May 27, 2008 by david.pennington.

Weimar Inflation in America

by James Turk

Probably almost everyone is familiar with the hyperinflationary episode that engulfed Germany after the First World War. That nation’s economy was crippled by monetary problems that resulted in dreadful personal hardships, even though up to that time Germany had achieved one of the highest living standards in the world.

The newly formed German government, named for the city where their constitution was drafted after the Kaiser’s abdication in 1918, kept pumping up the money supply. The process started relatively slowly, but quickly the pace of money creation accelerated.

The Weimar government was paying its bills on credit – just like Zimbabwe is now doing. The Weimar government was issuing currency in exchange for valuable goods and services that it was receiving, and the vendors of those goods and services accepted the newly issued currency in the expectation that they would be able to exchange it for goods and services of like value. However, they soon realized that they were deluding themselves. Prices were rising rapidly, with the consequence that a flight from the currency into commodities and other tangibles began.

There was no discipline on the creation of new currency, with the result that it was being issued to excess. Within a few short years, the German government eventually destroyed the Reichsmark, the currency it had been issuing, making the words Weimar Germany synonymous with hyperinflation, economic collapse, deprivation and personal hardship. All the wealth saved in Reichsmarks was wiped out.

For example, in his classic book, “Paper Money”, penned three decades ago under the pen name of Adam Smith, George J.W. Goodman recounts the story of Walter Levy, an internationally known German-born oil consultant in New York. Levy told him: “My father was a lawyer, and he had taken out an insurance policy in 1903. Every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread.”

The following photo is from an insightful book by Bernd Widdig entitled “Culture and Inflation in Weimar Germany”. This photo shows one way in which people coped with rising prices.

As the inflation worsened, people sold whatever they could to survive. Widdig succinctly describes it in the caption to the above photo as follows: “The impoverished middle class has to sell its cherished possessions.”He should have correctly stated though that it was the “newly impoverished middle class”. They only became destitute after the inflation had destroyed their savings and ability to maintain their standard of living.

Sadly, the problems of Weimar Germany are now appearing in the US. To survive the impact of rising prices, Americans today – like Germans did eight decades ago – are selling cherished possessions, as explained in a recent story by Associated Press entitled “Americans unload prized belongings to make ends meet”. The full article is available at the following link: http://abcnews.go.com/Business/Economy/story?id=4750846&page=1

AP explains how some Americans are trying to cope with the ravages of inflation: “To meet higher gas, food and prescription drug bills, they are selling off grandmother’s dishes and their own belongings. Some of the household purging has been extremely painful - families forced to part with heirlooms.” It is indeed no doubt painful, just as it was for the Germans in the photograph above, who surely must have been putting on a brave face for the photographer.

Confirmation of the AP story came a few days later on May 14th from an article in the Washington Post, which reported: “Nearly seven in 10 Americans are worried about maintaining their standard of living, as concern has spiked higher in just the past five months, according to a new Washington Post-ABC News poll. Soaring consumer prices are a major challenge, with many people struggling under the weight of the rising costs of fuel, food and health care. The poll shows that the weak economy and rising prices are high among voters’ concerns, and contribute to a souring national mood in this presidential election year. More than eight in 10 said the country has veered pretty seriously off-track, and a separate poll released yesterday by ABC showed economic anxiety at its highest level on record since 1981. Overall, 68 percent of people surveyed in the new Post-ABC poll said they were concerned about their ability to keep up their lifestyles, a jump of 17 percentage points since December. The increase cuts across party and income lines.”

Crude oil is $132. Corn is $6.The cost of everything is rising. Inflation is worsening, and it’s not hard to understand why. M3, the total quantity of dollars, is now growing by 17% per annum. Weimar inflation has arrived in America.

The Federal Reserve is following the footsteps of the central bank in Weimar Germany. It is the same path taken by many central banks that have issued countless fiat currencies based on nothing but government promises. It is the path to the fiat currency graveyard, and the once almighty US dollar – which long ago used to be “as good as gold”, just like the Reichsmark once held that same exalted title – is knocking at the graveyard’s gate.

This insight about the importance of gold and shortcomings of fiat currency is not suprising, nor is it new. Here is what Rep. Howard Buffett, father of Wall Street legend Warren Buffett, had to say on May 4, 1948. “Our finances will never be brought into order until Congress is compelled to do so. Making our money redeemable in gold will create this compulsion.”

Absent that compulsion, the dollar is going the way of the Reichsmark. Don’t count on the US government to do the right thing and make the dollar redeemable into gold. Instead, take those steps necessary to protect yourself and your family to prepare for the dollar’s inflationary collapse. Buy gold. Buy silver. Avoid the US dollar.

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May 23, 2008 by david.pennington.

U.S. Begins Rationing
Popular ‘Silver Eagles’;
How $1 Fetches $19

By Ianthe Jeanne Dugan
The Wall Street Journal
Friday, May 23, 2008

The government rationed food during World War II and gasoline in the 1970s. Now it’s imposing quotas on another precious commodity: 2008 dollar coins known as silver eagles.

The coins, each containing about an ounce of silver, have become so popular among investors seeking alternatives to stocks and real estate that the U.S. Mint can’t make them fast enough. In March the mint stopped taking orders for the bullion coins. Late last month it began limiting how many coins its 13 authorized buyers worldwide are allowed to purchase.

“This came out of nowhere,” says Mark Oliari, owner of Coins ‘N Things Inc. in Bridgewater, Mass., one of the biggest buyers of silver eagles. With customers demanding twice as many as they did last year, Mr. Oliari would like to buy 500,000 a week. But the mint will sell him only around 100,000.

The coins have a face value of $1. But the mint sells them for the going price of silver, plus a small premium, to a handful of wholesalers, brokerage companies, precious-metals firms, coin dealers, and banks. The dealers mark the coins up a bit more and sell them to the public. Currently, the coins are fetching about $19 apiece, with some sellers seeking more than $20.

For Coins ‘N Things alone, the shortage is costing hundreds of thousands of dollars in lost sales of silver eagles. The firm sells about $1 billion worth of precious metal every year, including silver, gold, and platinum coins. Mr. Oliari, a 50-year-old numismatist who has been in the business since 1973, sniffs: “You can’t print what I want to say about the mint.”

The mint, a bureau of the U.S. Treasury, has offered little explanation beyond a memo last month to its dealers. “The unprecedented demand for American Eagle Silver Bullion Coins necessitates our allocating these coins on a weekly basis until we are able to meet demand,” the mint wrote. A spokesman declined to elaborate.

… ‘Poor Man’s Gold’

The rare shortage offers a glimpse into the growing love of a commodity known as “poor man’s gold.” With more silver mined than gold traditionally, silver has always been far cheaper than gold and today has less than 2% of gold’s value.

But silver is growing in popularity, and some investors are betting that its value will surge as inventory shrinks. Big investors are loading up on silver eagles, which are the only American silver coins allowed in individual retirement plans. For small investors, they are an accessible way to get into the metal boom.

“Unlike gold, these coins can be bought by regular citizens,” says J.R. Roland, a Brownsville, Tenn., judge who recently began buying the coins — and trading them on eBay. “In these economic hard times, silver coins are a great way to invest.”

In March, sales of silver eagles surged more than ninefold from the previous month, to 1.85 million. This year, the mint has sold 6.8 million, representing more than twice last year’s pace. Still, numismatists are clamoring for millions more as the price of silver soars. It has more than doubled in the past three years and now trades at around $17 a troy ounce, which is slightly heavier than a traditional ounce.

Linda Wood, a 57-year-old Pittsburgh accountant, scours eBay, coin shops, and flea markets in search of silver eagles. One by one, she has accumulated about 300 in the past few months and stores them in a bank safe-deposit box.

Traditional coin collectors may be impressed with the government’s written description of silver eagles as “one of the most beautiful coins ever minted.” But Ms. Wood isn’t in it for aesthetics. She became a silver bug after she and her husband saw the value of their individual retirement accounts decline by $2,500 — a “significant” chunk. “I just need bullion,” she says. “I wouldn’t care if the coins were ugly.”

Amid the mint caps, shady silver-eagle hawkers are thriving. Some coins are priced at $25 and higher. Mr. Roland says that he had to wait a month after ordering some on eBay recently, because the sellers didn’t even have the goods. “I can’t wait long, because you never know what’s going to happen with the price,” he says.

In Manitowoc, Wis., Dan Zirk, owner of Manitowoc Card & Coin, has sold twice as many silver eagles as he did last year. So he has stashed away his remaining handful of 2008 coins, betting the price will rise. “I want $22 apiece,” says Mr. Zirk. He says customers, meanwhile, are asking for earlier years and other forms of silver.

… Lady Liberty

The government began producing silver eagles in 1986, basing its design on Adolph Weinman’s 1916 “Walking Liberty” half dollar. The front features a flag-draped Lady Liberty striding toward the sunrise, carrying branches of laurel and oak symbolizing civil and military glory. On the reverse, a design by John Mercanti features an eagle with a shield, olive branch, and talon and arrows.

The coins are made at an armored facility in West Point, N.Y., alongside the military academy. Dealers say they heard the mint had run out of planchets — round metal disks ready to be struck into coins. The disks are used for various coins, and the companies producing the blanks also are busy, limiting the mint’s ability to increase production. The mint won’t comment on the planchets.

… Coins Divvied Up

Each Monday morning now, the mint divides its silver coins into two pools. It divvies up the first equally among authorized purchasers. The second is allocated proportionately, based on the buyer’s past purchases. The mint limited purchases once before — in the late 1990s, when investors loaded up on silver, wrongly anticipating that a failure by the world’s computers to adjust to the new millennium would cripple the economy.

Jim Hausman, head of the Gold Center in Springfield, Ill., one of eight companies in the U.S. authorized to buy silver eagles, estimates that the rationing will cut his expected annual sales of four million silver eagles in half.

And the result, he says, is almost un-American.

Increasingly, investors are taking a shine to alternatives. The Royal Canadian Mint saw its sales of silver Canadian maple-leaf bullion coins rise 40% last year, to 3.5 million, according to a spokesman.

Some investors expect the craze to end badly. They draw comparisons to what happened to silver in the 1970s. A rich Texas family poured billions of dollars into silver, and prices surged above $50 an ounce in 1980, only to plunge again after government intervention.

“It’s akin to what happened when the Hunt brothers tried to corner the silver market,” says Wendell Curry, who owns McAllen Gold & Silver Exchange in McAllen, Texas. “The silver hawks are now trying to corner silver American eagles. And it’s making it harder for mom and pop to buy these for their grandchildren.”

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May 3, 2008 by david.pennington.

by The Mogambo Guru

I notice that the price ratios between the time spans of differing gold lease rates have been remarkably well behaved lately, almost as if they were locked together in precise bands. I think that this is interesting as hell, although I have no idea what it means, if indeed it means anything, which it probably doesn’t, although I will say that those guys setting up spreads (to take advantage of volatility) in gold have gotten financially killed, which I figure in turn benefited the guys who are short all that gold, as that is who I figure is on the other side of the trade when you and I are trying to make a quick buck with some fancy day-trading of options and futures and, of course, the spreads, and they manage to clean us out pretty regularly, the lying, cheating, thieving bastards.

But being naturally suspicious and cynical, I obviously regard that this is just part of the plan on the part of 1.) The guys who are short gold, whose total short position is in the range of billions and trillions and quadrillions and zillions and gajillions of dollars for all I know, and the 2.) Central banks who foolishly lent out the nation’s gold, at diddly interest rates, as their part of the scheme, and now the Fed has essentially sold (although they call it “leased”) half of all our nation’s gold, which I seem to recall is the estimate of the Gold Anti-Trust Action committee, who are probably best qualified to know (other than the government or Fed, who know for sure, but both of which refuse to even talk about it!).

In fact, Bill Murphy of GATA says, “The Gold Cartel is running out of available central bank gold to meet surging demand for physical gold. It is the opinion of the GATA camp that the central banks only have half the gold they say they have in their vaults - not the commonly bandied about 30,000 tonne number, but less than 15,000 tonnes.”

He notes that there were many powerful people with many powerful friends who had many powerful reasons to keep the price of gold down, such as how “the gold price suppression scheme was the cornerstone of Secretary Treasury Robert Rubin’s ’strong dollar’ policy”, and “Treasury Secretary Paulson, a key member of the President’s Working Group on Financial Markets (popularly known as the Plunge Protection Team)” who chillingly said, “The United States will do what it takes to calm markets”, which they think will be demonstrated by the price of gold not rising, because ordinarily it would be shooting to the freaking moon in response to economic conditions like today, and people would be alarmed, and perhaps singing the latest hit song by the Rocking Mogambo Quintet (RMQ) that has the famous line, “Look at gold shoot to the moon! The Mogambo was right! We’re freaking doomed!”

Now, if you are like me, then you already suspect that all of these people are crooks and back-stabbing, traitorous thieves anyway, and all I want is just to make a lot of money so that I can move into a nice house in a gated community that has armed guards, a nice golf course and completely surrounded by sleazy strip clubs and pizza parlors where you can get any kind of pizza you ever heard of at discount prices.

Fortunately, everything except the cheaper prices is entirely possible as a result of all of this government meddling in the gold market (as they are advised to do so by former Fed chairman Paul Volcker, who had to eliminate the 15% inflation of the ’70s and who thinks that gold soaring to $850 an ounce “looked bad” and undermined his efforts to stop runaway inflation), and Mr. Murphy thinks that this means that “Fortunes have been made and there are more fortunes to come”, and that may people think that gold prices “will go up 3 to 5 times again from present levels.”

And as to the notion that the Fed has sold half of our nation’s gold, I think that is being generous as hell, as I see no reason why the Fed would stop at only half, sort of like when I am starving and I sit down with a whole delicious pizza in front of me, and my wife thinks I am just going to eat half and leave the other half for her, and then she acts all surprised when I see no reason to stop at half, either!

So, assuming they still have some gold to sell into the market to keep the price down, you may have an opportunity to buy more gold cheaply for a while longer yet! Whee!

And don’t get me started on how you can still buy silver so cheaply, as it will elicit another, yet bigger, squeal of glee from me along the lines of “Wheeeee!”, wherein you notice that I used a few extra letters to indicate much higher amounts of glee, which only proves how deadly serious I am!

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