10/21/09 London, England – “Who goes borrowing, goes sorrowing.”
– Ben Franklin
Today’s reckoning is going to be short. We’re on the road again…this time to Ireland where our Family office is headquartered.
The quote above comes from one of America’s founding fathers. But it was recalled to us neither by America’s president, nor America’s secretary of the Treasury, nor by America’s top banker. Instead, the Telegraph in London reported it from the mouth of Cheng Siwei, a “top member of the Communist hierarchy.”
The Telegraph reports:
“Cheng Siwei, former vice-chairman of the Standing Committee…said Beijing was dismayed by the Fed’s recourse to “credit easing”.
“We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.
“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies,” he said.
China’s reserves are more than – $2 trillion, the world’s largest.
“Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets,” he added.
The Chinese now have the wind at their backs. Having done the stupidest things a nation can do – for a period of about half a century – the Chinese are getting smart. They’re discovering the wisdom Americans have forgotten.
“A penny saved is a penny earned,” is another of Franklin’s quips. In China it is practically the national motto. The Chinese save 25% to 40% of their income.
And now, with their $2 trillion in national savings, they’re going on a buying spree. But unlike Americans in the Bubble Epoque, the Chinese aren’t buying cheap consumer goods. They’re buying real assets…raw materials…and key supplies of essential resources, such as rare metals.
Ultimately, gold is money…it’s a way to store wealth over the long term.
Just ask Terry Herbert. The man spent his time with a metal detector, looking for treasure in England’s green and golden fields. He’d been looking for years, but when he finally found something important it “brought tears to my eyes,” he says.
What Mr. Herbert found was perhaps the greatest discovery of buried treasure in English history – 1,500 different artifacts of gold and silver…dagger hilts, crosses, helmet cheek pieces and other items of war booty from the Anglo-Saxon period, about 1,400 years ago.
Had Mr. Herbert stumbled upon some IOUs from a Saxon chieftain, it would have been a remarkable discovery. Its historical value might have been inestimable. But what he found weighed in at 11 pounds of gold. In addition to the value to museums and historians, it has monetary value. Even if you melted it down, erasing all trace of its history and provenance, it would still be worth about $160,000 at today’s price – probably about as much as it was when the Saxons stole it.
Gold’s “price has been remarkably similar for centuries at a time,” wrote Roy W. Jastram in his 1977 book, The Golden Constant. “Its purchasing power in the middle of the twentieth century was very nearly the same as in the midst of the seventeenth century.”
Gold outlives paper money, empires, governments…all of us and all our institutions.
The Chinese have metal detectors too. And they know there’s not much real value behind the dollar.
“The dollar is finished,” says historian Niall Ferguson. The Chinese are dumping it, he says.
Ferguson speaks for the popular intelligentsia. His ideas reflect those of fund managers, hedge fund operators, bankers, politicians and speculators. They’re all convinced that the dollar is doomed.
The Financial Times elaborates:
“The financial crisis vividly taught investors the importance of tail risk, a massive one-off event that can crush the value of portfolios. As the dust settles, fear of another ‘tail’ to sting portfolios is uppermost in the minds of many investors and money managers.”
Oh, Mr. Market…where’s thy sting? It’s inflation, they believe.
It’s the risk “that the huge liquidity injections being made by central banks could spark a surge in either inflation and/or long-term interest rates beyond 2012,” continues the FT.
“Inflation is the single biggest topic for discussion among our clients,” says a private banker.
What’s remarkable about inflation is that there is so little of it. It makes us think this story may have a twist.
Until tomorrow,
Bill Bonner
The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Franklin said: “A penny saved is a penny got.” to be accurate.,
You forgot to mention the socialist-monarchist government of the Useless Kingdom (UK) seized the gold Mr. Herbert found as it belonged to the “crown”.
Never mind that the gold was buried about 200 years before there WAS a “crown” in Britain.
What’s remarkable about inflation is that there is so little of it. It makes us think this story may have a twist.
Hopefully Mr. Bonner will elaborate on that point.
Somehow I think Bonner still likes the inflation (gold/oil) trade, he’s just a little anti-social and doesn’t like to have mainstream economists agreeing with him and crowding his trade. But being popular doesn’t always mean it’s time to change strategies. Or does it.
LAgirl, you should know the answer to that one from hanging out at Mish’s.
Black Gold is on the march again, breaking out over 80 bucks a barrel. Like gold, oil is a non-renewable resource, it’s what powers the global economy. While having some gold stashed away is a excellent hedge to protect one from a falling dollar, I sooner have some petrol stored somewhere. Anyone wanna go in on a supertanker with me?