Taking Your Power Back

Addison Wiggin – November 11, 2011

  • Geithner hectors the Chinese again, turning our thoughts toward “radical” ideas
  • “Taking back our power” via gold… Ralph Benko’s 90-second manifesto
  • An Italy-driven rally on Wall Street? Dan Amoss on why the newest “austerity” measures can’t work
  • Byron King foresees “utterly astonishing” developments in mining
  • Good news for entrepreneurs… bad news for your holiday meal… one more reader suggestion to safeguard your valuables… and introducing the newest member of our team!

   “It is better for China, it’s better for the world and the United States if China allows its currency to appreciate more rapidly,” thus spake Lord Treasurer, er, Secretary of the Treasury, the honorable Mr. Tim Geithner after a summit in Honolulu yesterday.

Recall Mr. Geithner, on his first visit to China as Treasury Secretary in June 2009, assured a roomful of students that their government’s investment in U.S. Treasuries was rock solid.

“Chinese assets are very safe,” Geithner declared. The statement elicited “loud laughter” from the assembled crowd, according to accounts at the time. Ever since, he’s been in a snit about China.

   In Honolulu yesterday, the 21 finance ministers whose nations make up the Asia-Pacific Economic Cooperation (APEC) gave appropriate lip service to goals like “strengthening economic growth” and “making growth more balanced.”

Then, Mr. Geithner stated his position: “This process of rebalancing will be aided by exchange rate policies in China and other Asian economies that allow their currencies to adjust in response to market forces,” he asserted to reporters after the meeting.

“China, in particular, must continue to allow its currency to strengthen, and China has acknowledged the importance of faster exchange rate adjustment.”

The lonely task of managing the world’s reserve currency

The U.S. agency over which Mr. Geithner presides owes $1.137 trillion to China. His co-conspirators at the Federal Reserve have stated their target interest rates will remain near zero through mid-2013.

And still… the Treasury Secretary is not above wagging his finger at the Chinese. They ought to allow their currency to “adjust in response to market forces” he says.

Heh. You have to admire the man’s hubris.

[Ed note. We heard Mr. Geithner’s comments on NPR this morning. They kicked off a range of ideas that we can only suggest to you today as “radical” in light of the political environment we’re in. They’re probably not appropriate for a 5 Min. Forecast… but what the heck, it’s Friday.

If you’re pressed for time, you may skip time segments 00:27 through 01:32. But we don’t advise it.]

   “A true classical gold standard,” says Ralph Benko, whom we’ve recently befriended, would render all these political shenanigans unnecessary.

Through his work with the American Principles Project, Mr. Benko recently outlined 13 avenues being pursued to restore some fiscal sanity to the global monetary system.

One of them: a new improved gold standard, which “would be multilateral with all nations, or at least all major nations, defining their own currencies in terms of a fixed measure of gold. Thus, the currencies would be rock-solid stable between one another — just one part of the efficiency that gold brings to the trading and financial order.”

   Mr. Benko believes gold would restore the balance of power to the people… rather than allow it to reside with the “political class,” as has been our wont since 1913 with the introduction of the income tax and the direct election of senators.

While visiting our offices in Baltimore last week, he gave a 90-seoncd view of monetary history of the United States. This morning, we asked him to reproduce it quickly, by email over his smart phone. What he sent instead amounts to a manifesto you might call…

The Political Consequences of the Peace

War is the mother of the state.

On Dec. 7, 1941 — ‘a date which will live in infamy’ — until the fall of the Berlin Wall, America and the West were engaged in total, existential war, ‘guerre a outrance.’ In times of total warfare, the citizens of a republic delegate far more power to their elected officials — their national government — than usual.

We know that we, the people, cannot prosecute a war nor subject tactical execution to the slow deliberations of the republican process. So however (understandably) jaundiced a view we take of the FDRs, the LBJs, the Nixons and Fords — autocrats all — they are a lesser evil than the Hitlers and Stalins, and so we tolerate them and hand over our great power, willingly.

But on Nov. 9, 1989 — a day that should live in fame — a half-century of war ended with the fall of the Berlin Wall. Peace dawned. Soon after, prosperity — and federal budget surpluses — followed.

Until Sept. 11. Not knowing the scope of our adversary, and not yet having emerged from our war acculturation, America returned to a war footing.

As it turned out, the danger, while real and while deserving to be taken seriously, turned out to be asymmetrical, rather than mortal. We could be hurt, but neither our existence nor way of life is threatened by any known or imaginable adversary.

Citizens, beginning with MoveOn.org and continuing with the Tea Party, and, perhaps, Occupy, started to organize and mobilize by the millions to take power back from the officials to whom we have delegated it.

We are in process of taking our power back. The political consequences of the peace? The end of the Warfare/Welfare State. This is inevitable. The only question is how long and costly will be the struggle.

The officials are not happy to surrender their power, their prestige, their position and their perks and be demoted from the position of our lordly leaders spending — what a blast! — trillions of our dollars — to our mere representatives.

But they did not take the power. We gave them the power. We are taking it back. They will resist, of course, but the power is ours, not theirs; we will use ballots, not bullets, to reclaim it.

The sooner we understand the political consequences of the peace the faster and more gracefully will the restoration of America to its small-‘L,’ small-‘R’ liberal-republican foundations proceed.

And as an important grace note, may I add that an early of victim of total war has always been the gold standard, which eagerly is restored to facilitate the prosperity associated with peace at the earliest opportunity.

Much as our politicians hate it, world peace has broken out. The opportunity has dawned. If history is a reliable guide, the citizens will not allow the political class to deny them the gold standard, and its attendant dignity and prosperity, for very much longer.”

   “Society contains within itself the capacity for self-management,” adds our newest colleague, the equally radical Jeffrey Tucker, “so that the government is not constantly trying to beat people up, impose rules and regulations, and regiment everyone’s behavior.

“Society can order itself as an outgrowth of the free choices of individuals.” And so it goes among nations, with gold serving as an objective yardstick.

There was no such thing as a forex market, for example, before Nixon closed the gold window in 1971. Yet the situation had shifted so dramatically in the following decade that by 1982, Rep. Ron Paul could write, “Trading in currencies can now be more rewarding to banks than the conventional business of brokering loans from savings.”

At the time, Dr. Paul foresaw the metastasizing of the financial sector and the derivatives time bomb from his lonesome outpost as one of only two dissenters on the U.S. Gold Commission.

His “minority report” from that assignment is memorialized in a slim volume called The Case for Gold. You can get a copy for yourself free… and get the new issue of Apogee Advisory in your inbox on Monday… by signing up here.

   The bipolar U.S. stock market is in another manic phase today, aided by the fact it’s a federal holiday and volume is thinner than the wares on display at Victoria’s Secret.

At last check, the Dow was up 260 points and back toward the high end of the trading range where it’s been stuck the last three months.

According to MarketWatch, this rally is being aided by the fact the Italian senate approved a new round of austerity measures. This makes about as much sense as attributing the rally to the news that Billy Crystal is replacing Eddie Murphy as the host of the next Oscars telecast.

But we’ve been here before. Three days ago, in fact.

   “Supposedly,” writes Strategic Short Report’s Dan Amoss, “Tuesday’s big rally was in reaction to news that Italian Prime Minister Silvio Berlusconi would resign.”

How Berlusconi will best be remembered

“But it doesn’t really matter who is prime minister in Italy, because there is no way the PIIGS can get out of their debt problems with the current plan of more borrowing and budget austerity measures.”

“How can cutting government spending lead to a rebound in GDP when so much GDP is already driven by government spending? The false precision given by measures like ‘debt to GDP’ promotes the idea that technocrats can squeeze more tax receipts out of an overtaxed economy.”

“A more accurate measure (if there is one) on government debt sustainability would be to compare it with the size of the private sector…and in most of the PIIGS, the private sector is tiny relative to government debt.”

“This is why economies must never get addicted to the crack cocaine that is government spending and stimulus programs; eventually, the government runs out of resources to plunder, and the only choice at that point is default or destroying the currency.”

Dan’s counting on the latter. Probably not tomorrow, but eventually: “more money printing from the ECB, because it will have no choice, as it’s the only entity able to keep the Italian bond market from crashing.”

   Precious metals are recovering strongly from their low point barely 24 hours ago. Gold is up to $1,781 as the week winds down, while silver is up to $34.65.

   Investors in India are buying lots of gold. According to the Association of Mutual Funds, investors pulled $606 million out of funds that invest in sovereign debt and plowed $1.6 billion into funds that buy gold.

Investors there also pulled money out of state-run savings plans. They offer a return of 8%… but official inflation in India is running 9.7%.

The government in India, like the United States, is pursuing a policy of “financial repression” — where real interest rates are negative. As we’ve demonstrated before, gold performs especially well during such periods.

If you’re interested, we still have a small supply of Gold Buffaloes and Silver Eagles available for select readers. They’re available as part of an extraordinary “bundle” we’ve never offered before — and may never offer again. Give it a look here.

   “We’re about to see explosive, revolutionary developments in an industry — likely, in several industries — that traditionally measures progress by decades and generations,” says our resident rockhound Byron King.”

That’s his conclusion after attending meetings and visiting research sites in Toronto and Denver last week. “I was catching up on new — and utterly astonishing — developments in the mining industry.”

“Indeed, I was privy to new research that may blow the wheels off of some old — meaning ‘current’ — ways of doing things. I’m talking about ‘leapfrog’ concepts. I’m referring to new technology applications that use digital powers and miniaturization of components to do something akin to ‘designer mining.’ Think in terms of applying technology from the Jet Propulsion Laboratory to the mining industry.”

“On this last point, I can’t get overly specific. Much of what I learned is proprietary in the details.”

“But if you can get in front of this trend, it won’t really matter what the Europeans or anyone else do. Investmentwise, you’ll be way ahead of that curve.”

We get jazzed when Byron starts talking about mineral development the way Patrick Cox talks about biotech. You’ll learn about it first in Outstanding Investments.

   In another encouraging development, a survey of the “millennial” generation shows an entrepreneurial streak. Among the nation’s 18-34 year olds, 54% want to start a business — if they haven’t already.

“This poll reveals a generation that is enthusiastic about entrepreneurship, and that is good news for the U.S.,” says Carl Schramm, president of the Kauffman Foundation, which commissioned the survey. “They recognize that entrepreneurship is the key to reviving the economy.”

Unfortunately, 38% of these potential young entrepreneurs say they’ve delayed starting a business because of the economy. Ugh.

   Maybe it’ll become easier now that Congress has actually done something to get out of the way of business formation.

On a 404-17 vote, the House overturned decades-old Securities and Exchange Commission (SEC) rules that all but ban small businesses from raising capital from their customers and neighbors.

“Current SEC rules divide investors into two categories,” explains the New Rules Project, which advocates for small business. “Wealthy people (‘accredited’ investors) are assumed to have a certain degree of financial sophistication. Businesses are free to approach them for funding.

“The rest of us are covered by safeguards that bar businesses from soliciting our investments without registering a public offering of securities with the SEC, an arduous and expensive legal process that is well beyond the reach of a neighborhood restaurant or startup clothing maker.”

In other words, this will make it nearly as easy to invest in your local coffee shop as in shares of Starbucks. “Crowdfunding,” this is called.

The bill faces an uncertain future in the Senate. The SEC opposes it. Usually, lawmakers defer to the regulators, but with any luck, they’ll remember this is the same bunch that turned a blind eye to Bernie Madoff.

   Lest you begin to confuse us an outlet that strives to bring you only the good news, we’re happy to report the price of Thanksgiving dinner is outpacing the cost of living… by a long shot.

According to the American Farm Bureau Federation, a meal for 10 people that cost $43.47 last year will cost $49.20 this year. That’s a 13% increase, the biggest since 1990.

Turkey led the way — up 22% from a year ago.

You’ll have to find other things to be thankful for

Sweet potatoes are the only “bargain,” and those are up 2.2% from last year.

   “I believe I have a solution,” writes a reader who says he’s been reading The 5 from the beginning, weighing in with this suggestion if you’re trying to hide valuables.

“I bought a good-quality gun safe and bolted it to the concrete floor in a closet. In the safe, I keep about $1,000 worth of firearms and ammunition. The real valuables are hidden in a hollow wall, where they are completely invisible, even if the house were empty.”

“The gun safe is a decoy. If someone invaded my house and forced me to open the safe, they would find only a few cheap guns and a few shells.”

“Several years ago, a friend of mine melted down a couple of pounds of used lead wheel weights and made several pieces in the shape of ingots. Next, he stamped some random numbers and other ‘official’ looking marks on them. Then they were painted with a mixture of bronze dust and epoxy resin.”

“He put the ‘ingots’ in his sock drawer and forgot about them. Sometime later, his house was burglarized. The thief assembled a bunch of stuff in various rooms that he/they planned to take, but left it all there. The only things missing were the ingots from the sock drawer.”

“You only need to be smarter than a thief to win!”

Have a good weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. “We have a remarkable company for you,” Patrick Cox wrote his Breakthrough Technology Alert readers this week, “with a technology that dramatically increases power grid efficiency while reducing energy consumption and costs.

“This is what private enterprise has been up to — solving problems by cutting energy usage and making money — while the current administration gives tax-funded loans to dodgy, crony-backed solar companies and tax breaks to wealthy smugsters who buy cars that run on batteries charged mostly by coal-fired electrical plants.

“I’d love, by the way, to see bumper stickers on electrical cars that say, ‘Powered by Coal.’”

You can be on board when Patrick issues his new recommendation by joining Patrick’s premium service. You’ll also get a package of special reports with his favorite picks right now — including one that’s prompted him to make an extraordinarily bold claim.

P.P.S. “I just can’t pretend anymore. I’m not a wine snob,” writes Jeffrey Tucker, the newest addition to our editorial team. “I like it all. I like everything. I used to draw the line at the big jugs with the screw tops, but no longer. I like those too.”

Jeffrey may well qualify as a modern-day polymath — knowledgeable about economics, the arts, wine, and probably a few things we haven’t yet discovered. While we were setting up the camera to conduct the interview you’re about to enjoy, he broke into a Gregorian chant. Seriously. More on his role within the baroque arts community in future episodes of The 5

In the meantime, you may recognize Mr. Tucker from his work at the Ludwig von Mises Institute, where he served with distinction for more than two decades. This week, we’re proud to announce his appointment as publisher and executive editor of Laissez Faire Books.

“You can almost date the founding of the libertarian movement from the founding of Laissez Faire Books in 1972,” he says in a video laying out what’s in store for LFB as it enters its fifth decade next year. Please give it a look and help us give Mr. Tucker the warm welcome he deserves:


Recent Alerts

Gold (Standard) Resurrection

“We’re going to see a collapse of confidence in all paper currencies,” says Jim Rickards. “The only question is what will replace today’s dollar-based monetary system?” Read More

Trump Raid: Point of No Return

The last thing The 5 wanted to write about this week was the FBI raid on Donald Trump’s estate. But down the rabbit hole we go… Read More

Wall Street’s Biggest Delusion (“The Pivot”)

“Wall Street thinks that the worst of the rate hikes are over and that the Fed will begin easing by early next year,” observes Paradigm’s macro expert Jim Rickards. “But will it?” Read More

The Return of Cash (But Will It Last?)

Remember when the pandemic prompted folks to conduct more commerce electronically? No more, at least not in the U.K. Read More

Beyond Alex Jones: Censorship 2022 Style

Two weeks ago, the social media industry crossed a Rubicon — slapping a “misinformation” label on an expression of opinion about the economy. Read More

Growing the IRS Goon Squad

At the heart of our harangue today is a plank in the “Inflation Reduction Act” that would build out the IRS’ capacity to audit and harass everyday taxpayers. Read More

“But Where Does Dave Get His News?”

Paradigm Press, New York Times, BBC, Financial Times, Wall Street Journal, Drudge Report, Twitter, conservative news sites, teletype machines, international news channels Read More

Pharma Scandal: Doctored Photos and Wasted Billions

An extremely important medical story the mainstream mostly buried… Read More

Welcome to the New Paradigm

Paradigm Press, financial publishing, Jim Rickards, James Altucher, George Gilder, Ray Blanco, Zach Scheidt, Alan Knuckman, Byron King Read More

Pelosi Pokes the Nuclear Dragon

Nancy Pelosi Taiwan visit, nuclear war with China, Robert Kagan, Fourth Turning, Walmart earnings warning, supply chain snags, ships at berth Read More