Monday, December 14, 2009

Gold, the Dollar and Obama

Last year gold went over $1,200 an ounce. Barton Biggs once described gold as a "barbarous relic." While pleasing to the eye, Biggs was essentially right about gold in a monetary sense. Gold as money comes from a time before the Enlightenment when cheating in the coin of the realm was common. Only the look and feel of a proper gold coin conveyed security and trust in a transaction. Paper money came when a government could back it with gold. In other words that relatively worthless paper was backed by something someone would buy no matter what happened. Through disaster of nature or man, gold endured as a store of value. My favorite story about this vein of thought doesn't directly concern gold.

During the 900 day siege of Leningrad by the Nazis in World War II, a woman was confronted with a choice. The city was in a state collapse barely holding off the Nazis, but bereft of food. Over a million Russians would die during the stygian siege. None would ever be mourned individually as their bodies were dumped in mass graves. Death assumed many guises. Sometimes it appeared instantly through bullets or bombs. Other deaths rose slowly from freezing cold or starvation. The story of a single Russian woman revolves around a dilemma. Should she trade her diamond engagement ring for a sack of potatoes or starve?

Of course, she traded that treasured item. Even on the brink of societal dissolution, this ornament with little or no industrial use had value. Gold is much the same. Admittedly, this is an extreme example, but it shows the persistence of value in something that by all rights shouldn't have any value. In the present day with technologic wizardry making value even more quantifiable in everything, gold should have even less value, shouldn't it?

Unfortunately, one thing has not changed from that battle in the Soviet Union many years ago. Human beings are inherently competitive. When this rises to a national level,you have wars. Put it on a cultural level, you have a clash of civilizations lasting decades. The West has been experiencing this with radical Islam since the 1970's. This instability with the threat to mushroom (pun intended) means a persistent store of value remains desirable.

With regard to world monetary policy, gold is experiencing a tailwind as well. Japan recently announced a stimulus program i.e. a money print. China had a huge one last year. The United States leads the pack by having a ballooning debt and printing more money on top of that for scads of new government programs and bailouts. Recently Fannie Mae and Freddie Mac government ponzi schemes that they are, lined up for, wait for it,. . . ."unlimited funds" to stay afloat. Some say the true amount could be $400 billion or more. Who knows? Anyway, that's more than half the size of Obama's much trumpeted stimulus plan. At this point we don't even know how much the health care boondoggle will cost, but Harry Reid during debate let it slip that it was in $2 trillion dollar range. It's a wonder the U.S. dollar has any value at all.

Perhaps the dollar has taken all the bad news of crazy spending and finally stabilized, but that would assume the spending spree is over. Also, the dollar used to represent more the U.S. economy than the U.S. government, but as the latter encroaches more and more on the former, the dollar will increasingly be representative of Uncle Sam, not Microsoft, Walmart et al. So if the dollar is now a proxy for the government, does the low value of the greenback represent an opinion of the government and those who lead it. If that's the case, do any of the current leaders inspire trust in the "full faith and credit" of Uncle Sam to pay his bills?

Ben Bernake seems competent enough, but since he's lowered rates to zero, there is only one way for rates to move. His course is set and his options limited. Raising rates will hammer an extremely tepid recovery.

Does Harry Reid inspire confidence? Does his slimy buy off Sen. Ben Nelson exempting Nebraska from paying for medicare constitute effective leadership? Does forking over $300 million to purchase the Senator from Bourbon Street Mary Landrieu highlight a skill all leaders should possess?

Does Nancy Pelosi inspire confidence? Last year she called the CIA a bunch of liars. Last week, seven of those "liars" perished in suicide bomb attack in Afghanistan defending her right to continue to make vile, moronic statements in pursuit of the crowning prize: dingbat of the decade. She make me want to ralph.

And what of our president? The self confessed movie "buff" took in the latest James Cameron movie while on vacation in Hawaii. Doesn't a buff require lots of time be devoted to your area buff-dom, in this case movies? Don't you have a day job, Mr President? Oh well, I'd rather catch a double feature than deal with Harry Reid as well. I'm with you on that one, Mr. President.

Still, wasn't this the man that promised "not to rest until everyone who wants a job can get one". With the Hawaiian vacation, I guess that means the 10 percent unemployed don't really want to work? Why should they work anyway? With unemployment and Cobra being extended virtually indefinitely and health care in the pipe why bother? Unlike Obama, we don't want to push ourselves too hard, do we?

According to the AP, Obama was briefed two hours after the Al Qaeda Christmas attack. The briefing lasted fifteen minutes and then Obama skipped off to the gym. You wonder if he even inquired if there were signs of any more attacks. Does this devotion to duty inspire confidence?

The usual lapdog press said nothing. Hey would you jeopardize your Hawaiian vacation by pointing out the emperor has no work ethic? Can you imagine what the press would have said if George W. Bush had gone mountain biking when they nabbed the shoe bomber? With an inexperienced, indolent, p.c. dilettante holding the reins of power, the U.S. is in for a rough ride for the next three years. I hope the dollar gets better and the economy recovers, but I'm not counting on anything from this guy. As Ben Franklin said "He that lives upon hope dies fasting."

After an unprecedented time in U.S. history, individuals may want the security of something not associated with individuals who are intent on reviving Marxist-Leninist thought. Gold or any other commodity is one avenue. This doesn't mean value will be exactly preserved. Commodities are EXTREMELY volatile, emphasis on extremely again.

Democrats in the past have understood that commodities can be a haven for value and have tried to tax or confiscate such forms of value. FDR ordered the confiscation of gold. Carter slapped a "windfall profits"tax on U.S. oil and gas operations making them even less competitive with the Arabs. Obama is trying something similar. Cap and trade is a stealth way to get utilities to collect taxes for Uncle Sam. For now, there is little to stop him, but 2010 is an election year. Should gold remain high or soar, and the dollar remain moribund, these will be shorthand signs people do not trust this President and the errant fiscal course he has vowed to keep.

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