The Ides of March: What Obama’s Woes Will Do to Gold
March 17, 2010 by John Myers
“Sic semper tyrannis” (Thus always to tyrants). —Brutus, during the assassination of Julius Caesar.
In Shakespeare’s Julius Caesar, a soothsayer warns Caesar to “beware the Ides of March.” The warning did nothing to help Caesar, who was stabbed to death on the Senate floor. The principal conspirator against Caesar was Marcus Junius Brutus, Caesar’s most trusted ally.
Fast forward two millennia and we see another great empire is in trouble, and so, too, its leader.
Thankfully, democratic rulers aren’t murdered, they are voted out of office. Yet this President has almost three more years left in office, plenty of time to do more economic damage for a country and to lose every shred of confidence in a man once hailed as a visionary and a redeemer; the exact qualities that were bestowed upon Julius Caesar.
Caesar came to political prominence in 67 B.C. when he was elected to the Roman Senate. Over the next two decades he would become one of the most renowned of all generals. Eighteen years later he established himself as the sole dictator of the Roman Empire.
Caesar declared himself a man of the people and in 46 B.C. drafted a public letter outlining his goals. They included: “tranquility for Italy, peace for the provinces, and security for the Empire.”
History has declared Caesar did not have the time or means to complete his overly ambitious agenda which included resolving foreign conflicts, strengthening the middle class and resolving the debt crisis. It sounds all too familiar, with the exception that I find nothing about Caesar instituting Roman healthcare.
Historians do point out that Caesar’s goals and methods of governing alienated many of the nobles. For a time, that did not stop Caesar’s lackeys in the Senate from constantly voting him new honors. Unfortunately for Caesar, the Nobel Prize was not one of them, as it was created some 2,000 years later.
On March 15, 44 B.C., Caesar attended his last meeting. He ignored a warning and went to the Senate. Sixty conspirators, most of them Senators who had lost faith in his vision for rebuilding Rome, were waiting for him with concealed daggers. He was stabbed 23 times.
What exactly the House and Senate will do to Mr. Obama’s grand plans remains to be seen. But one thing is certain: Mr. Obama has faced a winter of discontent.
According to a survey done by Rasmussen in March, only one in four Americans think the country is heading in the right direction. Other surveys this month show expectations for the nation’s short- and long-term economic future are gloomier than they have been at any time since President Obama took office.
Still, Obama supporters continue to harp on some silver linings among the dark economic clouds. Earlier this month, Senate Majority Leader Harry Reid (D-Nev.) called the latest job numbers proof that the economic recovery is underway, even though the unemployment rate is a whopping 9.7 percent and the true jobless number is close to double that.
“Today is a big day in America,” said Reid earlier this month. “Only 36,000 people lost their jobs today; which is really good.”
Reid seems like the kind of cheerleader the Titantic could have used: “Good news passengers! The ship isn’t sinking as fast as we feared!”
I suspect that Reid and other Obama loyalists will find that most Americans think such talk cheap. In the second half of March, 2010, The Fates may have already determined the President’s plight. The big question is: who will deliver the blow and what will be the result?
Bernanke Obama’s Brutus
In March Federal Reserve Chairman Ben Bernanke promised to end Quantitative Easing (a fancy term for stimulating the economy and funding deficits by running the printing presses). Some think that the Fed Chairman only wants to ensure his Senate reconfirmation. Others think it is a real commitment; that Bernanke is more loyal to the dollar than the President.
I don’t blame you if you are skeptical about Bernanke. Still, there is precedent for the Fed to put the country first. It happened in 1979 when President Carter appointed Paul Volcker as chairman of the Federal Reserve.
The economy then was much as it is now. Unemployment was soaring, confidence was disappearing and the dollar was in crisis. Yet Volcker put the nation first and the presidency second. He raised interest rates through the roof purposefully putting America into a terrible recession.
Volcker’s actions eventually saved the American economy and cost Jimmy Carter his bid to be reelected. But it was tough sledding. The Fed funds rate, which had averaged 11.2 percent in 1979, was raised by Volcker to a peak of 20 percent in June 1981. That same year inflation topped out at 13.5 percent, a fundamental which drove the price of gold from $280 per ounce when Volker was appointed to $850 per ounce just 18 months later.
Yet I am dubious that Bernanke will betray Obama. The Fed chairman seems much more like Arthur Burns than Paul Volcker.
Richard Nixon hurt the dollar primarily because he removed any link between the dollar and gold. After 1971 not even countries could exchange greenbacks for bullion. That gave Nixon, and all later presidents, the freedom to spend away. Because the dollar was the world’s international reserve currency, Washington basically believed that other countries had to like it or lump it.
Arthur Burns came along when it was still expected for the Fed to carry out its primary mission—to protect the integrity of the dollar. Instead, Burns acquiesced to Nixon’s war on poverty, the war in Vietnam and bid for reelection in 1972. It was a cavalcade of spending that carried on throughout the decade of the ‘70s.
“After finally winning the presidential election of 1968, Nixon named Burns to the Fed chairmanship in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972,” wrote Mercury Rising.
“Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed’s influence, Burns and other Governors succumbed. Inflation resulted.”
According to American Thinker, it matters not if Bernanke is loyal to the President like Burns, or the dollar like Volcker; either way he “will be Obama’s Brutus.”
That is because like Rome, America is a weakened empire with no easy choices. Two trillion dollars that the Federal government needs this year underscores this truth.
Where such funds will come from remains very much in question. Foreigners are having second thoughts about financing America’s deficit, and China—the largest owner of Treasuries—has become a net seller of Uncle Sam bonds.
Very soon Treasury yields will have to rise to get the world to continue to finance Washington’s spending spree. So whether or not Bernanke wants it, or even likes it, interest rates are heading higher. That is bad news for the economy and for President Obama who will almost certainly not be re-elected.
Rising rates are, however, good news for the nation for bullion investors. Rising rates ensure falling stock and bond prices and a rush to gold. It happened during the Carter administration and it has already begun during Obama’s term.
Action to take: Sell all bond instruments and Big Board stocks and use the funds to buy bullion, either in physical form or blue-chip gold mining stocks.
As Shakespeare’s soothsayer warned, “Beware the ides of March.”
Yours for real wealth and good health,
Myers’ Energy and Gold Report