Wednesday, March 01, 2006

Why Buy Gold and Silver

Best Quotes of February 2006
By John Rubino posted at Dollar Collapse .com

Texas Congressman Ron Paul
“Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system. This magnificent scheme seems the perfect system for obtaining perpetual wealth for the country that issues the de facto world currency. The one problem, however, is that such a system destroys the character of the counterfeiting nation’s people--just as was the case when gold was the currency and it was obtained by conquering other nations. And this destroys the incentive to save and produce, while encouraging debt and runaway welfare.

The artificial demand for our dollar, along with our military might, places us in the unique position to ‘rule’ the world without productive work or savings, and without limits on consumer spending or deficits. The problem is, it can’t last.

Price inflation is raising its ugly head, and the NASDAQ bubble-- generated by easy money-- has burst. The housing bubble likewise created is deflating. Gold prices have doubled, and federal spending is out of sight with zero political will to rein it in. The trade deficit last year was over $728 billion. A $2 trillion war is raging, and plans are being laid to expand the war into Iran and possibly Syria. The only restraining force will be the world’s rejection of the dollar. It’s bound to come and create conditions worse than 1979-1980, which required 21% interest rates to correct.”

Stephen Roach, Morgan Stanley
“Suffering from the greatest domestic saving shortfall in modern history, the US is increasingly dependent on surplus foreign saving to fill the void. The net national saving rate -- the combined saving of individuals, businesses, and the government sector after adjusting for depreciation -- fell into negative territory to the tune of -1.3% of national income in late 2005. That means America doesn’t save enough even to cover the replacement of its worn-out capital stock. This is a first for the US in the modern post-World War II era -- and I believe a first for any hegemonic power over a much longer sweep of world history.”

Richard Daughty, the Mogambo Guru
"But, for some perverse reason that future historians will make whole careers arguing about, the moronic people of America think all of these price inflations are good! Hahaha! A nation of morons! I sort of remember a quote by Benjamin Franklin, who was asked, when they finished work on the Constitution, 'And what kind of government do we have?' and he replied 'A democracy, if you can keep it.'

What he surely meant by that enigmatic phrase was if you let people decide tax policy, the numerous have-not people will always vote to give themselves somebody else's money. A democratic, majority-rule government always elects to provide a 'free lunch' for everybody! Whee! Thus, democracy will ultimately destroy the economy. That is why the Founding Fathers wrote into the Constitution that money shall only be of silver and gold, which is the only thing that would possibly prevent it.”

Ben Bernanke, Federal Reserve Board Chairman
"In the past, when the inverted yield curve presaged a slowdown in the economy, it was usually in a situation where both long-term and short-term interest rates were actually quite high in real terms, suggesting a good bit of drag on the economy. With the real interest rate not creating a drag on economic activity, I don’t anticipate that the term structure signals an oncoming slowing of the economy.”

Peter Schiff, Euro Pacific Capital
"The only way for housing prices to stay high is for the Fed to keep inflating. Conveniently, the captain currently at the helm of the monetary ship of state just happens to be Ben Bernanke, who as a Fed governor spoke about the Fed’s ability to fend of deflation by using the handy invention of the printing press. Though his words may have may have spoken in reference to consumer prices, his actions will certainly be concentrated on asset prices, especially housing. Like a lounge club magician, the Feb distracts the audience with short-term rate hikes, while behind its back it monetizes long-term government bonds. It creates the illusion of its being an inflation fighter, while in reality it is an inflation creator. No wonder it wants to further cover its tracks by no longer reporting M3!”

James Turk, GoldMoney
"We moving closer to that moment in time when silver breaks down from its current pennant formation, which is the first step needed for the precious metals to resume their uptrend in this ongoing bull market. If this first step happens, then I expect everything to fall into place. A breakout from the rising trend channel will not be far behind, and by then, the precious metals will be near or at new high prices - with silver leading the way.”

Bill Fleckenstein, Fleckenstein Capital
“But let me just ask you this: If you feared for the value of this piece of paper called the dollar and you put it into a hard asset, does that de facto constitute a bubble? Of course not. That constitutes a bull market. To be a bubble, in my opinion, behavior in and around the asset class under discussion has to spin so out of control as to distort the underlying economy. I don't believe the commodity markets are anywhere near that point. Maybe they'll reach it somewhere down the road, though I kind of doubt that. In the meantime, I anticipate a bullish chain of events for the metals: When the ‘right’ data emerge to support the fact that the economy is weaker than it appears, I believe the Fed will make clear that it's closer to pausing than people think. (Bernanke himself told Congress last Wednesday that whatever the Fed does will be ‘dependent on the data.’) If that turns out to be the case, I think there will an explosion in the precious metals and currencies, an outcome that I intend to capture.”

Ted Butler, Investment Rarities
"This proposed silver ETF, as well as any ETF on any commodity, is as dumb as a bag of rocks. Sure, it will make the price explode, and precisely for that aspect virtually all silver investors, including me, look upon it favorably. Suddenly take away a big chunk of any commodity’s supply and there will be a big impact on price. That’s elementary. But there is more to the story than that.

My main objection with commodity ETFs is that, in addition to artificially altering supply and demand, they turn legitimate commodity law and regulation on its head. The main thrust of commodity law is to prevent concentrated speculative buying and selling from artificially influencing prices. This primary premise and intent of commodity law is obliterated by the concentrated buying (and selling someday) that a commodity ETF insures. It’s as if someone sat down and devised an idea that would upend all the safeguards and regulations against manipulation that have taken many decades to develop.

Over twenty-five years ago, the weight of commodity law came to bear on the Hunt Brothers in the most famous manipulation of them all, the great silver manipulation. The basis of the manipulation was the related and concentrated buying and resultant price pressure brought on the price of silver. The proposed Barclays silver ETF promises to legitimize the very acts which the US Government succeeded in prosecuting. Talk about irony."

Doug Noland, PrudentBear
“A solid case can be made that 14 rate increases have failed to tighten monetary conditions. Despite the inverted yield curve, Credit conditions are generally as loose as ever and, as one would expect, imbalances balloon only larger. Of course, the bond bulls will contend that we are merely waiting patiently for the traditional monetary policy lag to run its course. I suggest there’s much more to it than that.

It is worth noting that broad money supply has rapidly approached $10.3 Trillion. It is also worth pondering that M3 has inflated almost 40% since Fed funds were last at 4.50% (May 2001). At a 5% rate, M3 savers will receive more than $500 billion of interest-income, a huge increase from only a couple years back when rates were 1% and M3 was significantly smaller. There is scant attention paid to this source of augmented income, with analysts instead focusing on the restraining effect of adjustable-rate mortgage resets. But with the ongoing proliferation and easy-availability of mortgage products with low initial payments (teaser-rate ARMs, negative amortization and option-ARMs, and balloon structures), I would be surprised if the household sector in aggregate experiences a significant increase in monthly mortgage payments this year.”

Steven Saville, Speculative Investor
"We would be extremely surprised if the uninterrupted inflation of the past 70 years were followed by a period of genuine deflation (a prolonged decline in the total supply of money and credit). One of the reasons this would surprise us is that there IS so much debt in the system. The high debt levels actually make deflation LESS likely, not more likely, because the current monetary system -- the world's greatest-ever Ponzi scheme -- could not survive a bout of genuine deflation. That is, deflation will never be a viable policy option regardless of how bad things get. Instead, the central banks of the world will likely risk destroying their currencies and obliterating the values of their bonds before they will permit deflation to occur."

Tom Au,
"Another commentator opined that the U.S. government is probably underestimating inflation because it is focusing on the wrong type of inflation. I would agree with that, having identified no less than five different types of inflation: commodity inflation, wage inflation, monetary inflation, fiscal inflation, and foreign exchange inflation. Before discussing 'inflation,' it helps to identify which form of inflation is being talked about."

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