Correction Over? - Borrowing

Gold at 884.40 and silver at 16.80 with the last tick upward is more comforting than what we have seen for most of the week. Silver is acting slightly better than its partner: gold. This correction may have run its course. Possibly, we have not seen the end, yet. Bank Credit Analyst moved gold to neutral the other day and said that it could test the resistance at 850. Were it to do that, I would consider it an all out buy time. I did pick up additional Calls on the GDX (miners index EFT) this week.

I have included the five year graph on gold to place more emphasis upon the long range perspective which one must hold with gold. The corrections have been merely blips on the radar. We must also remember that the precious metals are a sound alternative to depreciating paper currencies of the world. These are a medium for preserving wealth in a time of unbacked paper currencies. No currency in the world, today, is backed with precious metals.

The mining stocks are the investment vehicles in this environment. They took a big hit yesterday, but are coming back some today. We will have to see how the day plays out.

The Economics of Borrowing:

Ps. 37:21, “The wicked borrows and does not pay back, but the righteous is gracious and gives.” In this passage, we see clearly that to avoid the wickedness of sin, the borrower must repay the debt. Further, as we discovered in the last posting, debt is a form of slavery; therefore, prompt payment of a debt is necessary to redeem one’s self from slavery as swiftly as possible.

Pr. 22:1 says, “A good name is to be more desired than great riches, favor is better than silver and gold.” This is almost exactly repeated in Ecclesiastes 7:1, “A good name is better than a good ointment . . .”

These passages warn a would be borrower that he must plan ahead very carefully if he is considering going into debt. First, he should very carefully consider his need. As the government and central banks continue to depreciate the circulating currency, one can find himself in an emergency situation. Paying cash up front for a home is very difficult even though the prices of homes here in America have dropped some during the last two years. There are very few families who can afford a home without a mortgage.

It would be wise to consider renting rather than buying in such a situation, but rental payments can be higher than mortgage payments at times. Renting versus buying must be weighed carefully. Remember that leasing for an extended period of time is, also, a form of debt. One signs a contract that he is bound to honor.

The depreciating dollar has put automobiles out of the reach of many without a loan. In this, one must consider the purchase of an older vehicle which can be afforded versus the new one. Perhaps, an older vehicle could be purchased for cash rather than going into debt.

Finally, one must carefully consider the amount of the debt that he can afford. He must service the debt out of income or liquidation of investments or other assets. A major consideration at this time is how secure is the present income. Many folks have lost their jobs here in these United States over the past two years. It seems as though there will be more people out of work in the near future. These type of considerations are important, because one must pay his debts promptly to maintain a good name.

This is particularly true in the case of Christians. Many people know that we belong to Christ Jesus our Lord. Were we not to promptly pay our debts, we would not only damage our own name, but we would damage the name of our Lord before the world. Even when our associates are not believers, they look to us for every bit of evidence against us and our King.

Lastly, I want to emphasize that debt free living is what God intended for us. Each of us should look toward reducing and eliminating debt as rapidly as possible. Reaching a debt free status is almost as wonderful as Christian’s experience of losing his burden of sin in Pilgrim’s progress. What a relief! Praise the Lord!

More on debt in the next post.

Best to each of you and yours, Doug

Gold and Silver Returning a Bit -- Looking at Debt

I am still amazed at the steepness of the drop (See the red traces on both graphs) near the New York open yesterday in the prices of both of these precious metals. It is so obvious that the market is being manipulated by the very largest investors. Tuesday was also the expiration date for the options which seems to be the reason for the downward push in prices. A large share of the Call options on the metals were closed out without value as the prices dropped. This allowed the sellers of those option to have all of the costs of the options safely put into their own pockets as the holders of the options suffered their losses. Both metals are showing some recovery today (green graph lines). Gold is now at 898.30 and silver 17.39.

The hit in the metals was much more severe than that of the miners. Yes, the miners were hit, too, but not nearly as badly. In fact, many are holding on very nicely and even up more today. The market vector miners broke the 200 day moving average, but are still holding quite well in spite of the move in the metals, themselves.

On to the application of biblical principles to Economics and Politics.

Today, I would like to look into the biblical view of debt: lending and borrowing. I have previously discussed how the fractional banking system allows banks to create paper currency with every loan they make. Then they demand payment of interest on every loan. They have a business where they are able to create out of nothing, at no cost, a rental item, rent or lease it, and then collect rent (interest) from the renter (borrower). That, my friends, is a great business to run. Of course, were we to try the same business, we would be arrested and convicted of counterfeiting and likely usury (excessive interest charged). With the help of Federal legislation, banks have this power as monopolies in every nation in the world.

Romans 13:8 tells us, "Owe nothing to anyone except to love one another; for he who loves his neighbor has fulfilled the law." Certainly, the last part of the verse is vitally important. Scripture overflows with commands to love one another. For example: Ephesians 5:1-2a, "Therefore be imitators of God as beloved children; and walk in love, just as Christ also loved you. . ." Or Matt. 19:19b, "You shall love your neighbor as yourself." I would suggest that this is the major emphasis in the verse; however, it does say "Owe nothing to anyone."

Pr. 22:7 warns, "The rich rules over the poor and the borrower becomes the lender's slave." Yes, in fact, debt is a form of slavery. The borrower gives up a portion of his freedom when he goes into debt. 1 Corinthians 7:23, warns, "You were bought with a price; do not become slaves of men." Thus, it seems that, as Christians, we are not to be in debt, but then God does give guidelines for debt under the correct circumstances. We will go into that on the next posting.

In 1988, S. C. Mooney wrote Usury the Destroyer of Nations. His basic premise is that nations which borrow from other nations will be destroyed as the debt grows. I suggest that that is the situation in America today. The U. S. of A. was once creditor to the world. Almost all of the world owed us. Now we are the nation with the greatest debt. In fact, our governmental, business, and individual debt is above any that has ever before been seen in the world. This is a problem which is unfolding now. We must pray that King Jesus will provide leaders who will save America before it is too late.

Best to each, Doug

Precious Metals Pushed Down Again (Still)

Both silver and gold pushed down again by intervention by cartels, etc. Isn't it amazing that this seems to happen precisely at the opening of the New York Markets! Those involved came back after the 3-day weekend with a vengeance. Of course, this will allow those with long term view and persistence to add to their portfolios. Almost all of the mining stocks have been hit, as well, but not as drastically, as the metals, themselves. Here are a few: AGXM 1.16; CDY 2.99; CDE 3.25; DROOY 8.17; GDX 46.67; GSS 3.09; HMY 12.23; IAG 6.03; KGC 20.16; KRY .7211; MRB 7.67; NEM 47.80; PAAS 31.007; SSRI 29.48; VGZ 3.4099, and XRA 4.40. The trusts and other ETFs : CEF 12.6876; GLD 89.73; SLV 173.74. Gold is at 908.50 and silver 17.55

Economics:

The Canadian Central Bank has started another attack upon gold in the form of proposing sanctions against the very few firms which enable investment directly in gold and silver for making purchases. This is not very wide spread nor well known, at present. I have mentioned on this blog one www.GoldMoney.com which is headed by James Turk. His commentaries on the web site are usually quite good and should be read from time to time.

This latest action is "justified" as a means of preventing the laundering of "money" by illegal drug cartels. However, the result in greater control of citizens and elimination of freedoms given us by our God and guaranteed by our Constitution.

All governments and their central banks want to maintain their monopoly over currencies used in trade. They are very jealous of the power they have over citizens through the fractional banking system. Of course, all theft is a violation of the Eighth Commandment, "Thou shall not steal," even that by governments.

Fractional banking allows the bank to counterfeit money in the form of unbacked paper currencies of the world. While all governments will force the use of this "money," they will punish those who produce alternatives to the official paper currency.

As governments, through their central banks retain this authority, they continually expand the paper "money" supply and defraud their citizens. This is inflation which is condemned in Scripture, particularly, noted in Isaiah 1:22, "Thy silver is become dross, thy wine mixed with water." Certainly, in this passage, this is an illustration of the corruption of Israel, particularly, the leaders. In a real sense, we can see similar corruption in our leadership as our elected officials seem much more interested in gaining more power and being re-elected influencing government to protecting our life, liberty, and property.

However, the statement shows the corruption of the currency of the day. Our coins, today, are not merely precious metals mixed with dross, but have become dross, totally. The dollar is not backed by anything , but the full faith and credit of our bankrupt nation.

Many of our products are packages so as to appear to contain the same amount as early, but upon close examination, the contents are less. Thus, "thy wine is mixed (or diluted) with water." Is this not theft and fraud?

When Christians and churches fail to answer the call to be "the salt of the earth" and "the light of the world," (Matt. 5:13,14) the nation turns its back on the Sovereign God and violates God's Law Word against the use of unequal weights and righteousness in judgment (Lev. 19:35-37 and De. 25:13-15). The government engages in all sorts of theft, businesses react to the same methods to protect profit and citizens lose their respect for each other and each other"s property and lives. Thus, we have the violent form of chaos which grows with time.

The Sovereign God of all "that sitteth in the heavens shall laugh: the Lord shall have them in derision" (Ps. 2:4) at the folly of man. He waits until the sin of the nation reaches the fullness in time "Then shall He speak unto them in His wrath, and vex them in His sore pleasure." (Ps. 2:5)

Pray for a turning back to King Jesus, teach these things to your children and grandchildren, and be the light of the world and salt of the earth to the extent that you can.

Best to each of you and yours, Doug

Silver, Gold, GDX and Economics

It is early in the day, but from the graph, above, it is obvious that silver is moving up. It is about time for silver to begin to catch up with the movement of gold. Though it is an industrial metal more than gold, it has lagged. I expect that we will see at some time in the future silver move upward percentage wise more than gold.

Gold looks to be holding its own at present. However, it is not matching the early move of silver. Once again it is important to remember that with these precious metals, we are preserving wealth more than making an investment. As this is published silver is at 18.26 and gold 926.90. Both are moving upward at present.

GDX which is an index covering a number of mining stocks seems to be finding support at the 50 Day Moving Average. However, the last four or five days have presented a miniature head and shoulders formation which from a technical perspective is generally followed by a downward movement. Perhaps, the 50 Day Moving Average will hold. It is early in the day and there is much time for all to play out.

The place of mining stocks in a portfolio is to catch the third wave of the blow off of gold. The leverage which mining stocks offer at a times such as the fall and winter of 1979-1980 is the advantage. This wave is when "everybody" wants to get on board and we hope to be in a position to give them the opportunity to buy our stocks. This could happen at any time, but I believe it is months, if not years away. Timing is for us guessing, for our God timing is fully known and under His absolute control. We must do our best with our limited knowledge and depend upon Him for results.

Back to our discussion of Economics:

Before leaving computers, I wanted to relate to you a saying by the grand old lady of computers, Commander Grace Hopper. In the early days of the 3rd. generation of computers, we began speaking of nanoseconds. In her classes, she would always say, "There are more nanoseconds in one second than there are seconds in 30 years." We now speak in terms of gigahertz. One of the great advances in speed was to reduce the distance the electrical impulses in the computer had to travel. After all, 186,000 miles per second is much to slow for the signals to travel over long wires. That was one of the main goals in reducing the size of computers.

Last time, we showed how the "invisible hand" of the capitalistic free market reduced monopolies. Today, lets look at the biblical support of this concept. Pr. 11:14, "Where there is no guidance (vision or law), the people fall, but in the abundance of counselors there is victory (deliverance)." Pr. 24:6, "For by wise guidance you will wage war, and in the abundance of counselors there is victory." Pr. 5:22, Without consultation, plans are frustrated, but with many counselors they succeed."

The foundation for these wisdom words can easily be seen in the requirement of De. 17:6, "On the evidence of two witnesses or three witnesses, he who is to die shall be put to death; he shall not be put to death on the evidence of one witness." Note, this requirement is restated in numerous places in the bible.

These quotations from the wisdom book state that it is important to have an abundance of counselors for war or planning. This is easily expanded to all of life.

There are many buyers interacting with many sellers in a free market at the retail level. There are many manufacturers interacting with retailers at the wholesale level. There are many suppliers of raw materials interacting with manufacturers even before products were made. Before that, there were many construction companies interacting with manufacturers to build plants and equipment which would be used to build and equip the manufacturers to enable them to produce products and services. Each of these "counselors:" buyers and sellers would be involved in the negotiations for their own individual benefit. The competition among the buyers and sellers would determine the price. As I have previously stated, each would leave the transaction satisfied; that is, the buyer would value the purchase more than the currency he paid and the sell would value the currency received more than the product or service he sold. That is the way of the free market.

With government intervention into markets, the nation is faced with centralized planning. This involves central planning agencies and replaces the multitude of counselors with a limited number, likely a committee making the decisions which have impact in the market place. Distortions are introduced into the market place which penalizes the consumer by artificially raising prices by forcing them to buy "safe" products at extra cost or lays requirements on producers and businesses which adds to their cost of operation. Every one of these increases in cost is past on to the consumer.

One example is readily apparent. Have you ever though of the number of different items in different sizes are available in a hardware or building supply store? Now multiply that by the number of such stores in America. Do you think that any central planning agency could equitably put price controls on each of those items? Well, it has often been tried in the past and been a miserable failure, because some items would be overpriced and others would be under-priced. What would be the result?

The producers would begin to divert manufacturing effort toward those items that were overpriced and reduce or eliminate production on those that were under-priced. This would result in an over supply of the profitable items and shortage of the under-priced items.

Another example: If the government would increase the subsidies to farmers and producers of gasohol from corn making corn very valuable. Do you think that farmers would be selling most or at least an increased amount for that purpose? Yes, they would and that would cause a short of corn for food for people and feed for animals. This shortage would cause the prices of corn for all purposes to be much higher. In fact, the demand for other grains for food and feed would also climb. Have you experienced that today? I certainly have. Look at the prices of bread and milk as you shop? The tragedy of this is that it costs more in energy to produce gasohol than the energy available from gasohol. And it produces only about 80% of the usable power of gasoline. It is a lose, lose situation except for the select few who receive the subsidies, without which it would not be produced.

More on Economics with the new posting.

Best to each, Doug

Precious Metals and Economics (Monopolies)

Below, you will see two graphs of two of my core holdings in mining stocks: DRD Gold and Harmony Mines. Both are South Africa based companies. Both have been hit from time to time, by unrest among the workers in the mines and by the shortage of electrical power in South Africa. I believe both of them are sound companies and well managed.

Of the two, I believe that Harmony Mines is the better one. It is also a bit higher priced. As you can observe in the following graph, HMY has broken through both the 50 and 200 day moving averages. This is a strong indication that it could go higher very soon. This, of course, is subject to the price of gold and the availability of electrical power which is critical to mining operations.

Gold pushed higher earlier in the oversea trading, but is a lower to 920.60 at present. The same is true for silver which was above 18 earlier, but is now at 17.88. The manipulators are back in operation putting another temporary cap of the price of precious metals, but we need not discuss that further. Our task is to just wait and see. Gold, in relation to the depreciation in the value of the dollar since 1980 peak for gold, should be in the 2,000 to 2,500 range.

In our study of Economics, we will look at how the free market restricts monopolies.

In Proverbs 31, we are shown the virtues and value of an "excellent wife." She is presented as a wise shopper and industrious entrepreneur in seeking wool and flax and food from afar which she uses with diligent hands to care for her household. She is an early riser to make proper preparations. She even "considers" a field carefully and purchases it to make it a vineyard. She continually looks to the welfare of her household and does not "eat the bread of idleness. Therefore, her children "call her blessed" and her husband "praises her."

We can certainly conclude that she is a wise and thrifty shopper who has an influence in each market where she shops. She with the other consumers determine, by voting with their cash for the products and services from efficient producers who meet their needs. This puts a great pressure on producers to meet consumer needs at reasonable prices.

As we participate in markets and shop for various products, we can find that the latest and best in technology often hits the market at very high prices. Of course, were we wise in shopping, we would not have to have the latest and greatest or the newest fad. However, many less knowledgeable consumers rush into the market to have the latest. This provides extra profit for the business that first introduces what is new. However, it does not take rocket science for other businesses to eye the large profit margin.

This potential for big profits, encourages others to make similar, often better products as rapidly as possible to take part in the early profit serge. As each of these businesses move into the product area, competition among the businesses reduces the profit margin. This impact eliminates the monopoly of the first entrant who marketed the new or greatly improved product. Left alone the free market without outside intervention into the market place by government, insures that monopolies are of short duration. Another great benefit, it that in the long run prices drop and become more reasonable. Wise, thrifty shoppers have a tremendous impact upon the market.

The elimination of monopolies is particularly evident in the American computer industry. In 1946, we saw the introduction of the ENIAC (Electronic Numerical Integrator and Computer) at a cost of about $400,000. This was a difficult machine to use, because programming was done by plugging wires in different configurations.

It was during the 1950s when the prior experimental computers started being replaced by business computers. In 1953 IBM planned the introduction of their "650" in a quantity of 50 which grew to over 1000. Remington Rand and IBM were the leading competitors in this new business. Early on, Remington Rand outsold IBM, but by 1956 IBM had delivered 76 to Remington's 46. From that time on, IBM was the industry leader.

I got into computers in the mid to late 1960s about the third generation of computers. The computers of that generation were still those that were housed in air conditioned large rooms and warehouses with costs measured in 6 to 8 digit numbers of dollars. The cost of the facilities and operating costs were very high, as well. However, there was a growing number of manufacturers in the industry and prices were becoming very competitive. I remember dealing with IBM, Burroughs, RCA, Univac, CDC, National Cash Register and others. The invisible hand of the free market began to bring prices down considerably as the greater number of manufacturers competed for consumer business.

Jump forward to today and it is easily seen that not many of the original manufacturers have left the computer manufacturing business. Also, there have been tremendous improvements in technology which provide much more computing and storage power in micro size computer systems today. The two in my office are faster, have greatly increased memory and storage space at a very small fraction of the cost of those we tested in 1968-1975. That is the free market in operation to provide the consumer with the best possible products at the least cost.

I have told some of you, but I believe it is worth repeating. I had the privilege of meeting and speaking with a grand old lady of the early computers: Commander Grace Hopper of the Navy. She retired several times from the Navy, but was called back to active service time after time to solve problems. She was a gracious lady and a real expert in computers from the very earliest times. She spoke often related an experience with one of the earliest computers which operated with solenoids which operated relays. One time the computer quit working and there was much concern as the problem eluded the experts for a long time. Finally, they found a moth which had been executed in and blocked a relay. They the "debugged" the computer and it worked. Thus, the phrase was born!

What beautiful weather the Lord is giving us here in central Texas! It is getting warm, but He has blessed us with rather cool nights for great sleeping. We must continually praise Him for each and every blessing He brings into our lives. Praise the Lord, without ceasing.

Best to each, Doug

Precious Metals vs. Unbacked Paper Currencies IV

The precious metals are giving us a show this week. Both silver and gold are approaching a higher level and in concert with each other. Gold is at 934.40 and silver at 18.01 as this is written.

The mining stocks are virtually all higher today following the rise in the precious metals. Below is the GDX composite of the miners index ETF from the American Exchange.

Notice that the price has moved above both the 50 and 200 day moving averages. In technical terms this is very positive, and more upside should be expected. A move of the price above 52 would indicate a strong upward motion.

Back to our study of economics:

The advantages of the free market are many. At the very basic level, when sellers and buyers are allowed to operate in an environment unencumbered by government regulation and intervention, each party to a transaction leaves satisfied. The seller values the cash he receives in the transaction more than the item he sold. And the buyer values the item purchased more than the cash he paid for it. Both are pleased with the trade. The government's task is to punish those who commit fraud, theft, assault, murder, and deceit in a transaction. The government, as we are told in Romans 13:1-4, "Let every soul be subject unto the higher powers. For there is no power but of God: the powers that be are ordained of God. . . .(vs 4) For he (the ruler) is the minister of God to thee for good. But if thou do that which is evil, be afraid; for he beareth not the sword in vain: for he is the minister of God, a revenger to execute wrath upon him that doeth evil."

A free market environment encourages entrepreneurship. To start of new business or develop a new product involves a great amount of risk. Any government regulation or requirement greatly adds to the risk. Thus, the freer the market, the more entrepreneurs there will be stepping up to take the risk. Throughout the history of our nation, we have seen a great of great industries which have produced a variety of products for our consumption. Until about two decades ago, we still enjoyed the largest variety of products and services anywhere on this earth. No other nation had produced the variety of products at lower costs than our manufacturers. This was due to the blessings of God through the free market. As our government has intervened into the markets by regulation and taxation upon our businesses over the last three decades or so, businesses and industries have been forced to move out of America, because this was essential for them to be internationally competitive.

One result of the free market, which is of great advantage to a nation is that it inherently provides for the most effective use of scarce resources. It elevates the consumer to be in control of the market. Though there are many who would deny this, it is actually true. Successful manufacturers and businesses must meet the needs of consumers at reasonable prices or the products or services will not be purchased. Without purchases by consumers, these failing suppliers will either change their ways, improve their products, or find new ones to meet the demands of the consumers. Else, they will fail and disappear from the market place. The successful suppliers will remain. Thus, the more efficient businesses will be left. Of course, the opportunity for failure is seen by many in governments as a terrible event, so governments will move in to subsidize or regulate the industry to save it. This just enables inefficient businesses to survive whether they are profitable or not. This does not allow the free market to weed out the businesses which should not survive. Such intervention rarely does more than postpone the failure and cause more inefficient use of scarce resources. It is direct waste.

Though the free market is not explicitly called far in God's word, the foundations of the free market of capitalism are outlined therein. Tomorrow, we will examine how the free market prevents long term monopolies.

Best to each, Doug

Precious Metals vs. Unbacked Paper Currencies III

It seems that both silver and gold have gained some steam for their upward motion. Both have had substantial gains in the early New York trading. Silver is at 17.40 and gold 917.

The mining stocks are responding, also. Here are a few: CDY 3.45, CDE 3.39, DROOY 8.64, GDX 48.35, GFI 14.05, GSS 3.11, HMY 12.66, IAG 6.51, KGC 21.10, MRB 7.88, NEM 49.75, PAAS 35.74, SLW 14.77, SSRI 30.72, VGZ 3.59, and XRA 4.58. For the EFTs and Trusts: CEF 12.73, GLD 90.59, and Slv 172.22. Almost all are up.

We must always keep in mind that the producers of unbacked paper currencies hate gold and silver and fear that the precious metals might become used in place of the paper notes they control. This fear leads them to manipulate to the extent possible prices of the precious metals. It is not the free market for which the foundations are protected under Biblical law.

The Bible prescribes private family, not state, ownership of property. This is found explicitly after Israel had captured the God promised land from the pagans in Joshua 14-17. The right of private ownership is further strengthened in the incident of King Ahab and Queen Jezebel as they murdered Naboth and stole his vineyard, as recorded in 1Kings 21. Remember that King Ahab coveted Naboth's vineyard so much that he was downhearted and ill since Naboth would not sell it to him. Queen Jezebel pitted her husband and devised an evil plan. She set up a pretense of honor for Naboth and then had him murdered. Then she presented the vineyard to her husband. God intervened and had both King Ahab and Jezebel killed.

Thus, the principle of private ownership of property is very serious in the eyes of the Sovereign God of all. What governments do today under the guise of "the right of eminent domain" is no less abominable to God than the sin of Ahab and Jezebel. Of course, it may not seem as severe, but it is the taking of private property by the force of government from rightful private owners without their consent. A payment of government's idea of "true" market value does not gain the blessing of God. A legal contract must have the agreement of both parties without duress. This is not the case in exercise of the assumed "right" of eminent domain. Thus, in God's eyes, it is a sinful act of government.

I plan to include more on the free market in future postings on this blog. Stay tuned for more.

We must all heed the command of God found in II Chronicles 7:14, "If my people, which are called by my name, shall humble themselves, and pray, and seek my face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sin, and will heal their land." It takes the action of only His people to heal a pagan government that is leaning away from the God of all and from the Constitution it is pledged to obey. The promises of God can be trusted and freely claimed before Him in pray. Let us join in daily following these actions in our individual and family lives and claim this promise before Him. I pledge to do so.

Best to each, Doug

Precious Metals vs. Unbacked Paper Currencies II

This is a continuation of the discussion from the previous post. It is important that all of us understand the impact on our lives of unbacked paper currencies. On the last post, the fractional banking system was discussed and it is hoped that each of you see the advantage to the banking industry. They issue unbacked currency with each loan they make. The currency costs them nothing and yet they required the borrower to repay the loan with interest. It is virtually a license to steal in violation of the Eighth Commandment: "Thou shalt not steal."

Today, it is important to see the impact of unbacked paper currencies on the statistics which the governments of the world publish. For example; let us consider the Gross National Product (GNP). This is sold as a measure of the value of all goods and services sold by the businesses within a nation. Of course, it is measured in the unbacked paper currency of that specific government. Here in America, the unit of measure would be dollars.

To understand the impact, let us consider the cost of gallon of milk. A gallon of milk now cost approximately $3.50. If the price of milk were to rise to $4.00, we would say that there was a price inflation in the cost of milk of 14.29%. Looking at the GDP, the milk component would show an increase of 14.29%. However, if over the same period of time, the supply of unbacked paper currency increased by 14.29%, the GDP would still show on the surface an increase of 14.29%. Upon closer examination, though the GDP did show a positive growth, one could see that the increase came, not as actual growth of GDP, but as a direct result of the increase in the supply of paper currency. Thus, we would have a false picture of prosperity due to the manipulation of the currency by the bank.

The bible constantly warns, as follows: "Ye shall do no unrighteousness in judgment, in meteyard, in weight, or in measure. Just balances, just weights, a just ephah, and a just hin, shall ye have: I am the Lord your God, which brought you our of the land of Egypt. Therefore shall ye observe all my statutes, and all my judgments, and do them: I am the Lord." (Lev. 19"35-37)

When the purchasing power of paper currencies is continually manipulated by adding or reducing the supply of the currencies, the result is unequal weights. The currency is unstable. Whereas, the word of God requires a stable currency. The advantages of a stable currency are many.

First, an individual is encouraged to save and be frugal, because he knows that the currency will earn a constant interest or dividend over time and increase his savings. Second, he can plan for the future based upon a currency of constant value. He can foresee to a good extent his future needs and build capital to meet these needs. This is particularly important for businesses. Third, the savings and investments made in accordance with plans for the future will be the source of capital for existing businesses to grow and for new businesses to start.

A stable currency is an important biblical foundation block for a free market which will encourage competition yielding ever better products in wider variety and at ever more reasonable prices. The successful manufacturers and businesses will continually have a greater demand for more workers at stable and increasing wages.

Looking at the precious metals this morning, we are seeing gold at $903.60 and silver at $16.92. They were up higher over night, but have dropped a bit since the markets opened in New York. The dollar is lower today. Both seem to be testing the possibility of moving higher. Remember that both are political metals. Therefore, central banks and governments detest the possibility the gold will become, once again, a monetary metal. They want the price to remain lower than the market would put it to maintain their monopoly on what the call money: in our case, the dollar.

Keep looking to King Jesus for His way and His peace in the face of all types of storms in our lives. Each challenge is a blessing, because it gives us the opportunity to grow more like Him.

Best to each, Doug

Precious Metals vs. Unbacked Paper Currencies

The Kitco.com graphs of gold over the recent years is very interesting. They clearly show the long term progress of gold against the depreciating U.S. Dollar. The 1 Year Gold shows rather drastic drop in the price of gold from its march 18th high. However, as you progress to the 5 and 10 year graphs, you should find that the correction does not seem nearly as severe. It is important that you understand that gold is a longer term holding designed to preserve wealth.

Recall, too, that all precious metals retain their value over time against the unbacked paper "money" of all nations. These pretend monies are used to defraud the citizens of value. By inflating these currencies, at will, the citizens are are robbed of purchasing power, so the price of all goods and services on the market escalates as the supply of paper currencies increases. It is equivalent to a secret or hidden tax. More on this, below.



One should ask himself why governments and banks use the false or counterfeit currencies. First, both desire a monopoly on what is used as money in the market place. Second, they, particularly the banks desire a guaranteed source of perpetual profit. Third, the governments want more control over the people and their wealth. This is the case in every nation in our world. Let's examine these in more detail.

A monopoly on "money" can only be maintained when the government and central bank are the only entities which can produce the currency. Thus, governments by FIAT decree state on the currency: "This note is legal tender for all debts public and private." Certainly, by power and force of government, these are the currencies which must be used for all debts public and private. By the way, each of us should recognize that our Federal Reserve Note is actually a note. A note, in financial terms, is a debt. However, in the case of our individual notes, all have a payment schedule and stated rate of interest. Wouldn't it be nice if we could have a note on a new automobile without any payments or interest due. That is, in fact, what the Federal Reserve Note is.

Guaranteed perpetual profit is given to the central bank through the fractional banking system. The fractional banking system gives banks the opportunity of creating currency with every loan they issue. When deposits are made into each bank, only a portion of that deposit must be retained by the bank. For example; when a 16% reserve is required of the bank, for a $100 deposit, they must keep only $16 in reserve, and $84 is loaned out. The $84 dollars is then deposited in a bank, $13.44 is required for the reserve, and $76.50 can be loaned out. When all transactions with the original $100 deposit is considered, the banks will have created $525. Think about it, were the reserve requirement to be lowered to 10%, the banks would be able turn the $100 into $1000 creating an additional $900. "Where's beef?" Oops, I mean where's the profit? Well, the bank created dollars out of nothing, lent those dollars to individuals and businesses and charged them interest. What a deal! They have no cost and collect interest. That is perpetual profit until the whole house of cards falls.

Government control of citizens and businesses is exercised through selective taxation, subsidies to selected industries, and welfare. Given that government has the capability to arbitrarily chose rates of taxation and to levy taxes upon or favor by low taxation certain income level citizens and industries, they can direct individuals and businesses into certain areas to lower their taxation. Further, as is the case today with ethanol, they can encourage certain industries over others. The welfare systems can provide "benefits" to selected groups among the citizens. I suspect that special tax incentives, subsidies, and welfare could well be used to obtain votes in elections. Certainly, the opportunity is there for such activity.

Were governments to operate in accordance with the Word of the Sovereign Ruler of all nations, they would limit their scope of activity to protection of the life, liberty, and property of their citizens and businesses. They would not intervene in the market place, but would punish those who commit crimes in financial transactions. Thus, they would protect, not regulate and exercise ungodly control of markets. The bible clearly favors the foundations of a free market: private ownership of property, stable currency, limited government, and self-discipline exercised by citizens. Would that we would return the the limited government envisioned by our Constitution.

More on Monday. We will look to the manipulation of statistics that paper currencies place in the hands of governments and banks.

I urge you to keep a long term view of the precious metals as all paper currencies of the world are on a shaky, ungodly foundation which has definite cracks beginning to show.

Go and join in corporate worship of King Jesus and earnestly pray that He will intervene in the affairs of man and bring about a return to a more godly government in every nation of the world.

Best to each, Doug

Precious Metals Higher

I writing this on Lord's Dy night (May 11th). The Sidney and Hong Kong Markets are open as is the NY Global Mkt. Gold has moved up some and seems to be trading a higher level. Silver is following the path established on May 9th.

Both are showing a sign of more strength. Remember that we are still in the summer period of languishing prices of precious metals. I had to turn on my A/C the night before last. Since I live on a hill, I get great breezes that are around. Reluctantly, I turned mine on as the temperature reached 90+ degrees at night. I dearly prefer the fresh air to the indoor A/C recirculated, but at times, the temperature forces me to use that of the A/C.

I am trading options on the mining stocks and doing some trading in futures in commodities. However, I have stopped trading in mining stocks. Both DROOY and HMY are up from the prices of my purchases last week. I knew that the prices were a bit too low at that time. I am thankful to the Lord that He gave me the wisdom and courage to add to my holdings. This is a change from the normal. The prices usually drop some after I make purchases, but not this time. Thankfully, I have added to both of these core holdings at a reasonable price.

It takes intestinal fortitude to add during these times, but I consider it important to do so. We never know when the prices will move into the third wave of excessive exuberance and go parabolic. Gold has been clearly held down in price by intervention of the central banks and governments. This has been true since about January of 1980. However, it is up considerable from the lows of the intervening years since President Nixon removed the interchangeability to dollars for gold on August 15, 1971. Since then we have experienced a considerable increase of the unbacked dollars in circulation and the natural depreciation of the purchasing power of the dollar.

The obscene expansion of debt of America and the accompanying expansion of spending at all levels of government and on the part of consumers has lead us to the time when the standard of living in America is bound to drop. Price inflation has become a way of life for us.

It is imperative that we reduce our spending and turn to saving. This is the true definition of saving >> foregone consumption. The saving forms the basis of investment in business which is the life blood of business. Without savings, America is doomed to become a third world country.

Of course, all is in the hands of the Sovereign God of all. However, few of us recognize His majesty, and power. He demands and receives recognition of His people and is continually preparing them for eternal life with Him. In the last days, He will balance all the books and pay what is due to everyone. He will reward the sheep who have followed His ways, and punish the goats who have ignored Him and lived out their lives for their own satisfaction.

Best to each, Doug

Could Be a Buying Opportunity - Use Caution

Gold has moved higher off the 850 level to 881.20 (now). This appears to be a strong move; however, we must wait and see if it will be sustained. Yesterday, I took advance of the opportunity to add to my holdings of two core stocks which follow, below.

DRD Gold (DROOY) is one of my long term holdings. From time to time, I have been stopped out of a portion of this stock. This is not a beautiful graph as DROOY is below both the 50 and 200 day averages. It takes a risk taking investor to buy at these prices. Yesterday, I was able to get a few shares at 7.01. I believe it is still in a buying range depending upon one's comfortable risk level and the balance of his portfolio.

Harmony (HMY) is a stronger company which I like. I was able to get a few shares yesterday at 11.79. There have been strikes, low electrical power, and even attacks at some of HMY's mines. But it is a sound company with a low cost per ton in mining operations.

Both of these companies are primarily in South Africa and face the power shortages which will take some time to solve. Building new and improved power generating and distribution systems is an expensive process, as is all infrastructure. Mining is critical to South Africa's economy, so there will be as rapid as possible improvement in this area.

The last trade for DROOY was at 7.64 and for HMY 11.94. These are still reasonable buys for me, and I may dive in for a few more shares of each. You must make your own decisions in accordance with your own portfolio and risk tolerance.

Remember, we can gain inference of the future and make educated guesses, but only the Sovereign God of all knows for certain what the future holds. It is not because He can look into the future, but because He is in absolute control of everyone and everything. That gives those whose God is King Jesus Christ get peace and comfort.

Best to each, Doug

Gold A Bit Higher Today

As evidenced in the graphs, above, both silver and gold have moved up some from the lows of last week. Obviously, this was the actions of buyers seeking bargain prices.

The mining stocks are virtually all up now. I am attempting to add to my holdings in DROOY at just above $7. To me, this is a real bargain. The last trade was at 7.05 and the Bid/Ask is now 7.07/7.08. Harmony (HMY) last was 11.80 and the Bid/Ask is 11.80/11.81. That, too, seems like a bargain to me and I will likely put in an order to buy some more.

A bit of humor from the www.DailyPfennig.com "So... All the stimulus checks are "in the mail"... Or as I see it the $150 Billion tax...  I've gone on record here and in dozens of interviews regarding how I feel about this "stimulus package"... But, Ty Keough sent me a note last week that cracked me up... This is Dave Barry's Take on Government Rebate Checks...

Q. What is an Economic Stimulus Payment?

   A. It is money that the federal government will
   send to taxpayers.
   Q. Where will the government get this money?
   A. From taxpayers.
   Q. So the government is giving me back my own
   money?
   A. Only a smidgen.
   Q. What is the purpose of this payment?
   A. The plan is that you will use the money to
   purchase a high-definition TV set, thus
   stimulating the economy.
   Q. But isn't that stimulating the economy of
   China?
   A. Shut up."

We have to be bold on the precious metals, because nothing has changed in the fundamentals causing the dollar to be in the long term downward trend. However, from time to time, the corrections are thrashing our portfolios. Remember, that we are holding mostly for the third wave of the blow off in precious metals. That will come come time. When? That is the big unknown.

Keep your focus upon King Jesus and rest in His wisdom and wait for His timing.

Best to each, Doug