GOLD PLUMMETS - SPOT CHART

http://www.kitco.com/charts/livegold.html ^

[Fitzcarraldo]

Source: www.kitco.com

[justshutupandtakeit]

A silver standard has the same disabilities as a gold standard and bimetallism has several other problems as well that make it as unreliable and impractical as a gold standard.

The only way the purchasing power can increase is through deflation or increased productivity. The former screws debtors and enriches creditors producing class warfare difficulties. The latter can only occur through technological change which is not constant.

Only after the Civil War did we see an growing economy and deflation when the U.S. reduced the MS by retiring Greenbacks issued during the war. Normally periods of deflation are periods of depression/recession not growth so increased MS almost always produces growth.

Purchasing power is inversely related to price increases.

Your objection is historically wrong.

[Deuce]

You could be right. My figures come from the World Gold Council which probably includes leased gold that is not physically in inventory.

[rollin]

Real estate taxes this year are up 25%, insurance on home 40%, group health insurance 35%, garbage disposal fee up from $5.75 to $10.75 per month, emission test fee for auto up from $22.50 to $45.00, gasoline up from $.89 / gal in Dec with tax to $1.36 / gal for regular. My wife says that she needs $150 / week to buy groceries versus $125 / week last year. Our prescription drugs for high blood pressure have gone from $55/month to $105/month for the same stuff in just 8 months.

Do I need to go on?

[rollin]

Real estate taxes this year are up 25%, insurance on home 40%, group health insurance 35%, garbage disposal fee up from $5.75 to $10.75 per month, emission test fee for auto up from $22.50 to $45.00, gasoline up from $.89 / gal in Dec with tax to $1.36 / gal for regular. My wife says that she needs $150 / week to buy groceries versus $125 / week last year. Our prescription drugs for high blood pressure have gone from $55/month to $105/month for the same stuff in just 8 months.

Do I need to go on?

[discostu]

Hmmm... maybe I should come back to the gold bug threads, you're good to have around.

[Fyscat]

not my words but something to think about

At the risk of hyperbole – yesterday was one the worst (best for those with cash) trading sessions I have ever witnessed. Even though the popular averages dropped by only token amounts the action in many groups of stocks was brutal.

Utilities (DJU) -8.49%
Although the drop in utilities has, in part, been attributed to the unwinding effects of years of balance sheet manipulation, one cannot help but wonder if the action in the group is telling of an upcoming recession.

Gold (XAU) -11.5%
The action in gold stocks, while even more vicious than that of utilities, was somewhat expected. Like the internet darlings of the 1990s gold stocks had previously attracted a herd of followers and prices rose well beyond expected earnings.

That said, since the markets and gold are falling in tandem the investor is left with a intriguing question: at what point does the stock market decline become so dramatic that the term 'crisis' is pandered about and gold rebounds strongly?


The reason why I mention utility and gold stocks first is simple: the recent action in these sometimes 'defensive' orientated groups suggests that money is not rotating in the markets. Rather, that money continues to leave.

The Enron Saga Scorecard
Enron criminals sitting in jail: 0
Number of times Bush has said he is going to 'get tough': 7,123

In February 2002 no less than 4 class action lawsuits were filed against J.P.Morgan for its dealings with Enron. Barely anyone noticed. By contrast, after it was disclosed by Congressional investigators that JPM's prepaid financing
arrangements with Enron may have been used to hide debt J.P. Morgan dropped by nearly 20% and the headlines were whirling.

To begin with, I don't know whether or not the diarrhea-like onslaught of investigations and lawsuits against American companies is near a peak (probably not). However, what I do know is that getting tough on corporate America doesn't mean investigating J.P. Morgan and Citigroup.

At first, this may sound like an odd thing to say: after all, if JPM and C acted inappropriately (broke 'the law') shouldn't heads role and a thousand lawsuits be filed immediately to force the companies into bankruptcy protection?

I look at it this way: the ongoing investigation into Enron exposed energy trading/accounting conspiracies that will inevitably bankrupt more companies, fraud at WorldCom scared the heck out of every investor on the planet, and by August 14 CEOs are going to have to swear that the numbers they are signing are authentic. Quite frankly, the markets cannot take a flurry of investigations/lawsuits launched against the likes of JPM and C. Rather, a collapse in JPM or C would make Enron and WorldCom look like botched high school projects.

Further, ask yourself a couple of questions: what if investigators/regulators stroll across the OTC derivatives mess and decide they want to try their hand at regulation? What if JPM looses a couple of lawsuits, its share price plummet even further and the company is forced to unwind some of its market positions? (as some are already speculating) Does the Fed come in and bail them out?
Do they bail out Citigroup next, then Bank of America, and so on?…

Financial Stocks Are The Fabric That Makes Up Investor Confidence Those that think what happened in Argentina is far removed from the realm of possibility in the U.S. need only consider the panic that a handful of U.S. financial stocks collapsing would unfurl. To be sure, up until now the bear market has been quaint, negotiable, and extremely methodical. If Chairman Carl M. Levin and others continue to press the JPM/C situation this could quickly change.

You don't investigate financial giants: you just leave well enough alone and pray they don't knock over the beanstalk when, and if, they come crashing down.

Melodrama aside, even Bush must be cognizant of the fact that large financial institutions must be allowed to conduct business how they deem fit. This is not to say that Bush, Greenspan, and others do not want to control the actions of
larger financial companies. They do. However, they also know that if they handle the situation incorrectly they will be the ones flipping the bill to bail the companies out.

I will say this once, keep my fingers crossed, and never repeat it again: if an OTC derivatives collapse at a major U.S. financial institution was to ever be made public the fabric that binds investor confidence could completely unravel. Quite frankly, if U.S. regulators and the investing public are having a difficult time coping with Enron-related problems, discovery that the multi-trillion dollar OTC derivatives market needs fixing because a couple of LTCM copycats just blew-up could be overwhelming. Yes, financial dealers will be hung out to dry from time to time. However, it is the Fed's job is to bail them out and not tell anyone.

Will JPM and C be left alone? Time will tell. All that is known is that sending a few criminals to jail is sometimes not as important as keeping the public in the dark, or so we are led to 'believe'..

[rollin]

You are correct about the phone call to Buffet. Made him slightly upset! It was a wonder he did not have a heart attack according to those who were in the room.

[OK]

So you are saying that there was no growth in the US from 1789 until 1900? That is different from what I thought. The dollar was worth the same amount of gold in 1900 as in 1789. I think prosperity and freedom were the result there.

The British Empire was built on a solid gold British Pound for 250 years. It started to decline after they severed the Pound from gold.

I wish you would read "Gold Wars" by Ferdinand Lips.

[OK]

Just read this on another forum FWIW:

UNCONFIRMED RUMOR!! Federal Reserve emergency meeting tonight to discuss Citi Groups exposure to a 24 trillion dollar derivative?"

[Deuce]

Your objection is historically wrong.

No, my observation is historically untested. My point is a theoretical one: if you have a fixed money supply, progress will be reflected in lower prices. Borrowers will pay a very low basic interest rate + a credit risk premium to lenders. Lenders could choose to be save and receive "natural interest" as the money rises in value. Therefore, borrowers have to pay for the use of money and will only do so when they can use the money productively.

[rollin]

I believe that you are suggesting that transparency of financial markets is not desired.

Many years ago, I was trained as a fundamental security analyst at a very prestigious well-known organization, ran a multi-billion portfolio when they were rather rare, and later became involved in many commercial ventures both in banking and elsewhere including overseas.

Secrecy is only used by people who are doing things to take advantage of others. Hence, I strongly disagree.

Openness is much better and in the long run, leads to less problems and volatility. In time, most secrets are unearthed and the aftermath is often worse than if the bullet had been bitten early on.

[#3Fan]

It looks like the PPT did manage to swing the gold market yesterday to save the banks, (for the moment), as we discussed last night.

We'll have to see how long they can hold it down.

[Fyscat]

I suggest that ultimatly it is not wanted by the Pres, the Fed and the like because of the kaos it would create.

I know I probably shouldn't admit this, But I'm a precious metals broker, therefore, I love transparency.

[rdavis84]

"Yes, if you are willing to pay all Freepers for reading your posts based on lack of understanding of gold as money."

In the Poohbah World, WORDS are Money! And your analysis of his input was 'spot' on.

[justshutupandtakeit]

"Progress" is the equivalent of Technological change. Which is necessary for purchasing power increases without deflation.

History has shown what happens to attempts to have a Gold Standard. It doesn't work under any but very special conditions and even then gives a natural advantage to countries with mines. Why should the world accept a system which empowers South AFrica or Russia merely because of metal deposits?

[justshutupandtakeit]

Funny but I get a lot of negative replies from those who don't like their sacred cows gored.

[Fyscat]

Gold, at this point, will never be used as a standard again for the U.S. for many different reasons. But to say one shouldn't have a little bit for insurence purposes isn't sound advice. If we go into a depressionary cycle, wouldn't you want something to fall back onto?

[#3Fan]

Why should the world accept a system which empowers South AFrica or Russia merely because of metal deposits?

At least miners do real work. Right now we accept a system where a few bankers in European mansions do nothing and are empowered. The Federal reserve is based on private banks.

[#3Fan]

Private banks in foreign countries I should say.

[discostu]

Yeah that's why I don't hit the gold bug threads much. Used to be the only support out there was Poobah, and he kind of ticks people off. You also had to put up with Spoosman putting up a new gold bug thread everytime somebody made a good counterpoint on the most recent thread (he wasn't into sticking around for an actual debate or anything silly like that). The more of us there are that have actually studied the history of money and how it works and why it works that way the better. Of course in another few decades the gold bug folks will evaporate because prepared money will be a thing of the past and they will finally understand that currency has ever really represented is buying power; whether that currency is gold, dollars, or bits doesn't matter. It's all just buying power and without a seller willing to take it it's completely worthless.