Tom Fitzpatrick: Stocks to Go Down 27%, Bonds to Go Up to Extreme Levels, Gold to Remain Firm

A top analyst at Citibank has told King World News that global stock markets are set to plunge 27%. Fitzpatrick…the panic will move global bond markets to extreme levels, but gold will remain firm.

So says*Tom Fitzpatrick*in edited excerpts from an interview with King World News as provided by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!). This paragraph must be included in its entirety in any re-posting to avoid copyright infringement.

Specifically Fitzpatrick said, in part [you can read the full article here, complete with enlightening charts]:

“We think that, short-term,*the S&P 500 and the DJIA*will head down to their 200 day moving averages in a similar fashion to what we saw last year which would be*1277 and 12,000 respectively [Go here to see*his chart].

Comparing the market environment with that of ’73 to ’77….when we had a similar deterioration in housing, in the economy as well as in the U.S.*dollar, gold and the oil price shocks, and*sensing that we may have already put in the peak here, the suggestion is that the next down-move would be in the region of 27%. This could be a very quick move, in as little as four or five months.” [Go here to see his chart.]
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6. Fractal Analysis Suggests Dow Could Drop to 6,000 in 2012 and Gold Take Off Like It In 1979

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7. Dr. Nu Yu: Developing Trends in Gold, Silver and Mining Companies to Remain VERY Bearish! Here’s Why

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Tail Events, Isolation, New Normal

by Jim Willie CB
January 26, 2012

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Jim Willie CB, editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

The year 2012 has started out in strange ways. While celestial forces augur for rare tail events, the assurance of man-made events that stretch far into the extreme tail of probability are not only very likely but will be of a type to reflect the change in the global balance of financial power. The Paradigm Shift mentioned over the course of the last two to three years is at work, having moved into a higher gear. The gold is moving from the West to the East, along with the power. We will not see the process reverse in our lifetime. The sanctions set against Iran have been devised by a former global leader nation that is beset by insolvency, fraud, and lost integrity. The backfire has consolidated forces into a more fortified position against the USDollar. Trade increasingly is not being settled in US$ terms. The icons of the day are mere apologist public address systems attempting to rationalize and justify the deep insolvency and wrecked systems. The new normal is of a caravan file of broken cars and trucks sputtering down the road, using the false fuel of hyper monetary inflation and the offensive paint of phony financial accounting, the tell-tale sign being the ugly rancid smoke out of their tailpipes. The last insult is of the US Presidential election process, which is badly marred by obvious inconsistencies and anomalies. The vote count for the candidate that attracts the biggest crowds, attracts the biggest donations from corporations, and defies the financially teetering system does not match the final official tallies.

PREPARE FOR RARE DAMAGE OF TAIL EVENTS
In the probability world, a tail event is described as an occurrence far out in the small numbers of probability, extended on the tail of the curve of likelihood. In the quality control domain, the battle cry used to be Six Sigma, meaning the tolerated defect rate goal would be six standard errors, a rate in no way achievable. A quick check of the probability tables unmasks the lofty goal as one defect part off the assembly line in every 1.013 billion items. That is Six Sigma on the normal bell-shaped curve. However, in the world of phony finagled finance, such rare events are indeed occurring. The modern world has never seen such grotesque charred ramparts posing as financial structures, badly beset by the insolvency caused by the natural sequence of broken asset bubbles, aggravated by absent industry. In fact, the entire fiat currency system, where money is nothing but redefined debt, is an abomination destined for the ruin we see on such a tragic widespread level. The modern world has never seen such grotesque housing disasters, the dream of home ownership turned upside down, one quarter of American households owing more than the value of their homes. In fact, the entire housing dependence devised by Greenspan, where the USEconomy would lean not on industry but on rising home equity, serves as the calling card of central bank heresy. The heresy continues with the high priest ZIRP and bishop QE. Of course it ended in tears. The modern world has never seen such grotesque quicksand in sovereign debt for so many major nations. This goes far beyond Greece, Ireland, and Portugal, the symbols of small fry nations that few nations will make deep sacrifice for. In fact, as the sovereign debt spreads, it has become clear that Italy, Spain, France, and many other nations suffer from the sinking pressures that national securitized debt brings. As the sovereign debt loses value, the banking system sheds reserves valuation and goes insolvent, the credit engines stall, the economy falls into recession, the labor force loses jobs, the spending patterns falter, and the nation goes into a failure mode. See the Cauchy distribution in the graphic, which when the degrees of freedom grow unbounded, approaches the Gaussian normal.

Some important tail events of rare type are coming. Any attempts to control a Greek Govt Bond default will be fraught with high risk and deep peril. The equal necessity to control a default for Ireland and Portugal will be made obvious. The extension to Italian and Spanish Govt Bond losses in collateral damage will be obvious. The implications to Credit Default Swaps must also be handled, not possible in the same fraudulent manner as before with redefinitions and denied insurance awards. The contagion of vanished equity in the banking system will spread to London, New York, and Germany, in whose nations numerous banks will fail. It will be extremely difficult for the USDollar to ward off such powerful storm damage, and remain as the global reserve currency. Some distant maritime voices might regard my claims as premature and far-fetched, but their preoccupation with gold basis has left their voices mere reverberant richochets in the hinterland. The academic voices seem out of touch with trends, the loud laps on the rocks from waves of inflation hardly recognized for their damage from the remote seacoast. They seem unable to foresee the new found land that is forming in the East, divorced from the USDollar.

IRAN SANCTIONS BACKFIRE INTO ISOLATION
In the last two weekly articles, the backfire was described regarding Iran sanctions, the response from the emerging economies, and the harmful effects of foreign nations grappling with defense from the uncontrollable unbridled unending printing of phony money. The USGovt actions have galvanized a response, led not by Iran but by China. The raft of bilateral accords juiced by currency swap agreements has provided a significant buoyancy in the global trade framework, a highly complex system. It dictates the flow of USDollars in obvious ways, but it also dictates the formation of reserve banking systems in more subtle ways. In 2007, when Brazil and China announced a swap facility to bypass the USDollar in trade settlement, the Jackass took notice like a prairie dog raising his head with erect spine. In 2010, when Russia and China announced a swap facility to bypass the USDollar in trade settlement, the Jackass took notice again. The big trade winds were changing direction. The extreme importance of trade and banking interwoven should not be overlooked, as often done by the clueless cast of US economists. So when in the last month, Japan and China announced a swap facility to bypass the USDollar in trade settlement, the Jackass concluded that the end was near for the waterlogged American financial fortress. These are two primary Asian powerhouses, who with South Korea form the core strength of the entire East.

The USDollar might not be attacked on several front with harsh assaults so much as it will be relegated into irrelevance, as the USDollar will be ignored and left to defend itself in the open fields where wolves and dragons roam wild. Note the parallel to the COMEX, which as a market will also be relegated into irrelevance, as the precious metals will be traded elsewhere, in markets where private accounts are not stolen. Entire Compliance Departments have forbidden usage of the COMEX as of January, due to outlaws overrunning the floors. As the USEconomy is isolated, it will be compelled to bid up whatever foreign currency is required to purchase commodities and finished products. In reaction, the USDollar will fall in value.

In April 2010, a conference took place in the United Arab Emirates among a couple hundred billionaires, sheiks, and other royalty. They decided to embrace the Chinese Protectorate plan for the Persian Gulf, and to accept Russian oversight in the region. Without the Asian offset to the American aggression, no stability is remotely achievable. That event served as a clear signal that the sunset shadows for the USDollar were soon to encounter reality. The process would clearly require a couple years, but the writing was on the wall. Much critical structural work would be required to complete, as trade, banking, currency, and gold management has become far more complex and integrated for the array of professors to comprehend. Not sure such developments are detectable in the maritimes, especially in academic outhouses or local taverns. Furthermore, the actual Dollar Kill Switch had to be devised, with confirmed connection to the OPEC oil trade. My source has informed me that the switch is finally in place and ready. Recent events show the East walking toward the switch. The numerous defiant gestures by China, Iran, Russia, India, and Japan paint the billboard in big bold letters. The workaround of the USDollar is moving fast apace. A confirmation occurred just last week when the Saudis and Chinese announced a joint project for a refinery to be built on the Red Sea. The Saudis in effect were tipping their hat to the Chinese, and again were turning their backs on the Untied States. The signals are abundantly clear. What we are witnessing is the end of the Petro-Dollar in slow steps. The steps are unmistakable to those who study the interwoven nature of global finance. They are easily overlooked by those who operate within the dome of perceptions controlled by the American apparatus, and are locked in mental gibberish ensconced in gold basis. The crowning blow might have been announced this week, as India will pay for Iranian oil in gold bullion. The news invites many questions. Apparently, the Turkish intermediary will not be needed. Gold for oil sounds like a historical point in time.

Backfire extends to Europe, where the absence of Iranian oil supply will cause some extreme problems. The shortages are soon to be acute, word coming from a German source with great contacts in the middle of the mix. He wrote this morning, “The Persians are cutting off oil shipments to Europe, effective immediately, which will kill Greece, Italy, and the other Club Med deadbeats. The West with their sanctions led by the Americans screwed itself royally. The Asians and others are dis-engaging from the Western banks as fast as they can. Expect to see more wild fluctuations in the Gold and Silver prices continue. Until this week, the Gold forces did not know how weak the Anglos already are. They have hardly any firepower left.” Difficult decisions will be made toward the USGovt leadership. It is shaky. It is lacking integrity. The nation is smeared by the splatter of fraud. Its markets are propped by the heavy hand of daily interventions. Its economic data is laughed at as a fantasy. Its elite are given huge grants without global approval. Its central bank makes decisions unilaterally, without conferring with USGovt creditors. The foreign anger is ripe. The motive to seek alternatives is at high pitch. Big changes are in progress, pushed along ironically by the USGovt itself. If their spokesmen insists on the many major global trade participants to take sides, the crew in WashingtonDC might be in for a shock, colored by isolation. The real loser will eventually be the USDollar, whose Petro-Dollar defacto standard is being washed away by central bank liquidity and leadership arrogance. The US financial body resembles a pig adorned with lipstick with each passing day.

NEW NORMAL OF HYPER MONETARY INFLATION
It is hard to describe fully the lost ways of the US Federal Reserve. The phrase New Normal is a transparent attempt by financial icons in the private sector to put a face of legitimacy on a system bound in the USDollar and its heavy handed management, reinforced by a daisy chain of $trillion frauds. Such cannot be done. The term was coined by Mohamed El-Erian, from the PIMCO helm. Bond fraud followed by TARP Fund fraud, followed by Financial Accounting fraud, followed by Mortgage Contract fraud, followed by unauthorized multi-$trillion fraudulent grants by the USFed, followed by the grand sequence Quantitative Easing to wash value out of the USDollar, followed by the unilateral undercut to USGovt creditors, followed by more unilateral decisions to sanction Iran for nuclear weapon development that even Defense Secretary Leon Panetta admits is not a reality, well, does not make for global leadership. It makes for a travesty. Yesterday the USFed released more directives. So the USEconomy is stuck in a weak reverse gear. The accommodation will extend until year 2014. These guys are basic liars. Even Bill Gross of PIMCO takes shots at the central bank policy or ruin. The United States will suffer financial repression (in Gross’s words) if the Federal Reserve implements additional bond monetization as policy. The USFed will hold its benchmark interest rate at near 0% for at least the next three years, as a testament to central bank failure. No departure from the 0% rate can be done. The USGovt debt service requires it, demands it, and will default without it. The ZIRP and QE are worn as badges of failure and dishonor.

Remember the Green Shoots of USEconomic recovery in 2009? The Jackass dismissed it as nonsense. Remember the Exit Strategy later in 2009? The Jackass dismissed it as nonsense. Remember 0% was for just six to nine months, an emergency policy? The Jackass dismissed it as nonsense. Remember how Quantitative Easing was to be temporary in 2010? The Jackass dismissed it as nonsense. Remember how the 0% accommodation was to last until 2013, announced early this year? The Jackass dismissed it as nonsense. It is all the stuff of cows and bulls propelled from hind quarters, piling on the meadow in lumpen form. Tragically, the reality is more simple. The 0% rate (ZIRP) and the heavy hand of monetized bond purchase (QE) are permanent or else the system falls apart and collapses. Such an admission would send the USDollar, the Euro, and all major sovereign bonds to the woodshed for processing in a pit filled with excrement, where they will ultimately end up. The tragic fact from the world of economics, is that 0% and bond purchase kills capital, diminishes the economy, puts business asunder, ruins jobs, and causes federal deficits to grow. They are not stimulus, but rather financial formaldehyde.

GOLD & SILVER READY FINALLY TO RUN
For the last several weeks, a theme was mentioned numerous times, that the 1650 level would be defended. It would be defended not just vigorously, but almost to the death. Enormous naked short positions are in place between 1625 and 1650, put by the gold cartel. They might be in the process of being overrun. My sources inform that in November an important team was assembled, and funded to the hilt, with a mission to trample the gold cartel, to cause a failure in their attempts to deploy naked shorting in price suppression, to force them to cover their huge short positions in retreat, to oblige outsized drainage of the COMEX, to even induce them into draining the GLD exchange traded fund of its inventory from the backdoor. The team was from the East, and not necessarily only from China. They are determined. They are motivated. They are wealthy. They are angry. They want an end to Dollar Hegemony. They see the Untied States as both weak and corrupt in visible manner. The time is now. The Iran grappling hooks seem not to find the fleshy matter of the allied fortress walls. They have been tossed aside, while new alliances form in defiance.

The US & London tagteam seems not to properly assess their adversary. These bankers who parrot the English language (but hail from fascist roots) are not the beneficent lords that they used to be. They have become syndicate captains and leaders. The events of the last few years have demonstrated allegiance to the elite and contempt for the masses. The nationalized financial firms are kept under foot so that the fraud is not exposed. One would shudder to see the toxic paper mixed among bond fraud and outright counterfeit, housed safely under USGovt roof. See Fannie Mae and AIG. The mantra of Too Big to Fail is an epitaph, not a call to remedy. The chief stanchions of toxicity and fraud are Bank of America, which would fail without the money laundering lifeline. So it is rescued in generous offerings.

The USDollar ship of sea is adrift, soon a derelict vessel. The signs are clear. The sovereign debt system that serves as foundation is a rotting corpse. The East is working feverishly to build the alternative system. Look for barter to be its backbone. By the Ides of March, it should be more clear. Any controlled demolition of PIIGS debt and bond writedowns will make for quite the event to watch. The upcoming funding needs of Italy are an order of magnitude greater than the bond market or the Euro Central Bank can manage. The game breaker events are nigh. Just this week, India and Iran announced settlement of oil trade in gold bullion. The workaround seems unique and novel, but with historical precedent. Before the USGovt unilaterally broke the Bretton Woods Accord that established the Dollar Gold Standard, settlement in gold was the norm. The world might be soon coming full circle.

The US-based silver production in October 2011 was 30% below the same month in 2010. It went from 117 metric tons to 81.4 metric tons. In contrast, the American Eagle silver coin production is on a strong upward course since 2007. The current US silver demand is 117% of the current domestic production level, in deficit. The USMint will have to import silver. They can always shut down, or impose a vacation, or ship steel coins clad in silver. If it works for tungsten and gold, it might work for steel and silver. Be sure to know that like with gold, the newly assembled Eastern team is at work in the silver market. Their objective is to cause a failure in the cartel attempts to deploy naked shorting in price suppression, to force them to cover their huge short positions in retreat, to oblige outsized drainage of the COMEX, to even induce them into draining the SLV exchange traded fund of its inventory from the backdoor. The method is simple, coming from illicit (but not illegal) shorting of the shares.

CONTROLLED U.S. PRESIDENTIAL ELECTION
The clues are clear but only to the alert observers. In year 2000, for the first time a gross inconsistency showed itself as an anomaly. The exit polls in Florida and Ohio did not match the election results at the local level. For a full generation, the correlation had been over 90%, as it should be, since people exiting a voting center reveal their votes with consistency. This is the left hand and the right hand coinciding genetically with the same human standing before the clipboard recording the exit poll. The lapdog subservient US press reported the anomaly as people changing their minds, or not admitting to the clipboard their actual voting preference. Numerous statistical studies showed the anomalies in colored form, to expose Florida and Ohio for its voting system fraud. Yet another blatant fraud has infected the American landscape. This is a far cry from legions of dead people rallying to vote for Kennedy in Chicago during the 1960 election, with the forces marshalled by Mayor Daley. History has repeated, as 1000 dead people voted in the South Carolina primary in one city alone. My guess is the dead people voted for Gingrich. The season started in Iowa, where Ron Paul had a nice steady lead for the few weeks leading into the caucus. Then suddenly Santorum came out of nowhere to share the win with Romney. Paul finished a lowly third. The Santorum crowds were small except for his victory speech. Could it be that the outsourced vote count took 10% to 12% of the Paul vote and put it in the Santorum bin? Then in New Hampshire, where vote fraud is much more difficult due to hand counted ballots, a reality check came. Santorum finished way down the line. Move on to South Carolina, where again Ron Paul shared the lead position in the polls. But on the primary day, again Paul finished again a lowly third. We are told Gingrich won, and justified by having his home state so nearby. Yet Gingrich had to cancel a couple campaign stops due to lack of attendance. Ooops! Could it be that the outsourced vote count took 10% to 12% of the Paul vote and put it in the Gingrich bin?

In a recent article, the Jackass remarked that the US presidential election process was another controlled process subject to outsourcing. The patterns of software changing votes by Diebold loyalists have matured into bolder block changes without transparency, but such thoughts might be entirely errant. The blatant maneuvering of voting process fraud will be more clear by the November confrontation. My contacts back in the states include an Afro-American lady with a big base of black business contacts. They do not favor Obama anymore, wondering aloud who he is and what benefits ever came to the black community. Busloads of urban votes from the Acorn tree might not be able to conceal what comes in the fraudulent process. Heck, vote rigging is just one more Third World characteristic, hardly unexpected. My thought in December 2008 was that Obama would fill two important cabinet positions, the rest did not matter in my view. My forecast was for Goldman Sachs to occupy the Treasury Secretary post, and for Gates to continue as Secy Defense. Control of the USDollar and US Banks was too vital to put in the hands of somebody who required on the job training. Control of the military projects was also too vital to put in civilian hands, including the critical wealth generation out of Afghanistan, whose sticky product had clearing house function in the Iraq Export Bank in Baghdad (run by JPMorgan), with lines feeding Wall Street for their cut. Both forecasts turned true. The other cabinet appointments meant little. The Secretary of State has become an important attack dog, to be sure.

Good riddance to Geithner. Timmy the Tool is nothing but a mechanic, a diminutive figure from the Wall Street club, nothing in stature like his predecessor Paulson. If truth be told, the Chinese probably ordered him out of office, after far too many ridiculous meetings on Beijing soil. Timmy’s battle cry of currency manipulation had grown tiresome. The laughter given him by university students two years ago was too much to stomach, when he claimed the US financial structures were strong and sound. Let’s watch to see if the next Treasury Secretary is of Goldman Sachs pedigree. Its firm death grip on American bank rule has been evident since Rubin in 1994. Few seem to realize it is all downhill toward ruin since that fox took control of the American henhouse, jumping the pond from the London Gold desk of Goldman Sachs. The eggs are gone and the hens are sterile. All that is left is cartel droppings.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Gold Projections 1/26/12

The primary purpose for buying gold or silver is for preservation, protection and profit as well as survival from the destruction of paper money. It’s just that simple.

Under the current financial circumstances, increases in the price of gold and silver will be significant and substantial over time.

However, common sense dictates one should restrict new purchases to after retracements, not after $200 gold price advances.

Strategic Play
Currently, we have just experienced a $200 advance in gold an a $7 increase in silver. Strategically, this is where one should be taking some money off the table, not initiating new bullion positions.
You will find many predictions elsewhere on how high gold or silver will ultimately go with some really outrageous numbers being offered. The projections may be true but they are still several years down the road.

You will not find blue sky predictions here only clear, credible and convincing evidence. Improvements in the gold price are always in steps and considerable patience needs to be exercised while waiting for the next surge or price achievement to occur.

Future Outlook
It can be said that unless this Titanic financial boat changes course radically and immediately, the weight of the evidence, risk/reward ratios and program projections does suggest a new all time high in gold and silver prices later this year.

Additional supporting evidence and nuggets of value are described here.

Fundamental Spark for Silver and for Gold?

http://www.traderdannorcini.blogspot.com/
http://www.fortwealth.com/

Today’s actions by the Fed, in concert with 5 other Central Banks, plus the move by China to lower bank reserve requirements 50 basis points, the first time they have done so in three years, has provided today’s fireworks across the commodity and equity marks. It is RISK ON time once again for the hedgies.

I mentioned in my analysis of the COT report yesterday, that the metals needed some sort of fundamental spark to break them out of their respective trading ranges. Perhaps we have that, at least for today, in the form of easing of liquidity concerns. That is unclear to me at this point since this really does not do anything to address the structural issues leading up to the sovereign debt issues. It is simply keeping a liquidity crisis from becoming a full-blown insolvency crisis.

This might explain why after the initial blast higher in the markets on the euphoria around the Central Bank actions, that the markets have not been able to continue adding to their early session gains. Traders are maybe having second thoughts about all this. I know I sure am. While it will temporarily help ease lending concerns, it still does not address the sinking value of all that sovereign debt on the books of the big European banks, nor of that on the books of some US banks. It seems to me we are going to have to see a very clear, unambiguous signal that Germany is going to go along with a large role for the ECB and maybe even a Eurobond market before traders will get more aggressive to the upside.

Regardless, silver has been able to capture its first line of technical chart resistance centered near the $32.50 level. This is its first visit back to this level in a week’s time. That has served to reinforce the support level that formed just below the $31 level. For this market to now get anything going to the upside, it is going to have to first convincingly clear $33.50 and then exceed $35. Only then will it have a shot at anything more than a return to the top of its recent trading range.

Charts to follow later….

Keynes versus Friedman – and Mises goes missing

Getty Images
John Maynard Keynes (pictured left) versus Milton Friedman: the economics clash to end them all. It is not merely that the pair were both phenomenally intelligent, frequently caustic debaters; nor is it that they hail from such different backgrounds, one an Eton-educated Englishman, the other the Brooklyn-born son of Hungarian Jewish immigrants. The fact is that the two men stood for radically opposing doctrines. They represent the ideological battle underlying the economics of the past 50 years. Whereas Keynes paid more attention to unemployment than inflation, and warned that the economy could be improved by a certain amount of state interference, Friedman argued otherwise. In his seminal book A Monetary History of the United States 1867-1960, co-authored with Anna Schwartz, he set out the theories of monetarism. – Telegraph
Dominant Social Theme: Giant versus giant?

Free-Market Analysis: This is a very interesting recent analysis by the Telegraph because it focuses on Milton Friedman and John Maynard Keynes as the archetypical east and west of economics. It is written by Edmund Conway whose Boom and Bust article we reported on just the other day. We thought the Boom and Bust article was something of a mis-hit, skipping over the culpability of central banks for the financial crisis in favor of blasting something called “capitalism” – whatever that is these days.
In fact, any sane person can see clearly that if one conflates capitalism with free-markets, the conclusion must be that protecting free-markets have increasingly not been a great concern of Western leaders. The West is taxed too much and its institutions fix the price of money and already over-regulate even the simplest financial transactions. Western governments, and now the American government, are increasingly intertwined with the largest corporations leading to a kind of command and control economy more akin to failed Eastern financial systems.
In setting up Friedman in contrast to Keynes, Conway once again skips over the free-market part of his argument. We don’t have any anything against Conway – actually his past few articles have been quite good from a mainstream press standpoint in that they tackle challenging subjects. But in producing such ambitious articles, Conway is inadvertently providing us with an example of the blind spots that mainstream media continues to harbor when it comes to economic analysis.
What Conway misses is that Milton Friedman is actually a kind of iconoclast and that the Chicago Freshwater school is a watered down version of real free-market economics – Austrian economics that got its start 200 years ago with the formulation of the theory of marginal utility (the idea that prices are endlessly fungible at the margins and only the marketplace itself can determine them at any given point).
One actually has to trace back the roots of an intellectual conversation to understand from whence it came and how it got where it was. If one does not perform this exercise one ends up with the kind of article that Conway has written. It presents Keynes, who partakes of a 5,000 year old tradition of socialism and dystopianism and contrasts his perspective with Friedman’s whose professional life, admirable as it was, seems to have been spent presenting a watered down free-market apologia.
The real giant of the 20th century when it comes to free markets was undoubtedly Ludwig von Mises who helped elaborate on central bank generated business cycles. Friedman knew of this work of course but he chose not to promote it. Instead, he spent the latter portion of his professional life first blaming central banks for economic malfunctions and then proposing how to use the same flawed tools to rectify the difficulties. Contrast this approach with Austrian frankness which defines the problem in ways that are similar to Friedman but then with appropriate rigor concludes that the institution of central banking is hopelessly flawed because it is a kind of price fixing – and price fixing inevitably distorts and eventually ruins any economy it touches.
Here’s some more from Conway on both Keynes and Friedman:

The fact is that the two men stood for radically opposing doctrines. They represent the ideological battle underlying the economics of the past 50 years. Whereas Keynes paid more attention to unemployment than inflation, and warned that the economy could be improved by a certain amount of state interference, Friedman argued otherwise. In his seminal book A Monetary History of the United States 1867-1960, co-authored with Anna Schwartz, he set out the theories of monetarism. “Inflation is always and everywhere a monetary phenomenon,” Friedman said. In short, by pumping extra money into the system (as the Keynesians were prone to doing) governments would drive up inflation, risking major economic pain. Friedman believed that if central banks were charged with maintaining control of prices, most other aspects of the economy – unemployment, economic growth, productivity – would take care of themselves.
In reading this summary, we seem to detect a certain fuzziness as to the world “inflation.” Friedman certainly understood that inflation was defined as an expansion in the supply of money (or money stuff in the case of paper bills). When Conway writes “By pumping extra money in the system, governments would drive up inflation” he seems to be using the word inflation two ways. What he may mean in the second instance is “price inflation” because the act of “pumping money” into the economy is the actual act of inflation from a classical perspective.
We also have trouble with the conclusion that Keynesian economics demanded state interference while Friedman’s central banking approach did not. True, Friedman advocated a “steady state” central banking approach to the economy, but central banking itself is a monopoly manipulation of currency, no matter whether the price fixing takes place in public or private hands. Friedman’s free-market sympathies seem to fail him when it comes to this most important Western institution.
Give Conway credit. This is a good mainstream article in that it courageously takes on important economic points not often discussed and attempts to contrast two very important philosophies. But in leaving out the development and stance of the real free market philosophy that developed over the past 200 years in order to emphasize Friedman, the article ends up contrasting economic thinkers who certainly had more in common than would seem at first glance. And unlike Friedman, Mises did not believe central banking was salvageable. As do other free-market thinkers, he looked to the invisible hand of nature to manage money as much as possible. (His advocacy of a gold standard is grist for another day.)
Conclusion: It is a little strange from our perspective to see Milton Friedman constantly being identified as a proponent of free markets. When it came to modern markets’ fundamental building block, he proved to be a proponent of bank-managed money. The Austrians have long recognized the futility of trying to manage money by setting interest rates and other statist money nostrums. Austrians of various colors wish for the return of true free market money, gold and silver, within the context of a free-market money standard. And truly, these days, there is little excuse not to notice the Austrians. Google Ludwig von Mises and you will find nearly as many mentions if not more than John Maynard Keynes – thanks to the Internet, truth is spreading.

US economy has lost almost 7 million jobs since recession began

Alex Wong/Getty Images
Unemployment in America jumped to the highest level in more than a quarter of a century last month, bringing to almost 7 million the number of jobs lost since the recession began. The jobless rate in the world’s biggest economy climbed to 9.7%, higher than the 9.5% expected by economists and up from 9.4% in July. President Obama has said that he expects the unemployment rate to reach 10% before beginning to fall. The figures from the Labor Department underline the challenges facing the leaders of the G20 countries who will grapple with when to pull back the stimulus given the global economy in the past 12 months. Timothy Geithner (pictured left) , the US Treasury Secretary who is in London for the meeting of G20 finance ministers, said this week that there is a long way to go before the global economy can declare a durable recovery. “The labour market’s healing process is agonizingly slow,” Joshua Shapiro, chief US economist at Maria Fiorini Ramirez, told Bloomberg. “We expect the improvement to remain a very slow one, and therefore for the household sector to be contending with a weak labour market for some time.” – Telegraph
Dominant Social Theme: Worse than thought?

Free-Market Analysis: We return to one of our favorite (though saddest) themes. No, we don’t believe unemployment is a lagging indicator. As we have pointed out, there is plenty of evidence that pump priming is a most inefficient way to go about aiding economies during a central-bank initiated economic crisis. Since Western leaders cannot admit this, they have come up with the respectable sounding term “lagging indicator” to conceal the reality of how modern economies operate during such downturns.
During the kind of crisis we have just experienced, Western fiat money went into a kind of meltdown. There was so much of it around that it caused first a reckless boom and then a terrible bust. By immediately setting the printing presses into motion once again, Western democracies managed to avoid a thorough shakeout of mal-investments and a sharp breakdown of worthless banks and institutions themselves. This has kind of trapped Western economies in amber. Unable to purge mal-investments – especially important in fiat economies which are routinely deformed – Western economies face a long, slow trudge toward economic vitality. On top of this, Western economies might be facing additional blows from commercial mortgage defaults and derivative defaults.
The optimal way to deal with a fiat money meltdown is to let it occur, but that is impossible for meddlesome Western governments. Another way to deal with such a large meltdown is to rush paper money back into the hands of those individuals and entrepreneurs that will immediately put money back into circulation. This doesn’t address the larger issue of unpurged mal-investments but at least it would circumvent the current lending gridlock that always occurs after one of these debacles.
Conclusion: In truth, Western democracies support central banking economies not free market ones. When central banks overprint money and generate first a boom and then a bust, their top bankers scramble to support the banking distribution system – which is therefore in a constant bubble. (The West is horribly over-banked.) Billions and in this case trillions are disbursed in days, weeks and months as necessary to staunch the financial bleeding. But this does nothing to help the real economy, nor should it, as the real economy is not the initial, nor even the ultimate concern of central banking. Central banks are put in place and maintained to create wealth and power for the state and those who control its levers. It is for this reason that we get the bizarre spectacle of US vice-president Joseph Biden boasting that his administration’s financial stimulus is beginning to take hold. How much was it? Approximately US$200 per person.

Keynes versus Friedman – and Mises goes missing

Getty Images
John Maynard Keynes (pictured left) versus Milton Friedman: the economics clash to end them all. It is not merely that the pair were both phenomenally intelligent, frequently caustic debaters; nor is it that they hail from such different backgrounds, one an Eton-educated Englishman, the other the Brooklyn-born son of Hungarian Jewish immigrants. The fact is that the two men stood for radically opposing doctrines. They represent the ideological battle underlying the economics of the past 50 years. Whereas Keynes paid more attention to unemployment than inflation, and warned that the economy could be improved by a certain amount of state interference, Friedman argued otherwise. In his seminal book A Monetary History of the United States 1867-1960, co-authored with Anna Schwartz, he set out the theories of monetarism. – Telegraph
Dominant Social Theme: Giant versus giant?

Free-Market Analysis: This is a very interesting recent analysis by the Telegraph because it focuses on Milton Friedman and John Maynard Keynes as the archetypical east and west of economics. It is written by Edmund Conway whose Boom and Bust article we reported on just the other day. We thought the Boom and Bust article was something of a mis-hit, skipping over the culpability of central banks for the financial crisis in favor of blasting something called “capitalism” – whatever that is these days.
In fact, any sane person can see clearly that if one conflates capitalism with free-markets, the conclusion must be that protecting free-markets have increasingly not been a great concern of Western leaders. The West is taxed too much and its institutions fix the price of money and already over-regulate even the simplest financial transactions. Western governments, and now the American government, are increasingly intertwined with the largest corporations leading to a kind of command and control economy more akin to failed Eastern financial systems.
In setting up Friedman in contrast to Keynes, Conway once again skips over the free-market part of his argument. We don’t have any anything against Conway – actually his past few articles have been quite good from a mainstream press standpoint in that they tackle challenging subjects. But in producing such ambitious articles, Conway is inadvertently providing us with an example of the blind spots that mainstream media continues to harbor when it comes to economic analysis.
What Conway misses is that Milton Friedman is actually a kind of iconoclast and that the Chicago Freshwater school is a watered down version of real free-market economics – Austrian economics that got its start 200 years ago with the formulation of the theory of marginal utility (the idea that prices are endlessly fungible at the margins and only the marketplace itself can determine them at any given point).
One actually has to trace back the roots of an intellectual conversation to understand from whence it came and how it got where it was. If one does not perform this exercise one ends up with the kind of article that Conway has written. It presents Keynes, who partakes of a 5,000 year old tradition of socialism and dystopianism and contrasts his perspective with Friedman’s whose professional life, admirable as it was, seems to have been spent presenting a watered down free-market apologia.
The real giant of the 20th century when it comes to free markets was undoubtedly Ludwig von Mises who helped elaborate on central bank generated business cycles. Friedman knew of this work of course but he chose not to promote it. Instead, he spent the latter portion of his professional life first blaming central banks for economic malfunctions and then proposing how to use the same flawed tools to rectify the difficulties. Contrast this approach with Austrian frankness which defines the problem in ways that are similar to Friedman but then with appropriate rigor concludes that the institution of central banking is hopelessly flawed because it is a kind of price fixing – and price fixing inevitably distorts and eventually ruins any economy it touches.
Here’s some more from Conway on both Keynes and Friedman:

The fact is that the two men stood for radically opposing doctrines. They represent the ideological battle underlying the economics of the past 50 years. Whereas Keynes paid more attention to unemployment than inflation, and warned that the economy could be improved by a certain amount of state interference, Friedman argued otherwise. In his seminal book A Monetary History of the United States 1867-1960, co-authored with Anna Schwartz, he set out the theories of monetarism. “Inflation is always and everywhere a monetary phenomenon,” Friedman said. In short, by pumping extra money into the system (as the Keynesians were prone to doing) governments would drive up inflation, risking major economic pain. Friedman believed that if central banks were charged with maintaining control of prices, most other aspects of the economy – unemployment, economic growth, productivity – would take care of themselves.
In reading this summary, we seem to detect a certain fuzziness as to the world “inflation.” Friedman certainly understood that inflation was defined as an expansion in the supply of money (or money stuff in the case of paper bills). When Conway writes “By pumping extra money in the system, governments would drive up inflation” he seems to be using the word inflation two ways. What he may mean in the second instance is “price inflation” because the act of “pumping money” into the economy is the actual act of inflation from a classical perspective.
We also have trouble with the conclusion that Keynesian economics demanded state interference while Friedman’s central banking approach did not. True, Friedman advocated a “steady state” central banking approach to the economy, but central banking itself is a monopoly manipulation of currency, no matter whether the price fixing takes place in public or private hands. Friedman’s free-market sympathies seem to fail him when it comes to this most important Western institution.
Give Conway credit. This is a good mainstream article in that it courageously takes on important economic points not often discussed and attempts to contrast two very important philosophies. But in leaving out the development and stance of the real free market philosophy that developed over the past 200 years in order to emphasize Friedman, the article ends up contrasting economic thinkers who certainly had more in common than would seem at first glance. And unlike Friedman, Mises did not believe central banking was salvageable. As do other free-market thinkers, he looked to the invisible hand of nature to manage money as much as possible. (His advocacy of a gold standard is grist for another day.)
Conclusion: It is a little strange from our perspective to see Milton Friedman constantly being identified as a proponent of free markets. When it came to modern markets’ fundamental building block, he proved to be a proponent of bank-managed money. The Austrians have long recognized the futility of trying to manage money by setting interest rates and other statist money nostrums. Austrians of various colors wish for the return of true free market money, gold and silver, within the context of a free-market money standard. And truly, these days, there is little excuse not to notice the Austrians. Google Ludwig von Mises and you will find nearly as many mentions if not more than John Maynard Keynes – thanks to the Internet, truth is spreading.

US economy has lost almost 7 million jobs since recession began

Alex Wong/Getty Images
Unemployment in America jumped to the highest level in more than a quarter of a century last month, bringing to almost 7 million the number of jobs lost since the recession began. The jobless rate in the world’s biggest economy climbed to 9.7%, higher than the 9.5% expected by economists and up from 9.4% in July. President Obama has said that he expects the unemployment rate to reach 10% before beginning to fall. The figures from the Labor Department underline the challenges facing the leaders of the G20 countries who will grapple with when to pull back the stimulus given the global economy in the past 12 months. Timothy Geithner (pictured left) , the US Treasury Secretary who is in London for the meeting of G20 finance ministers, said this week that there is a long way to go before the global economy can declare a durable recovery. “The labour market’s healing process is agonizingly slow,” Joshua Shapiro, chief US economist at Maria Fiorini Ramirez, told Bloomberg. “We expect the improvement to remain a very slow one, and therefore for the household sector to be contending with a weak labour market for some time.” – Telegraph
Dominant Social Theme: Worse than thought?

Free-Market Analysis: We return to one of our favorite (though saddest) themes. No, we don’t believe unemployment is a lagging indicator. As we have pointed out, there is plenty of evidence that pump priming is a most inefficient way to go about aiding economies during a central-bank initiated economic crisis. Since Western leaders cannot admit this, they have come up with the respectable sounding term “lagging indicator” to conceal the reality of how modern economies operate during such downturns.
During the kind of crisis we have just experienced, Western fiat money went into a kind of meltdown. There was so much of it around that it caused first a reckless boom and then a terrible bust. By immediately setting the printing presses into motion once again, Western democracies managed to avoid a thorough shakeout of mal-investments and a sharp breakdown of worthless banks and institutions themselves. This has kind of trapped Western economies in amber. Unable to purge mal-investments – especially important in fiat economies which are routinely deformed – Western economies face a long, slow trudge toward economic vitality. On top of this, Western economies might be facing additional blows from commercial mortgage defaults and derivative defaults.
The optimal way to deal with a fiat money meltdown is to let it occur, but that is impossible for meddlesome Western governments. Another way to deal with such a large meltdown is to rush paper money back into the hands of those individuals and entrepreneurs that will immediately put money back into circulation. This doesn’t address the larger issue of unpurged mal-investments but at least it would circumvent the current lending gridlock that always occurs after one of these debacles.
Conclusion: In truth, Western democracies support central banking economies not free market ones. When central banks overprint money and generate first a boom and then a bust, their top bankers scramble to support the banking distribution system – which is therefore in a constant bubble. (The West is horribly over-banked.) Billions and in this case trillions are disbursed in days, weeks and months as necessary to staunch the financial bleeding. But this does nothing to help the real economy, nor should it, as the real economy is not the initial, nor even the ultimate concern of central banking. Central banks are put in place and maintained to create wealth and power for the state and those who control its levers. It is for this reason that we get the bizarre spectacle of US vice-president Joseph Biden boasting that his administration’s financial stimulus is beginning to take hold. How much was it? Approximately US$200 per person.

Anatomy of a Crisis: That Appears Only Julius Caesar Ever Understood! – June 3, 2009

Anatomy of a Crisis: That Appears Only Julius Caesar Ever Understood!
by Martin A. Armstrong (c) June 2009
Former Chairman of Princeton Economics Intl.

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(c) May 22, 2009 All rights Reserved

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