Stock Tip: Buy Gold
Inside this article is a stock tip that will make you rich as sure as politicians are crooked. But first, the background.
The dollar is being inflated like crazy to pull us out of the recent sub-prime credit crisis. For a great explanation of what the Federal Reserve is and how it inflates, you can watch a 45-minute video created by the Mises Institute. If you don’t understand how our banking system works, prepare to be alarmed. I know the video is long, but it comes with my highest recommendation.
Robert Wallach provides a rundown of the latest inflationary bailout by the Federal Reserve:
The near zero liquidity of these highly leveraged funds has resulted in margin calls, panic, and some of these funds being forced to sell positions in other sectors of the market. But, this crisis is near over. The Fed has come to the “rescue.” Just today it has pumped $19 billion in new reserves into the banking system by buying mortgage securities. My rough calculation suggests that over the last two days the Federal Reserve has pumped in enough new reserves to increase the money supply by somewhere between 10% and 15%.
This is a stunning number. The money supply in a year rarely grows by 10%, for it to do so in 48 hours is mind-boggling. Yes, the Fed has come to the rescue by further pushing the dollar on the road to collapse. While most eyes are on the current mortgage crisis, the bigger danger is the potential collapse of the dollar on foreign exchange markets. The dollar has been slowly falling in value against most currencies for a while. It is at multi-decade lows in some cases. I have feared a further major collapse of the dollar even before the Fed’s moves over the last two days.
The mortgage crisis will pass. The Fed will print its way out of this crisis. But, the dollar crisis is ahead and the Fed won’t be able to print its way out of that since it’s been Fed money printing that is the cause of the world being flooded with dollars.
Mr. Wallach, editor of Economist 55, Economics Briefing, and president of the economic consulting firm, Wallach Associates, was writing these words before the Federal Reserve pumped an additional 38 billion into the market on the following day. Even Jim Cramer is flipping out about the federal reserve in an unprecedented way (watch him totally lose it). “THEY’RE NUTS! THEY KNOW NOTHING!”
The market hasn’t reacted to this yet, but the dollar in your pocket is worth significantly less than it was worth just four days ago. If a private centralized bank (the Federal Reserve) is going to steal the value of your dollar to reward the bad debt of idiotic lending institutions, it’s high time you cash out of paper and get into gold. It boggles the mind to imagine by what authority the Fed has to legally counterfeit this kind of cash, but I digress.
And, surprise surprise, gold is doing great.
But where do you get it? Buying gold bullion itself and sticking it under the mattress is too tedious and risk-of-lossy for those of us who are used to going out and buying stocks and bonds. To help protect you quickly and easily from the federal reserve and government deficits, I tracked down the two best gold trusts on the market: GLD and IAU. You can pick these up on the NYSE and AMEX, respectively. See MSN Money for GLD and IAU. Their business model is simple: buy gold and stockpile it. Sell stocks equal in value to 1/10th of an ounce in gold, and deduct 0.4% per year for operating expenses.
How have they done?
They’re both trading at the same price, both up 4.4% so far this year. They were both up 17% on the year for 2005, and 22% (GLD did 23%) on the year for 2006. Quite obviously, war funding and huge budget deficits have been causing the dollar to decline against gold. With the recent Fed mega-inflation, you can guess where this is headed.
I might be wrong, though. If you think that the military-industrial complex, government welfarism, fiscal irresponsibility on behalf of banks backed by the federal government, or budget deficits will decrease in the foreseeable future and the Fed will thusly stop doling out money, then this is definitely a bad time to get into gold. I’m giving this advice of the persuasion that we’ll see something on the universal health care side of the spectrum, backed by that free and easy Fed monopoly money.
In the end though, it’s stupid that gold should ever be a good investment. It’s really not an investment at all in the traditional sense. It doesn’t do anything but sit in a vault and constantly be something other than inflatable paper money. There are definitely more societally productive places to invest, but instead we have to worry that bankers are stealing from us, backed by the power of congressional indifference.
Disclaimer: don’t take my stock advice, I am not a financial professional. Do your own due diligence.
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ON a related thought :
http://www.gao.gov/cghome/d071188cg.pdf
Rome indeed.
The two things that struck me hardest from your comment: (1) “I also strongly believe we should consider some mandatory public service requirement for able-bodied Americans” - Walker wants us to work on the Federal plantation? . . . and (2) that the Comptroller General thinks Teddy Roosevelt was the greatest 20th century president.
Most people wouldn’t have any idea what a Comptroller General is - nor would anybody think that the GAO actually achieves any semblance of “federal accountability.” I’ve walked by that building multiple times in D.C. and always wondered to myself: now that they’re no longer the accounting office, what are they doing?
It’s quite a statement that we have such a labyrinthine federal government that we spend half-a-billion dollars each year over there trying to figure out what in the world the government is doing. Then we surprised whenever they say something that makes sense!! . . . though they could have just paid one of the homeless camped outside their building $5 to point out that spending more than you have is unsustainable.
In the end, even Walker, a Clinton Democrat, recognizes a broken system when he sees it - though it may just be because Bush is in office. I’ll have my ear to the ground to see if he changes his tune in the event of a Democratic presidency.
Thanks for the link.
Understand that although CG Walker may see the system as broken he is still a product of a “worldview” of government as an immensely fantastic thing(Keynesian), or that he just has realized that everything is a plantation, and that all we do is argue with our masters about how much slack time we have:-)). Byzantine is a word that comes to mind when describing the situation. The movie Brazil keeps coming to mind also. One does wonder what he will say during the next Democratic presidency and perhaps he can be damned for not running around screaming fire at the top of his lungs as the insanity of the situation is nearly overwhelming. Good day.
The Teddy Roosevelt reference is also timely to a LewRockwell.com post