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The King’s Bench – April 25, 2007 – Number 2Page 1
THE KING’S BENCH
published by: paul.sholtz @ gmail.com
It’s been a busy and eventful month. Headlining some of themore dramatic, recent news, more school shootings (now atthe University level)
anniversary of Columbine
Princeton professor Walter F.Murphy put on no-fly list for speaking out against Bush
Russian president Putin decrees the establishment of a newmedia regulatory agency to control
all
news outlets, includingthe Internet (IHT 3/15/07, 3/23/07) (Bush and Blair arereportedly jealous
)
U.S. judge says Americans require acriminal background check before chatting w/ foreigners on theInternet (PRWeb 4/2/07)
Total gun bans have beenproposed for the city of Los Angeles (Reuters, 4/9/07)
Uruguay seeks the extradition of Henry Kissinger
for war crimes (Rawstory, 3/26/07)
Iranian tensions rise and fall onthe capture + subsequent release of British sailors. Oil pricesreact accordingly. Amazingly, one of the female British sailors,Seaman Specialist Faye Turney, was interviewed by two Britishnews outlets (
BBC
and the
Independent
) just hours before shewas captured!
How convenient!
At least this time the BBC didus the courtesy of not broadcasting her capture before itactually happened (see “Tales from 1984”, KB001)
Since1999, Washington DC traffic cameras have issued 2,858,276tickets worth $217 million (as of 1/31/07). Studies show thecameras have
failed
to reduce accident rates. One importanttakeaway: if you think it’s your
income
taxes that are financinggovernment, you just aren’t paying any attention.
“In the absence of the gold standard,there is no way to protect savingsfrom confiscation through inflation.”
-- Alan Greenspan, 1966
1
Virginia Tech shootings, April 16, 2007
.
2
A date rife w/ occult significance: Hitler’s birthday, Hitler’s massacreof the Warsaw Ghetto, Waco (50 years to the day after Warsaw), OKCbombing, and Columbine all occurred on or around this date.
3
This before the shootings at VT.
4
This is the same criminal, remember, that Bush initially wanted tohead up the 9/11 Commission.
The Crash of the Dow
Mike Maloney, over at GoldSilver.com,
has put together something I’ve been looking for and/or meaning to do myself for quite some time now, and that is to create a measure of stock prices in relation to
hard
commodity prices, rather thansimply in terms of (hyper-)inflated U.S. dollars. I’m includingsome of the charts he’s produced, which are well worth theproverbial thousand words:The U.S. media incessantly blathers on and on about the“brand new, all time, record highs” of the Dow.
But is what themedia telling us here really an accurate measure of value?Since 2002,
the U.S. dollar has lost 32%
in relation to other currencies (as measured by the US Dollar Index, USDX).Anytime it looks like everything around you is going up and upand up in price/value: i.e., stocks, bonds, real estate,commodities, groceries, gas, medicine, gold, silver, Wall Streetbonuses, etc, are all rising, it pays to stop and simply ask:“Why?” As the next chart below (the U.S. Dollar Index)indicates, the primary cause can be traced squarely back tothe plummeting value of the U.S. Dollar.
With the DJIA up apaltry 6.9% over 7-years, and the value of the dollar down by~30%, it doesn’t take rocket science to see that most people w/$$ invested in the stock market are not even keeping pace w/inflation, and so are actually losing ground.
5
You can read the article here:http://goldsilver.com/the_dow_is_crashing.php
6
Much like Hollywood each summer pushes its top line blockbuster as“the biggest, highest-grossing move of all time!” Hollywood gets to saythis for the same reason the DJIA gets to make new historic “highs”every other month: it’s not that the value of the movies (or stocks)that’s rising; it’s that the value of the $$ is consistently falling.
7
In other words, the dollar has been inflating; more especially sinceBush took office in 2001.
The King’s Bench – April 25, 2007 – Number 2Page 2
So as to normalize the Dow against something slightly moretangible than the dollar, let’s first take a look at what the fallingvalue of the dollar has meant for gold prices:Up (very) handsomely over the same time span; and this inspite of central bank efforts to keep the price of gold artificiallydepressed.In his article, Maloney plots the Dow index against a range of alternate yardsticks, including Euros, food, CPI, Treasury bills,industrial metals and a range of foreign currencies (and more).But for our purposes here I’ll keep attention focused on what Iregard as the world’s three most pivotal commodities:
gold
,
silver
and
oil
8
The U.S. spent most of the 1970s going off the gold standard (in theform of the international Bretton Woods agreement; the private goldstandard was dissolved on April 19, 1933 and has never returned toAmerican shores) and trying to put itself on a petrodollar standard,where – in international terms – it remains today.
All three charts exhibit the same bearish trend.Measured in
gold
, the
Dow has
crashed 58%.
Measured in
silver
, the
Dow has crashed 65%.
Although I’m not posting it here, the graph of the DJIAmeasured in terms of
Dow Jones Industrial Metals SpotPrice
Index shows a similar bearish downtrend w/ an evengreater plunge:
73%
. Since many goods and services in the
The King’s Bench – April 25, 2007 – Number 2Page 3
economy are produced using these industrial metals, this givesa big clue brick as to why the general economy has beenfloundering even as Wall Street bonuses have been soaring.Consider, for example, the auto industry: Ford (F) and GeneralMotors (GM) need steel, zinc, copper and lead to produce their cars. Operating costs for these companies have risendramatically in the past 7 years, and so their profits have all butdisappeared. The Dow has also plunged a whopping
76.5%
against
copper
What do these charts prove? Among other things, they provethat inflation is probably the single most dangerous macro-economic factor affecting long-term investments in countries(like the U.S.) that use fiat currencies.
They also prove whatmany insiders on Wall Street are already very well aware of: arecent survey of 168 CEOs found that for every 1 share of stock they are buying, they are selling 68 shares(!).So inflation can make for treacherous investing, but just howbad is inflation right now, really? According to the MinneapolisFederal Reserve Bank, total inflation from 2000 to 2007 –measured using the CPI
– was about 20%. That’s badenough: using this yardstick, the Dow would have to be at
14,100
just to break even. But CPI is an extremely deceptiveyardstick: to arrive at CPI, the Bureau of Labor & Statistics(BLS) takes a basket of goods and services and tracks their prices. This might work if the BLS actually tracked the actualprice of the same items year after year. But they don’t. Instead,when the price of any one commodity in the basket starts torise too sharply, the BLS either (a) removes it from the basket;(b) swaps it w/ another commodity; or (c) makes up their ownbrand-new imaginary price for it(!). To quote Clyde Harrison,CEO of the Brookshire Raw Material Group, Inc: “
Last year, if
9
When the economy is growing, you have greater demand for copper in the form of plumbing, wiring, circuit boards, etc.
10
In the strictest of terms, the USD is not actually a “purely” fiatcurrency: it is actually backed by the manufacture / creation of debt inthe commercial banks and at the Federal Reserve. So the number of dollars in circulation is loosely governed by: (a) the ability of Americansto take on new debt (and hence create new notes); and (b) the abilityof the IRS to “recycle” these notes back to the Fed. These limits ondollar inflation, together w/ expansionist U.S. foreign policy, help keepthe dollar from hyper-inflating into total and complete worthlessness(but only for a time!)
11
Consumer Price Index; the government’s “official” inflation gauge.
you did not eat, drive to work, heat your home, visit adoctor, buy a house, buy insurance of any kind, have achild in college, or pay any state or property taxes, thenyour cost of living agree s w/ the government’s Cost of Living Index
.” Such is what constitutes the very real andextremely pernicious “inflation tax.”
The true way to measure inflation is not by rising prices –which are only a symptom of inflation – but rather by the rate atwhich the currency / money supply is expanding (or shrinking,in the case of a monetary deflation, i.e., depression).
So itmight not come as a surprise to learn that back in March 06,the Fed decided to stop publishing its M3
statistics, which arethe broadest and one of the best yardsticks out there tomeasure where the currency supply is trending. Their excusefor not publishing M3 is because they claim it would cost themtoo much money. In truth, it may have more to do w/ hiding thetrue rate of inflation from foreign central banks (FCBs) likethose in China and Japan that are heavily invested in (andcontinue to invest heavily in) U.S. Treasuries. No doubt, theyalso desire to hide these statistics from the American people atlarge: the inflation rate from Jan 2000 to Feb of 2006,
whenmeasured in M3, shows a whopping inflation rate of
56%
-almost 3x what the Minneapolis Fed Bank is trying to sell youon(!) Extrapolating this to today, and plotting it against the Dow,we see the Dow would actually have to be at (roughly)
17,000
just to break even with where it was in 2000!Gremlin
monetary science has been working invisible evilsagainst the American people and their economy since 1913;
12
“It will be asked how will the two masses of Continental and of Statemoney have cost the people of the United States seventy-two millionsof dollars, when they are to be redeemed now with about six million? Ianswer that the difference, being sixty-six millions, has been lost onthe bills separately by the successive holders of them. Every one,through whose hands a bill passed, lost on that bill what it lost in valueduring the time it was in his hands. This was a
real tax
on him; and inthis way the people of the United States actually contributed thosesixty-six millions of dollars during the war, and
by a mode of taxationthe most oppressive of all
.”-- Thomas Jefferson explaining the “inflation tax.”
13
A view generally attributed to the Austrian school of economics.
14
Money supply is generally measured according to one of threemetrics: M1, M2 or M3 (so ranked b/c of their increasing relative size).M3 is generally regarding as the broadest, and hence best indicator of where the true amount of money / currency circulating in the economyis trending.
15
Feb 06 is the last period for which we have “published” M3.
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