Wednesday, September 23, 2009

Gold, Inflation, Profit, Power: The Back Story on Martin Weiss

Martin Weiss has jumped into the inflationist camp, and Gary North in an article says, after 27 years, finally!

But, this is really an odd time to jump from the delationist camp to the inflationist camp, since Bernanke hasn't printed any money since February.

North is correct when he points out the massive money the government will need in coming years:
Through August, the federal deficit hit $1.38 trillion, or three times last year's all-time record deficit of $454.8 billion. And in September alone, the administration expects another $200 billion in red ink, bringing the total for the year to $1.58 trillion.

The U.S. government's official debt is now at an all-time high of $11.8 trillion, or over $100,000 for each and every household in America.

Both the administration and its opponents agree that, over the next 10 years, the cumulative federal deficit will be another $9 trillion, driving the burden per household up to $177,000...

Perhaps worst of all, the government's unfunded obligations for Social Security, Medicare, and Federal pension payments are also ballooning higher and now stand at an estimated $104 trillion, or $886,000 per household.

Total burden per household: More than $1 million!
He is being a bit cute to say this will not cause inflation. It is only money printing that causes price inflation, this is true. But it will be these demands by the government for money that will force the money printing.

And so I think the Fed will start printing money at some time, but they aren't doing it now. Thus the correct posture is short term: deflationary, long term: inflationary.

Now here's the interesting back story on Weiss.

Weiss' father, J. Irving Weiss who North mentions, was one of the few people, perhaps the only one, who made money shorting stocks in 1929 and also 1987.

Weiss' father was also a friend of Bernard Baruch.

When I attended FFI back in March, I told Weiss that I suspected that Baruch (and Keynes) influenced FDR to prop up the gold price for personal gain. Weiss wasn't willing to go that far, and said we will probably never know what really happened. But, when I asked, he told me that his father, and a few others, were hanging around with Baruch at the time, and that while Baruch never leaked any information to them, Martin's father and the others were all buying gold stocks aggressively and that Baruch was aware of this and, at a minimum, he certainly didn't do anything to discourage them.

Thus, Irving Weiss, Baruch and Keynes made fortunes by buying gold stocks, while the average schmuck in the street, in the middle of the Great Depression, had his gold confiscated by FDR.

Now, I don't thing Weiss did anything improper here, but I am a lot more suspicious of Keynes and Baruch. I think they pushed the economically unsophisticated FDR to prop up the gold price, for personal profit. This does, however, point out that being around points of power, and Keynes and Baruch were points of power, is profitable for all. It was back then, and it is now. And the more regulations you have, the more points of power and inside profits there are, with the average schmuck getting caught on the outside looking in.


  1. Bob,

    This could be the ultimate contrarian signal of the year. That was what I thought when I first read it. It was as outrageous as Jim Grant turning bullish last week. WTF are these people thinking?

  2. I wonder if Weiss will issue refunds for his recent book "The Ultimate Depression Survival Guide", where he spends a couple hundred pages telling people to sell all their stocks, bonds and real estate and go to cash, in preparation for the great deflation. Or maybe he'll just issue an errata page (the contents would be a single page that says "About this book... never mind.)

    I have to say, he did put his money where his books was, giving a million bucks of his own money over to a clown named Claus to manage. I was stupid enough to pay for three months of his investment advice. Claus pretty much immediately went into losses with his bonehead timing moves. When I dropped out of the program, he was down 25% against the S&P. Needless to say, no refunds were forthcoming from Weiss there either.

  3. I think you twisted the order of words:

    But, this is really an odd time to jump from the inflationist camp to the deflationist camp, since Bernanke hasn't printed any money since February.

  4. No money printing?

    Did you miss the 1.25T in MBS purchases, 200B in agency debt, and 300B in Treasuries purchased by the Fed? That QE is money printing.

  5. Ah, did you miss the sterilization of those purchases? Since April the monetary base hasn't climbed.