●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
What do you call it when masses of fools buy a useless product, hoping that later they will sell this useless product to even bigger fools? Tulip bulb mania?
Before It’s News
Why Brazil Will Keep Buying Gold – and Driving Up the Price
As a group, central banks will have bought about 500 tons of gold this year, the most in more than 40 years. More large purchases are expected in 2013.
Foremost amongst the gold buyers are the central banks of emerging economies around the globe. Recent years have seen purchases by Russia, South Korea, Mexico, India and, as most believe, China.
Another country joining the party, or in this case the carnival, is Brazil. So why is Brazil jumping aboard the bandwagon now and buying gold at a record pace?
Since 2008, Brazil has attempted to fight the appreciation in the real by buying U.S. dollars. In the course of doing so, it has accumulated about $132 billion, the world’s sixth-largest reserves.
Roughly 80% of the reserves are denominated in U.S. dollars. And, as of the end of 2011, only 0.8% of its reserves were not in the form of government bonds or other bonds and bank deposits.
An economist at the Sao Paulo consultancy Tendencias, Silvio Campos Neto, told the Financial Times, “The dollar has its problems because of monetary easing policies and fiscal uncertainties that will also exert a certain pressure on the currency, so it’s natural the country [Brazil] is on the lookout for other types of assets.”
Gold essentially is useless. A tiny bit is used in dentistry and for jewelry and electronics, but the vast majority just sits in vaults around the world, costing money to store, insure, protect and ship from place to place, and it pays no interest. Meanwhile the supply goes up: About 2,500 tons are mined each year.
It is the classic white elephant, the value of which is based on the “bigger fool” philosophy mentioned above.
Brazil et al, are Monetarily Sovereign, meaning:
1. They can create infinite quantities of their own sovereign currencies. They never can run short.
2. Thus, they do not need to export goods and services, since exporting merely is device for importing their own sovereign currency.
3. They have the power to set their exchange rates at any level, by controlling supply and demand (through currency exchanges or by increasing or decreasing interest rates).
As for gold:
4. Gold, having virtually no utility, its value is backed by nothing. Compare this with the value of the U.S. dollar, which is backed by the full faith and credit of the U.S. government.
As for Brazil:
5. If the U.S. dollar fell to $0, Brazil would not lose a penny. It merely would create the necessary reals to buy whatever it needs. Having dollars in reserve does nothing for Brazil, except perhaps as a trading convenience. Same for gold reserves.
None of this is to say that gold has not appreciated in price compared with the dollar. Gold bugs (especially those selling gold) like to talk about recent price rises, conveniently forgetting the most recent gold bubble. It occurred in 1980, when the price doubled to about $600 oz, then fell to about $300, and drifted even lower for the next twenty years.
Bubbles do that. U.S. real estate appreciated in price for more than 60 years, before the bubble burst. But unlike gold and tulip bulbs, real estate has utility. So over time, as the population increases and people acquire more dollars, demand will increase and the price of real estate will rise, unless the government causes another really big recession.
Bottom line: The leaders of Monetarily Sovereign nations buy and sell gold, under the fiction they are being fiscally prudent, when in fact they are engaging in a useless activity. Perhaps it has some psychological benefit, as in “I just can’t sit here and do nothing. People will think I’m useless. So I’ll do something that looks good, and people will think I’m wise and necessary.”
Anyway, for Brazil, this silly hobby not only is without benefit, but it also is without risk. If gold were to crash yet again, Brazil could continue whatever importing and exporting it wishes, with its only danger being leaders ignorant of Monetary Sovereignty.
While the supply of gold keeps growing, growing, growing, maybe you should buy land, especially since you are monetarily non-sovereign. As Mark Twain said, “They’re not making it any more.” And with global warming, and oceans rising, land is becoming more scarce.
Rodger Malcolm Mitchell
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports