Wednesday, December 7, 2011

Austrian Economics vs. Keynes

Why is Keynes tragically and horrifyingly wrong?  Here's why: 
And that explanation is why the Austrian School of economics is correct.

Many of you have read commentary by Egon von Grayerz.  He is the chief strategist for a Swiss asset management firm and his writing is not only highly insightful and polished, but should be examined carefully.  I've strung together some quotes from his latest interspersed with my own commentary.  But I hope everyone reads the von Grazerz piece its entirety (linked below - it's not long).

The reason that Keynes' model does not works is that "governments worldwide are totally incapable of stopping the money printing. This is their only means of staying in power and buying votes. But not only that, this is the only method they know. This has been their patent solution to all economic problems in the last decades. Not that this is new in history."

Politicians and government organizations are one massive drag on the economy:   "The transfer of capital from private enterprise to government by massive taxation is approaching 50% in many countries. The average for 18 industrialised countries is almost 40%. This means that on average 40% of the productive economy is transferred to a non-producing entity (government) which wastes most of the money in the process of redistribution."

In addition, despite the repeated promises of austerity and fiscal restraint, the governments here and in Europe have proven repeatedly to be completely incapable of cutting spending and reigning in deficits:   "There will be no lasting austerity programmes in any country that can print money. Governments are incapable of sticking to austerity measures since in the end that is a guaranteed way of losing power. As power is the main purpose of all governments, they will use any method to retain it."

This Keynesian system has created a gigantic welfare class that gets bigger by the day.  Every god damn month in the United States the percentage of people who get food stamps increases:  "For a great many people it is now totally natural to rely on the state for their needs rather than on themselves."

Fool me once, shame on you.  Fool me twice, shame on me.  Fool me three are a criminal and I'm insane.  Anyone who continues to have faith in the United States Government and buys into the promises being delivered by our leaders is certifiably insane.  Absurdly, Obama was on national television yesterday giving a "fiery" (as it was described by the media) speech which contained a reconstituted version of the same f*%king promises he issued in 2008, but on which he has resoundingly failed to deliver.  You want to believe him yet again? 

There is nothing we can do - unless we do something collectively that goes well beyond voting - to change this.  If you want to give yourself the best shot at surviving what is coming financially, then the ONLY way to achieve this is by moving as much of your wealth as you can into physical gold and silver.  As von Grayerz puts it:
In order to preserve wealth and keep capital intact, it is critical to keep a major part of investment assets in precious metals held outside the banking system. But for investors who continue to follow conventional wisdom, they will sadly find that their investment strategy was merely conventional and contained no wisdom.
But be prepared to hold your gold for the long haul and expect that there will be vicious corrections (like the current one):
Governments are creating credit and paper money and consequently through their fraudulent actions “stealing” from the people whilst at the same time increasing the people’s dependence on the state. And the people does not understand that the value of paper money is declining continuously. But gold reveals the deceitful destruction of paper money. This is why governments do not like gold and try to suppress the gold price.
Use these corrections to move even more paper fiat currency into physical metal.  And don't listen to your idiotic investment advisor when tries to tell you that gold is risky and is in a bubble.  That is utter bullshit.  Ironically, gold is the safest thing you can hold on to right now.  Want proof?  If gold was risky and at the top of a bubble, why aren't the European countries who are in a state of collapse selling their gold to raise money?  Italy is one of the larger sovereign holders of gold in the world...As von Grayerz states: 
Gold is money and reflects the total destruction of paper money. But most investors do not understand gold. Common arguments I hear is that “you can’t eat gold” or that “gold pays no return.” It seems that these investors prefer to eat paper money. And as to the argument that there is no yield on gold, who needs yield on an asset that has massively outperformed all major asset classes in the last 11 years.
Here's von Grayerz's piece:  LINK - Deus Ex Machina 

The reality is that - and forget about Europe for a moment - the United States has created a debt and spending bomb that gets worse by the day.  Our banks are still technically insolvent - after the Taxpayers shelled out a few trillion to bail them out in 2008 - and are headed for another collapse.  Europe is being used as the excuse but it's really just part of the problem - the problem of which the United States is the largest component. 

You can sit by and hope and pray that things turn around in this country.  But that's insane thinking because they won't.  The spending deficits, economic decay and corruption will continue to get worse until the U.S. dollar collapses.  Your best "hope" is to continue or commence accumulating as much physical gold and silver as you can - not GLD, not CEF and not PHYS (unless you have enough money to convert your PHYS into 400 oz. bars of gold).  At least PHYS can make good on that delivery.  GLD and CEF can not.


  1. Hugo Salinas-Price: What Every Politician Needs to Know About Silver

    HRN: You want to encourage saving?

    Hugo Salinas-Price: Absolutely. What we want is to create a refuge where those who can save—the middle class—can do so in a medium that will retain its purchasing power. There is no safe harbor for the middle class today. The middle class is being financially raped and decimated.

    HRN: Banco de México is blocking the legislation?

    Hugo Salinas-Price: If it wasn’t for the central bank, this measure would have passed a long time ago. The party leaders are afraid to jeopardize their careers by becoming enemies of the central bank.

    HRN: What do you think might change the situation?

    Hugo Salinas-Price: The Congressional Finance Committee will hold a hearing this month, before the Congress goes into recess, to hear the objections of the central bank. It is possible they may decide that the objections are not materially important and they may approve the bill. In that case, the bill will be sent to the house for a vote. The party leaders will be able to vote for the bill if the Committee approves the law.

    HRN: Do you think it will pass if the Finance Committee approves it?

    Hugo Salinas-Price: We would be hesitant to submit the bill to a vote without assurances from the party leaders that they will give it a green light.

    HRN: If México passes this law, do you think other countries in Latin America will follow México’s example?

    Hugo Salinas-Price: Yes. I think they would and they would do it soon after.

  2. I am so sick of that "you can't eat gold" thrown about as if the speaker is soooo knowledgeable. Can you eat equities? Treasuries? Municipal bonds? Copper? Cotton? Oil? You can eat corn or pork bellies, but are you equipped to take delivery on them?

  3. Dave,

    Any suggestions on places to check out for money tied into an IRA for holding gold coins in an IRA? Or would you suggests cashing out IRAs, taking the penalty and doing it outside the system?

  4. MF Global fallout delays U.S. farm seed, land deals

  5. (Dave)

    My suggestion would be to cash out your IRA, pay the 10% penalty and move that money into gold coins. Eventually the Govt will confiscate or vastly devalue the worth of your IRA. It's happening in Portugal now. Google the Ann Barnhardt interview if you don't believe me.

    Otherwise, you check Sterling Asset.

  6. Does the Indefinite Detention Bill Foretell Future?

    The recent passage of the National Defense Authorization Act (Senate
    Bill 1867), otherwise known as the “Indefinite Detention Bill,” should
    scare the heck out of anyone who loves the U.S. Constitution and the
    Bill of Rights. This bill effectively hands over control to the
    military to arrest, torture and even kill terrorists on American soil.
    It also allows the military to hold suspected terrorists indefinitely
    without a trial or due process. This applies to both non-citizens and
    citizens of the United States! With this bill, you are not innocent
    until proven guilty. You are guilty until proven innocent, and you
    may never get a trial to defend yourself. There is surprisingly
    little written in the mainstream media about this Senate bill that
    passed 93 to 7 at the end of November.

    My question is who decides who is a terrorist, and who checks to make
    sure the charges are valid? If this bill gets through the House of
    Representatives, and is signed by the President, the military will
    answer to no one. The only hope of short circuiting this bill is for
    the House to put a stop to it. I think arch conservatives and arch
    liberals should unite and radically change this legislation to follow
    the Constitution instead of gutting it. You think that can’t happen?
    Senators Rand Paul and Al Franken are on the same page on this issue,
    and that represents both extremes of the political spectrum. Every
    American, no matter the party, should be terrified by this legislation
    whether you are Democrat, Republican or Independent.

  7. Took a little time and they were never shy about it....

    Jay Rockefeller Roasting Pat Buchanan (yep)

  8. McCain should be thrown out of office and hung by his neck on the nearest Cherry tree for High crimes and treason.

    But the dopes will vote this COWARD back in guaranteed.

    All I know is when they come knocking on my door, I am taking as many with me as possible, at that stage I have zero to gain and zero too lose.

    First one through my front door gets the first round and it means little to me, I am prepared to die, the question is are you.

    Wake the fuck up America for Christ sakes.

  9. Hi Dave,

    Me is from The Netherlands and I read the piece of von Grayerz. He states that our taxrate is 41.4%. This person calculated that his taxrate is aroud 70%. I really cry fowl play a long time. I hope you dont mind me ranting about Dutch taxes being way above 41%. Me is middle middleclass I say. I pay;

    - on almost everything 19% VAT (only very basics of life 6% and even some are still 19%)
    -60% labour tax. Let me elaborate, here we have a great scam. An employer pays 130% of gross pay. Thus if my gross pay is 100 my employer has to pay 30 to government on top of that. Then 'regular' taxes start. We have 3 brackets of tax, 33ish% 42% and 52% (52% all above € 54.367)
    - We have huge 'luxory' taxes. 1 liter of gas costs around 1.70 Euro. Thus around $8.60 a gallon. Best example
    - Electricity tax is around 175%
    - All savings above 21k are taxed at 1.2%
    - We heat our houses with natural gas since we have (actually had) one of the largest gas deposits of the world. Taxed at 60%

    I can go on but you get the idea.

    Even the govenment now admits over 10% of the population lives in poverty. That from on of the richest countrys of Europe. One of the last good things is that this country has a huge amount of private pension savings (900+ billion on a population of 17 million) . Baddest thing is that my county has the biggest housing bubble of the world. Yes I dare to say that the US housing bubble is nothing compaired to ours. You guys now have to bring in $100 on depostit. Here you can still get a loan of 'only' 112%. I say only because 125% was normal till recent. Our prime minister already stated that he will confiscate, sorry nationalise, pensions if all gets too hot on the housing market (among things).

    If you want an asymmetrical hedge/bet I like to suggest the packaged housing of The Netherlands that still is being sold to the market with full guarantees by the government. No idea if you can buy something synthetical though.... This guy didnt find a way to play this idea... if someone does I gladly hear it.

  10. 10 Questions for Jon Corzine

    7. Another follow-up. As MF Global’s chief executive, you had to sign off on its quarterly financial statements and attest to the firm’s internal controls. How could so much client money apparently be missing, and the records be described by a C.F.T.C. commission as a “disaster,” when you said the internal controls met all legal requirements?

  11. Dave,

    considering what Chris Martenson is discussing in his latest piece, would you think it's best to be in all cash right now, as opposed to physical PM's and the mining equities? I'm very worried about what to do.

  12. Archeologists just discovered the Eleventh Commandment buried under John Law's grave and written in Latin. It says, "Argentum et Aurum Comparenda Sunt!"

  13. (Dave)

    Bitch away Hugo!! Thanks for posting a comment. I'm guessing von G was citing the average marginal national income tax for each country, not the effective tax rate as you point out. What you just lay out bolsters his argument even more that Governments are nothing more than a massive drain on potential economic output and societal well-being.

  14. (Dave)

    re Chris Martenson comment: I just don't understand why so many people are averse to putting as much as they can in physical. You say "best to be in all cash right now." Don't you see, gold and silver ARE the ultimate currency. Your cash pile gets devalued every single minute of everyday - either by outright printing or the continuous and accelerating rate of Federal debt issuance.

    You keep enough in cash to pay your bills every month and put the rest in gold and silver and get your wealth the fuck out of the system as much as possible.

    Look at MF Global. Look at Madoff. They system is literally stealing money away from the unsuspecting, uneducated and naive every day.

  15. So, re: getting the fuck out of the system, therefore no gold/silver equities, and just physical?

  16. (Dave)

    Technically, if you want the ultimate safety for your wealth, only go into physical gold and silver and only sovereign-minted bullion coins OR bars that come with the appropriate paperwork that show they are bona fide, Comex-deliverable. I junk like junk silver and I don't care for nuimismatics because I'm not an art collector.

    Second down on the safety ladder would be mining shares. I like having the potential for some serious upside. See what RPM.V/RPMGF did this week. Then you take your gains in the miners and convert that into more metal. Ultimately, you want to try and time everything so that when this thing collapses, you are close to 100% in metal.

  17. Thank you, Dave. That's what I needed to know, re: metal and miners.

    Have a good night!

  18. You know- If I hear that "you can't eat gold" one more time...
    But really, think about it - maybe you can't eat gold- or silver - BUT - just think it through carefully. The understanding of value won't be lost if the dollar should crash. Just the dollar will be lost! We all will learn very quickly what holds value at that moment and gold and silver will come shining through!

    If you have gold or silver instead of trying to eat it take it to the guy who butchers meat or the guy who brings in fresh fish or the guys who will make you something by trade and exchange that silver quarter for it! I'm sure that it won't take them long to rationalize the opportunity.

    Now who came up with that lame brain definition about eating it !!?

    Case closed !

  19. Ahhh, Dave, what to have faith in these days, what to have faith in ??

    They will see that there is no settlement in any QUANTITY of debt paper that can match the QUALITY of settlement in real, unencumbered, asset-based money. The value context of price will shift into a new era as all debt shrinks into the waiting arms of gold.

    And the former sovereigns will turn to the central reserve bank of global corporate governance, the Bank for International Settlements, and abide by their obligations. Jesse refers to them no less than 12 times in his most recently published page.

    Have faith in that.

  20. @ Dave in Denver - Don't be so quick to trash "junk silver". If and when the dollar crashes junk silver will play an important role for the exchange of goods and services in a big way.

    All one will have to do is look at the year of the coin , the coin itself and be able to pretty much know what it will buy for them at that time.

    We will need as much silver as is possible and the overall lack of it will warrant all of what is available to hold true value.

  21. Why The UK Trail Of The MF Global Collapse May Have "Apocalyptic" Consequences For The Eurozone, Canadian Banks, Jefferies And Everyone Else

    Reuters' Christopher Elias has written the logical follow up analysis to our post, in which he explains in layman's terms not only how but why the lock up has occurred and will get far more acute, but also why the MF Global bankruptcy, much more than merely a one-off instance of "repo-to-maturity" of sovereign bonds gone horribly wrong is a symptom of two things: i) the lax London-based unregulated and unsupervised system which has allowed such unprecedented, leveraged monsters as AIG, Lehman and now as it turns out MF Global, to flourish until they end up imploding and threatening the world's entire financial system, and ii) an implicit construct embedded within the shadow banking model which permitted the heaping of leverage upon leverage upon leverage, probably more so than any structured finance product in the past (up to and including synthetic CDO cubeds), and certainly on par with the AIG cataclysm which saw $2.7 trillion of CDS notional sold with virtually zero margin. Simply said: when one truly digs in, MF Global exposes the 2011 equivalent of the 2008 AIG: virtually unlimited leverage via the shadow banking system, in which there are practically no hard assets backing the infinite layers of debt created above, and which when finally unwound, will create a cataclysmic collapse of all financial institutions, where every bank is daisy-chained to each other courtesy of multiple layers of "hypothecation, and re-hypothecation." In fact, it is a link so sinister it touches every corner of modern finance up to and including such supposedly "stable" institutions as Jefferies, which as it turns out has spent weeks defending itself, however against all the wrong things, and Canadian banks, which as it also turns out, defended themselves against Zero Hedge allegations they may well be the next shoes to drop, as being strong and vibrant (and in fact just announced soaring profits and bonuses), yet which have all the same if not far greater risk factors as MF Global. Yet nobody has called them out on it. Until now.


    Thought this was very pertinent-- this ad and another like it were voluntarily banned by all the major US networks-- I live in Canada so I can't really speak to issues of American Law but seems to me the ban is akin to denying free speech.
    I haven't commented for a while Dave but I read and thoroughly enjoy your blog daily. Keep up the good work spreading the word. I don't have much gold but the silver collection is starting to grow!
    Cheers- Justin from Canada

  23. Fantastic article, thank you sir.

  24. (Dave)

    re junk silver: I'm not trashing junk silver, I'm just implying that in the context of gold and silver there's a "usability" hierarchy and that sovereign-minted coins like american eagles and canadian maple leafs, et al are of slighly higher usability and quality anywhere in the world. I'll buy sovs from craigslist sellers but I wouldn't touch anything else. See what I mean? That's why sovs trade with a much higher premium to spot than private label coins or rounds