Monday, October 25, 2010

Saturday, October 2, 2010

Gold at record highs, even more gains for silver

Gold has been hitting record highs recently, breaking the $1,300 level. Its sister metal silver has hit the highest level in nominal terms in 30 years. Silver has gone up 17% in the month of September. Nice numbers indeed, but this is just a prelude to a greater show that is to come a few years down the road. 

So Bernanke and Geithner said that the US needs a second QE. Quantitative easing, what a nice euphemism for inflation, which in turn is a nice euphemism for wealth-stealing. 

If printing money makes a nation rich, Zimbabwe will be the richest nation on earth by now. Printing money does not increase real wealth. It merely re-distributes wealth in the population from the man on the streets to the money printer. Here's a simple example to illustrate my point:

Say there're only you and me on this island, and an apple seller with 2 apples to sell. You have $10, I have $0. So 2 apples will cost $10, or $5 per apple. Now I magically create $10 out of thin air. The total money supply in the system jumps to $20. By the law of supply and demand, I will compete with you for the apples, and each apple will now cost $10. Your $10 can only buy you an apple. You have lost half your wealth to me. I have stolen wealth away from you by printing money. But the collective wealth of the island certainly hasn't increased! Lots of paper money gives the illusion of wealth. 

Real wealth comes from being more productive. I highly recommend the book "How an Economy Grows and Why it Crashes" by Peter Schiff. I will do a short book review on it soon. It's a great book for economics novice and experts alike. Tremendously easy and fun to read, I finished it in a matter of hours. In terms of impact on my knowledge, I will rank it on par with Mike Maloney's Guide to Investing in Gold and Silver. Mike's book introduced me to Austrian Economics. Schiff's book really hammers in the super basic concepts of economics.

After studying Austrian Economics and listening to Schiff, you will understand how easy economics is. And how ridiculous politicians are in trying to micromange it. The US is debasing its currency like no tomorrow. And the world is also in the race to devalue their currencies against the USD. The countries are in a race with each other to the bottom. What utter foolishness.

1 in 7 Americans are living below the poverty line. 1 in 8 Americans are on food stamps. More and more Americans are living from paycheck to paycheck. According to a study done by, in 2007, 43% of Americans said they are living from paycheck to paycheck. In 2008 it was 49%. In 2009, the supposed year of great stimulus and great recovery, the figure was 61%. And in 2010, the year when it was announced that the recession is officially over, the number jumped to 77%. Does this look like the richest nation in the world? I beg to differ. Without the life support from China and Japan, the US will be long gone. 

The US has no savings. It is living off the savings of the Chinese. Why should the Chinese work so hard, save so much, and lend it to the Americans so that they can consume the goods that the Chinese make? It makes no sense and the Chinese will wake up to the reality that they can consume those goods themselves. They can enjoy the fruits of their own labour.
In the next few years the world will see the great flaw of Keynesian economics, which focuses on demand-side economics. People may come to realise that it is supply and production which really matter. And hopefully, the world can also come to see the great immorality of Keynesianism.
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