December 31, 2009

News Analysis

With Greece Teetering, the Worst May Not Be Over for Europe

By LANDON THOMAS Jr.

LONDON — Never before has Europe’s monetary union seemed so fragile.

Day by day, fears are growing that Greece or another weak country may default on its sovereign debt obligations, forcing the richer countries in Europe to ride to the rescue or risk having one or more of its most vulnerable members leave the 16-nation euro zone.

Many European economists discount such a fracture as a remote possibility. But that doesn’t mean Europe has safely emerged from crisis.

Instead, it faces a longer-term challenge to restore the fiscal credibility of at least half the countries that use the euro. The true test for the world’s largest common currency zone, analysts say, will be whether it can withstand the economic, political and social strains once the European Central Bank begins to raise interest rates in response to economic improvements in Germany, France and other Northern European countries.

At that point, the laggards on the union’s fringe — Portugal, Ireland, Italy, Greece and Spain (the so-called Piigs) — will face even tougher choices to cope with what looks like several more years of stagnant economies, high unemployment and gaping budget deficits.

“If inflation picks up in France and Germany, the smaller economies will be left behind in stagnation and deflation,” said Jordi Galí, a Spanish economist recognized for his work on business cycles who heads the Center for Research in International Economics in Barcelona. “Such an asymmetric recovery is pretty likely, and if the E.C.B. raises rates, it could get very ugly.”

Mr. Gali, like a number of other European experts, takes the view that the euro zone’s resilience has been underestimated. He says the recent convulsions are more the result of trigger-happy ratings agencies that have downgraded the sovereign debt of Greece and others in atonement for having failed to foresee the subprime mortgage crisis.

Still, he says, there is no escaping this emerging growth divide, and he points out that the mandate of the European Central Bank is to ensure broad price stability in the union, not to look out for the interests of individual nations.

France and Germany have already emerged from the recession. Business confidence in Germany, Europe’s largest economy, has hit a 17-month high.

Yet on the periphery, the hangover from more than five years of a credit-infused boom shows little sign of diminishing.

Ireland, the first economy to stumble, has taken the most severe fiscal action, cutting public wages sharply. A new Greek government, punished by the rough treatment of bond investors no longer willing to countenance soft promises of reform, is just now promising steep spending cuts. But it is not clear whether the political system in Greece will accept them.

Meanwhile, Spain, to the frustration of many major lenders, seems to be putting off difficult fiscal questions in the hope that its economy will soon recover.

Critics of the euro zone contend that weak governments in the peripheral economies, facing high unemployment and restive voters, will not have the stomach to hold down wages, pensions and public expenditures.

“Are these people serious about reform, or are they just telling people what they want to hear?” asked Edward Hugh, a British-trained macroeconomist who lives in Barcelona and has been critical of Spain’s unwillingness to take difficult economic decisions.

Paradoxically, the very dysfunction of a struggling two-tier Europe may represent the best chance for recovery if it leads to devaluation of the euro against the dollar, which many see as long overdue.

Already, in the last month, the euro has lost more than 5 percent of its value against the dollar. Many economists predict that the currency will weaken more as the growth gap between the core and peripheral states creates further disharmony.

Then, it will be the type of export-led recovery that has helped the United States and is likely to soon help Britain that could bring Europe’s economies closer to convergence.

“If there are fears now that a breakup of the euro zone will lead to weakening of the euro, then that is good news,” said Paul De Grauwe, an economist based in Brussels who advises the president of the European Commission, José Manuel Barroso. “So we should congratulate Greece for getting us out of this anomaly of having a euro that is too overvalued.”

Any such recovery will not be rapid, however. In Ireland, where prices are falling by 5 percent, reordering the economy from its deep reliance on construction and property will take years. And an already unpopular Irish government, along with others on Europe’s periphery, will have a difficult time explaining to recession-bruised voters why they must accept an central bank’s decision to raise interest rates — a move that may protect German and French savers from inflation but that does little for the many millions of citizens out of work.

Yet the painful, historic steps taken by Ireland offer a ray of hope, says Philip Lane, a professor of international macroeconomics at Trinity College Dublin who oversees the widely read Irish Economy blog.

He points to signs of wage compression in the hard-hit service, property and government sectors as proof that there is a recognition that recovery, distant as it may seem, must occur inside the euro zone, not outside.

“It takes a crisis to learn a lesson,” Mr. Lane said. “Could it be that by getting countries to change their behavior you might get improved cooperation within the euro zone?

“What does not kill you,” he added, “often makes you stronger.”

Copyright 2009 The New York Times Company

December 30, 2009

Europe’s Vast Farm Subsidies Face Challenges

By STEPHEN CASTLE and DOREEN CARVAJAL

BRUSSELS — The last time the European Union decided the future of its 50 billion euro agricultural aid program, in 2005, the deal was cut behind closed doors in a luxury suite at the five-star Conrad Brussels hotel.

The president of France, Jacques Chirac, and the chancellor of Germany, Gerhard Schröder, joined forces in secret to protect the program against cuts until 2013, outmaneuvering Tony Blair, the British prime minister, who was left fuming over the generous subsidies.

Now, 2013 is closer at hand and a new round of maneuvering has begun to reshape the richest system of agricultural handouts in the world.
At stake are a host of delicate — some would argue intractable — issues that have hardened to the point where resolution will be all the more difficult: Who should receive the subsidies? What is their purpose? Is there a way to tie payments to a crackdown on fraud and corruption? Can they be more directed at small farmers instead of multinational conglomerates?

New ideas for change are springing up, while the traditional beneficiaries — France and the agrarian side of its economy are at the top of the list — are digging in. National self-interest, not surprisingly, underlies the debate.

Governments traditionally decide on a policy goal and then settle on a budget to try to achieve it. In the case of what is formally known as Europe’s Common Agricultural Policy, that process seems to have been turned on its head. An enormous amount of money continues to be allocated as its goals become more diffuse and subject to dispute.

In its fifth decade, the agricultural subsidies program is a bedrock of European Union spending, now totaling 55 billion euros ($79 billion), almost half of the group’s budget.

It amounts to a huge redistribution of income to farm interests from taxpayers. But most farmers get the crumbs because payments are typically based on land size: 80 percent of beneficiaries receive about 20 percent of the payments, European Commission figures show.

Originally, the purpose of aid was clear. It was a tool for feeding a hungry continent, devastated by World War II, through the use of production incentives that grew through the 1960s. But those methods led to huge surpluses. So they were reduced and scheduled for elimination in 2013.

Meanwhile, the European Union was forced to grapple with whether it made sense to keep supporting farms that could not compete in the world economy.

Over the years, the Europeans have sought to discreetly redefine the subsidy. While the farming industry collects about 41 billion euros in direct aid, this year, 13.6 billion euros more went to rural development programs — to encourage diversification by financing projects like organic farming, renewable energy and farm tourism.

Cash has strayed to an array of projects. In Spain, for example, a gravel manufacturer received 1.1 million euros and a utility giant 466,000 euros for installing electrical connections.

The European Court of Auditors — which monitors spending — was critical of such financing in a recent report, which found that four of 10 payments sampled were “affected by errors.”

After years of such alterations, billions of euros pump haphazardly through the system at large, which last year rewarded a variety of beneficiaries beyond the simple farmer. At the head of the line were giant American and European factory farm companies, Spanish road builders, German Gummi bear manufacturers, luxury cruise ship caterers and wealthy landowners — including Queen Elizabeth II and Prince Albert II of Monaco.

Despite all the logrolling and special interests, ideas are emerging about a makeover.

One is the concept of public goods — rewarding farmers who meet environmental standards and animal welfare requirements. Another is a new form of “market regulation” that releases cash to farmers when prices for products dip dangerously.

“We must stop wasteful spending and invest exclusively in programs that efficiently promote public goods, such as biodiversity and clean water,” said Valentin Zahrnt, an economist with the European Center for International Political Economy in Brussels.

But no one is sure how these new environmental buzzwords will be interpreted.

Jack Thurston, a founder of Farmsubsidy.org, which collects and publicizes data about how European farm aid is spent, says that even a seemingly positive reform to emphasize the public good may “be more subject to fraud because more of it will be discretionary and will vary by member state.”

France, in particular, is supporting the spigot approach, but it has taken stock of political realities and adopted its arguments for a generous aid program to include the new interest in improved environmental standards.

Last year, as in years past, France was the biggest beneficiary of farm subsidies, collecting more than 10 billion euros. One of the largest recipients was Groupe Doux, a chicken manufacturer that collected 62.8 million euros. Another big French beneficiary, at 38.6 million euros, was Saint Louis Sucre, a subsidiary of the Germany sugar giant Südzucker.

Südzucker, through its various subsidiaries, collected 448 million euros.

“Everyone benefits from the system,” said Bruno Le Maire, the French agriculture minister, who acted as host at a Paris conference this month that endorsed continuing the subsidies at high levels and using more of them to enhance environmental protection.

“I know a lot of farmers in France who could not live without the support,” Mr. Le Maire said. “It’s normal because we demand that the agricultural industry meet certain standards to maintain food security and rural development, which is costly. It benefits all, including the big farming interests.”

France sees the subsidies as an essential transfer of resources from urban areas to rural populations to protect its bucolic landscape, the safety of its food and a rural way of life that is a profound part of its culture.

But for others, it is not so simple. France has traditionally benefited financially from the policy because of its high number of farmers. Other nations, like Britain and the Netherlands, are big net contributors to the European budget, but collect less in farm subsidies because they have smaller, more efficient agricultural sectors.

The reform debate is much livelier this time because the former satellites of the Soviet Union that joined the European Union will have more power to demand a bigger share of aid.

Under the last deal, which was negotiated before they joined the bloc, their farmers had to settle for less than their European Union counterparts.

The restive East European nations signaled at the Paris conference that they wanted a strong program that included equitable shares for smaller nations.

For all the theorizing and long-standing efforts to improve the system, the political maneuvering over farm aid often comes down to a simple equation: who gets what. European leaders are already preparing to defend the individual national interests of their 27 countries.

“This is a straightforward battle between the losers and gainers, and it’s nothing more significant than that,” said Alan Buckwell, policy director of the Country Land and Business Association, which represents landowners in rural England and Wales. “It’s the stuff that most politics is about: how are we carving up the money?”

But Mr. Buckwell and others said that this might not be enough to win acceptance from the public. A major test of the political mood will emerge in the European Parliament next year, when it issues a report on farm aid that will shape the decision-making about spending. For the first time, the Parliament will have an equal voice with member countries in the outcome to determine the size of farm aid budget.

But instead of advancing a reform agenda, the Parliament will probably face even more pressure from local farmers to maintain the status quo.

George Lyon, a Parliament member from Scotland who will lead the drafting of the document, said the central issue was whether the Common Agricultural Policy “should continue down the path toward more of a market focus and more liberalization, or whether countries are likely to move back toward more regulation and protection.”

With its large and militant farm sector, France will seek to protect its own, even if that means aiming for a bigger slice of a smaller pie.

A battle for national interest is inevitable, Mr. Lyon said: “Self-interest always comes to the fore in these debates about money.”

Copyright 2009 The New York Times Company

Is China Going off the Rails?

China Economist

Dec 29, 2009 2:46PM

The New York Times have an interesting article on China's break neck rail growth. I have an interest in this article as I recently took the 30 minute Beijing - Tianjin train. It was great. Very fast, relatively cheap (this is a moot point) and similar in comfort to a first class air flight. I should add that the train was full when I travelled - see point in the article below.

Pettis is very good. He is also correct about China's level of infrastructure relative to its level of development. He should not underestimate the power of a trophy however.

A five hour train journey from Beijing to Shanghai would also be fantastic. Such links will improve growth and oddly allow more divergence of economic growth instead of the current clustering in the coastal and big city areas.

When you compare train investment with road investment it does make sense. Sure, this is costly and a potentially inefficient use of stimulus funds. It one reads about the growth of railways in the US over a century ago you will see the same story unfolding. The railways opened up the US and lead to huge growth. What happened to the railways companies - they all went bust and shareholders lost everything. This cannot happen in China. So what will happen?

Is China's Economy Speeding Off the Rails? [New York Times]

BEIJING — Train C2019 covers the 120 kilometers between Beijing and Tianjin in 30 minutes, passing peasants in fields burning corn stalks and warrens of shacks occupied by people who are not sharing in China’s economic boom.

The line is part of China’s 2 trillion renminbi, or $292.9 billion, investment in a nationwide high-speed passenger-rail network that may be too much train, too fast.

The time savings that the new system delivers may not justify the cost, creating a potential drag on long-term growth, said Michael Pettis, former head of emerging markets at Bear Stearns. The losers are Chinese consumers, who will have to wait for new health care and old-age benefits while the government focuses on public works spending, he said.

While the expanded service will be a “trophy” for China, the country “already has probably the best infrastructure in the world for its level of development,” said Mr. Pettis, now a finance professor at Peking University.

China accelerated its high-speed-rail development plan last year in the wake of the global financial crisis, saying it would increase the passenger network by a third to 16,000 kilometers, or about 10,000 miles, by 2020.

Bombardier, the Montreal-based company that is the world’s largest maker of passenger locomotives, and Munich-based Siemens are helping to build the system. Bombardier’s Chinese joint venture won a $4 billion contract in September to build 80 high-speed trains. Siemens, the largest European engineering company, and Chinese partners received a €750 million, or $1.08 billion, order in March for 100 trains.

The centerpiece of the service is a 1,318-kilometer line with 16 kilometers of tunnels that will cut the trip between Beijing and Shanghai to five hours from 10.

Set to open by 2012, the 221 billion renminbi project currently employs 127,000 workers and is the most expensive engineering program in Chinese history, eclipsing the Yangtze River’s Three Gorges Dam, the world’s biggest hydroelectric project, which cost 203.9 billion renminbi.

Spending on railroads is growing faster than on any other area of investment, rising 80.7 percent to 464.6 billion renminbi in the first 11 months of the year from the same period in 2008, according to China’s National Bureau of Statistics.

Investment in fixed assets like factories and the rail network accounted for more than 95 percent of China’s 7.7 percent growth in the first three quarters of 2009 and made up 45 percent of gross domestic product, which is higher than any major economy in history, according to Stephen Roach, chairman of Morgan Stanley Asia.

Without a surge in consumer spending and with export growth stalled, investment must rise even further to stoke growth, he said in a Dec. 18 speech in Beijing.

“These are ridiculous, unsustainable numbers for any economy,” Mr. Roach said.

China may be hit with a slowdown next year as the impact of the investment-led expansion wears off and shipments to the United States, the traditional external source of growth, fail to pick up, Mr. Roach said in an October report. He did not specify how much he thought growth might slow.

Some economists say the high-speed network is symbolic of a stimulus program that places too much emphasis on infrastructure spending and not enough on raising living standards. The average urban Chinese worker made 28,898 renminbi last year, a tenth of the $39,653 average wage in the United States, according data from the U.S. and Chinese governments.

Most Chinese rail travelers will not pay the premium to ride on the fast trains, Zhao Jian, a professor of economics at Beijing Jiaotong University, said in a September interview on Chinese television.

A second-class one-way ticket for the half-hour Beijing-Tianjin trip costs 58 renminbi, about three-quarters of the workers’ average daily pay. A so-called hard-seat ticket on a slower train, which covers the distance in two hours, sells for 11 renminbi.

Passenger reluctance means revenue from the high-speed lines will not be enough to service the debt if railway expansion continues at its current pace, Mr. Zhao said in the TV interview. The Ministry of Railways has 383 billion renminbi in bonds outstanding.

“If America had its subprime crisis, in China we have a railroad-debt crisis, or you could call it a government-debt crisis,” Mr. Zhao said in the TV interview.

The Chinese Railway Ministry says that the new system makes economic sense: A two-track bullet train can transport 160 million people a year, compared with 80 million for a four-lane highway, it said in a Dec. 21 faxed statement.

“The safest, fastest, most economical, most environmentally friendly, most reliable mode of transport is high-speed rail,” the ministry said.

The fast trains leave from Beijing South railway station, a new glass and steel structure that looks like a flying saucer. The slower trains depart from the half-century-old Beijing Station, where the clock tower marks the hour by playing “The East is Red,” a tribute to Mao Zedong that was popular during the Cultural Revolution.

Sitting on the stiff green benches in car 13 of train 4401, Yuan Hong, 40, says she does not mind that the old line takes an extra 90 minutes.
“It’s a huge price difference,” says Ms. Yuan, who works as a cleaner in Tianjin. “This is the train the common people take.”

An Unbelievable Opportunity in Gold


December 15th, 2009



Yes, there is no typo in the headline of this article. Today there is still an unbelievable opportunity to invest in gold that will disappear over the next several years as this monetary crisis deepens. Despite the general widespread sentiment of Western financial advisers that they have missed the run-up in gold and now it is too late to buy, this is not true at all. In fact, to illustrate how little people understand about the reasons to buy gold, of all my friends that I urged to buy physical gold more than six years ago when gold was less than half of its current price, I only know of one that has bought any gold, and it still took five years of my prodding, four times a year, for this single person to purchase gold. This is how incredibly misunderstood an asset gold remains today despite its enormous run higher in the past 8 years. This brief anecdote aptly illustrates the bias against gold and the foolish belief that gold is a bubble that persists today due to the massive propaganda and disinformation campaigns waged by bankers against gold. It is ironic today that public mistrust of bankers can be at such a high level at the same time that the public is still enormously willing to follow all of the bankers’ propaganda about gold. This great twist of irony illustrates just how powerful the bankers’ century long misinformation campaign about money and gold has been.


Few people even understand how money is created let alone why gold is a protector of people’s rights.


Even if gold continues to correct this week, and the bullion banks, the US Treasury, the US Federal Reserve and the Bank of England are able to engineer a further decline in gold prices in the futures markets, this event will not be the bursting of the gold bubble as it will be, and always has been, described by many Western media sources. Even if gold loses another $120+ an ounce from its current price, this event would not mark the bursting of the gold bubble.


The incorrect description of corrections in the gold markets, or downright meddling of Central Banks into the suppression of gold prices, as the bursting of a bubble is just as erroneous as the recent descriptions of rising stock markets as signs of economic recoveries. And this is the legacy bankers have created – confusing the masses to believe the exact opposite of what is true.

Though I’m not going to tell you the price point at which I believe gold will start rising again, it is not impossible to time markets as investment charlatans will lead you to believe as well. In fact, at the very beginning of this month, we told all subscribers of my Crisis Investment Opportunities investment newsletter to sell out of their precious metal stocks right before this steep correction in gold and silver occurred to lock in their profits and we’ll tell them to re-enter (or have told them to re-enter) when we feel that a low-risk, high-reward time to reposition our assets has materialized once again. By understanding the rigging game in gold and silver markets and in stock markets, we’ve more than tripled the returns of the S&P 500 this year. In all honesty, however, bankers have filled most investors’ heads over the years with so many lies about gold that for the majority of investors, it would be a futile effort to try to time the market anyway. Most would be better off just understanding the fundamentals behind why they need to own gold and to buy and hold on through the dips and rises until it reaches the mania stage.

Being able to predict the recent steep correction in gold and silver in advance of its occurrence merely requires understanding the manipulation and rigging game in these markets. Understand the rigging game behind gold and it is quite possible to repeatedly time the gold markets with a fair amount of accuracy. Subscribers to my services will vouch that I have called near perfect tops and bottoms in the gold and silver markets more than several times over the past several years. Even if you refuse to acknowledge the indisputable signs that the gold market is, and has been rigged for decades, you only need realize one thing – that despite the best efforts of the US Federal Reserve, the US Treasury and the Bank of England to suppress the price of gold, gold’s long term trend since 2001 when it bottomed at about $250 an ounce, has been up. And if you are astute enough to realize that the gold markets have been, and still are rigged, then observing gold’s rise from $250 an ounce eight years ago to more than $1200 an ounce just a week ago should give you the utmost confidence, that despite the best efforts of bankers to wreck gold’s price, its long-term trend will remain higher for quite some years to come.

Still, no matter what side of the “gold is rigged” debate you stand on (and there is lots of evidence to believe the “gold is rigged” side of the debate thanks to the tireless work of GATA.org), the public’s stated reasons for not owning gold are not only absent of logic but they are downright foolish. Two of the most frequently given reasons I’ve heard from Westerners as to why they will not buy gold are parroted banking propaganda that make absolutely no sense. The first reason people often give as to why they are reluctant to buy gold is that gold pays no interest. People would realize how foolish this stated reason was if they only realized that all paper money is issued as debt. If there were no debts in the system, there could be no money, yet people gladly accept an instrument that is issued as a debt and believe that it is a pure asset. Secondly, they state, you can’t buy anything with gold. You can’t pay for many items with Euros in many American stores or buy items with US dollars in many European stores either, but that doesn’t mean the Euro is worthless to own if you live in America or that the dollar is worthless to own if you live in Europe. Both will still have some value in buying goods and services. Thus, to not own gold because “you can’t buy anything in stores with a gold coin or gold bar” is an answer devoid of any logic whatsoever.

Throughout history, gold has always been accepted as a form of money. In fact a gold coin in ancient Roman times would buy you about the same things today as it would have back then. With US dollars, you now need twice as many dollars to buy the same things today as you would have needed just 8 or 9 years ago. If a wealthy eccentric man walked into a Maybach auto dealership and insisted on paying for four custom made Maybachs with $2.4 million worth of gold bars, I guarantee you that the dealer would find a way to accept the gold bars and make the $2.4 million sale, knowing that he could choose to hold on to the gold or to convert it into Euros, Yen, Pounds or Dollars at a later point and time. Thus, there is no reason to believe that gold can not be used to purchase items. Gold may be an inconvenient form of money, but it will be much more inconvenient to watch your fiat money crash and burn and for much of your wealth to be wiped out when the second phase of this monetary crisis commences sometime in 2010 or 2011.

Secondly, psychology plays a huge role in the foolish bias of Westerners against gold. Were Westerners to live in China for just one year, where almost everyone knows multiple people that own physical gold, I guarantee you that their perception of gold, upon returning to America, would be drastically changed. They would be inclined to buy more gold just because of the sheep herd mentality that would make them much more comfortable purchasing physical gold after watching many of their friends and associates engaging in the behavior of buying gold for an entire year. Though in China, this herd behavior happens to be correct, just because everyone is doing the same thing, does not by default, make it the correct behavior. In fact, in investing, just the opposite is normally true. When everyone is doing (or not doing) the same thing, they almost always are wrong. Think of US hedge fund manager John Paulson and his enormous coup of earning $4 billion of profit for himself in 2007. Paulson stood on the opposite side of the subprime mortgage bet from the rest of all of Wall Street. Regarding a recent book based entirely upon Paulson’s enormously successful bet to short the US housing market, one reader stated: “The most amazing thing is that no one seemed to believe [Paulson] until the market crashed and by then it was too late.” Though Paulson was a lone wolf among very few lone wolves that existed at the time regarding his beliefs that the subprime mortgage market would crash and burn, he ended up being right and all of Wall Street ended up being wrong. With buying physical gold, it will also pay to think like a lone wolf if you are a Westerner.

However, here’s the lesson most investors still refuse to learn about Paulson’s enormously successful investment play. The majority of investors never take the next crucial step of investigating the reasons why no one believed Paulson’s comments about the US housing market. If they did, they would discover that the reason nobody believed in Paulson’s enormous bet back then was due to the propaganda of bankers like Ben Bernanke and politicians that assured the American people that the housing market would be fine. Many times the masses immediately accept a person’s statement as truth with no critical analysis of that statement just because that person is a public authority figure. But how naïve would you have to be to believe President Obama’s recent statement on the American TV show 60 Minutes that “[he] did not run for office to be helping out a bunch of fat cat bankers on Wall Street.” Goldman Sachs’s Political Action Committee was the second largest contributor to President Obama’s election campaign, so were it not for the money of “fat cat bankers”, Obama may very well not even have been elected as President in 2008. Knowing this, do you really believe that Obama has zero obligations to the second largest contributor to his political campaign?

Furthermore, were you to merely analyze President Obama’s financial decisions since he has taken office, the disingenuous nature of his above comment would be readily exposed. Almost every single financial policy decision of his administration has benefited “fat cat bankers” to the detriment of everyday US citizens. Again, those blinded by political or racial loyalties at the expense of logic will be sure to foolishly digest my statement as a politically-biased statement though there is no evidence to support that conclusion. Any reader can easily check my past history of public statements and discover that my criticisms of the foolish monetary and fiscal policies of the Clinton and Bush Administrations are just as numerous as my criticisms levied against the Obama Administration. If you are serious about never wanting to be fooled or bamboozled by a politician again, then never look to a politician’s words, but only to his or her actions, to unearth a politician’s true character and nature. Only a fool would ever accept a politician’s words as an accurate representation of a politician’s intent.

Likewise, you would be very wise to apply the above maxim to bankers as well. Investors should look towards bankers’ actions and not their words when trying to decipher their intent. Bankers are responsible for the propaganda that gold is a barbarous relic. Bankers are responsible for the propaganda that gold is a cumbersome asset to own because it pays no interest. These are their words. Yet if you look toward their actions, Central Bankers all over the world were net buyers of gold this past year. Shouldn’t that alert you to the fact that bankers are a bunch of conniving liars in everything they tell the masses about gold? When Paulson first assumed his position shorting the subprime mortgage market, it was not only bankers, but also chief executives at large commercial investment firms that derided him, stating that the subprime mortgage market would be fine. I personally heard many of the same criticisms when I started telling people to buy physical gold six or seven years ago – that I was crazy for thinking that the US dollar would get into trouble and that the US dollar would be fine, that owning gold was a stupid and foolish investment. People actually laughed at me for buying gold. A top investment strategist at Citigroup stated that gold was a bubble in 2005 when gold reached $500 an ounce. And now, even though the gold critics have been wrong now for eight years in a row now, they still use every gold correction as an opportunity to deceive Americans into believing that gold is a bubble and about to collapse. And amazingly, Americans continue to look not towards bankers’ actions but to their words only. The overwhelming majority of Americans believe the bankers’ WORDS that the US dollar will be fine, and foolishly point out every bear rally in the US dollar as proof that the dollar will be fine.

Ninety-five percent of what I’ve heard financial advisers state about gold is wrong. Ninety-five percent of what I’ve read in the public domain about gold is wrong. Ninety-five percent of what I’ve read from the Western media about the US dollar is wrong. And ninety-five percent of the arguments I’ve read against owning gold, even when filled with supposed “facts”, are wrong. Many of the arguments against gold sound convincing, even though they are deeply flawed because erroneous data are used to produce flawed conclusions. But this is the very definition of propaganda – arguments that use erroneous data presented as “facts” to draw convincing conclusions that are highly flawed, though to the undiscerning eye, they seem quite logical. The reason that bankers have always spread so much propaganda about gold is because gold is the kryptonite of bankers. Gold allows people to preserve their wealth against their fiat currency debasement schemes.

Hank Paulson, in testimony before Congress, stated that it was necessary to bail out Goldman Sachs through the bailout of AIG because the people, “were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.” If Americans really wanted to expose the fraud of the entire financial system, all they would have to do is to put just a tiny part of their entire savings into physical gold. If all Americans put perhaps as little as 5% of their entire savings into physical gold, this would likely be more than adequate to expose the fraudulent basis of the financial system by which firms such as Goldman Sachs reap such ungodly profits year after year. What frightens the bankers the most is the possibility that people will fully understand the basis of the system, and this is why Western Central Bankers continually wage so many disinformation campaigns against gold.

Consider this story about HSBC and its retail gold clients that was reported last month: “The British bank, which has sizeable vaults underneath its US headquarters overlooking Manhattan’s Bryant Park, has told retail customers – many of whom are middle-men and custodian services which store gold with HSBC on behalf of hundreds of their own clients – that all their gold must be out of its facility by July 2010. The decision has seen fleets of armoured cars laden with gold ferrying the precious metal out of New York. An HSBC spokesman declined to comment, but it is understood that the increased demand for physical storage of gold by corporate clients is behind the move to end the retail service, which HSBC inherited when it took over Republic Bank a decade ago.” With banks, it’s never about doing what’s best for their clients. It’s always about what’s doing what’s most profitable for their executives. For HSBC’s individual retail clients that were intelligent enough to own gold, HSBC most likely realized that larger, much more profitable relationships could be built with corporate clients that wanted to buy gold versus their retail clients. Thus, their retail clients got the axe despite the fact that HSBC knew that such a decision would be incredibly inconvenient for them.

Just as was the case with subprime mortgages when almost all of Wall Street got it wrong, the only reason anyone believes that gold is a bubble today is because people have forgotten how to think for themselves, foolishly believe that there are not hidden ulterior motives behind the beliefs spouted by Wall Street, and for some inexplicable reason, still internalize and accept all banker propaganda against gold while at they same time, they claim to distrust them. That’s why no matter how much further gold drops before this correction ends, if you don’t make the move to buy physical gold if you don’t own any, you will look back with regret five years from now and realize that you missed an unbelievable opportunity.