As you know, the clock is ticking towards Wednesday, August 14, the DAY when all CEOs and Chief Financial Officers have to personally sign the "bottom line" on the books of their companies. This is, without doubt, the source of great "angst" in corporate boardrooms. It is also being anticipated with great glee in Washington and, if media reports can be believed, amongst the vast majority of individual U.S. investors.
The U.S. (along with most of the Western World) supposedly has a MARKET economy, one in which individuals own property and are free to invest it as they see fit, reaping the benefits of their own correct decisions and suffering the consequences of their incorrect ones. Accounting makes it eminently possible to accurately report earnings in the past. Such figures are merely economic history. But by the nature of reality, the FUTURE is UNCERTAIN. In the face of this FACT, laws, rules, regulations, regulatory agencies, and yes, even the best, most honest, most sagacious, and most careful future projections stand impotent. This is not "the best of all possible worlds", it is the only world there is. And in this world, we cannot KNOW what will happen in the future.
Yet the U.S. government is claiming that Americans will soon be able to exercise this miraculous power in regard to the performance of those who run the companies they invest in. "There oughta be a law!", they said, and now there is one.
The "Corporate Responsibility" act now signed into law by President Bush will not make dishonest corporate chiefs into honest ones. Nor will it transform incompetent ones into competent ones. The mere passage of the law implies, of course, that all Corporations have been irresponsible, and that the only thing which will make them responsible is the threat of handcuffs, chains, bars, and confinement. The pictures of the corporate chiefs of Worldcom being led away to face "justice" (after all, a LAW has now been passed) reverberated across the world to this effect.
This is pretty pathetic stuff, but par for the course when one considers the present situation in U.S. markets and in the U.S. economy. Investors are hurting, many are thirsting for a target for their frustration, and governments are never tardy in trotting forward a scapegoat in such circumstances. What makes the present situation even more pathetic are three obvious facts which are universally known, but not talked about:
To bring Gold into this context, any student of the machinations which have held down the Gold price should have come to the conclusion by now that it could not have been done in the absence of government approval, support, and participation. Gold available for "leasing" comes from Central Banks. And most Gold producers need to acquire capital in order to build the mines to extract Gold and to explore for new sources of Gold. If they want to borrow it, they had better "hedge" their existing production forward, hadn't they?
The price of Gold is "manipulated" because Gold is the great alternative, and therefore enemy, of modern credit-based monetary systems. But under such a system, ALL prices are manipulated. The Fed's "raison d'etre" is manipulation, under the threadbare motto of "price stability". Price stability is in itself a chimera, impossible to produce in anything resembling a FREE market. Take a cursory glance at the period 1870-1900 - the period during which there was more GENUINE economic growth than any other period in world history. Prices were not "stable". They were FALLING throughout the period. And no, there was no cry of "deflation" - any more than there has been any cry of "deflation" during the past decade as the prices of computers, software, and peripherals have plummeted.
Those who confuse "money" with WEALTH have a hard time grasping all this. Money is a means to an end, it is a medium of exchange. The end is exchange. In a free market, an exchange only takes place when BOTH parties benefit from it. If one party does not see the exchange as being to his or her benefit, that party will not exchange. A "price" is a constantly fluctuating average of countless individual exchanges - expressed in terms of the MEDIUM of exchange - money. "Stable prices" are impossible in practice. The pursuit of "stable prices" is the pursuit of a state of affairs in which there is no EXCHANGE, there are only DICTATED transfers of goods and services. Such a state of affairs is not a MARKET economy or even an interventionist economy, it is a COMMAND economy. This is the direction in which the U.S. government is heading with indecent haste.
As you probably know, Mr Bush has called for an "economic forum", involving everyone from himself to government officials, to large and small business leaders to individual investors, to take place on Tuesday, August 13. The purpose of the forum is to discuss ways to reignite and then safeguard future growth in the U.S. economy (and by direct implication, in the U.S. stock market). When you read about this forum and/or watch selected glimpses of it on TV, reflect on the magnitude of the "cover up" which is going on.
Mr Bush is well aware of the magnitude of the hole the U.S. economy is actually in. He may even have some understanding of why the hole is so big. If he doesn't, it is a safe bet that Alan Greenspan told him during their "private" lunch meeting held this past week. Mr Bush is a (fairly inept) politician in a position of HUGE power. The historical thread which links such individuals is a genuine "belief" that they can cause literally ANYTHING to happen by simply deciding it should happen and then either exercising their "power" to make it happen or causing the government to pass a law which says it must happen.
There are always exceptions. The most famous is King Canute, who became so exasperated with his sycophants telling him of his omnipotent power that he ordered them to accompany him as he marched out to the sea at low tide. He planted a chair on the sand at the water's edge, sat on it, and ordered the tide not to come in. Then, he waited until the water was up to his armpits, looked contemptuously at his "courtiers", got up, picked up his chair, and stalked back to his castle to dry off.
The diametric opposite of this attitude is exemplified in the story of the "Emperor's New Clothes". Suffice it to say that Mr Bush has a great deal in common with the Emperor, and nothing whatsoever in common with King Canute. His attitude, in common with so many like him, is that it is so because I WANT it to be so.
But it ain't so. And no amount of Gold price manipulation, interest rate manipulation, credit creation, legislation, or outright intimidation of dissidents will make it so. Nor will the passage of any law. Nor will any amount of "reassurance" or browbeating or "hancuffs, chains, bars and confinement".
When markets which depend on credit-based money are booming, it is easy to don the mantle of economic omnipotence. When they are busting, that mantle cannot be shed, and it is the efforts to justify the reputation which wreak the most havoc. That is what is behind the present spectacle of the U.S. government doing their best to systematically shred what is left of political and ECONOMIC freedom in the U.S.. An investment "guru" of the bull market can do little but keep insisting that good times are just around the corner. A President of Central Banker or legislator can USE FORCE in an attempt to coerce reality into being what they want it to be. Historically, it is an old story and it doesn't get any better in the re-telling.