The stock market is not crashing yet, but there are lots of other market crashes happening in the financial world right now. Just like we saw back in 2008, it is taking stocks a little bit of extra time to catch up with economic reality. But almost everywhere else you look, there are signs that a financial avalanche has begun.
Measuring market data using fiat currencies can be misleading – even though an asset may rise in dollars, it may be because of declining currency value rather than true economic process. With central banks devaluing currencies at record rates, gold’s steady purchasing power makes it an ideal alternative pricing mechanism.
Are bitcoins better than fiat currencies? Of course. Are they immune from banker manipulation? Possibly but the verdict is still out. Are BTCs sound money? No.
The jobs recovery is a complete and total myth. The percentage of the working age population in the United States that had a job in March 2013 was exactly the same as it was all the way back in March 2010. In addition, as you will see below, there are now more than 101 million working age Americans that do not have a job. But even though the employment level in the United States has consistently remained very low over the past three years, the Obama administration keeps telling us that unemployment is actually going down. Anyone that tells you that "a higher percentage of Americans are working today" is telling you a complete and total lie. The sad truth is that there has been no jobs recovery whatsoever. If things were getting better, there would not be more than 101 million working age Americans without a job.
In more than a dozen states, legislators are pushing for a movement back to a world where gold is considered money. As Bloomberg reports, lawmakers in Arizona are poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states to recognize gold and silver coins as legal tender. "The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing," which seems confirmed by the recent shift in Texas to bring its gold back from the New York bank warehouse. The new measures would give "people the option of using money that won’t lose any purchasing power to inflation," one supporter of the bill explained, with another adding, "there is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar." The U.S. Constitution bars states from coining money and also forbids them from making anything except gold and silver coin tender for paying debts. Advocates say that opens the door for the states to allow bullion as legal tender.
Data are hard to deal with when your vision is on the wrong side of it. Those wanting to claim there is a recovery underway are having just this problem. These people either have no understanding of economics or they believe falsely that they can inflate “animal spirits” with their hyped reports and that will initiate a recovery. There will not be an economic recovery given the economic policies of this country. A recovery is not unlikely, I would argue it is closer to impossible if not impossible. The reasons for this position are not complicated. In short, the nation has become an out-of-control welfare state that is rapidly destroying the incentives to work or create jobs. Government policies appear designed toward this end. One doesn’t need a high IQ or an advanced degree in economics to understand the problems. There are innumerable factors responsible for the decline of the US. These three important ones will convey why the economy is dying...
The enduring myth of the post-2008 era is that central-planning money printing and deficit spending would soon spark a self-sustaining recovery. Once consumers and businesses stepped up their own borrowing and spending, the central bank and state would then pare back money printing and deficit spending, as the increase in private-sector spending would fuel further borrowing and spending, i.e. become self-sustaining. The reality is the mythical self-sustaining recovery is the carrot dangled in front of a credulous public: though we're constantly reassured "we're almost there" (the promised land of self-sustaining recovery), the mythical recovery remains out of reach, no matter how much money is printed or borrowed and blown in fiscal stimulus. There are several key reasons for this.
A cache of 2.5 million files of cash transfers, incorporation dates, and links between companies and individuals has cracked open the secrets of more than 120,000 offshore companies and trusts. The secret records obtained by the International Consortium of Investigative Journalists (ICIJ) lay bare the names behind covert companies used by people from American doctors to Russian executives and international arms dealers in more than 170 countries (as shown in the map below). One wonders how and why this sudden (and timely) leak of documents occurred. If we were a tinfoil-hat-wearing conspiracy theorist we might suspect that this is a staged coup to create a witch-hunt against all offshore capital (legitimate or illegitimate) - and an attempt, as with Cyprus, to push money out of banks and into circulation (pushing the velocity up) as all other monetary policy 'tricks' have failed. While 'offshore' is synonymous with 'tax cheat', there is nothing illegal in moving assets offshore. In fact, as Simon Black notes, given that there is going to come a time, likely soon, that retirement savings will be targeted; diversifying abroad is one of the sanest things you can do to protect yourself against the real criminals.
The overtly inflationary policy stance of the FOMC is especially significant when you consider that Fed Chairman Ben Bernanke is no longer in control of monetary policy.
Some people believe that by imposing losses on investors and reducing the Cyprus banking system liabilities, the European powers have addressed the problems in Cyprus (if harshly). A dangerous dynamic has been set in motion, which will likely bring many unintended consequrences.
"All this money printing, massive debt, and reckless deficit spending – and we have 2% inflation? I'm beginning to believe that either the deflationists are right, or the Fed's interventions are working." While a low CPI may be puzzling in the midst of massive, global currency abuse, there are three realities about inflation that convince us it's not only coming, but will catch an unsuspecting citizenry off guard. Let's take a look at why we're convinced inflation will be one of the next big catalysts for the gold price...
Human Action was published in 1949. The problems which von Mises so brilliantly dissected then are incomparably worse now. But the main failing remains the same. Those who refuse to gain the knowledge necessary to stand for something will fall for anything. The result in Cyprus is the latest in a long line of similar cases. To give one example, how many of the “Occupy Wall Street” crowd could give a cogent explanation of what they were protesting against? The specific instances may differ, but the reaction remains the same: “But ... BUT ... YOU TOLD US IT WAS ‘SAFE’!!” What makes it worse is that most knew that it was NOT ‘safe’ - but they refused to admit it to themselves.
The insecurity of self-employment can generate a far more resilient life and mindset. In a sense being self-employed simply means stripping away the artifice that somebody else is going to take care of you or give you "free money." Once we understand the promised security is bogus, self-employment doesn't feel so risky--it feels like embracing the risk that is hidden behind the flimsy facade of team-building, "guaranteed" pensions and all the rest of the unpayable promises.
If we shed our fixation with the Fed and look at global supply and demand, we get a clearer understanding of the tailwinds driving the U.S. dollar higher. I know this is as welcome in many circles as a flashbang tossed on the table in a swank dinner party, but the U.S. dollar is going a lot higher over the next few years. In a very real sense, every currency is a claim not on the issuing central bank's balance sheet but on the entire economy of the issuing nation. All this leads to two powerful tailwinds to the value of the dollar. One is simply supply and demand: as the global economy slides into recession, trade volumes decline, and the U.S. deficit shrinks. (It's already $250 billion less than was "exported" in 2006.) That will leave fewer dollars available on the global market. The second tailwind is the demand for dollars from those exiting the euro and yen. The abandonment of the euro is already visible in these charts.
Bloomberg reported recently that Russia is now the world's biggest gold buyer, its central bank having added 570 tonnes (18.3 million troy ounces) over the past decade. At $1,650/ounce, that's $30.1 billion worth of gold. Russia isn't alone, of course. Central banks as a group have been net buyers for at least two years now. But the 2012 data trickling out shows that the amount of tonnage being added is breaking records. Based on current data, the net increase in central bank gold buying for 2012 was 14.8 million troy ounces – and that's before the final 2012 figures are in for all countries. This is a dramatic increase, one bigger than most investors probably realize. To put it in perspective, on a net basis, central banks added more to their reserves last year than since 1964. The net increase – so far – is 17% greater than what was added in 2011, which was itself a year of record buying. The message from central banks is clear: they expect the dollar to move inexorably lower. It doesn't matter that it's been holding up against other currencies or that the economy might be getting better. They're buying gold in record amounts because they see a significant shift coming with the status of the dollar, and they need to protect themselves against that risk. Embrace the messages central bankers are telling us – the ones they tell with their actions, not their words.