At What Cost?

February 28, 2010 by · Leave a Comment 

By Steve Betts,

Whenever you embark on a significant activity, and it doesn’t matter whether its business or personal, you have to ask yourself two important questions: why and at what cost. In 1913 the United States adopted a central bank system and an income tax, both of which were and remain unconstitutional. At the time the United States was the richest creditor nation in the world and already had the best central banker in the world, gold! The US settled all transactions in gold and in order to spend more, it would need to have more gold. Gold could not be printed or created in some computer hard drive; it had to be dug out of the ground at great personal and financial sacrifice. Even more than this, gold represented real wealth and that’s why a 1913 dollar bought the same thing as an 1841 dollar, and that’s what a store of wealth is supposed to do. This begs the question why you change something that seemed to work almost to perfection. For the answer to that question, you need to go back a little further, to 1907 to be exact.

In 1907 the markets suffered the worst financial crisis in their history, but this crisis devastated Wall Street while leaving Main Street mostly intact. A lot of big name brokers and bankers went down the tubes as a result of the 1907 panic and that inspired the survivors to get together and create a plan that would prevent another such crisis. The group included Morgan, Vanderbilt, DuPont, and Rothschild, and they all ended up as shareholders in the new and private Federal Reserve System. The problem with gold during a crisis is that you can´t increase the supply overnight, so “bailouts” are not possible. Too big to fail banks and brokerages must therefore fail, and that was an unacceptable and intolerable situation for Wall Street. So they created the Federal Reserve and paper money “to facilitate business and the economy”, which would be backed by gold. In an emergency, you could always print paper and then drain liquidity once the crisis had passed. Additionally, they created the IRS with the mission to tax personal income, so the government would have funds to handle any emergency.

Now we get down to the meat of the issue, at what cost? Everything we do in life has a cost, but usually it’s so miniscule that it is seldom noticed. Going back before 1913 the United States had experienced an industrial revolution that led to the development of a strong middle class in America, and that middle class had as a group, accumulated wealth. That wealth served to make the US the richest creditor nation in the world, and it was decided that wealth would be better served if it were transferred to Wall Street for “safekeeping”. After all, they were in the money business. The private Federal Reserve was created with no assets, allowed to print money backed by gold the middle class had earned, and then charged interest and fees to distribute that money. In 1932 Roosevelt confiscated all the gold held by Americans and in 1973 Nixon eliminated the gold standard altogether. Any attempts to interfere with Fed business was dealt with harshly. 

So the idea was to transfer as much of the wealth as possible from Main Street to Wall Street and it would do so through taxation and the creation of a fiat currency, that would eat away at the purchasing power of the middle class. And that is the true cost of the Federal Reserve. The average American has gone from a saver to a debtor, while the US went from the largest creditor nation to the largest debtor nation ever seen. The transition took a century and is now in the final phases and the massive bailouts that we’ve seen are nothing more than an attempt to drain the last cent from the last American before the whole thing goes under. For more than ten years the Federal Reserve has done everything possible to change the primary trend of the markets from bearish to bullish. Although I note the bull market as having topped in October 2007, the real top was back in 1999, but the Greenspan Fed delayed that with massive amounts of liquidity. Now the Bernanke Fed is trying to do the same thing. In modern history no one has every succeeded in changing the primary trend of a major market.

The result of this misguided policy is to postpone the inevitable, but at a cost. The cost is a series of unintended consequences that only now are beginning to float to the surface. Like icebergs, we see only a small portion of the problem until it’s too late. I contend that it is now too late. The ship of the economy is now run up against the iceberg, huge holes are being gashed into the hull, water is pouring in, and all the passengers are passed out in the bar. Any effort to put more punch into the bowl will prove to be futile and the resulting hangover will be debilitating to say the least. The morning after survivors will swear that famous oath of “never again”, form committees, assign blame, and then start the whole process all over again. For the few that will have any money left, and the courage required, stocks will become cheap and there will be a great buying opportunity. For the large majority there will only be misery.

Of course governments are obliged to throw the public a bone every once in a while, no meat, just a bone. Obama ran on the promise of change and then came in and bailed out Wall Street at the cost of US $2 trillion. He distracted the public’s attention with his proposed health care package that in the end no one wanted. Now he has a new mantra, job creation. He recently put forward the idea of a US $40 billion fund for job promotion and now he recommended the commencement of several nuclear plants that will mean more jobs. Unfortunately the President failed to say that most of the jobs for nuclear plants are high paying technical positions and there aren’t that many required. If you really want to create jobs it’s the small business owner that does it, and he has his back against the wall and it gets worse every month, as you can see in the chart posted above. The number of businesses with cash flow problems is on the rise, meaning they’ll reduce their labor costs instead of hiring new workers.

The question now is what can you do about it? I believe the only solution comes in the form of one ounce coins that contain gold. All markets are barometers of future activity and no market is more sensitive to the qualms and traumas of everyday life than gold. Also, I think it’s fair to say that it has never been this difficult to understand the gold market. The IMF comes out and announces the sale of 191 tons of gold, in an effort to manipulate the price lower, and gold falls, for about an hour. Then the Fed authors a surprise rate hike and gold falls for a couple of hours. One gold guru says the yellow metal is going to US $5,000 while Elliot Wave says it’s going to US $400.00. In one minute gold is up 15.00 and an hour later gold is down 20.00. What do you do and who do you believe? Years ago I took a simple, albeit difficult path, and decided that I would only follow the primary trend. The primary trend in gold turned up in 2001 and has been heading higher ever since. I took my initial position in 2002 and I’ve done my best to add on after significant dips. Sometimes I’ve timed it right and sometimes I haven’t, but the one thing I’ve never done is sell!

Below I’ve posted a monthly chart with respect to the gold bull market and I have some interesting observations. You can see that the current price is right about in the middle of the two ascending bands that define the primary trend. Also, I’ve divided the current bull market into the first and second phases, and I’ve given you a short explanation for each of the first two phases. The question now is whether or not gold has entered a new third phase with the breakout above 1,000.00 and we really won’t know until gold makes the next move. Incidentally, the third phase is highlighted by buying from the general public and there are certainly no signs of that. On the monthly chart gold’s price actually appears to be consolidating for the next move higher. It will continue to consolidate as long as it holds above support at 1,048.90. On the other hand it will require a close above 1,136.70 to bring gold to an upside breakout, and that hasn’t happened yet. On Friday the spot gold closed out the week at 1,117.00 and that’s about a sixteen dollar gain for the five sessions, although it felt like a loss due to the volatility.
So the primary trend for gold is up, it is completely intact and in no danger of being violated, and it appears that we could be close to a break out to the upside. So why is everybody so negative? Part of it has to do with ignorance. The large majority of people view gold as a commodity when in fact it is a store of wealth. These same people view fiat currency as money when in fact it is debt; a “promise to pay” can only be interpreted as debt. Gold on the other hand is the only real money and it says so in the US Constitution. It seems that our founding fathers were a lot smarter than we are!

Over the short run the panorama appears to be improving. Gold recently staged a minor breakout above the upper band of a descending trend line in an effort to move higher. That is a minor victory. The real victory will come when gold closes above the 50% retracement from the December high to the February low and that resistance comes in at 1,136.70.  Until we see a close above that mark, it’s all just a guessing game. Gold had a volatile week with announcements by the IMF and Fed designed to push the price lower and yet it finished higher. The dollar rallied as well and yet gold finished higher, so it would appear that the yellow metal is gaining strength. I have maintained for weeks that the dollar, commodities, and gold are all linked to the Dow over the short run, and I still believe that. Therefore, I won’t get overly excited until I see how gold reacts when the Dow begins to fall in earnest.

In conclusion the dollar, stocks and bonds must head lower over time. The dollar and the bond are debt, while stocks represent value in some company. That value is grossly overvalued as the excess water must be squeezed out. The Fed wants to prevent that and has been doing everything possible for years to stop it. The primary trends in all three are headed down and the Fed wants to change that. If they succeed it will be the first time anyone has ever done that. I suspect they’ll fail. The cost of that failure will be incalculable in terms of both money and social harmony. The standard of living for the average American will drop substantially. Repercussions will follow. The only way to protect yourselves is to buy gold, and physical is preferable to paper. Store it someplace safe and just wait for the storm to pass. I know you are tired of hearing this, and God knows I am tired of saying it, but you’ll come face to face with this reality before the year ends.

Steve Betts
Stock Market Barometer SA
February 21, 2010


The Unnecessary Bengali Famine

April 5, 2007 by · Leave a Comment 

Courtesy BBC

The famine in British-ruled Bengal in 1943-44 ultimately took the lives of about 4 million people. The speaker talks of how this man-made famine is absent from most history books and virtually unknown to most people.

BBC Transcript:

Robyn Williams: Can you turn science to history? To test it, I mean? You can’t really do experiments on the past, so how could it be applied? Dr Gideon Polya insists that science does have a role in this regard, and he’ll explain in a minute. But the point of such an exercise is important here, because the reason for Dr Polya’s concern (and he’s written a book about it) is one of the worst genocides on record, or not on record, unless you search long and hard.

Gideon Polya is reader in biochemistry at La Trobe University in Melbourne.

Gideon Polya: Humanity has made immense technological and scientific advances in the last few millennia through application of a scientific method involving the gathering of data, the generation of testable hypotheses, and experimentation to test the validity of such hypotheses. Reiteration of this process yields models that are progressively better approximations to reality.

Of course historically, this process has been impaired through authoritarian religious or political intervention. Such societal constraints aside, application of the scientific method can also encounter difficulties when past processes of the physical or biological world are considered. However, while we cannot recreate the explosion of a star, we can construct models that are consistent with the residual physical consequences of such events and with our current understanding of physical reality. Similarly, while we cannot recreate life currently, to biological scientists the Darwinian Theory of Evolution remains a powerful model explaining and systematising a huge body of information about past and present biological complexity.

Scientific approaches to human history are similarly constrained by the reality that it is generally not possible to do physical experiments to test historical models (although one can envisage, for example, computer simulations of past battles). In general the history is confined to relating model predictions back to pre-existing data, the physical consequences of events and human oral and written records of events. Of course value judgements, or culturally and philosophically biased ‘weightings’ will inevitably be applied to the relative importance of historical data. However some events involving massive loss of human life, such as the Jewish Holocaust, are so immense that they cannot be ignored, if at least for scientific predictive utility. Thus the Jewish Holocaust warns us of future dangers due to racism, moral unresponsiveness and the technological capacity for mass destruction.
The bottom line is that historians, like scientists, must respect the basic data. Selectively ignoring the data thwarts the quest for better approximations to the truth, and jeopardises informed prediction. While we all cynically accept the truism that ‘history is written by the victors’, the history of genocide in the 20th century, from South West Africa and Anatolia, to East Timor and Rwanda, reinforces the message that ‘history ignored yields history repeated’. Deletion of massive man-made human catastrophes from history and from general perception is not simply scientifically flawed and unethical, it also increases the probability that the same unaddressed, contributing social pathologies will yield the same carnage in the future.

One of the most extraordinary examples of such whitewashing of history is the sustained, continuing deletion of two centuries of massive, recurrent, man-made famine in British India from British and world history, and hence from general public perception. This massive, sustained lying by omission by two centuries of British academic historians occurred in a society having Parliamentary democracy, the means to readily disseminate information and a steadily expanding literate population. Furthermore, this process of lying by omission continues to this day in Britain and its English-speaking offshoots, such as Australia, countries having free speech, high literacy, democracy, prosperity and extensive media of all kinds.

To dramatise this perversion, imagine that the Jewish Holocaust was almost completely deleted from our history books and from general public perception, that there was virtually a total absence of any mention at all of this cataclysm in our newspapers and electronic media or in our schools and universities. Truth, reason, ethics and humanity aside, objective analysis suggests that such a situation would greatly increase the probability of recurrence of racial mass murder. Fortunately, in reality, virtually everyone is aware of this event and indeed in Germany today it is a criminal offence to deny the actuality of the Jewish Holocaust.

In contrast, during the Second World War, a man-made catastrophe occurred within the British Empire that killed almost as many people as died in the Jewish Holocaust, but which has been effectively deleted from history, it is a ‘forgotten holocaust’. The man-made famine in British-ruled Bengal in 1943-1944 ultimately took the lives of about 4-million people, about 90% of the total British Empire casualties of that conflict, and was accompanied by a multitude of horrors, not the least being massive civilian and military sexual abuse of starving women and young girls that compares unfavourable with the comfort women abuses of the Japanese Army.

The causes of the famine are complex, but ultimately when the price of rice rose above the ability of landless rural poor to pay and in the absence of humane, concerned government, millions simply starved to death or otherwise died of starvation-related causes. Although there was plenty of food potentially available, the price of rice rose through ‘market forces’, driven by a number of factors including: the cessation of imports from Japanese-occupied Burma, a dramatic wartime decline in other requisite grain imports into India, compounded by the deliberate strategic slashing of Allied Indian Ocean shipping; heavy-handed government action in seizing Bengali rice stocks in sensitive areas; the seizure of boats critically required for food acquisition and rice distribution; and finally the ‘divide and rule’ policy of giving the various Indian provinces control over their own food stocks. Critically, cashed-up, wartime, industrial, Calcutta could pay for rice and sucked food out of a starving, food-producing countryside.

Ultimately, millions of Bengalis died because their British rulers didn’t give a damn and had other strategic imperatives. The Bengal Famine and its aftermath for the debilitated Bengal population consumed its victims over several years in the case of complete British inaction through most of 1943 or insufficient subsequent action. Churchill had a confessed hatred for Indians and during the famine he opposed the humanitarian attempts of people such as the Prime Minister of Canada, Louis Mountbatten, Viceroy General Wavell, and even of Japanese collaborationist leader Subhash Chandra Bose. The hypothesis can be legitimately advanced that the extent of the Bengal Famine derived in part from sustained, deliberate policy.

The wartime Bengal Famine has become a ‘forgotten holocaust’ and has been effectively deleted from our history books, from school and university curricula and from general public perception. To the best of my knowledge, Churchill only wrote of it once, in a secret letter to Roosevelt dated April 29th 1944 in which he made the following remarkable plea for help in shipping Australian grain to India: ‘I am no longer justified in not asking for your help.’ Churchill’s six-volume ‘History of the Second World War’ fails to mention the cataclysm that was responsible for about 90% of total British Empire casualties in that conflict but makes the extraordinary obverse claim: ‘No great portion of the world population was so effectively protected from the horrors and perils of the World War as were the people of Hindustan. They were carried through the struggle on the shoulders of our small island.’

This whitewashing of Indian famine extends to two centuries of famine in British India. I have recently published a very detailed account of this two-century holocaust in British India that commenced with the Great Bengal Famine of 1769-1770 (10-million victims) and concluded with the World War 2 Bengal Famine (4-million victims) and took tens of millions of lives in between. In contrast to the response to the Jewish Holocaust, these events have been almost completely written out of history and removed from general perception and there has been no apology nor amends made. While Tony Blair has apologised for the mid-19th century Irish Famine that took over a million lives, there has been no apology for the World War 2 Bengal Famine.

My book is entitled, ‘Jane Austen and the Black Hole of British History’ and sub-titled, ‘Colonial rapacity, holocaust denial and the crisis in biological sustainability’. I describe this whitewashing of history as ‘Austenising’ after Jane Austen, whose exquisite novels were utterly free of the ugly social realities of her time. Some of Jane Austen’s siblings and other connections, were involved in the rape of India. Of major note was Warren Hastings, the first Governor-General of India, who ferociously taxed famine-devastated Bengal and was eventually impeached and tried but ultimately acquitted for his manifold abuses in India. Warren Hastings almost certainly seduced Jane Austen’s aunt, Philadelphia Hancock. This adultery gave rise to Jane Austen’s lively cousin Eliza who is an evident model for the more advanced women of Jane Austen’s novels. While much of the huge academic Jane Austen industry has ignored (or ‘Austenised’) such interesting aspects of the lives of Jane Austen’s relatives, Jane Austen herself was much more forthcoming; thus to the initiated, ‘Sense and Sensibility’, the most Indian of her novels, includes a very detailed and barely disguised account of the Warren Hastings Scandal.

While it was legitimate for Jane Austen, the artist, to render her exquisite novels free of the contemporary awfulness in which her connections participated, the continuing ‘Austenising’ of British history is a holocaust-denying outrage that threatens humanity. Currently, 20-million people die each year of starvation-related causes and conservative, status quo productivity estimates would predict 30-million such deaths per year in the year 2050. A more realistic but still non-Malthusian view can be taken based on declining per capita agricultural production due to land degradation, decreased water availability, global warming effects on tropical cereal yields and increased population. A return from the current annual mortalities of about 10 per 1000 to the 35 per 1000 per year that obtained in British India in 1947 would yield a Third World excess mortality in 2050 of a staggering 200-million persons per year. Nevertheless this is avoidable, thus peri-conception, male sex selection provides just one simple example of a cheap, non-intrusive, pro-choice and technologically and socially feasible approach to slowing and indeed reversing population growth. That such an apparently radical suggestion is socially feasible is evidenced by the extraordinarily peaceful and tolerant multiracial society of Fiji, yet the initial male to female ratio among the indentured Indian five-year slaves was about 3 to 1.

The remorselessly continuing human catastrophe of mass starvation is avoidable provided that there is determined global responsiveness of a kind that was absent for both the Jewish Holocaust and the Bengal Famine of half a century ago. One hopes that the recent award of the Nobel Prize for Economics to Amartya Sen, Master of Trinity College, Cambridge, and expert analyst of the Bengal Famine, will increase global responsiveness to this continuing humanitarian disaster. We must resurrect the horrors hidden by two centuries of holocaust-ignoring historians, resolutely face the current environmental and humanitarian cris and apply the post-Holocaust injunction of ‘Never again’.

Robyn Williams: ‘Never again’, says Dr Gideon Polya, Reader in biochemistry at La Trobe University in Melbourne. And his interest in the subject of India (yes, I did ask) stems in part from having a Bengali wife. His book, by the way, can be ordered by writing to Dr Polya at La Trobe University in Melbourne.

Dr. Gideon Polya
Associate Professor in Biochemistry
Dept. of Biochemistry
La Trobe University, Bundoora Vic. 3083
His book Jane Austen and the Black Hole of British History can be obtained from the author by writing to him at La Trobe University