Just over a week ago, the Australian government under Mr Kevin Rudd came out with a plan to literally "inject" nearly $A 1000 into the bank accounts of almost every adult Aussie. He also revealed plans to borrow and spend the tidy sum of $A 118 Billion over the next four years. Why? To "rescue" Australia from recession.
This is not a joke, it is being shouted fervently by politicians, central bankers, Treasurers and eminent financial and economic "experts" all over the world. Some if not many of them in all likelihood actually believe it. After all, they have spent their entire lives with the absolute conviction that the solution to all problems, political and/or economic, is to do one of two things. They either regulate it or throw money at it.
Credit, they say, is the "life blood" of the economy. Consider, for a moment, the thoughts on the subject of Henry Hazlitt, an eminent economist and journalist from the past:
"There is a strange idea abroad, held by all monetary cranks, that credit is something that a banker gives to a man. Credit, on the contrary, is something a man already has. He has it, perhaps, because he already has marketable assets of a greater cash value than the loan for which he is asking. Or he has it because his character and past record have earned it. He brings it into the bank with him. That is why the banker makes the loan."
Henry Hazlitt - Economics In One Lesson - 1946
Compare this "old fashioned" insight with the modern practice of almost literally throwing "money" at people with total abandon and with a complete lack of discrimination. For decades, very few thought to wonder about where all this "money" was coming from. It had been almost universally accepted that economic health was measured by the volume of borrowing and then spending the borrowed money. Economics was cut in half with production discarded and consumption embraced as the only economic "problem" left to solve.
The lifeblood of an economy is wealth and the ONLY means of bringing wealth into existence is to PRODUCE it. Money is NOT wealth, it is merely an indispensible medium by which the wealth which exists can be exchanged between those who have brought it into existence. Wealth cannot be created out of thin air. And all the "deficit spending" and/or easy credit schemes in the world cannot PRODUCE it either.
What Mr Rudd in Australia and all his counterparts in all the capital cities of the world are staring at in horror is the inevitable end result of their own meddling. They have created a monster, an economy which is imploding because the artificial demand created by borrowing can no longer be sustained. To prattle about "preventing" a recession or "rescuing" a nation from recession is laughable. The world is IN recession. Productive capacity has for decades geared itself up to meet an artificially induced "demand" which is no longer sustainable. The economies of the world are littered with malinvestments, productive capacity for which the demand which only ever existed on paper or on computer screens has now literally evaporated. The gargantuan deflations in world stock, real estate and commodity markets have already taken place.
For almost two years now, people all over the world have been watching their governments haul interest rates down by main force, pump huge amounts of "liquidity" into banks and pile "stimulus" package after "stimulus" package into a system already choked with obviously unrepayable debt. People have lost paper fortunes on investments of almost all descriptions. And with every new nostrum and every new dollop of borrowed "money", they have watched the situation get still worse.
They are starting to stir.
A poll taken by an Australian paper shortly after it was announced asked Australians if they "approved" of the "stimulus" package announced by their Prime Minister. Fifty-one percent of those responding said no. In the UK, the announcement by the Bank of England this week that they were cutting official rates another 0.50% - to 1.00% - was met by a STORM of protest! The Bank was accused of an assault on savers. Even President Obama's stimulus bill is being seen in a harsher light by Americans. US polls show that support amongst Americans for the bill is falling fast with only 37 percent of respondents "backing" the legislation.
Unlike their political leaders, most so-called "ordinary people" are well aware that their nation is IN recession and that the recession is worsening with frightening rapidity. They have watched all the bailouts and the handouts. They have watched as interest rates have been obliterated. They are beginning to look with increasing suspicion at a situation in which the "seed corn" so vital to underpin any REAL recovery is being mercilessly attacked with the assault on interest rates.
There is a point where even the "full faith and credit" which underpins the entire monetary and financial structure of the world today can no longer command allegience. We are not at that point yet, but every new bailout plan and "stimulus" package brings it closer.
Gold is simply waiting in the wings.
(Chart appears here in original analysis)
A new low was hit on the chart when spot future Gold closed in New York at $US 705 on November 13 last year. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early in November. Then came the first big turnaround - and upturn on the chart - of November 14. The region between $US 700-720 firmed as SOLID support for Gold. That support "zone" was emphatically confirmed as Gold rose by just over $US 110 between November 13 and November 28
As you can see, that rally in the $US Gold price has continued. In December, Gold broke above the steeper of the two downtrend lines on the chart. The correction in the first half of January brought the price back to the line. Since then, Gold has gone straight up. And with its close of $US 927.30 on January 30, Gold made it back to the second and LAST downtrend line. It turned down right there this week.
Gold has already set new highs this year against most major (and minor) world currencies.
We began the table below in 2007 and have extended it into 2009, even though Gold in all four currencies in the table remain well above their 2006 highs. The all time highs for Gold which occurred in 2008 have remained intact in US Dollars and in Yen.
But in terms of the Euro and especially the Aussie Dollar, the situation is very different. Gold hit new all time highs in both currencies on January 30 with situation being duplicated by Gold in terms of MANY other currencies. In fact, the Japanese Yen and the US Dollar (and currencies still "pegged" to the US Dollar) are about the only paper moneys left against which Gold has NOT (yet) hit an all time high this year.
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