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Song Parodies -> "American Pie Shrinks As More Slices Handed Out"

Original Song Title:

"American Pie"

 (MP3)
Original Performer:

Don McLean

Parody Song Title:

"American Pie Shrinks As More Slices Handed Out"

Parody Written by:

Fiddlegirl and Tommy Turtle

The Lyrics

Free-market economist Henry Hazlitt wrote a seminal work, "Economics In One Lesson". Admittedly, the one lesson of a few pages was followed by 25 chapters showing the application of the Lesson to specific cases and policy issues, but each of those is also only a few pages, and you can (and should) read it for free on the Web.

In the meantime, here is Economics In One Parody, a/k/a The Economic History Of The United States, From The Beginning To The Current Mess, And Why.
A long, long time ago...:
Founding Fathers' splendor
How the budget, they would reconcile
And they were loathe to take a chance
By using steady debt finance
New country: it would sap ye in a while

The Revolution: cost, they'd shiver [1]
But worth it: freedom, to deliver
Bad notes were the "greenbacks"
Just one way to redeem: Tax [2]

We've watched the dollar's value slide
Vote for freebies, folks: a rising tide
I knew the US lost its pride
The day the gold "buck" died [3]

So my, my, see the printing press fly
Wilson's drama gave Obama ways to wave it bye-bye [4]
And we poor ol' folks, plain people; just you and I
Stingin'; This is TT telling; no lie
Think things *tough*? T-T tells you why

It's such blight, what we've been told
Since most nations placed their faith in gold
Since the Bible days, or so [5]
They *all* perceived: won't rust/corrode
Enthused at finding "motherlode"
You can't impeach its worth; Finance? *Real* dough

This: well-known; but poor us: Gov, on whim
Passed a law; our chances: rather slim
He outlawed gold, like booze [6]
And we sing out with him, our blues

We issued only coinage: gold, mint struck
Would exchange, our nation, gold for ev'ry buck [7]
But I know we got really stuck [8]
The day the gold "buck" died

Of all our savings:
Woe, me; per-cent drop: 43 [9]
Thieving caper: gave us paper by His Royal Decree
"Progressive" noises making nation less free
Transferrin' power to the Congress: awry
Stranglehold on money supply

Seven decades: dollar on its own
And debt grows fast as a sub-prime loan
But that's not how it used to be
When F. Roosevelt said that we must redeem
All our gold; turn in; you'd best come clean
Left no choice: he raped both you and me [10]

Oh, and once the King stole golden crown
He drove the dollar's value down
This paper, you could burn
No gold would be returned

And while Roosevelt followed line of Marx
The US wallowed in the dark
Amid depression, deep and stark
The day gold standard died

Paper, flingin'
Bye-bye, 'cause its value, deny
Took the gold out; we were sold out by that old, loutish guy
While Western world was sinkin'; on us, rely
But thinkin', "This'll weaken major ally"
World War II cause: Treaty, Versailles [11]

Gen'ral Sherman said that "War is Hell", Sir!
The Civ-il War: That was said quite well, Sir
Debt piled high, and growing fast [11]
Atlanta fell on its a*s
The soldiers died; war was lost, at last
And your chest of ... Southern dollars ... turned to grass

Reconstruction there from beaten gloom:
Gold and argents: trade; their march, resume [12]
And progress did advance
All reunited: brand new chance!

'Cause as players played, and wheeled and dealed
The worthless bucks were soon repealed [13]
The US moved toward head of field
Until the gold buck died

The US swinging!
Oh, oh, watch America grow
Quite excited and delighted; by war, blighted no mo'
While rest of world, they must have envied us so
And bringin' immigrants to our "golden" shore
"Lift my lamp beside golden door"

Oh, and there they were all in one place
At Bretton Woods: war's scars, erase? [14]
Let's all sit down and try again
So come on: US strongest; US stocks --
-- Gold bricks: world's largest, at Fort Knox;
On dollar, other currencies depend

Deficit spending: all the rage [15]
The 60s: drenched in red ink, page
No pol would taxes, raise
So paper money pays

And as the debt climbed high, a scary sight
And print the artificial blight
And inflation taking mighty bite
Because the gold buck died

Nineteen-sevn'ty:
Soar, sore, as inflation did roar
Dollars, holdin': turned for gold, in; coldly, Dick slammed the door [16]
Those good old days of golden dollars: No more
And bring "Stagflation" like we ain't had before:
Prices rise, but jobs fall; we're poor

Fin'lly, someone to end our blues [17]
Though for short term, not such happy news
But Reagan held course and wouldn't sway
Only way: sanit-y, restore:
The recession: less than years before [18]
But soon after, we went back to our old way

And in D. C., the pols all schemed
They promised, lied: they'd fulfill all dreams
But money: still a token
Stock market: boomed, then broken [19]

But with paper money, still we're hosed [20]
The housing boom: mortgage, overdosed
And soon, the last house gets foreclosed
Because the gold buck died [21]

We're all cryin'
Scream, scream for American dream
Paper: bevy; taxes, levy; under either regime
D. C. girls and boys are pickin' *our* pockets clean
Sayin' "Vote for me; I'll pay you in pork"
Think the money comes from the stork?
[bonus echo:]
No, it's our *own* money, you dork!

Doom, they're bringin'
My, my, kiss the US good-bye
Congress: wh*rehouse; to the poorhouse, drive this poor louse-y guy
Their evil ploys are stinkin'; risky, each try
Now, when US fades away, you'll know why




[1] The first native currency (as opposed to British and Spanish coinage) issued by what were then the American colonies was a paper currency issued by the Continental Congress to finance the Revolutionary War that began in 1775. The "Continental Currency" suffered from printing press inflation (same as we have today), and also from massive British counterfeiting as an act of war to destabilize the economy of the colonies. By the end of 1779, they retained only 1/25 of their value against real metal coinage.

[2] To redeem this paper money, each colony was required to pay its proportion, in four annual payments, the first by the last of November, 1779, and the last by the end of November, 1782.

Pardon a slight anachronism: The term "greenbacks" for paper currency actually originated from notes issued between 1861 and 1862 to help finance the American Civil War. But it fit nicely in the parody here. Sorry. (Paper money was also issued during the War of 1812, after which the US went back on the gold and silver standards.)

[3] The painful experience of the runaway inflation and collapse of the Continental dollar prompted the delegates to the Constitutional Convention to include the gold and silver clause, Article 1, Section 10, in the United States Constitution: "No state shall... make any thing but gold and silver coin a tender in payment of debts." The Continental Currency was replaced by the silver dollar at the rate of 1 silver dollar = 1000 continental dollars.

The U.S. dollar was created and defined by the Coinage Act of 1792. It specified a "dollar" to be between 371 and 416 grains (27.0 g) of silver (depending on purity) and an 'eagle" to be between 247 and 270 grains (17 g) of gold (again depending on purity). So from the git-go, the dollar was a measure and equivalent of a valuable metal, rather than something arbitrarily printed at will by political appointees, as it is today.

The value of gold or silver contained in the dollar was then converted into relative value in the economy for the buying and selling of goods. This allowed the price of things to remain fairly constant over time. An alien concept today, when inflation (over-printed, lower-valued dollar = higher prices) is taken for granted, and the only question seems to be, "How much?".

The gold equivalent of the US dollar to the British Pound Sterling ("sterling silver" = 92.5% pure silver, alloyed with copper for hardness, as pure silver is somewhat soft) was ₤1 = $4.86⅔. This exchange rate with sterling remained right up until Britain abandoned the gold standard in 1931.

Did you do the math? The two currencies' relative value remained constant for *139 years* -- for as long as both were backed by tangible value (precious metal.) Compare to the wildly-fluctuating exchange rates seen today.

[4] The Federal Reserve system was signed into law by Democratic President Woodrow Wilson in 1913, in an attempt to stop fluctuations in the economy, which is sort of like trying to stop the ocean from having any waves. It was primarily a response to the Panic (depression) of 1907, and with its ability to print worthless paper money with nothing behind it (that's called "counterfeiting" if you or I do it), its proponents believed that it could prevent all recessions, and even keep the economy in a perpetual boom.

Instead, the United States experienced the worst depression in its history (much worse than the 1907 incident of which Fed proponents promised prevention of repetition) sixteen years later, in 1929. Some economists, including Milton Friedman, Thorstein Veblen, Ben Bernanke, Robert Latham Owen, John Kenneth Galbraith, and Murray Rothbard believe that the Federal Reserve System helped to cause the Great Depression. Tommy Turtle knows for a fact that that the creation of the money-printing Fed, and the resultant bubble of the Roaring 20s, was the *direct cause* of both the Depression and of its record-setting magnitude and duration.

Most Republicans of that era still favored free markets and value-backed currency, but "progressive" Democrats wanted the Government to have complete control over the amount and value of currency. They claimed this would get the financial system "out of the hands of Wall Street", but the hands of Pennsylvania Avenue (i. e., the White House) have done us much more harm. The Federal Reserve Act passed Congress on a mostly partisan basis, with most Democrats in support and most Republicans against it. Yet Republican President Herbert Hoover is still widely blamed for the Great Depression, because he was sitting in the hot seat when the dynamite charge lit by Wilson (the Fed) finally blew up. Go figure.

(The economy was actually beginning to recover when President Franklin Roosevelt took office, but his massive interventions in trying to "cure" the Depression merely prolonged it, and it didn't end until the wartime economy of World War II, a decade after it started. The Depression wasn't the disease, it was the "cure" for the irrational exuberance of the 1920s fueled by the Fed's fake money, just as our current woes are the cure for the huge growth in consumer spending of borrowed money of the 1990s-mid 2000s. Everyone wants to drink and party, but no one wants the hangover. See any parallels today?)

[5] Gold has been a highly sought-after precious metal for coinage, jewelry, and other arts since the beginning of recorded history. It's the most malleable pure metal known -- it can be hammered into sheets only a few *atoms* thick. One gram (1/28 ounce) can make a sheet a meter square (more than 10 square feet), and one ounce can make a sheet of 300 square feet. Hence things can be "gold-plated" with very little gold.

Why is that good? Because it doesn't rust in either air or water. (Hence gold wedding rings, like diamonds, symbolize "forever". Too bad people aren't as resistant to breakdown, eh? :) Gold coins and artwork from three thousand years ago are in fine condition today.

John Maynard Keynes, the Anti-Christ of economic, and therefore human, freedom, called gold a "barbarous relic". (He also said in the 1936 German edition of his book that his policies "can be much easier adapted to the conditions of a totalitarian state .... than .... under conditions of free competition." Later, he disavowed Nazism. "Be careful what you wish for. You might get it." You wished for a totalitarian state in Germany; you got one, John-boy. Don't play innocent with us.)

Iron-ically (heh heh), gold has become, not a "relic", but ever more increasingly useful. Open up your computer (Shut it off and unplug it first, please!), ground yourself, and remove your RAM module. Note that the 200+ contacts are all gold-plated. Why? Because it will *never* rust or corrode, and it conducts electricity *very* well. The extensive use of gold in the ever-growing field of electronics has make it more desirable than ever. Some "barbarous relic", eh, Mr. Keynes?

Gold tooth fillings last forever (the Nazis removed them from the teeth of slaughtered Jews and melted them down to help pay for the war), and "silver" fillings are actually only a quarter to a third silver, and about half mercury. Mercury is highly toxic, causes permanent brain damage, and pollutes the environment, both during preparation and when you're cremated. Go for the gold! (As TT's "silver" fillings from younger days broke down, as they will do, he's replaced them with gold. Costs a lot more up front, but they last for more than a lifetime -- even a turtle's lifetime.)

[6] The US passed a law prohibiting its citizens from possessing alcohol in 1920. The law had disastrous consequences, despite the fact that alcohol can be bad for you. In 1933, the US again permitted its citizens to possess alcohol, but prohibited them from possessing gold currency. This had even more disastrous consequences, because gold currency is good for you.

All attempts to prohibit people from their lawful "pursuit of happiness", as the Declaration of Independence defined as one of the rights of humanity and one of the reasons for establishing the new nation, have been equally disastrous -- including the use of recreational drugs, of which alcohol happens to be one.

[7] Before the disastrous move described, a twenty-dollar gold coin (about one ounce), and a twenty-dollar bill were equivalent -- the bill was a receipt, like your laundry ticket, for the gold in Fort Knox. You could walk into any Federal Reserve bank and exchange your bill for that gold. The bills stated on their face, "The United States of America will pay to the bearer on demand, the sum of Twenty Dollars."

Now take a $20 bill out of your wallet or brassiere.** Look at the front. It says "Federal Reserve Note". What's a "note"? You signed a Promissory Note, or just a "Note", when you financed your car or home. It's an IOU. So what you're holding isn't anything more than an IOU. Not a receipt for gold, silver, or even Chinese lead. See the part about "This note is legal tender for all debts..."? We’re running around trading IOUs as money.

Oh, and on the back, where it says, "In God, we trust"? What that means is, "You'd better pray that this IOU is still good tomorrow."

** TT enjoys economics -- hope we've made it a little less dry and a little more interesting -- but he needs a little comic relief once in a while, and you probably do, too. :) (FG did *not* write the "brassiere" line.)

[8] If this were a less academic parody, there would probably have been a different passive verb here instead of "stuck". It would have to rhyme with "buck", but be in the past tense, ending in "-ed". Hmmm.... any ideas?

[9] See the next verse and footnote for the details.

[10] Probably the largest single act of mass thievery in history, making Bernie Madoff look like Winona Ryder shoplifting clothing. Here's how it worked:

As said above, the dollar was one-twentieth of an ounce of gold, and twenty dollars was one ounce of gold (with slight fluctuations), for 141 years. In 1933, President Roosevelt gave Executive Order 6102, which made all privately held gold of American citizens property of the US Treasury. This gold confiscation by executive order was argued to be unconstitutional, ("Argued" to be? See footnote #3, from the United States Constitution: "No state shall... make any thing but gold and silver coin a tender in payment of debts". Where's the argument? It not only violated the Constitution, it violated the Ten Commandments: "Thou shalt not steal". --TT.) but Roosevelt's executive order asserts authority to do so based on the "War Time Powers Act" of *1917*. (WTF? Even if you're willing to accept the loss of your civil rights and liberties during war [We're not; else, what are we fighting for?], World War I was effectively over by November 1918.) Gold bullion remained illegal for Americans to own until President Ford rescinded the order in 1974.

So, gold was like heroin is today. You could go to jail for just possessing it.

Next: Once he had all of our gold, he "raised its price" from $20/oz. to $35/oz. That's really looking at it backwards: It's gold that's money, and paper is the receipt. So what *really* happened is that the dollar's value was lowered overnight from 1/20th of an ounce of gold to 1/35th of an ounce of gold. Since not everyone is good with fractions, SuperTurtle to the rescue:

You had a savings chest of 500 US gold coins, equal to $10,000.00. (500 x 20, right?)
Your gold is taken from you and the price is raised to $35/oz. $10,000.00 divided by 35 = a little over 285 ounces of gold, assuming that you could buy it back. So your 500 ounces of *real money* was reduced to 285 ounces overnight, a drop of 43%.

Now, we'll look at it in dollar terms, since that's what we're all accustomed to these days:

Since the dollar's value had fallen from .05 oz of gold to .02857 oz of gold, which again is a loss of 43% no matter how you figure it (*trust me*, 'k?), your $10,000 in real money was devalued to $5700 overnight. Roosevelt stole $4,300 from you.

The probable motive for this, aside from giving the Government a complete stranglehold on the economy and on all of us, is that it lowered the true cost to a business of hiring an employee. If the going wage was $2/hr, the devaluation of the dollar meant that this wage *really* only cost the business $1.14/hr ($2 - 43% drop), and hence, might stimulate (where have we heard that word recently?) hiring. Unfortunately, business owners saw their capital and purchasing power shrink overnight, too, so it didn't work. Really, a pretty stupid idea, on top of being just plain theft.

The actual loss to Madoff's investors is estimated by the court-appointed trustee to be $18 billion, not counting phony "paper gains" that never happened. In 1933 terms, that's equal to about $1 billion 86 million. Considering not only the value of the gold confiscated, but the loss in value to everyone holding US paper dollars, Roosevelt's theft must have been many times larger than Madoff's. Yet Madoff is in jail, while Roosevelt remains some kind of cult hero to some people, who think he was a great, or the greatest, President. The only explanation for this that occurs to TT is that humans must be much less rational than turtles.

[11] Two classic examples of what happens to paper money that is not a receipt for actual things of value:

a) The Treaty of Versailles imposed harsh reparation payments on a German nation already crippled from the First World War. Some economists have estimated that in reality, it would have taken until 1998 (80 years) for Germany to make these payments on an affordable basis. Instead, the German government (the Weimar Republic) started printing Deutschmarks rapidly. In 1918, one paper German Mark equaled one gold Mark. By 1923, one gold Mark was worth one trillion (1,000,000,000,000) paper marks. The terrible disruption in living conditions caused by this hyperinflation are regarded by many historians as contributing to the people's readiness to find scapegoats (Jews, for example) and to listen to a demagogue, directly resulting in Nazism and World War II.

b) When the Southern states attempted secession from the US, resulting in the Civil War, they issued paper money; being largely agricultural as opposed to the more industrialized North, they had little with which to back it, only the hope that the notes could be made good if/when they won the war. The Confederate States of America (the South) dollar was first issued into circulation in April 1861.

At first, Confederate currency was accepted throughout the South as a medium of exchange with high purchasing power. As the conflict progressed, however, confidence in the ultimate success waned, the amount of paper money increased, and their dates of redemption were extended further into the future. The inevitable result was depreciation of the currency and soaring prices. By the end of the conflict, a cake of soap could sell for as much as $50, and an ordinary suit of clothes was $2,700. Near the end of the war, the currency became practically worthless as a medium of exchange. When the Confederacy ceased to exist as a political entity at the end of the conflict, the money lost all value, and the cash savings of Southerners were worthless.

(General William Tecumseh Sherman was a leader of the Northern armies, responsible for the capture and sacking of Atlanta, a Southern center of commerce and railroads. The famous phrase "War is hell", possibly apocryphal or paraphrased, was said some fifteen years after that War.)

[12] "Argent" = archaic for "silver", and (geek-note) from the Latin "argentum", which is why silver has the chemical symbol of Ag. Also how Argentina got its name: all the silver that the Spanish conquerors extracted there. (Isn't this *fun*?) Also obsolete expression for "money"; obsolete because money has hardly any silver any more. So "argents" = silver coins. Besides, wasn't it a good sub for "sergeants"? :)

[13] By 1878, the reunited US was completely back on a gold and silver standard for its currency, and industrializing and growing rapidly economically. (Though never in a straight line upward, which seemed to bother some people, despite the fact that nothing else in the Universe behaves that way. Hence, the Fed.)

This economic expansion, made possible by industrialization, free enterprise, and the sound currency which is the underpinning of all, brought huge waves of immigrants to the US from all over Europe and Western and Southern Asia. (The rumor circulated in poorer countries that in America, the streets were paved with gold. Not true, but the dollars were, which is even better.) The last line of the refrain is a paraphrase of the last line of the sonnet by Emma Lazarus that is inscribed on a bronze plaque in the second floor of the pedestal of the statue of Liberty Enlightening The World (almost universally known within the US as merely, "The Statue Of Liberty"), often the first sign of the New World that immigrants saw as their ships approached New York Harbor.

p. s. It's on TT's to-do list to satirize that sonnet, since obviously, no one believes in it anymore. ("Give me your tired, your poor; just not your Mexicans".)

[14] We've already covered 1913 - World War II, with a flashback to the American Civil War. Moving right along:

The United Nations Monetary and Financial Conference, commonly known as the Bretton Woods conference, was a gathering of 730 delegates from all 44 Allied nations at Bretton Woods, New Hampshire, USA, held in July 1944, to try to restore international monetary and financial order after the coming end of World War II. The US and many other nations wanted to encourage free trade and open markets among nations, but our old "friend", John M. Keynes (see Note 5), whose policies strongly influenced FDR, thought that wealthier nations, or those with surpluses, should be forced to subsidize poorer nations, or those with deficits. "Share the wealth" ... anyone heard that term *recently*? (This time, Keynes lost,)

The agreement provided for fixed rates of exchange among currencies (not exactly a free market, since money is a commodity like cars, wheat, and oil), but the only currency strong enough to meet the rising demands for international liquidity was the U.S. dollar. The strength of the U.S. economy, the fixed relationship of the dollar to gold ($35 an ounce), and the commitment of the U.S. government to convert dollars into gold at that price *for foreign countries" made the dollar as good as gold. (US citizens were still forbidden to own gold currency, and would be for another 30 years, when Republican President Gerald R. Ford took gold off the banned-substances list for Americans. Second-class citizens, indeed, lacking the rights of foreigners. Yes, it makes no sense. No, you're not crazy. Yes, the world and our politicians are.)

Yes, despite Roosevelt's manipulations, the dollar re-stabilized at the new $35/oz. level, and after the War, the US was clearly the world's strongest economic power. Other countries gladly pegged the value of their currency to the US dollar due to its gold convertibility.

[15] During the 1960s, the Vietnam War and Democratic President Lyndon B. Johnson's "Great Society" programs caused the Federal budget to spiral, but Johnson, like most politicians, realized that he'd lose support if he raised taxes sufficiently to pay for both. Thus, there were both an increased dollar outflow to foreign countries to pay for the military expenditures, and growing inflation at home, as the Federal Reserve printed the dollars that Johnson was not willing to acquire by taxation.

Important side notes: Inflation, contrary to popular belief, is not "rising prices". Rising prices are in fact a *result* of inflation. Inflation can be defined in six words: "An increase in the money supply". Gold is scarce -- another reason for its value -- and cannot be created artificially. Paper is cheap. Printing more paper dollars makes each worth less -- see Notes 1 and 3 -- and with more dollars in circulation relative to the production of goods and services, prices rise *as a result*.

Despite the 1913 creation of the counterfeiting agency, the Federal Reserve system, this rise was limited during the Roaring Twenties (1920s) by the fact that you could trade in your dollars for gold. With only a relatively-fixed supply of gold, the Fed couldn't print too many dollars, or everyone would demand their gold, and there wouldn't be enough of it.

And *that* is exactly why dictators, totalitarian regimes, and even politicians in a "democracy" hate a gold standard -- because gold is *DISCIPLINE*. It requires a Government to live within its budget. It prevents it from buying votes with handouts and bailouts (anything resonating here?) consisting of worthless paper. In short, it prevents politicians from doing any darn thing they feel like without a means to pay for it.

Politicians prefer inflation to taxation, because they can blame the rising prices on "greedy businesses" instead of on their own irresponsibility. Unfortunately, the foreign countries saw their dollars losing value, and, since they still had the right that US citizens didn't -- to trade their dollars for gold from the US reserves -- they started doing exactly that. At the end of World War II, the US held about 60% of the world's gold reserves. By 1970, the US was down to 16% of the world's reserves -- with the outflow accelerating as the spending and inflation increased. In fact, foreigners could make money by buying US gold at the official price, and selling it on the free market in other countries at a higher price.

The logical answer: Cut the budget drastically; shrink the Government; quit playing global police officer, and quit printing any new dollars. Everyone who thinks that's what happened, raise your hand. (looks around) Ooh, we're reaching people! No hands up! :-)

Instead, the Bretton Woods agreement was modified to somewhat of a limited, floating-rate system, and the "official" price of gold was up to $42.22/oz. by 1971. Also -- and yer gonna *love* this, folks -- Republican President Richard M. Nixon *lifted import quotas on foreign oil" to reduce energy costs in the US. Yep, you read that right. The US had had limits on the amount of oil that could be bought from foreign countries, to help protect the American oil industry from the cheaper prices of foreign oil (meaning you paid more for gasoline, of course). However, Nixon's move backfired -- the surge in purchases of foreign oil sent even more dollars overseas, and the oil-rich nations were smart enough to start turning them in for gold. The US -- running out of gold. What to do?

[16] So on August 15, 1971, President Nixon, without consulting the international monetary councils or even his own State Department, unilaterally "closed the gold window", making the dollar inconvertible to foreigners as well as to US citizens. This greatly reduced the value of the dollar, and also removed the last little bit of that "DISCIPLINE" (See note 15) on Congress and the Administration. They could now spend at will and print money at will. The result: the inflationary spiral of the 1970s.

(Who ever thought of Roosevelt and Nixon as brothers under the skin? One started the destruction of the gold standard; one finished it; both did it by "executive order", not by laws passed by Congress. Who said the US is a democracy? It's become an elected monarchy -- alas.)

The answer: Gerald Ford's "WIN" buttons to wear on your shirt. "WIN" = Whip Inflation Now. Good idea -- horsewhip every politician who supports any deficit spending. :) But what it really did was, again, put the blame on the victim, i. e. the consumer. In 1973, the Bretton Woods currency-exchange markets closed, and within a few years, all currencies floated in value according to the long-forgotten Law of Supply and Demand, which always wins in the end. In 1980, the price of gold passed the level of $800/oz., which in today's even-more-inflated (devalued) dollars, is equal to well over $2,000/oz.

Nixon's final nail in gold's coffin also brought a new term into both economic and public use: "stagflation", a portmanteau (combination) of "stagnation" and "inflation". For the previous 200 years, including the Great Depression, recessions were marked by high unemployment, but stable or even falling prices as demand fell. (Remember the Law of Supply and Demand from the paragraph above?) Periods of high inflation had indicated a booming economy, with workers in high demand, growing wages, and low unemployment. However, after six decades of economic insults, the 1970s brought for the first time a period of high inflation with little or no real economic growth, and above-average unemployment, too. Hence the term, "stagflation".

Political side note: In the 1976 POTUS election campaign, Democratic Candidate Jimmy Carter took advantage of this to attack the incumbent, Republican Gerald Ford. Carter's campaign coined what they called the "misery index" -- the percentage rate of inflation plus the percentage rate of unemployment. It proved highly effective; Carter won. (Ford's pardon of Nixon for Watergate didn't help him any, either.) But this, too, backfired: In the 1980 POTUS race, Republican candidate Ronald Reagan pointed to Carter's 1976 campaign, then cited the inconvenient (to Carter) fact that the "misery index" was now significantly higher than it was when Carter took office. Reagan's campaign was simple: "Are you better off now than you were four years ago?" For most, the answer was "no". Reagan won in a landslide, capturing 60% of the popular vote, more than 90% of the Electoral College vote, and winning 44 states to Carter's 6 states plus the District of Columbia (Washington, D. C.)

(Bonus credit if you noticed that Ford was being blamed for events set in motion by Lyndon Johnson's 1960s spending spree, just as President Herbert Hoover was blamed for the 1929 depression that was set in motion by the creation of the Fed in 1913.)

[17] Like the Fed's first bubble in the 1920s, leading to the Great Depression of the 1930s, this one too burst, but this time, Roosevelt wasn't around to make it worse. The mistakes were eventually realized and corrected as follows:

In 1978, G. William Miller became Chairman of the Fed, the first, and currently only, Federal Reserve Chairman to come from a corporate background, rather than from economics or finance. (Maybe they should have made TT the Fed Chairturtle instead?) Despite rising inflation, Miller maintained a Keynesian belief that inflation could "prime the pump" of the economy, and would at any rate be self-correcting. He thus took no action against the inflation, and opposed raising interest rates. The effect of this was to send the dollar's value spiraling downward. In November 1978, only 11 months into his term, the dollar had fallen nearly 34% against the German mark and almost 42% against the Japanese yen

As one writer put it, "Under Arthur Burns, who chaired the Fed from 1970 to 1978, and under G. William Miller, who was chairman from January 1978 to August 1979, the Fed provided the monetary fuel for an inflation that began as a flicker and grew into a fearsome blaze... If Nixon appointee Burns lit the fire, Miller poured gasoline on it during the administration of President Jimmy Carter. Without question the most partisan and least respected chairman in the Fed's history, this former Textron executive worked in tandem with fellow Carter appointee, Treasury Secretary W. Michael Blumenthal, in pursuit of monetary policies that were expansionist domestically and devaluationist internationally. The goals were to spur employment and exports, with little thought to the dollar's value. By early 1980, inflation was running at 14 percent."

In 1979, Democratic President Jimmy Carter appointed Paul Volcker to replace Miller as Chairman of the Fed. Volcker had the guts to do what Roosevelt didn't: to take the short-term pain for the long-term cure. Since Congress could no longer have money printed at will under Volcker's chairmanship as it did under Miller's, and no one wants higher taxes, the only alternative was borrowing to finance the Federal deficit. Previously, the Fed itself would buy these Treasury bonds, a process called "monetizing the debt", since the Fed merely printed the money to lend to the Treasury. Volcker wouldn't do that. He allowed rates to rise to their natural, free-market levels - as much as 21.5% on the banks' corporate prime rate and 15.5% on home mortgages to the best-qualified buyers -- the painful cure for the disease of the past two decades. (It didn't happen in time to save Carter, who lost the 1980 election to Reagan, as above.)

[18] This naturally resulted in a severe recession, but newly-elected Republican President Ronald Reagan stood by Volcker, despite widespread protests from both politicians and public. However, the painful, but necessary, surgery worked: Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983, and a recovery began. The recession lasted only a couple of years, versus the decade-long 1929 Depression (which might still be with us without the intervention of WW II).

[19] But the underlying unsoundness of our monetary and budgetary policies remained, with our fortune in the hands of whoever happens to hold the reins at the moment, with no regard for balanced budgets (a requirement the Founding Fathers forgot to put in the Constitution), no discipline from a gold standard, only who can buy how many votes and blame someone else for the results. Loosening lending standards and a massive increase in consumer debt caused a boom in the stock market during the 1990s, which burst in 1999-2000, only to see the boom from all that easy credit shifted to the housing market. Which burst.

The answer: Massive bailouts to the incompetent, massive new "stimulus packages" (remember Roosevelt, Keynes, and G. William Miller?), paid for by printing-press money. This isn't a "change we can believe in"; it isn't even a change. It's the same ol', same ol', with brief exceptions, since the Federal Reserve was created in 1913 to "smooth out economic fluctuations, prevent recessions, and maintain continuous growth". Mission accomplished? You be the judge.

[20] Comic relief time again: "hosed" as in "flowing from a hose", and "hosed" as in either "beaten with a rubber hose" or "up your nose with a rubber hose". Or "up your ..." n/m, that's enough CR for now. :)

[21] Government cannot make the pie bigger. Governments produce nothing. They can cut the pie into smaller pieces, or take part of your slice and give it to someone else, or shrink the pie with foolish policies, or make each slice worth less. Handing out pie that isn't there does *not* make the pie bigger. If you don't believe it, try it yourself. Bake a 9" apple pie, cut it into 8 slices, and invite 50 friends over for pie and coffee. No, Government can't make that work any better than you can, but they're still trying as we speak. Now you know the inevitable results.

And here we are. And will continue to be, unless and until our irresponsible politicians, who apparently can't even keep their zippers zipped up, are reined in by Constitutional amendments requiring balanced Federal budgets and a return to the gold standard.

As Lily Tomlin of "Laugh-In" and "Saturday Night Live" used to say, "And That's the Truth".

© 2009 Fiddlegirl and Tommy Turtle. All rights reserved. E-mail: tomm...@yahoo.com

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Old Man Ribber - December 16, 2009 - Report this comment
Epic, cogent, and eloquent summation of the economic scene. I bet you two will become the favorite parody writers of The Wall Street Journal and Forbes Magazine. ;)
TJC - December 16, 2009 - Report this comment
Wow... absolutely WOW! Effusive praise seems wholly inadequate... yewe tewe truly are the new gold standard in parody and had me laughing all the way to my shuttered n' insolvent bank!
Patrick - December 16, 2009 - Report this comment
Wonderful song. I marvel at your ability to summarize American history, especially the often-overlooked topic of economics, so brilliantly. I mentioned Ayn Rand in my comment on your other economics song. Your footnotes to this shrinking American Pie are nearly as long as John Galt's speech in Atlas Shrugged. If you like a challenge, maybe you can summarize that opus in a three-minute verse.
Andy Primus - December 16, 2009 - Report this comment
Fantastic bit of history telling - shame I haven't got a couple of weeks spare to read all of the footnotes! I did read some though, inc the one about 6102 (note 10), as I was curious to know what you meant. I've always said that politicians are shysters and that the more senior they are in position, the more of a shyster they are.Where did they draw the line on what gold you could own, and what gold you couldn't? I presume it must have only affected rich people with large quantities of bullion. What if a person (or establishment) had a huge collection of gold antiques worth millions?
AFW - December 16, 2009 - Report this comment
You've just written the screenplay for a new Mel Brooks film, "History Of The World, Part Three".. the footnotes, alone, must've taken weeks to compile...you guys really get it down and in...Fantabulistic !
Fiddlegirl - December 16, 2009 - Report this comment
OMR: What nice comments! I imagine TT could get on there pretty easily. As for me, my suspicion is that just the mere mention of *my* name would have editors at both publications laughing uproariously! ;)

TJC: As you know, TT has always "bucked" the system! ;)

Patrick: I'm sure TT will have much more to say about "Atlas Shrugged" in his reply to you... So I'll just say "thanks for v/c"! :)

Andy P: TT will have to answer that one for you, as I'm sure he will very soon! :) I'll agree with you, though, about the "shysters".

AFW: "Fantabulistic"? Ooooh!! (See-- you *are* an intellectual!) :)
blackjack21 - December 16, 2009 - Report this comment
Golden.
Warren Baker - December 16, 2009 - Report this comment
You sir/madam (smadam?) are (is?) brilliant. Here are some 5's, and expect a Don McLean reply...soon.
Tommy Turtle - December 16, 2009 - Report this comment
Old Man Ribber: Thanks! ... but there's probably not a lot of competition for the position (hey, that rhymes!) ... in fact, it probably doesn't even exist. :) Ya think we should send this as our resumé and ask 'em to create it? ... thanks for v/c!

TJC: LOL @ new twist on "laugh/bank" cliché! ... and as for effusive praise being inadequate, you never know until you try, so go on, give it your best shot! And if you don't succeed at first, try, try again . :) (kidding! thanks for v/c!)

Patrick: Actually, we thought we had.... :-) Galt merely says what we said, and via von Mises, expands it from economics to the rest of life ("Human Action") and to the philosophy underpinning it. Thanks for the perceptive comment and reference -- and didja notice (no accident, I'm sure) how close "Galt" is to "Gelt", which is Yiddish for "money" (Rand was of Russian-Jewish ancestry), as well as to "Gold"? ... Thanks for the kind and perceptive v/c! ..... (minor point: Galt's speech was 60 pages in the hardcover edition; or about 30,000 words; this was only 1/5th as long. Very flattering comparison, though :-) :-)

Andy Primus: Re: "I've always said that politicians are shysters and that the more senior they are in position, the more of a shyster they are." Or as your (Britain's) Lord Acton said, "Power tends to corrupt; absolute power corrupts absolutely."

I'm afraid the presumption is incorrect. Gold coins circulated as freely as paper money, with the Eagle (USD$10 and Double Eagle (USD$20) worth, at that time, roughly £2 and £4, to give you a frame of reference. So even the average citizen had his/her gold coins confiscated and replaced by the paper money. Regardless, the effect was the same on everyone: The dollar's value dropped by 43% overnight, which affected everyone from rich to poor and in between. Hence a $10,000 savings account was devalued just as much as the equivalent gold coinage. Am I making this clear?

There *were* exceptions such as the antiques you mention,, works of art, "coin collections" whose numismatic value (value to collectors) was far in excess of its stated or metallic value. E. g., if you had, let's say, a gold coin of the Roman empire, whose weight in gold was worth $20, but whose value as a collector's item was (probably in the millions?) etc., you could keep those. And actual jewelry -- rings, etc. -- were not "banned".

But no, it wasn't just bullion, it was the everyday gold coins that were used back then by everyone. Thanks for the v/c, and the parody will still be here, we hope, should you ever care to peruse the notes at your leisure ...Note that the same thing occurred in Britain, as briefly "noted" (heh heh) in Note 3, so it might be of personal interest as part of your own nation having made the the same mistake. Cheers!

AFW: See the other parody today: this is TT's area of educational background, so while it wasn't exactly done from memory ;), it was more like hours than weeks. :) ...... I don't think Brooks could make a slapstick comedy as foolish as this sad reality, but thanks for the compliment! If you want to shop it to the studios, we'll give you the standard 10% agent fee on whatever you get for it. :-) Thanks for v/c!

blackjack21: Couldn't ask for a higher compliment. :-D

Warren Baker: (FG = Madam; TT = Sir, though we don't usually stand on formalities ;-) .. so "are" is correct, regardless of certain silly rumors.) Thanks for v/c, and looking forward to the reply!
Patrick - December 17, 2009 - Report this comment
I had never thought of "Galt" = "Gelt" before. Some claim she took the name from a Henry Galt in "The Driver" by Garet Garrett. Others say from a man named "Salt" in "Secret of the League". There was an early pioneer in Canada named John Galt, a town in Ontario (Nathaniel Brandon's home province) was named for him. Some say Rand took her name from a typewriter. Others say she transposed letters of the Cyrillic alphabet for her name (Alyssa Rosenbaum) and used their values in the Roman alphabet. You are right about judging the value of her teachings on their own merit, rather than by her personal life, which, by all accounts, was a total disaster. I did run into Objectivists who objected to studying Rand's life, deeming it irrelevant. But when one proposes a moral code or philosophy, I think it is useful to judge how well the prophet adhered to that code or deviated from it, and whether her successes or failures resulted from following the code or breaking it. I have another low-grade song idea I need to work on. I am wondering if it would get more attention to post it to a mid-week slot or to stuff it in the Monday morning rush.
Andy Primus - December 17, 2009 - Report this comment
I didn't know that countries were still producing currency gold coins in the 30's. I thought everyone had stopped minting them from WW1 (like the UK did). I have just had a look and found that other countries began minting them again after the war: Canada until 1919, Australia until 1931, South Africa until 1932, etc.
How much did everyday prices (to the buying individual) drop by? If their cash/savings/gold investments were only worth 57% of what they were before, but prices remained the same, then that does sound like a major scam or monumental blunder (with the biggest losses for the wealthiest). If prices dropped by the same 43% because everything was 43% cheaper to manufacture (cheaper to buy the raw product & cheaper cost of wages to make, distribute them etc), then most individuals would have broken even (57% of what you had would still have bought the same amount of goods as before if the goods were 43% cheaper). I know they wouldn't have dropped by 43% - I'm just using the 2 extremes as examples. Don't bother with a big response unless you already know the answer - I don't expect you to have to study just so that you can answer my ramblings.
Mark Scotti - December 17, 2009 - Report this comment
Should be sung at every Congressional session!!!
TT @ Andy Primus - December 17, 2009 - Report this comment
Andy Primus: Not ramblings at all; a pertinent, logical, and intelligent question. The critical thing to remember about devaluating currency is that it hurts savers and lenders (who get repaid with money that is worth less than when they lent it) and benefits debtors/borrowers, for the opposite reason. Part of the goal, undoubtedly, was to help liquidate the massive debts that accumulated during the Roaring 20s spending spree, ( just like the the Roaring 1990s spending spree*), and the debt caused by Depression-era jobless who couldn't pay their bills. But that cheats the lenders.

*1990s President Clinton was proud of the "economic growth" under his Admin, but the total growth in the economy -- 70% -- exactly matched the total growth in consumer non-mortgage debt (i. e., credit cards, installment loans to buy cars, etc.) -- 70%. So this "growth" was fueled entirely by new debt, just as the housing boom of 2000-2005 was fueled by a massive increase in mortgage debt under Government pressure to ease lending standards. (See FG/TT "ACORN" parody.). It's a maxim of economics that "All debt is eventually liquidated -- if not by repayment, then by bankruptcy, or by devaluation of the currency, or both". Look around the world today and see.

No problem answering the question: "Knowledge consists either of knowing something, or of knowing where to find it". TT has it bookmarked. :-)

Here's a comparison of prices from 1928-29 (pre-Depression) to pre- and post-devaluation. You'll note that at *best*, the drop in prices was slightly over half of the drop in value of the dollar, which translates to a loss for all, rich, poor, and middle -- and to businesses, which is *why* the jobless rate remained so high. They couldn't afford to hire new workers, as said in the footnotes, and the public couldn't afford to buy any more products anyway. Consumer Price Index comparisons in each case are from the base years 1928-29 to the year shown.

1926-29 to:
:
1932 down 20%:
1933 down 24%:
1934 down 21.7 % ...(i. e. prices starting to rise again -- inflation -- *despite* the lingering depression):
1935 down 20%:
1936 down 19%:
1937 down 16%:
1938 down 17..5% .... depression still with us 9 years later:
1939 down 19%:
1940 down 18%:
1941 down 14% ...US enters WWII, massive military spending increase :
1942 down 5%:
1943 up 1%: ...despite imposition of wartime price controls, prices still creep up:
1944 up 3%:
1945 up 5%:
:
The most critical period relative to the issue here is that from 1933, before the devaluation happened in late August -- to 1934, prices (inflation) *rose* 3%., despite the weak demand from the depressed economy. So, the devaluation was definitely *not* a mitigator, much less a gain, to consumers, It was a lose-lose move that prolonged the Depression and caused a massive loss in confidence, both at home and abroad, in the soundness of the dollar, and worse, the fact that a single person could issue such an edict at any time.
TT @ Andy, Patrick, Mark - December 17, 2009 - Report this comment
Andy: Typo at t op of table (flippers!) "1928", not "1926".

Mark Scotti: Sounds good to me! ... Could we make it the National Anthem, to be sung at ball games, etc., just to reinforce this in the public's mind as well? :-) Thanks for v/c!

Patrick: Thanks for the interesting tidbits. Ontario is the most interesting, but the question would be whether the real Galt exemplified Rand's values.... else, I kinda like my theory, but of course can't prove it.

No, I don't think studying the life of DaVinci, Rand, Bill Clinton, or Tiger Woods is irrelevant. :) Lots of preachers and philosophers haven't always practiced what they preached. We just need to avoid the logical fallacy of "argumentum ad hominem" (saying that an attack on the person invalidates their arguments). The most ridiculous example of this is by anti-vegetarians who claim that Hitler was a vegetarian. He wasn't, but if he was, so what? Hitler = vegetarian is NOT equal to "alll vegetarians = Hitler". Or as Barry Goldwater said in response to the fact that his campaign attracted a few of the fringe nutcases, "An idea is not responsible for who believes in it." Well said, Sir!

I didn't like that all of her heroes smoked, and that in several places, smoking is extolled as a virtue. "When there is a fire at a man's fingertips, there is a light in his brain" -- or something like that, didn't look it up. But in the 1930s-50s, smoking was widely accepted as glamorous and even good for you, so she was a part of her time, as most people are.

Same with the amphetamine usage, which, incidentally, is chemically related to nicotine; the stimulant effects are similar, though amphetamines don't cause lung cancer. :) Try writing an 1100-page, highly complex and philosophical novel, and the others, and the non-fiction books and essays, while holding down a full-time job during the early parts of your life. Not really different from those who gulp coffee throughout the day (as several writers here have openly admitted lol!), and it didn't seem to cause her any problems.

The craving for rich foods (chocolate and cheese), aside from being common to women in general (TT ducks into shell as flying frying pan hurled by FG -- kidding! kidding!) is common to those born or raised in poverty --as early 1900s Russia was.

I *do* have a problem with trying to rationalize her affair -- and get both spouses' approval -- under some sort of Objectivist exception. Get a divorce, both of you, then go do it. I felt sorry for Hank Rearden -- Lillian was a beyatch beyond compare -- and divorce *was* much more difficult then. In fact, in some states, adultery was the only permitted grounds. (People used to fake adultery so they could get a divorce -- *seriously*). So I don't have a problem with HR's adultery, but at least he was discreet. (No spoiler here about how it became public.) IMHO, Rand should have been discreet, or better, done it legally. But I don't think it invalidates the Objectivist philosophy, of which sexual relations are only a small, derivative (though important) part, viz: the lecture from D'Anconia to Rearden on how we choose our partners, and why, and what it says about us.
AfterthoughTT @ Andy - December 17, 2009 - Report this comment
You'll notice that the biggest drop in prices occurred before Roosevelt even took office in 1933 -- the natural result of weak demand due to the Depression (and *the natural correction for it*, if allowed to happen). Since the devaluation didn't happen until April 1933 (not August, as said above -- got Roosevelt confused with Nixon, which is easy to do :-) and I don' have *monthly* figures, for all we know, the entire price drop occurred before the devaluation. In any event, the majority of it did, and prices started climbing again despite the Depression, because of the inflation (devaluation) of the currency. Don't know why I didn't include that observation along with the chart. Sorry.
Timmy1k - December 17, 2009 - Report this comment
Great history and econ lesson - even without the footnotes. Sorry I missed this one yesterday - computer service down.
Tommy Turtle - December 17, 2009 - Report this comment
Timmy1k, thanks, and no problem. You're welcome to look at any of our works at any time, trust me! :) :) :) Thanks for reading and v/c.
Andy Primus - December 18, 2009 - Report this comment
Wow, isn't the internet wonderful (as long as you cross reference everything - and even that isn't 100% because I've seen sites that have obviously taken their info directly from another site which was already wrong).
So, all were shafted and lost at least a fifth overnight - and the presi wasn't even assassinated. I'm guessing it would have been a double whammy for the poorest - a smaller pay packet to start with, and a one fifth drop in real value of that already smaller pay packet. If that's the way it worked out, then the richest suffered a triple whammy - same two points were just as relevant but they also lost a fifth of their savings. I wonder if the politicians developed some kind of scam to stop themselves from suffering the loss of savings. I bet they did if they were anything like the ones of today.
Andy Primus - December 18, 2009 - Report this comment
Need to clarify the smaller pay packet bit. I'm guessing that as there was less company money around, the companies would have had to decrease wages - there's been a lot of that here, in the current slump (it's been either pay cuts for the entire staff, or lay offs for some of them - with a fat cat exempt clause, of course).
Tommy Turtle - December 18, 2009 - Report this comment
Andy Primus: Eminently correct on all counts, Sir -- go to the head of the class! And a point that is often overlooked by those who want to "soak the rich" is that said rich are the ones who provide jobs for the likes of you and me.

Not talking about CEOs with huge bonuses for driving the company bankrupt, of course -- they are *still* just *hired employees*, which they themselves tend to forget. Rather, about the investors and owners who build factories or computer software or widgets or whatever. Slam them, and yep, exactly what you said -- wage cuts, layoffs, -- which are exactly what's happening now. Yet the POTUS still talks of "soaking" them more..... *sigh* (hence TT's gloomy outlook ATM)
Oops. got cut off ... (cont. @ Andy and everyone) - December 18, 2009 - Report this comment
Oops, a typo caused an improper break, and the comment was cut off. (dang flippers!)

Yes, the pols *always* have a way out of their own laws. LITTLE-KNOWN FACT: The members of the US Congress do NOT pay into Social (in)Security. They have their own fat-cat pension plan that pays them a juicy sum for life, even if they serve only two years. They're too smart to pay their own salaries into a mismanaged, bankrupt program, which was merely another of F. Roosevelt's terrible ideas -- to bribe older workers to retire, to try to leave room for younger ones to get jobs, and make their children pay for it. We're still paying for that mistake today, and our grandschildren will be. But that's a topic for another parody.

And yes, the Internet is great. TT will always source any such statements if asked, but the footnotes are too long already. The figures in the chart in the above comment came directly from a US Gov web site,

http://data.bls.gov/cgi-bin/cpicalc.pl

where "bls" = Bureau of Labor Statistics. So, straight from the horse's mouth - and a fascinating (to moi) source of info on tracking prices (hence, inflation and the value of the dollar) over any period of time. A no-brainer to use, and it's free -- try it!
Tommy Turtle @ EVERYONE - January 09, 2011 - Report this comment
Due to some bugs in the site's previous code, which have since been fixed, many dollar figures in the footnotes didn't post properly. The dollar sign and two digits after it were missing. I noticed this only recently.

A special thanks to ChuckyG for going through those 5,000+ words of footnotes and making the corrections at my request. It now reads how it should have.

Sorry for any confusion that this may have caused, and that I didn't catch it sooner. Guess no one else did, either. ;)

Again, thank you, ChuckyG.
This Just In - January 15, 2011 - Report this comment
"The United States just passed a dubious milestone: Government debt surged to an all-time high, more than $14 trillion. ... Today's debt level represents a $45,300 tab for each and everyone in the country."

THE BLAME GAME::

"It soared from $7.6 trillion in January 2005 as President George W. Bush began his second term to $10.6 trillion the day Obama was inaugurated and to $14.02 trillion now. "

THE MATH GAME:

GWB 2nd term: Jan. 20, 2005 - Jan. 20, 209 = increase of $3 trillion, or $750 billion/year.

Obama inaugurated Jan. 20, 2009 (with Democratic supermajority in Congress) - today, Jan. 15, 2011 = increase of $3.6 trillion in a little less than two years, or $1.8 trillion/year, a 140% increase in the annual rate of growth of the debt. "Change is all you can be leave in" your pocket, 'cuz the dollars are running out.

THE FUTURE:

"With a $1.7 trillion deficit in budget year 2010 alone, and the government on track to spend $1.3 trillion more this year than it takes in, annual budget deficits are adding roughly $4 billion a day to the national debt. Put another way, the government is borrowing 41 cents for every dollar it spends."

Excessive borrowing to buy houses led to the crash of the housing market. What will happen when excessive borrowing leads to the crash of the Government?

Maybe something better will take its place. - TT.

(source: news.yahoo.com/s/ap/20110115/ap_on_re_us/us_debt_wars
(no www needed)
US Credit Rating Threatened; Gold Closes Above $1500/oz ... - April 20, 2011 - Report this comment
... for the first time in recorded history. (It slipped back a couple of dollars after the New York markets closed for the day, as some took their profits. The intra-day high was more than $1506.00.)

On the day this parody was posted, gold closed at about $1131/oz, which was up $8 from the day it was written and submitted, i. e., the day before. (Source: www.kitco.com/scripts/hist_charts/daily_graphs.cgi).
This is a rise of about 33% in about 16 months, which is almost 25%/year.

One major cause has been the budget/deficit crisis, as foretold in this parody. The well-respected credit-rating agency, Standard & Poor's, has put the US on a "negative" outlook, threatening to reduce the US's AAA (best) credit rating, for the first time since the bombing of Pearl Harbor in 1941, almost 70 years ago.

When we wrote this parody, WE_WEREN'T_KIDDING. This is not some vague academic exercise, nor a partisan diatribe -- both parties were slammed in the parody (see FDR - Nixon, e. g.).This is *the reality in which we live*

. From the comment above:
"Excessive borrowing to buy houses led to the crash of the housing market. What will happen when excessive borrowing leads to the crash of the Government? "

We may very well find out. It will not be pleasant.

"Maybe something better will take its place." .... It certainly hasn't so far, despite the promises of "change you can believe in". Which means that, as one writer said, "If you don't change your direction, you'll end up where you're headed." ... What happens after that depends on whether anything was learned from the debacle. History says that nothing generally is.

Are we pleased or smug at seeing the predictions come true? No, only saddened. (We live here, too.) It didn't take a crystal ball or a genius to see this coming; only the ability to view reality objectively. -- TT.
NEW LINK TO FREE WEB-BOOK PER THE INTRO - June 17, 2011 - Report this comment
"Free-market economist Henry Hazlitt wrote a seminal work, "Economics In One Lesson ..."

The link in the intro is no longer valid, but this one is good:

http://steshaw.org/economics-in-one-lesson/contents.html

Contrasting Hazlitt's teachings of 1946 with what our policies actually have been will explain everything about why we're in the current mess, and what needs to change to fix it. Written in plain, simple language -- no charts, no advanced math, no economics training, nor any college education whatsoever.

Maybe we could all e-mail the link to every member of Congress and the Administration.
Patrick - June 17, 2011 - Report this comment
Scanning through the comments section and relinked to this masterpiece. If only you could get this song into schools as an introduction to American economic history. Those who believe in God sometimes say that the men who met in 1776 to found this nation were divinely inspired. If this country collapses, it will look a lot more like France in 1789 or Russia in 1917. Can you just imagine the depraved filth that would turn up in today's environment to try to forge a new constitution or government structure? We'd have more "rights" than we could count (especially after attending government school math classes) but precious few liberties.
Tommy Turtle - June 17, 2011 - Report this comment
Patrick: "If only you could get this song into schools as an introduction to American economic history." ... .Well I *do* know one schoolteacher ... but the School Board mandates the curriculum, and like all organizations with an instinct for self-preservation, they'll teach what keeps them in power. Sort of like the schools you went to that, uh, "omitted" certain details of history that weren't flattering.

Also teaching "Political Correctness" in a Politically-Correct manner... Best not get her started on that -- you'd never believe that a violin could screech that harshly (though quite deservedly so.;)

The only bright spot: People finally becoming disenchanted with the failure of the bailouts and other junk; the broken promises and miserable economic performance of the current Administration. The Tea Party is drawing strength from that, and making the L-word heard once again in public discussion. No, they're not completely Libertarian, but formerly-banned words like "balanced budget" are actually being heard on publicly-broadcast media! Quick! Get the kids out of the room! ;-D

Thanks for revisiting, and let's both hope that for once the above has some influence in the aftermath, rather than your dire lessons from history.
Yet Another New High, Thanks To The Fed - July 12, 2011 - Report this comment
"Gold jumped to a record high Tuesday after the minutes from the Federal Reserve's June policy meeting indicated the central bank might be open to more monetary stimulus."

("Monetary stimulus" = "printing more counterfeit paper money", per Orwellian Newspeak. [1]

"In after-market electronic trading, gold rose as high as $1,574.30 an ounce" ... currently at about $1565.00, still an all-time high.


[1] Speaking of George Orwell's Newspeak, from his prescient masterpiece "1984" © , am I the only one who's noticed that "taxes" are now called "revenues", and "raising taxes" is now called "raising revenues"?
          And finds this slimy and deceptive? If you propose to raise taxes, have the (guts) to say so. Guess they must realize that Americans don't *want* higher taxes, or the pols wouldn't use euphemisms.. Sheesh. - TT
$1600, Here We Come; 1600 Penn. Ave, There You Go - July 18, 2011 - Report this comment
NY financial markets will open officially in about five hours. World price for gold made a run at $1600 at about 0700 UTC (3am NY-EDT), now at about $1596.70.

Crossing 1600 would be another sign that the current resident of 1600 Pennsylvania Ave, Washington, D. C. may be evicted when the current lease expires. [1]


[1] M/M B. H. Obama & 2 children
Above $1600 As We Speak - July 18, 2011 - Report this comment
Q. E. D.
Make That $1700 - August 07, 2011 - Report this comment
... touched briefly in Asian trading; last trade about $1698.50 at about midnight Chucky time. Up $100 in three weeks.
"Happy Birthday, Mr. President" (Marilyn Monroe) - August 08, 2011 - Report this comment
... who sang it at JFK's birthday party.

"Gold's price has nearly doubled in price since the start of 2009," ... The POTUS was inaugurated in the start of 2009. Eerie coincidence!

"Gold's allure stems in part from fears that the world's major economies are dangerously indebted. Its value, unlike that of a currency, doesn't hinge on whether countries can make their bond payments".
Make That $1800 - August 10, 2011 - Report this comment
Latest trade in global markets = $1808.60, at about 11pm UTC = 7pm Chucky time. Up another $100 in *three days*.

Up 61% since this was written 1 year 8 months ago, a gain of about 36% per year. Good ting AmIRighters bought when they first read this parody.. ;)
"ting"? - August 10, 2011 - Report this comment
Comment preview! We need comment preview!

http://www.inthe00s.com/index.php?topic=44330.0
Make That $1900 - August 22, 2011 - Report this comment
At about 8pm ChuckyTime, last trade = $1908.40/oz.

*Now* do you believe us?

Even more fortunate then those who bought on the advice in this parody are those who rushed to buy gold when TT first noted the trend and its causes, when it was only $1,000/oz,, on Sep. 18, 2009. Gain of 90% in less than two years.

Footnote [3] to this parody:
http://www.amiright.com/parody/misc/williamshakespearehamlet7.shtml

[3] " As this is being written, gold has closed for several days in a row above USD $1,000 per ounce, an all-time high, as the dollar continues to weaken versus other currencies. Gold is the traditional and proven hedge (protection) against paper money declining in value. As the US Federal Reserve Board prints billions for bailouts, and most likely will have to print another trillion or so for whatever healthcrap emerges, this counterfeit currency can do nothing but dilute the value of existing currency, and so investors are responding accordingly -- and proving what's just been said."

Gloating? Hardly. Saddened that the bad things continue to happen, and even sadder that not enough people read the Tea leaves (oh, Tea Tea! ;-D ) in gold's meteoric rise as a sign to change direction - NOW.

"Later" will be too late. Ten years merely to *cut the annual deficit*, meaning that the national debt still grows; it just won't grow as fast (theoretically, assuming they stick to this plan). When, exactly, does it become "balanced"? When Chinese President Hu Jintao takes office as POTUS? (He's starting to earn my vote.)
Goldilocks and the Three Bulls - August 24, 2011 - Report this comment
Gold is back below 1,800 now - Are you going to tell us when to take our profits?
Tommy Turtle, Part 1 - August 25, 2011 - Report this comment
Strong rumors that the Fed, despite previous statements to the contrary, will in fact throw another trillion or so of funny money into the economy. "QE3" - quantitative easing, round 3.

Normally, this would be bullish for gold due to the long-term inflationary implications. But investors who had despaired of stocks see the probable short-term effects of higher corporate sales and profits, which could lead to actually hiring more people. So the stock market looks attractive again, and yes, some probably did sell and take their profits in gold, and perhaps moved into stocks. It's hardly surprising that something that can go up $100 in three days can go down $100 in three days, is it? ;)

Sooner or later, though, if the economy does pick up, the increased number of paper dollars chasing goods and services will start showing up in increased prices - inflationary effects. Which will once again be bullish for gold.

I don't day-trade, or look at this week or this month, but at long-term trends. During the lengthy rise of gold (or stocks or oil or real estate or any other investment), many people do take a few chips off the table periodically during the rise, thus locking in those profits while still being in the market.

One such strategy is called "portfolio rebalancing". Every so often, you re-allocate your portfolio to your desired percentages. Ultra-simple example: You have $100,000 in total investment, 50k in stocks and 50k in gold. Let's say the gold rises to be worth 75k, and the stocks fall to be worth 25k. This strategy would have you take 25k profit from gold and invest it into stocks, thus restoring the desired 50/50 balance. Also provides for locking in some profits from the good bet, while taking advantage of steep declines in other markets that you believe will recover eventually.

Those proportions are totally made up as an example, and most people shouldn't have nearly that much of their portfolio in gold-related assets because of its extreme volatility and vulnerability to political actions (as opposed to economic actions by consumers and business). And there are other asset classes, of course.

Unless the deficits are drastically reduced, and the budget balanced pretty soon, I still see gold as headed upward long-term.

DISCLAIMER: I can't give individual advice because I don't know anyone's total financial picture, age, income, what their investment portfolio is, and I don't want to know. Also, I DK *what your risk tolerance is*. Some are aggressive risk-takers in the hopes of big gains; some are very conservative and want most of all not to lose any money, even if the rate of return is very low, and most fall somewhere in between. It also tends to change over time, with age, circumstances, closeness to retirement, etc.

Tommy Turtle, Part 2 - August 25, 2011 - Report this comment
One very popular strategy, recommended by many advisers for decades, is called "dollar cost averaging". It works like this (I actually do it): Invest a fixed amount every month, say, $50 or $100, in one or more mutual funds - blue chip stocks, growth stocks, gold mining companies, whatever. Most mutual funds will auto-draft your bank account for you; no hassle with writing checks.

Aside from the benefit of diversification, this strategy obviously buys more shares when the price is low, and fewer when it's high. My monthly investment in the gold-related funds was buying a lot more shares when gold was $260//oz than when it was $1700+/oz. So over time, your average cost per share tends to be lower than trying to outguess the market, and it eliminates agonizing and the decision-making process.

Please note that *no* strategy can ever guarantee a profit. If , for example, the stock or whatever continues down and stays down, you have a lot of shares that are worth very little. But the general idea is good. Most people buy at or near the highs, and sell at or near the lows. That's less likely this way.

And if you have mutual funds in several different classes, you could combine that with the "portfolio rebalancing" plan, should you wish.

Please note that all statements are expressions of personal opinion only, which could not only be wrong, but they could be right, but rendered wrong tomorrow by something done by Congress or POTUS or IMF, etc. So no liability here, but if you had bought, say, 100 oz. of gold at $1000, and want to sell, say, 1/3 of your holdings, which currently would be worth around $170,000+, you'd have a firm profit of $56,000 in the bank, and still have 67 oz. of gold, worth about $115,000 - still more than your original investment. You'd get no argument here, and I expect a lot of people may have done just that as soon as the Fed rumors surfaced. It's not a bad idea anyway, as said before.

I'm in it for the long term, because I don't think the pols and the electorate are willing to do what's necessary to change the direction. So it's like buying insurance on your house: You don't really *want* the house to catch fire (the economy to fall, inflation to go back to double-digits, the Chinese currency becoming the global standard vs. the dollar, whatever), but if it does, you'll be awfully glad you bought the insurance.

Tommy Turtle, Part 3 - August 25, 2011 - Report this comment
Also, gold-mining stocks have *not* risen in proportion to gold itself, which is odd. They may be a better buy right now, and some pay dividends, which gold does not.

For example. the world's largest pure gold-mining company (as opposed to conglomerates who mine gold in addition to many other lines of business), Barrick Gold Corporation (ticker ABX), hit a multi-decade high of $55.74/share in late April of this year, as gold was breaking through $1500/oz for the first time ever. Yet even as gold continued to climb, the stock languished in the upper 40s, barely breaking $50 on the quick move to $1900 in gold, and now back to about $48.60. Yet gold is still $200+/oz more expensive than when Barrick made its high. Also, it pays a dividend of about 1%, which is about the most you can get from leaving your money in a bank money-market account. Please note that this is not a specific buy/sell recommendation, but just food for thought. There are lots of other gold-related companies out there.

Same with mutual funds that specialize in gold-mining stocks: all down in price from highs made when gold was much cheaper. For those who can't afford to diversify among various companies in this field, such a fund avoids "putting all your eggs in one basket" (even the golden egg, lol.) One example:
U.S. Global Investors Gold and Precious Metals Fund (ticker USERX). $22/share in December 2010, with gold in the $1400s; now trading in the low $17/share, with gold in the $1700s. Dividend yield at the current price is about 1.38%. Again, not a specific recommendation, just a sample of the many specialty funds.

To play it even safer, put some in the metal itself, and some in the stocks. Then, whichever outperforms the other, you have some participation.

DISCLAIMER: The type of investments mentioned carry significant risk, including the risk of losing some or all of your investment. Invest only that which you can afford to lose. Have emergency savings in the form of insured bank accounts or CDs, etc. Get a prospectus and read it carefully before you invest. And please re-read the disclaimer about how someone who doesn't know your total financial picture is neither able nor willing to make specific recommendations to anyone or everyone -- especially since everyone is different. .

I'm glad you posted, because I really did want to comment on the recent sell-off, but there was no real evidence that anyone was following this page. I still take this as a short-term blip in a long-term trend, and I'm still sad, not happy, that the country shows no signs of changing that long-term trend. Thanks for asking.
Now, Arent' You Glad You Patiently Rode Out That Little Blip? - September 06, 2011 - Report this comment
@ Goldilocks and the Three Bulls:
(quote) "Gold is back below 1,800 now - Are you going to tell us when to take our profits?" (close quote)

Last trade on world markets, at 2am ChuckyTime = $1920.20.

As said, the rumors of another round of Fed easing brought some optimism to the markets before the August meeting. AP quote from August:

"Bernanke held out the prospect Friday that the Fed may take further steps later to help the economy. But he offered no new plans for now.... Investors had hoped Bernanke would use his much-anticipated speech at an economic conference in Jackson Hole to unveil some aggressive measure to jolt the economy. He didn't...."
********************

The European banking crisis continues to get worse, the August report of zero new jobs created for the month... Investors returned to the safe haven of real value.

If you patiently rode out the dip (or "pullback", or "correction", or whatever Newspeak) down to $1750 on Aug. 24, you're a happy camper today. But as also noted, if you took your profits on, say, 1/3 of a 100-oz., $100,000 investment from two years ago, even selling at the recent one-day bottom of $1750, you've put a 75% profit in the bank on that portion, and still have 67 oz. left, worth about $128,600.00. - $28k more than your original investment, and still participating in any future rise.

Some take a bit of profit at certain points along the way; some use such dips to add to their holdings. Those who bought the mining companies, or mutual funds thereof, on the recent dip are pretty happy too right now. One or two weeks does not make, or change, a long-term trend. Nothing has changed to make me believe that the *long-term* trend is not still toward the upside. Sorry that it took almost two weeks for reality to back me up on that. ;-D

DISCLAIMER: In addition to all of the multiple disclaimers in all of the posts above, please note that past performance does not guarantee or predict future performance. Opinions expressed are exactly that - personal opinions. Sir Isaac Newton's lesser-known Third Law of Opinions states that "For every opinion, there is an equal and opposite opinion."
Jinx - September 06, 2011 - Report this comment
For some strange reason, took a nose dive shortly after above was posted. Must be a jinx to post about it. OK, won't for a while. Doesn't change the overall long-term trend or the sentiments. though. (No day-trading here).
Holy Cow,, It's All Over The Map - September 06, 2011 - Report this comment
Within about three hours of the $1920 peak, gold dropped to about $1862. Then in the next *(30 minutes* or so, back up to $1905. Currently (5:30am NY time) about $1895.

Possible: The sharp jump caused both profit-takers and short-sellers into action. The sharp drop brought back buyers, and short-sellers could make huge profits by "covering their shorts", as we say in Econoland. (buying back at a lower price what they short-sold at a higher price.)

Or everyone is just trembling about how the NY stock markets will open, with Europe and Asia down 4-6% on Monday (EU) and today (Asia).

Or enormous uncertainty (= fear) over exactly what the POTUS is going to come up with in his Jobs Speech. (Should have hired Jobs -- Steve, that is.)

Reiterate: Long-term investors, ignore these roller-coasters. Trading them is like Las Vegas, except you don't have to leave home. ;-D (it's not investing, it's gambling.) Cheers all.
Swiss Miss-ing around in the currency markets - September 07, 2011 - Report this comment
The Swiss Franc has been another "safe haven" for investors, due to the long Swiss tradition of fiscal responsibility and conservatism. It had been soaring in value relative to other currencies, as had gold.. The Swiss Gov announced that they would "cap" its value, by selling their Francs and buying up as many euros or other currencies as needed to keep the Franc value at their desired level. From a few posts above:

"Please note that all statements are expressions of personal opinion only, which could not only be wrong, but they could be right, but rendered wrong tomorrow by something done by Congress or POTUS or IMF, etc. "

How true. The euro had fallen from $1.48 in May of this year to below $1.41; the British Pound from $1.67 in May to $1.61. Supporting these troubled currencies, with Greece, Portugal, and Ireland all in deep doo-doo, relieves some fears of collapse of the currency or even of the EU. Hence. not so much motivation to run to gold.

Good example of how Government intervention, totally unpredictable, has effects of which we can't possibly know in making our decisions. One does wonder how long the Swiss will do this, and how much they're willing to spend, but in the short term, it puts a prop under the troubled currencies and takes some steam out of gold.
A Flood Of Band-Aids™ , But No Surgery - September 15, 2011 - Report this comment
LONDON (AP) — "Five of the world's top central banks acted jointly Thursday to provide unlimited dollar loans to banks, a move aimed at easing the growing tensions in the eurozone's financial sector and shielding the global economy from its jitters.... "

"Unlimited"? Nothing is unlimited, but... this was the reason for today's sharp drop in the price of gold. However, it still doesn't fix the underlying issue. As one currency-trading analyst wrote:

"You're warding off contagion and crisis, but it's not going to solve the problem, which is too much debt,..."

Well said - and probably in fewer words than TT would have used. :)

Long-term inflationary implications are still there, too, but with the economies of the world so weak, there is little demand, and almost no one dares raise prices. ... Except for food, for which the demand seems to remain always - go figure! - and every time TT goes to the grocery store, seems prices are higher. Note that US Treasuiry Secretary Timothy Geithner made an unprecedented appearance at the (cough) *Eurozone* (cough) meeting. Is anyone else so cynical as this writer, to believe that TG was sent by The Anointed One to put political pressure on the Euro folks to do something like this, because a EZ crisis, which would quickly aggravate the whole world's situation, would hurt his boss's re-election chances?
The Jobs Bill Didn't Go Over So Well - September 24, 2011 - Report this comment
After the POTUS presented his "American Jobs Act", calling for more than a trillion dollars in tax increases, the stock markets plunged.

It's moot who's "right" - whether higher taxes do or do not hurt an economy, and whether higher taxes do or do not discourage new hiring and motivate cutting back. What matters here is that the entire universe of people who put their own cash on the line (the Pres. doesn't, lol) by investing in the stock markets have told us, by their collective, aggregate actions, that they *believe* that the bill will hurt the economy and the companies in which they've invested, or were considering as purchases.

Fed Chairman Bernanke's announcement of a new measure hoped to aid the economy, dubbed "The Twist", forced him to confirm what we all knew - things aren't getting any better. Couched in Fed-speak as "sees additional downside risks ahead".

The rest of the world's markets followed suit, not just because of these indicators of the US recession continuing (or "returning" as they keep saying), but because the debt issues in Europe aren't going away on their own, either. (Why would they? How would they? Why would anyone think they would?)

Old saying: "When the US catches a cold, the rest of the world gets pneumonia." The US no longer has quite that degree of dominance in global economics, but then new giant, China, which was growing rapidly and lending cash to the bankrupt US Govt., is starting to see signs of slowdown as well.

Which makes sense. China doesn't just make socks and lead-based-painted toys. My computer has a Japanese brand name, but was made in China. The wireless router has a US brand name, but was made in China. My ... you get the picture.

To be continued, due to length limit on comments.
Part 2 Of The Above - September 24, 2011 - Report this comment
This created a triple-whammy for gold (and silver and oil), for some of the same reasons that drove it up. In reverse order of significance:

1) In tough times, people cut back on luxury items like jewelry. India and China in particular have long histories of valuing gold jewelry. As their economies grew, so did the demand for same. That's dropping, and of course, in the US and Europe as well. People might even choose cheaper composite plastic tooth fillings vs. eternal gold, if the budget is tight.

2) They also cut back on purchases of many of the products that were listed in the footnotes as using gold, such as computers and other electronics. See footnote [5]. Make the old computer do, instead of rushing to buy the latest jazzy features = less demand for gold.

3) One that most non-econ people aren't aware of: The Chinese Government itself, or its state-owned bank (same thing) has been buying gold very heavily for some time, with the aim of acquiring enough to put actual gold backing behind its currency, as the US dollar used to be, but was disconnected in 1933. (See [10] and [16]. Their announced goal: to entice the world to use their currency as the new global standard for trade, replacing the dollar. (The flaw: Just as the US reneged, what's to stop the Chinese from reneging on that later on? Still... )

These continual purchases added a lot to gold's dramatic rise over the past two years. If China, too, is facing recession, with fewer dollars and euros and pounds flowing in for their products, they won't be able to keep buying at this rate. Or at all. If it gets bad enough, would they actually start selling it back? No way to know. But investors around the world saw this implication of the rest of the world's recession finally affecting the 800-lb. gorilla, so they, too, were motivated to sell off, fearing further declines. Hence the triple-digit-dollars drop in the price of gold recently.

Since no one wants to bite the bullet of fiscal austerity, the likely action is what Govs have done in previous deep recessions: try to inflate their way out of it. See the post above, "Swiss-Miss". Even with the US's problems and the dollar's problems, euros and pounds have fallen more, in dollar terms, since that was written. Euro = $1.35, Pound = $1.55, each down another $0.06 in two weeks.

The long-term inflationary implications are still there, but the short-term road ahead, for economies, stocks, gold, etc. is going to be very rocky - and ruled more by political maneuvering than by anything else.
Congressman Barney Frank (D - Mass.) - December 01, 2011 - Report this comment
Mr. Turtle is eminently correct on all counts, and I would like to apologize for the significant role that I played in the massive housing and mortgage crisis that triggered the current global recession.

In 2003, while the ranking minority member on the Financial Services Committee, I opposed a Bush administration proposal, in response to accounting scandals, for transferring oversight of Fannie Mae and Freddie Mac from Congress and the Department of Housing and Urban Development to a new agency that would be created within the Treasury Department. The proposal, supported by the head of Fannie Mae, reflected the administration's belief that Congress "neither has the tools, nor the stature" for adequate oversight.

I said at the time, "These two entities ...are not facing any kind of financial crisis ... The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing..."

I also said then what has been called my "famous dice roll": "I do not want the same kind of focus on safety and soundness [in the regulation of Fannie Mae and Freddie Mac] that we have in the Office of the Comptroller of the Currency and the Office of Thrift Supervision. I want to roll the dice a little bit more in this situation towards subsidised housing."

We all can see how well that worked out. Of course, I was gambling with only the taxpayers' money, not my own. In fact, I continued to get re-elected. You certainly can fool a lot of the people a lot of the time!

Even in 2008, when any moron, or any dispossessed homeowner, knew that we were all in deep doo-doo, I said, "I think this is a case where Fannie and Freddie are fundamentally sound, that they are not in danger of going under. They’re not the best investments these days from the long-term standpoint going back. I think they are in good shape going forward."

Of course, these agencies have cost taxpayers billions of dollars, with no end in sight. Gee, I hope none of you bought stock in them...

In any event, I am very sorry that the current crisis was not nipped in the bud due to my opposition to the 2003 reforms, and to show my repentance, I will retire next year and live on my taxpayer-funded pension for the rest of my life, as atonement for my screw-ups.

In retrospect, I should have consulted Mr. Turtle before taking any action, or making any statements, about housing and the mortgage industry. I urge all politicians to do so in the future.
The China Doll Finally Breaks, Part 1 - December 18, 2011 - Report this comment
Of course the US didn't do anything about the deficit or debt issues. When both Congress and POTUS abdicate all responsibility to a Stupidcommittee (sorry for the typo ;) composed of said Congress, why would anyone expect anything to happen? -- except for the continued growth of said debt, now past the $15,000,000,000,000.00 mark. ($15 trillion, approaching $50,000 per person). But they did raise the debt ceiling without so much fuss as the last time. There's an election coming, you know.

The worse picture is Europe's debt crisis. They don't have any more willpower to take austerity measures that does the US. But their *structural* problem is far more severe. (Anyone want to venture why, before reading on? Super bonus points for all correct answers.)

The difference between the US and the Eurozone is that the US can always "repay" its debts by printing more dollars. We all know that in the long run, printing worthless paper that represents nothing will reduce the value of the dollar; hence, long-term inflationary implications. But at least the debt-holders (bond-holders) will be repaid, even if the dollars are worth less than before.

Greece, the country nearest the brink, *cannot* print more Euros. Nor can any other country in the EU. Only the EU's Central Bank can do so. But said Bank can't stop Greece from being extravagant: the retirement age in Greece, for full pension, is 54. (Note to self: Move to Greece. Pretty water, too.) In the US Social (In-)Security scheme, it's presently 65, already raised to 66 for younger workers, and will be further raised, probably to at least 69, possibly 70. Nor do Greeks, any more than anyone else, want to give up so-called "entitlements", because they feel that they're, um, "entitled" to them.

Same with Italy, which was further burdened with massive corruption under former leader Berlusconi, who enriched himself at taxpayer expense. (Verified by an e-friend of TT who lives in Italy.) In any event, the proposed "solution" is -- just as in the US -- that the prudent bail out the imprudent. But for some strange reason, more prudent countries, such as Germany, don't think that they should tax their citizens, or lend their money, to the profligate.

This was a fundamental flaw in the EU concept from the get-go. The US state of California, e. g., has had to deal with massive budget shortfalls. And while the Federal Gov does give aid to states, for transportation, medical care, disaster relief, and a lot of other things, the term "bailout" has acquired a rather nasty reputation in the US of late. (Gee, why? ;) So the idea of the US Gov bailing out California -- eh, no. In fact, the majority of US States have some form of requirement, either Constitutional, statutory, or otherwise, requiring the State to have a balanced budget, or not to carry a deficit from one year to the next. (The exact number depends on who's counting, and the definition of "requirement".) Why should those with a prudent Legislature tax their citizens to bail out those with improvident lawmakers?

This is why there is almost a replay of the US Civil War shaping up in Europe -- economically only, we hope. Most of the Northern countries, EU or not, tend to be on the prudent side - Germany, Scandinavia, etc. The worst debtors, other than Ireland, tend to be in the South -- Greece, Italy, Spain, Portugal, and while France is downplaying reports of any trouble, some rating agencies have issued advance warnings there as well.

The possible outcomes, and what that has to do with China and the price of gold: next part.
The China Doll Finally Breaks, Part 2 - December 18, 2011 - Report this comment
Worst-case scenario short-term, though possibly best in the long run: The European Union breaks apart, correcting the bad idea of creating a single common currency, but with each country spending and borrowing as much as they please. (The correct idea: The Common Market. Reducing or eliminating tariffs always boosts trade for all concerned. See the econ history books. The US Constitution prohibits any State from imposing tariffs or duties on products "imported" from other States. Of course, any State can charge sales taxes, etc., but not an actual charge to cross a state line.)

If the EU disintegrates, no one will want to lend money to the insolvent countries, and who would accept any paper money that such countries printed? They'll have to default on their debt. Alas, banks in other countries in Europe, and stupidly, the US, have made large loans to the troubled countries. So the end result is a collapse of the house of cards, with even the strong countries like Germany [1] feeling the pinch as their banks see loans go down the tube. And the already-troubled US banking system takes yet another hit.


Band-aid: More loans to troubled countries. Yeah, that's working out really well for the United States debt crisis. :P   It would continue to postpone the day of reckoning, but those with any common sense (any of those left?) won't lend to said over-spenders. Meaning, the loans would have to carry much higher interest rates, which costs the troubled countries even more ...


Only real solution: Tough austerity measures, until budgets are back in balance and debt is repaid. The UK tried modest austerity measures, and people rioted in the streets. So have citizens elsewhere in Europe. Citizens of the ancient Roman Empire were willing to let their government become tyrannical, then weak, so long as they got their "bread and circuses" (two loaves of bread per day, plus gladiator fights for entertainment). You think heroin is addictive? Try handouts.

Fiscal reform, or riots in the streets? Not much real reform going on anywhere...

From the post of three months ago (Sept. 24, 2011):

****************
"3) One that most non-econ people aren't aware of: The Chinese Government itself, or its state-owned bank (same thing) has been buying gold very heavily for some time, with the aim of acquiring enough to put actual gold backing behind its currency, ...

"These continual purchases added a lot to gold's dramatic rise over the past two years. If China, too, is facing recession, with fewer dollars and euros and pounds flowing in for their products, they won't be able to keep buying at this rate. ... investors around the world saw this implication of the rest of the world's recession finally affecting the 800-lb. gorilla, so they, too, were motivated to sell off, fearing further declines. Hence the triple-digit-dollars drop in the price of gold recently.

"Since no one wants to bite the bullet of fiscal austerity, the likely action is what Govs have done in previous deep recessions: try to inflate their way out of it. See the post above, "Swiss-Miss". Even with the US's problems and the dollar's problems, euros and pounds have fallen more, in dollar terms, since that was written. Euro = $1.35, Pound = $1.55, each down another $0.06 in two weeks."

*************
As this is written, the Pound is holding its own, but the Euro has declined further, to just above USD $1.30.

***************
"The long-term inflationary implications are still there, but the short-term road ahead, for economies, stocks, gold, etc. is going to be very rocky - and ruled more by political maneuvering than by anything else."

Yep. No crystal ball; just that neither the US (with election campaigning already underway, even by the incumbent POTUS) nor Europe is making decisions based on rational economic principles, but rather, by maneuvering for political advantage, or saving one's own political neck.

Finally: China. With the downswing across much of Europe, and the prospects of severe depression there, as well as a continually-troubled US economy, the 800-lb. gorilla is down to 600 lbs., and still shrinking. Various indicators of China's economy have been down for eleven straight months now. Who will lend money to the US and Europe? And China isn't a one-way street; they do buy goods from the West also.

Bottom line: Possible global depression. Demand falls for most things, including gold.


[1] The German word for "debt", "Schuld", also means "guilt". To be in debt to someone is to be guilty toward them until repaid. Ask a certain ex-Turtle, who has a lot of German ancestry. ;)
The China Doll Finally Breaks, Part 3: What To Do? - December 18, 2011 - Report this comment
Civilizations have a long history of trying to inflate their way out of depressions. (It doesn't work. See post-WWI Germany, where hyperinflation made the population so desperate as to listen to a psychopathic demagogue.) So while gold may not yet have hit bottom, TT is going to go out on a flip-- uh, "limb" here, and predict that two years from now, gold and related investments (blue-chip gold-mining stocks, or mutual funds focusing on same) are going to be a lot higher than they are now. And if he and the site are both still here, he'll come back in two years and face the results. (What politician ever does that?)

Actually, since this topic started in 2009, that's *still* a true statement: Such investments bought in 2009 (gold around $1,000/oz) are still worth more now than then. When asked the secret of his vast success in investing, J. P. Morgan, one of the greatest financiers ever (and whose namesake bank is one of the "last men standing", having had to buy out even Chase Manhattan Bank, the bank of the great John D. Rockefeller, who created Standard Oil), said, "I always bought too high and sold too low."

Ironic? He meant that if he thought a certain investment (any investment) would be worth more at some time in the not-too-distant future, he didn't greedily try to pick the exact bottom of a downswing -- and possibly miss out altogether, as it rose without him. Nor did he try to pick the exact top moment to sell, and who could do that, anyway?

So for those who weren't on board as gold climbed toward $2,000/oz, in TT's humble (stop that hysterical laughter! ;) opinion, here's a second chance. And those who, as described many posts above, took some profits at, say, $1,750/oz., may want to consider refilling part or all of that position. But not in one lump. See the talk above about "dollar-cost averaging" -- investing, say, $500 now (anyone in the country got that much cash left?) and $50/month every month. If the price continues down, you'll accumulate more shares with each month's fixed investment. If it heads back up, you got a foot in the door, and continue to ride up. (Please note that *no* investment strategy can guarantee success, nor insure against loss.)

TT himself has always looked at gold as the very-long-term hedge against the monetary insanity of the world, and has been investing in that manner for a couple of decades, rather than trying to day-trade, month-trade, etc. ... Oops, here comes his pesky lawyer. (sorry, "pesky lawyer" is redundant. ;)

DISCLAIMER: Personal opinion only, posted under whatever rights of free speech we still have. No guarantees, express or implied; no liability will be assumed for anyone's action. If you don't accept this disclaimer, ignore this opinion. Everyone's financial situation is different. All current and anticipated future needs should be provided for, and a comfortable cushion of savings held (FDIC-insured bank accounts or short-term CDs, etc.), *before* engaging in riskier investments that may lose a substantial part, or all, of their value. Get a prospectus and read it carefully before investing.

And for goodness' sake, consult your own attorney, accountant, or professional financial adviser, rather than acting on the opinions of an Internet turtle.
THIS JUST IN - December 19, 2011 - Report this comment
http://news.yahoo.com/eurozone-pursue-crisis-action-fitch-doubts-outcome-011504029.html

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"The euro zone will tackle its debt crisis this week by offering more cash to the IMF and long-term liquidity to banks, while moving toward tighter fiscal rules, after ratings agency Fitch cast doubt on its capacity to respond decisively." ... The euro also fell in Asia on concern about progress toward resolving the euro zone's debt crisis. The euro was down 0.3 percent at $1.3004.

Euro zone leaders agreed on December 9 to write into national constitutions a rule that budgets have to be balanced or in surplus in structural terms. If they are not, automatic corrective measures would follow. Such rules would sharply limit government borrowing, bring down debt and, euro zone politicians hope, help restore market trust in the sustainability of public finances.

But constitutional changes will take a year or more and markets want reassurance now that money invested in euro zone debt is safe, especially after banks were asked to accept a 50 percent loss on their Greek bonds in October as part of a second bailout of the country which sparked the debt crisis....

There are still doubts about this scheme. Germany's Bundesbank said last week it would only contribute if non-euro zone and non-European countries did too and the level of outside commitment is not clear.

Italy's austerity budget, vital for Rome's attempts to get its accounts in order and do its part to try to save the euro from collapse, enters its final stretch this week with unions still on the warpath. (cough).

"A week after the Brussels summit the basis of the agreement reached there has begun to unravel even more quickly than is normally the case," Emirates NBD bank said in a research note.

"(Ratings company) Fitch warned that six euro zone economies including Italy and Spain could be hit with credit downgrades in the near future. This is the second time in two weeks that the euro zone has been threatened with multiple ratings markdowns after a similar statement from Standard & Poor's.... "
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© Reuters, via Yahoo News.
John Jenkins - December 22, 2011 - Report this comment
You say that, if the EU disintegrates, no one will want to lend money to the insolvent countries. You never know. This might be something that Jon Corzine, the smartest guy Joe Biden knows, would be eager to try - again.

I suspect your predictions about the price of gold might be correct, but I am not as confident as you. I would hope that, two years from now, there will be a repeal of ObamaCare and a more farsighted income tax policy and that all investments would be significantly higher. But I don’t have a lot of faith in those well-intentioned people who go to Washington, DC. Also, as rational as “biting the bullet” is, it is difficult to get elected if that is your platform. As you point out, we all feel entitled to entitlements.

Anyway, I will mark my calendar for 12/19/2013 and see how your predictions turn out.
Tommy Turtle - December 23, 2011 - Report this comment
John Jenkins: LOL @ Corzine -- Biden!

Regarding confidence in prediction, I figure if the entire economy somehow picks up, yes, all commodities will go higher. But if the world, or any significant portion of it, goes into a major depression, the temptation throughout history is to inflate one's way out of it.

You and I both know that that doesn't work, but it does reinforce that tangible, durable assets such as gold and silver will hold their value, which means: be priced significantly higher in terms of fiat, paper currency. Thanks for insightful comments as always.
Quartely Update (not really; just EU crisis passed -- *for now*) - April 03, 2012 - Report this comment
So, after months of zig-zagging on whether there would be a default by Greece, which could trigger a wave of defaults in Spain, Portugal, Italy, Ireland, etc., the fear of which had driven gold to record levels, and kept the US stock markets depressed for fear of a global meltdown, they *finally* played Let's Make A Deal.

And what a deal: Private bondholders -- those who lent money to the Grecian gov't in good faith -- will get back only 30 cents for every dollar they lent. (I think that's called "fraud" if an individual does it. Bernie Madoff is in jail for not delivering as promised.) *And* they'll get a lower interest rate than contracted for. So much for "sanctity of contract", and why would anyone ever lend to Greece again? "Fool me once, shame on you.... "

So everyone exhales, the US stock market starts to move up a bit, and gold seems to have settled into a range of about $1600-$1700/oz. All is good?

What *hasn't* changed:

1) The "austerity measures" to be taken by the Grecian gov were far less austere than needed or targeted, and the debt as % of gross national product will be higher than early talks sought.

2) No one else wants austerity, either. Today, it was revealed that Spain's debt is the highest in 20 years. No real change throughout the other European countries, either.

3) Biggest of all: The US hasn't learned a thing (as predicted). After the big political battle over raising the US debt ceiling to around $15 trillion, the move to raise it to $16 trillion passed with barely a sound from anyone.
    That's $5 trillion in debt added since the present Admin took office 3 years 2 months ago, more than the previous Admin added in the full 8 years.

If the present trend continues -- and it looks like it's actually getting worse -- and the present Admin re-elected -- then somewhere through that second term, the current Admin will have added more debt than was accumulated since the country was founded, through to the Jan. 2009 end of the previous Admin.

Elections? Frick and Frack, and either way, we get -- n/m. (cough). The only candidate who would actually reduce Federal spending (RP) isn't giong to be nominated. The likely GOP nominee talks some talk, depending on the weather that day, but regardless of who gets elected, Congress has shown no will to cut even the growth in spending, much less actually cut spending, balance the budget, start running surpluses, and pay down some of this massive debt, which is now more than $50,000 for every man, woman, and child in the US. (Compare that to previous numbers in this thread.)

What to do, aside from not taking advice from Internet turtles? See "dollar-cost averaging" (search or Find it on this page). Ideal time to be accumulating precious metals, and stocks or mutual funds of those companies that mine and sell them, while the markets are still relieved at postponing the ultimate Day of Reckoning for another few years - or months.

Since the underlying causes haven't changed, no reason to expect the results to change. Still standing by the prediction of higher gold prices (and inflation) by 12/9/2013, as fellow MBA John Jenkins supports, and for exactly the reasons cited by Mr. Jenkins.
LINK TO HENRY HAZLITT BOOK IN THE INTRO IS NOW BROKEN - June 16, 2012 - Report this comment
Re:
"Free-market economist Henry Hazlitt wrote a seminal work, "Economics In One Lesson" ... (link)

That link no longer works. The following link works as of this date:

http://www.fee.org/library/books/economics-in-one-lesson/

IN OTHER NEWS:
Why is everyone so happy about the fact that Spain will be allowed to borrow more money to shore up its insolvent banks? Who really thinks that you can borrow your way out of debt? (D'oh)

Still, short-sighted investors are jumping for joy because the Day of Wreckoning has been postponed for yet another few months. The longer it's postponed, the worse it will be when it arrives, just as with the housing bubble.

The author stands by the predictions in posts above, and reiterates that with the price of gold having rebounded from the $1500's /oz, and hanging around in the $1600s, his humble opinion is that this is a great opportunity to continue the "dollar-cost-averaging" strategy described in several of the posts above.

DISCLAIMER: Why are you taking advice from an Internet turtle?
Is One Hedge Fund Manager Behind The Recent Declines In Gold? - December 20, 2012 - Report this comment
"John Paulson is the founder and President of Paulson & Co., a New York-based hedge fund. In 2011, he made bad trades in Bank of America, Citigroup, and the fraud-suspected China-based Canadian-listed company; Sino-Forest Corporation. His flagship fund, Paulson Advantage Fund, was down over 40% as of September 2011. During that same time, Paulson had invested most of his personal fortune in gold, and it had grown by $3.1 billion from September 2010 to September 2011."

Indeed it would have, as gold peaked right around that time (Fall 2011). Current talk in the financial markets is that with Paulson's hedge fund declining, and the value of his personal fortune in gold having fallen due to continued recessionary trends, he may be forced to sell substantial quantities of gold. Therefore, some investors are selling, or short-selling, gold in the anticipation of Paulson selling. Both factors -- Paulson selling, and other investors selling in anticipation -- would tend to drive down the price of gold.

Strictly speculation at this point, but the present prices could create buying opportunities in the coming days or weeks for those taking the longer view. Note that since the previous post, gold rose to almost $1800/oz in early October, but has now fallen back to the $1600 range of June 2012. Review "dollar-cost-averaging", discussed above, and consult your own financial adviser rather than take advice from Internet turtles.

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