Category Archives: Federal Reserve Bank

Mourn The Death Of Mining In South Africa (The Canary In The Proverbial Mine)

America, BAB's A List, Elections, Federal Reserve Bank, Founding Fathers, Inflation, Labor, Private Property, Socialism, South-Africa

A close acquaintance writes from South Africa: “With the unrest in mining, cash flow has gone for a ball of sh-t. No one can hire. Practically all mining has come to a halt. Bloody f-ucking Malema [ANC Youth League president]! Into The Cannibal’s Pot [my 2011 book] says it all. Thank you.”

[SNIP]

I don’t expect Americans to comprehend the loss of South Africa. Americans are, as Pat Buchanan once put it so well, a silly people living through serious times. Other than adjectival overkill (“a deeply silly people in deadly serious times), I’d add to Buchanan’s aphorism that, like Esau did, Americans have squandered their birthright—“the Old Republic of property rights, freedom of association, and radical political decentralization”—and replaced it with a mess of pottage.

Americans, moreover, lack an understanding of the philosophical inheritance they’ve frittered away. How then can such a silly people comprehend the loss of South Africa?

Mining has been “the main driving force behind the history and development of Africa’s most advanced and richest economy.”

Mining is dying in South Africa.

The mining sector is the canary in the proverbial mine.

Barry Downs is an American who knows better. Formerly based in South Africa, this mining sector investor knows a thing or two about what matters and what creates value. He emails with these invaluable insights:

“The mining industry unrest in South Africa is deepening, with militant senior trade unionist even talking about expropriation of assets and nationalization.

Shares of SA gold and Platinum mining companies remain under pressure as many miners remain on strike and non striking miners are being intimidated. The ANC government, meanwhile, appears powerless to turn the deteriorating situation around.

Just think: South Africa, over a 100 year span, produced 41,000 metric tons ( 1.3 billion ounces) of the only real money in the world, i.e., gold, and they still have identified 6,000 metric tons of mineable gold and with some high powered exploration will only increase reserves.

The ANC government and Reserve Bank regime fails to understand that the continuing global economic crisis will ultimately be focused on the global fiat paper money system, which is breaking down, and in the end there will be a massive run from paper and into gold.

There has been talk in this country about the US being eventually forced to stabilize the American economy by backing the dollar again with gold, and they will use the 1933 Bretton Woods formula that came up with $35 an ounce. To come up with the new gold price, they will take the US monetary base, which is $2.7 trillion, and divide it by the US Treasury gold holdings, which is 262 million ounces. The number becomes $10,300 and ounce.

The ANC government, if it had any smarts, should be going everything possible to protect it’s gold mining industry, knowing that future revenues from the industry will likely expand many times over as the gold price rises.

Nationalization will mean that the 6,000 metric tons of gold reserves may never be mined and the industry will just end up closing down. The 1,000 metric tons of gold South Africa produced, annually, 40 years ago, has declined to only 200 tons annually. It may end up at zero. Is it possible that the ANC government will just watch the goose that lays the golden egg killed off?

Given the mentality illustrated throughout your book, Into the Cannibal’s Pot,, I think the answer is yes.”

A-Jad Has A Question

China, Debt, Federal Reserve Bank, Iran

Iranian President Mahmoud Ahmadinejad (or A-Jad) has a question for the presidential candidates, if Candy Crawly (or the next bobblehead) will allow it. Asks A-Jad:

“How long can a government with a $16 trillion foreign debt remain a world power?”… “The Americans have injected their paper wealth into the world economy and today the aftermaths and negative effects of their pseudo-wealth have plagued them.”
…“An empire, or a government, remains in power so long as the people under its power support it, but today the Americans have acted in a way that the world nations do not like them at all, and therefore, their international legitimacy is annihilated.”

More important than “international legitimacy,” for which Obama has not stopped striving: Both candidates have told the biggest foreign owner of U.S. Treasury bonds to go to hell. Where will the US be without America’s largest creditor, China?

O’s Argument From Inflation

Barack Obama, Economy, Energy, Federal Reserve Bank, Inflation

“Game. Set. Match, Mitt Romney,” last night, did not mean that the arguments made during the second presidential debate were not both tedious and hopeless for liberty lovers.

I did perk my ears, though, when Barack Obama made an argument from inflation. Mitt Romney failed or was prohibited from following-up (although I’m not suggesting that he had the philosophical wherewithal with which to respond).

Obama suggested that an earlier drop in gas prices was due to America’s economic straits (partially correct), and was thus a bad thing (completely incorrect):

CROWLEY: Mr. President, could you address, because we did finally get to gas prices here, could you address what the governor said, which is if your energy policy was working, the price of gasoline would not be $4 a gallon here. Is that true?
OBAMA: Well, think about what the governor — think about what the governor just said. He said when I took office, the price of gasoline was $1.80, $1.86. Why is that? Because the economy was on the verge of collapse, because we were about to go through the worst recession since the Great Depression, as a consequence of some of the same policies that Governor Romney’s now promoting.

In Austrian economics, deflation, “a sustained decrease of the price level,” is a good and natural market response.

Writes Doug French “In Defense of Deflation”:

Lower prices increase demand; they do not reduce or delay it. That’s why more and more people own flat-screen TVs, cellular telephones, and laptop computers: the prices of these goods have fallen, and people with lower incomes can afford them. And there are more low-income people than high-income people.
Lower prices don’t mean lower profits; nor do they mean that employees will be laid off. More demand for a good or service means more employees needed to produce those goods and services. “There is no reason why inflation should ever reduce rather than increase unemployment”
“Deflation is one of the great scarecrows of present day economic policy and monetary policy in particular”…

And here’s Guido Hülsmann on “The Economics of Deflation”:

‘Juicing The Stock Market’ With A Confetti Of Funny-Money

Debt, Federal Reserve Bank

Democrats often counter the Republicans’ inchoate criticism of Obamanomics with the claim that Barack Obama has juiced the stock market like no other president.

Well of course he has. The consequence of Ben Bernanke’s non-stop monetary stimulus is a rise in prices, stocks included. Homes too.

But an increase in the price of an item is not the same as an appreciation in its value.

Promiscuous printing (inflation) decreases the purchasing power of each monetary unit (the dollar). As Peter Schiff pointed out, after the latest bout of quantitative easing—and before other foreign bankers were nudged to print in unison—“the Greenback was down 2.2% against the euro, 1.6% against the Australian Dollar, and 1.1% against the Canadian Dollar. A week after the Fed’s move, the Mexican Peso had appreciated 2.7% against the US dollar.”

If you don’t already know it, QE2 saw the Fed purchase Treasury securities, which “resulted in a cumulative threefold increase in the monetary base.” In “Operation Twist,” Bernanke, one twisted brother, exchanged short-term for long-term Treasuries.

That move, warned Schiff, “exposed US taxpayers and holders of dollar-based assets to the dangers of shortening the maturity on $16 trillion of outstanding government debt. Such a repositioning exposes the Treasury to much faster and more painful consequences if interest rates rise. Still, the set of policies announced yesterday will do so much more damage than ‘Operation Twist,’ they should be dubbed ‘Operation Screw.’ Because make no mistake, anyone holding US dollars, Treasury bonds, or living on a fixed income will have their purchasing power stolen by these actions.”

QE3, or “Operation Screw,” “focused directly at the housing market through purchases of mortgage backed securities.” Its outline: “buy hundreds of billions of home mortgages annually in order to push down mortgage rates and push up home prices.”

The upshot of the Fed’s confetti of funny-money?

…rather than building an economy on increased productivity, production, and wealth accumulation, he is trying to build one on confidence, increased leverage, and rising asset prices. In other words, the Fed prefers the illusion of growth to the restructuring needed to allow for real growth.

MORE.