Sharad Karkhanis, RIP

Sharad Karkhanis, a political scientist, a librarian and a professor emeritus of Kingsborough Community College, has died.  According to Jeffrey Wiesenfeld, Sharad will be cremated in accordance with Hindu law.  At CUNY Sharad was the spearhead of resistance to union incompetence and corruption. He published a newsletter, The Patriot Returns, that he had snail mailed (paying significant mailing costs out of his own pocket); with the advent of the Internet, he emailed it to, he estimated, 13,000 CUNY faculty.  His newsletter featured biting humor that more often than not induced out-loud laughter.   Sharad pulled no punches in lambasting the Professional Staff Congress, CUNY's inept, corrupt, and extremist faculty union.  At one point Susan O'Malley, a PSC officer,  whom he crowned the Queen of Released Time because she spent little time teaching, sued him for libel (also here and here).

Sharad assembled a network of activists, both within and outside of CUNY, and he often served as a lynchpin for resistance to the PSC's bizarre initiatives.  He was a supporter of Israel.  As well, he attended the Ron Paul event in Manhattan with me and another friend in April 2011.

Sharad was a fighter who cared about what was right.  He visited me at my home in Town of Olive several times, making a long drive from Brooklyn. He was thoughtful and generous.

Sharad, you will be missed. RIP.

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The Superbubble and the Wisdom in Owning Gold

Gold Prices Since '08--An 18-Month Stagnation Mirrors the 1983-2001 Era

Money Supply M1:  Obama Meant Change

Monetary Base--Can Be Expanded Tenfold  from Here

I have been subscribing to Przemyslaw Radomski's Sunshine Profits newsletter for four or five months. One of his Kitco articles is here.  He is a capable technical analyst who is predicting a gold-price turnaround. His short-term predictions may be correct, although there’s reason  not to be surprised if there are a few years of a hiatus in gold’s movement upward (the current hiatus has lasted 1.5 years, as the top chart indicates). Even if Radomski is right and gold rallies this year, there could be a several year stale period before another epic-scale rally occurs. That's not to say to sell gold because the Federal Reserve Bank and the federal government have led America to an unstable, casino economy.  Because the US monetary system is unstable, gold is a hedge.

If fundamental political and monetary patterns don’t change, then gold can see a much larger long-term upswing than the six-fold-or-so increase that has occurred over the past 10 years.   From 1981 to 2001 there were fundamental bullish reasons to buy gold, but the Reagan, Bush I, and early Clinton years' monetary expansion caused lower commodity prices. Gold’s price fell to a low of about $250. This occurred because Federal Reserve money printing increased competition among miners as well as manufacturers.  Mining competition increased supply just as the supply of consumer goods increased, resulting in intermediate-term price depression. Also, the Chinese absorbed American inflation by demanding dollars to buy treasury bonds.   

The Chinese policy continues, and now we see a new monetary expansion under Obama that dwarfs the Reagan-Clinton-Bush expansion (see the second and third charts above).  If the Chinese policy changes, or the initial depressing effect on commodity prices from the Obama monetary expansion ends quickly, a larger bull market can occur in gold in the intermediate term than occurred from 2001 to 2011.  

The 1980s and 1990s economy was something like the 1920s, with monetary expansion funneled into stock-and-real-estate bubbles rather than price inflation.  Because the prior, 30-year monetary expansion mutes the effects of the three QEs, and the Fed added the QEs to the 30-year expansion with no reallocation or liquidation of the (distorted) real economy, in the coming years we can expect larger bubbles or larger inflation than we’ve seen in the past.  Either may augur well for gold once a shakeout in the mining sector occurs.

Let’s say natural gas fracking and shale oil cause energy price declines. The result can be a more expansive economy.  Let’s say the Fed is reluctant to withdraw the bank credit and monetary base that it has created. (The money supply –M1—has gone from $800 billion in ’08 to over 2.4 trillion now, while the monetary base has gone from a little over $800 billion in ’08 to over $2.8 trillion now, as per the two above charts.)  In that case, the monetary base can be expanded so that the money supply is up to 10 times the monetary base. That will occur in an inflationary period. In other words, the $2.8 trillion in monetary base can become $28 trillion in money supply, leading to a more than tenfold increase in the supply of money.  

That’s not all because, first, the US federal debt is currently $16 trillion, $5 trillion of which is held by foreign holders. Let's say the US economy continues to stagnate. At some point there may be a panic in US debt.  If so, there will be sales of dollars in exchange for other currencies and assets, resulting in a large inflow of dollars into the US.  Also, according to this Fedral Reserve Bank report:  “Estimates by the Federal Reserve suggest that as much as 60 percent of the $760 billion in U.S. currency outstanding at the end of 2005, or roughly $450 billion, was held outside the United States.” In the event of a run on the dollar, large dollar holdings can be repatriated through demand for exchange at banks and purchases of US assets. The result will be a dollar collapse. 

Hence, holding gold along with  other non-dollar assets such as stock has a diversification rationale.  The Fed's hyper-expansion is having the same effect on the stock market that the 1983-2000 expansion had, but the economy is much worse off in terms of misallocation of resources.  In the past, monetary bubbles and their concomitant asset bubbles and inflation were followed by contractions, but that has not occurred;  Obama and Bernanke have invented the superbubble.

Investors are no better off than they were in 2003 and 2007, and the stock market is at similar levels.  Interest rates are near zero.  Although the Fed has caused valuations of future earnings to increase to nearly infinite levels, causing the stock market to escalate, stock market prices are constrained by the availability of money to invest.  Will banks continue to pump up the stock market in a kind of Ponzi scheme whereby the Fed prints money, uses it to buy treasury bonds, and the banks then use the printed money to pump up the stock  market?  Alternatively, can foreign investors carry the US stock market to ever higher levels?   It is not at all clear that the current stock market valuation is more than one more peak in a secular bear market that began in 2000.

Another problem with the stock market is that during periods of uncertainty, there can be sharp falls in valuations.  If, for example, there is a currency collapse, the stock market might fall because of the risk.  Hence, we see the wisdom in owning gold.

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Agenda 21 Materials

Tom Sipos of Hudson Valley Focus interviewed me this morning on WKIP Poughkeepsie talk radio.  The topic was Agenda 21.  Tom asked that I post some links to educational material concerning Agenda 21. Incredibly, there are people who believe that Agenda 21 is a conspiracy theory. As I mentioned on the air, that claim is the conspiracy theory.  Agenda 21 is as real as you and me.

Here are some useful educational links:

http://www.youtube.com/watch?v=-WmG1txDsVs


http://www.williamsontngop.org/Fighting_Agenda_21/

http://www.republicanassemblies.org/rnc-adopts-resolution-exposing-agenda-21/

http://www.patriotupdate.com/articles/totalitarian-program-agenda-21-now-in-effect#.TocezvLmoXI.facebook http://www.youtube.com/watch?v=TzEEgtOFFlM 


http://www.freedomadvocates.org/research_center/ http://www.freedomadvocates.org/ 

http://www.youtube.com/watch?v=HZz1H6TWB5g&feature=related 

http://www.youtube.com/watch?v=VuJwQyZ2pHk&feature=related http://www.youtube.com/watch?v=bRv6yOWEyTQ&feature=related  

http://www.youtube.com/watch?v=CEHWsdimVO4&feature=related http://www.youtube.com/watch?v=GEzbQotyu9k&feature=related

http://mitchell-langbert.blogspot.com/2012/07/rosa-koire-speaks-to-town-of-olive-on.html

http://mitchell-langbert.blogspot.com/2011/09/hudson-valley-focus-interview-re-agenda.html

Http://mitchell-langbert.blogspot.com/2012/07/my-2nd-hudson-valley-focus-interview-re.html

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Pancho, Lefty, and the Free Market

Townes Van Zandt

 Someone in my Sunday Introduction to Management class raised the point that the original creators of a musical work are not always the ones who profit. Is this a shortcoming of capitalism?

In response, I mentioned Townes van Zandt. The Wikipedia article about Van Zandt's life is here.

In 1983 Merle Haggard and Willie Nelson made Van Zandt's most famous song, "Pancho and Lefty," a number one hit on the country charts with their Pancho and Lefty album. In contrast, Van Zandt had suffered from bipolar disorder and alcoholism, and he died at 53 in 1997. Mostly touring bars and other small venues, he was little known during his lifetime, although he gained some fame because famous artists, including Bob Dylan as well as Haggard and Nelson, performed his work.

Even if you dislike country music, you'll enjoy these two versions of the song. See if you agree that Van Zandt's version, which appeared in the documentary Heartworn Highways, is better than country giants Haggard and Nelson's.

Haggard and Nelson's version: http://youtu.be/CvdmxszsDM8

Van Zandt's Version: http://youtu.be/zprRZ2wFQD4

Is it a failure of the market system that creators like Van Zandt are often not the ones to benefit financially  from their creations?  Westinghouse, not Tesla, profited most from Tesla's discovery of AC electricity, for example.

It is only the free market system that allows innovation to flourish on a broad scale; even under the Rome-like state capitalism of today's America, artists often do profit to some or a large degree. Could Townes Van Zandt or Jackson Pollock have existed in North Korea or the USSR?

In her classic novel The Fountainhead, Ayn Rand describes the life of an innovative architect Howard Roark, who is modeled after Frank Lloyd Wright.  Roark is not as successful as his less talented but more conformist colleague, but he creates major new concepts in architecture. Like Van Zandt, Roark gradually wins recognition. 

Those who seek profit over greatness may be the ones making the suboptimal choice; only in a free society is the choice to innovate possible.

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Turkey's Banking System Begins to Use Gold as Money

Kitco interviews Jeff Christian, who reports that the Turkish central bank now allows its commercial banks to use gold as reserves for deposits, and about 7% of deposits in Turkish banks are backed by gold. Christian believes that other countries will imitate Turkey's move, which he describes as pure genius. Christian is a modest gold bear, predicting a $1540 bottom over the next two years. It seems to me that if banking systems begin to imitate Turkey, monetary demand for gold will be a bullish factor. Christian also predicts a move away from the dollar as banking systems embark on a multicurrency regime.  Over the long run the dollar will slide.  This is going to devastate Social Security and pension payments, leading to a meager old age for the baby boom generation.

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My Prediction on the Price of Gold

 I made the following prediction about the price of gold to the German financial website Focus-Money:

The US monetary base has more than tripled in the past six years;*  the large commercial banks can multiply each dollar that the Federal Reserve Bank creates up to tenfold.  The banks’ lending often has been ill advised.  The collapse of Lehman Brothers** and the survival of other large Wall Street firms through public subsidization evidence misallocation of wealth, which has caused income inequality and slowed the free market system’s creative processes. The resultant income inequality and growth reduction have increased demand for welfare entitlements.   Whether, in the short run, there is deflation due to loan defaults or inflation due to monetary expansion, there will be dollar instability.  Recently, the dollar’s reserve currency status and China’s trade policies have mitigated inflation,  but this lucky (for the U.S.) arrangement can change overnight.  Because of public demand for entitlements--caused by injudicious, state-guided economic policies--the US government, like several European governments, is borrowing at an unsustainable rate and lacks the political will to contract its borrowing.  Economic and dollar instability coupled with government’s unquenchable thirst for debt to subsidize entitlements will lead to expansion of the recently created bank reserves to monetize government’s debt.  The result will be depreciation of the dollar and an end to the dollar’s reserve currency status, much like the end to the pound’s role in the early twentieth century.  The ultimate price of gold is unpredictable in dollar terms, and it may go to infinity.  As with many economic phenomena, the difficult question is when my predictions will unfold.

I will say $2,000 in two years, $4,000 in ten years.

  

*http://research.stlouisfed.org/fred2/series/BASE/  .

**Larry McDonald, A Colossal Failure of Common Sense.

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