John E. of Phoenix writes:

In approximately one month we got a sample of Obama’s change: The continuation of the Bush-Paulson give away of taxpayer money and pork programs, little of which will have any stimulus on the economy…much more of the same is coming down the road. The expansion of the war in Afghanistan with 17,000 more U.S. troops, and there will be social-religious changes as taxpayer money will be used to fund abortion…has your church made a stand against abortion on demand?

Oh, yes, there will also be taxpayer relief to some (including illegal aliens) that got themselves into financial difficulties by over extending themselves with mortgage finance. Those that were prudent and are servicing their debt obligations will pay for the mistakes made by others. See Forbes article on Community Reinvestment Act.

For a commentary on Obama’s policies, read Tooth Fairy Economics, posted on Ron Paul’s Campaign for Liberty website.

Instead of government spending and the redistribution of taxpayer wealth, why not dismantle our overseas military empire of more than 750 military bases, bring our troops home and have them defend our borders, which would reduce our military-industrial complex to a manageable level. We spend more on defense than all the rest of the world combined.

Then, maybe slash the payroll tax, capital gains tax, taxes on various forms of savings accounts, and then provide big tax incentives for start-up businesses with emphasis on a program of creating basic manufacturing industries.

Then bring back the Glass-Steagall Act, and top things off by eliminating the Federal Reserve. (I’m sure the part of the Glass-Steagall Act that John likes was the prohibition on bank holding companies from owning other financial institutions, prohibitions that were repealed in 1999. That repeal contributed greatly to our financial crisis by letting banks own investment firms that invested outside normal guidelines. The repeal blurred line between banks and investment firms and gave an implicit guarantee, which banks have had since the Great Depression, that the federal government would never let them fail, and that’s exactly where we are today. Merrill Lynch was forcibly rolled into Bank of America with government guarantees. When investors do not have to worry about risks, they make more risky investments, such as collateralized loans, the root cause of the financial crisis. Now, back to John’s comments.)

Oh, sorry I was dreaming again…back to the real world of media cult-like adoration of Obama and failed socialist policy. Speaking of Obama, has anyone seen the “vault copy” of his birth certificate?

Enough dreaming. We don’t want a patriot like Ron Paul with sound economic and social policy with a proven record in politics…we want more of the same NWO globalist Keynesian policy with the captivating persona of Obama… That is why we elected him…right? It had to do with all the fine people with whom he associated and his long proven record in government?…right???… well, of course. (John got a little cynical here!)

Finally, John provided an excellent six minute Youtube Bill Maher interview of Ron Paul, where Paul explains why Obama’s approach to the financial crisis will only make things worse. The video caps off John’s thoughts on today’s political circus. Any wonder why the price of gold is within dollars of its all-time high?

A recent mineweb.com article, Is gold the only salvation from this financial Armageddon?, suggests not only that gold offers a solution to the financial crisis but notes something of which many Americans are not aware: that European banks may be in worse shape than American banks. The author further asserts that the worst is yet to come as far as European banks are concerned. Massive inflation lies ahead for Europeans.

Gold aside, the Establishment solution to the problem is to print more money, both dollars and euros. I maintain that any official use of gold in the world’s monetary system will not come until forced upon governments by the people’s rejection of paper money. When freshly printed money will not longer buy what governments want, they will be forced then to return to gold. Until then, we will have inflation.

Meanwhile, the article is an excellent read in that it further clarifies the extent of the financial crises. Still, there is an issue I take exception with.

The author declares that silver is not really a monetary metal any longer. This position is often thrown around as a reason for not buying silver during financial crises. I disagree and submit that investors who eschew silver because of this position miss an opportunity to make still greater profits during this financial meltdown. (Actually, “profits” is not the right word. Generally, gold and silver buyers are not seeking profits but hedges against inflation and currency devaluation.)

Regardless, my studies and observations of the precious metals markets convince me that silver turns in greater returns in bull markets than does gold. The writer acknowledges as much when he notes that “even though history tells us that silver’s volatility leads it to perform better than gold in percentage terms on the upside and worse on the downside. . . We are in a different situation with silver not really a monetary metal any longer. Industrial demand pressures on silver may well mitigate any price rises here.”

Both metals have been used as money for thousands of years. Now, just because there are many industrial uses for silver, this writer – and others – assert silver is no longer a monetary metal. While it is true that the IMF, which keeps track of how much gold nations hold, does not care about silver, in the end it is really people – not governments or the IMF – that determine what is to serve as money.

Yes, today we’re using government-issued paper currencies and computer entries not redeemable in gold or silver as money. But, the flaws of such currencies are becoming readily apparent. Governments around the world are inflating their money supplies in efforts to stave of recessions (depressions?) And, the people are starting to move to protect the “fruits of their labors” from inflation by buying silver as well as gold.

And rightfully so. More people have used silver as money than have used gold. Because of Roosevelt’s 1933 gold call-in, Americans have not use gold as money for 76 years. Silver coins, however, were minted until 1965. Actually, silver has nearly always been the circulating medium in hard money monetary systems because gold has too much value for day-to-day transactions.

All this brings me to this point: when the masses come to the gold-silver market, they will buy silver instead of gold because with silver they get more physical metal for the money. Buying by the masses will, in my estimation, propel the price of silver much higher – on a percentage basis – than gold, driving the gold-silver price ratio to 30, perhaps even 20.

Now, that’s a bullish outlook for silver, a longtime monetary metal that just happens to have a myriad of industrial uses. The industrial demand for silver is not a negative, as the writer of the aforementioned article says, but is, in fact, a strong positive for silver.

Never one to mince words, Llewellyn H. Rockwell Jr., founder and president of the Ludwig von Mises Institute in Auburn, Alabama, editor of LewRockwell.com, and author of numerous books on economics and politics, lays it on the line with a scathing rebuke of Obama’s plans to spend one trillion dollars in Obama’s Wealth Destruction, a commentary posted on lewrockwell.com.

Rockwell writes:

With his rhetoric and policies, he (Obama) has decided to demonize private enterprise, just as FDR did, as a way to present government as the great savior.

Rockwell continues:

Now, think about this. If there is a way out of the recession, it will have to be provided by private enterprise. It will come by new businesses, business expansions, entrepreneurship, new technology, and this will be the source of lasting jobs and prosperity.

You cannot make a country rich by looting taxpayers and paying people to pound nails into siding at public schools! These activities amount to capital consumption. They are not sources of investment. You can say that they are stupid tasks or wonderful tasks, but it is not a matter of ideology as to whether such public projects will make us all wealthier. They will not. They drain the sources of wealth from society. They represent a cost, not a blessing.

Continuing, Rockwell condemns Bush’s stimulus plan.

That was also true of Bush’s dumb stimulus program. He was only bailing out his friends at our expense. The effect was to give a little longer life to institutions that were failing anyway. It’s pathetic that the Republicans ever went along with it. You will notice that the scheme didn’t actually work.

Well, Obama is doing the same thing, though rewarding a different set of friends. This is not wealth production. This is wealth consumption. Do enough of this nonsense and you can destroy the livelihoods of an entire generation.

Interestingly, Rockwell praises Reagan for his handling of the 1981-1982 recession.

He (Reagan) was fortunate to have advisers who insisted that he let the liquidation happen rather than attempt to fix the recession of 1981–82 with huge new government spending programs.

Here is Rockwell’s warning, which should be of interest to all gold and silver investors:

The biggest threat facing the American economy right now is rarely even discussed. It is the massive buildup of paper bank reserves in the last quarter of 2008. This was Bush’s doing. He ordered the Fed to print like mad. Fortunately for us, the banks are still holding on to these reserves. When they start lending again, the result could be hyperinflation of Confederate dollar proportions.

Read Obama’s Wealth Destruction by following this link.

Back on July 24, 2008, I penned a post titled The Sad History of Paper Money, in which I noted that money not redeemable in either gold or silver is printed until it is worthless. Now mises.org has posted an article titled The Insolvency of the Fed that starts Since August 15, 1971 the US dollar has been an irredeemable paper currency. Every irredeemable paper currency in history has failed. The people at mises.org know as much about money (the history of money, what money is and what it should be) as anyone around, and their writings are important looks at today’s monetary situation. 

The article is an excellent educational piece for investors trying to get better understandings of just what the Fed (and the fedgov) is attempting to achieve in the bailout of the banking industry. More important, the article explains why the Fed is headed toward insolvency, something that the average person thinks is impossible.

The article also provides insight into the workings of the Fed. As you might guess, the authors are not fans of the Fed, and they lead readers to understand why they titled the piece The Insolvency of the Fed.

The article notes that because of the banking crisis the Fed now holds lower quality assets. (There was a time when the Fed was restricted to buying only U.S. treasuries.) Not wanting to increase its balance sheet (increase its total assets), the Fed started the bank industry bailout by trading U.S. treasuries for bad assets held by troubled banks. The banks got the good assets; the Fed got the failed (or failing) assets.

With Fed valuing both assets the same, the Fed’s balance sheet was unchanged. But, as the crises worsened, the Fed had to “increase its holdings,” which means that it began printing money to buy bad assets from the banks. And, things look to get worse.

But what new assets is the Fed acquiring? The Fed has already started buying the debts of Fannie Mae, Freddie Mae, and the Federal Home Loan Banks. It has also bought mortgage-backed securities issued by Fannie Mae, Ginnie Mae, and Freddie Mac. Bernanke is also considering buying other securities backed by consumer loans, credit card loans, or student loans.

The authors joke about the Fed trading gold for Zimbabwean dollars. If you aren’t familiar with the Zimbabwean dollars, I commented on them in my January 20 post Is hyperinflation a possibility for the U.S.? Investing in gold has never deserved more serious consideration.

Just in case you missed it, Congressman Ron Paul has introduced a bill calling for the dismantling of the Fed.