Tuesday, April 3, 2012

None so Blind

By Scott Silva
4-3-12

It seems the administration can never see the realities that stifle economic growth-- the hard realities right before their eyes that most of us see and must deal with every day. The terrible trio at the controls of the US economic engine is driving us not into a ditch, but over a cliff. The Fed Chairman is flooding the economy with too much liquidity. The Treasury Secretary believes the best way to recovery is through more government spending, taxing the rich and forcing broader redistribution of the nation’s wealth. The president’s vision for prosperity is government control of production and economic equality. Our elected leaders pander and deceive in full-time re-election campaign mode, with Newspeak and misdirection to mask the realities of high unemployment, high consumer prices, falling wages and slow economic growth.

The scorecard for the last three years is clear and bleak. The US credit rating has been downgraded. The Dollar is weak. Unemployment is at Depression-era levels. 46 million Americans are on food stamps, an all-time high. 2.6 million people slipped into poverty last year, bringing the total in America to 46.2 million, a 52-year high. Housing prices continue to fall and the number of foreclosures continues to rise. Commodity prices are high. $4.00/gal gasoline prices are forcing consumers to cut back. Corporations are not hiring, opting instead to hoard $1.7 Trillion in cash that would otherwise go to capital investment, expansion and new hires.

The simple fact is economic policies put forth by Washington today have never created wealth or prosperity anywhere or any time in history. No one has ever become wealthy by taxing the rich. Socialist redistribution has always failed. And the majority of hard-working citizens know just how out-of-touch the Washington ruling class is.

In the 1700’s, the Age of Enlightenment, the field of economics was known as the “Political Economy”. Political Economy originally referred to the study of production and commerce and their relation to law, custom, and government. It also referred to the distribution of national income and wealth through the political budget process. Political economy is rooted in moral philosophy, the ethics of right and wrong behavior. Since the 1900’s, the study of such relationships adopted some elements of scientific method, and became known as the science of economics. But economics is not a science bound by the laws of physics, which is why most political economic theories such as communism, socialism and fascism largely fail, save one, namely laissez-faire capitalism.

The economic policies of overarching Federal government control, Fed intervention, crony-capitalism, growing entitlement class, and massive wealth redistribution are morally bankrupt and injurious to individual liberty and happiness. All free citizens should resist tyranny and plunder forced on them by out-of-control Federal government. And here is how.

Own True Money.  Gold has been the only true money for over 3,000 years. Buy and own gold as a store of value to protect your wealth against the vagaries of fiat currency.
We have seen the unprecedented debasement of the Dollar by ultra-easy Fed policy and the printing of $3Trillion out of thin air. The growth of the money supply has outstripped growth in output which has caused prices to climb and the purchasing power the Dollar to fall.
           
Deleverage.  Eliminate consumer debt. Invest in hard assets.

            Be Vigilant.  Stay informed on current legislation that may impact your financial wellbeing. Take action to protect your individual liberty and private property against incursions from federal, state and local governments.

            Be Prepared. Make preparations to protect yourself, your family and your property for an environment Without the Rule of Law. Read Atlas Shrugged by Ayn Rand.

            Vote. Vote for pro-growth candidates who respect and will defend the Constitution.

The difference between ultra-progressive economic policies and pro-growth economic policies are clear in our history. Plymouth colony nearly perished under its first government, which was based on the communist principles of central planning, labor classes and government owned property. The fledgling colony only survived by later recognizing that its members tended to work harder to generate healthy crops and individual wealth by cultivating their own private land, rather than working the “common land for the common good.”  In the 1930’s the “common good” became the rationale for massive government intervention in the labor markets, in which the federal government taxes the labor of young workers to support retirement “entitlements” for the elderly. But demographics have changed such that Social Security will be bankrupt in ten years without massive reform. Perhaps the best comparison between progressive vs. pro-growth policies is a look at the Reagan years and today’s administration.

As did Reagan, Obama came into office during recession. In the current recovery, real GDP has averaged 3%.  Employment as defined by nonfarm payrolls and reported by the BLS has edged down from 10.2% in early 2010 to 8.3% in March.  Actual unemployment today (BLS U-6 measure) is 14.9%, up from 14.1% when Obama took office. During Reagan's recovery real GDP averaged 7.7 percent annually while nonfarm payrolls rose by 5.3 million.  Reagan reduced inflation from 12.2% when he took his first oath of office as president to 4.4% in his last year of office. Today, inflation is negligible at 2.1%, according to the Fed, yet everyday citizens pay much more to live this year than last year, and the years before that.

Why are there such major differences in US economic performance under Obama and Reagan?  Reagan saw free market, private-sector enterprise as the road to prosperity.  Obama has chosen massive expansion of the federal government as the way forward.

Obama's first act was an $835 billion government-spending package.  One of Reagan's first decisions was to cut $50 billion (($100 billion in today’s dollars) from domestic spending.  Obama focused priorities on nationalized health-care, energy cap-and-tax-and-trade, and pro-union card check. Reagan focused on free market measures; he ended wage and price controls, deregulated all energy prices and fired the striking federal union air-traffic controllers.

Reaganomics spurred growth through limited government, a strong dollar and lower taxes. Reagan slashed marginal tax rates from 70 percent to 28 percent. Reagan’s lower tax rate policy (attributed to the Arthur Laffer) actually raised tax revenues from $300 billion to $450 billion.

The current administration seeks to raise tax revenue, particularly for the nation’s highest earners. In his fiscal 2013 budget, released earlier this month, the president would allow the Bush tax cuts to expire for income above $200,000 for individuals and $250,000 for couples and charge a new 3.8 % tax on net investment income above those levels.

Under Reagan, overall federal spending dropped from 23 percent of GDP to 21 percent. Obama has grown the size of government to 25 percent of GDP.

Reagan ran a budget deficit of about 3 percent of GDP, the same percentage left by Carter. Obama’s 2011 budget deficit was $1.6 Trillion or 11% of GDP.

Reagan believed in sound money and a reliable currency. It was Reagan’s pro-growth tax cuts and counter-inflationary monetary policy that ultimately reversed the 15-year decline in the US Dollar.  Since 2009, the Fed and central banks have flooded the world with more and more paper money. More dollars, Euros, Yuan and Yen have steadily pushed up commodity prices at the expense of currency values. The US Dollar, for instance, has fallen 17% since February 2009, when the $838 Billon American Recovery and Reinvestment Act of 2009 was passed.

 GDP priced in gold gives us further insight. We can see the upswing in gold-priced GDP in the post WWII boom, the decline in the Carter years, the resurgence under Reagan, Bush ‘41, Clinton and Bush ‘43, and the fall under Obama.


Overall, Reagan's free-market, pro-growth policies created 21 million new jobs as real GDP averaged 3.5 percent annually for seven of his eight years in office. The unemployment rate dropped by over 50%.  The stock market doubled, and household net worth expanded by $8 trillion.

The Obama administration believes that increasing the size and scope of government is the path to prosperity.  In 2009, rather than allow large banks, insurance companies, mortgage companies and Detroit automakers to fail due to market pressures, Obama nationalized them using taxpayer dollars to bail them out.  That same year, the administration projected its new stimulus package would “create 3 to 4 million jobs.” But most of the funds went to state governments that used the windfall funds to close their own budget gaps. Few permanent jobs were created. The private sector jobless rate actually increased.

So which is the path to prosperity?  Gold and silver prices give the answer. Gold had quintupled during Jimmy Carter’s recession; gold and silver hit new all-time highs under Obama.  Gold prices fell 40% (from $750/oz to $450/oz) under Reagan’s 8-year presidency.

The price of gold has nothing to do with political ideology or government reports on the status of the economy. The gold market sifts through the myriad of economic data, investor sentiment and global events to measure reality with crystal clarity. Gold is trading at all-time highs, in direct contradiction to reports of sustained growth in the world’s largest economy. It just might be that massive deficit spending and easy money policies have little or no stimulative effect on the economy and that government spending does not create jobs in the private sector. Because the government must tax or borrow in order to spend, it takes money from citizens and businesses that otherwise would go to consumption, savings or investment to produce more wealth.

Likewise, the gold market shows government reports of low inflation and growing employment to be false. We have seen on these pages before that actual US inflation is closer to 10% than the reported 2.1%, and the actual US unemployment rate today is 14%, a rate not seen since the 1930’s. 

Re-election campaign politics from the bully pulpit further distort economic realities. The administration cites an increase in US oil production, while it thwarts added production (and new job creation) by rejecting new drilling permits and the XL Pipeline project. The administration cites 2.3 million new jobs were created through its renewable energy initiatives, at the same time that government-backed alternative energy companies Solyndra and Fisker Automotive go bankrupt, and GM suspends Chevy Volt production for lack of demand for the expensive, short range electric car, having wasted billions of taxpayers’ dollars. Last week the Supreme Court took up the constitutionality of the individual mandate and other provisions of the Patient Protection and Affordable Care Act (Obamacare) while earlier last month the CBO reported that the cost of implementing the federally mandated universal healthcare program has nearly doubled to $1.76 Trillion over the next ten years. More distortions in the name of re-election are surely coming our way. As Diogenes, one must lift his lamp and be ever on the search for an honest man. There are none in power in Washington today.

Responsible citizens and prudent investors protect themselves and their wealth against the ambitions of over-reaching government authority and debasement of the currency by owning gold. Gold is honest money. Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Follow @TheGoldSpec   Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055



1 comment:

  1. Gold is indeed the true money. It's always a good investment.

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