Wall Street Party’s Already Over

Just as the Occupy Wall Street movement appears to be picking up steam and gaining more clout, its nemesis, the oversized investment firms that have enriched those 1% the protesters are yelling about are on a downhill slide.

The most recent implosion to make the headlines is the bankruptcy filing four days ago of New York-based MF Global, whose CEO, former Goldman Sachs co-CEO and former governor of New Jersey Jon Corzine made huge bets on European sovereign debt… and lost big. MF Global currently is undergoing a Commodity Futures Trading Commission investigation of a reported $593 million in missing investor funds, according to a Bloomberg article today. The article reports that some $658.8 million in missing customer funds have been located in a JPMorgan Chase & Co. custodial account.

From CFTC's Website:

"Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency's mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000."

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.

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What Should We Think When They Protest Too Much?

“In truth, the gold standard is already a barbarous relic.”

--John Maynard Keynes, Monetary Reform

The free market proponents at TheDailyBell.com took on investment strategist Don Hays yesterday in a response to Hays’ video clip on Yahoo Money, Gold Is A “Fear Index” That Must Come Down.

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.

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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Move Your Money or Move Your Currency

With all the anti-Wall Street fervor going around, this Saturday is Bank Transfer Day—a day when people are going to transfer their money  currency out of too-big-to-fail banks and into community banks and credit unions. This. of course, could hurt big banks, who survive by preying on their customers, large and small.

But the problem isn’t simply that banks are too-big-to-fail or that there are a few evil bankers at the top of these big corporations—the real problem is the fractional reserve monetary system, and the fact that our economic system is predicated on an imaginary document called a dollar. Credit unions still have the ability to create new currency by making loans.

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