Great Depression Online Archive Issue:

Something More

Great Depression Online
Long Beach, CA
January 21, 2011

Inside This Issue You Will Discover…

*** Biding its Time
*** Hell Bent on Stimulating New Demand
*** Something More
*** And More

Biding its Time

The President of China, Hu Jintao, visited the Whitehouse this week.  But unlike when President George W. Bush snubbed him with a meet and greet over lunch five years ago, President Obama welcomed President Jintao to a glittery state dinner.  We’ve read reports the dinner was even capped with apple pie and ice cream.

We certainly hope President Jintao liked his grub.  For the currency standoff between the two countries has reached an impasse.

“Obama raised the subject of China’s currency multiple times, saying it is undervalued and that China needs to do more to bring it into a market-based system,” reported MarketWatch.  “Hu did not address the value of the currency in the press conference.”

~~~~~~Fear and Love~~~~~~

For the BIG GOLD annual gold forecast survey published in January, Jeff Clark surveyed seven gold experts and nine top economists and fund managers, along with Doug Casey himself, to provide their best insight on what to expect in 2011 and how to invest.

One expert he interviewed was Frank Holmes, head of U.S. Global Investors, which manages 13 no-load mutual funds, many of them recognized for consistently high performance by Lipper Fund Awards.  Last year, Frank’s Gold & Precious Metals fund returned 36.8% – more than triple the Dow – and the World Precious Minerals fund gained 45.4%, outgunning the S&P almost four-fold.

Read on for Frank’s thoughts on gold and precious metals stocks…

Fear and Love Make Gold Strong 

~~~~~~~~~~~~~~~~~~~~~~~~~

No doubt the U.S. currency is manipulated too.  The Federal Reserve and the Treasury are doing everything they can – and more – to weaken its’ value.  In return the Chinese government further weakens their currency.  After years of this, mammoth trade and account imbalances have resulted.

But China is just biding its time.  Eventually they will no longer need the American consumer; one day its domestic market will support its economy.  That’s when China will revalue its currency…and that’s when the price of China made products sold in the United States double overnight.

In the interim, the Federal Reserve will continue to nudge the will of Zeus towards its end.  Here’s what we mean…

Hell Bent on Stimulating New Demand

When the financial markets froze up in late 2008, Ben Bernanke turned up the monetary gas.  He lowered the federal funds rate to practically zero and added a trillion dollars to the Federal Reserve’s balance sheet…doubling its liabilities in less than a year.  Since then the Fed’s added another $1.3 trillion to the Fed’s balance sheet.

To the casual observer it appears to have worked.  The sky is no longer falling.  No more of the big Wall Street banks have gone bust.

Here at the GDO we watch and observe…yet we remain skeptical of the economic recovery.  We read about it in the papers.  We hear about it on the news.  The stock market sure thinks it’s upon us… 

Yet when we look at the world around us we see an economic model that’s broken: An economy based on consumption that’s still grossly overloaded with debt…and a government hell bent on stimulating new demand by artificially suppressing interest rates and borrowing lots of money from the rest of the world.

But what for?  What good is stimulating demand if it only goes to benefit the balance sheets of other countries?  Is it not just stimulating the rate at which people go broke?

Something More

Production, of course, is how you create wealth.  Producing things and selling them to others.  It’s how the United States – and the United Kingdom before – came to economic and military power. 

Nowadays, it’s not that America no longer produces anything…for we do.  Food production is still a net export and industrial supplies and production machinery are still top exports.

The problem is that the U.S. imports so much more.  For example, in 2008, the total U.S. trade deficit was 695.9 billion.  In other words, the U.S. transferred $1.9 billion of its wealth to the rest of the world each day of the year.

So how do you close the huge trade deficit?  You spend less than you make…you save more than you spend.  By doing so, you effectively produce more than you consume.

But that takes hard work…and discipline.  It takes time and patience.  Quick fixes and gimmicks won’t do it.  Yet that’s what voters want.  They want their elected officials to provide an easier, softer way.  So the government devalues the dollar in the hopes that it’ll make U.S. exports more competitive overseas.  So, too, the government discourages savings and encourages consumption.

Most delusions come to pass with a pounding.  Thus the delusion of debt based consumption providing endless wealth will ultimately be pounded out of the people too.  After that, they’ll want something more.

That’s when things really go off the rails.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  To read full interviews with 17 of the world’s leading investment pros – including Jim Rogers, John Hathaway, Peter Schiff, and Rick Rule – try BIG GOLD at just $79 a year, with 3-month money-back guarantee.  Act today, and you’ll also get a FREE one-year subscription to Casey’s Energy Opportunities.  Details here.

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