Monday, August 24, 2015

CRASH TRADING IN EFFECT As Worldwide Panic And Fear Levels Skyrocket! Here Is What To Expect Next

"With global stock markets reeling from panic and the Dow plunging over 1,000 points shortly after the open before a rally set in, today King World News is pleased to feature a piece from one of the greats in the business covering the global panic and warning “Crash Trading In Effect,” as fear engulfs worldwide stock markets. He also discussed what to expect from here.
Crash Trading In Effect
Jason Goepfert at SentimenTrader:  “As of this writing, S&P 500 futures are trading 3% below their closing prices from Friday. This is a rare feat since the inception of the futures in 1982. The table (below) highlights every -3% opening gap in the futures since then. The second table separates out those gaps that occurred when the futures had already closed at at least a three-month low the prior day.
KWN SentimenTrader I 8:24:2015 
As can be seen in the thumbnail charts, this has only occurred in crash-type conditions. All of them coincided with short-term selling exhaustion. The biggest caveat – and the thing everyone is afraid of – is that this also occurred on the morning of Black Monday in 1987 when the futures lost an additional -24% once regular trading opened.
King World News note:  Please look carefully at the charts below, particularly the “Open to Close” figures, which are astonishing for one day of trading!..."

Sunday, August 23, 2015

Bill Fleckenstein Warns Stock Market Plunge Will Accelerate – Compares This Week’s Action To The 1987 Crash

"On the heels of global market continuing to plunge, today one of the greats in the business warned King World News that the stock market plunge will accelerate, and he also compared this week’s action to the 1987 crash.

Don’t Expect An Orderly Decline In The Stock Market
Eric King:  “Bill, you’ve been warning for quite some time that we could see the stock market crash.  KWN noted that you had already gotten 50 – 60% short the stock market as you had restarted your short fund.  That certainly turned out to be impeccable timing on your part.  We’ve started this downdraft in the markets, is there no end in sight to the decline or do we get a bounce from here?”
Bill Fleckenstein:  “I have told you in the past that the stock market was crash-prone for a variety of reasons.  I did not think there was going to be any way for an orderly decline to actually take place — orderly being what people who are bullish think that the decline ought to look like….
Continue reading the Bill Fleckenstein interview below…"


Art Cashin – Prepare For More Downside After This Week’s Stock Market Plunge, Compares Action To 1987 Crash

"On the heels of the Dow plunging more than 530 points, today a legend in the business spoke with King World News about this week’s stock market plunge, the 1987 Crash, and why people need to brace themselves for more downside.

Eric King:  “Art, you warned KWN last week that this global liquidation could turn into a cascade of selling.  It seems to be unfolding exactly as you predicted.  I know you have over 50 years of experience in the markets but how did you know this was going to take place?”
Art Cashin:  “I was surmising how the situation was unfolding — what was beginning to occur in the currencies of the emerging markets and how it would inevitably begin to lead back into our markets.  In fact, I’m a little bit concerned about how the Chinese market closed last night (down over 4 percent)..."

A World In Denial, Headed For Full-Blown Panic As The Global Economy And Stock Markets Crash

"Today the man who has become legendary for his predictions on QE, historic moves in currencies, and major global events warned King World News that the world is in denial and headed for full-blown panic as the global economy and stock markets crash.

The Perfect Storm
Egon von Greyerz:  “Eric, the perfect storm has now started.  And this storm will turn into a hurricane probably within the next two months.  So in the next 60 – 90 days we will see all stock markets go down by at least 25 – 30 percent and likely a lot more.  And we could see gold reaching $2,000 and silver $50 within that time…."

The Collapse Of A Deluded Fantasy And The Most Devastating Reality Check Of All

"With tremendous fear spreading to global markets around the world, today one of the top economists in the world sent King World News an incredibly powerful piece warning about the collapse of a deluded fantasy and the most devastating reality check of all.  Below is the fantastic piece from Michael Pento.

By Michael Pento of Pento Portfolio Strategies

August 22 – (King World News) – Japan was recently slammed with more bad economic news; growth contracted yet again in the second quarter. Gross Domestic Product for the world’s third largest economy fell by an annualized 1.6% in the three months ended in June…."


Wednesday, August 12, 2015

ALBERT EDWARDS WARNS: Prepare for overwhelming 'waves of deflation' to suck us into recession

"Societe Generale strategist Albert Edwards may have finally out-beared himself. He warns the China devaluation is a step toward "a financial-market rout every bit as large as 2008."
In his new note, Edwards says the Chinese currency devaluation is the beginning of a period of serious foreign-exchange weaknesses in Asia.
This will force down import prices into the US and EU economies, aggravating a deflationary cycle that hits corporate profits and ending in a Lehman-style crisis:
We expect the acceleration of EM devaluations to send waves of deflation to the west to overwhelm already struggling corporate profitability and take us back into outright recession. As investors realize yet another recession beckons, without any normalization of either interest rates or fiscal imbalances in this cycle, expect a financial market rout every bit as large as 2008..."


12 Signs That An Imminent Global Financial Crash Has Become Even More Likely

"The following are 12 signs that indicate that a global financial crash has become even more likely after the events of the past few days…
#1 The devaluation of the yuan on Tuesday took virtually the entire planet by surprise (and not in a good way).  The following comes from Reuters
China’s 2 percent devaluation of the yuan on Tuesday pushed the U.S. dollar higher and hit Wall Street and other global equity markets as it raised fears of a new round of currency wars and fed worries about slowing Chinese economic growth.
#2 One of the big reasons why China devalued the yuan was to try to boost exports.  China’s exports declined 8.3 percent in July, and global trade overall is falling at a pace that we haven’t seen since the last recession.
#3 Now that the Chinese have devalued their currency, other nations that rely on exports are indicating that they might do the same thing.  If you scan the big financial news sites, it seems like the term “currency war” is now being bandied about quite a bit.
#4 This is the very first time that the 50 day moving average for the Dow has moved below the 200 day moving average in the last four years. This is known as a “death cross”, and it is a very troubling sign.  We are just about at the point where all of the most common technical signals that investors typically use to make investment decisions will be screaming “sell”.
#5 The price of oil just closed at a brand new six year low.  When the price of oil started to decline back in late 2014, a whole lot of people were proclaiming that this would be a good thing for the U.S. economy.  Now we can see just how wrong they were.
At this point, the price of oil has already fallen to a level that is going to be absolutely nightmarish for the global economy if it stays here.  Just consider what Jeff Gundlach had to say about this in December…
And back in December 2014, “Bond King” Jeff Gundlach had a serious warning for the world if oil prices got to $40 a barrel.
“I hope it does not go to $40,” Gundlach said in apresentation, “because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be — to put it bluntly — terrifying.”
#6 This week we learned that OPEC has been pumping more oil than we thought, and it is being projected that this could cause the price of oil to plunge into the 30s…"


Jim Rogers on the Currency Wars and Coming Collapse

"The first in the new The Dollar Vigilante (TDV) interview series, Jeff interviews famous author and investor Jim Rogers, topics include: money printing, rising tide of liquidity, its going to end badly, all major countries debasing their currency, people flocking to US dollar seeking safe haven, US dollar not a safe haven, debt has risen dramatically since 2008, the Euro was badly implemented, expatriation, the future is Asia, FATCA, this is a time for caution..."


A Remarkable Look At The War In The Gold, U.S. Dollar And Crude Oil Markets

"On the heels of China devaluing the yuan, today King World News is pleased to share a piece which give a remarkable look at the war in the gold, dollar and crude oil markets.  This piece also includes four key illustrations that all KWN readers around the world must see.
King World News note:  This astonishing chart from SentimenTrader shows that the U.S. dollar hedgers are now in one of the most bearish postures in past 30 years, betting on a significant dollar decline (see chart below). 
KWN SentimenTrader II 8:11:2015
King World News note:  The next chart from SentimenTrader shows that sentiment in the gold market is now worse than what it was when gold was $250 an ounce.  Sentiment is currently at the second most pessimistic level in the past 25 years! (see chart below).
KWN SentimenTrader I 8:11:2015


Bill Fleckenstein – China’s Gold Accumulation And Their Plans For The Yuan, Stocks Struggle, Plus A Bonus Q&A

"On the heels of the Chinese devaluing the yuan, today one of the greats in the business sent King World News a fantastic piece discussing china's gold accumulation and their plans for the yuan, plus a bonus Q&A that covers precious metals, the Gartman curse and much more.
August 11 (King World News) – Yesterday I closed my column by asking what the motivation was for the PBOC to let us know it was buying more gold, and last night perhaps we got a partial answer, as China changed its method of pegging the yuan, and also let its currency slide a couple of percent…."


Fed Balance Sheet vs Gold Price

"King World News note:  There is a massive chasm between the Fed's balance sheet and today's gold price.  This is one of the many reasons the gold price is set for a historic upside surge (see chart below).
KWN MacroTrends III 8:12:2015
King World News note:  This shows the long-term Gold/Oil Ratio moving solidly in favor of gold. The chart update is delayed because the current level is now at a staggering 26:1 (see chart below)!..."


Wednesday, August 5, 2015

8 Financial Experts That Are Warning That A Great Financial Crisis Is Imminent

"The following are 8 financial experts that are warning that a great financial crisis is imminent…
#1 During one recent interview, Doug Casey stated that we are heading for “a catastrophe of historic proportions”
“With these stupid governments printing trillions and trillions of new currency units,” says investor Doug Casey, “it’s building up to a catastrophe of historic proportions.”
Doug Casey, a wildly successful investor who’s the head of the outfit Casey Research, is predicting doom and gloom for the global economy.
“I wouldn’t keep significant capital in banks,” he toldReason magazine Editor-in-Chief Matt Welch. “Most of the banks in the world are bankrupt.”
#2 Bill Fleckenstein is warning that U.S. markets could be headed for calamity in the coming months
Noted short seller Bill Fleckenstein, who correctly predicted the financial crisis in 2007, says he is one step closer to opening up a short-focused fund for the first time since 2009. In the meantime, Fleckenstein says the entire market could be heading for calamity in the coming months.
The market is uniquely crash-prone,” Fleckenstein told CNBC’s “Fast Money” this week. “I think the market is very brittle because of high-frequency trading, ETFs, a lot of momentum investors. I don’t think there’s going to be any painless back door.”
#3 Richard Russell believes that the bear market that is coming “will tear apart the current economic system”
From my standpoint, this is the strangest period that I have gone through since the 1940s. The Industrials are declining faster than the Transports. If this continues, at some point the Industrials will touch the Transports. When that happens, I believe a bear market will be signaled, as both Industrials and Transports accelerate on the downside.
I expect a brief period of higher prices which will draw in the amateurish retail public. This brief breather will be followed by an historic bear market that will tear apart the current economic system.
#4 Larry Edelson is “100% confident” that a global financial crisis will be triggered “within the next few months”…
On October 7, 2015, the first economic supercycle since 1929 will trigger a global financial crisis of epic proportions. It will bring Europe, Japan and the United States to their knees, sending nearly one billion human beings on a roller-coaster ride through hell for the next five years. A ride like no generation has ever seen. I am 100% confident it will hit within the next few months.”
#5 John Hussman is warning that market conditions such as we are observing right now have only happened at a few key moments throughout our history
In any event, this is no time to be on autopilot. Look at the data, and you’ll realize that our present concerns are not hyperbole or exaggeration. We simply have not observed the market conditions we observe today except in a handful of instances in market history, and they have typically ended quite badly (see When You Look Back on This Moment in History and All Their Eggs in Janet’s Basket for a more extended discussion of current conditions). In my view, this is one of the most important moments in a generation to examine all of your risk exposures, the extent to which you believe historical evidence is informative, your tolerance for loss, your comfort or discomfort with missing out on potential rallies even in a wickedly overvalued market, and your true investment horizon.
#6 During a recent appearance on CNBC, Marc Faber suggested that U.S. stocks could soon plummet by up to 40 percent
The U.S. stock market could “easily” drop 20 percent to 40 percent, closely followed contrarian Marc Faber said Wednesday—citing a host of factors including the growing list of companies trading below their 200-day moving average.
In recent days, “there were [also] more declining than advancing stocks, and the list of 12-month new lows was very high on Friday,” the publisher of The Gloom, Boom & Doom Report told CNBC’s “Squawk Box.”
“It shows you a lot of stocks are already declining.”
#7 In a previous article, I noted that Henry Blodget of Business Insider is suggesting that U.S. stocks could soon drop by up to 50 percent
As regular readers know, for the past ~21 months I have been worrying out loud about US stock prices. Specifically, I have suggested that a decline of 30% to 50% would not be a surprise.
I haven’t predicted a crash. But I have said clearly that I think stocks will deliver returns that are way below average for the next seven to 10 years. And I certainly won’t be surprised to see stocks crash. So don’t say no one warned you!
#8 Egon von Greyerz is even more bearish.  He recently told King World Newsthat we are heading for “the most historic wealth destruction ever”…
Eric, there are now more problem areas in the world, rather than stable situations. No major nation in the West can repay its debts. The same is true for Japan and most of the emerging markets. Europe is a failed experiment for socialism and deficit spending. China is a massive bubble, in terms of its stock markets, property markets and shadow banking system. Japan is also a basket case and the U.S. is the most indebted country in the world and has lived above its means for over 50 years.
So we will see twin $200 trillion debt and $1.5 quadrillion derivatives implosions. That will lead to the most historic wealth destruction ever in global stock, with bond and property markets declining at least 75 – 95 percent. World trade will also contract dramatically and we will see massive hardship across the globe..."


Here Comes The Next Trillion-Dollar Bailout

"As boxers like to say, it’s the punch you don’t see that knocks you out.
In a world where a growing part of the financial system is hidden from view and excluded from official statistics, those are words to remember.
A couple of examples from the 2008-2009 crisis:
    • Fannie Mae and Freddie Mac were private companies through which the federal government funneled a lot of mortgage debt and to which it granted a kind of de facto backing, though it asserted confidently that this would never be needed. When the real estate bubble (inflated in large part by Fannie and Freddie) popped, government — read taxpayers — had to assume responsibility for pretty much the whole $10 trillion US housing sector.
    • Over-the-counter derivatives are largely hidden by bank and hedge fund accounting tricks, but when that market blew up in 2008 it turned out that AIG, the world’s biggest insurance company, had enough of the instruments to bring down the whole financial system. The result was another huge bailout with taxpayer cash.
    Since bubbles tend not to repeat in exactly the same form, it’s reasonable to assume that the next Fannie or AIG will be something very different — like state and local pension plans, which for years have been putting away too little to cover the coming wave of retirements and are now starting to beg for help:

    New Jersey legislator seeks federal loans to bail out state pensions

    (Reuters) – A top New Jersey Democrat wants the federal government to create a low-interest loan program to rescue states with big public pension problems.
    State Senate President Steve Sweeney called on Wednesday for a nationwide pension debt restructuring plan under which the U.S. Federal Reserve would offer low-interest loans to state governments to pay down unfunded pension liabilities.
    The country has racked up nearly $1 trillion of unfunded liabilities altogether in its state-run retirement systems, according to the latest estimate from Pew Charitable Trusts. Other projections have put the number even higher..."


Jim Rogers: Turmoil Is Coming

"Two years since his last interview with us, investor Jim Rogers returns and notes that the risks he warned of last time have only gotten worse. In this week's podcast, Jim shares his rational for predicting:

- increased wealth confiscation by the central planners
- a pending major financial market collapse
- gold's return as the preferred safe haven investment
- more oil price weakness, followed by a trend reversal
- Russia's rebound..."


Plunge Protection Team Now Working Overtime To Hold Off The Inevitable Collapse

"With continued uncertainty in global markets, today a 50-year market veteran told King World News that the Plunge Protection Team is now working overtime in a desperate attempt to hold off the inevitable collapse.
John Embry:  “It is said that one of the great traits of a successful investor is patience.  But in these totally manipulated markets, the patience of those who are trying to protect themselves from the inevitable destruction of the present pure fiat currency system is being sorely tried….

“The relentless suppression of the gold and silver prices in the paper markets by the central banks and their bullion bank allies is being accompanied by a number of ridiculous articles in the mainstream media denigrating gold.
The most ludicrous one that I recently read cited two academics projecting the true value of gold as somewhere in the area of $350 an ounce.  I have never been a great fan of academia when it comes to the subject of money and finance, but that article takes the cake for abject stupidity.
In a world where paper money can be created at will, and the median all-in cost to get an ounce of gold out of the ground comfortably over $1,000, to suggest a $300 figure as the true value for gold is beyond pathetic and it shows the desperation of Western central planners being played out in the mainstream propaganda. But this is what the desperation has come to.

The Implications For The U.S. Are Dire 
The powers that be are trapped in a world  of failing economies, massive amounts of unserviceable debt, even at zero based interest rates, and paper currencies which are kept afloat by what little confidence remains in them.  The U.S. authorities will do virtually anything, and I wouldn’t rule out war, to keep confidence in the U.S. dollar.  The minute that confidence is lost, and it most assuredly will be in the not-too-distant future, the implications for the U.S. are dire.
The middle class is already being destroyed and the lower classes are being kept in line by entitlements that are ultimately unsustainable.  When the dollar collapses, living standards in the U.S. are going down with it and the social ramifications are frightening.  Thus the authorities in the U.S. are doing everything to prevent the inevitable.
They are misrepresenting the true condition of the economy.  It is much weaker than they are acknowledge and recent retail sales numbers confirm that.  The Fed is buying an inordinate amount of Treasury bonds to hold interest rates at bay, while at the same time holding out prospects for an administered rate hike to keep confidence in the dollar.

Plunge Protection Team Working Overtime
The Plunge Protection Team is working overtime in the stock market, which incidentally looks terrible technically.  This is an attempt to delude people into believing that everything is alright.  And finally the anti-gold cartel is slamming the paper markets in gold and silver to keep the public away from one of the very few areas that has no counterparty risk and is seriously undervalued.  This is all totally unsustainable and should lead to a very interesting fall to say the least.”


The Crash And A New Depression – The Seeds For The Next Crisis Have Already Been Sown

"Today King World News is featuring a piece by a man whose recently released masterpiece has been praised around the world, and also recognized as some of the most unique work in the gold market.  Below is the latest exclusive KWN piece by Ronald-Peter Stoeferle of Incrementum AG out of Liechtenstein.
August 5 (King World News) – What Is Seen And What Is Not Seen: The Fatal Consequences Of The Zero Interest Rate Policy
Three hundred years ago, Newton formulated his third law, also called the principle of action-reaction. It states: “Forces always appear in pairs. When one body A exerts a force on a second body B (action), the second body B simultaneously exerts a force equal in magnitude and opposite in direction on the first body A (reaction).”

In a dynamic economy, an action not only triggers just one effect, but always an entire series of different consequences.1 While the cause of the first effect is easily recognizable, the other effects often occur only later and no such recognition occurs. Frédéric Bastiat described this phenomenon in 1850 in his groundbreaking essay “What is Seen and What Is Not Seen”:2
“In the economic sphere, an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them…
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.  Yet this difference is tremendous; for it is almost always the case that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Hence it follows that the bad economist pursues a small present good that will be followed by a great evil, while the good economist pursues a great good to come, at the risk of a small present evil.”
A similar phenomenon can be seen with the consequences of artificially suppressed interest rates and monetary stimulus: In the short term, they appear to have positive effects, but the long-term effects are disastrous and bear no relation to the advantages. If one studies these processes closely, it becomes clear that the underlying problems cannot be solved by global zero interest rate policy, but that this instead undermines the natural selection process of the market. Governments, financial institutions, entrepreneurs, and consumers, who should actually be declared insolvent, all remain on artificial life support.
In line with Bastiat's thoughts, numerous fatal long-term consequences of zero interest rate policies can be identified:3
► Conservative investors by nature come under increasing pressure with respect to their investments and take on excessive risks in light of the prospect that interest rates will remain low in the long term. This leads to capital misallocation and the emergence of bubbles. 
► The sweet poison of low interest rates leads to massive asset price inflation (stocks, bonds, works of art, real estate). 
► Structurally too low interest rates in industrialized nations due to carry trades lead to the emergence of asset price bubbles and contagion effects in emerging markets. 
► Changes in human behavior patterns occur, due to continually declining purchasing power. While thrift is increasingly mutating into a relic of the past, taking on debt comes to be seen as rational. 
► As a result of the structurally too low level of interest rates, a “culture of instant gratification” is created,4 which is among other things characterized by the fact that consumption is financed with credit instead of savings. The formation of wealth becomes steadily more difficult. 
► The medium of exchange and unit of account function of money increases in importance, while its role as a store of value declines.5
► Incentives for fiscal discipline decline. 
► Zombie banks are created: Low interest rates prevent the healthy process of creative destruction. Banks are enabled to roll over potentially non-performing loans practically indefinitely and can thus lower their write-off requirements.
► Distributive injustice (Cantillon effect): Newly created money is neither uniformly nor simultaneously distributed among the population. This results in a permanent transfer of wealth from later receivers to earlier receivers of newly created money.
Conventional monetary policy – this is to say the promotion of credit creation by lowering interest rates – reaches its limits once the “zero bound” is reached. To continue the spiral of stimulus, “unconventional monetary policy” becomes ever more important. The multitude of “newfangled” monetary policy measures is seemingly only limited only by the imagination of central bankers, whereby recent years have shown that central bankers can be extraordinarily creative. That this phenomenon is nothing new, is inter alia shown by this quote from 1922:
“But an increase in the quantity of money and fiduciary media will not enrich the world … Expansion of circulation credit does lead to a boom at first, it is true, but sooner or later this boom is bound to crash and bring about a new depression. Only apparent and temporary relief can be won by tricks of banking and currency. In the long run they must lead to an all the more profound catastrophe.” — Ludwig von Mises
The seeds for the next crisis are already being sown. The longer the zero interest rate policy lasts, the greater risks investors will have to take, especially the ones who have certain return requirements. The point at which confidence in the fragile edifice of debt will be lost is difficult to forecast. We are strongly convinced that gold represents a sensible hedge against such a crisis of confidence."


Sunday, August 2, 2015

How America's biggest companies are intimately interconnected

"RJ Andrews/InfoWeTrust
What do Ronald Williams, Jim McNerney, and Kenneth Chenault have in common? 
They are the three most popular board directors at the 30 companies that make up the Dow Jones Industrial Average. 
RJ Andrews, who runs the Info We Trust blog, mapped out the board member overlap at DJIA companies.
The research is based on Bloomberg data and includes common board members only. 
He told Business Insider he initiated the data project to see just how interconnected Wall Street truly is. 
The result is a spider's web connecting some of the biggest companies in America.
Chenault is still the sitting CEO and chairman of American Express, and also sits on the boards of IBM and Procter & Gamble. 
Williams, who used to run Aetna, sits on the boards of Boeing, Johnson and Johnson, and American Express. 
Jim McNerney stepped down from CEO role at Boeing at the end of June, but continues to act as chairman. He also serves on the boards IBM and Procter & Gamble.
American Express declined to comment. Boeing, IBM, and Procter & Gamble did not return calls seeking comment in time for publication. 
There are a further 63 executives who sit on two boards, according to Andrews' analysis. Only three companies — The Home Depot, Verizon, and UnitedHealthcare — had no board member overlap with other DJIA constituents." 


Did We Just Hit The Threshold For Short Covering In Gold?

"Two weeks ago we noted something that has never happened before in gold - hedge funds, according to CFTC, had a net short position for the first in history. The past week saw a very surprising negligible shift of just 11 contracts as the short position shrank to 11,334 contracts. However, the aggregate net long position has dropped to a level that in the past has represented athreshold for signficant short-covering (21% and 17% rallies respectively). So with hedgies as short as they have ever been in history and aggregate positioning at a historically crucial level, one wonders if gold is due for a bounce...

Hedgies remain the most short they have ever been in gold...

This is what happened the last time gold saw a 'low' net long position...

and now, the aggregate net position in gold futures appears to have hit a threshold that in the past has created a significant short-covering rally...

The last 2 times aggregate net long positions were this low, gold rallied 21% and 17%...
Did we just reach that short-covering threshold once again?"


Gold And The Grave Dancers

"Submitted by Pater Tenebrarum via,

The Asset They Love to Hate …

Back in the 1960s, Alan Greenspan wrote a well-known essay that to this day is an essential read for anyone who wants to understand the present-day monetary and economic system (which is a kind of “fascism lite” type of statism, masquerading as capitalism) and especially the almost visceral hate etatistes harbor toward gold. Greenspan’s essay is entitled “Gold and Economic Freedom”, and as the title already suggests, the two are intimately connected.

Alan Greenspan in the mid 1970s – although he later turned out to be a sell-out, his understanding of economics undoubtedly dwarfed that of his successors at the Fed (and we are not just saying this based on the essay discussed here).
Photo credit: Charles Kelly / AP Photo
What makes Greenspan’s essay especially noteworthy is that it manages to present both theory and history in a concise, easy to understand manner. There isn’t a word in it we would change. At one point, Greenspan provides a brief history lesson. Yes, the (relatively) free banking era in the United States in the 19th century involved fractional reserve banking and as a result, there were frequent boom and bust cycles. However, since there was no “lender of last resort” with an unlimited money printing capacity, these business cycles were sharp and brief, and the market economy quickly righted itself every time:
“A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.”
(emphasis added)
Alas, these relatively harmless business cycles provided interventionists with an opening to implement their central planning wet dreams, even though their ideas were based on what can charitably only be called appalling economic ignorance. This economic ignorance informs the monetary system to this day and we have nothing but contempt for these planners and their intellectual handmaidens.
We cannot quantify it with any precision, but we believe it can be taken as a given that they have retarded economic progress by an order of magnitude, for reasons of compounding alone. Based on historical data, we would estimate that average real annual growth would have been at least twice as large since 1913 than it has actually been if the economy had remained free. Compounded over more than a century, this is basically the difference between what we have today and the universe of Star Trek.

US-GNP-per-capita-1869-1918 (1)
US GNP per capita in the decades before the establishment of the Federal Reserve: equitable and strong growth, unmatched before and ever since – in spite of fairly frequent boom-bust cycles click to enlarge.
As Greenspan notes:
“But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline — argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913.”
(emphasis added)
At the conclusion of his essay, Greenspan makes clear why the welfare/warfare statists just hate gold with a passion bordering on hysteria:
“Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.


In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
(emphasis added)
This always was and remains true.

Bought Off Intellectuals

All the “justifications” for today’s system we hear from the supporters of the centrally planned fiat money dispensation are nothing but propaganda. This propaganda includes a number of historical lies (such as the old canard that “governments had no choice but to abandon the gold standard if they wanted to rescue the economy”), commingled with theoretical assertions that have been thoroughly refuted countless times.
One of the latter is that an economy allegedly cannot grow unless the money supply grows as well (the truth is that any money supply is as good as any other, and in a free market prices would simply adjust). Another is that central banks need to be able to apply their “scientific monetary policy” to make up for the alleged deficiencies of the free market. In reality, central banking and fiat money have slowed real economic growth to a crawl and have produced boom-bust cycles of ever greater amplitude. Something like the “Great Depression” would never have been possible without a Federal Reserve and two heavily interventionist governments coming to power in a row (first Hoover’s and then FDR’s).
The assertions listed above and similar ones are reiterated sotto voce by countless mainstream economists and the entire mainstream financial press at every opportunity. Hoever, this should be no surprise: The Federal Reserve has practically bought off the entire economics profession (incidentally, so have other central banks and assorted state-funded institutions).
The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession


One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past


A Fed spokeswoman says that exact figures for the number of economists contracted with weren’t available. But, she says, the Federal Reserve spent $389.2 million in 2008 on “monetary and economic policy,” money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009. That’s a lot of money for a relatively small number of economists.
(emphasis added)
In a free market, the market value of thousands of today’s hyper-specialized macroeconomists would be a tiny fraction of what they get paid by the State. In an unhampered free market economy, many of them would probably be forced to actually perform productive jobs. There would of course still be room for economists, but only the most committed and talented among them would could hope to receive funding. Absolutely no-one would bother paying for central planning advice or statist propaganda, that much is absolutely certain. Obviously these economists are highly unlikely to bite the hand that feeds them..."