USSR or USSA? Who’s Communist Now?

Happy Monday,

In our September 1st issue of TDV we postulated that “it’s like the entire world flip-flopped 20 years ago”.  Twenty to thirty years ago the USSR and China were still communist and the USA still looked like it was somewhat a bastion of free markets, despite having some of the 10 key tenets of communism already firmly installed, including government operated public education, a high income tax and a central bank fixing the price of money (interest rates).

Every day now we are seeing more and more signs of dramatic change from the world of only a few decades ago.  We mentioned recently that Cuba had announced a truly massive 500,000 pending layoffs of government workers – an obvious sea-change in that country’s communist aspirations.

Then today came another headline.  Just like with the Cuban headline our eyes were immediately drawn to the “…to cut 110,000 bureaucrat jobs by 2013“.  Once again, like when we read the Cuban headline, a voice in our head was shrieking, “Please, please, please be in the US or Europe”.

But, once again, a formerly communist nation was becoming even more free market.  The country who announced the impending slashing of 20% of government jobs was Russia.

What is possibly most amusing about these massive cuts by Cuba and Russia is that there is no mention whatsoever of any possible impact it will have on “services”.  Why?  Because 95% of most bureaucrats do nothing, at best, and actually hinder trade and prosperity in most cases.

Meanwhile yesterday in Sweden, a country who has long held socialist affinities, the Social Democrat party received their worst defeat since 1914.  The win by a center-right coalition consisting of the Moderate Party, Liberal People’s Party, Christian Democrats and the Center party marked the first time in Sweden a non-socialist government has been re-elected for a second term.

And in formerly communist China the government keeps buying up world resources on an almost daily basis and forming business ventures and alliances as well, having announced today that China’s main nuclear power company is in talks to build another 1 gigawatt powerplant for Pakistan.

And so, we have communist Cuba all but giving up on communism, the formerly communist Russia making drastic cuts in government, socialist Sweden moving even further away from socialism and formerly communist China making deals like Gordon Gekko from the movie, Wall Street.

Meanwhile, in the good ol’ USA, the former home of freedom and free markets, the central planning commitee of the Federal Reserve central bank is meeting behind closed doors tomorrow to decide at what price to fix the price of money.  And, if you hold up a sign in public saying, “Impeach Obama”, this is what happens to you:


Note that many in the crowd actually had some understanding of what freedom is and why what the police did in this video appears to be criminal.  You can even hear one or two people mention that they are going to put the video on YouTube.  Well, even that in America today is potentially illegal.  Witness this news story about a man facing 16 years in jail just for videotaping an altercation with a police officer.

Is it any wonder that investment capital is fleeing places like the US and heading to formerly communist countries such as Russia and China?

And what else have Russia and China been buying?  You got it, gold.

And the US?  Well, they say they have a lot of gold in Fort Knox.  Although the last time it was officially audited was 1953.  And Representative Ron Paul questions whether there is any gold there at all.

Speaking of gold, the week started off where it left off last week with gold hitting yet another record high of $1,283.70 today.  And all the stocks in our portfolio, available to Full Subscribers (Subscribe now for only $25/month), continue to rally higher – and the party is just getting started.  Our Senior Analyst, Ed Bugos, a scholar of Austrian economics and a man with decades of experience in the Vancouver precious metals markets stated that he believes we are at the “foothills of a mania.”

If these are just the foothills, you can imagine the profits that will come once we are well up the mountain.

Speaking of Ed, many in the market are waiting on baited breath to see what the Federal Reserve will do on Tuesday.  I asked Ed his thoughts.  Here was his response:

Notice the Dow fly today.  This will be an interesting week.  We’ll see if the Fed matches the market’s expectations (QE2) or falls short, and how it pans out in the gold’s.  I guess if the Fed doesn’t budge it’s bearish short term for everything I think…if it budges a little and fans the flames (expectation) the current broad advance marches on…but if it gives the market what it wants, QE2, my hunch is the gold’s sell off while stocks & bonds race higher.

Greenspan was good at giving the market what it wants.  Bernanke not so good.  But either way, if they are smart, the Fed would sit pat while stock prices rally… It will invite criticism and waste ammo if it acts now. And the market would probably sell the news anyway as it has been expecting it so widely.  Its best route is to not act but continue to hint that it will.  Ideally, from the Fed’s perspective, it wants to inflate when they’re all behind him following some kind of crisis or event that provides the pretext.  But it doesn’t want to be seen as the cause of the crisis either so any talk of the end of QE altogether, since it is likely to punish the markets, could be ruled out too.  I thus continue to anticipate the status quo as far as the Fed can push it…until the current advance runs out of steam or something explodes.

And so we wait to see what the central planners of the US Central bank decide to do.  Golds may take a respite, as Ed pointed out, but the respite will only be temporary and will just remove some of the speculative froth before moving yet again higher.  It’s just a matter of time.

Until tomorrow,

Jeff Berwick

Chief Editor