Did you hear Mr Bush's inauguration speech on January 20? Have you read it?
In psychiatric terms, a "delusion" can be said to be held by a person when three criteria are met:
In the course of a speech which took just over fifteen minutes to deliver, Mr Bush used the word "liberty" thirteen times and the word "freedom" twenty-four times. Please examine the conduct of the US government, specifically the executive branch of the US government under Mr Bush during his first term. Examine it in the context of the obliteration of both liberty and freedom inside the United States (the "Patriot Acts - I and II and the establishment of the Department of Homeland Security are good places to start). Examine it also in the context of the policy of the Iraq (and Afghanistan) occupation.
Whether Mr Bush has done more to extinguish freedom and liberty inside the US than any of his predecessors is an arguable point. He has certainly not shirked the "task". His record in bringing the great nation which was and still is the United States into international disrepute is definitely unequalled. Many inside and outside the US hearing or reading Mr Bush's inaugural address were stunned at the hypocrisy contained therein. There are indeed occasions,like this one, when the hypocrisy which is such a blatant part of modern politics is laid on with a particularly arrogant disdain. But in modern politics, and in modern financial markets, hypocrisy and an arrogant disdain for irrefutable counter arguments and facts is a constant.
Charles Mackay titled his famous work on money manias and market bubbles: "Extraordinary Popular Delusions And The Madness Of Crowds". You have no doubt heard of the "Mississippi Scheme", the "South Sea Bubble" and "Tulip Mania". To read about them is to chuckle at the gullibility of people. The problem is that ALL the financial and monetary delusions which led to these events are alive and kicking today. There is absolutely no difference between the "land bank" which John Law set up in the France of Louis XV and the Federal Reserve Bank of today. Mr Law was given the go ahead to set up his "bank" by Royal edict in May 1716. Prominent US bankers were given the go ahead to set up the Fed by a law passed by Congress on December 23, 1913, almost 200 years later. The delusion upon which both were erected is almost identical. Mr Law's bank failed - spectacularly. The Fed hasn't failed - yet- it has merely eroded the purchasing power of the US Dollar by about 98% from what it was in December 1913.
To have been able to do that while still remaining intact for nearly a century as a highly "respected" financial insistution with its Chairman almost universally seen as the most powerful financier on earth is no mean achievement. Delusions can be very powerful and long lasting.
The point to be made here is that all delusions are finite. There comes a point at which the variance with easily seen reality becomes so huge and grotesque that it can no longer be sustained. That point is impossible to predict in advance. Delusions almost always last much longer than the non-deluded portion of the people would have believed possible.
To have witnessed the conduct of the US government over the past four years, as everyone has, simply highlights in a dazzling glare the gross effrontery of Mr Bush's inauguration address. To have witnessed the conduct of the Fed since 1913, and especially since any pretense of solvency was abandoned in 1971, highlights equally the amazing fact that the institution still exists.
But facts remain facts. One does not grant or promote freedom abroad by means of armed attack and occupation combined with torture and the indiscriminate obliteration of both non combatants and their property. One does not preserve freedom at home by means of obliterating the Consitution of the United States, the laws which Mr Bush has again pledged to "preserve, protect, and defend".
Nor does one protect the life blood of any nation, its medium of exchange, by divorcing it from money (Gold) and inflating its quantity to a level which John Laws (of Mississippi Bubble fame) could never have imagined.
Mr Bush has pledged himself to defend freedom. The Fed has pledged themselves to defend the viability and purchasing power of the US Dollar. Their means of accomplishing these tasks have been the exact and precise opposite of those which would bring about their professed purpose. Mr Bush has laid the groundwork for the destruction of freedom both inside and outside the US. The Fed (and Mr Greenspan in particular) has been at work far longer in destroying that bastion of freedom which is a SOUND money.
This situation has been building up for years, of course. The difference now is that the vast gulf between rhetoric and reality is becoming unbridgeable. Mr Bush CANNOT do what he says he is going to do in his second term. Even if Americans were right behind him, which they are NOT, he lacks the means. The Fed cannot do what they say they are going to do either. Any genuine attempt to shore up the purchasing power of the US Dollar would immediately expose the fiscal and financial profligacy of the last quarter century and send the US economy crashing into, at best, a deep recession.
A Central Bank is a government bank. Its business is to "finance" the policies (and schemes and boondoggles) of government. It succeeds for as long as it can maintain the illusion that the money it controls is a viable medium of exchange. When the illusion fails, the entire structure crumbles. In the France of John Law, the entire process took only months. In Imperial Britain, it took a lot longer. In the Imperial United States, it is still going on.
Delusions work when enough people are taken in by them. They crumble when the people who are NOT taken in by them reach what might be called a "critical mass". Outside the US, that "critical mass" is on the verge of being formed, it may already have been formed. Inside the US, it is growing fast. We have no doubt that Mr Bush's inaugural address further quickened that growth. We await the contribution of the Fed when the FOMC meets at the beginning of February and when the G7 meets the following weekend.
In the meantime, Gold is always a reliable indicator of the course of a financial delusion. Its desirability is inversely proportional to the hold of the delusion. For the past four years, Gold has been rising in $US terms. It has now established solid support just above the $US 420 level. It is simply waiting to reaffirm the truth of that age old financial adage that: "In times of financial upheaval, wealth returns to its rightful owners."