George Rebane

Ruminations readers are aware that inflation is a tax on all of our dollar-denominated assets (here).  Now that we are staring a Weimar-like inflation in the face with all the dollars that the Fed generates out of thin air, our government is beginning to worry that too many people will catch on in time to get out of dollar denominated assets.

The latest evidence of this is the expansion of Commodity Futures Trading Commission’s powers (22aug09 WSJ).  They now tell us that for our (the small investor’s) own good, they will start restricting our ability to easily trade in commodities like wheat, copper, pigs, and gold.  People have fled the dollar in the hundreds of billions of dollars by buying new commodity ETFs (electronically traded funds).  These ETFs closely track the world prices of the commodities that, of course, rise in the face of truck loads of newly printed dollars flooding the world.  The government doesn’t want us to have such an easy escape from the dollar.

These ETFs work as open ended funds by buying more of their underlying commodity (and their futures), and issuing new shares whenever you buy another share of the ETF.  All shares are backed by financial instruments that command the ownership of the underlier – pretty straight stuff.  But our government says that such purchases by the retail investor is speculation, and artificially drives up the price of the underlying commodity for those who actually use the stuff to make things we buy.

Well yes, it does.  But it does that because we’re all bailing out of our dollars, and that’s because there are too many depreciating dollars floating around out there (and many more on the way).

The CFTC will seek to make such ETFs into closed-ended funds that fix the number of shares that can be issued.  Then as more people buy the ETF’s limited shares, their price will become a premium above the commodity price, thereby making them less attractive to the retail investor.  At least that’s how the feds want to limit how we can get out of dollars that they intend to tax through inflation.

We note again that the government will not restrict the big guys like Goldman Sachs and Morgan Stanley from buying commodities for their own portfolios and their big accounts.  Just the little guys will be impacted ‘for their own good’.

In 1933 FDR made the private ownership of gold bullion, coins, and certificates illegal in his futile attempts to control the economy and end the Great Depression.  For autocrats to control a population, they must first take away the people’s guns and gold, and force them to use a manipulable fiat currency for their medium of exchange.  Forget about using that fiat currency as a store of value when a country’s debt and unfunded liabilities are already beyond repayment, and are now approaching levels where it can no longer make interest-only payments on the monies owed.   

[23aug09 update]  Perhaps readers new to RR may take my words as hyperbole or exaggeration.  I try my best not to indulge myself in that manner.  Here is an example of the utter sleaze that leftwingers in Congress are attempting with ‘under the radar’ legislation that will criminalize the legal ownership of guns.  HR 45 cannot stand the light of day, so it is being ushered through the stinking, dimly lit back alleys of Congressional law making.  The Big Brother brigades in that corrupt body want only criminals and the state to have guns so that the overwhelming number of law abiding citizens become like the post-Bolshevik Russians or the Germans after Hitler took the reins – forcibly compliant.