And his unwavering faith in the ability of the Reserve Bank of Australia is commendable, yet completely mad. After all, the RBA is the same crowd that’s overseen the destruction in the value of your money over the last fifty years.

And here’s the proof courtesy of the RBA’s website:

They don’t even hide the fact that they’ve singularly failed in one of their main aims, to provide a stable currency.

As their inflation calculator shows you, if you had $1,000 in 1966, in today’s money it would be worth the equivalent of just $100. In other words, the RBA has overseen a 90% reduction in the value of the Australian currency in just 43 years.

And these guys are considered to be heroes by the likes of Pascoe and his fellow mainstream cronies!

But look, we shouldn’t really pick Pascoe out from the crowd. He’s not the only mainstream journalist or analyst to have neglected mathematics over the last couple of years.

If you’ve read Money Morning for a while you’ll remember our attack against government stimulus programmes late last year and early this year.

While fair-weather capitalists swiftly jumped from the “get government out of the way” camp into the “we love you government, come and help us” camp, we argued strongly that the last thing the economy needed was a whole bunch of wasteful government spending.

As you can gather, our opinion was largely ignored. The spending efforts went into overdrive. Government was begged to ‘fill the gap’ vacated by private enterprise.

If people and businesses weren’t going to spend then it was up to the government to organise things.

First there was the cash bribes. When that didn’t seem to be helping enough there was the government infrastructure spending. When that didn’t do as much as they’d hoped there were more cash bribes.

Free money and free housing insulation for almost all. Then there were the shovel ready projects. All those plans the federal government and state governments knew they couldn’t afford were suddenly vital to save the economy.

It’s obvious really, if something is unaffordable or unnecessary when the economy is booming then it must be affordable and necessary when the economy is heading for a slump.

Hmmm, that doesn’t sound right. It’s like saying, “I couldn’t afford the 75 inch plasma TV when I had a job, but now that I’m out of work this is the best time to buy one.” But never mind.

Anyway, there’s all those school buildings and hospital wings to build. Only a Scrooge would oppose the public funding of a school gym or a new hospital wing for the kiddies.

Looks like we’re a Scrooge then doesn’t it.

Only we’re not. Because if you take a look at the research Pascoe is referencing and also take a look at the front page of today’s Australian Financial Review (AFR), then you’ve a perfect example of why the stimulus programmes have been nothing short of a disaster.

But before I get onto that, we need look no further than the architect of the stimulus programmes – Treasurer Wayne Swan – for confirmation of the damage the stimulus has done and is doing to the economy.

Yesterday’s Sydney Morning Herald (SMH) had the headline: “Stimulus will still be needed next year: Swan”.

The report was on the back of the lower than expected GDP number which came in at 0.2%.

The most telling part of the GDP numbers was this:

“The growth was driven by a 0.7% increase in household expenditure and a 6.2% increase in public investment, offset by a 0.9% fall in private investment, and a strong fall in net exports. The fall in net exports was due to a 2.3% fall in exports and a 5.8% rise in imports.”

A 6.2% increase in public “investment”! However, remember that a government never invests, it only spends. An investment is where you expect to get a return on your money.

Governments don’t give a return on their “investments” because they have no profit motive. They’re given a budget and they spend it. It’s as simple as that. Everything they do is a cost to you as a taxpayer.

The fact that governments have increased spending just when the economy was attempting to contract isn’t a positive sign for the Australian economy, it’s merely a disaster waiting to happen.

The report from the Reserve Bank of Australia (RBA) that Pascoe sings about shows that business investment is up. Yes, we can see that. In fact, here’s the chart to prove it:

So now we have to ask, “Why is business investment up?”

That’s right, 1 + 1 = 2. Or in other words, ‘Free Money’ + Business Tax Break = Spending.

Now, that’s trumpeted by the likes of Pascoe and others as being proof of two things. One is that the Australian economy is much more resilient that other developed economies. And two that the government stimulus programme worked.

But as we’ve pointed out during most of the last twelve months or so, nothing comes for free. ‘Free’ money given out by the government isn’t free at all. In effect they’re just giving you a short term loan.

Eventually they’ll have to swipe it back again.

Which brings us to the front page of today’s AFR, “Business tax cuts vanish as WA budget blows out.”

What you have there is the ugly side of the stimulus programme. The handing out of cash last year and early this year was all done in the guise of Gold Coast Meter Maids, “have this lovely money and spend it for the sake of your country.”

The ugly side is where the government gets itself into a mountain of debt and has to rape your wallet and purse to get the money back. So rather than a blown kiss from a Meter Maid, it’s more like a snog from Marilyn Manson – “No it’s alright, just take the money!”

If you look at the important number in the WA budget forecast, its expenses are expected to grow by 9%. Clearly they haven’t heard of tightening the belt during a recession.

But then they didn’t have to because everyone wanted governments to spend money to avoid the recession.

And then there’s the hammer blow for WA taxpayers, and the realization that the ‘Free’ money wasn’t free. As the AFR details, the WA government has delayed the following tax cuts and benefits:

• Defer abolition of transfer duty on non-real property – $355 million
• Defer harmonization of payroll tax grouping provisions – $156 million
• Defer royalties for regions – $130 million
• Change timing of seniors cost of living rebate – $26 million
• Friend in need emergency scheme deferral – $8 million

Not that we’re in favour of government handouts. We’d rather see government keep its mitts off your wallet in the first place, rather than grabbing it and then throwing the cash around like a drunken sailor.

If there’s one thing you should have learned from recent events and history, it’s that government’s only succeed in making recessions and depressions worse. That happened during the Great Depression and it’s happening again right now.

In fact, contrary to popular opinion, much of what governments are doing now is a carbon copy of the disastrous mistakes of the 1920s and 1930s.

Granted, we’re pretty lucky not to be in the same position as the US and the UK where their governments are increasing taxes and committing the taxpayers to billions and trillions of dollars of unnecessary socialist style spending programmes.

But you shouldn’t think things here are that different. Federal and state governments have embarked on a massive spending binge despite seeing a drop in the proceeds from their tax theft.

Just how the mainstream press can believe the economy has grown on its own merit and that everything is going to be just fine, is extraordinary.

But we guess this over optimism is the reason why the same people are so happy for the government to push ahead with the billion dollar Climate Change tax. After all, with such a strong and robust economy, surely we can afford it!

Cheers.
Kris.

60-Second Market Round Up
by Shae Smith

The S&P/ASX200 had a pretty flat day yesterday, up by only 8 points to 4,670.30. However thanks to the lead in from the overseas markets, the Aussie is down 1.20%.

The Dow Jones Industrial Average took a tumble overnight, in what is normally a quiet period for the markets. The Dow ended at 10,308.26, lower by 132 points. Read more about the US market here.

In the UK, the FTSE ended the day at 5,217.61, down by 102 points or 1.93%. The major banks dragged the Footsie down showing concern for the proposed new rules regarding higher capital requirements for banks.

The Nikkei finished the day down slightly, to 10,163.80 lower by 13 points.

The price of spot gold dropped on a strengthening US dollar. The downgrading of Greece has spooked the Euro which pushed the greenback higher has well.

The price of spot gold in Australian dollars is trading at $1,237.50 while in US Dollars it is trading at $1,097.17. The price of silver in Aussie dollars is $19.33 and in US Dollars it is $17.14.

The Aussie dollar versus the US dollar is trading at USD$0.8868, and against the Japanese Yen JPY79.76

Crude oil closed at USD$72.70.

For the biggest movers on the market yesterday click here…

So, that’s the market wrap for a Friday. For the reader that is in wind down mode leading up to the Christmas break, have bit of fun with “Talking Kev”. You can “create” his climate change speech using some of his more popular phrases. Fair shake of the sauce bottle I say!

But before I do, a quick note on today’s front page of the Australian Financial Review (AFR).

There’s a saying that “The pen is mightier than the sword.” In other words, the written word can be more powerful in its effectiveness than, we assume, stabbing someone.

It’s a nice phrase, but even so I’d rather someone wrote something mean about us than shoved a nine inch blade in our guts.

Anyway, it’s a phrase that should be embraced by the newspaper industry. In fact we’ve a vague recollection that one of the daily UK papers used to use the phrase in its advertising.

The papers should use it to signify the power of the press. How they will show neither fear nor favour to those in authority…

A free press should be something to be feared by those in power.

Well, that’s how we always thought it was supposed to be. Clearly our expectations about the mainstream press are way above anything they can possibly deliver.

As we noted in yesterday’s Money Morning, Communications Minister Stephen Conroy will make internet filtering compulsory. A top secret list of banned websites will be provided to internet service providers, and it will be up to them to guarantee no one can access them.

The list will be compiled and maintained by a supposedly independent body that’s, erm, appointed by the government. There will be no way of knowing what websites are on the list, and it will be at the discretion of the government appointed body as to what websites are added to the list.

You’d think this blatant attack on freedom would be grist to the mill for our merry band of journalists.

After all, surely freedom of information is vital if you’re in the business of newspapers.

So how does the Australian Financial Review respond? As I mentioned yesterday, in Wednesday’s paper it took pride of place in the technology section on page 47.

Today the AFR goes one step further by putting Stephen Conroy on the front page. Holding him to account? Scrutinising his proposal? Hmm, I’ll let you decide.

Here’s the opening paragraph to the hard hitting investigative story by Pamela Williams:

“Stephen Conroy is a speed freak. He likes to go flat out downhill. On a snowboard. The skiing fraternity might hold snowboarders in contempt for lacking finesse and a complete absence of any fancy moves, but don’t try telling Conroy. ‘All that matters is getting to the bottom as fast as you can,’ he says.”

We had to pinch ourselves. Were we reading Australia’s premium financial newspaper, or were we reading a celebrity interview in Hello! magazine?

We were hoping to see some soft focus pictures of the Conroy family draping themselves across a chaise longue. But then again, that would probably fall foul of the internet filter anyway!

And not surprisingly, not a single mention of the internet filter. Instead the article should have been accompanied by the word ‘Advertisement’ above it. It’s nothing more than a promotional puff piece for the national broadband network (NBN).

And the mainstream press continues to wonder why no one’s prepared to pay for their online content.

Anyway, back to our original question. You may think we’re mad for asking it, but we have wondered over the last few days whether a plasma or LCD television is a better investment than gold.

For a start, our chum at The Age, Michael Pascoe thinks gold is a load of old rubbish:

“The gold bugs’ faith has taken a little beating lately when a [sic] just a tiny stir by the US dollar has been enough to halt the yellow metal’s rally. But wait, there’s more – much more. Gold that is. Part of the dogma of the less rational gold bugs is that the world is running out of the stuff. As an article of faith, it makes a pleasant change from the idea that fiat money is about to be exposed as huge confidence trick and we’re heading back to the caves. (Why you’d bother with gold in that scenario is beyond me – I’d figure tomato seeds, chooks and possum skins would be the new wealth if civilisation crumbled.)”

I won’t go into a full scale rebuttal of Pascoe’s one-eyed denunciation of gold. Our publisher Dan Denning did a pretty good job of doing that yesterday over at the Daily Reckoning.

But we will make one comment. Sure, tomato seeds, chooks and possum skins probably would be handy if “civilisation crumbled”, but if it was a choice between having a few ounces of gold or having a few grand in paper/plastic money I know which I’d rather have.

Obviously Pascoe would opt for the brightly coloured $20 and $50 notes. Not that they’d be worth anything at that stage, but never mind.

Anyway, we’ve digressed again. We’re slightly baffled by the way the mainstream press is quick to claim gold is in a price bubble after a 36% jump in the US dollar price this year and a zero price gain in Aussie dollar terms.

Yet we still see headlines such as that in yesterday’s AFR, “Real estate set for another big year.” That’s for an asset class which has risen virtually without break for the last twenty years.

And so, after gold has fallen by nearly USD$100 per ounce in the last week or so, the likes of Pascoe have been quick to jump up and claim gold is in a price bubble and that it’s a ridiculous investment.

But maybe he’s right. Certainly if you gauge the willingness of people to buy gold compared to the willingness of people to buy a plasma television.

The comparison between gold and TVs isn’t as daft as you’d think. We’ll guess most gold investors pay cash for gold. And we’ll also guess that most people pay cash for a Plasma TV. Discounting those that use credit cards or interest free deals at Harvey Norman.

Even so, plasma TVs aren’t a big expense (although your editor thinks the Sayce family could be the only household in the country without a plasma/LCD TV!), from what we’ve seen you can pick one up for well under a couple of grand.

People seem more than happy to spend a grand or two on a big TV. And why not, you get to see a big TV picture, and apparently the picture quality is ‘amazing.’

But the point is the general public spends that amount in full knowledge that it’s a depreciating purchase, like a car. The value of your plasma TV isn’t going to rise at any time, regardless of how long you own it.

Keep it for five years and you might be lucky to get back one-tenth your purchase price if you flog it on eBay. Adjusted for inflation it would probably be closer to one-twentieth the purchase price.

So why is there such a fuss about gold being in a price bubble? Sure, you can’t watch your favourite soap opera on a bar of gold, but even if we look at gold as a consumer item rather than an investment item it doesn’t make sense that so many professional investors and analysts and even the general public would rather not buy the stuff.

I mean, let’s imagine you buy an ounce of gold at the current price of AUD$1,264.29, what do you think the worst possible outcome could be?

Could it fall to AUD$1,000? Sure it could. Could it fall to AUD$800? Why not.

And could it even fall to AUD$500? Of course it could. But we know the price of a TV is going to fall much more than that over the next five years. We know that as a fact.

Yet that doesn’t stop consumers from splashing out a couple of grand on the latest 600 inch plasma.

Let’s look at it another way. Last week we came across a news item from The Australian newspaper. It was headlined, “Golden parties as people cash in on price boom.”

The article explained that Australian housewives were cashing in their old gold jewellery in exchange for cash. These savvy punters were taking advantage of the high gold price.

The article quoted gold dealer Roy Cohen who had bought 572 grams of gold from the grateful punters:

“More women are realizing gold is money. These women realize their old gold jewellery is now too old-fashioned to wear. If you pay hundreds of dollars for a designer bag or sunglasses, you will get hardly anything back if you sell it on eBay.”

He goes on to say:

“With their children not interested in inheriting these pieces, many are selling off their gold pieces for cash.”

Undoubtedly the cash will then be used to buy a depreciating designer bag or sunglasses! Or maybe even a plasma TV.

See what I mean. The punters are happy to sell something that holds its value in exchange for items that become almost worthless – in dollar terms – the moment they are bought.

It hardly strikes your editor that gold is in a bubble when housewives are selling gold.

Look, as I’ve mentioned before, your editor isn’t a diehard gold bug. We don’t sleep with a few ounces tucked away under the pillow. But we do appreciate its value as a long term store of value.

While many – such as Pascoe – may see the gold bug argument as irrational and weird, we see the anti-gold position as much more irrational and weird.

So what if the price of gold falls in the next few months or years. It certainly wouldn’t hurt the household balance sheet by as much as when the property market falls in a heap.

Like I mentioned above, most private investors pay for gold in cash. How many private investors pay cash for a house?

Buy five ounces of gold in cash for less than $10,000, or use the $10,000 to take out an investment property loan leveraged up twenty times. I think I know which one is more likely to be a bubble than the other.

The argument that gold is in an unsustainable price bubble just looks ridiculous when you compare it to the debt fuelled credit bubble of the housing market.

The way I look at it is, if you’ve got a few grand laying around which you don’t need immediate access to, then rather than keeping it for ’safety’ with one of the ‘ponzi’ banks, why not buy a few ounces of gold instead.

We know for a fact that it will be worth more than your plasma TV in thirty years’ time. If buying that plasma was an easy choice, then it seems a no-brainer to buy something that will most likely appreciate in value in thirty years.

So, in a roundabout way, the answer to our question is, “No.”

Cheers.
Kris.

60-Second Market Round Up
by Shae Smith

The S&P/ASX200 was down slightly by 11 points, ending the day at 4,661.90. Another batch of reports are coming out today and an interesting one will be the RBA’s monthly bulletin, which will include figures on credit card spending.

The Dow Jones Industrial Average finished the day down by 10 points, closing at 10,441.12. It was no surprise to anyone, but the Fed has confirmed that it has no intentions to raise interest rates anytime soon. Read more here.

In the UK, the FTSE ended the day at 5,320.26, up by 34 points.

The Nikkei finished the higher by 93 points to 10,177.44.

The price of spot gold in Australian dollars is trading at $1,264.29 while in US Dollars it is trading at $1,137.95. The price of silver in Aussie dollars is $19.68 and in US Dollars it is $17.72.

The Aussie dollar versus the US dollar is trading at USD$0.9005, and against the Japanese Yen JPY80.85

Crude oil closed at USD$72.81.

For the biggest movers on the market yesterday click here…