There is no stopping Big Government from their sins. They continue to print and borrow at warp speed; like a speeding bullet, ready, willing and able to separate the citizenry from their wealth. If they can’t do it by inflation, they do it by theft, eminent domain or regulation. The current situation is perilous; all governments are broke, dead broke. There is no savior except the gold standard. This will prevent the largesse – that is why the politicians hate it. FDR confiscated American’s gold and RMN closed the gold window once and for all.
The stated reason for FDR’s order was that hard times had caused “hoarding” of gold, stalling economic growth and making the depression worse. The main rationale behind the order was to remove the constraint on the Federal Reserve which prevented it from increasing the money supply during the depression; the Federal Reserve Act required 40% gold backing of Federal Reserve Notes issued.
The long forgotten story of the great depression was how the stock price of gold miners reacted to FDR’s action. History provides a picture of the the implosion of the stock market and the price of miners during the 1929 crash going forward. The Crash saw the Dow Jones Industrial Average dive from the upper $300 range to $41 in four short years. A financial catastrophe if there was ever one. But one standout were the gold stocks. Taken from www.goldeneagle.com. It is meaningful to note that in late 1929 the value of Homestake Mining was about $80 per share. Moreover, during the next six years Homestake Mining paid out a total of $128 in cash dividends. In fact the 1935 dividend alone reached $56 per share. That’s almost a 70% dividend yield payout (basis 1929) in only one year! Indeed, hard asset investments (gold mining shares) were islands of economic refuge during the grueling years of the Great Depression. From the market high in 1973 to its low in 1974 the DJIA and the S&P 500 lost almost half their value – while the previously high-flying technology stocks plummeted more than 60%. Enough to cause heart-failure to the credulous believers of this time it’s different. Even the relatively “safe” utilities were decimated – as they dropped more than 50% from their 1973 high to their nadir in 1974. H-O-W-E-V-E-R, students of financial history took profitable refuge in gold metal stocks.
The Gold Mining Index, composed of ASA, Campbell Red Lake and Dome Mining, appreciated more than 260% from its 1973 low (40) to its 1974 high (147). This merits being redundant. During the severe 1973/74 bear market, stocks lost half their value – while gold mining companies almost quadrupled. If this is the case why did my gold mining shares sell off the last week while gold was moving higher. This is due to index ETF and mutual fund sales by retail holders. The gold index comprises a large portion of the TSX index so when a redemption hits, the individual components must be sold. Once all the index holders have liquidated we should see a sharp and violent move higher on most gold mining shares to reflect higher gold prices.
So what does all this mean? Today we stand at the precipice of a great depression, one worse than anything seen before. The reason being we have more than the ones that came before to lose. Rome was sunk by inflation, Germany played the same tune at Weimar and today Chavistas are in the same boat. There are no safe harbors, governments are broke with no alternative but to inflate the money supply; not doing so will unleash the public protest where they are sure to salivate their animal instincts. This is not a good thing for politicians. They will be the first in the line of fire.
Many of the top economists fail to see the darkness in the light nor the forest from the trees. QE has been tried over and over again; from Japan – 30 years and still going – to the Greek meltdown, to the EU, to Argentina, to Brazil, to Venezuela, to Russia and the elephant in the room, the United States. And where are we, a fugari bird without sight, traveling the road into darkness brings unwanted consequences. But what are those consequences? Very few see them, and few acknowledge them because of the devastation that lies ahead, financial and physical destruction. The dead end has been reached, a GIS can’t help at this point; paper will no longer be the savior to Big Government.
Most if not all countries are dead broke, a socialist delight; Greece has scraped the bottom of the barrel, bailed out for a few years by its gullible neighbors. How stupid were they, throwing good money after bad – Germany was the sucker on this one. Most are one step away from the restructuring that has brought many others to their knees. When people are scared, frightened, nervous about the future they begin to question their government. Words from the President will not suffice to quell the uneasy feeling. The odds that a financial pandemic will occur are great this time around; paper will not be worth the paper it is printed on. One shining light is Switzerland which will be voting November 30th on a referendum requiring the Swiss to have 20% of their currency backed by gold. Does Switzerland no something? We shall soon find out.