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Nobel Award in Darwin Economics, Nominee for 2010

Economics / Elliott Wave Theory Oct 13, 2010 - 05:28 PM GMT

By: D_Sherman_Okst

Economics

Best Financial Markets Analysis ArticleNamed in honor of Charles Darwin, the Darwin Awards commemorate those who improve our gene pool by accidentally removing themselves from it. I therefore propose the ‘Nobel Award in Darwin Economics’. The recipient of the award would graciously be asked to remove (just) their ‘economic genes’ from our economic gene pool. If they teach economics, they’d be asked to cease and desist, if they were the Secretary of the Treasury, the Chairman of the Federal Reserve, or the President of the United States they’d be asked to resign.


I’ll let you the reader decide who should be nominated to receive this years ‘Nobel Award in Darwin Economics’. For me, it is an easy decision, at least right now anyway. Of course if Turbo-Tax-Cheating Timmy Geithner or President Obama adhere to the advice offered in this FT article “America should open its vaults and sell gold” - then I’ll advocate that the award be shared.

If this facilitates China’s ability to adopt a gold standard by affording them the opportunity to by several thousand tones of gold – then I’ll advocate that we raise the despicable Senator Joseph McCarthy from the dead and give him some real communist traitors to try for treason.

Based on an article in “The Independent” we are aware that China, Russia, Japan and the Gulf States want to abandon the US dollar for transactions in oil. They want to adopt a basket of currencies to be used as the new reserve currency. That new reserve would be predicated on the yuan, yen, ruble, euro, GOLD and other commodities. We import about 65% of our oil. Having 261,499,000 fine troy ounces of gold - audited or un-audited – would of course - be a “positive” should this happen. Remember, Communist China’s Ji Xianonan (chairman of the State Council’s State-Owned Enterprise Supervisory Board for China) suggested that China’s gold reserves be bought up by 40% of the annual production from now to 2020. Many of us think that gold is a barbarous relic - that thinking alone won't keep a new gold standard from evolving.

Dr. Al Bartlett says, "The greatest shortcoming of the human race is our inability to understand the exponential function." I'd add, "Our second greatest shortcoming is our failure to view macro economics on a global perspective." Only 2 OECD countries have higher poverty rates [than the USA]: Turkey and Mexico. The United States dropped to 7th place in Average Wealth Per Adult. Thinking there will be no gold standard adopted in the United States is plausible. Thinking that it won't be adopted by another country and shoved down our throats is asinine.

Absolutely asinine.

Right now, the fact that we have tied up 8,000 tones of gold may be the only thing preventing another country from becoming the next economic hegemon and shoving and dictating to us how things are going to be done.

As Jim Rickards said in this interview (paraphrased): If China wanted to rebalance their gold to GDP ratios to equal the US’s gold to GDP ratio, China would need a couple of thousand tones of gold. China is the world’s second largest economy in the world and yet they only have 1,000 tones of gold. They’d have to cash in 2 trillion dollars of paper liabilities. Gold would be valued at $40,000 an ounce to get to that ratio.

In this interview Jim Rickards explains (paraphrased again, scroll to the 14 minute 8 second point): This is highly significant. The Central Bank Gold Agreement that was started in the late nineties and is on kind of its third iteration, and is renewed every five years has essentially broken down. It was a sellers cartel like OPEC for gold designed to keep the price [of gold] down. When they [the Central Banks of the world] realized they may have to back up their currency with gold the only net seller of gold became the IMF.

And here, at the 15 minute 15 second point it gets interesting. I highly advocate the listen. (Again, paraphrased because I am not a “dictationist”.) Because a lot of that gold came from the United States as part of the US quota. AND THE USATTACHED STRINGS TO IT. Congress said, Okay, we’ll allow part of our gold to go to the IMF as required by quota BUT the IMF can not sell it [to just anyone] without going back to the US Congress for permission. So most of the US IMF gold is off limits….There is a little bit of a gold war going on between the West and China.

Little bit of a gold war.

So now we have a Yale Ph.D who advocates that President Obama and Turbo-Tax-Cheating Timmy Geithner sell our gold.

WTF?

The quintessential question then becomes: China and other countries concerned with the US debt have advocated a new reserve currency. One backed (at least partially) by gold! If they get our gold and are successful in achieving a new reserve – where would that leave the US?

Answer – In total poverty.

Let’s run with this insanity for a minute. Lets say we sell our gold. Right now the USdebt is, as stated in my last article:

Liability Unfunded (read: looted) Liability
Social Security 14.6 trillion
Prescription Drugs 19.2 trillion
Medicare 76 trillion
Total 109,800,000,000,000.00

109.8 trillion + 18 trillion (18 trillion includes GSE off balance sheet debt) = 127.8 trillion dollars.

Selling 261,499,000 troy ounces at $1,348.00 an ounce = $352,500,652,000.00.

353 billion dollars!?!?!

That wouldn’t even cover our 1.5 trillion yearly and ever expanding dollar deficit. In the end, the gold allegedly (and I say allegedly since it hasn’t been audited) in NYC and Fort Knox would pay a pittance of our debt.

Ultimately that gold could wind up being an ace up Bernanke’s sleeve.

I say an ace up the sleeve because “if” gold was valued at $40,000.00 an ounce, our holdings would cover at least most of our Federal Debt. 261.5 million x40k = 10.5 trillion. At least the on balance sheet Federal Debt.

Back to our article written by our Yale professor.

In all fairness, our Yale Ph.D does list holding gold as a counter argument against a return to a monetary system based on gold. But he is adamant about saying, “It is not going to happen”.

Because he says so?

Because he was a Fed member? Remember the genius Ph.D's at the Fed said there wasn't going to be a housing bubble either. The biggest bubble in the history of mankind and these effing morons missed it.

Fed credibility; negative 128 trillion.

Some other less important but still very salient points in his article that I sincerely disagree with:

  1. The assertion that gold's rise was due to low interest rates and the hype of bullion dealers (flush with large inventories).
  2. Fraud and misinformation accompanying asset price bubbles

The Federal Reserve is now the second larges holder of Treasuries. Quite frankly the only fraud being committed here is Quantitative Easing, which is debasing the value of our dollar. Gold isn’t going up [see above chart and I highly recommend reading this report, "In Gold we Trust" by the fine Erste Group. Gold isn’t a commodity. Gold is a currency that has been ever since 2,600 BC..

As I wrote in “Like A Thief in the Night” every one of the 3,800 Fiat currencies (paper currencies backed by nothing but faith) have reverted to a value of 0. Here is a table of many of the most current (and some ancient) ones killed by printing/debasement.

Country Year Old Dollars Needed To Buy New Dollars
Angola 1991-1999 1 New Kwanza = 1,000,000,000 1991 Kwanzas
Argentina 1975-1991 1 New Peso = 100,000,000,000 1983 Pesos
Belarus 1994-2002 50,000 = 100,000,000 2000 Rublei
Brazil 1986-1994 1 Real = 2,700,000,000,000,000,000 1930 Reis
Bosnia-Herzegovina 1993 Massive hyperinflation
Bulgaria 1991-1997 Defaulted on its debt, food shortages, reduced the number of zeros that were added to its currency.
Chile 1971-1973 500%+ Inflation military overthrew the democracy.
China 1939-1950 1937 3.4 Yuan traded $1.00 USD. By May 1949, $1.00 USD = 23,280,000 Yuan
Ecuador 2000 Pegged to USD after 70-80% drop in its dollar
England 1100s 1455-1485 1543-1551 1100s silver in coins fell. Coins were clipped. Henry VIII debased the coins to raise money
Greece 1944-1953 1 1953 Drachma = 50,000,000,000,000 1944 Drachmai
France 1789-1797 Death sentence on anyone selling the notes at a discount to gold and silver livres. 1795 a new currency was issued, the mandat, which promptly lost 97% of its value. 1797, both paper currencies recalled new monetary system backed by gold.
Georgia 1995 1 new lari = 1,000,000 laris.
Germany 1923-1924 1945-1948 See chart above.
Hungary 1944-1946 Forint 400,000,000,000,000,000,000,000,000,000 = 4 × 1029 Pengõ
Israel 1979-1985 Price freezes
Japan 1944-1948 5,000%++ Inflation. Issued military currency, anyone caught with Honk Kong currency was tortured.
Krajina 1993 Country folded became part of Croatia.
Madagascar 2004 1 Ariary = Madagascan Francs - Riots persisted.
Mexico 1993-1994 Defaulted 1982. 1 Nuevo Peso = 1,000 Old Pesos.
Nicaragua 1987-1990 1 Gold Cordoba = 5,000,000,000 1987 Cordobas.
Peru 1984-1990 1 Nuevo Sol = 1,000,000,000 1985 Soles de Oro.
Poland 1990-1993 1 new Zloty.10,000 old Zlotych
Romania 2000-2005 1 new Leu = 10,000 old Lei
AncientRome 270AD Took the Romans 300 years to do what the Fed did in 84 years - debase the currency by 95%. The Roman empire fell, they welcomed the Barbarians.
Russia 1992-1994 100 Rubels = 1 USD 1991 30,000 Rubels = 1 USD 1999.
Taiwan 1940-1950 1 New Taiwan Dollar = 40,000 old Taiwan yuan.
Turkey 1990-2005 1 New Turkish Lira;= 1,000,000 old Lira.
Ukraine 1993-1995 1 Hryvnya =100,000 Karbovantsivi
United States 1812-1814 Continental Currency - Failed
United States 1861-1865 Confederation Notes - Failed
Vietnam 1981-1988 Gold trading was outlawed.
Yugoslavia 1989-1994 1 Novi Dinar = 1,300,000,000,000,000,000,000,000,000Dinars.
Zimbabwe 1999 - 2010 Ongoing mess.

Comparing currencies to one another, is, as Eric Sprott says in this fine interview with Jim Puplava, ‘like comparing 4 losers against one another.’

My nominees for the Nobel Award in Darwin Economics don't understand that the fraud being precipitated deals with counterfeit, deficits and insane spending - not bullion fraud. Secondly, selling assets to pay down debt after you have cut spending is one thing. Doing it before you stop the hemorrhaging is like giving a bleeding hemophiliac a blood transfusion before applying a tourniquet.

Who interviews these "economic professors"?

What are we teaching our "economic students" today?

What I wouldn't give for a month behind the economic podium at Yale.

In this article I explained Minsky’s framework for understanding asset bubbles. Judging from this article I am left to assume that Yale fails to teach its students how to use Minsky’s framework on bubble identification.

  1. Displacement
  2. Prices start to increase
  3. Easy Credit (Hello!)
  4. Over Trading (Hello!)
  5. Euphoria (Hello!)
  6. Insider Profit Taking (Hello!)
  7. Revulsion (Hello!)

Dear Professor: This is NOT a bubble. Show me the over trading here! Show me thecredit, show me the euphoria, the insider profit trading or the revulsion. Are you and Gordon "I sold 60% of UK's gold reserves between 1999 and 2002" Brown related? Share some of those Gordy genes do you? You know the "Sell low and forever have regret" genes.

Neither of these graphics above indicate a bubble.

In Summary: I would NOT send my kid to Yale for economics on a full scholarship if she had this guy for a professor. I have no idea how history and economics became mutually exclusive studies. Weimar Germany was forced to pay reparation. They got behind on their payments, France and Belgium marched in and took over their manufacturing base. Without the revenue from manufacturing Germany resorted to Quantitative Easing AKA printing.

We gave up our manufacturing base. In the 1950s 28% of our job base was from manufacturing. In 2000 it was 14%, today it is 11%. Globalization or France andBelgium – it makes NO difference.

Printing today to make up what we can’t cover in tax revenues and borrowing from Communist China et al - it makes NO difference.

This is gold then. I strongly suspect this will be gold soon.

Like Voltaire said: “Common sense is not so common.” And “All Fiat Currencies revert to their intrinsic value – ZERO”.

My faith in the 5Gs: (G*(religious edit)d, Gold, Guns, Grub & The Government Will Continue to Screw It Up) remains strong.

By D. Sherman Okst

http://UnveilingTheEconomy.blogspot.com/

Bernardston MA USA
davossherman @ gmail.com

I'm an ex-airline captain with about 15,000 hours and am amazed at all the BS we are taught. Most of my friends still in the business were also taught the wrong aerodynamic principles with respect to what makes planes fly. Aviation or economics, Keynes to Austrian - Bernulli to Newton we've been sold bad goods. It's amazing anything works as backwards as we do things.

© 2010 Copyright  D. Sherman Okst - Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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