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Silver futures surged today to a new 31-year high of $42.80 per ounce. Silver is up 146% since NIA declared silver the best investment for the next decade on December 11th, 2009, at $17.40 per ounce. All we need is for silver to rise by another 15.5% and silver will reach its all time high set in 1980 of $49.45 per ounce.
 
Keep in mind, silver's high of $49.45 per ounce in 1980 would equal about $140 per ounce in today's dollars adjusted to the consumer price index and about $400 per ounce in today's dollars adjusted to the real rate of price inflation. Despite silver's huge gains in recent months, we have yet to see silver rise by $2 or more in a single day. When we start to see a true "silver mania" with investors around the world rushing out of their U.S. dollars and panic buying silver, we expect to see silver gain by $5 to $10 in a single day on more than one occasion.
 
Back in February of last year when silver dipped to below $15 per ounce, we sent out an alert saying, "NIA believes this is a once in a lifetime entry point for those wishing to go long silver at a bargain basement price". NIA suggested silver call options in February of last year that ended up gaining over 1,000%. NIA's latest silver stock suggestion is currently up 175% from our profile price.
 
In NIA's top 10 predictions for 2010, we predicted a major decline in the gold/silver ratio, which was 64 at the time. The gold/silver ratio declined in 2010 down to 46, and in our top 10 predictions for 2011, we predicted another major decline in the gold/silver ratio and projected for it to decline this year to 38. NIA has been the most bullish organization in the world on silver, yet recent gains in the price of silver have surpassed even our short-term expectations. The gold/silver ratio is now down to 35 and we believe it will decline to at least 16 this decade, and possibly as low as 10.
 
The artificially high gold/silver ratio of the past century will be looked back at as an anomaly caused by the silver price suppression scheme of the Federal Reserve, which was in cahoots with Bear Stearns and now JP Morgan. NIA's President Gerard Adams exposed this scheme in NIA's critically acclaimed documentary 'Meltup', which has now been viewed by over 1 million people with an overwhelming 96% of its viewers giving it a thumbs up, a world record for an economic documentary. According to Mr. Adams, the Federal Reserve chose to bail out Bear Stearns and not Lehman Brothers, because Bear Stearns was the holder of a massive naked short position in silver that they were on the verge of being forced to cover.
 
It is not a coincidence that Bear Stearns failed on the very day silver reached its then multi-decade high of $21 per ounce. Bear Stearns was on the verge of being forced to cover their naked short position, which could have sent silver from $21 per ounce to $50 per ounce overnight. By bailing out Bear Stearns and allowing JP Morgan to acquire Bear Stearns' assets with the promise to cover any losses derived from them, JP Morgan was able to continue managing the silver short position and orchestrate a manipulative take down in 2008 from $21 per ounce down to $8 per ounce.

 
Only ten times more silver has been produced in world history than gold and from the years 1000 to 1873, a period of 873 years, the gold/silver ratio remained between 10 and 16. In fact, the Coinage Act of 1834 defined a gold/silver ratio of 16. The gold/silver ratio started to rise after silver was demonetized in 1873. Despite silver being demonetized, we saw the gold/silver ratio return to 16 on three occasions during the past century: in 1919, 1968, and 1980.
 
It was only ten months ago in June of 2010 that the gold/silver ratio was 70. With the gold/silver ratio now at 35, it means that silver investors have seen their purchasing power double over the past ten months, while those with their savings in U.S. dollars have seen their purchasing power decline by 20%. That's right, forget about NIA's silver call option that gained over 1,000% and forget about NIA's most recent silver stock suggestion that is currently up 175%; the simple act of following NIA's most basic suggestion of getting rid of your U.S. dollars and buying physical silver means that over the past ten months, your purchasing power has doubled while non-NIA members with U.S. dollars lost 1/5 of their real wealth.
 
The Federal Reserve can claim all they want that there is no inflation, but as we write this article we are eating Ben & Jerry's ice cream that we just bought at Quick Chek for $5 a pint. Three years ago, the same pint of Ben & Jerry's ice cream at Quick Chek cost us $3. Three years ago, one ounce of gold would have bought 295 pints of Ben & Jerry's ice cream and it still buys 295 pints of Ben & Jerry's ice cream today. Three years ago, one ounce of silver would have bought 5.7 pints of Ben & Jerry's ice cream and today it buys 8.5 pints of Ben & Jerry's ice cream.
 
Americans with their savings in U.S. dollars can today only afford 3/5ths of the ice cream that they could have bought three years ago, but those with their savings in gold have maintained their purchasing power, and those with their savings in silver have greatly increased their purchasing power. NIA is 100% sure that the gold/silver ratio will decline to at least 16 within the next few years, and that will mean those with silver will once again more than double their purchasing power. Considering that the gold/silver ratio overshot to the upside and was as high as 100 in 1991, we fully expect it to overcorrect to the downside and possibly reach a low of 10 this decade. That would mean a more than tripling of ones purchasing power from the current ratio of 35.
 
When silver rose to $49.45 per ounce in 1980, the government said that the rise was due to the Hunt brothers "cornering" the silver market. The truth is, silver reached $49.45 in 1980 due to the massive inflation that was created by the U.S. government during the 1970s, and the Hunt brothers were used as a scapegoat. The Hunt brothers were accumulating silver in order to protect themselves from a collapsing U.S. dollar, just like NIA has been encouraging its members to do in a countless number of articles and videos over the past two years.
 
When the Hunt brothers were accused by the U.S. government of "cornering" the silver market and trying to manipulate silver prices higher, they only owned a concentrated long position of approximately 100 million ounces of silver. JP Morgan today has a concentrated naked short position in silver of approximately 122.5 million ounces, but the U.S. government doesn't seem to have any problem with it.
 
The problem with the Hunt brothers' strategy of accumulating such a large concentrated long position in silver is that after silver prices rose, their position was simply too large for them to ever sell without causing silver prices to crash. With silver reaching $49.45 per ounce in early 1980, the world was about to lose confidence in the U.S. dollar, which would have caused an outbreak of hyperinflation. In a desperate attempt to save the U.S. dollar and prevent hyperinflation, the CBOT raised margin requirements and limited traders' positions to only 3 million ounces of silver futures. The COMEX also limited traders' positions to 10 million ounces of silver futures. Not only that, but the COMEX and CBOT only had a total of 120 million ounces of silver in inventory, and the COMEX was likely going to default from futures contract holders requesting physical delivery. The COMEX was forced to go into "liquidation only" mode, ending all silver futures contract buying.
 
Combined with the Federal Reserve rapidly rising interest rates, silver prices began to plunge and the Hunt brothers were hit with massive margin calls. On one single day in March of 1980 when the Hunt brothers were forced to liquidate a large part of their position, silver lost 1/3 of its value, declining by over $5 to $10.80 per ounce. That represented a total decline of 78% from its high two months earlier.
 
NIA has been receiving a countless number of emails asking if now is the time to sell silver, and if silver could crash by 78% once again like it did in 1980. The fact is, while the Hunt brothers' 100 million ounce concentrated silver position was on the long side, JP Morgan's 122.5 million ounce concentrated silver position is on the short side.
 
While the Hunt brothers' long position was impossible to sell without causing silver prices to crash, JP Morgan's naked short position is impossible to cover without causing silver prices to explode to the upside. Being that the CFTC was so quick in 1980 to support the position limits that were then imposed by the CBOT and COMEX, NIA believes it would only be fair for the CFTC to mandate similar position limits today. This is unlikely to occur because the U.S. government believes JP Morgan's silver manipulation to be a good thing, since it is giving the phony appearance that the U.S. dollar still has purchasing power. The free market will ultimately win in the end and silver prices will soar through the roof to where they belong based on supply and demand fundamentals.
 
It is important to spread the word about NIA to as many people as possible, as quickly as possible, if you want America to survive hyperinflation. Please tell everybody you know to become members of NIA for free immediately at: http://inflation.us

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Charles Kadlec
February 22, 2011
www.blogs.forbes.com
As silver climbed above $30 an ounce on Monday for the first time since 1980, traders and analysts were cautiously bullish about the metal's ability to keep outperforming gold and stay at 30-year highs.
The stakes have seldom been higher. With the unemployment rate still above 9%, and federal debt at record levels, this latest error by the monetary authorities is likely to be the most costly since the Great Inflation of the 1970s. Monetary instability will slow employment growth and further erode confidence in government at the same time that higher interest rates will add billions of dollars to the interest cost on the national debt. Yet, failure to act in a timely basis will lead to an even greater crisis.
When it arrives, the Federal Reserve and its defenders will call it "cost-push" inflation and blame it on economic growth, the weather, Arab sheiks, China, and perhaps greedy companies and labor unions.
The actual cause of the looming crisis is the same as the cause of the Great Inflation of the 1970's: a too easy monetary policy that has devalued the dollar by 40% against gold during the past two years.
I choose gold as the reference point for the dollar's value because it has the remarkable characteristic of maintaining its buying power in terms of other goods and services over long periods of time. As a consequence, the dollar price of gold is the best, though imprecise, real-time measure of the price level. Other, more traditional measures, such as the consumer price index (CPI) are merely lagging indicators of inflation or deflation that has occurred already.
I also choose gold because I remember what happened after President Richard Nixon in August 1971 severed the link between the dollar and gold. At the time, those who warned that the rising price of gold was signaling higher inflation ahead were widely dismissed as "gold bugs." The conventional wisdom then, as now, is that economic slack would protect the U.S. economy from inflation regardless of what happened to the value of the dollar in terms of gold.
But it didn't work out that way.
At first, the conventional wisdom seemed to hold. The rate of inflation as represented by the CPI slowed in 1972 to 3.2% from 4.3% in part because of wage and price controls, and then rose 5.6% in 1973. But, in 1974, the CPI jumped 12.2% in the face of rising unemployment. Shocked and dismayed, the purveyors of conventional wisdom made the circular argument that the unexpected rise in the overall price level was caused by the rise in commodity prices, especially the tripling of the price of oil. In other words, they blamed rising prices on... rising prices!
But, those who followed the price of gold were not shocked. For example, the sudden tripling in the price of oil between 1971 and 1974 roughly matched the tripling in the price of gold over the same time period. In other words, the rise in the price of oil was simply the mirror image of the preceding devaluation of the dollar against gold.
In the last two years, the price of gold has increased around 75% -- roughly half the increase of 1972 and 1973. Last week's inflation reports indicate that this devaluation of the dollar will hit the CPI in the year ahead just as it did in 1974.
The price of crude materials in the Producer Price Index (PPI) increased by 3.3% in January alone and now stands 21% above where it was just six months ago. Moreover, during the three months ending January, the rate of advance in the producer price indices for intermediate products and finished goods have all accelerated into double digit annual rates of advance.
This upward adjustment of prices to the cheaper dollar is beginning to flow through to the consumer. For the past 3 months, the seasonally adjusted annualized rate of advance in the CPI is up to 3.9%, with food and energy prices – the items that have the greatest short-term impact on a family's budget -- accelerating to 3.1% and 27% over the same 3 months. Given the relative magnitudes of the dollar's devaluation against gold, it is reasonable to expect consumer prices to be rising at a 5% plus annualized rate in the months ahead.
Fed Chairman Ben Bernanke's assurance during last December's interview on 60 Minutes that he was "100% certain" the Fed could control an outbreak of inflation above 2% was hubris. These data show that inflation has already broken out, and that there is little the Fed can do to stop the price indices from reflecting the dollar's devaluation of the past two years. And, his statement last Friday in Paris at a meeting of the finance leaders of the Group of 20 that "resurgent demand in the emerging markets has contributed significantly to the sharp run-up in global commodity prices" ignores the central role of the dollar's devaluation on rising global inflation.
Moreover, Bernanke's promise to respond to higher inflation by raising the Fed Funds rate carries with it significant additional risks. Slowing the economy reduces the supply of goods and services relative to the supply of money, which itself can be inflationary. In addition, higher short-term interest rates increase the opportunity cost of holding currency and checking accounts, and therefore will lead to an increase in the turnover or velocity of money. That too will add upward pressure to prices.
The experience of the 1970s illustrates the danger. The Fed raised the Fed Funds rate from a low of 3.3% in February 1972 to more than 10% in July 1973. But consumer price inflation continued to accelerate for the next year.
To avoid another extended period of high inflation and interest rates, the Fed and the Obama Administration need to acknowledge that the current, paper dollar system is deeply flawed and prone to error and instability. The alternative is a rules-based system in which the Fed begins to use quantitative tightening and easing to steady the value of the dollar as represented by the price of gold. A monetary system in which the dollar is as good as gold -- for all of its imperfections -- would quickly deliver price stability, low and stable interest rates, and increased financial security to the American people.
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Sarah Palin on Monday made a speech at a trade-association convention in Phoenix urging Federal Reserve Chairman Ben Bernanke to “cease and desist” his “pump priming”. Palin said the United States, “shouldn’t be playing around with inflation.” She went on to say, "All this pump priming will come at a serious price. And I mean that literally: everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so. Pump priming would push them even higher."
 
After obtaining a copy of her speech, the Wall Street Journal's Sudeep Reddy wrote an article criticizing Palin's comments about food inflation, saying that, "Grocery prices haven’t risen all that significantly, in fact. The consumer price index’s measure of food and beverages for the first nine months of this year showed average annual inflation of less than 0.6%, the slowest pace on record." NIA finds it unfortunate that Reddy has been brainwashed into believing the government's phony consumer price index (CPI) numbers.
 
The U.S. Bureau of Labor Statistics (BLS)'s CPI is not a reliable indicator of U.S. food inflation or any type of price inflation. NIA estimates the real rate of annual food inflation in the U.S. to already be 5% and projects that this rate will rise above 10% in early 2011. NIA believes the BLS has been using both geometric weighting and hedonics to artificially manipulate the CPI downward. The U.S. government has a strong motivation to keep CPI increases as low as possible because since the year 1975, retired Americans receive annual Social Security payment increases that are tied to the CPI. NIA calculates that based on the way the BLS's CPI has understated the real rate of price inflation, Americans on Social Security should be receiving payments that are more than double what they receive today. Unfortunately, the government just announced last month that Americans on Social Security will receive no payment increase in 2011, despite the fact that food inflation will likely become the biggest crisis of the year, much larger than the mortgage crisis we have today.
 
When calculating food inflation, the government uses deceptive geometric weighting, which gives a lower weighting to goods that are rising in price and a higher weighting to goods that are falling in price. If the price of steak is rising while the price of hamburgers is falling, the CPI will give a lower weighting to steak and a higher weighting to hamburgers. The government justifies this by saying that expensive steak prices mean Americans are more likely to eat hamburgers. Therefore, the CPI no longer accounts for the price to maintain the same standard of living. The CPI is now calculated based on the realization that America's standard of living has been in decline and the expectation that it will continue to decline in the future.
 
Americans subconsciously realize that it is becoming a lot harder for them to make ends meet and put food on the table, but they don't realize that inflation is the cause of it. All Americans have heard stories from older relatives about how Hershey bars 45 years ago cost only 5 cents. Americans are aware that the U.S. has already experienced massive price inflation, but they don't look at inflation as a problem because these food price increases occurred over a very long period of time. NIA estimates that at a very minimum, the same U.S. price inflation that occurred over the past 100 years, will occur again over the next 10 years as the Federal Reserve's money printing causes the world to lose confidence in the U.S. dollar.
 
There is a misconception in America that wages have risen at the same rate as price inflation, when this is simply not the case. The median household income in the U.S. was $11,800 in 1975 and today is $49,777. If you go by the government's CPI, $11,800 in 1975 dollars equals $47,208 in today's dollars. If the government's CPI is to be believed, Americans are earning higher real incomes today than 35 years ago. However, the truth is, once you discount the effects of geometric weighting and hedonics, the median household income in 1975 of $11,800 actually equals $154,000 in today's dollars. This explains how in 1975, a father was able to support a family on just one income and college students were able to afford their own tuition with just a part-time summer job. Today, both parents need to work and families need to get deeply into debt just to survive.
 
The U.S. government is currently printing money just to survive. The Federal Reserve has held the Fed Funds Rate at 0-0.25% for nearly two years and just announced that it will be printing an additional $600 billion in new U.S. dollars by the end of June 2011. Since the beginning of September until now, just in anticipation of the Fed's upcoming quantitative easing, we have experienced the largest ever short-term increase in the history of agricultural commodity prices with corn rising by 32%, soybeans rising by 32%, orange juice rising by 12%, coffee rising by 19%, and sugar rising by 66%. These agricultural commodity price increases will begin to work their way into grocery stores nationwide in the weeks and months ahead, as food manufacturers and retailers are forced to raise their prices.
 
Food manufacturers and retailers who don't immediately raise prices and pass their rising costs on to U.S. consumers will likely go out of business. Sara Lee just announced yesterday that their first quarter profit fell 32% as price increases it enacted during the quarter were not enough to cover steep increases for agricultural commodities. Dean Foods saw their stock decline 18% yesterday to a new 52-week low due to escalating costs for butterfat, a key ingredient in its creamers and ice creams. Dean Foods' butterfat costs were up 70% over the same 2009 period.
 
The U.S. has no way of paying off its $13.7 trillion national debt and $80 trillion plus in unfunded liabilities without printing the money and creating massive price inflation. China’s Dagong Global Credit Rating Co. lowered its credit rating for the U.S. to A+ from AA on Tuesday with an outlook of "negative", saying the Fed’s plan to buy government debt will erode the value of the dollar and “entirely encroaches” on the interests of creditors. The Fed, by buying U.S. treasuries, is effectively monetizing the debt. In fact, Federal Reserve Bank of Dallas President Richard W. Fisher admitted yesterday that the Fed is monetizing the debt, saying in a statement, "For the next eight months, the nation’s central bank will be monetizing the federal debt."
 
Bernanke testified under oath on June 3rd, 2009 in front of Congress saying, "The Federal Reserve will not monetize the debt." This was a lie and perjury. With baseball great Roger Clemens being indicted for lying to Congress under oath about a personal matter that is trivial compared to this, Bernanke should also be charged with similar crimes.
 
Although NIA believes Palin made a major mistake by supporting the government's $700 billion 'Emergency Economic Stabilization Act of 2008', we give her credit for helping expose to the mainstream public that a massive inflationary crisis is ahead due to Bernanke's destructive monetary policies. On December 16th, 2009, the same day Time Magazine named Bernanke 'Person of the Year', NIA named Bernanke 'Villain of the Year' and said in an article that day, "When it costs $20 for a gallon of milk in a few years, Americans will have nobody to thank more than Bernanke."
 
The average American family currently spends 13% of their total annual expenditures on food compared to 34% on housing. As the Federal Reserve monetizes our debt and creates massive price inflation, these two numbers will reverse. For every 1% rise in consumer wages, NIA expects to see about a 4% rise in food prices. There are currently 42.4 million Americans on food stamps, up 17% from one year ago. The government does not have the resources to make these entitlement payments without printing the money and creating massive food price inflation. Ironically, food stamps are actually making those who receive them, need them even more.
 
If the U.S. government is somehow able to make it to the 2012 election without going bust due to a worthless U.S. dollar, by then it is likely that the average middle-class American will be dependent on the government to survive. Obama's strategy to get re-elected is to make as many Americans as possible dependent on him and scared to elect a true Libertarian candidate like Ron Paul, who will dramatically reduce government spending in an attempt to prevent hyperinflation. We must all work together to spread the word about NIA and educate as many Americans as possible to the truth about the U.S. economy and inflation.
It is important to spread the word about NIA to as many people as possible, as quickly as possible, if you want America to survive hyperinflation. Please tell everybody you know to become members of NIA for free immediately at: http://inflation.us
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The Federal Reserve today announced that they will be implementing $600 billion in additional quantitative easing by the end of June 2011. The Federal Reserve will maintain its current policy of reinvesting principal payments from its security holdings and will expand its balance sheet by an additional $75 billion per month. The total announced balance sheet expansion was $100 billion higher than the public consensus of $500 billion. The Federal Reserve will continue to hold interest rates at record low levels of 0% to 0.25%, where they have been for nearly two years.
 
Quantitative easing is nothing more than the Federal Reserve printing money and creating inflation. This quantitative easing steals from the purchasing power of the incomes and savings of all Americans. While Americans are distracted by the mainstream media with daily debates by the Democrats and Republicans about taxes, U.S. taxes have almost no where near the effect on the lives of middle class Americans as does the Federal Reserve's monetary policy and quantitative easing. Instead of millions of Americans attending "tea party" events in Washington with Glenn Beck and Sarah Palin, they should be marching outside of the Federal Reserve building in New York chanting "End the Fed".
 
As highlighted in NIA's new documentary 'End of Liberty', which just surpassed 170,000 views in three days, prices of nearly all agricultural commodities have been spiraling out of control in recent months just in anticipation of today's quantitative easing announcement. In the past 60 days alone, cotton prices are up 54%, corn prices are up 29%, soybean prices are up 22%, orange juice prices are up 17%, and sugar prices are up 51%. Meanwhile, the Dow Jones has only gained 9%.
 
The Federal Reserve is doing everything in its power to push stock market prices up so that the government can take credit for an "economic recovery", but as NIA has been warning for years, inflation gravitates most towards the goods that Americans need most in order to live and survive. There is nothing that Americans need more than food. The agricultural commodity price increases of the past two months will begin to make their way into all supermarkets nationwide during the next few months. Americans who have been struggling just to make their mortgage payments, will now be forced to stop paying their mortgage in order to buy food. Instead of hoping to get the latest Apple gadget for Christmas this holiday season, American children better be grateful if their parents are able just to put food on the table.
 
After the financial crisis of late-2008/early-2009 when the Federal Reserve implemented its first round of quantitative easing, the Dow Jones rallied by 74% from its low of 6,469.95 in March of 2009 to a high of 11,257.93 in April of 2010. By the Dow Jones rallying, the U.S. government was able to take credit for creating an "economic recovery", despite the fact that unemployment remained near multi-decade highs. NIA released a documentary on May 13th called 'Meltup', in which we said, "The truth is, our economy is not recovering, prices are rising only due to inflation." NIA proclaimed in 'Meltup', "If stocks were to see a nominal decline one last time, we will likely see Bernanke shoot up his largest ever dose of quantitative easing."
 
On July 19th, with the Dow Jones having declined by 11% from its April high down to 10,073.68, everybody in the mainstream media was talking about the threat of deflation. NIA released an article on July 19th entitled, "Double-Dip Recession Does Not Mean Deflation" in which we said, "NIA believes the Federal Reserve is quietly getting ready to implement 'The Mother of All Quantitative Easing'." NIA went on to say, "NIA fears that come this October, Bernanke is likely to shoot up his largest ever dose of quantitative easing."
 
Today, NIA's prediction for the most part came true. The Federal Reserve announced massive quantitative easing ($600 billion) and our timing was almost perfect (we missed October by a few days). This isn't quite what we consider to be the "The Mother of All Quantitative Easing", but don't worry, the Fed will announce additional quantitative easing soon if the slightest hint of deflation reappears.
 
Current U.S. price inflation based on the consumer price index (CPI) is 1.5% and the Federal Reserve wants to see this number increase to 2%. The truth is, the U.S. Bureau of Labor Statistics (BLS) uses geometric weighting and hedonics to artificially manipulate this number lower than the real rate of inflation in order to keep American's social security payment increases as low as possible so that politicians in Washington have more of your money to spend. Based on the way the U.S. government previously calculated price inflation before the BLS's latest tactics to manipulate the CPI as low as possible, NIA believes current year-over-year price inflation is at least 5%.
 
No human being alive, especially Federal Reserve Chairman Ben Bernanke, is smart enough to perfectly manage the rate of price inflation by printing money. By expanding the balance sheet by $600 billion, NIA believes the real price inflation rate will rise above 10% in early 2011. Once Americans realize just how rapidly their dollars are being debased and losing their purchasing power, it could cause a rush out of the U.S. dollar and trigger hyperinflation as early as year 2012.
 
America no longer has a free market economy. For everybody on Wall Street to be so fixated on the words that come out of Bernanke's mouth, it shows that the economic system we have is extremely fragile and vulnerable to collapse at any time. With prices of assets soaring in recent months just in anticipation of Bernanke's quantitative easing announcement, it shows that the world's financial system is already flooded with trillions of dollars in excess liquidity. Unless the U.S. government immediately implements dramatic spending cuts across the board, NIA believes the world is going to lose confidence in the U.S. dollar and it will be impossible for the U.S. to survive past the year 2015 without the U.S. dollar becoming worthless.
 
The fact that the Republicans took control of the House of Representatives last night is completely meaningless. If the U.S. government is to implement the spending cuts necessary in order to prevent hyperinflation, Americans will be faced with a second Great Depression, which NIA believes is a necessity and much better than the alternative. However, the Republicans will not risk being held responsible for the next Great Depression, because it will ensure Obama gets reelected in 2012. Therefore, NIA predicts that nothing is going to change with the Republicans taking over the House.
 
The only good news that came so far this week is that Rand Paul was elected to the U.S. Senate. NIA predicted in our top 10 predictions for 2010 that Rand Paul would win both the Republican nomination for U.S. Senate in the State of Kentucky and the U.S. Senate seat and we are very proud that Rand Paul was victorious. NIA considers Rand Paul to be the true leader of the Tea Party movement because he fully understands the hyperinflation that awaits as a result of the Federal Reserve's actions.
 
NIA hopes to see Rand Paul filibuster any attempts by the U.S. Senate to raise the ceiling on our national debt. There is no reason to have a national debt ceiling if every time we reach it, Congress raises it. NIA prays that Rand Paul proposes a Balanced Budget Amendment in 2011, because this should be our government's top priority if it wants to restore confidence in the U.S. dollar and prevent a complete societal collapse.
 
NIA would like to apologize for the minor technical problems in the last two minutes of NIA's new 1 hour and 14 minute documentary 'End of Liberty', during the time in which NIA's President Gerard Adams was speaking. This small audio problem was caused by YouTube and out of our control. To make up for this, NIA's President will be featured in an exclusive NIA video later this month explaining in detail the hyperinflationary crisis that is ahead and how NIA members can prosper while the rest of America goes broke. As you know, NIA's President made a 378% return on his investment in silver call options that he suggested to you in February. He believes there will be many more opportunities similar to this for NIA members to become wealthy in the years ahead as the rest of America goes broke.
 
The most important thing for you to do to help your family members and friends survive the upcoming hyperinflationary crisis is to help them become educated to the truth. Tell them to become members of NIA for free at http://inflation.us and ask them to read our articles and watch our documentaries. If they have any questions about the U.S. economy or inflation, they can browse through our comprehensive 'NIAnswers' database and if their question hasn't already been answered by us, they can submit it to us to be added to the database. NIA will soon be announcing its most important new 'NIAnswers' of the past several months. Also, on December 7th, NIA will be releasing its latest update to its review of the major online sellers of gold and silver bullion.
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Don't Doubt Bernanke's Ability to Create Inflation
 
With the Dow Jones now down 11% nominally from its high last month, NIA has been getting hundreds of emails and phone calls asking if there is any way we could be wrong about the threat of hyperinflation in the U.S. and if indeed deflation is the real problem we need to be worried about. The names Nouriel Roubini, Robert Prechter, and Harry Dent get mentioned to us a lot, with many NIA members asking why these so-called "experts" believe deflation is in our future.
 
Roubini, Prechter and Dent have been wrong about the overwhelming majority of their economic forecasts over the past decade. When it comes to their latest predictions about deflation, they will actually be right to some extent. We will see deflation in some assets like stocks and Real Estate, but only when priced in terms of real money - gold and silver. In terms of dollars, prices for pretty much all goods and services are guaranteed to rise dramatically over the next few years. Creating inflation is the only thing in the world Federal Reserve Chairman Ben Bernanke knows how to do and is good at.
 
During the past week, the mainstream media has shifted from saying we are experiencing an "economy recovery" to now saying we are at risk of a "double dip recession". Nothing fundamentally has changed in our economy. The fact is, the U.S. economy has been in a recession since mid-2000. All government reported positive GDP growth since mid-2000 has been due to nothing but inflation. Our economy should have experienced a depression in 2001 and an even greater one in 2008, but the depression has been temporarily avoided at the expense of an inevitable Hyperinflationary Great Depression down the road.
 
NIA believes it is impossible for the U.S. to experience price deflation when the Federal Reserve has held interest rates at 0% for the past 17 months. Sure, there will probably be a second wave of mortgage defaults that could cause another round of forced liquidations on Wall Street, but during any future period of forced liquidations, we doubt the U.S. dollar will still be looked at as the "safe haven" it was in 2008/2009. Gold and silver will soon be looked at as the only real safe havens because they are the only assets that provide protection from both a deteriorating economy and massive inflation. Precious metals will decouple from the Dow Jones and we will begin to see gold and silver rise at the same time as the stock market falls.
 
Bernanke was questioned yesterday following a speech at the Bank of Japan about whether a 4% inflation target would be better than the Fed's current inflation target of 2%. Bernanke responded that "it would be a very risky transition" if the Fed changed their inflation target, claiming that U.S. inflation expectations are currently "very stable". (NIA estimates the real rate of U.S. price inflation is already north of 5%.)
 
Unfortunately, no policymaker in the world is smart enough to accurately control the rate of price inflation through the manipulation of interest rates, and certainly not Bernanke. It's mind-boggling to us how the mainstream media could believe anything Bernanke says about inflation after how wrong he has been about everything else. Maybe the press has already forgotten that it was Bernanke who in July of 2005 said, "it's a pretty unlikely possibility" that home prices will decline across the country, "house prices will slow, maybe stabilize but I don't think it's going to drive the economy too far from its full employment path". We are 100% sure that Bernanke will be proven wrong again when it comes to inflation.
 
The U.S. Dollar Index has rallied from 75 to 87 since December and is approaching its high from March of 2009 of 89. This has given Bernanke the cover to keep interest rates at a record low 0%, but NIA believes Bernanke is misreading these economic signals. When the U.S. Dollar Index reached its high last year of 89, gold was only $900 per ounce. Today, gold is approximately $1,200 per ounce. The fact that gold has held up so strong despite a rapidly rising U.S. Dollar Index, proves that our financial system is getting ready to overdose on excess liquidity. The U.S. Dollar Index has rallied only because it is heavily weighted against the Euro. The Euro is now overdue for a huge bounce, which we believe will send the U.S. dollar crashing while sending gold to new record highs.
 
It's not good for us to pay too much attention to short-term volatility in the financial markets. Short-term "noise" often causes investors to second guess what they know is true. In our new documentary 'Meltup' (which has now surpassed 441,000 views in 10 days) we said, "If stocks were to see a nominal decline one last time, we will likely see Bernanke shoot up his largest ever dose of quantitative easing, which could turn the current Meltup into hyperinflation."
 
We are seeing signs of this coming true already. Washington is now calling for another stimulus. Larry Summers, senior economic adviser to President Obama, has asked Congress to begin drafting a new stimulus bill in an attempt to prevent a "double dip recession". The proposed size of this new stimulus is so far only $200 billion, much smaller than the last $787 billion stimulus bill. However, we are sure Congress will increase the size of it, especially if stocks continue their nominal decline. The new stimulus bill will likely coincide with trillions of dollars in additional quantitative easing by the Federal Reserve.
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Interest in buying silver as the precious metal best suited to hedging against inflationary government debt levels around the world, and a consequent imminent bond crisis, is growing among investors.

Articles on ArabianMoney.net about investment in gold and silver typically receive ten times more page views than items about investment in UAE stocks, for example. This does not necessarily mean that precious metals are actually the better investment but it does say a lot about investor sentiment and likely future momentum.

Silver bulls

Besides the bulls have a good case, and are still not leaning on an extreme position to justify buying precious metals. There is none of the top-of-the-market distortions of US economic data as seen in the stock market right now.

If you look rationally at 10 years of rising precious metal prices then the story to date has been one of slow but sure growth, leaving gold prices four times higher and the actually the best performing asset class of the past decade, apart from silver which is up six-fold, albeit with far greater volatility along the way.

There is no 80 per cent price spike in the past 13 months like US stocks. When markets spike it is almost always the time to get out. Gold and silver just are not there yet or even close to it. Indeed, the fundamental drivers of gold and especially silver prices are still in place.

Consider inflation, is it really under control? In the UK inflation is running at around 3.5 per cent against GDP growth of 0.4 per cent, so in real terms the economy is contracting by three per cent. Then again we hear reports of 20 per cent salary hikes in Chinese coastal cities and a bubble in Chinese house prices.

US stock market and silver

And surely the biggest forward predictor of inflation has to be the surging US stock market. Share prices are being pushed up by a monetary bubble with very little real evidence to support a strong economic recovery (see previous article). Once this bubble pops, up will go bond prices again, but for how long can that last?

Not for long surely if the laws of supply and demand mean anything. All over the world governments face mounting deficits due to their bailout packages and a shortfall in taxation from the worst recession since the Second World War. This means a gigantic government borrowing program is in progress.

We know this much for a fact and do not have to speculate. Now what normally comes with increased government borrowing? Higher inflation is the answer. This slowly, or not so slowly, devalues the debt burden of high bond issuance over time. The bond owners get a haircut to pay for government excesses.

Higher interest rates lower bond prices

Of course, what happens is that bond buyers wise up and demand higher and higher rates of interest to fund government debt. So you end up like in the late 1970s with high interest rates and high inflation. That also means lower bond prices as interest rates rise.

So you get a lot more buyers for gold and silver which are very tight markets on the supply side. In the late 1970s the gold price rose eight-fold from 1976-1980, and silver rose a staggering 25-fold. Silver is in shorter supply than gold, and so does better as prices take off.

ArabianMoney editor Peter Cooper’s latest book predicts $5,000 an ounce gold and is flying off the shelves at Amazon.com. You can order from the link on this website.
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(This is the third of four articles about Maverick Investing in the Age of Obamanomics)

Born Again Gold Bug

When I did a recent radio interview, the host (who was basically friendly), said, “You’ve always liked gold.”

My response? “No, no, no!”

I have been bearish on gold for most of two decades before December 2003. I have only been bullish on gold twelve years out of the thirty-four years I have been publishing The Ruff Times. I was bearish or neutral for twenty-two years. I’ve only been bullish since December 2003. But I guess I can never shake the label of “gold bug” the media gave me way back in the ‘70s.

When I first began publishing The Ruff Times in 1975, I begged my subscribers to buy $120 gold and $2 silver. Gold finally topped out at $850, and silver went to $50. I said, “Sell!” at $750 and $35 respectively. Then for more than twenty years, I made money for The Ruff Times subscribers mostly in stocks, bonds, real estate, and other traditional investments.

At the risk of sounding immodest, (Once I thought I was getting humble. It felt awful, but I was only coming down with the flu.) I probably learned at least as much about gold and silver and their markets in that Bull Run back then as any writer alive today.

Now I’m back again in familiar territory, riding the Golden Calf, since December 2003.

As the golden calf grows into a massive bull over the next few years, you can make a ton of money in gold, more than twice as much in silver and even a lot more than that in carefully selected mining stocks from my Investment Menu (See www.rufft imes.com)

Three Different Uses for the Precious Metals

There are serious uses for gold and silver that have little to do with investment, and gold bugs oft en miss that. You need to know the difference. The metals have three basic uses:

  1. Gold and silver coins as personal insurance against a declining dollar.
  2. Government holdings of gold backing for the currency (non-investment).
  3. Gold and silver for investments when things are right, and only then.
Timing makes no difference with number one and number two. They are for all seasons, not for speculation or investment. However, when you want to invest in gold and silver, timing is everything.

Gold and Silver Insurance

You should always own gold and silver coins as an insurance policy. Like homeowners’ or automobile insurance, its purpose is to protect you against unpredictable economic and political calamities (like now), that you always hope would never happen.

It’s there to use as real money in the case of a worst-case, like an inflationary currency collapse, or terrorist hackers shutting down the power grid so no one has access to their dollars at the bank or at the ATM and they can’t open the supermarket cash registers. The same terrorist-financed hackers could break into the computers of the money-center banks where most of the world’s dollars are in hyperspace, insert a destructive virus, and the world’s dollars would disappear in a nanosecond.

Remember, only about 5% of the world’s dollars are minted, printed, or coined. The rest are only on the computers of banks. If the computer data is wiped out, there could go the monetary system of the world, because the dollar is the world’s reserve currency. This could mean the instant collapse of the American economy, and maybe western civilization.

Then the world would instinctively go back to gold and silver as a means of exchange and store of value until the computers are fixed and a new paper-money system is cobbled together.
 
These things always seemed to be unthinkable in our otherwise comfortable world, but we have never lived through a period of Obamanomics nor had such an implacable enemy as Islamo-fascism.

Insurance Action Steps

Each family should have at least one half-bag of pre-1965, commonly circulated, ninety percent “junk silver” dimes, quarters and halves (360 ounces of silver). Junk silver can be bought from any neighborhood coin dealer or from one of the recommended bullion and coin dealers – Kitco is one of them. (Go to my website www.rufftimes.com to buy the book or subscribe to The Ruff Times.)

Due to Obamanomics, gold and silver will explode in value and your insurance coins will become a fantastic investment, which they may not have been when you bought them. In the case of less drastic events, such as mere rising-price inflation, they will still be very profitable.

For instance, because of the critical supply/demand situation, as the holder of any form of physical silver, you will find the industries that need them will have to bid up the price until you are willing to part with yours. $100 an ounce, anyone?

Coin insurance is a buying decision for all seasons, and it only becomes an investment if bad or even mildly bad things (like slowly rising inflation) happen in the world. This is not for short-term profit, but for long-term protection.

You would really need it if a monetary crisis or a war gets bad enough and lasts long enough that we have started to universally use coins as the alternative “real” currency. It might even not take that long for merchants to get the drift. During the OPEC gas crisis in the ‘70s when inflation and silver were in a runaway mode and gas prices were exploding, a few enterprising gas-station operators were advertising gas for a dime a gallon—pre-1965, ninety-percent silver dimes—because a ninety-percent silver dime was worth more than the posted price-per-gallon.

Like all insurance, the coins are there to use when bad things happen which you hope won’t happen. All insurance is a bet that bad things will happen. You win your bet only if you have a car crash, or a fire, or if you die. With orthodox insurance, it doesn’t matter if you win or lose your bet, the premiums are gone forever. In the case of coin insurance, the premiums are still there forever and appreciating, no matter what.

Gold And Silver As Monetary Backing: A Condensed History

In theory, we should be backing our currency with gold and silver, making it fully exchangeable into the metals, like America did for almost two centuries. It’s a principled cause that dedicated gold bugs should fight for, but it has nothing to do with investing in gold.

Years ago when Americans began to vote themselves benefits from the public treasury, government started to print and issue more receipts (currency) than there was gold or silver in the warehouses (which we now called “banks”). Who would know, as long as not too many holders of receipts showed up at the bank with their receipts to demand their gold or silver at the same time?

And then, we eventually thought of the paper receipt (currency) as real money all by itself.

For a long time we had confidence in the “gold and silver backing.” But human nature never changes. We soon got so accustomed to our government benefits, paid with receipts (dollars), that we accepted the printing of more and more receipts (money). We were ignorant of the cause of monetary inflation. The only signs were rising prices of goods, and rising gold and silver, but most people had no idea what was really causing inflation.

The stage was finally set when it became obvious to foreign dollar-holders that there was not enough metal to meet all demands, so they began jostling to be the first in line to present dollars at “the gold window.” Panic!! Nixon finally faced the reality that there soon would be more receipts (dollars) presented for redemption than there was gold available. Until then, foreign governments could exchange their dollars for gold, but we were steadily running out of gold in Fort Knox, as foreign confidence in the paper dollar had sagged so badly due to monetary inflation, that we were soon threatened with losing all our gold reserves.

So Nixon closed the “gold window” at the Federal Reserve to stem the tide, and the process was complete; the dollar was now completely detached from gold and silver, and greenbacks were now just a “fiat currency” (money just because a government order or “fiat” declared it).

Once we accepted that the horse was out of the barn, Congress no longer worried about whether we had enough gold and silver in the bank to redeem the ever-growing supply of banknotes, and the political claims on government “entitlements” were soaring. Inflation was the inevitable consequence of money creation.

Then, Uncle Sam began an anti-gold campaign to de-monetize the metal and separate it in the public mind from “money.” They even began making and marketing gold and silver coins (eagles) as “mere commodities” and collectibles. However, enough of us remembered the monetary meaning of gold and silver—that they rose at the slightest threat of inflation. And as gold was an internationally traded commodity and a lot of foreigners had not bought into the U.S. anti-gold propaganda, the price began to rise.

You Can’t Go Home Again Restoring gold backing to the currency would seem to be the obvious solution. In theory, that is so, but that won’t work until we are willing to forego our soaring government benefits and accept the discipline that gold and silver backing provide. We need a sudden rush of brains to the head and character to the heart—and wallet! Don’t hold your breath! If you think that will happen, I have a big orange used bridge in San Francisco to sell you.

It won’t happen until the present money system has totally collapsed and we have nothing to lose by replacing it with an honest hard-money system. Now, we collectively feel we have too much to lose. We have a huge vested interest in the status quo—our welfare, our Social Security, Medicare, Medicaid, our farm subsidies, etc.

By Howard Ruff
The Ruff Times

*****

Howard J. Ruff, the legendary author and financial advisor, wrote How to Prosper During the Coming Bad Years in 1978. It is still the biggest-selling financial book in history, with 2.6 million copies in print.

His new book, How to Prosper in the Age of Obamanomics is free when you subscribe to The Ruff Times (www.rufftimes.com), or if you buy the book at your favorite bookstore, you can deduct $10 from the subscription price.

Howard is founder and editor of The Ruff Times financial newsletter. This article is from a recent issue of The Ruff Times. The newsletter deals with a broad spectrum of middle-class financial issues. (You can learn about it at www.rufftimes.com). The Ruff Times has served more than 600,000 subscribers – more than any financial-advisory newsletter in the world.

 

 
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