Make-Believe vs. Reality

By Doug Hornig

Yesterday I was reminded again that life is full of irony. At the same time that the Democrats left Charlotte, NC, after renominating their president for another term – no doubt congratulating themselves for how much has been accomplished over the last four years – the Casey/Sprott Summit in Carlsbad, CA, kicked off, treating 300 attendees to an analysis of the real state of the economy.

Personally, as someone who doesn't believe in the notion that "ignorance is bliss," and who likes to know the facts, even if they may not be pleasant, I much prefer the somber revelations of the Summit (which are always coupled with actionable advice) to the make-believe buzz of the party conventions - conducted in a sort of eerie adult version of Mr. Rogers' neighborhood where the sky is always blue, the economy always on the mend, and the future always bright.

So, what's the real state of the union now (and beyond)?

No surprise: it isn't good.

Right at the outset, Casey chief economist and human energy dynamo Bud Conrad unleashed a blizzard of charts and graphs showing where we are and where we're headed if present trends continue. But perhaps most telling of all was the simplest chart of the day: the gold price as of Friday morning. Up $40/oz. in response to another dismal US jobs report.

If gold is not exhibiting a breakout from its six months of range-bound behavior, then it's doing a decent imitation thereof. Those who were still clearing away their sleep fog, and who had not yet seen the morning news, responded with a collective aaaaah… Most, if not all of us, hold at least 10% of our assets in precious metals, and many have an even greater commitment to hard money.

We're all a little wealthier today. Or maybe a lot wealthier, depending on your point of reference. As Eric Sprott, CEO of Sprott Asset Management, would mention later that he began buying gold at $260. So that portion of his holding rose 15% in an hour.

Since this conference is all about the effect of political meddling on the economy, it also seemed fitting for Bud to note that one of his college classmates was Dick Cheney. But whereas Cheney was even then plotting how to amass political power, Bud was playing with his slide rule (remember those?), crunching numbers.

Today, thankfully, Dick Cheney has been retired as a public nuisance, but Bud Conrad, thankfully, is still crunching those numbers. At the Summit, he reconfirmed what he's been saying for a long time: The ship of state is still heading for the iceberg… and that iceberg looms closer by the day.

The US national debt has far outpaced the government's ability to pay it off. It's unsustainable – and made continuously worse by the Federal Reserve, which pushes more and more debt onto its balance sheet, blowing up an ever bigger bubble. And judging from Bud's numbers, the resulting pop! will be one that will make the entire globe's ears ring. Or, to use another ghastly metaphor, those ever-optimistic government shills are not just putting lipstick on the proverbial sow, they're slathering stage makeup on a carcass.

Eric Sprott spoke next, fresh off a team victory in the golf tournament that his company sponsored on Thursday, and in which a number of conference attendees participated. Full disclosure: my own team did not win. But no sour grapes here. However, when the boss's team wins his own tournament, well… I have to say that questions will be raised.

More to the point, Eric reminded us of the difference between liquidation and bailout. As he points out, the last liquidation event on Wall Street was the collapse of Lehman Brothers. Since then, bailouts have been the order of the day. Which says as much about the health of the financial sector as it does about the banks' friendly relations with Washington.

In liquidation, the true value of an institution's assets is revealed, says Eric, and obviously, that was an unacceptable prospect for the government and its cronies. Can't let the public see just how much junk is still being carried on balance sheets at above-market values – better to keep the "Too big to fails" afloat, by hook or by crook.

He is convinced that the real death knell for the current financial system just may have been sounded by the emergence of NIRP (Negative Interest Rate Policy). In July, the German government was able to sell bonds with a negative interest rate – in other words, when the bonds reach maturity in two years, investors will get 0.06% less than they put in. They're ironclad guaranteed to lose money.

And yet people have gobbled up those "investments," content to park cash in German bonds that will lose less (or so they believe) than the bonds of other, shakier Eurozone countries with a high positive coupon rate. Or, alternatively, they may be betting on the collapse of the euro and subsequent settling of their bonds in more stable new Deutsche marks. In either event, NIRP is not a healthy sign for the Zone.

Consequently, Eric is highly invested in gold. And in what he terms the investment of the coming decade: silver.

Another two speakers with no love lost for the government and Federal Reserve were Dr. Lacy Hunt, of Hoisington Investment Management, and G. Edward Griffin, author of the wildly popular book The Creature from Jekyll Island.

Dr. Hunt called the Fed a failure because it hasn't met its goal of ensuring currency stability. He argued that the dollar has lost 97% of its value since the Fed was wished into being by a group of bankers in 1913. (Overall, the previous century had seen an actual appreciation of the dollar's value.)

G. Edward Griffin didn't quite agree with that analysis – he believes that the Federal Reserve has been vastly successful. The problem is, he says, that most of the American public has no idea what it actually is that the Fed is set out to do. Their mandate is not, says Griffin, to ensure currency stability or keep the US economy afloat. Instead, since its inception, the Fed has only had one purpose, he claims: to serve its member banks.

What many Americans don't know is that the Federal Reserve is not a full-fledged government agency but a hybrid of government affiliate and private banking cartel controlling and manipulating the price of money. And that primarily benefits those who get first access to each fresh dollar conjured from thin air.

Griffin makes no secret of his conviction that the Fed is a criminal organization, engaged in the legalized plunder of the American population. Through excessive money printing and the ensuing inflation, the Fed is basically imposing a massive tax. It's a stealth tax, says Griffin – but as old Will so aptly stated, a rose is still a rose by any other name.

The public, says Griffin, has been completely hoodwinked as to what's happening, namely that they are being robbed on a massive scale. Since the gold standard was abandoned in 1971, the dollar has lost 80% of its value. If this kind of larceny had been done out in the open – say, by the government imposing an 80% income tax for 40 years – we would have had another "Off with their heads" French Revolution in Washington a long time ago.

If Griffin's arguments left any shreds of trust in the US government, they were swept away by the Hoover Institute's Peter Schweizer. Schweizer, author of the instant best-seller Throw Them All Out, demonstrated how members of Congress can arrive in Washington as middle-class citizens and leave a few years later with millions in the bank. Their "secret of success": due to convenient loopholes, it is perfectly legal for our nation's finest to act and trade on insider information they hear in closed-door meetings. Accordingly, the crash of 2008 that nearly bankrupted many ordinary investors, says Schweizer, made a lot of legislators from both sides of the aisle a fortune.

After all those eye-opening and rather dismal revelations, several speakers were asked by the audience how much of their portfolio should be devoted to the ultimate crisis hedge, precious metals. Bud Conrad's answer: 50%. G. Edward Griffin: 51%. Eric Sprott: "I'm all in."

This is no doubt one of the most interesting Casey Summits I've ever attended. If you're not here with us, you don't have to miss out entirely, though. As in the previous years, we’re audio recording every presentation, panel discussion, and stock recommendation from our blue-ribbon faculty. And until the Summit ends on Sunday, you can still pre-order those recordings (on CD and MP3) for $100 less than the regular price we'll charge after the Summit.

More about our speakers, topics and the Summit CD collection here.

If you're one of the summit attendees interested in listening to your favorite presentations again, order your audio collections on-site to get the attendee discount.