Byron King

Today we’ll discuss the prospects for gold, silver and oil.

But first, let’s discuss Richard Nixon.

That is, after he lost the election for governor of California in 1962, he remarked to the assembled news reporters, “You won’t have Nixon to kick around anymore.” Of course, we all know what happened with Mr. Nixon in later years.

(Heck, speaking of gold, Nixon took the U.S. off the gold standard in 1971. And it was on Nixon’s watch that oil prices quadrupled in 1973. But I digress….)

Nixon’s so-called “last press conference” came to mind last week as I saw news that former Treasury secretary and presidential economic adviser Larry Summers… umm… “withdrew” his name from consideration to be the next chairman of the Federal Reserve. He won’t succeed the current Fed ramrod, Ben Shalom Bernanke. Yes, indeed. Larry Summers withdrew his name. I read it on the Internet, so it must be true.

People rioted in the streets against Volcker and burned him in effigy. As things unfolded, Volcker required personal protection due to death threats.

Did Summers walk? Or was he “helped” in making his decision? Or just plain pushed? Whatever happened, I’ll bet Summers thought long and hard about whether or not to plunge into that Fed briar patch with his monetary weed whacker. His designated role would have been that of the central bank “fall guy.”

That is, the duty Summers won’t seek is similar to the mission of Paul Volcker back in the late 1970s and early 1980s. Volcker was the Fed head in an era of raging inflation and economic stagnation. Volcker gritted his teeth and raised interest rates to nosebleed levels, which smashed inflation down — and tore the guts out of an already weak economy.

In an alternative universe, today Summers would have had the unpleasant duty of scaling back on Bernanke’s still-raging $85 billion per month program of quantitative easing (QE). Hey, somebody has to fall on that monetary hand grenade sooner or later. But I guess it’ll be later. And the perp will not be Larry Summers.

Evidently, big shots within the Obama administration and the Senate noticed that our grand U.S. economy is less robust than they would like. Plus, we have looming budget battles and political dogfights over taxes and spending. Add in the approaching storm of Obamacare — a job-killing, economy-wrecking tsunami already flooding across the land, from what I can see (long story). So the issue for the Fed becomes whether to throttle QE just now or let the Fed’s money spigot run.

Politically, it’s risky to scale back on QE. Or to paraphrase that old line about cancer, there are more people living off it than dying from it.

So apparently, policy honchos within the Obama administration told Bernanke to keep the Fed’s signature easy-money programs in place for a while longer. How much longer? Well… through this fall, at least. Then we move into 2014, when the U.S. will hold elections for the entire House and one-third of the Senate. So politically, this is a no-brainer, and QE should last awhile longer.

Getting back to Larry Summers, I suspect he knows what happened to Paul Volcker back in the 1980s, when the guy battled America’s inflation problem in a post-Vietnam, oil-shocked economy.

In terms of monetary policy, Volcker did what he needed to do. Volcker raised interest rates. He raised them high!

I lived through it. It was good to be a saver or lender, but I also recall that Volcker’s high interest rates sure stung if you were the borrower. Ugh. I once signed up for a 16% rate on a used car loan — a beat-up Dodge Omni, no less! I still cringe at the thought.

In the larger picture, Volcker was much hated in many quarters. In the Midwest at the time, the steel and auto industries were contracting due to rising global competition. (It’s where the term “Rust Belt” originated.) Volcker’s high interest rates made things worse, leading to more plant and mill closings and attendant layoffs. People rioted in the streets against Volcker and burned him in effigy. As things unfolded, Volcker required personal protection due to death threats.

I’ll add this for perspective, though. Back then, the world was in the depths of the Cold War. The West faced a very real and dangerous nuclear threat from the former Soviet Union, which set the overall political tone. Absent that, I doubt that either President Jimmy Carter or even President Ronald Reagan would have gutted it out with Volcker’s high interest rates, even to halt inflation and save the dollar.

In other words, no matter how bad things were with Volcker’s high interest rates, the politicians could rationalize it all and think it was better than losing out in the Cold War to the evil commies, if not getting nuked. These days, we lack that comforting choice of alternatives.

Summers broke Harvard’s enrollment bank — zeroed the account — for almost seven entire years of operations. Ouch.

Thus, Larry Summers ought to breathe sighs of relief at missing out on receiving rivers of unadulterated hatred from entire populations across the now wired-in world, which lacks the former military motivations of the Cold War era. Really, today those flash mobs of “Occupy This or That” can track you down in a heartbeat.

So Summers will avoid the fate of personal vilification and destruction that’s otherwise primed and aimed at whoever takes the dirty job of draining a trillion dollars per year of fake Fed liquidity out of the global economy.

Indeed, global markets were setting up to sell off at merely the hint of Summers at the helm of the Good Ship Fed. And then? No more Summers. Last week, Bernanke announced more QE. And the markets firmed up — as did gold prices.

Also, as per the touching custom of Kabuki theater that is modern Washington, D.C., President Obama graciously accepted the Summers withdrawal. Heck, Mr. President even offered kind words for Mr. Summers’ many years of national service. Now we can only wonder about what might have been with Summers running the Fed. What might he have accomplished? Scaling back QE? We’ll never know.

Then again… let’s not overly romanticize Larry Summers. It’s not as if he’s a “doomed son of heroes” out of the tale of Ossian, riding toward the steel.

When I think of Larry Summers, I look back to his tenure as president of Harvard, where he left a mixed legacy. For instance, he initiated a long-overdue crackdown on grade inflation — sort of a “QE of grades,” if you will. Bravo!

Summers also encouraged several academically challenged Harvard faculty members to seek other opportunities. I won’t mention names, but the matter is not exactly a state secret. Again, bravissimo to Summers!

But then Summers oversaw the loss of $2 billion of Harvard endowment funds due to bad interest rate swaps, a subject on which he’s supposed to be an expert — or at least the smartest guy in the room.

On that last matter, consider that Harvard’s undergraduate tuition is about $50,000 per year, per student. So Summers losing $2 billion is equivalent to burning a year’s take from 40,000 students. But there are only about 6,000 undergraduate students on campus in any given year. Thus, one could say that Summers broke Harvard’s enrollment bank — zeroed the account — for almost seven entire years of operations. Ouch.

Of course, Harvard continues to function, as one might expect of an enduring institution that dates back to 1636. And the U.S. will likely endure as well — QE or no — considering our resilient national history since 1776.

No matter who runs the Fed, though — and it won’t be Larry Summers — I think we’re in for a rough ride for a while. At least for now, we won’t have Summers to kick around.

What’s the takeaway here? QE, QE and more QE. The Fed is propping up Wall Street, so to speak, while the “real” economy languishes. It’s investable for stock pickers. And buy physical gold. Buy physical silver. Hold oil. The dollar will live through another time of troubles. That’s where this is heading.

Regards,

Byron W. King
for The Daily Reckoning

Ed. Note: The U.S. debt load is getting heavier. And the shoulders of the American public cannot prop it up forever. Eventually, it will buckle under the weight of its own unfunded liabilities and global debt obligations. And when it does, we hope you are prepared. That is why we publish The Daily Resource Hunter to make sure you’re prepared for whatever happens. Sign up for FREE today, and start learning exactly what you can do to protect your wealth no matter what happens.

This article originally appeared at The Daily Resource Hunter

You May Also Like:


Why Central Bankers Struggle to Stimulate Growth

Chris Mayer

The European Central Bank recently said that it was willing to establish negative interest rates to spur bank lending and, in turn, stimulate economic growth. There's just one problem: That's not how bank lending works. Today, Chris Mayer explains why banks simply cannot lend out excess reserves on a macro level. Read on...

Byron King

Byron King is the editor of Outstanding Investments, Byron King's Military-Tech Alert, and Real Wealth Trader. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.

Recent Articles

Video
America’s Most Bizarre Taxes

Kate Incontrera

State governments can be remarkably efficient when it comes to finding creative ways to pick up extra cash. One certainty is that there are a number of taxes in America that tend to be on the weirder side. From bagels... to candy... to crack. What better way to celebrate tax season than by looking at some of America's slightly bizarre taxes?


A Simple Way to Sidestep High-Frequency Traders

Chris Mayer

A lot has been made of high-frequency trading lately - particularly how it's a shining example of Wall Street greed. But is it really all that bad? And if so, how can you insulate yourself from it? Chris Mayer reports from the Value Investing Congress, in Las Vegas, offering one sure-fire way to avoid the negative effects of these HFTs...


Laissez Faire
Why the Feds Want to Cripple Home Businesses

Wendy McElroy

Politicians proclaim the benefits of small business while on the campaign trail. But when they meet in the seedy halls of Congress, they have no problem doing whatever they can to stifle, regulate, and subdue their progress. Today, Wendy McElroy explains why it's so important for the government to release its choke hold on home industries...


14 Firms to Watch Based on Friday’s Jobs Report

Greg Guenthner

The economy added 192,000 jobs in March on top of the 197,000 jobs gained in February. So far, so good. Even better is the fact that non-farm private staffing hit 116.087 million - a surge past the previous peak seen in January 2008. The slow, steady economic recovery is finally coming together, Right? Greg Guenthner explains...


The 2 Most Important Words for any Retirement Business

Robert Laura

Just because you're retired doesn't mean you have to stop working. Especially now that you have all the time in the world to do what you really want. If you're retired and want to stay active while you relax, then find out the steps you need to take in order to start your next small business...


The 7 Biggest Tax Scams and How to Avoid Them

Sandy Botkin

It's tax season. And while the IRS may be be the most apparent threat to your income, it is by no means the only threat. Today, Sandy Botkin reveals the seven most dangerous tax scams that you need to be aware of before filing your taxes, and what to do to avoid the worst of them. Read on...