Random Thoughts from the Value View Gold Report

By: Ned W. Schmidt | Fri, Apr 22, 2005
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RANDOM THOUGHTS is about what the name in implies. Often we come across ideas that overcome our regular publication. Some of these ideas are just thoughtson which to perhaps reflect further. Please remember the purpose of RANDOM THOUGHTS. The goal is to collect ideas and thoughts from reported events during the past month that might stimulate our thinking or just be interesting. Please note that we do not change the spelling in quotations.


NOTE TO SUBSCRIBERS & READERS:

As a policy, we do not post any part of our monthly letter on internet web sites. We are going to make an exception, as a public service, with this issue of RANDOM THOUGHTS. We are so concerned with this subject matter that it is being made available to selected web sites.

RANDOM THOUGHTS is the second part of the monthly letter, THE VALUE VIEW GOLD REPORT. It allows for a more free flowing format than the main part of the report.


NAME THE GOVERNMENT:

Which government is determined to destroy the financial freedom of the citizens?

Which government seems determined to drive money out of the country?

Which government no longer cares about individual freedom and liberty?

What nation has made the possession of the country's legal tender a near crime?

What nation makes bankers, under penalty of fine and imprisonment, report when citizens deposit legal tender into a bank account?

Into which country's banks should foreign citizens not deposit money unless absolutely essential?

The answer to all these questions: The United States

Citizens of any other nation, you are crazy if you have money on deposit in a U.S.-BASED bank, broker, investment advisor, or grocery store. If you do not have to have your money connected to the United States, then do not. Now!

If the government of the United States continues to crush financial freedom, dangerous consequences lie ahead. At the present the government of the United States is in the process of making the possession of U.S. money a near crime. Just try to make a cash deposit to your bank account. The teller and officers will have a near panic look in their eyes. If you have cash, you must be a terrorist or criminal. To protect themselves, they will report your transaction to the U.S. government.

All of this is being done as part of the "fight against terrorism." Every freedom destroying dictatorship has used similar rationales for its actions. The U.S. government has decided that possession of money is a threat to national security. Smokers are no longer the greatest evil threatening the nation. People with cash are the greatest threat! Will schools start teaching children to report their parents if they have cash?

People in the U.S. are becoming afraid to take U.S. money. Government actions may force citizens to repudiate its own currency. If the citizens of a nation will not use their own currency, who will use it? What foreigner would take U.S. money knowing they will be treated as a terrorist or criminal if they attempt to deposit it in a bank?

The consequence of all these abusive policies is that U.S. money could become "untouchable" around the world. Why accept it if one can not use it? U.S. money is on the road to becoming an "unacceptable currency."

The latest threat to U.S. money acceptability was reported in the 10 April 2005 issue of The New York Times, page 1 by Eric Lichtblau, "U.S. Seeks Access to Bank Records to Deter Terror."

"The Bush administration is developing a plan to give the government access to possibly hundreds of millions of international banking records in an effort to trace and deter terrorist financing, even as many bankers say they already feel besieged by government antiterrorism rules they consider overly burdensome."

"The initiative, as conceived by a working group within the Treasury Department, would vastly expand the government's database of financial transactions by gaining access to logs of international wire transfers in and out of American banks."

"Officials also have begun looking at similar models in Canada and Australia."

"For instance, although some rough estimates by Fincen[Treasury Department's Financial Crimes Enforcement Network] suggest that there are at least a half-billion international wire transfers a year totaling trillions of dollars, officials want to develop clearer data. The financial data demanded by Fincen is likely to total several hundred million records...."

Be sure you understand the motivation for this destruction of financial freedom in the U.S. The 9/11 terrorists are believed to have used this system to move about $130,000. One instance of money movement, and the bureaucrats want access to EVERY transaction.

The 9/11 terrorists also used paper money, cash. No doubt some freedom hating, job preserving bureaucrat is considering the idea of banning cash. In the bureaucrat's perfect world, every transaction would go through a bank account and every one of those records would be immediately available to the government. Surely, we all understand the war on terrorism demands this level of government control.

Thus far concern has been simply with the loss of important financial freedoms. The ramifications of these acts are extensive, influencing the economic and financial stability of the global economy. Confidence in the global monetary hegemon is required for financial stability.

England came out of the Great War a financial debtor. An effort to put back together the prewar monetary system was attempted, but it failed. The world in that prewar era had been tied to Gold. England, as the global monetary hegemon, enforced and maintained that system. When that system failed after WWI, the global monetary system was left without a "foundation" and without a monetary hegemon able to maintain the system. That was followed by serious mistakes by the Federal Reserve and other central banks. The death blow was then delivered by Smoot-Hawley, and other ill-conceived legislation.

Now in a new century, a similar set of circumstances is developing. The U.S., like England, is now mired in debt. Like England, U.S. has been the global monetary hegemon for decades. Around the world the financial system has been tied to the dollar, as it was once tied to Gold. U.S. policies are destroying that tie just as surely as the Gold tie was destroyed. The global foundation is being lost.

U.S. policies are no longer serving to maintain its role as the global monetary hegemon. The Patriot Act and actions like those discussed above are destroying the willingness of the world to remain tied to the dollar. The monetary foundation of the global system must be one that will be freely used. If citizens around the world do not feel secure in using dollars, then the dollar foundation falters.

The continuing flow of policy errors at the Federal Reserve certainly demonstrates as much ineptness as those leading up to the Great Depression. Now we face a continuation of bad Federal Reserve policies with the likely naming of Ben S. Bernanke to replace Chairman Greenspan in January. This pseudo-economist actually believes that the U.S. current account deficit is the fault of the policies of foreign governments, central banks and individuals. If you have not read the speeches on this questionable thinking, go to the Federal Reserve web site and do so.

The failure of the global hegemon, the U.S., and the destruction of the global monetary system's base, the dollar, risks a hard landing for the global economy. Perhaps though a bright side does exist, as it usually does in all such situations. The coming global financial failure may finally put an end to central bank created fiat money, and create the opportunity to return to Gold as the only secure base for money.

As a final thought on this matter, imagine for a moment you are a Canadian business person doing business with the U.S. As part of your business activities, money is wired between a bank in the U.S. and a bank in Canada. These transactions will be perused by some Treasury bureaucrat, jealous that his brother-in-law got promoted for discovering that cigarette lighters are a terrorist threat. Using a giant computer algorithm receiving every international wire transfer record in the U.S., your account is matched up with a suspicious firm. The "suspicious" firm has two Muslim workers that are third cousins to two people that rode on the same train three weeks after the sister of a maid once used by a neighbor to a known and confirmed terrorist, that died two years ago, rode that train. The Treasury bureaucrat goes into action. Immediately all of your funds in U.S. banks are seized in the name of the fight against terrorism. All wire transfers to your Canadian bank are barred. Second, when traveling across the border to visit the bank in order to rectify the mess your passport sets off alarms. Remember, you will need a passport to travel to the U.S. Immediately, you are arrested, denied counsel and immediately placed in a military prison. Welcome to the U.S. fight against terrorism! Just pray that they do not find a cigarette lighter in your possession during the strip search.

The Canadian dollar has been stronger, not because of fundamentals, but because U.S. laws, like the Patriot Act and Bank Security Act, have driven Canadians away from U.S. financial institutions.

Those of you in the U.S. that are smiling while reading the above story had better think for a moment. Will you be smiling when your bank funds are seized by the U.S. government and forcefully converted to ten year government bonds?


Thoughts on Money Inspired Dr. Benjamin Cohen:

Will return next month.


U.S. EQUITY MARKETS:

The top chart is of the NASDAQ Composite Index and the cumulative weekly high/lows. That last week was a near total breakdown does not require much justification. The hedge funds learned that the exit door is narrow, and few can go through it at any one time. Now, massive overhead supply is held at a loss. A test of the lows on the NASDAQ is on the way.


SECOND FAVORITE CHART:

To the right is the second favorite chart. It portrays the results of investing in the U.S. equity markets. As is apparent, investors have had no return on their investment in U.S. paper equities for almost six years. Those of you that are feeling insecure with your Gold and Silver should look long and hard at this chart. You could be invested instead in U.S. equities like so many of your friends and neighbors. But, those people should not worry. Just as equities are a sure thing, so is investing in real estate. Now, everyone will be rich with higher housing prices. That attitude sure worked in stocks!



OTHER MATTERS:

Tax season rolled around for the daughters. One filed early and got a refund. The other had claimed way too many deductions throughout the year. She was not happy writing the required checks. But, I think she learned her lessons. Neither of them has liked the idea of paying taxes ever since they got their first pay checks.

Youngest Daughter required a North Carolina tax return. Can not conceive of why a state tax return should be that complicated. State has some great schools, but apparently none of the brighter graduates go into public service.

Youngest one's biggest complaint about having to pay her taxes was that she could not go shopping for two weeks. Since a good percentage of what she buys is not needed that will not be a total loss.

However, they are both bargain hunters. Youngest and I went to Target the last trip. Down the aisle she comes with this like giant red champagne glass almost two feet tall. You put a candle in it I think. When I suggested she didn't need it I was informed of the error of my judgement. At Christmas it sold for $19.99 and today it is was on sale for 95 cents. A good eye on that kid, but she still didn't need it.

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Your eternal optimist,


 

Author: Ned W. Schmidt

Ned W. Schmidt,CFA,CEBS
The Value View Gold Report

Ned W. Schmidt,CFA,CEBS is publisher of THE VALUE VIEW GOLD REPORT and author of "$1,265 GOLD", published in 2003. A weekly message, TRADING THOUGHTS, is also available to electronic subscribers. You can obtain a copy of the last issue of THE VALUE VIEW GOLD REPORT at The Value View Gold Report. Ned welcomes your comments and questions, and tries to answer most all. His mission in life is to rescue investors from the abyss of financial assets and the coming collapse of the U.S. dollar. He can be contacted at ned@valueviewgoldreport.com

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