Posts Tagged ‘War’
Interview by James Turk
The Gold Report
November 7, 2011
A war-mongering U.S. government could be less than 18 months away from decimating the last 5% of value left in the dollar, says Richard Maybury, the author of the U.S. & World Early Warning Report. Until some new exchange-traded-fund-like basket of natural resources provides a store of value, this “juris naturalist” has some advice about how to protect your wealth during the coming collapse.
The Gold Report: Richard, last month, you made a presentation at the Casey Research/Sprott Inc. “When Money Dies” Summit entitled “The War that Will Kill the Dollar.” You explained that the corrupting influence of power had sent our country’s leaders shopping for war, disregarding Westphalian respect for sovereignty and hastening the collapse of society. What are the signs that we are reaching a critical point? And, is there any way we can change course?
Richard Maybury: You can see the signs very clearly in the Middle East and North Africa. The Federal government is involved in several wars there that have nothing to do with America. One of the best examples is Libya. U.S. officials are taking credit for Moammar Gadhafi’s death just a year after they were bragging about having tamed the threat. Now Libya is a mess. It will very likely be taken over by some sort of Islamic government that isn’t going to be very friendly to America.
TGR: Why do we, as a country, do this? If it’s not going to end well for us, what’s the economic or political reason to get involved?
RM: The U.S. government gets into wars in far corners of the world that have nothing to do with America because the leaders like getting into wars. That is how presidents achieve greatness in the history books. A president has no prayer of going down in history as great unless he has won a war. Look at Mount Rushmore. All four presidents featured there won wars. That seems to be the number one criteria historians use for deciding whether someone is a great president. It constitutes an automatic incentive to go out looking for wars.
TGR: What is the incentive for the American people to go war shopping?
RM: Nothing. It’s absurd. During the First Gulf War, people had a tremendous good feeling about going to war with Iraq. They would come home from work, order a pizza, sit in front of their TV sets and watch the war like it was a football game. War became a form of entertainment.
TGR: Is there anything we could do to incentivize our presidents to act peacefully?
RM: I doubt it very much. People go into politics because they seek political power. Once they get the power, they naturally want to use it on somebody. What is the point of having power if you can’t use it? So, no matter what kinds of controls you put on, future presidents will find a way around it.
The ideal situation would be one where war is used as a last resort. Westphalian sovereignty, a set of agreements dating back in the 1600s, established the precedent that the European powers would only go to war in self-defense. You had to have a clear and present danger before you could go to war. And, even then, it was supposed to be the last resort. That was the basis of international law up until this year. That isn’t to say that the Westphalia treaties weren’t violated a lot of times, but they helped. After Iraq, Serbia and now Libya, it is pretty clear that the policy is we can just go out and hit anybody we want for any reason we want as long as we believe the other guy is up to no good.
TGR: If this is the new reality, then let’s talk about some of the economics around it. War is expensive. You have pointed out that since the Federal Reserve was created in 1913, the dollar has lost 95% of its buying power. You said, “War destroys currencies.” It usually leads to governments printing more dollars to pay for guns and tanks. How much debt and overprinting can the country take before the velocity of economics, which is something that you also talked about in association with how quickly dollars are exchanged, catches up with reality and the dollar loses that last 5% of its value?
RM: Velocity refers to the speed at which money changes hands, and it is a measure of money demand. When people don’t really want the money, they start trading it away faster, trying to get their hands on things they do want, things that have value that they trust. The cost of this war in the Islamic world will continue going up. At some point, it’s going to be a major contributor to people losing what confidence is left in the dollar and people all over the world will start dumping it. This is a psychological thing. It’s about emotions, so it is hard to pinpoint when they will lose all confidence in the dollar.
TGR: What would it look like if that last 5% were gone? Are we talking about hyperinflation? Are we talking about banks collapsing? Are we talking about bartering? What would it look like?
RM: We are talking about all of that. It would be chaos. We saw it in Zimbabwe when the Zimbabwean dollar became worthless because the government printed so many that people wouldn’t accept them anymore. The country experienced enormous runaway inflation where prices were rising 50% a day before the Zimbabwe dollar collapsed.
It would probably start with someone somewhere in the world selling off his dollars and begin trading them for whatever it was he had confidence in. The foreign exchange value of the dollar would fall. Other people would notice; they would get scared and start selling their dollars. The foreign exchange value of the dollar would drop more. This process would continue until you have panic around the world to get out of dollars. Americans would be the last ones to get involved. We are always the last to know what is happening to America. Suddenly Americans would wake up one morning and find that a gallon of milk that cost $4 the day before costs $6 today. The next day they would find that it costs $12. And the next day they would find that it costs $36. That is when Americans would realize that they are in deep trouble; their dollars are about to become worthless.
TGR: Of course the Fed wants to avoid that scenario. You describe yourself as a follower of Austrian economics made famous by the Nobel laureates Friedrich Hayek and Ludwig von Mises. They describe financial systems as complex processes run by billions of constantly changing individuals rather than something that can be manipulated from a central point, which seems to be what is being attempted right now. If that is the case, what will be the outcome if the central government tries to force a more Keynesian control of the flow of money?
RM: They will mess it up even worse than they already have. The world has been living under Keynesian economics since 1971 when Nixon took the dollar off the gold standard. John Maynard Keynes was a semi-socialist. He believed that the way to fix the economy was to print a whole bunch of dollars and dump them out there. This has been standard procedure for the past 40 years. All currencies have been dropping in value during that time. Another round of quantitative easing (QE) could further speed the rate at which the money circulates, something that has the same effect as increasing the supply of dollars, creating a larger demand for goods and services and having an inflationary effect. I think Fed officials are dropping hints about the next QE because they are trying to cause velocity to rise, a secret QE if you will.
TGR: What if the stealth QE campaign doesn’t work? What form might a real QE3 take?
RM: It is hard to tell what they will do. One of the myths that everyone is taught is that the government has some sort of tremendous understanding of economics and the ability to make adjustments to economic activity. The term fine-tuning is used sometimes. Actually, we are talking about a group of human beings who don’t know much more about real economics than anybody else. They think they do, but they don’t. They just bounce around from one attempt to control things to the next, making a mess of the country. The economy is not a machine. It is people, human beings. It is a biological system, not a mechanical system. But, the government treats it like a mechanical system, so they are always making mistakes.
TGR: If war and hyperinflation are the inevitable future, how can investors survive or maybe even thrive during a time like this? What are the opportunities? Natural resources? Commodity equities? Where can we be safe other than putting that $100 bill under the bed?
RM: Well, I wouldn’t put $100 under the mattress, at least not for very long, because it will soon become worthless. But commodities, stocks of raw materials firms, gold and silver and platinum coins have value. Generally, I try to see the world in terms of two kinds of investments: dollars and non-dollars. You definitely want non-dollars, things that do not have their value tied to the value of the dollar. An example of a dollar asset is something like a bond or bank CD. Their values are tied directly to the value of the dollar. If the dollar falls, then their values fall.
Gold is a non-dollar asset. When the dollar falls, usually gold rises. The same is true with silver and oil. All of these things have values that are not tied to the dollar. My advice is to invest in non-dollar assets. Gold would be at the top of the list, silver and platinum and then oil.
TGR: In your Early Warning Report Newsletter, you predicted that gold will top $3,000/ounce (oz), silver will hit $50/oz and oil will exceed $300/barrel. Gasoline will go to $9/gallon. When will we see these rises? And what will be the catalysts that take them there?
RM: The next QE, which I expect to come along no later than March, could set off a flight from dollars. Then we could see those predictions realized within 18 months.
TGR: You said that once we have had this loss of the entire value of the dollar and people are looking for another way to trade, money could be based on some collection of metals with currency acting as a receipt for the tangible gold, silver, platinum and whatever else happens to be in that basket. What would that transition look like? How painful would that be? How would it be orchestrated?
RM: It doesn’t have to be painful. The markets are moving in that direction. People trade exchange-traded funds (ETFs) for practically everything now. I can envision a mutual fund or an ETF that is a collection of various things. It could be gold, silver and platinum. It could have oil in there. It might include Swiss francs. It could even have various patches of real estate. The ETF itself would then become a currency, not because anybody has it planned that way, but because the markets will see that there will be a demand for something that is a non-dollar asset that is easily tradable and seen as a store of value. There would probably be hundreds of these baskets of assets at the start. Some would work better than others would; the less workable ones would shake out. You might wind up with maybe a half dozen ETFs or mutual funds that are baskets of various assets circulating in the world. They would essentially become the currencies.
TGR: Would investing in ETFs now be a good way to prepare?
RM: No. I don’t know of any that are arranged that way. It may be a while until somebody catches the idea and decides to give it a try.
TGR: What about the precious metal equities? Would that be a good way to prepare?
RM: Yes. There are lots of good precious metal stocks. I own quite a few. That is another way to protect yourself. However, be sure to deal with a broker who really knows natural resources. You have to have some skill in picking those stocks. It’s not like going down and buying a gold coin where you just walk into the coin dealer and tell him I want a handful of American Eagles or Canadian Maple Leaves. You really have to know what you are doing when you are buying gold stocks.
TGR: Any final thoughts you want to leave with The Gold Report readers?
RM: The world has changed. When you look at the news and you say to yourself, “My God, America isn’t what it was; the world isn’t what it was,” have the confidence to know you are right. We are probably not going back to what America or the world was anytime in my lifetime. Therefore, you want to start learning everything you possibly can about this new condition and adapt to it.
TGR: Thank you for sharing your thoughts.
RM: Thank you, JT. I appreciate being here.
By Jonathan Chen
Benzinga Staff Writer
May 26, 2011 9:24 AM
Marc Faber of the “Gloom, Boom & Doom” report spoke at the Ira Sohn Conference yesterday, and talked about the destructive nature of U.S. monetary and fiscal policy, and a way to play it.
Faber said that U.S. monetary and fiscal policy has created more volatility, and we can expect more of that going forward. Faber mentioned the Long Term Capital bailout, the liquidity that rushed in during Y2K, and the end result. The NASDAQ crashed, falling some 50%, and it still has not come close to those levels.
Faber said that not all growth in the country has occurred during inflationary environments, despite what the Federal Reserve wants you to believe. The U.S. grew from 4 million to 80 million people, and new industries were created during a deflationary environment. He mentioned industries such as railroads that prospered during the deflationary environment, and even mentioned that incomes rose during this time.
He is not confident that the Federal Reserve will be able to get it right this time, as it has not gotten it right before. The Fed missed raising rates by 3 years after the NASDAQ crash. The economy started to grow in November 2001, and the Fed started raising in June 2004, despite the need for it three years prior. The Fed is also slow to realize problems of containment, specifically in subprime, which obviously was not contained.
The Federal Reserve created excessive growth in the system, as evidenced by the debt to GDP ratio, which has increased rapidly over the past few years. To get out of this, the Fed has two options: tight monetary policy, or print and print. Faber says the Fed will not pursue tight monetary policy, so the printing press will just keep running.
Of course, the Fed can’t control what we do with the money, which is why bubbles continue to form. Both Alan Greenspan and Ben Bernanke have created massive bubbles, including equities, commodities, bonds, wages, and sometimes currencies. From 2002-2008, Greenspan and Bernanke have created massive bubbles.
To play this, Faber said that cash and bonds are undesirable in this environment, and you should not own U.S. debt. One way to play this is to own ProShares UltraShort 20+ Year Trea ETF (NYSE: TBT). He said that even if the deflationists are right, you should not own government debt.
Faber concluded by saying that he thinks we should prepare for the next war time, and gold might go ballistic. He said having gold all over the world is a safe hedge from potential confiscation.
Read the entire article HERE.
By Angela Moon and Ryan Vlastelica
NEW YORK | Sun Mar 20, 2011 6:16pm EDT
Cataclysmic events including a nuclear disaster in Japan and the prospect of rising oil prices after military air strikes on Libya will keep investors reacting to headlines.
Western forces pounded Libya’s air defenses and patrolled its skies Sunday, but their day-old intervention hit a diplomatic setback as the Arab League chief condemned the “bombardment of civilians.”
“It’s (developments in Libya) something that the market is paying a very close attention and not only will oil prices be in focus but the headline grabbing stories out of countries like Iran in the region will keep investors nervous as uncertainty grows,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
Many investors said the sudden increase in uncertainty had caused a corresponding rise in trading based on emotion rather than facts or fundamentals.
The volatility on Wednesday caused the S&P 500 to erase its gains for the year and then rebound more than 1 percent on Thursday.
Besides global developments this week, markets will get to respond to economic data on U.S. housing, gross domestic product and durable goods orders, but these may be relegated to second place behind traders’ reaction to the latest headlines.
Wall Street ended higher on Friday, but indexes finished lower last week. The Dow ended down 1.5 percent, its biggest weekly decline since August. The S&P fell 1.9 percent and the Nasdaq lost 2.6 percent.
“The stock market broke down (last) week, violating support levels and generally turning the technical indicators bearish,” Larry McMillan, president of McMillan Analysis Corp, said in a report.
WALL STREET’S FEAR GAUGE
The CBOE Volatility Index VIX .VIX, Wall Street’s so-called fear gauge, shot up nearly 30 percent on Wednesday when equities swooned after confusing statements from officials on the situation in Japan.
The gauge rose nearly 60 percent above its 50-day moving average, which has happened only a handful of times in the past 20 years.
Despite the 21 percent rise in the VIX for the week, traders bet the fear gauge would move higher. Call buying outpaced put buying on Friday, with about 232,000 calls and 111,000 puts, although both were below their average daily volume, according to options analytics firm Trade Alert.
“While the VIX peaked in the 30 area around mid-week, we won’t have confirmation that a top has been reached until we see a decline below these long-term trendlines and the 20 level,” said Todd Salamone, senior vice president of research at Schaeffer’s Investment Research in Cincinnati, Ohio.
The VIX settled at 24.44 on Friday. The gauge, which often moves inversely to the S&P 500, measures the cost of hedges or protection investors are willing to pay against a fall in the S&P 500. The heavy call volume suggests expectations for more anxiety in the future.
Read the entire article HERE.