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Bernankeism: Another Good Reason To Buy Gold

November 26, 2005

We know the gold price has been manipulated by constant central bank selling over the years. Work by Frank Veneroso made a very strong point that the equilibrium price of gold along about 1998 was over $600 if the central banks stopped dishoarding. We know central banks and governments and bankers hate gold because it gets in the way of reallocation of wealth from the common folks who produce it to those who print the money. Shucks! Even Alan Greenspan knew that. He provided that opinion in 1966 in his infamous essay, "Gold & Economic Freedom," and he told Congressman Ron Paul as recently as 2002 that "he recently read that article and would not change a word."

So, we know the establishment has it in for gold. They will destroy it as long as they can so that they can perpetuate the great monetary fraud imposed against us through the creation of paper money, which unlike gold money is not in itself wealth but simply a claim against wealth. We know all that. And we also know that because the price of gold has been held at artificially low levels, when policy makers can no longer hold it down, it will have a spectacular rise to the upside.

Last week we relayed James Turk's view that the decision about the cessation of M-3 reporting starting in March may be at the heart of an even more bullish pattern of gold trading. James noted that M-3 is the measure of money most used because it includes all measure of money. He suggested that this presents an element of uncertainty that may well be eroding confidence internationally in the dollar. Even though I believe Doug Noland, who writes a weekly column on monetary and credit matters at, is correct in suggesting that M-3 is less useful than in the old days because of a host of new monetary instruments available in today's world, it is also true that Europeans, for example, have a high reverence for M-3. Reportedly, the excuse for discontinuing M-3 is because of the cost. That is ridiculous! The total cost to report this measure of money is something like $1.5 million per year, or about what the U.S. government spends in less than one minute! In fact, given this low cost I have to think someone somewhere in the private sector (that could include the Fed because it is after all a private corporation) will continue compiling M-3 and using it for their internal purposes.

Eliminating M-3 would seem to be one of the most ridiculous moves yet by the Fed. Or is it? Thanks Robert Blumen for an excellent essay titled, "Bernankeism: Fraud or Menace?" that sheds more light on why our soon to be new Fed chairman would endorse elimination of M-3. I would encourage serious investors who have the time to read Robert's article, which summarizes all the important speeches Bernanke made on the issue of inflation, deflation, and monetary policy in general. Go to to gain an understanding of what this guy is likely to bring our way in the years ahead.

On a recent ROBTv appearance, I was asked whether I think Mr. Bernanke's speeches on "inflation targeting" indicate that he is going to be a great inflation fighter. I answered Howard Green by saying something like, "No, not at all." When Bernanke is faced with prospects of deflation or a business slowdown, he will always err on the side of inflation, not deflation. After reading Robert Blumen's essay, I am even more confident I was right when I labeled Bernanke an "inflationist."

The helicopter speech is Bernanke's most infamous speech. But he made countless other suggestions that the Fed should, if necessary, buy everything and anything in sight to pump money into the economy, starting with U.S. Treasuries of course but not necessarily limited to Treasuries. It was even suggested that the Fed, if it had to, should buy things like real estate and gold mines. In other words, this private corporation would in fact be administering a complete move toward economic fascism.

But what if consumers wouldn't borrow and spend even as the Fed pumped money into the system? Bernanke came up with still another idea. The government could start to tax our savings, let's say at the rate of 1% per month or 12% annually-thus forcing a negative interest rate on savings!

These are the most radical and preposterous policies imaginable for a country that once thought of itself as a free market capitalist economy. This is fascist economics if ever there was fascist economics. Bernanke, who will soon be our Fed chairman, is the author of these radical and fascist ideas.

If you wonder why Russia, Argentina, and God knows how many other countries are starting to buy gold rather than sell it, you don't have to look beyond the next Fed chairman. If he carries out the policies he has proposed, he will be an unmitigated disaster for freedom and our democratic republic.

But, this shouldn't surprise us, either. Perpetuating freedom and democracy was not the reason the Fed was created in the first place. It was created by a handful of the richest families on earth with its center in England. The Fed was snuck into existence against the American people because of their ignorance and apathy. In fact, the goal and purpose of the Fed, even if not stated publicly, is to perpetuate the power of the richest families on earth. If you doubt that, then I have a book you might buy yourself or for your loved one as a Christmas or Hanukah present. The book is titled, The Creature from Jekyll Island, by G. Edward Griffin.

As far as this letter is concerned, what we need to take from this is that Bernanke is likely to be a big-time inflationist in the same vein or worse than Arthur Burns and G. William Miller, who fueled the great inflation of the 1970s. Now, of course, this nation is in much deeper doo-doo, economically speaking, than we were during the Vietnam/great society funded inflation of the 1970s. Now we have so much more debt and we are in a major wealth declining stage, as evidenced by chronically worsening balance of trade deficits. But the Bernanke Fed will fight huge and growing deflationary pressures in line with where we are now in the Kondratieff cycle with huge amounts of monetization of everything and anything. Those policies may smooth things out in the short run, but they will be disastrous in the longer term. Do you see why the world is getting very interested in gold, even if the average U.S. citizen hasn't even begun to think about gold as an investment/store of value?

The following quote from Ludwig von Mises sums up where the American economy is now.

"There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved." -Ludwig von Mises

Sooner or later? That is the question. I remain convinced that Ian Gordon's Kondratieff winter scenario will come to pass. Then we will see massive bankruptcies, enormous levels of unemployment, extremely high rates of savings and debt repudiation, and the excesses of the economic slate will be wiped clean and a new K-cycle can begin. That will be a horrible environment for commodities but not for gold and cash.

Recessions and deflations are not bad. In fact, business slowdowns are as natural as the Kondratieff cycle itself and many other instances in nature. In a book titled, Prayer, Finding the Heart's True Home, by Richard Foster, I came across the following paragraph that illustrates the natural state of "winter" in our lives and in nature around us. "Winter preserves and strengthens a tree. Rather than expanding its strength on the exterior surface, its sap is forced deeper and deeper into the interior depth. In winter a tougher, more resilient life is firmly established. Winter is necessary for the tree to survive and flourish."

That is exactly the problem I have with the Fed and other policy makers. They get in the way of the natural flow of nature's markets. Ludwig von Mises is right. Sooner or later, we will have to pay the piper. Of course, what we are trying to do with our Inflation/Deflation Watch is perceive the impending "winter" or "tsunami" in time to switch out of commodity plays and into gold and cash. As our Inflation/Deflation Watch suggests, our policy makers-the manipulators-are still winning the day. Inflation is still very much on the rise!


Jay Taylor, Editor of J Taylor's Gold & Technology Stocks

The naturally occurring gold-silver alloy is called electrum.
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