Keeping the Empire on Schedule

Where is Dillon, South Carolina?

Surely, they have put up a monument to their hometown boy, Ben Shalom Bernanke. Or maybe it is in nearby Augusta, Georgia, where he was born? Bernanke is now an employee of policy think tank the Brookings Institute. Or a Distinguished Fellow in Residence in Economic Studies, to be precise.

He’ll no doubt have more time on his hands after his hectic days as “Rescuer-in-Chief” at the Fed. We should wander over to Dillon; perhaps we’ll run into him at a local strip club. We have a few questions we’d like to put to him.

But wait. Does he have bodyguards?

He probably doesn’t need them. No sparrow can fall anywhere in the world without setting off alarums at the NSA. Any plan to harm the former Fed chief would surely be foiled by the ever alert spooks.

Most empires were financed on the loot captured from their conquered opponents. But the US Empire depends not on generals, but on bankers. Bernanke – the “Hero of ’08” – kept the credit flowing at a crucial moment …

He kept the empire on schedule … and on target … for its rendezvous with disaster.

 

No Fever Like Gold Fever

On Thursday, the Dow registered a 74 point gain. Gold was up, too. No one asked us. But we gave our reply anyway. “Are we in a new bull market in gold” was the question. Our answer: We don’t know.

But our reply suggested it didn’t make any difference. Gold has survived hundreds of paper currencies and hundreds of empires. Although the dollar may have gained ground last year, gold will survive it, too.

Colleague Braden Copeland thinks gold stocks may have entered an explosive bull market. He notes that not only are prices rising, more important, so is trading volume.

“There’s no fever like gold fever,” says old-timer Richard Russell. And when gold fever takes hold… the results can be spectacular.”

But here at the Diary we are not speculators. We are observers. And what we observe is that gold is real money … ultimate money … the kind of money people turn to when the other kinds seem unreliable.

It is also what great empires tend to accumulate. Like trophy wives, gold goes to winners.

  • In the 16th century, Spain collected the world’s gold.

  • In the 17th century, the Netherlands was where the gold coins rolled.

  • In the 18th century, France was the world’s richest nation.

  • In the 19th century, Britain brought home the world’s gold.

  • And in the 20th century, the US was number one – with the largest gold hoard on the planet.

So, who are the biggest buyers of gold today? The Chinese. They are preparing to take their place on the world’s largest stage.

 

Empire of Debt

Recently, we were asked to update our book Empire of Debt, written with Addison Wiggin. Most observers, we pointed out, have concentrated their attention on the growing pile of US public debt, scheduled to reach 200% of GDP by 2020.

We preferred to focus on the empire itself. Debt has its lifecycle. So do empires. Both expand. Then both … without exception … contract.

An empire funded by debt is an especially ungainly, grotesque thing. It lurches from one disaster to another – going deeper and deeper into debt each time.

The Vietnam War pushed President Nixon – in what became known as the “Nixon Shock” – to end the dollar’s convertibility to gold. Recent wars in Iraq and Afghanistan have further weakened the empire’s finances … with costs approaching $5 trillion.

But it is not the debt that kills empires. Debt is just a razor conveniently left on the side of the tub. In the meantime, Mr. Market can do whatever he pleases. And it may please him to push the price of gold stocks considerably higher.

We will see …

 


 

GDXGold Miners ETF GDX over the past year – click to enlarge.

 


 

 

Chart by: StockCharts


 

The above article is from Diary of a Rogue Economist originally written for Bonner & Partners.

Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 


 

 

 

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