Do You Think I'm Stupid?
Research for Online Investors

by John Dalt

4/19/11

The fallout from S&P downgrading the outlook on U.S. debt looks to have a short life.  The market is trading higher this morning.  We all have to be cautious not to follow the “herd mentality” that seems to have taken over otherwise intelligent ‘investors.’  We have chronicled the dangers facing the U.S.   Our debt is climbing like a ‘community organizer’ was in charge of the checkbook.  Wait a minute, he is.

We held high hopes for the Tea Party conservatives, and a change in control of the House of Representatives.  The GOP leadership gave away the best chance they had to bring spending down dramatically when they negotiated a 2011 budget with the White House.  Obama famously told a crowd in Chicago how he bluffed the GOP. “What do you think I’m stupid?”  Evidently, Boehner and company decided he wasn’t and decided they didn’t want to fight.  And Washington goes on…down the same road.

Where does that road lead us? S&P gives a one-in-three chance they will have to downgrade the ratings on U.S. debt.  S&P finally realized what our readers already knew.  If the U.S. doesn’t stop spending more than it takes in the dollar and U.S. economy is toast.  Well…done…toast.

It seems the markets were reassured by Treasury Secretary Geithner’s appearance on the morning business television shows.  One of his arguments for confidence in U.S. debt was Orwellian.  Geithner was asked by CNBC if foreign investors had to be reassured, he answered, “Absolutely not.  Look at the price at which we borrow.”

I would have asked, Ah…Mr. Geithner…isn’t the Fed buying more than 75% of all the U.S. Treasuries? Does the Bernank need to be reassured?  Hey Mr. Geithner (Turbo Timmy), "Do You Think I'm Stupid?"

When you want to know how serious the players consider a problem, look at how they respond.  Geithner went on all the business networks, CNBC, Bloomberg and FOX.  Obama made reference to the downgrade in a campaign speech this morning.  I am not sure, but think it was Geithner’s first appearance on FOX Business News since he has been Treasury Secretary.  The administration has turned down multiple interviews from the channel because the network does not throw softballs and repeat the administration line ad nauseoum.

I am presently reading a history book about Woodrow Wilson, our country’s 28th president.  One of his hallmarks was the establishment of the Federal Reserve in 1913.  You can read about the way it was pushed through the senate in our Investor Resources article, What is the Fed?  This morning I came across a little history that illustrates how our founding fathers viewed the value of the U.S. dollar.

The Coinage Act of 1792 established the dollar as the currency of the United States with the requirement that it contain 24.1 grams of pure silver or 27 grams of ‘standard’ silver.  Standard silver included 11% copper alloy to harden the coin.  The Coinage Act also created the U.S. Mint, authorized the building of a plant, and established the decimal system to be used for values of different coins.

The Coinage Act allowed citizens to bring gold or silver to the mint and exchange it without cost for equivalent value in coin.  According to the act, quality control in the young nation’s coins was to be absolute and taken very seriously.

How seriously?  From every pour of gold or silver to produce coins, three coins were set aside for the annual assay.  We will quote from Wikipedia:

Each year on the last Monday in July, under the inspection of the Chief Justice, the Secretary and Comptroller of the Treasury, the Secretary of State, and the Attorney General, the coins were to be assayed and if the coins did not meet established standards, the officers were disqualified from office. Further, specified in section 19, the penalty for fraud or embezzlement by employees of the mint, or of debasing or making the currency to “be of less weight or value" was death.

Four of the nation’s top officials oversaw the assay and confirmed the value of the nation’s money.  Who shall be today’s watchdog?  In 219 years, we have gone from hanging ‘debasers’ of currency to promoting and exalting them as Secretary of the Treasury and Chairman of the Federal Reserve.  The President and any member of Congress that votes for deficit spending other than at a time of war (invasion) should face the same conviction.

Bernanke has tripled the monetary base in the last two years.  Compared to 1910, the U.S. dollar is worth about one cent in gold.

Quote:
Regardless of the dollar price involved, one ounce of gold would purchase a good-quality man's suit at the conclusion of the Revolutionary War, the Civil War, the presidency of Franklin Roosevelt, and today. - Peter A. Burshre

Editor’s note: My 17-year old daughter took me to see Atlas Shrugged on Sunday. She read the book last summer. Go see it. Read the book if you have not. Tell your friends to go see it. It needs to be seen by as many people as possible. It is not on the Hollywood, or the White House’s, favorite’s list!  You'll love it.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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