UNO "SFORZO GLOBALE" PER IL CONTROLLO DELLA POPOLAZIONE
Rumor PBoC Governor Zhou "John Meriwether" Xiaochuan Has Defected From China After Suffering Half A Trillion In UST-Related Losses
Today's stunning if true news comes from Stratfor which has just issued a blast notifying of circulating rumors "in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country." If proven true, this will be the proverbial first rat bailing on the sinking ship. It gets scarier vis-a-vis prospects of US bonds: "The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou." Um, $430 Billion in losses? Hopefully this explains why next month's TIC report won't show any incremental increase in Chinese holdings of Treasuries (and most likely quite the opposite). Stratfor continues: "Although Ming Pao on Aug. 30 published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou’s defection have spread around China intensively, and Zhou’s name has been blocked from Internet search engines in China." Even if Zhou is safe and sound in Beijing, the fact that China has experienced nearly half a trillion in losses on its UST holdings is shocking, and means that the US Treasury bubble may be approaching the popping phase.
From Stratfor:
STRATFOR has received no confirmation of the rumor, and reports by state-run Chinese media appeared to send strong indications that Zhou is in no trouble at the moment. However, the release of this rumor and its dispersion throughout the public is significant, particularly as the Communist Party of China (CPC) is preparing for a leadership transition in 2012.We will bring you more as we get it on this potentially groundbreaking development.
Chinese state-run media and official government websites have run several high-profile reports about Zhou, which should be seen as a move to refute the rumors. The PBC website published two articles on its homepage reporting on Zhou’s meeting with visiting Japanese Financial Services Minister Shozaburo Jimi during the third China-Japan high-level economic dialogue as well as a meeting with an Italian delegation. Xinhua news agency reported that Zhou told the PBC Party Committee Enlargement Meeting on Aug. 30 it should “continue to implement justice, and strengthen legislative work in the financial system.” Prior to this news, Zhou appeared at the 2nd annual conference of the heads of the Chinese, Japanese and Korean central banks held on Aug. 3, and his most recent public appearance was Aug. 10 for China’s Financial System Anti-corruption Construction Exhibition.
Zhou is known to have lofty political ambitions and is believed to be a close ally to former Chinese President Jiang Zemin, as well as a core figure for Jiang’s “Shanghai Gang.” There has been no shortage of rumors about Zhou’s possible dismissal in the past five years, as he is believed to be associated with several high-level financial scandals. For example, Zhou was rumored to be under “shuanggui,” a form of house arrest administered by the CPC, during the massive crackdown of Shanghai Party Secretary Chen Liangyu in 2006, which was perceived in the country as a crackdown of the Shanghai Gang and part of Hu’s effort to consolidate power ahead of the 2007 power transition. There was also a rumor that he might have been detained following the investigation and arrest of Wang Yi, the vice governor of the China Development Bank, along with several other officials in the financial circle. Currently, several financial scandals are still under investigation, and it is likely that Zhou, as PBC governor and one of the most powerful economic players in the country, could be associated with some cases. Therefore, whether or not the rumor is true at this time, the leaking of this news is very likely to be associated with a power struggle within the Communist Party’s economic hierarchy.
Some math:
Assuming average 6 Year duration on holdings (completely arbitrary), and a 2% drop in rates, means $430 billion is 12% of total notional, so somehow China must be short $3.5 trillion in notional or synthetically. Not good.
Few May Imagine What Is Coming ( FOLLETTO )
There seems to be a single constant in the financial world, and those who play. There are few if any perma-anythings, with most chasing the bull, or chasing the bear as a bear-bull in the moment. It looks like the last of the Perma for Life people are dying off as the last of the generation that endured the Great Depression find their rest in the soil.
The generation who made roads in the dirt, flew paper airplanes, and dreamed the impossible dream are now gray haired, and either broke or millionaires. There is little ground in between the extremes that was once a maxim 20-60-20 rich/middle class/poor. What seems to exist today is a younger generation with no imagination, incapable of taking a block of wood and shoving it around the dirt pile in dreams of logging trucks, and crawler tractors. Lost are the majority who created art, and music in its natural form. There are no lifelong collectors of anything, only a headlong rush from contemporary to abstract, and back in hyper-realism. Value is now replaced with greed, and get it now before the color fades. Bringing a face to this reality was a conversation with a PhD, retired, from NASA, who spoke to me about the fear in NASA that the upcoming generation’s imagination has been lulled to sleep by fast TV, fast girls, and constant bombardment of stimulation instead of self-generated creativity.
To a more direct point. Even the supposed perma-bears of today run helterskelter, seeking profit and gain first in that, and then in this, with no long-living devotion to any belief. Most current Bears do not care about fundamentals and history. None seem to care whether or not they are playing in a AntLion hole from which they will never escape. The greed of gaining the last drop of blood from the dying carcass of both bears and bulls is foremost on the heart of the young and younger. No person not directly from a Great Depression family is prepared for what will come. That means that unless your parents where born no later than 1920, you cannot have any basis to form an understanding for the potential pain of a real collapse. There are a few foreigners who understand, but I read nothing of what they may have to say.
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I see no imagination in the pages, blogs, and opinions written by financial wizards, or the wizard bulls who are smarter than a non-emotional chartist who knows the pendulum slows, stops, and slowly speeds up to strike down everything past dead center. There is only one thing that cannot be taken from someone, and that is knowledge. And even here, I have seen hypothermia take my mind, my strength, and my soul into a black pit of nothingness. The majority of bulls and bears today have never experienced hypothermia. Nor have the wishy-washy bears seen $1 million on the books that they will never eat, that they cannot turn into warmth or food.
Is it time for the Super Depression ? Probably, because the majority who have lived through that kind of pain are all dead and gone. Will the greedy temp-bearbulls get trampled? Yes ! But not before they see the millions they’ve won by trading correctly fail to provide them with anything of value. And what of us hard-currency nuts? You tell me! But Steve, you say: there are so many suffering without jobs today. True enough. But in 1934, there wasn’t any unemployment in the place where my dad pulled a crosscut saw for $1.00 pre thousand, part-time. (That’s about 50 cents a day, since there was someone on the other end of the saw). There weren’t any government handouts in Sutherland, where the mill ran one day a week, or one day a month, and where the women rejoiced in their diary: “The men worked today!” The more bears who think they are going to make a killing on the crash, the nearer we are to that crash.
I think Mr. Market is going to suck the blood out of nearly everyone — but especially from Bears who think Mr. Market is their friend in crushing the Bulls. Imagine “Value” and imagine what value really is in its most basic sense. I’d tell you what value is, but you either know, or will not listen to this ol’ radical gloom-and-doomer.
10 Practical Steps That You Can Take To Insulate Yourself (At Least Somewhat) From The Coming Economic Collapse
The Economic Collapse
But before I get into what people need to do, let's take a minute to understand just how bad things are getting out there. The economic numbers in the headlines go up and down and it can all be very confusing to most Americans.
However, there are two long-term trends that are very clear and that anyone can understand....
#1) The United States is getting poorer and is bleeding jobs every single month.When you mention the trade deficit, most Americans roll their eyes and stop listening. But that is a huge mistake, because the trade deficit is absolutely central to our problems.
#2) The United States is getting into more debt every single month.
Every single month, Americans buy far, far more from the rest of the world than they buy from us. Every single month tens of billions of dollars more goes out of the country than comes into it.
That means that every single month the United States is getting poorer.
The excess goods and services that we buy from the rest of the world get "consumed" and the rest of the world ends up with more money than when they started.
Each year, hundreds of billions of dollars leave the United States and don't return. The transfer of wealth that this represents is astounding.
But not only are we bleeding wealth, we are also bleeding jobs every single month.
The millions of jobs that the U.S. economy is losing to China, India and dozens of third world nations are not going to come back. Middle class Americans have been placed in direct competition for jobs with workers on the other side of the world who are more than happy to work for little more than slave labor wages. Until this changes the U.S. economy is going to continue to hemorrhage jobs.
The U.S. government has helped to mask much of this economic bleeding by unprecedented amounts of government spending and debt, but now the U.S. national debt exceeds 13 trillion dollars and is getting worse every single month. Not only that, but state and local governments all over America are getting into ridiculous amounts of debt.
So, what we have got is a country that gets poorer every single month and loses jobs to other countries every single month and that has accumulated the biggest mountain of debt in the history of the world which also gets worse every single month.
Needless to say, this cannot last indefinitely. Eventually the whole thing is just going to collapse like a house of cards.
So what can we each individually do to somewhat insulate ourselves from the economic problems that are coming?....
1 - Get Out Of Debt:
The old saying, "the borrower is the servant of the lender", is so incredibly true. The key to insulating yourself from an economic meltdown is to become as independent as possible, and as long as you are in debt, you simply are not independent. You don't want a horde of creditors chasing after you when things really start to get bad out there.
2 - Find New Sources Of Income:
In 2010, there simply is not such a thing as job security. If you are dependent on a job ("just over broke") for 100% of your income, you are in a very bad position. There are thousands of different ways to make extra money. What you don't want to do is to have all of your eggs in one basket. One day when the economy melts down and you are out of a job are you going to be destitute or are you going to be okay?
3 - Reduce Your Expenses:
Many Americans have left the rat race and have found ways to live on half or even on a quarter of what they were making previously. It is possible - if you are willing to reduce your expenses. In the future times are going to be tougher, so learn to start living with less today.
4 - Learn To Grow Your Own Food:
Today the vast majority of Americans are completely dependent on being able to run down to the supermarket or to the local Wal-Mart to buy food. But what happens when the U.S. dollar declines dramatically in value and it costs ten bucks to buy a loaf of bread? If you learn to grow your own food (even if is just a small garden) you will be insulating yourself against rising food prices.
5 - Make Sure You Have A Reliable Water Supply:
Water shortages are popping up all over the globe. Water is quickly becoming one of the "hottest" commodities out there. Even in the United States, water shortages have been making headline news recently. As we move into the future, it will be imperative for you and your family to have a reliable source of water. Some Americans have learned to collect rainwater and many others are using advanced technology such as atmospheric water generators to provide water for their families. But whatever you do, make sure that you are not caught without a decent source of water in the years ahead.
6 - Buy Land:
This is a tough one, because prices are still quite high. However, as we have written previously, home prices are going to be declining over the coming months, and eventually there are going to be some really great deals out there. The truth is that you don't want to wait too long either, because once Helicopter Ben Bernanke's inflationary policies totally tank the value of the U.S. dollar, the price of everything (including land) is going to go sky high. If you are able to buy land when prices are low, that is going to insulate you a great deal from the rising housing costs that will occur when the U.S dollar does totally go into the tank.
7 - Get Off The Grid:
An increasing number of Americans are going "off the grid". Essentially what that means is that they are attempting to operate independently of the utility companies. In particular, going "off the grid" will enable you to insulate yourself from the rapidly rising energy prices that we are going to see in the future. If you are able to produce energy for your own home, you won't be freaking out like your neighbors are when electricity prices triple someday.
8 - Store Non-Perishable Supplies:
Non-perishable supplies are one investment that is sure to go up in value. Not that you would resell them. You store up non-perishable supplies because you are going to need them someday. So why not stock up on the things that you are going to need now before they double or triple in price in the future? Your money is not ever going to stretch any farther than it does right now.
9 - Develop Stronger Relationships:
Americans have become very insular creatures. We act like we don't need anyone or anything. But the truth is that as the economy melts down we are going to need each other. It is those that are developing strong relationships with family and friends right now that will be able to depend on them when times get hard.
10 - Get Educated And Stay Flexible:
When times are stable, it is not that important to be informed because things pretty much stay the same. However, when things are rapidly changing it is imperative to get educated and to stay informed so that you will know what to do. The times ahead are going to require us all to be very flexible, and it is those who are willing to adapt that will do the best when things get tough.
Do you have any additional tips that you would like to share with us? If so, please feel free to share them in the comments below....
Wal-Mart and the Plantation Economy
Charles Hugh Smith
I am probably one of the few Americans who has worked on an honest-to-goodness plantation:
I picked "pine" on the Dole Pineapple plantation on the Hawaiian island of Lanai in 1970. (The plantation was subsequently closed and production moved to the Phillipines to take advantage of lower labor costs.) Thus my understanding of the plantation economy that I describe in Survival+ is not merely academic.
Wal-Mart is the quintessential plantation in the U.S. and global economies
Like a classic agricultural-commodity plantation, Wal-Mart enters a region and market with a diverse, employment-rich ecology of small businesses and networked supply chains of local and regional manufacturers and distributors, and it bulldozes the entire "forest" of businesses, suppliers and distributors with the irresistable blade of global supply chains and "lower prices, always."
The original sugar king, Claus Spreckels, pioneered the integrated global plantation economy of scale: he owned the plantations which grew the sugar cane, the ships used to export the cane and the refineries which processed it for distribution to global markets.
He also imported uncomplaining, cheap (i.e. desperately poor) labor to provide the heavy work required.
Wal-Mart doesn't have to own the suppliers or distributors or the ships-it's great size gives it supreme pricing power and the ability to offer suppliers a simple yet stark choice: either lower your price to our price-point or we pull your contract, and you implode. You may survive as a much smaller business, but probably not.
Like a plantation, Wal-Mart extracts wealth via mono-cultures and an integrated structure and supply chain
Wal-Mart's model calls for selected global suppliers- the monocultures who make millions of specific items- to provide massive quantities of goods at Wal-Mart prices, meaning that small suppliers get squeezed out by their inability to scale up to meet Wal-Mart's demands for product.
Profitable suppliers are squeezed to the break-even point (or below) by Wal-Mart's continuous demands for ever-lower costs. In effect, Wal-Mart expropriates the profits of all its suppliers and distributors in the entire chain.
A Wal-Mart store quickly bulldozes the complex economic ecology of local businesses
Small business is both the engine of job creation and a highly employment-rich ecology. Wal-Mart crushes this ecology and replaces it with a low-job, low-pay, highly efficient plantation economy in which the townpeople's only choice is to work for Wal-Mart or scrape out a living feeding the Wal-Mart workers, doing their laundry, etc.-exactly as on a classic plantation.
On a classic plantation, the wages are low and the "company store" offers easy credit, binding the workers to the corporation not just for wages but for credit and goods.
Those few who manage to save up enough capital to start small service businesses- laundry, cafes, etc.-must do so in the shadow of the Company, which can always drive them out of business should they irritate their corporate overlords.
A once-diverse landscape is reduced to a monoculture wasteland dependent on subsidies, either implicit or explicit
Wal-Mart's low wages leave many of its workers' families on state aid or food stamps to survive, and so it prospers on the backs of taxpayers who subsidize its low wages.
A relative handful of local workers run the plantation, while the economy the plantation bulldozed offered more jobs and a wider range of jobs
Here is an example from real life. We shop for groceries in Chinatown or "Mexican" markets (in quotes because we do not know the national origins of the workers or owners) because we find the produce to be fresher and cheaper than supermarket chain stores.
A typical full-service market in Chinatown (not the tourist Chinatown, the real one) is small by U.S. standards-perhaps 4,000 square feet compared to 40,000 square feet for an old supermarket and 120,000 square feet for a "superstore."
In this small space one finds a full meat, poultry and fish counter with three butchers on hand, a full panoply of vegetables and fruit (usually placed on the sidewalk every morning) and aisles of canned goods, beverages, dried fruits, etc.
Each small store has over a dozen employees.
If you stop to examine the boxes of fruit, vegetables and meat which are being carted in by hand, you will see a wide range of local produce from family farms and local suppliers.
Next door, the bakery has several salespeople at the counter and several bakers in the back. The deli next door to the bakery has four clerks and four or five cooks/staff preparing food in the small kitchen.
Thus this modest bit of square footage supports dozens of jobs, pays rent to several landlords (further distributing the revenues) and multiple owners/managers. In addition, dozens of small suppliers and farms receive a share of the revenues.
This is the ecology of classical capitalism, in which competition yields a rich variety of goods, services, prices
- and wages. Not everyone is capable of learning high-wage skills in a world of global wage arbitrage, and the wages in small-scale markets are modest. But this ecology offers plentiful opportunities for career changes and entrepreneurship-something the global plantation only offers within its corporate mono-culture.
The plantation-economy is one of concentrated financial and political power, global scale, exported jobs, integrated supply chains which exclude small local enterprises and a predatory monopoly which vacuums up all the profits of the entire supply chain for itself.
The alternative is not some fantasy of "old-time America"-this model still exists where citizens refuse to submit to the mono-tyranny of "low prices."
Long-time readers know that my experiences with Wal-Mart are limited to attempting to buy something of utility with a store credit issued for a gift we could not use.
The Wal-Mart Model of Self-Destruction: Lowest Prices, Always (January 24, 2010)
When my wife attempted to return an item of unusably poor quality, the clerk just shrugged and said, "It's Wal-Mart." In other words, poor quality is to be expected along with "low" prices.
Mono-culture plantations like Wal-Mart are ugly and soul-draining
There is nothing charming or life-affirming in the cavernous stores or wide aisles. People are enervated by the deadening atmosphere; they shuffle forward in line like zombies, and the pall of mono-culture "low prices" offers zero opportunity for amusement or fun.
Street markets (indoor and outdoor) offer plentiful, free opportunities for amusement and diversion, and ones like Porte de Clignancourt in Paris and Chatuchak Market in Bangkok are famous precisely because they are fun and hugely diverse-and offer plenty of bargains to shoppers.
The communities which support local economic ecologies do so not because they dislike low prices, but because the mono-culture plantation of Wal-Mart doesn't offer everything they want, nor is it convenient or enjoyable.
The nation does not exist to benefit corporations-the corporations exist to benefit the nation and its citizenry-and not just with cartels and plantations
Isn't it odd how this statement-The nation does not exist to benefit corporations-the corporations exist to benefit the nation and its citizenry-sounds breathtakingly revolutionary in today's plantation politics of experience?
Thus not shopping at big-box plantation stores is as revolutionary an act as preparing your own food, growing your own garden and eating a household meal together.
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Silver To Make A Major Move On Breakout
Jeb Handwerger
Gold has reached overbought conditions from my July 28th buy signal. Right now gold is a bit overbought while silver is at an interesting buy point, having found support for the fourth time at its long term 200 day moving average. Wednesday’s breakout of the symmetrical triangle, a very bullish chart pattern, is a sign that silver has built up a lot of internal strength and could break out into new three year highs. Remember, silver is significantly below all time highs while gold has already broken into new highs.
While I am bullish on gold, I believe investors could see a higher percentage move in silver. I have also alerted my readers to a specific mining company which has recently found a major discovery in Mexico. Pure silver discoveries are very rare. Silver supply is mostly produced as a byproduct which makes supply very inelastic. A new pure silver discovery in a silver bull market could receive a nice premium.
I believe silver will make a major move on this break out. Investors are looking for a safe haven, protection and value in silver. Gold has already made a significant move and is quite overbought, while silver has not participated to the same extent. The gold silver ratio should move to historical norms which could mean a major move for silver.
The break above the red bearish resistance line and a double top breakout coupled with the daily chart symmetrical wedge pattern demonstrates that silver has reached a critical juncture and could make a nice move.
Carts and Horses
Peter Schiff
In a CNBC debate last week, former Labor Secretary Robert Reich presented a set of contradictory beliefs that unfortunately reflect the conventional wisdom of modern economists. In a discussion with Wall Street Journal columnist Stephen Moore, Reich correctly and comprehensively listed the reasons why American consumers could spend so lavishly before the crash of 2008 and why they can no longer keep up the pace. But instead of making the logical conclusion that former levels of spending were unsustainable and that spending should now reflect current conditions, he advocated that government take on additional debt so that tapped out consumers can spend like they used to.
To achieve this, Reich called for lowering taxes on working Americans and raising taxes on the rich. He argued that middle-income Americans are more likely to spend additional dollars while the rich are more likely to save and invest. As a "demand-side" economist, Reich made clear that spending is superior to savings and investing as a catalyst for growth.
To put it simply: Reich believes that the cart pushes the horse. In his worldview, businesses produce goods and services simply because consumers spend. Therefore, anything that increases spending fuels growth. Unfortunately, he fails to see what should be strikingly obvious: capital formation must precede production, which then allows for consumption.
In a complex society like ours, those relationships are hard to see. However, if we break it down to a simpler level, it becomes more obvious (as I try to accomplish in my new book: How an Economy Grows and Why it Crashes). For example, let's take a look at a simple barter-based economy consisting of only three people: a butcher, a baker, and a candlestick maker.
If the candlestick maker wants cake, he can't simply demand that the baker hand it over. The cake needs to be produced, and the baker has to expend labor and material to produce it. Unless the candlestick maker offers the baker something of value in exchange, the cakes won't get baked. The ability of the candlestick maker to demand cake from the baker is a function of his ability to supply candles to trade. Without production, consumption can't occur.
What if the candlestick maker gets sick and produces no candles? As the baker would be unwilling to give his cakes away, he would likely stop baking cakes for the candlestick maker. Economic activity would naturally contract until the candlestick maker recovers.
But according to Reich, if the candlestick maker doesn't have anything to trade, the government should step in and give him candles. But where will the government get them? It could take them from the candlestick maker; but if he is not making candles, how will he pay the tax? Even if there were a few candles left to tax, any that the government took would simply transfer demand from the candlestick maker to the government. No new demand is created.
Alternatively, if the butcher is still healthy, the government could tax him, and give his steaks to the candlestick maker to buy cakes. However, this doesn't create new demand either. It simply transfers demand from the butcher to the candlestick maker.
Some may feel that a barter-based metaphor doesn't hold water because the ability to expand the money supply and create credit gives an economy far more flexibility. This is a deceptive argument. Although money is more efficient than barter, it doesn't change the dynamic between production and consumption.
But Reich suggests that printed money can stimulate demand just as effectively as real candlesticks. But what good will the paper offer the baker if there are no candlesticks to buy? All the baker can do is bid up the prices of those goods, like steaks, that continue to be produced. Similarly, if the government simply prints money and gives it to people to spend, no new production occurs. Prices merely rise to reflect the increase in the supply of money relative to the supply of consumer goods.
In a more complex economy, the relationship between production (supply) and spending (demand) still holds. Every consumer either lives off his own productivity or the productivity of someone else. When individuals work, the wages earned result from the productivity of labor. The ability to consume is directly related to the production of goods or services that result from one's efforts. However, if people waste their labor in unproductive jobs, little real demand is created.
In the Soviet Union, everyone had a job, yet workers had to stand in line for hours for basic necessities. Although everyone worked (for the government), production was too low. This lack of production meant wages delivered relativity little in the way of purchasing power.
Since production cannot be created by government stimulus, neither can demand. To the extent that there are savings, demand can be brought forward by stimulus - but only at the cost of future demand, plus interest. If stimulus could produce demand, then no nation would be poor. Taken to its logical end, Reich's argument suggests that African poverty would be wiped out if African governments simply printed money more freely. In reality, Africans are not poor because they lack currency to spend; they are poor because their corrupt and inept governments inhibit production by soliciting bribes, denying property rights, abrogating contracts, preventing the accumulation of capital, and nationalizing profits.
Reich is correct about one thing: Americans are indeed broke. But rather than encouraging the country to spend itself deeper into debt, he should call for greater savings so that we have the means to invest in new businesses and new industries. That is the true road back to solvency, but it will only work if we have less government spending, fewer regulations, lower taxes (particularly on those with the highest propensity to save and invest), and higher interest rates.
Unfortunately, Reich and his allies are calling the shots in Washington. The country cannot recover until the only thing politicians stimulate is demand for new economic leadership.
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Peter Schiff C.E.O. and Chief Global Strategist Euro Pacific Capital, Inc.
Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nations leading newspapers, including The Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register.
Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services.
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The Gulf Crisis is Not Over
Anne McClintock
Slow Violence and the BP Coverups
Three vanishing acts are being played out in the Gulf: the disappearing of the oil from the ocean surface by Corexit, the disappearing of the story by the media blockade, and the disappearing from view of the shadowy private contractors who are making a mint helping BP and the Coast Guard keep a cover on the clean-up. This triple vanishing trick, collectively choreographed by BP and sundry federal agencies, culminated on August 4th in a report released by NOAA that claimed 75% of the oil spill had been captured, burned, evaporated or broken down. The White House hailed the report as something to celebrate. Energy advisor Carol Browne announced: "the vast majority of the oil is gone."
A clamor of outrage immediately rose from the Gulf, as residents refused to dance the crisis-is-over, happy-feet dance. Hundreds of locals furiously insisted that they were still seeing masses of oil on ocean, beaches and marshes, and dead fish, dolphins, sharks, birds and other marine life washing ashore. Then on August 18th scientists from the Universities of Georgia and South Florida produced an open challenge to the White House report, asserting that 70% to 79% of the oil in the Gulf still remained in the water. Charles Hopkinson, a professor of marine science at the University of Georgia declared: "The idea that 75% of the oil is gone and of no concern to the environment is just absolutely incorrect."
Spike Lee, filming in the Gulf, scoffed at what he called the BP/White House "abracabra kawabanga" trick and called on journalists to stay with the story. A few weeks earlier, the triple vanishing act had come together personally for me in a story that Steve, a private contractor, told in the shadows of a southern Louisiana bar. I call the contractor Steve, though that is not his real name. I cannot tell you his real name because he has assured me that he will kill me if I do. I had been in the Gulf for three days with Karin Hayes, a film-maker, documenting the oil-spill when Steve approached us in the bar, urgently wanting to tell us something.
"It’s as if a nuclear apocalypse has gone off in the Gulf," he said. "The media is not telling the truth. No one is telling the truth. Let me tell you something. Yesterday on the beach where we work, my crew cleaned up seven hundred bags of oil. Today we went back and the beach was completely covered in oil, as if we had never been there. Today we carried away another seven hundred and fifty bags. Every day we clean up, then the tide brings it in again. The oil is everywhere, deep under the sand. Today I wanted to measure the oil, so I stuck my shovel into the sand and the oil was down there eight inches deep."
Steve leaned in close, "Do you want to know how long my contract is to work down here?" he asked. "Three years." His jaw muscles tightened as if he wanted to suck his words back into his mouth, but could not. "They are telling everyone it is not so bad, but clean-up will take many years. I am going to be here a long time." Steve wiped a hand heavily over his eyes as if they were burning. "Let me tell you something. Today we saw three sharks washed up dead on the beach. The insides of their noses were black with oil. The membranes of their mouths were black with oil. Their eyes were black with oil."
Steve is a war veteran who has seen a great deal of horror, but he seems to find this memory inordinately upsetting. "I am telling you this for the sake of our grandchildren," he said. "We have an apocalypse going on and no one is paying enough attention."
The CTEH Cover Up
A few days later, Steve and I were talking in the chemical-laced dusk of a car park. The Louisiana night was a strange brew of oily vapors and ginger blossom. Steve was slumped against his car, exhausted by his fifteen-hour day. The red tip of his cigarette burned on-off in the dark like a warning signal. As we talked, the nightly, muffled thrup-thrup of distant helicopters began. A number of people had told me about these strange, night flights, as helicopters and planes headed out on mysterious missions. I asked Steve where they were going.
"They are looking for oil," he said. "The helicopters go out first at dusk. When they spot oil, they radio the gps locations back to the Coast Guard. Then between one and three in the morning, the planes go out and spray the oil with dispersants."
"Why do they go out at night?" I ask. "They are hiding the oil with dispersants, Steve said. "They don’t want people to know how much oil there is out there. And they don’t want people to know how much dispersants they are spraying. It’s one of the big secrets down here."
As it happens, Steve knows a good deal about dispersants. Before coming to work on the oil spill, he worked as a contractor for Halliburton; he now works in the Gulf for a company dealing with environmental toxicity and health hazards. It took a couple of hours talking and half a bottle of Southern Comfort before Steve revealed the name of his company. "I work for CTEH," he said. Then he dragged his hand hard over his eyes. "I can’t believe I just told you that," he said, but it was clear he wanted to.
Founded in 1997 in Arkansas, CTEH (Center for Toxicology and Environmental Health) specializes in toxicology and risk assessment. According to its website, CTEH "specializes in the specific expertise of toxicology, risk assessment, industrial hygiene, occupational health, and response to emergencies or other events involving release or threat of release of chemicals." As it happens, CTEH is the company down in the Gulf that is quietly monitoring the levels of chemical toxicity of the oil-spill and its possible impact on the health of offshore workers involved in the clean-up.
CTEH is part of the Joint Unified Command based in Houma, Louisiana, where BP shares its office with the Coast Guard. The CTEH website is frank: CTEH is "proud" of its role in the Unified Command response. The website is less frank, however, about one stunningly important omission. CTEH is being paid by BP.
CTEH, in other word, is monitoring the possible toxic effects on workers of the chemicals BP has unleashed, and it is doing this at BP’s expense. In short, CTEH is being paid by BP to check up on BP. This is a conflict of interest so flagrant it is like a murder suspect hiring the forensic experts who will examine the murder scene.
CTEH has, to boot, an impressively consistent record of unsavory conflict of interest cases, where they have ruled favorably every time on behalf of their corporate clients. CTEH was hired by a coal company after it unleashed a massive coal-ash spill in the Tennessee Valley. CTEH declared everything hunky-dory. CTEH was hired by a paper mill sued by an employee for asbestos exposure. CTEH blamed the employee’s health problems on his lifestyle. Murphy Oil Refinery hired CTEH after spilling one million gallons into a community in St Bernard’s parish, LA. CTEH found nothing there for anyone to worry about.
Now, down in the Gulf, BP is paying CTEH to monitor the toxic levels of the air and water. As Nicholas Cheremisinoff, a former Exxon chemical engineer and expert on pollution prevention says, this means there is "a huge incentive for them to under-report."
This also means that if anyone sues BP for health problems caused by toxic exposure to oil or chemicals, CTEH will be the expert witness called in on BP’s behalf. Indeed, two Gulf Coast residents, Glynis Wright and Janille Turner, are now filing a class action suit against BP in Alabama, for alleged health problems caused by clean-up chemicals, claiming that Corexit is four times more toxic than the crude oil. Cheremisinoff has said he is "100 per cent certain" CTEH will be called in as expert witness for BP.
Not surprisingly, down in the Gulf CTEH is flying very low under the radar. According to a report filed by the Louisian Bucket Brigade, at a community meeting in New Orleans, CTEH was present, but without any insignia or identifying credentials, repeatedly reassuring residents that the area was safe and that heat was the main hazard facing workers. When the LBB reporter asked the EPA rep why they were working for CTEH, the rep responded: "CTEH?...don’t know them." When the reporter pulled out a copy of the CTEH website, the EPA rep backtracked: "Oh, yeah, we look at their data." Asked if that didn’t amount to a conflict of interest, the rep admitted, "Yeah, that is a danger." Shortly afterwards, he backtracked again: "No, we don’t really do anything with them. Who are they again?"
This crazy, conflict-of-interest carousel--where BP pays CTEH, and the EPA relies on CTEH data to monitor BP--is so flagrant that Rep. Lois Capps (D-CA) has formally requested that President Obama relieve BP of responsibility for protecting the health of workers and local residents.
CTEH and the EPA underplay the hazards, but down in the Gulf people are getting sick. Some men working on the oil spill have become ill and some hospitalized, though we don’t know the full extent because sick workers are contracted by BP not to talk to the media. BP could well stand, not for Beyond Petroleum, but for Beyond Principle. In a particularly nefarious act of cost-cutting and labor control, BP has hired prison inmates to do the clean-up, refusing to let them wear respirators, as this makes it visible that conditions are hazardous. Nor can they carry cell-phones lest they document the damage. Forced labor: slavery déjà vu. And there’s an extra perk for BP. Private companies like BP who use people on work-release get tax rebates of $2,400 for every worker they employ.
I heard many stories of people getting sick. I talked to the wife of a Vietnamese fisherman: "My husband has had chest problems ever since he went to work for BP," she told me. "A lot of people are getting sick. And when the south wind blows, my asthma gets bad," she said. In an internet café, I overheard a young man talking loudly into his cell about a blistering rash on his chest. "The doctor thinks it’s over-exposure to the chemicals," he said.
The Corexit Cover-up
You have to hand it to them: BP’s image makers do a heck of a job looking on the bright side of life. Consider the multi-million dollar ads they regularly place in the New York Times (any one of which would go a long way towards putting an out-of-work fisherman on his feet). Not a drop of oil to be seen from sea to shining sea. Even the skimmers seem to be skimming up stardust. The beach are pristine. Not a dollop of oil to be seen. As Marci, a private contractor with an energy company, sardonically said to me one evening: "Clean. Clean as a baby’s butt clean. You know why? Dispersants." Marci asked me: "Why do you think the oil stopped fifteen miles from the Florida coast? All along the Gulf, there is a fifteen-mile wide line where the oil stopped. How did it stop at that magical line?" She told me the same story others had told: "At night they go out with planes and spray it with dispersants. So the beaches look clean. But the oil is still there. Wait until the fall," she said, "Wait until the weather cools, and the Mississippi drops. Then the oil will rise to the surface. Then the oil will come back."
Marci was bristling with suppressed anger. ""You have to understand the tides," she said. "Why do you think the oil is inside the booms, not outside them? It’s because of the dispersants. The dispersants sink the oil under the water. It looks like the oil is gone. But then the tides go in, taking the oil with them, and the oil goes in under the booms. Then the water cools, the oil rises, the tide goes out, and the oil is caught on the inside of the boom. Close to the marshes, close to the birds." Travelling round Barataria Bay by boat and air, I have seen this for myself and have photos to show for it: islands surrounded by boom, with the oil trapped on the inside.
From the beginning, the use of dispersants has been clouded with controversy and cover-ups. The cutely named Corexit is made by the American company Nalco, and is famously banned in the UK and Europe on the grounds of its lethal toxicity. In April, shortly after the Deep Horizon blowout, Lisa Jackson of the EPA ruled that Corexit should only be used in "extremely rare" cases. Down in Louisiana, for decades there’s been a tightly-knit culture of mutual cronyism where local politicians and oilmen have their hands deep in each others pockets. On August 1st, the US House of Representatives Committee confirmed that for over three months, in violation of EPA’s official guidelines, the US Coast Guard had fast-tracked 74 permits giving BP the green light to "carpet-bomb" the Gulf. All told, at least 2 million gallons have been dumped into the Gulf, sprayed over the seas, islands and marshes.
The main ingredient in Corexit is 2-Butoxyethenol, which is toxic to blood, kidneys, liver and the central nervous system, also causing cancer, birth defects. Corexit is mutagenic for bacteria, huge amounts of which live in the Gulf of Mexico. Corexit ruptures red blood cells and accumulates as it moves up the food chain. The EPA, reluctant at first to release data, eventually conceded that Corexit is lethal for 50% of any group of test animals that comes in contact with it. Even the Department of Transportation classifies Corexit as Class 6.1: Poisonous Material" for transportation purposes.
The risks of Corexit to humans, the fragile marsh ecosystems and marine life are potentially staggering. Riki Ott, a marine toxicologist and tireless community activist, has testified meeting people all over the Gulf who are showing symptoms: "headaches, dizziness, sorethroats, burning eyes, rashes and blisters that go so deep, they are leaving scars."
Dispersants have never been used in such quantities before, or at such depths in the ocean, or on open marshland. Dispersants are so dangerous because they accumulate up the food chain. Fiddler crabs absorb the toxins in their muscles and are then eaten by birds. Coyotes and feral pigs eat the bird corpses. Pelicans absorb the toxins from fish and even lightly oiled pelicans ingest the oil through their constant preening. Larger marine life like tuna, dolphins and whales carry the greatest lethal loads. Stories have been told by fishermen finding vast, floating graveyards of birds, dolphins and whale corpses near the Macondo well site, which, they say, are secretly disposed of at night.
Oil on the surface is easier to see, easier to retrieve, easier to burn. One study shows that oil mixed with Corexit is 11 times as lethal as the oil alone.
So why use such lethal toxins in the first place?
Dispersants are called dispersants because that’s what they do. They disperse the oil; they don’t destroy it. Dispersants sink the oil below the surface, make it harder to see, and therefore harder to sue BP for liability. On August 20th scientists produced new evidence of vast undersea plumes of oil drifting for miles. This week, another team of scientists in the journal Science confirmed the discovery of a massive 22 mile subsea oil plume the size of Manhattan and, most dismayingly, very little evidence that the oil was being broken down by microbes.
Chris Pinetich, a marine biologist and campaigner with the Sea Turtle Restoration Project, confirmed what Steve and others had told me: that Coast Guard planes were flying out at night spraying Corexit on the water and land. "People need to realize that their water, their air, the sand they are walking on, they things they are touching when they wake in the morning are coated with this stuff," he said. "We are producing an experiment in the Gulf the likes of which no one has ever seen. Top scientists admit that. We are all part of the experiment."
Death by dispersants is slow and invisible. Death by dispersants wreaks its havoc over generations. Dispersants are what Rob Nixon has called "slow violence." We often think of violence as immediate and spectacular, bounded by space and time. Nixon recalls us to violence of a different kind: the "attritional devastation" that takes place gradually over time and space. Slow violence may be less visible, less media-sensational but enacts a toll no less lethal and lasting for being slow and out of sight.
Corexit is a form of slow violence: a conjurer’s trick, an alchemy of deceit, a sorcerer’s bargain with life and death.
And down in Barataria Bay, people cough the BP cough. Workers have rashes and burning eyes. Their ears get infected; their hands get blisters. When the southwind blows, lungs tighten and close. Some fishermen vomit, some struggle to breathe. Some get dizzy, some get diarhorrea. Some have ashthma, some fast-beating hearts. Their chests burn fire; their throats are sore. And their children cough the BP cough.
Slow Violence in the Gulf
Dispersants are not the only form of slow violence wreaked on the Gulf. The Deepwater Horizon blowout was by any standard spectacular violence: a volcanic crimson and grey apocalypse, an ocean in flames, a doomed, industrial colossus slowly pitching and sinking, taking with it nine men dead. But everyone I spoke to in the Gulf, echoed the same refrain: the Deepwater blowout was only the most recent, fast-forward, telegenic calamity on top of the permanent slow-motion catastrophe in the Gulf.
The slow violence of the oil spill comes on top of decades of slo-mo slaughter of the Gulf’s marshes and ocean waters by three forces: industrial dumping, chemical contamination and agricultural run-off; the forced engineering of the marshes by dredging and levees; and the tearing up of the vulnerable marshes by storms and hurricanes.
On July 18th, Karin and I flew in a Coast Guard plane to the Mocondo site. Two days before, BP partially capped the well. But flying over the five great passes where the Mississippi empties into the sea, I could still see great streaks of rust-red oil along the islands, and long white ribbons of dispersants in the foam-line of the currents. I already knew that beneath the Mocondo "ground zero" site lay a vast zone that had been dead for years, dead long before the Deepwater explosion: the Gulf "dead zone," a stretch of water utterly inhospitable to life as vast as Lake Ontario.
The Gulf is one of the richest and most diverse eco-systems in the hemisphere, our largest wetlands and 40% of our fishing grounds. But since the 1950s, decades of greed and deregulation have turned the Gulf into the United States’ largest industrial wasteland. The Gulf is an immense, watery mausoleum to the hedonistic high-times of the military-industrial petro-era. If a gigantic hand emptied the Gulf like a basin of water, we would see a drowned version of industrial New Jersey: seeping oil-rigs, dumped military ordinance, unexploded bombs, thousands of miles of pipelines, a giant watery wrecking-yard, cluttered with the debris of a century of industrial waste. Miles from anywhere, the spires of an oil rig rise from the marshes, like a church to a demonic god.
Ninety per cent of all drilling for oil and gas in the United States takes place in the Gulf. This statistic hit home for me only when I opened a Hook ‘n Line fishing map. On the map, the Gulf’s waters are marked with thousands of small, red blocks so thickly clustered the map looks like a map with the measles, a map of malady. Each red square marks one of the 4,000 platforms littering the Gulf, many of them abandoned and many leaking.
The Gulf also bears the brunt of agricultural pollution from the heartland: runoff and waste from Midwest cornfields, sewage plants, golf courses, factories, nitrogen from fertilizer drain down the Mississippi into the Gulf every year. And through these damaged and vanishing marshes, massive watery superhighways have been cut, canals and passageways for the barges and huge ships on their way to the Gulf. Every straight line in the marshes is man made and a road to destruction. Every straight line has been forcibly dredged for flood control and shipping, the river and marshes forcibly reengineered by levees and canals to stop flooding, thereby fatally closing off the silt and fresh water that the marshes needs to sustain themselves, and rendering them vulnerable to the yearly slow violence of the hurricanes.
For many people I spoke to, the violence of Katrina was as great as the violence of the oil spill. Southern Louisiana is a half-drowned, shape-shifting, upside-down world, where boats float out of the treetops, and houses tilt out of the water. Everywhere we went, people still lived among the debris of Katrina. Boats flung by Katrina left to rot on the grassy verge of roads, half-wrecked houses, trees stripped bare and leaning arthritic against the evening sky.
Every day, Karin and I would drive past the huge coal and oil refineries, the Port Sulphur toxic dump, rotting boats, sunken cars, abandoned roads lined with methane barrels. Down near Venice, we found a toxic lake so rank with chemicals we can barely breathe. Not for nothing is the Deep Delta where we travelled every day, called "cancer alley," with highest rates of cancer in the US.
One evening, Karin and I pulled into an unprepossessing marina near a town called Empire, driving carefully past the sleeping BP security guard. A few oyster-boats were festooned with yellow boom, but the rest of the marina wore a forlorn and dilapidated air. From every boat, the useless fishing nets hung like shrouds, dark relics of better times. One man moved slowly about his small houseboat. We got talking and Lloyd Boudreau invited me into his houseboat and unrolled a huge photo of the disaster Katrina had wrought: the picture of his life turned upside down by Katrina. Stubbing fingers blackened by a life on the oil rigs, he pointed to his houseboat, upturned like a toy. Katrina is the ghost he lives with, as if he has no room in his heart to begin to think about the oil spill.
Battered by the accumulated slow violence of decades of corporate greed and mismanagement, dredging, levees, and hurricanes, the Louisiana delta is vanishing before our eyes, slipping into the sea at the rate of one football field every half hour. Since the 1930s, land the size of Delaware has vanished under water.
From Blowout to Blowback
Then BP partially capped the well and the media began to cap the story. NOAA issued its report on August 5th with some implausibly neat arithmetic, declaring 75% of the oil gone. I speak to Steve on the phone. "All the media has left," he says. "But the oil hasn’t."
Then blowback starts. Saying 75% of the oil is "gone" sounds cheering (less cheering, of course, if one remembers that 25% of the Deepwater spill is still four times as much as the total Exxon Valdez spill), but down in the Gulf, no one is buying even the 75%-gone story.
"The oil has not gone," Tony, an out-of-work shrimp fisherman told me, "It’s just below the surface." "They’re just covering their butts," says woman at a gas-station. "They want everyone to think it’s over," Charlotte Randolph, Lafourche Parish president said of the NOAA report: "This week in Lafourche parish we had hundreds of barrels a day washing in.
I call PH Hahn, Director of Coast Zone Management in Plaquemines Parish. "I know there is plenty of oil out there," Hahn insisted. "They say they have captured 75%, but they don’t even know how much there was to begin with. Figures lie, and liars figure," he says.
"From the very beginning," PJ told me, "the Coast Guard went to bed with BP. There was no oversight. They tried to cover for themselves. Now they’re trying to declare a quick ending. If they can get the President to convince everyone that it is over, then that reduces BP’s liability. There are two things working right now: there’s an election coming up and we have a President dying in the polls. They want to tell everyone it’s all ok. Now," PJ says, "the media has left. They want to kill the story."
"Last weekend, he continued, "we got stuck on a sandbar. When we gunned the engines, there was nothing but oil behind the boat. Then we dove with the Cousteau group again and there was plenty of oil on the bottom of the ground. The sand just covers it up. On Sunday night, we stopped at a barrier island, and as we were walking back to the boat, black oil spurted out of the hermit-crab holes. We pushed a stick down into the ground, and when we pulled the stick out, the oil began bubbling up. Fresh oil, not weathered oil. Wait till the shrimp boats start going out again. When those trawlers hit bottom, that’s when we will see a lot of things."
A New Orleans radio poll showed 80% of respondents did not believe the NOAA report. Others offered similar testimony. Steve told me he saw a huge slick about five miles long and one mile wide on his way to work. Bob Marshall, writing for the New Orleans Times-Picayune reported seeing a great deal of oil at South Pass. Fishermen reported oil both inside Barataria Bay and out near the great Mississippi Passes and barrier islands. Riki Ott, flew out over Barataria Bay and afterwards wrote: "Bay Jimmy on the northeast side of Barataria Bay was full of oil. So was Bay Baptiste, Lake Grande Ecaille, and Billet Bay....We followed thick streamers of black oil and ribbons of rainbow sheen....The ocean’s smooth surface glinted like molten lead in the late afternoon sun. Oil. As far as we could see: oil."
On my last evening down in the delta, fishing guide Dave Iverson took me by boat through Barataria Bay to the pelican rookeries at Queen Bess and Cat Islands near Grand Isle. As we passed through the he hauntingly lovely, lacey-green filigree marshland, flocks of snowy egrets and ibis lifted gracefully into the air ahead of us, an explosion of white confetti, an exuberant celebration of life. But returning through the marshes in the twilight through the oil-damaged parts, I saw miles of tangled boom filthy with oil, and inside the boom the black marshes, blackened as if a fire from hell had roared through. And everywhere a great stillness. Not a bird to be seen. I thought of John Keats’s great line: "The sedge is wither'd from the lake and no birds sing." I thought of Rachel Carson’s book Silent Spring that launched the modern environmental movement. Will this silence do the same?
On what abacus can we count the slowly dying, the invisibly hurt, the already poisoned but not yet dead? In this, our summer of magical counting. All summer we’ve been counting: numbers of gallons spilled, numbers of toxins released, numbers of birds dying, numbers of fishermen out of work. We are like children counting on our fingers in the dark, trying to ward off the shapeless face of something dreadful has been unleashed and cannot fully understand.
And down in Barataria Bay, the crabs climb out of the burning water and hold their claws to the sky. The creels stand empty; the boats lie still. Nets hang like shrouds. And children cough the BP cough.
Anne McClintock is the Simone de Beauvoir Professor of English and Women's and Gender Studies at UW-Madison. She is the author of Imperial Leather: Race, Gender and Sexuality in the Colonial Contest, which was republished online by the ACLS E-Humanities Book Project. McClintock has written short biographies of Olive Schreiner and Simone de Beauvoir and a monograph on madness, sexuality and colonialism called Double Crossings. She has co-edited Dangerous Liaisons with Ella Shohat and Aamir Mufti. She can be reached at: amcclintock@wisc.edu
Rethinking Gold: What if It Isn't a Commodity After All?
Jeff D. Opdyke
This won't sit well with some people: Gold isn't a commodity. There. I've said it.
But before you fire off an angry response, hear me out. The facts might change your view of gold's role in a portfolio.
For a long time, we've all heard that gold is a commodity - no different, really, from silver or wheat or pork bellies. Its price ebbs and flows (supposedly) with inflation, which historically drives commodity prices.
Odd, then, that gold's elevated price hasn't fallen in response to tepid U.S. inflation numbers. The Consumer Price Index as of July pegged inflation at just 1.2% for the previous 12 months, not counting seasonal adjustments. Nor has gold reacted to what Mohamed El-Erian, Pimco's chief executive, recently called "the road to deflation" on which he sees the U.S. traveling.
Data show that gold closely mirrors the movement of the U.S. dollar.
The conventional wisdom holds that neither of those scenarios - low inflation or deflation - should be good for gold. And yet it refuses to abandon record highs in the $1,200-an-ounce range. Something seems amiss.
I recently asked research firm Ibbotson Associates to run a correlation study to determine how closely inflation and gold-price movements track each other. You would expect gold, as a purported commodity, and inflation to move in tandem.
The data, going back to 1978 and capturing an inflationary spike, shows a correlation of, at most, 0.08.
That is low. Really low. Perfect correlation is 1; at minus-1, two assets move in perfect opposition. Near 0 implies gold and inflation barely acknowledge one another, and moves in unison are largely happenstance.
So if inflation doesn't push and pull at gold prices, what might it be? If you believe correlation studies, the answer is the U.S. dollar.
Going back to 1973 - a period that defines the modern, non-gold-backed dollar - the greenback's movements closely track gold's direction. The correlation between month-end gold prices and the Major Currencies Dollar Index, as reported by the Federal Reserve, is minus-0.45.
That clearly is a stronger correlation than you find with inflation. But let's take this a bit further. Let's shorten the time frame to the period from gold's 1980 peak to today.
The result: Over the past 30 years, the correlation between the dollar and gold is minus-0.65 - a high negative correlation. It means the dollar and gold are effectively on opposite ends of a seesaw. When the dollar is in favor, gold retreats. When it is under pressure, gold prices swell.
Look at the nearby chart. It is like a photo of a mountain scene reflected in a tranquil lake. The rises and falls and horizontal meanderings of gold are nearly the negative of the dollar's.
The implication is that gold isn't a commodity - at least not one that hews to the definition of something that people and industry consume.
Instead, "gold is a currency" whose daily price is a gauge of the market's concern about the "potential diminishment" of the purchasing power of the dollar and other paper currencies, says Paul Brodsky, a principal at New York's QB Asset Management.
If he is correct, it is the potential longer-term weakening of the dollar that is the real issue for the gold market, not inflation or deflation.
Some will note rightly that gold's record spike came amid the last great inflation surge. Those folks might be misreading the tea leaves.
Gold's four-year rally beginning in summer 1976 happened amid a four-year dollar decline. When the dollar bucked up at the end of 1980, gold prices retreated. Inflation was more of a sideshow than a driving force.
The question, with gold hanging around the $1,200 level, isn't "Is gold in a bubble?" as so many are asking. It's "What next for the dollar?"
Since its separation from gold, the dollar has been in a long downtrend, punctuated by periodic strength. The Fed's Major Currencies Dollar Index is down 27% since 1973, and down 45% since the dollar's peak in early 1985.
For investors convinced U.S. lawmakers and central bankers will successfully manage the budgetary woes and the massive unfunded liabilities of Social Security and Medicare, then gold is overvalued in the long term. Righting America's national balance sheet would explicitly raise the dollar's value as investors with money abroad move assets into a more-sound American economy. The selling of euro, yen and pounds would push the dollar higher - and gold lower.
If, however, you worry the U.S. balance sheet is irreparably damaged, then gold currently reflects the likelihood that a weak-dollar trend still has years to run as the U.S. struggles with its financial mess. Investors - and consumers - looking to preserve their purchasing power will gravitate toward gold, since its quantity isn't easily manipulated.
Invest in gold, then, according your beliefs about the future of the greenback. Just don't invest based on the idea that gold is a proxy for inflation. You are likely to be played for a fool.
Write to Jeff D. Opdyke at jeff.opdyke@wsj.com