Stagflation in Extremis & The Explosive Rise of Gold

Stagflation is where economic growth slows, unemployment is high and prices rise. Stagflation’s appearance in the 1970s was like an outbreak of three-headed children. It wasn’t supposed to happen. Prevailing wisdom - an oxymoron among economists - held that high employment and rising prices were economic handmaidens; and that, conversely, slowing economies and inflation were mutually exclusive.

In the 1970s, for the first time in capitalism’s history stagflation appeared, i.e. prices rose and economic growth stagnated; and, while economists would search for reasons to explain the apparently inexplicable, it was only because they avoided the obvious that they did not find the answer.

In August 1971, President Nixon upon the advice of Milton Friedman - the same Milton Friedman who erroneously taught Ben Bernanke economic contractions can be reversed by monetary expansion - ended the convertibility of the US dollar to gold.

The consequences of cutting ties between paper money and gold were not what Friedman expected. Friedman believed - belief is the operant word here - that ‘free-market forces’ would bring floating currencies into orderly market-driven valuations. Friedman was wrong - again. Read more >>

White House legalizing MARTIAL LAW

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Chuck Baldwin
Council Of Governors Takes Shape

Regular readers of this column will doubtless recall my recent column in which I reported on the new Council of Governors (CG) that President Barack Obama has created. See my column at:

http://www.chuckbaldwinlive.com/c2010/cbarchive_20100119.html

Well, Obama’s CG is quickly beginning to take shape. According to the Associated Press (AP), “President Barack Obama has selected Missouri Gov. Jay Nixon to serve on an advisory council for defense and national security issues.

“Nixon was one of 10 governors named Thursday [February 4, 2009] by Obama to the newly created Council of Governors.”

The 10 governors (and one of them is not even a State governor) selected by Obama are:

*Governor James Douglas (R-Vermont) *Co-chair
*Governor Chris Gregoire (D-Washington) *Co-chair
Governor Brad Henry (D-Oklahoma)
Governor Jay Nixon (D-Missouri)
Governor Martin O’Malley (D-Maryland)
Governor Janice Brewer (R-Arizona)
Governor Bob McDonnell (R-Virginia)
Governor Michael Rounds (R-South Dakota)
Governor Beverly Perdue (D-North Carolina)
Governor Luis G. Fortuno (R-Puerto Rico)

As I have already written, the creation of a CG should be of serious concern to all liberty loving Americans. That more of us are not as concerned as we should be can be traced to the mistaken belief that the American people have nothing to fear from an overreaching federal government. This is pure folly! As I have said many times, we have far more to fear from Washington, D.C., than from Iran, Iraq, North Korea, or any other potential terrorist state. It is Washington, D.C.,–and Washington, D.C., alone–that has the power, opportunity, and propensity to squash our freedom and sell us into tyranny.

As Kurt Nimmo reports, “In other words, with the stroke of a pen, Obama significantly increased the ongoing effort to federalize the states and take control of the National Guard in violation of the now more or less moribund Posse Comitatus Act. Posse Comitatus was effectively annulled by the 2006 John Warner National Defense Authorization Act. The act provides the president with power to declare martial law under revisions to the Insurrection Act and take charge of United States National Guard troops without state governor authorization. Parts of the act were repealed in 2008.”

See the report at Infowars.com:

http://tinyurl.com/council-gov-nixon

What most Americans fail to realize (thanks to a national propaganda press corps that refuses to reveal the conspiratorial machinations of America’s ruling class, which, by and large, is totally disconnected from–or unaccountable to–elected officeholders: especially those in Congress) is that the subdivision of the United States into a 10-region country (thereby minimizing or even negating the sovereignty and authority of the 50 independent and autonomous states) goes all the way back to the Richard Nixon administration.

In response to pressure from the United Nations, President Richard Nixon issued Executive Order #11647 on February 10, 1972, which carved up the United States into 10 “standard Federal regions.”

For the doubters out there, Wikipedia has a rather detailed web page mentioning the federal 10-region breakdown of the United States.

See the Wikipedia entry at:

http://en.wikipedia.org/wiki/List_of_regions_of_the_United_States

See the map at:

http://tinyurl.com/US-std-fed-regions-map

Still not convinced? Try a casual web search of the 10 US regions and you will quickly discover that each major federal agency, such as the EPA, OSHA, DOT, FEMA, etc., has their agency already divided into these 10 regions. As an example, here is the official district map for FEMA:

http://www.fema.gov/about/contact/regions.shtm

Commenting on the creation of the 10 “super” regions initiated by President Nixon, CuttingEdge.org director David Bay very astutely said, “This regional system is also apparently a military structure.” This is a very insightful observation, because I’m sure this was said long before President Obama took office, yet, that is exactly what his CG accomplishes. It grants federal executive power to these 10 governors–with the specific responsibility of providing leadership and direction to the National Guard and related homeland military activities. And is it any coincidence that the number of governors appointed to this new CG is exactly 10? Even more telling is the fact that the 10 governors come from each US region (the governor of Puerto Rico represents Region 2), except for Region 5, and guess what? Region 5 is President Obama’s region!

Now, get this: the only region that has two governors represented on the CG (making up for Region 5’s lack of a representative–who will be Obama himself, no doubt) is Region 3. And put this in your pipe and smoke it: the two governors from Region 3 are from Maryland and Virginia, which are the two states that border Washington, D.C. But all of this is mere coincidence, right?

See the map on the EPA web site at:

http://www.epa.gov/region4/landrevitalization/images/us-regions.gif

So, here is the list of the Council of Governors, as it coincides with the respective 10 regions. If you know anything about what is going on, you should easily be able to see the logic of how and why these governors were selected. Obviously, the two basic criteria would be 1) The location of necessary government infrastructure, facilities, personnel, etc., combined with 2) The compliant attitude and overall disposition of the governor selected. Here is how it looks:

Region 1: Governor Douglas of Vermont
Region 2: Governor Fortuno of Puerto Rico
Region 3: Governor O’Malley of Maryland and Governor McDonnell of Virginia.
These are necessary, as these are the two border states of Washington, D.C.
Region 4: Governor Perdue of North Carolina
Region 5: President Barack Obama of Illinois
Region 6: Governor Henry of Oklahoma
Region 7: Governor Nixon of Missouri
Region 8: Governor Rounds of South Dakota
Region 9: Governor Brewer of Arizona
Region 10: Governor Gregoire of Washington State

And while it is true that President Jimmy Carter revoked President Nixon’s “Federal Regional Council” (what Nixon’s Executive Order created in 1972) in 1979, the concept never died. It was merely incorporated into other Executive Orders. And there can be no question that President Obama’s CG certainly builds on Nixon’s initial “Regional Council” model.

Neither is it a coincidence that Missouri Governor Jay Nixon is included in the list of 10 governors appointed to the CG. Why? Does anyone remember the MIAC flap in the State of Missouri last year? I sure do, because I (along with Ron Paul and Bob Barr) was listed in the MIAC report as being a potential dangerous militia member or terrorist. And anyone who supported or voted for the three of us was similarly maligned in the MIAC report. Plus, the report also targeted people who opposed any of the following as being potential dangerous militia members:

The New World Order
The United Nations
Gun Control
The violation of Posse Comitatus
The Federal Reserve
The Income Tax
The Ammunition Accountability Act
A possible Constitutional Convention (Con Con)
The North American Union
Universal Service Program
Radio Frequency Identification (RFID)
Abortion on demand
Illegal immigration

Remember, this was an official Missouri State Police report that was distributed to all Missouri State law enforcement officers. And Governor Jay Nixon authorized and strongly defended the MIAC report!

Later, of course, Governor Nixon and other State leaders were forced to withdraw the report, due to immense public pressure from both the citizens of Missouri and angry Americans all across the country.

I have a web page set aside with all the pertinent information regarding the MIAC fiasco, including the most recent updates, at:

http://www.chuckbaldwinlive.com/MIACreport.html

Plus, here are my previous 3 columns regarding the MIAC report:

http://www.chuckbaldwinlive.com/c2009/cbarchive_20090317.html

http://www.chuckbaldwinlive.com/c2009/cbarchive_20090324.html

http://www.chuckbaldwinlive.com/c2009/cbarchive_20090327.html

Now we learn that President Obama has appointed this very same Governor Jay Nixon to the newly formed Council of Governors. Doubtless, Nixon’s support for the MIAC report brought him into the good graces of this Marxist President, who, in his inaugural address, pledged to “remake America.” Without a doubt, the newly established Council of Governors is helping Obama do just that.

Of course, the big question is not, Is America being “remade”? It most certainly is–and it started long before Obama moved into the White House. The question is, Will this “remade” America be something we can live with?

Obama headed for the most spectacularly failed presidency since Woodrow Wilson

Image by jmtimages via Flickr

Geoffrey P. Hunt
Barack Obama is on track to have the most spectacularly failed presidency since Woodrow Wilson. In the modern era, we've seen several failed presidencies--led by Jimmy Carter and LBJ. Failed presidents have one strong common trait-- they are repudiated, in the vernacular, spat out. Of course, LBJ wisely took the exit ramp early, avoiding a shove into oncoming traffic by his own party. Richard Nixon indeed resigned in disgrace, yet his reputation as a statesman has been partially restored by his triumphant overture to China 20.

But, Barack Obama is failing. Failing big. Failing fast. And failing everywhere: foreign policy, domestic initiatives, and most importantly, in forging connections with the American people. The incomparable Dorothy Rabinowitz in the Wall Street Journal put her finger on it: He is failing because he has no understanding of the American people, and may indeed loathe them. Fred Barnes of the Weekly Standard says he is failing because he has lost control of his message, and is overexposed. Clarice Feldman of American Thinker produced a dispositive commentary showing that Obama is failing because fundamentally he is neither smart nor articulate; his intellectual dishonesty is conspicuous by its audacity and lack of shame.

But, there is something more seriously wrong: How could a new president riding in on a wave of unprecedented promise and goodwill have forfeited his tenure and become a lame duck in six months? His poll ratings are in free fall. In generic balloting, the Republicans have now seized a five point advantage. This truly is unbelievable. What's going on?

No narrative. Obama doesn't have a narrative. No, not a narrative about himself. He has a self-narrative, much of it fabricated, cleverly disguised or written by someone else. But this self-narrative is isolated and doesn't connect with us. He doesn't have an American narrative that draws upon the rest of us. All successful presidents have a narrative about the American character that intersects with their own where they display a command of history and reveal an authenticity at the core of their personality that resonates in a positive endearing way with the majority of Americans. We admire those presidents whose narratives not only touch our own, but who seem stronger, wiser, and smarter than we are. Presidents we admire are aspirational peers, even those whose politics don't align exactly with our own: Teddy Roosevelt, FDR, Harry Truman, Ike, and Reagan.

But not this president. It's not so much that he's a phony, knows nothing about economics, and is historically illiterate and woefully small minded for the size of the task--all contributory of course. It's that he's not one of us. And whatever he is, his profile is fuzzy and devoid of content, like a cardboard cutout made from delaminated corrugated paper. Moreover, he doesn't command our respect and is unable to appeal to our own common sense. His notions of right and wrong are repugnant and how things work just don't add up. They are not existential. His descriptions of the world we live in don't make sense and don't correspond with our experience.

In the meantime, while we've been struggling to take a measurement of this man, he's dissed just about every one of us--financiers, energy producers, banks, insurance executives, police officers, doctors, nurses, hospital administrators, post office workers, and anybody else who has a non-green job. Expect Obama to lament at his last press conference in 2012: "For those of you I offended, I apologize. For those of you who were not offended, you just didn't give me enough time; if only I'd had a second term, I could have offended you too."

Mercifully, the Founders at the Constitutional Convention in 1787 devised a useful remedy for such a desperate state--staggered terms for both houses of the legislature and the executive. An equally abominable Congress can get voted out next year. With a new Congress, there's always hope of legislative gridlock until we vote for president again two short years after that.

Yes, small presidents do fail, Barack Obama among them. The coyotes howl but the wagon train keeps rolling along.

Margaret Thatcher: "The trouble with Socialism is, sooner or later you run out of other people's money."

"When you subsidize poverty and failure, you get more of both." - James Dale Davidson, National Taxpayers Union

"The more corrupt the state, the more it legislates." - Tacitus

"A Liberal is a person who will give away everything he doesn't own." - Unknown

Total Collapse is Near - All Paper Money Will Fail

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ZeroHedge makes a strong argument for the physical possession of precious metals:

Gold and Systemic Crisis
Presently many otherwise intelligent and capable individuals in America do not seem to understand the origins of the present financial crisis -- and the multiple aspects (or shall we say 'tentacles'?) of its origination. These tentacles stretch far back in history: from the present demoralization and fragmentation of American society, to the demonetization of gold in 1971, stretching to the forces behind World War I and World War II, and ultimately, in terms of the 20th century, to the creation the Federal Reserve in 1913.

Our topic here is gold, and unfortunately we will have to save the analysis of totalitarianism's final forms for another paper. But what must be understood is that ultimately we are witnessing a 'failure of imagination' on the part of the general public -- a similar failure to what always permits radical evil to spread. This moral failure was characterized by both Hannah Arendt in Eichmann in Jerusalem , and Alexander Solzhenitsyn in The Gulag Archipelago. Because in our society people do not understand history nor human nature, and are saturated with lies and propaganda 24/7 via the CNBS broadcast media, they cannot imagine the moral consequences of their actions or inactions -- let alone the consequences of systemic failure. So to remedy this situation, let us take a quick glance at history, but try to avoid the pitfalls of the gold bug crowd. As someone mentioned, here at ZeroHedge, we are 'truth bugs'.

"If only it were all so simple! If only there were evil people somewhere insidiously committing evil deeds, and it were necessary only to separate them from the rest of us and destroy them. But the line dividing good and evil cuts through the heart of every human being. And who is willing to destroy a piece of his own heart?"
-Aleksandr Solzhenitsyn

History is a great teacher. One thing it shows us is that all systems of paper money fail. And they usually fail very quickly, not outlasting a man's lifetime. Gold and silver have been used as money for over 6000 years, including for extended periods of time, such as during the 1000 years of the Eastern Roman Empire. There are mathematical reasons why humans historically use precious metals as money, but we will not go into them here. Our present system is curious and almost astonishing that it has managed to last so long, given the lessons of history. Dr. Antal Fekete wrote in his latest paper that the mean time to failure of a non-gold backed system is approximately 18 years. Our present system has lasted over twice as long -- 38 years at last count, measured since the U.S.'s surreptitious default on it's foreign gold obligations under the Nixon administration in 1971 and currencies began to 'float'.

We have a fractional-reserve credit based system, where our money is mostly hallucinated computer pixels. The system is highly leveraged, but is almost entirely electronic. We now have multiple generations which have grown up without using money in its historic forms. For example, even the new Monopoly game uses electronic cards rather than paper money. Let me summarize these changes -- for simplicity sake, here we use gold to mean gold and/or silver. The global monetary system has changed three times: first, from gold to gold IOUs, then from gold IOUs to debt IOUs, and finally from debt IOUs to electronic-debt IOUs. But are these IOU's really 'unbacked', as claimed by the gold bugs? Actually , they *are* backed. They are backed as long as the IOUs can be exchanged for oil and gold at some realistic price metric.

According to Dr. Fekete, the reason our unmoored system has continued so long, past the usual 18 year lifespan of fiat currency experiments, is that we have invented a system of gold futures clearing and gold derivatives trading -- an innovation that did not exist in the past. In other words, we have created a gold 'price horizon' in electronic-debt IOUs, with the tendency to converge to the gold spot price. (Is the tail wagging the dog?) Additionally we have gold leasing, forward hedging, and all sorts of other trickery that has been going on for quite some time now. The electronic debt-IOU remains linked to gold via various Ponzi-like paper innovations.

The author FOFOA adds that additionally, what has characterized our system since 1971 is gold/oil flows between the various Petro States of the Middle East and the New York and London banking centers. These implicit deals allowed the United States to continue to purchase oil directly in dollars -- despite having defaulted on its international obligations. This 'innovation' somewhat resembles a US military-led protection racket. Remember that the second oil crisis of 1979-1980 coincided with price explosions in both gold and oil, yet catastrophe was avoided. This will not be the case the second time around.

There are also of course the lesser but nonetheless important details such as hedging which was done via large gold producers, the gold price suppression by the central banks, the geometric growth of OTC interest rate swaps, and so on. For those interested in these technical details, we highly recommend reading all the posts at FOFOA and the work of Rob Kirby. But here, the goal is a summary 'big picture' overview regarding the main points. What we can surmise though, is that our present system is a historical anomaly despite its technological innovations. And that should make us cautious of issuing blanket proclamations about the U.S. dollar's future stability over the next 8 weeks -- let alone the next 80 years. Have the pure dollar deflationistas skipped the Taleb? Sometimes we wonder.

The U.S. has a unique and deep relationship with Saudi Arabia, historically the world's largest oil producer. This relationship that goes back almost a century, to the foundation of Saudi Aramco by Rockefeller oil interests (specifically Standard Oil of California) in 1933. From 1933 to 1971 the payment system was somewhat stable, characterized by gold clearing on the international level at a fixed price of dollars for gold. This continued until the French under de Gaulle began draining the US Treasury of its gold, due to the expense of America's involvment in the Vietnam war. The French gold redemptions ultimately lead to the unilateral default of the United States on its gold obligations and the death of Bretton Woods I, which had been created post World War II with the dollar as gold-backed world reserve currency.

What has characterized our international system since 1971, or "Bretton Woods II" as it is sometimes called, is this: 1) the gold futures clearing system, and related paper markets and 2) the ability to swap oil for gold via these markets using exclusively US Dollars. This has given implicit support to the U.S. dollar far beyond what could be reasonably imagined considering the U.S. fiscal situation -- in the sense that the dollar is supported as long as 1) oil is for sale in dollars and 2) gold is for sale in dollars. This does not always have to be the case, and this is the core of the issue. If gold goes into permanent backwardation it will no longer be for sale in dollars on COMEX. Period. This will implicitly cut off oil flows to a trickle until payment is re-linked to gold via the IMF SDR or another mechanism.

To many of us, it is obvious the US equity markets will soon crash, but the real crisis will come with the failure of our currency -- a currency which is IMPLICITLY and historically linked with trading of both dollars for oil, and dollars for gold. Thus, these spot markets are the ones to watch. Some may be aware Russia recently surpassed Saudi Arabia as the world's number 1 oil producer -- and last week , number 2 oil producer Saudi Arabia has signed a $2bn weapons deal with Moscow. The final strategic alignment of Saudia Arabia and the rest of the Middle East remains up for debate, but we have certainly witnessed the tentative steps of the BRIC nations and their affiliated satellites to build their own international clearing system, based in Hong Kong and Moscow, rather than New York and London. Ultimately this will probably involve some form of the IMF SDR -- rebalanced with new currencies and possibly a gold component. Remember Medvedev at the G8?

Minus the political shifts towards a 'multipolar' world (prior to the onset of the final bloody form of the Hegelian dielectic), the weakest point in the present system is certainly the U.S. Dollar. Indeed there are many angles for speculative currency attack. And there are many weak points at which this may simply happen by accident. Assuming we see such an external speculative attack, what can we expect?

1) A currency failure will happen rapidly (likely overnight to 8-12weeks). The dollar will devalue against gold and oil. We are talking 50% decline or more.
2) Gold will go into backwardation (aka Spot Price above Near-Futures Price). This is the single most important indicator.
3) The Gold price will vault upwards -- and ultimately trading will halt in USD.
4) Oil will likely vault upwards as well, but this analysis is difficult. The gold:oil ratio is a useful indicator.

Where will capital flow during a time of a systemic crisis? Since 1971, capital has moved up this chart. Now it is reversing. Capital will flow into government bonds, treasury bills, physical cash, and ultimately its final home, gold.

There are all sorts of other things that may occur under conditions of currency failure, but you can find these sorts of analysis elsewhere. Use your imagination, as Hannah Arendt might suggest. Or google teotwawki and crack open a beer. The point here is that our present system is very fragile and cannot last much longer in its present form. It is far too unstable. There will be a collapse , and out of this a new system will emerge. The only guarantee of your purchasing power is in physical gold coins which you have in your possession. This is why the Zerohedge Dog, Scooby, keeps 20% or more of his assets in physical gold coins, and at least another 10-20% in physical cash with which to pay his bills. The world is changing, and to cope with the new reality requires both discernment and imagination.