Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Dear Reader,
Today’s Sprott’s Thoughts features an essay by Bill Bonner, a long-time friend, client and business associate. I found this piece both insightful and entertaining.
Bill is known as the founder of Agora Inc., which has long been a thought leader on investing.
His daily blog, Diary of a Rogue Economist is free – my favorite price — and I recommend that you subscribe, here.
We are republishing this piece with the permission of Diary of a Rogue Economist,and Bill Bonner. I hope you enjoy it!
Sincerely,
Rick Rule
Chairman, Sprott US Holdings Inc.
By Bill Bonner, Chairman, Bonner & Partners
Originally published October 11, 2013
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Economists, analysts and advisors have been trying to figure out exactly what “quantitative easing” does. The Fed is adding more than $1 trillion to the monetary base every 12 months. It’s got to have some effect, right?
In theory, it goes into banks’ excess reserves… which, in theory, the banks could lend out at a ratio of 10-to-1… for a total potential increase to the money supply of $20 trillion.
But it’s not that simple….
These are excess reserves at the Fed we’re talking about. Some experts insist these reserves are untouchable in the financial caste system… and that they add nothing to the money supply. They say QE is an asset swap (interest-paying excess reserves for interest-paying Treasury paper), not an additive process.
But it’s not that simple either….
The Fed creates money. It buys Treasury bonds from the banks. The banks are free to buy more Treasury bonds. This transfers cash from the Fed to the federal government. And it saves the federal government having to get it from other sources (at higher rates of interest).
All money, like water, eventually finds its way to the sea – occasionally washing away a few houses along the way. And when you add $1 trillion a year into a $16 trillion economy, it’s bound to raise the sea level.
Gold Is “Zombie Proof”
How? When?
We don’t know… but we’d avoid property too close to the shoreline!
That’s why we own gold…
Because gold is waterproof.
No kidding. When the broad ocean of cash, credit and connivance breaks into open fury – with howling winds and towering waves – gold will stand tall and sure, like an indestructible lighthouse.
No financial wind blows it over. No drenching rain warps it. That’s why smart investors… and smart central banks… are watching the weather and accumulating gold.
Gold is “Fed-proof” too… and zombie proof!
The Fed’s announcement in September not to “taper” its bond buying came as a shock to the mainstream press. But no one should have been surprised. This is an economy that has come to depend on Fed stimulus.
Every time the Fed has hinted that it (might… possibly… at some time in the future… unless it changes its mind… and the creek doesn’t rise) reduce its interference, the markets get the heebie-jeebies.
Since the purpose of the Fed’s action is to avoid the heebie-jeebies, they are now trapped by their own clumsy meddling. They broke it. Now, they own it.
Perhaps this is a good time to answer our critics.
As you know, we recently announced our availability to run the Fed. If selected, we promised to be derelict in our duties. In fact, we promised to abdicate immediately – shirking our responsibility completely.
But at least one dear reader believed our plans for the Fed were completely unrealistic and downright irresponsible. We’ll let him explain:
| Bill, you would have to be a Luddite to believe what you say. Your way will be totally catastrophic, everything, everything has moved on, we cannot go back, should it be that you head the Fed.
I am not saying for a moment I like where we are, or that the banks are not making things worse, they plainly are. But in order to keep people working, you need to rely on the velocity of money, period. |
Our reader goes on to tell us that we too are prisoners of the Fed’s actions… and of the paper money system. There’s no way out now… not without hell to pay.
Hell to Pay
And guess what? He’s right.
There is hell to pay. But we guarantee you, dear reader, hell will collect… whether we like it or not. And the bill won’t get any smaller the longer we dodge the bill collector.
Look, what’s the real point of our current paper money, Fed-managed system? It is so that the insiders can manipulate, obfuscate and confiscate.
They manipulate the value of our money… lie about what is really going on… and steal wealth from savers and workers to pay for their pet projects and give money to their zombie friends.
That’s the way it has always been and shall ever be, amen.
For example, Charles de Gaulle’s economist Jacques Rueff explained why inflation seemed to boost employment. It was because inflation robbed the workers of their wages… lowering labor costs… and making it easier for employers to hire them.
And Marc Faber recently explained how QE robs more than 90% of the population to pay off the elite. Where does all the Fed’s QE liquidity go? It goes into stock prices! Who makes money when stock prices rise? Wall Street and its elite clients! Everybody else loses.
And what about the zombies?
We’ll explain that part of it ourselves. The Federal government borrows the Fed’s ersatz dollars at record low interest rates. What happens to the money? Does it go to the taxpayers? Does it go to real, productive businesses? Does it go to real, productive workers?
Nope.
It goes to zombies of all sorts – to the hundreds of thousands employed by the Federal government… and to all those contractors we passed along the Dulles Corridor on our way to the airport. And don’t forget that 7 out of 10 families get more from the Federal Government than they pay in taxes.
QE is the ultimate “Zombie Enrichment Program.”
The sooner it ends… and the sooner the Fed is abolished… the better off we all will be.
Regards,
Bill Bonner is a New York Times bestselling author and founder of Agora, one of the largest independent financial publishers in the world. If you would like to read more of Bill’s essays, sign-up for his free daily e-letter at “Bill Bonner’s Diary of a Rogue Economist.”
P.S.: Take advantage of Rick Rule’s free investing guide, with the 10 questions he asks before investing in any natural resource play. Click here for the free report.
Disclaimer: Our republishing of this piece is not an endorsement of Diary of a Rogue Economist and is featured for informational purposes only. No form of compensation was given or received in consideration of the publication of this piece.
