Governments Are Fast Rendering Impossible A Continuance Of Social And Economic Order

People interested in gold and silver, including myself, spend much of our time examining the markets for clues when the old monetary metals and their miners will resume their bull market.  But looking exclusively at the markets provides only a superficial understanding of what is actually going on in our world.  The big picture for the market today is that the Western elite controlling our media, educational system, finance and politics have resorted to totalitarianism.  This is a world view in which government (controlled by these same elite) expands far beyond what it should be, while everyone else are reduced to a human resource actively managed by the elite.  

America’s “best and brightest” may blithely feast off the wealth the nation generates, but they hate it all the same, especially the limitations imposed by the US constitution.  So at some level, everything we see happening in the markets is designed to foster a chaos that eventually they hope will create the opportunity to usurp the power which these people crave.

I’m not saying our all of our leaders are communists.  Some of the elite in academia may well be, but all are students of history who willingly apply any lessons from the past they believe useful in their pursuit of power.  For example, seven years into the Obama presidency the following quote from a legal theorist back in the days when Lenin ruled Russia provides an insight into what Obama learned while at Harvard Law School, or the Clintons at Yale.

“Communism is not the victory of socialist law, but the victory of socialism over any law.”

- Peter Stuchka, Soviet Legal Theorist of the 1920s: The Dictators, by Richard Overy, Page 290

Never doubt that President Obama was fully aware of the bankruptcy statutes when General Motors went under in 2009.  However handing over GM’s assets to its labor unions (an unprecedented executive action with no basis in statutory or case law) did more for “the struggle” than following existing case law whereby GM’s assets would have gone to its creditors.  Just as Hillary Clinton’s current difficulties with her personal, and illegal-unsecure e-mail server she used as Secretary of State can’t be attributed to ignorance of the law. 

Obviously she intended to peddle her influence as Secretary of State to foreign nationals which required her own server, outside the prying eyes of the US Government. Her own server provided a means to sanitize the correspondences recording the many deals which brought over a hundred million dollars in “donations” to the Clinton Foundation.  The fact that the main-stream media has chosen to ignore the implications of this story tells us just how deeply corrupted they are too. 

Hillary is an insider.  The Obama Justice Department and the Republican Leadership in control of Congress will insure she never sees the inside of a courtroom or a jail cell for her crimes.  It’s sad seeing how low America’s legal system has fallen within my lifetime.

Here are the ten planks from Karl Marx’s 1848 Communist Manifesto.  Instituting these initiatives was not intended to benefit free markets, but to expand government and marginalize the individual making free markets impossible. 

1. Abolition of property in land and application of all rents of land to public purposes.
2. A heavy progressive or graduated income tax.
3. Abolition of all rights of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralization of credit in the hands of the state, by means of a national bank with an exclusive monopoly.
6. Centralization of the means of communication and transport in the hands of the State.
7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal liability (pay) of all to work. Establishment of industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.
10. Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production, &c, &c.

#5 above perfectly describes the Federal Reserve and what they’ve accomplished over the past ninety-five years is shown in the chart below.

To be clear, I’m not saying the Federal Reserve was created in 1913 to fulfill the goals of Karl Marx – I’m sure it wasn’t.  Rather I’m saying that Marx was right; that the “centralization of credit in the hands of the state, by means of a national bank with an exclusive monopoly” will grow government and marginalize the individual, which it has. 

Today Washington is fat, dumb and happy with all the income pouring in from the economy.  Something which can’t be said for the many people wiped out by the frequent market booms and busts since Alan Greenspan became Chairman of the Federal Reserve System in 1987.  The same is true for the many college graduates still living at home with their parents, unable to pay off their huge college debts for lack of employment opportunities; huge debts and lack of employment opportunities both courtesy of the Fed.   

Sadly our government supported educational system (#10) hasn’t made good on its promises either, especially so in America’s inner-cities.  Any attempt to create a school voucher system or encourage charter schools is promptly derailed by the political establishment – why?  Maybe because charter schools would actually empower the inner-city poor, making them less dependent on government?

If you want to see hell on earth, study the communist movement’s success in implementing these initiatives around the world from the now defunct Soviet Union to Zimbabwe.  No matter how bleak things were before, after the commies took over it only got worse.  So in America, whose interests are served by the implementation of these planks from Marx’s 1848 manifesto?

Here’s a link from IDEOLOGICAL FIGHTBACK, published by the new Party of Communists USA, a splinter group from the Communist Party USA.  Apparently the mainstream Communist Party USA became too closely intertwined with President Obama’s Democratic Party.  Read all about it below.

http://ideologicalfightback.com/news-communist-parties/

Sadly, the American left has already been successful in implementing many of Marx’s poison pills.  Over the past two centuries there have been changes in these planks such as the Environmentalist Movement’s current focus on saving “waste-lands” rather than bringing them into cultivation (#7).  But as always someone still loses their private property rights to the state; it’s just that today property owners retain the “privilege” of paying real-estate tax.  To this day the “progressive” wing of the Democratic Party works toward the abolition of all rights of inheritance (#3) and would declare war on those who attempt to abolish our heavy progressive income tax (#2). 

Though they would never admit to it in public, many of the political and economic goals “progressive” academics and politicians have espoused for decades come directly from Marx’s Communist Manifesto, and they sponsor them for the same reasons Marx did; to expand government and marginalize the individual. 

History will show that the only law our current elite class respects is the Darwinian law of the jungle.  However as they have chosen to use markets as their field of action, they are at odds with Mr Bear so their victory is not assured.  This will be one war in which you will not want to get between the belligerents.

Lord Maynard Keynes is the founder of Keynesian economics, the school of thought that encourages deficit spending by government and an ever expanding money supply.  Here is what Keynes had to say about Europe in the aftermath of WWI:

“Lenin was certainly right.  There is no subtler, no surer means of over-turning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose….By combining a popular hatred of the class of entrepreneurs with the blow already given to social security by the violent and arbitrary disturbance of contract….governments are fast rendering impossible a continuance of the social and economic order of the nineteenth century.”

- John Maynard Keynes, The Economic Consequences of the Peace, 1920, page 235

As you can see, I used the last line in the quote for this article’s title to illustrate the point that economists have long known the eventual outcome of inflationary-monetary policy and government meddling in the economy – chaos.

Proto-Keynesianism in the wake of WWI created the chaos that gave birth to the Soviet Union and Hitler’s National Socialism, though the “educated classes” insist it was capitalism.  Looking at the year over year percentage change of Currency in Circulation (CinC) from 1920 through today (Chart below) illustrates the Federal Reserve’s progress in disrupting the social and economic order.  Though the Roaring 1920s was a highly inflationary period, the inflation, in the form of bank credit, flowed from the Federal Reserve to consumers and market speculators in real estate and the stock market, not as you see from issuing more paper dollars. 

But all that changed in 1931, when President Hoover began America’s first attempt to print its way out of a deflating economy.  His attempt to accomplish this by expanding CinC by 48% in December 1931 didn’t work; prices inflated during the boom of the 1920s continued to deflate during the bust of the 1930s.  But the expansion in CinC did result in a run on US gold reserves and subsequently gold coins went into hiding as paper money flooded into the economy.  President Roosevelt solved those problems by threatening to imprison American citizens refusing to turn in their gold coins to the US Treasury and then by devaluing the US dollar in terms of gold to $35 an ounce from $20.67.

"When you recall that one of the first moves by Lenin, Mussolini, and Hitler was to outlaw individual ownership in gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty."

- Congressman Howard Buffett / Warren Buffett’s Father

World War Two (Red Box above) was extremely inflationary.  The war’s inflationary aftermath continued on into the 1950s.

“The real problem with retiring is money.  Most people save their whole lives to retire in the same style they enjoyed when they were working, only to realize that they can’t live like they used to even while they’re still working.  You see these ads for retirement and they always have fishing boats in the background.  That’s because for $120 a month, fishing is the only way retired people can feed themselves.

- George Burns: Burns and Allen Television Show / Season 8 Episode 9, 1957

The Red Star in the chart marks the point in time when silver mintage was discontinued in US coinage.

“Now, I will sign this bill to make the first change in our coinage system since the 18th century.  And to those Members of Congress, who are here on this very historic occasion, I want to assure you that in making this change from the 18th century we have no idea of returning to it.  --- If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content.”

- President Lyndon Baines Johnson remarks made on signing the Coinage Act on July 23, 1965

Ever since President Johnson signed the Coinage Act of 1965, CinC inflation never once declined below 5% per annum until 1996.  Consumer price inflation would increase to double digits in the next decade.  But this inflation’s primary damage in the financial markets was done in the bond markets. 

Here’s a chart plotting the Dow Jones 20 Utility Bond Average from 1938 to 2002: bond prices (Blue Plot) yields (Red Plot).  CinC inflation in the charts above had had a devastating effect on the wealth of bond holders seeking income from 1938 through 2002.  Keep in mind this bond series contained bonds that eventually matured, as bond do.  So, from the 1938 to 1981 new bonds with higher coupons were included to replace maturing bonds in the DJ 20 Bond Average.  That does make a difference as it understates the series’ nominal dollar losses.  However taking the data at face value, it shows a 50% loss of value for the 20 utility bond average from 1938 to October 1981 as interest rates increased along with consumer prices.

From 1982 to 2002 the DJ 20Utility Bond Average did see its price return to 1938 levels, but not quite as shown in the table below.  During this sixty-four year span of time (a reasonable life time), while CinC and the Dow Jones increased many thousands of percent (as did the cost of living), utility bonds actually fell by 1.45%.  The real damage bond investors suffered can be seen in the Dow Jones 20Util Bond Average’s price deflated using CinC (Green Plot) in the chart above, and in the “1 Million Constant 1938 Dollars Invested” section in the table below.

I’m not trying to be an alarmist; however anyone familiar with the pending problems in global bond markets is also aware of the risks bonds currently pose to pension funds, insurance companies and the personal wealth of individuals. These are risks that can’t be hedged by a few hundred trillion dollars in interest rate derivatives or direct government intervention when our current market bubble begins to deflate in earnest. 

In August 2015 financial assets such as stocks and bonds can be liquidated near their all-time highs, while gold and silver can be purchased near four year lows.  It really does make good sense to rotate a significant percentage of one’s capital from what Wall Street is selling and taking a position in the old monetary metals (physical only and in your own possession) because in the words of Lord Keynes: governments are fast rendering impossible a continuance of the social and economic order.

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