That's the message coming out of the IMF/World Bank/G-7 meetings going on in Washington DC this weekend. Here's a quote from the communique, undoubtedly agreed to in advance of the actual meeting:
"We remain positive about the long-term resilience of our economies, but near-term global economic prospects have weakened. The turmoil in global financial markets remains challenging and more protracted than we had anticipated."
In other words: "Damn, we thought we'd be successful in sweeping the whole thing under the rug back when we last met in February in Tokyo, but it hasn't quite worked out that way". Not exactly the kind of thing you'd expect to read in a G-7 communique, we grant you, but the essence of the situation nonetheless.
Of course, the central bankers and other financial "leaders" meeting in Washington DC all know that the one thing they have to fear above everything else is a widespread loss of "confidence" in the system they oversee. That is why the G-7 as a group, and the governments and central bankers in the member nations, are very big on "regulation" at present. All that's needed, according to many of the participants at the meeting, notably Mr Bernanke, is more and better rules.
Unfortunately, the common goal of all "rule-making" bodies, from the committee in charge of the local bake sale to the "committee" in charge of the global financial system, is to perpetuate themselves. Since they are "rule-making" bodies, their function is to make rules, and more rules, and yet more rules.
In the financial and economic sphere, there are two choices. Either the market functions, in which case no "rules" are necessary. What is necessary are LAWS to enforce the terms set by voluntary contract and to punish the use of force and/or fraud. Or the market does not function, in which case there are no LAWS, only "rules" which change at the will and whim of those in charge and are changed or discarded altogether as circumstances dictate. The first choice leads to the (free) market economy, for which the prior existence of individual freedom and liberty is a pre-requisite. The second choice leads to the command economy for which any individual freedom and liberty which might have been overlooked by the overseers must be systematically stamped out. The way to do that, without shooting anybody, is to lay on an ever thicker layer of "rules".
The most cursory glance at the political and economic history of the decades since the advent of the Fed (for example) will show beyond argument which way the world has been going for the past century or so. An economy can no more be "partially" free than a woman can be "partially" pregnant. At the end of the line, it is all or nothing.
The term "interventionism", coined in the 1930s to describe a "halfway house" between a free market and a command economy, is a delusion. Once interference with the voluntary exchanges between individuals gets a foothold, it is only a matter of time before such voluntary exchanges cease to exist as "legal" courses of action. Then, what is left of the "free" market becomes what is described as the BLACK market.
The overseers of the global financial system meeting in Washington DC this weekend face an insoluble dilemma. For years, they have watched the banks and the traders and the financial "masters of the universe" do all the things which are now, all of a sudden, the "cause" of the financial crisis. Rules existed all along to curtail if not stop these activities. They were ignored by the "perpetrators" and the regulators alike. When the bubbles were still frothing and the credit expansion still roaring, such practices were not only condoned, they were praised to the skies. Alan Greenspan headed the chorus, but he was by no means the only one.
But now the bubbles have evaporated and the credit expansion has frozen next to solid, the old rules are being trotted out and new ones are being feverishly cobbled together as fast as the word processors can function. The G-7 has its own committee, which it calles the "Financial Stability Forum" (FSF). The FSF is feverishly putting together ANOTHER set of "rules" which global commercial banks, according to the G-7, now have 100 days to comply with. These new rules include risk measurement at banks - something entirely missing for years, it would seem, if there needs to be a rule to "implement" it. They also include "more transparency" and "common accounting". Clearly, these are things which did not exist in the past. Funny that, there were thick tomes of "rules" which said that they did.
An inveterate "rule maker" is someone who sees no possible connection between action and consequences. The world can be falling down around his or her ears, but as long as all the "rules" have been complied with, he or she sees nothing amiss. No matter what happens, the outcome is fine as long as all the "rules" have been followed. This is a very old practice religiously adhered to by all bureaucracats and Commisars. It is a fail-safe way of covering their posteriors. As a recent example, consider the response of FEMA to the New Orleans Hurricane and subsequent flood. And consider President Bush's high praise for what they "did".
There has, as yet, been no public discussion whatsoever among those in charge of the system which addresses the real and only salient point. That point is that the system as presently designed is FUNDAMENTALLY FLAWED and that no amount of good will, rules, regulation, or outright physical coercion can change that simple fact. Any financial/banking/economic/political system stands or falls on the nature of the MONEY which provides its foundation. Modern money is not SOUND. It has been created at whim for decades. It is now being destroyed at whim because the practices by which it was created are deemed too dangerous to prolong without all encompassing government guarantees. But a government can only guarantee to produce more "rules, it cannot guarantee a single speck of REAL PHYSICAL WEALTH. In the REAL economy, a government produces NOTHING. It is legitimate to the extent it protects the freedom and liberty of its citizens, but in economic terms, it is an impediment pure and simple.
No "rule" can alter that fact, any more that any number of "rules" can create SOUND money or REAL WEALTH. Mr Bernanke can print Dollars, he cannot redeem them with anything of REAL value.
Gold - as money - requires no "rules" whatsoever to function. All that is required is that it circulates as a medium of exchange. The "rule makers" currently meeting in Washington DC know that. But they also know that they can perpetuate "their" system only so long as a SOUND currency does NOT circulate as money. The tragedy of the current situation is that they will go on as long as they can making up new "rules". It was bad enough when Nero "fiddled while Rome burned.". Nowadays, there is no way to get outside the system, except to shun all debt and debt paper and to have in hand some REAL money.
On March 17, we added the $US 1000 "X" to this chart - and that is as far as Gold got. As you can see, Gold has descended in two large "spurts" since then, the most recent taking it all the way down below the $US 885 level. By the end of last week on April 4, Gold had clawed its way back to $US 909. This week, we got the upturn on the chart as Gold got as high as $US 933.60 on April 9.
(Chart appears here in original analysis.)
We have extended the table below into 2008, even though Gold in all four currencies in the table is now well above its 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. And as you can see, in March, Gold improved upon those January levels in all four currencies as spot future Gold closed above the $US 1000 level for the first time ever in the middle of March. But then came the big Gold sell-off and the - so far pretty anaemic - "recovery" of the US Dollar.
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