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QE 3 Will Only Come With Catastrophe

Phoenix Capital Research's picture




 

The financial world is buzzing with the news that Bernanke telegraphed QE 3 this Friday.  I don’t see it. The political landscape in the US is changing fast and the Fed is going to be coming under increased scrutiny going forward.

 

Look at the recent article from Bloomberg revealing the Fed’s issuing $1.2 trillion in secret bailouts to Wall Street. Look at the comments from Paul, Perry, and Bachmann about the Fed.

 

This isn’t 2010 when the Fed could launch a new QE program without any real political consequence. Bernanke is going to be lumped in with Obama and used as a political tool for the 2012 Presidential election. We’re already seeing signs of this now and the election is still a year away.

 

Remember, Obama was the one who re-instated Bernanke. This fact will be used in the debates and during the political process in general. Not many commentators noted it, but the political tide turned with QE 2 when public consensus went from “the Fed is saving the world,” to “the Fed has blown up the cost of groceries and energy.”

 

Going forward, no one will buy the idea that QE is going to help the economy any more. That kind of argument works in an environment without any approaching elections, but we’re no longer in such an environment: within 14 months people will be voting.

 

If you need an example of what I mean, take a look at Angela Merkel in the German elections. Her party has been getting absolutely destroyed. And the primary reason is her backing of the Greek bailouts (56% of Germans say the Euro has brought them disadvantages).

 

Bernanke cannot simply launch QE 3 as he pleases anymore. In order for QE 3 or something like it to be unveiled, we’re going to need to see either:

 

1)   A MAJOR bank fail

2)   A full-scale Crash with the S&P 500 sub-1000

 

Put another way, the Fed’s tools (QE and otherwise) are now going to be implemented to “avert catastrophe,” NOT to “improve the economy.” The bulls don’t want to hear this but it’s true. The game has changed dramatically in the world. The next time the Fed acts, it’s going to be in reaction to some BAD happening.

 

So if you’re banking on QE 3 now, you might be in for a big surprise to the downside. The market rally last week was the start of end of the month performance gaming, NOT the market believing QE 3 is coming in a few weeks time.

However, regardless of when or if QE 3 comes, the fact remains that the financial markets are on DEFCON Red Alert today.  Indeed, I fully believe we have entered the Second Round of the Great Crisis: the Sovereign Default Round. The First Round (2008) was just a warm-up. This time around, we’re going to see entire countries go bankrupt along with stock crashes, civil unrest, food shortages, bank holidays and more.

 

Many people will lose everything in this mess. Yes, everything. However, you don’t have to be one of them. Indeed, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.

 

Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).

 

Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.

 

Good Investing!

 

Graham Summers

 

PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s my proprietary Crash Indicator which has caught every crash in the last 25 years or the best most profitable strategy for individual investors looking to profit from the upcoming US Debt Default, my reports covers it.

 

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: http://www.gainspainscapital.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

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Wed, 09/14/2011 - 03:20 | 1666957 chinawholesaler
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Sun, 08/28/2011 - 14:06 | 1609565 snakehead
snakehead's picture

If only Bernanke would sign up for your FREE REPORTS.

Sun, 08/28/2011 - 08:48 | 1609148 Downtoolong
Downtoolong's picture

If you believe QE3 would be structured anything like QE1&2, then I concur you won’t see it. If you accept that QE3 must be more subtle, obtuse, disguised, and hidden from most citizens than the last ones (the more corrupt it gets the more they need to hide it from the masses) then…. you most likely won’t see that either.

One thing I have always believed is that people on Wall Street are the smartest and craftiest on the planet. They have already bamboozled entire nations of people out of their wealth, livelihood, and future. Pay very close attention to the strategies coming out of this next FOMC meeting and never stop asking yourself, “who’s going to benefit from this the most?”. And if your goal is to make money, be prepared to jump on someone’s coat tails, because, the primary beneficiary most likely won’t be you.

Sun, 08/28/2011 - 13:25 | 1609483 DeeDeeTwo
DeeDeeTwo's picture

Your post explains precisely why criminal trials for Bernanke and Obama Administration officials have been placed firmly on the table by Rick Perry.

Faith in the US Government can be restored ONLY through Highest Level criminal convictions for racketeering 2008 thru 2011. Such convictions will be overwhelmimgly popular, baby... 60-70% approval easy.

Sun, 08/28/2011 - 09:13 | 1609165 Imminent Crucible
Imminent Crucible's picture

I'm afraid Graham Summers is being a bit dense.  QE3 is here and well underway. The Fed must inflate or die, since monetization is the only road forward at this level of indebtedness. What form is the present huge but sneaky monetization taking? It's "We guarantee to keep interest rates at effective zero at least through mid-2013".

This message is not for the public, it's for the primary dealers. It's a promise that the Fed will not allow the dollar to appreciate (by raising interest rates) for at least two more years.  The message is "Work the Treasury carry to the max, because while Treasury yields are historically low, the cost of credit is also at record lows. You can't lose."

The Treasury generates record issuance, the Fed generates record amounts of credit, and the TBTF's borrow that credit for almost nothing and buy the Treasury run. The CUSIPs show up on bank balance sheets, not the Fed's, and everything looks legitimate.  But the Fed provided all the funds from nowhere, and the money supply grows at a record rate.

Sun, 08/28/2011 - 12:33 | 1609404 ElvisDog
ElvisDog's picture

It's a promise that the Fed will not allow the dollar to appreciate (by raising interest rates) for at least two more years

You are assuming that the Fed can control the FOREX markets over the span of 2 years, that if they want something to happen that it will happen. And yet, history shows countless examples (e.g. England in the 70's) when currency markets did the opposite of what the central bank wanted and they were powerless to stop it. Investing based on the assumption that the dollar will continue to slide over the next two years is dangerous.

Sun, 08/28/2011 - 10:19 | 1609225 espirit
espirit's picture

I concur.  One only has to review the Fed study of Sweden to figure out where they get the playbook.

http://www.clevelandfed.org/research/PolicyDis/pdp21.pdf

No wonder there are no jobs, it's in the plan.

Sun, 08/28/2011 - 11:40 | 1609330 LawsofPhysics
LawsofPhysics's picture

Yep, "inflate or die" is to the Fed as "spawn or die" is to the salmon.

Get comfortable in your surrounding folks because the simple things like; a nice view, abundant fresh water, a vegetable garden, a good adult beverage and like-minded neighbors, to share and protect it all with, are going to become very valuable.

The Fed wants you to pay THEM dearly for the things YOUR own LIBERTY allows you to WORK for, free of charge.  Fuck the Fed and the usury they want to pass onto the world for their own greed.

Sun, 08/28/2011 - 07:15 | 1609113 plocequ1
plocequ1's picture

Catastrophe my ass. Who gives a fuck? I am looking at Hurricane Irene as we speak.  Man and money are so fucking feeble compared to nature. Wahhh, Wahhhh. Gimme a break

Sat, 08/27/2011 - 23:57 | 1608864 yabs
yabs's picture

is it guaranteed even the drugged up septic has a brian somewhere and will rvolt eventually surely if they print more?

Im not sure he will get away with it much longer

people HAVE to wake up at some time and you lot are armed to the teeth

I'm sure they cannot handle 300 million on the steps of the FED with a gun can they?

thing is the septics are mainly retards and will not wake up before its too late

Sun, 08/28/2011 - 00:18 | 1608887 Votewithabullet
Votewithabullet's picture

...fucking que

Sat, 08/27/2011 - 18:55 | 1608295 vast-dom
vast-dom's picture

Graham claimed that QE3 would go down last Friday and I called him out on it in a post. He was DEAD WRONG. Now he claims it will occur at a later date. This is precisely the kind of low-grade forecasting that cheapens 0H.

 

Even Roubini got it right, once. Big deal. Graham is long his fantasia leprechaun $350/oz gold and Roubini is long spam. Fuck 'em both.

Sun, 08/28/2011 - 11:11 | 1609285 Founders Keeper
Founders Keeper's picture

[Graham claimed that QE3 would go down last Friday and I called him out on it in a post. He was DEAD WRONG.]---vast-dom

Is this the DEAD WRONG line?  Thanks.  I better go find my place at the end of the line.

I too expected Bernanke to signal QE3.  I was dead wrong.

QE3 is coming.  I don't know when.

Forecasting is a rough game to play.  One hangs their credibility on the line, so to speak.  I have a great deal of respect for those willing to take a calculated risk, and equally willing to take responsibility when they are wrong.  Separates the men from the boys.

 

Sun, 08/28/2011 - 12:18 | 1609379 vast-dom
vast-dom's picture

Precisely! I predicted that Graham would be wrong and he was wrong ergo I'm twice right in my forecasting (re: Shyster Summers and QE3!). I put my ass on the line 2-in-1-times. 

 

Any 2-bit bum can prognosticate thereby putting their ass on the line but that don't make it legit or impressive.

Cheerio.

Mon, 08/29/2011 - 00:14 | 1610863 Founders Keeper
Founders Keeper's picture

Hi vast-dom.

So there's no misunderstanding, I was not defending Graham in my post.  Actually, I was owning up to my own mistake.  I had predicted Bernanke would announce QE3 post JHole.  I was dead wrong, so sayeth the 2-bit bum.

 

 

Sat, 08/27/2011 - 21:00 | 1608537 Drag Racer
Drag Racer's picture

give him credit for getting at least one point right, a bank will fail.

Sun, 08/28/2011 - 10:24 | 1609233 espirit
espirit's picture

The most likely suspect would be BAC, but with Uncle Billionaire bailing them out I'm thinking Citi first, then (hopefully) JPMC and the flying monkey crew.

Sat, 08/27/2011 - 16:39 | 1608001 Snidley Whipsnae
Snidley Whipsnae's picture

PH29... Read this, and then we can discuss what the Fed is doing to contain interest rates while gold is in an uptrend... It is not what most think...and it isn't (V) velocity of money...

http://news.goldseek.com/GoldSeek/1314194400.php

Sat, 08/27/2011 - 16:56 | 1608052 DosZap
DosZap's picture

Snidely @16:39,

Thanks for the link..................puts things in a whole new persepective, on the WHY's.

Problem is, it doesn't solve the problems............LOL

Sat, 08/27/2011 - 16:19 | 1607973 PulauHantu29
PulauHantu29's picture

10-20% S&P drop = QE3 says Faber. I suspect somewhere between what you predict (a 50-60% S&P drop) and Faber's prediction is likely.

Of course, the Fed is already engaging in a QEesque monetization by holding interest rates at zero for two more years...at least. This means continued injection of Hi-Powered money into circulation, i.e., banks. The reason inflation is running only 6-10% is b/c of weak velocity imo.

What do others think?

Sat, 08/27/2011 - 16:05 | 1607942 Stuck on Zero
Stuck on Zero's picture

Here's a test to see if you understand how quantitative easing stimulates the economy (choose the correct answer):

1) It induces the fear of inflation in savers so they pull their savings and buy gold or foeign currencies.

2) It induces the fear of dollar devaluation in investors so they send their money overseas.

3) It induces manufacturers to send their factories overseas before the dollar falls in value.

4) It induces bankers to stop lending because of their fear of loan payoffs in inflated currency.

5) It induces fear in overseas investors so they do not invest in the U.S.

6) It induces politicians to spend more because they feel the economy will improve and the Feds will bail them out.

 

Sun, 08/28/2011 - 11:48 | 1609342 LawsofPhysics
LawsofPhysics's picture

Well then we must have some very stupid people in this country as the rate of saving per capita has been steadily increasing since 2008.  People de-leveraging all over jumping foolishly into cash and treasuries.  Stupid sheep, got physical?

Sat, 08/27/2011 - 16:33 | 1607958 NvrGivUp
NvrGivUp's picture

All of the above! Oh wait, it doesn't stimulate the economy, exactly for those reasons..... tricky...

 

Sat, 08/27/2011 - 15:58 | 1607927 caustixoid
caustixoid's picture

genius analogy smiddy! looks like he's waiting until the monster is point blank in the hopes of a lucky shot.

Sat, 08/27/2011 - 15:59 | 1607881 NvrGivUp
NvrGivUp's picture

'tools for growth' Translation- We're going to try something new... QE3 will not happen as too much negative press, not enough results and something else could be perceived as more valuable by the voting public.  Ultimately nothing will be done that fixes the core issues of a slowing economy and increasing dependence on handouts. The game now is little more than to push the inevitable out into the future as far as possible. Politicians point fingers and cling to the power that they feel is eroding. 2012: People get REALLY PISSED at politicians for being so self serving and inept and begin to take action.  The new "jobs program" will be rife with fraud and provide nothing but bs press for currently elected officials to either take credit or receive blame depending upon camp. Financials will fall 20% with all other market indexes. That catastrophe will bring more QE.... Gold may correct 10-15% but will continue it's march.

2nd - 3rd qtr '12 = social unrest starts as the masses begin to become unhinged in desperation. Home security and fire arms stocks will out perform gold for 6-12 months. Curfews in biggest cities after well planned and spontaneous looting episodes. Gov has no clue what to do except call out the national guard and military, moving towards police state. Gov. blocks of social media will become standard practice.... Wealthy start to become targets... Not only for what they possess but for what they represent to the have nots... Suicide and murder rates start to escalate.

Retail outlets start to fortify against looters, more registers behind bullet proof glass. Being careful about what you drive and where you drive becomes more important than it already is, keeping a low profile becomes paramount to avoid becoming a target. Prisons already full requiring use of already built detention camps with more on the way... Darwin would have never thought it would come to this with humans but the weak will take the brunt of the pain. Crime will become a neccesity of survival for those removed from the government handout programs as they are slowly taken away. The EE will eat and sacrifice its own in the lower ranks to defer and deflect responsibility, the top level ee will close ranks in order to consolidate power. More war to "stimulate" the economy and keep the masses preoccupied.1st qtr '12 leading defense stocks rise 10%.

The super powers will move to an overt take over of foreign resources in the next decade, the facade of doing the right thing will fall as it will be about survival and the populous of the aggressor countries will support the take overs... The have not nations will have huge die offs as developed nations can no longer afford to subsidize their existence (already happening). China flexes it muscles with respect to resource procurement (already happening), first with $$$  then with force as it will be competing with a country already doing it by force. The speed and velocity of resource nationalizations will increase exponentially as resource values rise. As that happens, those nations will become targets unless they play ball.

The shit will hit the fan big time in the middle east as oil becomes less available and the rapidly increasing populations see less benefit. What we have witnessed to date is nothing but the first wave of a tsunami of discontent in populations suppressed by regimes and corrupt "democracies," as the pain increases so will the unrest and once the recent changes prove out to be more of the same, the next round wont do it so peacefully... The time to take out the foul weather gear is approaching.

Sat, 08/27/2011 - 19:33 | 1608397 long_and_short
long_and_short's picture

Seriously .... that is a very asinine post.

At the end of the day the illuminati/bilderbergers whom ever you think is plotting this have far more to gain to keep the sheeple on a tread mill and shear the middle class just like the Romans did.  Thats why tey are trying to keep this game going.

Until borrowing commences from joe six pack again, we are in a deflationary spiral amd thats what Bernanke is trying to avoid.

Sun, 08/28/2011 - 11:51 | 1609346 LawsofPhysics
LawsofPhysics's picture

so you insult the author, but then agree with him in principle - the bernank is failing. How conflicting.

Sun, 08/28/2011 - 02:31 | 1609011 Bring the Gold
Bring the Gold's picture

It's all about finite resources diminishing. Expanding populations, expanding demand, ever shrinking supply. Throw in pollution and monetary debasement and those resources are even more important. Think about it from an uber elites point of view and you come up with their answer real quick. Nobody knows how it will shake out, but the old status quo is not in our future.

Mon, 08/29/2011 - 11:40 | 1611836 bid the soldier...
bid the soldiers shoot's picture

old status quo = good old days

Sat, 08/27/2011 - 16:01 | 1607933 Mariposa de Oro
Mariposa de Oro's picture

This sounds very possible, and very depressing.....I don't this.  I want my sparkley pink unicorn and the yummy Skittles it shoots out it's arse.

:o(

Sat, 08/27/2011 - 15:05 | 1607786 dehdhed
dehdhed's picture

if the title to this article is correct, the more astute conclusion would be to state that a catastrophe is nearly certain

Sat, 08/27/2011 - 14:09 | 1607658 zeroman
zeroman's picture

 

GRAHAM SUMMERS IS A CONFUSED WRITER AT BEST. ONE MINUTE HE IS SAYING GOLD IS THE ONLY ANSWER, THE NEXT MINUTE (TODAY'S BLOG) HE ADMITS THAT QE3 IS NOT FEASIBLE DUE TO THE POLITICAL CLIMATE AND PUBLIC OPINION.  WELL, YOU CAN'T BE BOTH PRO GOLD AND PRO RON PAUL.  IF THE GOVERNMENT IS GETTING SERIOUS (OUT OF SELF PRESERVATION OF COURSE) DEFICIT REDUCTION AND ENTITLEMENT REFORM, ALL THE GOLD PUMPERS LIKE GRAHAM SUMMERS IS GOING TO LOOK LIKE A FOOL VERY SOON.  I LIKE THE ARTICLE IN SEEKING ALPHA OUTLINING HOW THE FED COULD HELP HOMEOWNERS AND BANKS WITH TARGETED AMOUNTS OF LOW INTEREST AND NOT BE SEEN AS A QE VEHICLE AT ALL (NONETHELESS IT WOULD BE AND BETTER SERVED TO HELP HOMEOWNERS THAN THE SCUM OF THE EARTH BANKERS/POLITICIANS).  GRAHAM IS WAY TOO SIMPLISTIC IN HIS VIEWS AND DOES NOT LOOK AT CREATIVE OPTIONS THAT MIGHT BE AVAILABLE TO THE GOVERNMENT AND THE FED.  MARK MY WORDS, VERY SOON GOLD IS GOING TO GET CRUSHED. IT IS WAY TOO LOPSIDED AND THE KEYNSIANS WILL DO WHAT THEY MUST TO SURVIVE. SO WILL EUROPE.  WE MIGHT HAVE ANOTHER 10-15% DOWNSIDE BUT YOU DEFINITELY WANT TO BE ON THAT RALLY COMING WITH THREE BIG THINGS;  1. JOBS PROGRAM WILL GET PASSED BECAUSE THEY ALL WANT TO GET RE-ELECTED  2.  FED WILL COME UP WITH A PRO POPULOUS PROGRAM THAT WILL HELP THE PEOPLE 3. THE GOVERNMENT WILL CUT SPENDING BY MORE THAN THE MINIMUM . NO WAY AN ELECTION YEAR IS GOING TO LOOK BAD!!!  THERE IS WAY TOO MUCH FEAR RIGHT NOW. THE ECONOMY IS NOT SHOWING SIGNS OF 2008 AND NOR WILL IT. I AM A SKEPTIC FOR SURE.  HOWEVER, THERE IS WAY TOO MUCH BIAS WITH THESE GOLD PUMPERS LIKE GRAHAM SUMMERS.

Sat, 08/27/2011 - 15:31 | 1607868 So Close
So Close's picture

I am begining to think that your avatar "zeroman" signifies the amount of critical thinking and self checking you do before you THROW UP ALL OVER US WITH YOU INANE, NONSENSICAL, BLATHER.   

From a audio/visual metaphorical standpoint...  I see you lips moving, and I hear words, but none of it makes sense...

Or if you prefer a more classical bent...  It is a tale. Told by an idiot, full of sound and fury, Signifying nothing

Sat, 08/27/2011 - 15:26 | 1607848 So Close
So Close's picture

And isn't it impossible to accomplish these three things as once?  

1. JOBS PROGRAM WILL GET PASSED BECAUSE THEY ALL WANT TO GET RE-ELECTED  

2.  FED WILL COME UP WITH A PRO POPULOUS PROGRAM THAT WILL HELP THE PEOPLE 3.

3.  THE GOVERNMENT WILL CUT SPENDING BY MORE THAN THE MINIMUM . 

Do you think before you type?

Sun, 08/28/2011 - 12:40 | 1609412 ElvisDog
ElvisDog's picture

Thinking that the Obama jobs program will pass shows a complete lack of knowledge of how politics works in the U.S. Why would the Republicans pass Obama's jobs program? If it works, then Obama and the Dems get the credit. If it fails, the Repubs get tarred with at least as much of the blame for caving in to Obama's wishes. It's a no-win situation for the Republicans, therefore it won't pass. The original poster needs to think things through for 30 seconds before posting things like "JOBS PROGRAM WILL GET PASSED"

Sat, 08/27/2011 - 15:23 | 1607839 So Close
So Close's picture

How can you say you can not be pro gold and pro Ron Paul?   The man himself is long gold and shares.  And one would think he himself is pro Ron Paul.  If that is basis of your argument everything else breaks down if you are wrong. 

Sat, 08/27/2011 - 16:06 | 1607945 Lucius Corneliu...
Lucius Cornelius Sulla's picture

If Ron Paul had his way with fiscal policy then gold would be at $500 tomorrow.

Sat, 08/27/2011 - 16:22 | 1607978 RockyRacoon
RockyRacoon's picture

Isn't that the point?  Gold is an indicator of stability and a low "price" would indicate same.   I think you've made the original argument.   Thank you.

Sat, 08/27/2011 - 16:49 | 1608035 Lucius Corneliu...
Lucius Cornelius Sulla's picture

Yeah, and that is why I think gold will be at $500 again .. because deflation will win.  This is a liquidity trap.  There is no escaping it.

Sat, 08/27/2011 - 22:50 | 1608721 cranky-old-geezer
cranky-old-geezer's picture

 

 

ZIRP guarantees there will be no liquidity trap, and ZIRP has been guaranteed 2 more years. 

Hence there will be no deflation, just more inflation, and gold will continue rising in price.

Prices may fall in some areas, like housing, but that's not deflation.  

Deflation / inflation has to do with the money supply and value of the dollar.  And yes we'll see steady inflation going forward, and corresponding dilution of the currency, i.e. loss of value.

Sun, 08/28/2011 - 00:58 | 1608937 Manthong
Manthong's picture

Gold can never go back, not in today's dollars, not with the amount of debt, fiat and phony paper out there now..

Sun, 08/28/2011 - 12:13 | 1609376 boiltherich
boiltherich's picture

Actually, the real point of what Paul says is that the Federal Reserve is an unconstitutional entity that does not act in the best interests of the people of the USA, that it has corrupted government and government in return has used it in a mutual love fest of kleptocracy.  He has been saying that the system is broken and must be fixed.  I respect that judgment, but it is a bit of a case of stating the obvious in a world where the obvious is so utterly denied that the few who see it, like we at ZH, are considered to be cranks and cracked pots.  And before everyone jumps on me because of your own personal take on this please allow me to defend the Fed and the FRN just for a moment, the Federal Reserve Act might have been unconstitutional from the viewpoint of the founders, but while the purchasing power of each FRN has decreased dramatically since the creation of the Fed we also had an absolutely unprecedented increase in real wealth and productivity over that period unmatched by any human undertaking.  The real problem with the system is that it is too subject to public abuse by government, and too easily plundered by private corporate interests.  We have all been saying this, though some think it is entirely due to government plunder called entitlements, while others like me think it is nearly totally the looting for and by corporate interests.  Six of one, half dozen the other.

This really is not the first time we as a nation got to this point.  William Jennings Bryan ran a very successful populist insurgent campaign against elitist republicans of the corporate class in favor of ending the gold standard for a silver standard that would benefit average citizens.  Personally I would have hated the fucker, he avidly supported religion and prohibition, both have a long history of taking rights from you and me, not protecting anything or anyone but those who claim to know what is best for us.  His "Cross of Gold" speech is among the most noted political moments in US history even a century later.  Point is that the US monetary system has been a troubled and hectic flashpoint since the start of the nation. 

But look at the constitution and what it says about what a US dollar is.  It is established in the Coinage Act of 1792 to be 371.25 grains pure silver, or 416 grains standard silver.  But, the act also established a $10 gold eagle at 247.5 grains pure gold, or 270 grains standard gold.  A dollar in gold would be one tenth the eagle amount.  So a gold dollar would be 24.75 grains pure gold. 

Shall we do some math?  One troy ounce of gold has 480 grains pure gold.  And arguments about what is really in Ft. Knox or the vaults in New York aside, the USA is supposed to have 8,133.5 metric tons of gold in our reserve.  Times 2200 pounds per ton, times 12 troy ounces per pound=214,724,400 ounces of gold.  Times 480 grains each=103,067,712,000 grains gold reserves.  And since one US dollar is established as 24.75 grains each we find our gold reserves are worth 4,164,352,00.00.  Even when you take into account that a dollar is also silver at a rate of fifteen to one of gold ounces in that same law we have just enough gold to be (or back) just over 4 billion dollars.  Fifteen times that added for silver dollars and fractional coins of dollars like dimes would mean we could circulate no more than about 60 billion dollars to operate the whole US economy.  Copper was also allowed for pennies, at 17.1 grams per penny but that is not really important here.  Of course paper money backed by these metals at those rates is acceptable for convenience as long as they are fully convertible upon demand at the mint (banks). 

We can argue all day about the pros and cons of the Coinage Act signed into law by the way in the hand of George Washington, in fact they have been arguing about it now for 219 years.  The list of pros is long, so is the list of cons.  Ditto for the counter arguments re the fiat and Fed/debt system, the Federal Reserve Act which usurped the Coinage Act, but I think the current system is about finished.  And this is really at the heart of what Dr. Paul is saying, the system as it is now constituted is dying and only serves the wealthy elite while robbing the average man.  And woman of course. 

By the way, the same Coinage Act of 1792 called for only those described metallic weights and measures to be a dollar and the penalty for debasement was specified as death.  Those founders were SERIOUS in all caps about this being what our money was to be.  Anyone claiming that they were not should think about the gravity of the punishment for shaving coins or hollowing eagles. 

And yes, I do know I can be pedantic, but the level of ignorance and emotional boil over, as well as the manipulative types mean we sometimes need a history lesson, some hard facts. 

Sun, 08/28/2011 - 16:11 | 1609820 forexskin
forexskin's picture

please allow me to defend the Fed and the FRN just for a moment, the Federal Reserve Act might have been unconstitutional from the viewpoint of the founders, but while the purchasing power of each FRN has decreased dramatically since the creation of the Fed we also had an absolutely unprecedented increase in real wealth and productivity over that period unmatched by any human undertaking.

making a common mistake, cum hoc ergo propter hoc. You could as easily argue that freedom is responsible for prosperity, and be much closer to right.

We can argue all day about the pros and cons of the Coinage Act signed into law by the way in the hand of George Washington, in fact they have been arguing about it now for 219 years.  The list of pros is long, so is the list of cons.  Ditto for the counter arguments re the fiat and Fed/debt system, the Federal Reserve Act which usurped the Coinage Act, but I think the current system is about finished.

Arguing about the Coinage Act is beside the point - the intent is the crux. Which is to say that the founders knew the bankster's habits, and tried to implement a system they could not game. Worked for a while.

No doubt the current system as constituted is out to return us to a feudal nightmare we spent 500 years battling.

Mon, 08/29/2011 - 13:39 | 1612179 boiltherich
boiltherich's picture

Both great points, I do not defend the Fed really for the simple reason that it is a system that too easily is gamed and were corruption is possible greed will demand it is accomplished. 

I do think that in a state where production is ongoing and rising total long-term hard assets are constantly being added to while "money" is restricted to the gold reserve which does not grow appreciably, prices must always be falling.  That by itself is not a bad thing, but in the past where money is limited so perfectly hoarding has always been a problem, human nature, limited non debt money in a capitalist system eventually ends up in too few hands choking off capital formation, and that can happen even in a fiat system where political will does not allow redistribution. 

It is because of the restrictions of the hard money supply that they had to make up double entry bookkeeping which was a large part of the start of the renaissance.  True banking/credit can be attributed to the Templar's during the Crusades but by itself it was not enough, add on double entry bookkeeping and viola, they lit an economic fire that is still going, and for the trifecta add on Venetian insurance, the sprinkles on top would be Dutch corporations and partial ownership (shares). 

Wed, 08/31/2011 - 20:33 | 1613495 forexskin
forexskin's picture

True banking/credit can be attributed to the Templar's during the Crusades but by itself it was not enough, add on double entry bookkeeping and viola, they lit an economic fire that is still going, and for the trifecta add on Venetian insurance, the sprinkles on top would be Dutch corporations and partial ownership (shares).

unless i miss my guess, you've been reading F. Braudel.

limited non debt money in a capitalist system eventually ends up in too few hands choking off capital formation, and that can happen even in a fiat system where political will does not allow redistribution.

one aspect of capital formation is capital concentration, which applied to labor and materials leads to one way of wealth creation. what you miss (besides examples), is that this concentration of wealth also leads to an effective rise in prices (due to high demand for basics due to the rationing effect and lack of productivity improvement due to said concentration) and re-alignments due to populations inability to access basic resources - leading to an overturning of the established order, or a general return toward subsistence labor, away from wealth multiplying labor specialization.

either way, capitalism has such a short history that we can only conclude we've seen wealth concentrated via differing mechanisms, one accidental (hard money supply) the other intentional (fiat money).

personally, i view a system of intentional theft as far more evil than a (systemically accidental) concentration of wealth. historically, it appears to be the mission of the top tier elite to prevent the middle tier from every overtaking their control of the system again. an entrenched omnipotent elite has far greater potential for abuse of power and evil than any other human enterprise i can imagine. stalinist soviets... mao great leap forward.... pol pot killing fields... wells' morlocks...

i'm guessing the founders would agree...

 

Sun, 08/28/2011 - 12:53 | 1609423 RockyRacoon
RockyRacoon's picture

Let me know when the rich are done boiling.  My dogs like a good meaty bone now and then. 

Thanks for the analysis.   I hope none deduce that you are saying "there's not enough gold", but some will as usual.

Sat, 08/27/2011 - 15:03 | 1607782 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

Wow thanks for the capitals - the point would've surely been lost otherwise

Sat, 08/27/2011 - 14:50 | 1607747 Apply Force
Apply Force's picture

Screaming in all caps does not make your opinions any more relevant.

Sat, 08/27/2011 - 16:41 | 1608006 DosZap
DosZap's picture

Apply Force @ 14:50,

I prefer to maybe give him/her a benefit of a doubt, perhaps they are sight impaired.

Just a thought. Like Dyslexic, and transposing lettres......................

Sat, 08/27/2011 - 14:04 | 1607647 RingToneDeaf
RingToneDeaf's picture

QE3 is already underway.

What do you call 0% interest rates? Free Lunch?

At this point there way out until blood has washed the streets. Too much corruption.

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