Dollar Dumping: When Actions Speak Loudest

silver

The hypocrisy is endless. Counter-intuition is the norm. Observing financial markets requires a mirror image interpretation in an economic fun house.

Take Warren Buffet, for example. The darling of modern finance in a ten thousand dollar crumpled suit, he exemplifies every traders dream of beating the markets - buying low, selling high, and at the same time all that is frugal.

He remains a legend and a fervent “non-believer” in gold, though he was once a silver investor before the government called him out.

Jim Rickards has made it a part of his interview road show to point out that Warren Buffet is actually dumping dollars in a big way.

By his last two major acquisitions, Buffet is heavily invested in energy and transport.

Buffet talks down gold as a way of protecting his interests and to bide time before everything falls apart.

Falling Apples and Trees

Imagine coming of age in his fathers house. A house of reason, respect, and sound money. No wonder Buffet the younger was able to make some wise investment decisions early on.

His upbringing came from sound monetary principles. Currency and wealth were not merged as if one and the same, where savings and capital could actually function and be measured reliably.

And the social implications were visceral.

Benjamin Weingarten, via The Blaze, recently summarized the sum of these key principles spoken by Buffet senior.

They are worth including here in an attempt to frame the farce of the son.

Unlike his son who has lauded the Federal Reserve and in particular its former chairman Ben Bernanke, along with others who intervened during and after the financial crisis of 2008, Howard Buffett was an outspoken proponent of laissez-faire economics and sound money. In a 1948 article he wrote:

Is there a connection between Human Freedom and a Gold Redeemable Money? At first glance it would seem that money belongs to the world of economics and human freedom to the political sphere.

But when you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership of gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty.

Also, when you find that Lenin declared and demonstrated that a sure way to overturn the existing social order and bring about communism was by printing press paper money, then again you are impressed with the possibility of a relationship between a gold-backed money and human freedom…

The subject of a Hitler or a Stalin is a serf by the mere fact that his money can be called in and depreciated at the whim of his rulers…

Under such conditions [of depreciating currency] the individual citizen is deprived of freedom of movement. He is prevented from laying away purchasing power for the future. He becomes dependent upon the goodwill of the politicians for his daily bread. Unless he lives on land that will sustain him, freedom for him does not exist…

Buffett argues that the lack of a gold standard meant that Congress was unrestrained in spending money to cater to various interest groups, stating, “With no bad immediate consequence it becomes expedient to accede to a spending demand. The Treasury is seemingly inexhaustible. Besides the unorganized taxpayers back home may not notice this particular expenditure — and so it goes.”  Further:

Far away from Congress is the real forgotten man, the taxpayer who foots the bill. He is in a different spot from the tax-eater or the business that makes millions from spending schemes. He cannot afford to spend his time trying to oppose Federal expenditures. He has to earn his own living and carry the burden of taxes as well.

But for most beneficiaries a Federal paycheck soon becomes vital in his life. He usually will expend his full energies if necessary to hang onto this income.

The taxpayer is completely outmatched in such an unequal contest. Heretofore, he always possessed an equalizer. If government finances weren’t run according to his idea of soundness, he had an individual right to protect himself by obtaining gold.

With a restoration of the gold standard, Congress would have to again resist handouts. That would work this way. If Congress seemed receptive to reckless spending schemes, depositors’ demands over the country for gold would soon become serious. That alarm in turn would quickly be reflected in the halls of Congress. The legislators would learn from the banks back home and from the Treasury officials that confidence in the Treasury was endangered.

Congress would be forced to confront spending demands with firmness. The gold standard acted as a silent watchdog to prevent unlimited public spending. Buffett ends his column with this warning:

Because of our economic strength the paper money disease here may take many years to run its course.

But we can be approaching the critical stage. When that day arrives, our political rulers will probably find that foreign war and ruthless regimentation is the cunning alternative to domestic strife. That was the way out for the paper-money economy of Hitler and others. In these remarks I have only touched the high points of this problem. I hope that I have given you enough information to challenge you to make a serious study of it.

I warn you that politicians of both parties will oppose the restoration of gold, although they may outwardly seemingly favor it. Also those elements here and abroad who are getting rich from the continued American inflation will oppose a return to sound money. You must be prepared to meet their opposition intelligently and vigorously. They have had 15 years of unbroken victory.

But, unless you are willing to surrender your children and your country to galloping inflation, war and slavery, then this cause demands your support. For if human liberty is to survive in America, we must win the battle to restore honest money.

There is no more important challenge facing us than this issue — the restoration of your freedom to secure gold in exchange for the fruits of your labors.

Indeed, words of merit printed long ago.

Fast forward to the full disconnect.

The big banks are like vampires. They have no reflection. Publicly owned hedge funds with magical powers. They are the purse strings. They control the front line of marionettes.

It is not an issue of good versus evil.

It comes down to an issue of how long a thin layer of ice can support the super structure.

As immoral and evil and QE (printing) is, ZIRP (NIRP in real terms) is far, far more destructive for real capital, innovation, savers, and society.  In general, it is essentially a ‘let them eat cake, while some of us get money for free’ policy.

It is all froth. An unstable layer on the surface with very little beneath. Surface tension is fine for the nearly weightless.

But a financial economy backed by fiat and extended far beyond anything the world has ever seen cannot walk on water for very long.



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