The sad and tragic fact of the matter is that our masters in government and the banking system need no instruction on the methods of monetary and financial manipulation while at the same time neither they nor their victims, the so-called man or woman on the street, has any idea of the inevitable outcome.
If you are in any doubt about the certain outcome of the practice of manipulating money and credit which has now been brought to such a fever pitch, please do yourself a favour and go to the Ludwig von Mises Institute website.
Bettina Bien Greaves, the translator of von Mises' - "On The Manipulation Of Money and Credit" - has given permission for it to be made available. Here's the link. When you reach the page, click on the picture of the book, you will be able to download it to your computer in PDF format.
The book consists of a series of articles and essays that the great Austrian economist wrote between 1923 and 1946. It is the single best and most accessible work we know of on the subject. It will hugely repay careful study. If you want to truly understand and comprehend the ROOT causes of the present global financial calamity, there is no better single work available on that specific subject than this one.
In our day and age, the techniques and the "machinery" for manipulating money and credit have become hugely more complicated and "sophisticated" than they were in the first half of the twentieth century. They have also become hugely more destructive. But there has only been one fundamental aspect of the practice which has changed between then and now. When von Mises was writing these essays, the global financial system still had a tie to REAL money. The world rested on a "reserve" of US Dollars which were still redeemable in Gold - only by foreign governments and central banks it is true - but still that "brake" on credit expansion existed. Now, it no longer exists.
Because it no longer exists, governments, central bankers and the banking systems they oversee have for nearly forty years rushed headlong into an orgy of credit and money manipulation the like of which the world has never seen before. Today, even while the "real economy" is collapsing all around them, they continue to do so. The longer they continue to do so, the more "money" they force into the system by means of monetising ever larger swathes of worthless debt paper, the bigger the bust and the nearer in time it approaches. As von Mises eloquently and thoroughly proved many decades ago, the outcome is certain.
Consider this short excerpt:
"Additional credit is sound in the market economy only to the extent that it is evoked by an increase in the public's savings ...If the public does not provide these means, they cannot be conjured up by banking tricks. ...The rate of interest is expressive of the people's readiness to withhold from current consumption a part of the income really earned and to devote it to a further expansion of business.
...If men are not prepared to save more by cutting down on their current consumption, the means for a substantial expansion of investment are lacking. These means cannot be provided by printing banknotes or by loans on the bank books."
That is a fundamental truth which remains the truth no matter how many politicians, economists, central bankers, financial analysts and investment advisors may deny it. It explains with admirable precision and brevity why ALL of the stimulus measures which have been taken, are being taken and will undoubtedly be taken in future are worse than futile. Yes, the short excerpt(s) quoted are, when taken out of context, assertions. But in the context of the whole book, they have been abundantly examined, explained and proved before they are laid out.
As you know, the $US "price" of Gold rose early this week as the US Dollar abruptly tumbled from its recent highs. Then the Fed re-entered the manipulation fray, cutting their controlling rates by yet another 0.50 percent on October 29. Gold duly fell back and the US Dollar "recovered", as did global stock markets. At $US 718.20, its closing level on the Comex on October 31, Gold is now almost back to the lows it set late last week on October 23.
As von Mises states: "Additional credit is sound in the market economy only to the extent that it is evoked by an increase in the public's savings." When he penned the first of the essays which appear in his book, the public was still walking around with Gold coin in their pockets and could still save either Gold itself or paper which was redeemable in Gold at a fixed ratio ON DEMAND. This they can no longer do. Since there is no SOUND money, there can be no SOUND savings. Since there are no SOUND savings, there can be no SOUND credit.
In stark fact, the importance of Gold is that its circulation as MONEY makes "The Manipulation Of Money And (therefore) Credit" impossible. The fundamental concern of those who do understand the current financial crisis is not how high or low the Gold "price" expressed in US Dollar or any other fiat currency may go. It is how long it will take for Gold to be re-established as money, and where that will take place first. Because SOUND money is necessary for savings, investment, credit and markets to function properly, the re-establishment of Gold as MONEY is crucial.
If you do not yet understand why this is so, read von Mises' book.
(Chart appears here in original analysis)
As you can see, the $US 20.30 fall on October 31 turned the chart down one more time. We are now one "X" above the October 23 low. On the upside, a close of $US 745 or higher will establish another upturn and mark current levels as the likely bottom. On the downside, a close below $US 700 will establish another "downleg" on the chart. Desperate times - and next Tuesday's US Presidential election, not to mention the G-20 Heads of State Summit in Washington on November 15 - call forth desperate measures. If spot future Gold closes below $US 700 on this move on the chart, it could rapidly accelerate downwards.
We began the table below in 2007 and have extended it into 2008, even though Gold in all four currencies in the table remain well above their 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.
In mid (northern) summer, we had a new entry on the table for the first time since Gold topped the $US 1000 level in March. On July 17, Gold rose to 103233 Yen. That was a new 2008 high for the metal in terms of the Japanese currency. Then the Fannie/Freddie bailout plan went to work. Three weeks ago, on October 8, with the announcement of co-ordinated interest rate cuts by SIX major world central banks (including the Fed), Gold hit new all time highs in terms of the Australian Dollar, the Euro and many other major world currencies. Now, that situation has been reversed with the onset of savage global deleveraging.
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