Gold and Silver

With the recent drop in the price of Gold and Silver, I wanted to put my views on these precious metals down in writing.

I am basically Austrian in my approach to Economics. I wish Murray Rothbard and Hayek were still alive. However, while I agree that when governments are debasing paper currencies in order to run huge debts and deficits, hard assets such as Gold and Silver should provide protection to the ordinary citizen, unfortunately, Gold and Silver are traded assets and their prices can be bid up to extremes. 

Consequently, the ordinary person cannot buy Gold or Silver blindly with the expectation that their prices will always go up. As we have seen over the last year, Gold and Silver prices can also come down sharply.

As with buying any asset, getting the timing right is key, but also incredibly difficult.

I am inclined to believe that predictions of much higher Gold and Silver prices, due to ultra-loose monetary policies, will eventually be proven to be correct, but how long this will take is very difficult to foresee.

In the meantime, the recent pull back in prices may provide us all with an opportunity to add small quantities of Gold and Silver - perhaps one or two coins per month - to our portfolios, with the aim of price averaging over the next year.

The Inflation Monster: How Monetary Policy Threatens Savings

This is a very good article on the effects of inflation in Der Spiegel - but in English - which you can read by clicking here.

I particularly liked the introduction. The article begins :

'Germany's central bank, the Bundesbank, has established a museum devoted to money next to its headquarters in Frankfurt. It includes displays of Brutus coins from the Roman era to commemorate the murder of Julius Caesar, as well as a 14th-century Chinese kuan banknote. There is one central message that the country's monetary watchdogs seek to convey with the exhibit: Only stable money is good money. And confidence is needed in order to create that good money.

The confidence of visitors, however, is seriously shaken in the museum shop, just before the exit, where, for €8.95 ($11.65) they can buy a quarter of a million euros, shredded into tiny pieces and sealed into plastic. It's meant as a gag gift, but the sight of this stack of colourful bits of currency could lead some to arrive at a simple and disturbing conclusion: A banknote is essentially nothing more than a piece of printed paper.'

Brilliant if depressing article on France by Charles Gave of Gavekal.com

Charles Gave has written a brilliant article on the French economy,
France is on the Brink of a Secondary Depression which you can read here.

His concluding sentences are: 'Until quite recently, my working assumption was that a full-blown French debt crisis would occur between 2014 and 2017. In light of the extraordinary malfeasance of the current government I have changed my mind and believe that France is now extremely near to that abyss. Fasten your seat belt in Europe—the world’s last truly Communist country is about to implode.'

Along the same lines, see this article entitled 'France's Explosive Picket Lines' plus short video by France 24.

Nomination for most idiotic suggestion of the week. See  this article  by David Kemper, chairman and CEO of Commerce Bancshares in Bloomberg Businessweek.

The following is a translation of this article by Reinhard Göweil first published on 11/1/2013 in Die Wiener Zeitung. 

Hässliche Isolation - Ugly Isolation

British Chancellor of the Exchequer, George Osborne, is demanding that the European Union changes. Now he is right about that, although he means something very different. The EU must change but in order to do so it will be necessary for the British Chancellor to leave the room. The internal political weakness of the government of Prime Minister David Cameron is only surpassed by their chutzpah in European affairs. For months, the United Kingdom has been blocking everything in Brussels that it possibly can.

The Government in London has significant problems with Tory MPs who have apparently adopted the Republican Tea Party movement in America as their model. They want to leave the EU: Cameron dares not strongly oppose them.

In the end, the noises against Europe were becoming more and more unpleasant - until two days ago. First of all, British businessses warned of the economic damage that an exit from the EU could cause. Then the American government piped up. They didn't consider a 'Brexit' to be a good idea and said so loud and clear.

The Chancellor is now engaged in damage limitation. He has told the EU that non-Euro countries must be allowed to keep the same rights as countries that use the Euro currency.

The message from London is - we may not be on the inside, but we still want a say in everything.

So US President Barack Obama's administration came out and warned the British against leaving the EU, but where is the clear European reaction to George Osborne?

It would have been nice if European Commission President Jose Manuel Barroso or European Council President Herman Van Rompuy had shown similar guts and finally told the Brits what might be gained from their obstruction: absolutely nothing.

If Great Britain doesn't like the path that the EU has taken, then they haven't understood the European concept. No-one in the Eurozone is happy about giving money to Greece - but it is a question of keeping the Eurozone together. 

The British will have to learn that their Empire is in the past and that 'Rule Britannia' is just a song.

Whether a weak politician like Cameron is up to that job is doubtful. However, it is possible that Scotland will soon split from the UK. This part of the Island is definitely happy in the EU.....

Gerard Depardieu's move to Belgium

With regard to Gérard Depardieu's decision to move to Belgium, the quote of the month on Twitter is from Bastiat2022..........

'Tu sais que ton pays a un gros problème fiscal lorsque la Belgique y est considérée comme un paradis fiscal.'

Der Spiegel - Investigation into Deutsche Bank

The following is a translation of this article published by Jakob Augstein in Der Spiegel 17/12/2012. 
             
               'Investigation into Deutsche Bank - Break it up!'

Chancellor Merkel has failed in the fight against the finance industry. This is the best opportunity for the man who wants to replace her - Peer Steinbruck. He must break up Deutsche Bank.

The police officers who forced their way into Deutsche Bank, on Wednesday of last week, were armed, even though they could not have been expecting violent resistance from the bankers inside. However, their weapons were a powerful symbol. They were a sign of the special danger that the State attaches to the suspects: Bankers can also be serious criminals. They can hold whole societies to ransom.

It is the Chancellor's greatest failure that she has done nothing to contain the power of these people: and it is the greatest opportunity for the man who would replace her.

The State has fired a warning shot. The bank has already challenged it. It concerns the trade in CO2 certificates and the suspicion of serious tax evasion. Millions are at stake - once again. The investigation has already been running for a long time. Deutsche Bank had promised to cooperate, but the investigators felt that they were being taken for a ride. Deutsche Bank put down obstacles. Worse still. Der Spiegel writes in its cover story that evidence may well have been destroyed. One reads of 'intentional help' for tax evasion on a massive scale.

Deutsche Bank - the largest bank in the country - has frankly been behaving like a drug cartel: keep quiet, cover up and carry on. Now even co-CEO Juergen Fitschen is at the centre of the criticism. He recently said, 'It is often said in public that the banks don't want to be reasonable, that they don't want to learn (from their mistakes). I, in contrast, assert that we are reasonable, that we have taken the appropriate steps and that we will take further steps.'

In truth, the bank has wasted the opportunity to act in a timely fashion. So the State has taken over. The gloss has gone, this bank will not shine so quickly again. It's not just about this case. There is also the court decision that the bank must pay compensation to the heirs of Kirch. The allegations from Saxony are that the Frankfurt based bankers (at Deutsche Bank) unloaded so-called Residential Mortgage Backed Securities onto the Landesbank - securities that were 'of poor quality' and that 'Deutsche Bank knew this' - so it is stated in the court application. The behaviour of the bank was 'brazen fraud'. Add to this complaints and inquiries from the USA and other countries, according to which Deutsche Bank allegedly lied and cheated. Even though, in each individual case, the presumption of innocence must apply and even if Deutsche Bank manages to reject some of the allegations, the damage is done. Their reputation is ruined.

The Bankers have lost all sense of proportion

What does it take to be a good banker?

At the beginning of the sixties, Hermann Josef Abs said, 'First of all the ability to think about the interests of the customer, secondly, to have the courage of their convictions, thirdly, to weigh the degree of risk.'

At that time, it was an essential feature of banking that it was quiet, serious, almost a bit boring. Bankers were also powerful back then but they made sure to stay within the letter of the law. 

Since then they have lost all sense of proportion. This is a hallmark of capitalism as a whole, since the so-called socialist countries collapsed. Banks had little to do with the Socialist system.  Banks were what the sociologist Oskar Negt calls a 'demarcation reality'. They gave the Western system a legitimacy which has since evaporated.

The company that was once the centre of Germany Inc. now stands suspected of particularly well organised criminality. This bypasses the selfunderstanding of the bankers at Deutsche Bank. What did co-CEO Fitschen do once the State lawyers had left the building? He telephoned the Minister-President of Hesse, Mr. Bouffier, to complain. He is obviously accustomed to do this. Boufffier ignored him. However, the episode shows what you could hitherto expect as a banker at Deutsche Bank from the Minister-President.

The time for joking is over.

This is the failure of politics. It has failed to set boundaries for the bankers. In autumn 2009, Angela Merkel said: 'We need rules -  for each product, for every location in which they are traded, and for every institution .... No bank should be so large that they may ever again blackmail countries.'  Words which were not followed by any deeds. 

After Fukushima, Merkel managed to phase out nuclear power, but after the meltdown of the financial sector, she was unable to achieve a similar coup. In dealing with the nuclear lobby, the Chancellor was able to summon her courage. Confronting the banks, her courage deserted her.

As a result of all the banking scandals of recent years, the credibility of Germany's largest banking institution has been destroyed. The bank should be broken up. Peer Steinbruck, the SPD candidate for Chancellor, has put forward a plan as to how the credit and securities trading divisions can operate separately under the umbrella of a holding company. That is a sensible idea.

Steinbruck, who in the past was happy to be invited out and paid by the banks, has boasted that he has never said anything (to the banks) that they liked to hear. That may well be true. The banks have listened to his scolding, just as a King listens to the scolding of a Fool.

The SPD candidate can use the forthcoming election campaign to make it clear to the banks that the time for joking is over.