Why Washington "Privatization of profits-socializing losses" Politics is so bullish for gold

Since when does American business work with a network?

From now on, obviously.

Our entire system of free enterprise, the two sides of the coin, has always been a chance to succeed beyond our wildest dreams … as well as to fail like never before. This is a dynamic market that works surprisingly well, and success and failure remain extremely strong motivators.

In fact, when it comes down to it, the fear of failure on this day from the mindless media attention can actually stimulate the most person or company.

But that fear, at least for the elite few, has already gone the way of 8-tape cassettes, slide rules, and great big cell phones. Today, Washington has hit the label “too big to fail” on some large corporations … though nowhere does it say that American taxpayers are also involved in their profitability when those companies finally get back on their feet.

Not that we would actually accept a corporate flyer. For most red-blooded Americans, this would be terribly close to socialism. But the inequality of “privatizing profits while socializing losses” must strike anyone who has a family, a mortgage, gasoline to buy, food to put on the table, and no assurance that their success will always be borne by a rich uncle.

Using socialism to save capitalism?

The insightful phrase “privatizing profits while socializing losses” comes from someone who knows a lot about it. Nouriel Roubini, a former senior adviser to the US Treasury Department, noted that Washington’s rescue plan for Freddie Mack and Fanny May is “socialism for the rich, well-connected and Wall Street; it is a continuation of a corrupt system.” where profits are privatized and losses are socialized.

Rubini is not alone when he strikes an alarm. “When I picked up my paper yesterday, I thought I woke up in France,” said Senator Jim Banning of Kentucky. “But no, it turns out that socialism is alive and well in America. The Secretary of the Treasury wants a blank check to buy as many debts or shares of Fanny and Freddie as he wants. The purchase of Bear Stearns’ assets by the Fed it was amateur socialism until then. “

However, the prospect of Fanny and Freddie failing is imaginative. The two represent about $ 5 trillion in mortgages, which, in the long run, is close to those of Washington whole debt. Both companies may have actually mutated into something that is “too big to fail,” and could deserve special attention. Yet the federal government has not hesitated at all to put us in the hands of taxpayers for at least $ 1 trillion of their problems.

Let’s try to frame this picture more clearly. As private companies, Fanny and Freddie were able to make money unscrupulously on your way up by making easy mortgage money available to unqualified home buyers (thus inflating the real estate bubble) …today, after the rescue, both corporations enjoy business almost as usual, as if nothing ever happened … and because you and I are actually fair co-signed for them, these people will not have to lie awake at night, worried about their losses on their possible way down.

This is how several private companies live the American dream.

“The size of the rescue of Fannie Mae and Freddie Mac could easily exceed $ 1 trillion. But Congress has no idea what will happen,” warned analyst Porter Stansfield.

The antidote to inflation

The effects of this and other devastation on the economy are not easy to calculate. On the one hand, because banks lose a lot of money with default customer money, foreclosures and bankruptcies, powerful deflationary the forces are activated. On the other hand, Washington is flooding banks and the economy with at least as much money as they obviously have inflationary impact.

No matter how things fall, fear, mistrust, doubt, deflation, inflation and war play a role in the power of gold. “Watch gold prices continue to rise, even accelerate, as the US economy goes into recession, then into depression, as inflation and deflationary forces fight each other like two vultures fighting so that one can swallow the juicier part of the carcass, “said Alex Wallenwein of MarketOracle.

The cure for deflation

As a counter-inflationary investment, gold plays an almost legendary role. Witness how it keeps up and even outpaces rising oil and food prices.

But gold can also shine in a deflationary world.

During the Great Depression – the Great Deflationary Depression – the precious metal was in high demand both by banks (which wanted to cover explosive purchases and trading by paper-holding customers) and by people who wanted to secure a valuable store during this terrible economy.

In fact, demand was so hot that Washington decided to end the gold standard at $ 20.67 an ounce (while confiscating private gold and stop issuing gold coins), then again adopted a fixed price of $ 35 an ounce for the precious metal in 1934. d. … all this means that now illegal gold bars have practically risen by 69% in the first five years of the depression. Other forms of gold are also flourishing. For example, shares of Homestake Mining rose from $ 80 in October 1929 to $ 495 per share in December 1935 for a 518% return, another reflection of how people in the Depression era longed for the precious metal.

And the reserves that are not related to precious metals? They went the other way. Those who hold stocks watch the typical $ 10,000 wallet sink to $ 3,600 from the depths of the 1935 depression.

Does this mean that you should avoid gold because the government can simply confiscate it again (thanks to more rebellious demand)? Not if you owned collector’s or rare gold coins. The actual language of Roosevelt’s executive order was that “gold coins of recognized special value to collectors of rare and unusual coins” should be exempt from confiscation. It would be the same today.

So no matter what lies ahead – inflation, deflation or a hell of a combination of the two – it would probably be a good idea to make your portfolio root gold diversification. This is especially true if we find ourselves in the unfortunate position of co-signing for more difficult banks.