Articles

by Michael Nystrom | November 9, 2007
Bull! Not bull

Part I

It was a bit nostalgic for me to see footage of Ron Paul addressing Ben Bernanke on live TV yesterday, as it was almost five years ago that I was first introduced to Ron Paul in the same way. Back then (February 27, 2002), I saw Dr. Paul for the very first time, live on CNBC as I was getting ready for work. At the time I didn't know who he was, but I was astounded by what I heard. He was addressing then Fed Chairman Greenspan on the Federal Reserve, and speaking plain and honest truths: "In many ways I feel that the system you have been asked to manage is similar to an Enron system..."

Enron had just recently gone bankrupt, so I couldn't believe my ears. He continued on, stating truths about the fraudulent Federal Reserve System that nearly everyone else in Washington actively seeks to avoid.

I was hooked, and five years later Dr. Paul is still at it. Yesterday he was addressing Ben Bernanke, hauling the Fed's polite euphemisms out into the sunshine, naming them for what they are: "...they don't say inflate the currency, they don't say debase the currency, they don't say devalue the currency, they don't say cheat the people who save...They say, 'lower interest rates.' But ... I don't hear you say too often, 'The only way I can lower interest rates is to create more money.' ...So my question boils down to this: 'How can we expect to solve the problems of inflation...with more inflation?"

Part II

I've had the pleasure and the good fortune to meet Dr. Paul and spend some time with him.

More Analysis: Bernanke Starting to Look Dumb

The Solution is the Problem
By Charles Zentay | October 29, 2007
Thinkinvest.blogspot.com

Dear Dr. Bernanke:

I wanted to write to thank you for helping the price of Gold and to encourage you to keep up the good work. I know you will. I've never been a fan of Gold throughout my investing career, but the Fed's policies over the last 10 years have changed my mind.

I also wanted you to be one of the first to know that I am advising my readers to start putting a significant amount of their money in Gold. I recommend long-dated Gold futures, Gold ETFs (like GLD), and Gold producers (such as NEM, TRA, and CGHRF.PK). I especially like the smaller miners as they have more upside potential.

In spite of the run up, Gold continues to be a great investment. Burgeoning inflation is likely to push the price higher, as markets move from discounting Gold relative to stocks and bonds to putting a premium on it.

If I'm misguided, please let me know. But I trust you'll be there to pump lots of liquidity into the banking system.

Editor's note: Robert Prechter's Latest Elliott Wave Theorist was released three weeks early, and is one of his best Theorist's ever. He does not mince words and cuts straight to the bone on what the Fed is and is not willing to do. It is fascinating reading. I have arranged to make this brief excerpt available.

Excerpted from The Latest Elliott Wave Theorist
August 26, 2007 | Robert Prechter
Reprinted with permission

We hear it every day: "What about the Fed?" The vast majority of investors and commentators seem confident that the Fed's machinations make a stock market collapse impossible. Every hour or so one can read or hear another comment along these lines: "the Fed will provide liquidity," "the Fed is injecting money into the system," "the Fed will be forced to bail out homeowners, homebuilders, mortgage companies and banks," "the Fed has no choice but to inflate," "the government cannot allow deflation," "the Fed will print money to stave off deflation" and any number of like statements.

None of them is true.

August 25, 2007
by Charles Zentay
ThinkInvest.blogspot.com

"There is always something different," former Chairman of the Federal Reserve Alan Greenspan said with regard to market turmoil, "something that does not look like all the previous ones. There is never anything identical, and it is always a puzzlement."[1]

by Michael Nystrom
August 23, 2007

Regular reader Rich writes:

I've read in a couple of places on the internet that if all outstanding debt was repaid, there would be no 'money' left in our debt money system. Is this true? If so, what happens to the interest that the bankers earn?

This is unbelievable to most people, but it is absolutely true. If all outstanding debts were repaid under our current debt-based monetary system, there would be no money left in existence. I stress our current debt-based monetary system because other types of monetary systems are possible. Most people never stop to think about this (usually because they're too worried about paying their bills), but our current system (which is controlled by the Federal Reserve) is just one of many possible money systems. There are in fact a variety of different kinds of monetary systems. The following illustration of a simple commodity-based monetary system will help us understand just exactly what money is.

I. The Commodity-based Money System of Prison X
It is well known that in prison, cigarettes often take on the role of what we traditionally think of as 'money.' In fact, given the circumstances, they are money. Inmates may not be free, but free markets can spontaneously arise in prison.

By Charles Zentay
August 13, 2007

After a couple weeks of volatility in the markets, many investors have begun to ask themselves: "What's next?"

Will the market slide further? Will the economy be affected? Or are investors panicking without reason, and is the market ready to resume its upward march?

A central focus within these questions - as always - is: "What will the Fed do?"

Let's take the last question first.

by Michael Nystrom
Originally Posted January 24, 2007

It has been a few weeks since I've written on the subject of deflation, and in the meantime Mish has had a couple of good articles (here and here) on deflation that have answered just about every question anyone could ask on the subject. But after mulling all this over, I've got another more fundamental question that I'm looking for an answer to: Does the Fed really want to prevent deflation?

As Mish points out, there is near complete confidence that the Fed can and will be able to stop deflation simply by "printing money." Under this inflationist view, the Fed is obliged to stop deflation simply because it is in the best interest of the system -- American consumers, businesses, and the government. As the thinking goes, all of these entities are in so much debt that they can simply never pay it all back. Therefore, not only the easy way out - but the only possible way out - is through continued inflation of the currency - the printing press solution. Bernanke shouted this intention loud and clear in his "It" speech that I discussed last time. As part of the new and improved, Clear-speak program at the Fed, Bernie didn't mash or mince words the way his predecessor Greenie did, and judging from what everyone seems to think, the message has gotten through. Mission accomplished, Ben! The threat of deflation has been dispelled and we've seen red hot inflation since 2003.

by Michael Nystrom, MBA
August 7, 2007

Today, all eyes were on the Federal Reserve: How it would respond to the recent turmoil in global financial markets? Would it lower rates, and if so, would it do any good?

By the time you read this, the Fed's decision - made in secret - will have already been announced. Hundreds of news articles and blogs will argue over its wording and meaning. Was it dovish or hawkish? Discussed ad nauseam will be: what the policy statement does or does not clarify, what it leaves room for in the future, what it means for the economy, housing, jobs, and the prospects for recession or recovery.

What will not be discussed is the powerful role played by central banks themselves.

Central Banks = Centralized Economic Planning
If you thought that centralized economic planning disappeared with the fall of the Berlin wall in 1989, think again. Eight times each year, a group of twelve men meet to make secret decisions that have a profound impact on the US and global economies. None of these men are elected. Their meetings are closed to the public. Even members of the US Congress and the Senate Banking and Finance Committees are barred from attending, or even knowing what is discussed. No detailed account of arguments or discussions is ever made public. Listen to Congressman Ron Paul on the secrecy of the Fed:

The Greenspan put - the idea that Fed Chairman Alan Greenspan would bail out any financial crisis by opening the Fed's floodgates of cheap money - was based in solid fact:

In 1987, after the Black Monday crash, Greenspan quickly lowered interest rates and assured financial markets that the Fed would stand by as the lender of last resort. The result was that the stock market recovered its massive losses and hit record highs within a few years. In 1994, when Orange County became the nation's largest municipal bankruptcy, Greenspan lowered rates again, resulting in the rip-roaring bull market from 1995 - 2000. In 1998, when the hedge-fund Long Term Capital Management (LCTM) nearly collapsed, Greenspan acted quickly, slashing rates three times in succession, in spite of a booming economy. The result was the dot.com bubble. When that went bust, Greenspan lowered the Fed Funds rate from 6.5% to 1%. The result was the housing boom and subsequent LBO and hedge-fund explosion that is just now bursting.