Outside Economics

John Smith the First Economist in America

Posted by Wendell Brock, MBA, ChFC on Wed, Nov 26, 2014

As this week is Thanksgiving, I thought I would write aboutone of our first settlers in America, whose influence on America has been profound. John Smith's impact has been felt both in the American spirit as well as in the American economy. We are all familiar with the story of John Smith being saved by Pocahontas, but this is just one of many examples of his narrow escapes and the influence these experiences gave him in becoming a great leader.

john-smith-portraitJohn Smith was born in 1580, near the bottom of the social scale in Willoughby, England. His father was a farmer, which was one level above being a peasant. He was able to attend grammar school in his youth. He had no desire to remain a farmer and even tried to run away when he was 13. His father eventually made him an apprentice to a merchant. He was miserable, and could see little way to break free of the feudal institutions so strongly in place in those days.

After a year or two of being an apprentice, his father died. This bittersweet event allowed John Smith to leave the merchant and pursue the one door open to his ambitious, adventure-craving spirit: the military. During his time in the military, he rose quickly to rank and earned the respect of the men he fought with and for. After a few years, he went home and studied military arts and eventually returned to fight again.

By the time he was in his early twenties, he had fought in many battles, rising to the rank of a captain, and honored by princes and kings for incredible acts of bravery; he had been robbed and beaten and left for dead in the forests of France; he had been thrown overboard a ship, Jonah-like, only to be rescued later by another ship whose captain happened to have friends in common with John Smith and therefore treated him well; he had toured Rome and met the Pope; he had been captured in battle and sold as a slave, and eventually regained his freedom and made it back to England just in time to sail to America.

Clearly John Smith had not only lived a life of adventure, but he had experienced every economic situation that is possible to experience! These experiences laid the foundation for him to be the right man, at the right time, in the right place to give success to the Jamestown settlement.

The bylaws of the Jamestown settlement were set by the financiers of the trip. They put in place a system, not unlike communism, whereby everyone was rationed the same, whether they worked or not. The environment was harsh and untamed. The provisions were meager. Many settlements had tried and failed in the hundred plus years between Columbus and Smith. If Jamestown had maintained these practices, it is probable it would have met with the same fate as so many settlements had previously. But there was something in John Smith that became the catalyst for success in Jamestown!

The settlement was in constant need of replenishing men and supplies from England. The first year saw a 60% casualty rate! The provisions were never enough, which led to a perpetual need to trade with the Indians, which had its own inherent risks!

As John Smith later reflected on those early days, he observed, “Glad was he (who) could slip from his labour, or slumber over his taske he cared not how, nay, the most honest among them would hardly take so much true paines in a weeke, as now for themselves they will do in a day.” He had keen insight into human nature and knew that, even though in theory equal pay sounded good, in practice it was leading to disaster! John Smith finally decided it was time to abandon the bylaws that had been instituted by the financiers of Jamestown. With a musket in hand, John Smith boldly declared that anyone who did not work, would not eat! This basic fundamental economic principle is why I call him the first Economist in America.

The financiers eventually realized the flaw in their bylaws and officially abandoned communism. In its place they allowed the settlers private property rights as well as the ability to live by their own initiative. Something amazing began to happen in Jamestown! All those who eagerly embraced these new laws began to flourish and prosper. They improved their situation so well that word spread back to England and America began to be settled!

When John Smith came to America, he realized the two profound opportunities this land had to offer: Freedom of economic movement and the ideal of liberty! These two principles were the basis for what made America great and were cannonized in the Declaration of Independence and the US Constitution.

“Here (in New England) every man may be master and owner of his owne labour and land; or the greatest part in a small time. If he have nothing but his hands, he may set up his trade; and by industrie quickly grow rich...

“Therefore let all men have as much freedome in reason as may be, and true dealing, for it is the greatest comfort you can give them, where the very name of servitude will breed much ill bloud, and become odious to God and man.”

This vision of what America could become for mankind was indeed the catalyst that allowed America to grow, flourish and prosper! At this Thanksgiving time, let us remember the ideals and visions of those who came before and as we give gratitude for the many blessings we have, let us also promise in our hearts to do our part to maintain their inspired ideals! Happy Thanksgiving!

Love and Hate in Jamestown by David A. Price
The Majesty of God's Law by Cleon Skousen
Quotes from:
Description of New England by John Smith
Generall Historie by John Smith

Topics: Economists, America, Thanksgiving

Correlation of Commodities

Posted by Wendell Brock, MBA, ChFC on Thu, Nov 20, 2014

Commodities, such as oil or gold, typically follow an inverse, or negative relationship with the value of the dollar. A stronger dollar makes oil a less attractive commodity on dollar-denominated exchanges, especially in the eyes of investors holding other currencies. When the value of the dollar weakens against other major currencies, the prices of commodities generally move higher.

This inverse relationship also happens when countries devalue their currencies through inflation. This is one argument for the gold standard, it is said to keep monitary policies honest.


There are many reasons why the value of the dollar has an impact on commodity prices worldwide, namely commodities are typically priced in dollars. When the value of the dollar drops, it will take more dollars to buy the same amount of commodities. Commodities are traded in dollars because currently the dollar serves as the world’s reserve currency. Some countries, like the BRIC’s (Brazil, Russia, India and China are trying to change that and use the Chinese Yuan as a reserve currency or a basket of currencies from other countries rather than simply the US dollar.

Another reason is that commodities are traded around the world; foreign buyers purchase our commodities: corn, soybeans, rice, wheat, oil, etc., with dollars they have received in trade as we have purchased products they have manufactured. When the value of the dollar drops, they have more buying power and simple economics tells us that demand typically increases as prices drop.

Commodity traders often keep a close eye on the value of the dollar. An easy way to monitor the dollar is to watch the price quotes on the Dollar Index on the ICE Futures Exchange. It is an index of how the dollar is valued against a group of other major currencies around the world. The price of the index is traded like any other futures contract and you can get quotes throughout the day.

Commodity prices don’t necessarily tick higher for every tick lower in the Dollar Index, but there is a strong inverse relationship over time. Individual commodities can also buck the trend if other over whelming forces are causing the price to move along with the dollar.

Lately the dollar has gained strength against a backdrop of many countries whose currencies are weakening. This has been a factor in the lower prices we have seen at the pump. This strengthening has also had an impact on other commodities, precious metals, gold, silver, platinum, etc.

Typically, gold is seen by investors as a backup for the dollar. As the dollar weakens, the price of gold increases. As the dollar gains strength, gold prices drop. It is similar to the relationship between the dollar and oil. Which begs the question, is there a correlation between oil and gold?

There are a couple ideas that try to explain the correlation between gold and oil. One is that prices of crude oil partly account for inflation. Increases in the price of oil result in increased prices of gasoline at the pump. If fuels (gasoline, diesel oil, and aviation fuel) are more expensive, then it’s more costly to transport goods and those prices go up. The final result is increased prices – in other words, inflation.

The second thought on the oil-gold link is the fact that precious metals tend to appreciate when inflation is rising (especially in the current fiat monetary environment). So, an increase in the price of crude oil can, eventually, translate into higher precious metals prices resulting in oil becoming a new economic bench mark similar to gold.

While it usually takes some time for higher commodity prices to materialize as higher prices in goods and services, however for precious metals they trade daily in your portfolio and may trade in line with oil immediately. One explanation can be that, once oil appreciates, precious metals investors correlate the expected future higher prices of goods in the price of gold and it generally goes up.

However, even though the general price level of gold moves in a similar direction to oil, the relationship may not be trade-able based on data for the long term. While the correlation is positive, over longer periods of time and on average, this relationship does not always translate the same for gold and oil returns.

In 2000 oil was trading around $32 per barrel and gold was around $292. Currently oil is trading around $75 and gold at $1,183. Which translates for oil a 134 percent gain over the past 14 years and 305 percent gain for gold. (Obviously, these are low compared to recent highs in the past few years when oil hit around $140 per barrel and Gold was up around $1,800 per ounce.) By comparison, in January 2000 the CPI was at 168.800 and January 2014 the CPI was 233.916 or an increase of 38.6 percent. The low inflation rate compared to the increase cost of oil and gold can partially be explained by the number of times the Government has revised the method of calculating the CPI.

Having said that, it’s still possible for short-term patterns to emerge occasionally. So, even though there seems to be no relationship between gold and oil returns over the long term, it may happen that a relationship unveils itself in a short period of time offering trading opportunities.

In summary, while oil prices do not drive gold prices and gold does not drive oil prices, the main reason the two markets have similar long-term trends, as well as other commodities, is that they have one important long-term driver in common: monetary inflation.

Topics: Gold, Oil, Precious Metals, Commodities,

Unproductive Rock or Real Value - The Gold Standard

Posted by Wendell Brock, MBA, ChFC on Wed, Nov 12, 2014

Authorities – monetary authorities, political authorities, economists – seem to know less about money than our forebears did. We’re approaching the centennial of the beginning of the First World War. From the late 18th century through the First World War we had the greatest increase in human wealth in history; in that one and a quarter centuries we created more wealth than all the previous centuries put together! And from about the First World War until now, the economy has been tinkered and toyed with so much that it is on the verge of a world-wide collapse!


A key element to the success of those 125 years was stable money, starting with the British pound. Before that you had the Dutch, but they didn’t have quite the global influence that the Brits ended up having, especially with the industrial revolution. The United States under Alexander Hamilton put in a very sound money regime that made the United States standout, especially in relation to the Latin American republics which achieved their independence in the following decades, but have been troubled ever since by chronic monetary instability.

Yes, the US had boom and bust cycles during those years, but most were related to normal business cycles and speculation, not due to the collapse of our currency – of gold and silver – the currency was always stable.

Money is a simple subject – however, the money authorities want to surround it with a lot of jargons and equations. They want to make it appear that even if you master brain surgery or nuclear science, you are incapable of understanding money, which is ridiculous. People instinctively understand that stable money is good and that a weak dollar is not good for the United States. Great countries don’t have a weak currency. Overall, people understand the stabilizing effect of a gold standard.

The last hundred years have seen a gradual withdrawal from the gold standard until in the early 70's, America went off it completely. This allowed for an expansion in the economy since money was no longer tied to anything and could simply be printed at will. Although the 70's were distinctively marked by the Misery Index, we had a decent time of it in the 1980s and ’90s when we had a semi-stable monetary policy, but we still haven’t recovered from the early 2000s.

Crises often leads to reform. Well, we did not return to a gold standard in the 1980s. Neither have we returned to a gold standard today. This nation is beginning to recognize that the Fed is floundering and that the central banks cannot manage economies.

Enter China.

China recently created the new Shanghai gold exchange. One of the purposes behind this new gold exchange is to eventually take global price controls for monetary metal away from the Comex, and then force a global currency reset by raising the price of gold to its true or actual value.

China plans to re-price gold to near or above twice the current price. This will have a devastating effect on derivatives and ongoing use of the Comex futures market to suppress gold prices, and protect the dollar.
Based upon supply details for the Comex over the past two years, America's primary gold exchange no longer settles their contracts through the delivery of physical gold, but instead settles in cash payments or through the hedging of gold using derivatives. Subsequently, once this failure to deliver takes place, then China, through the Shanghai gold exchange, will become the default market for price discovery. At that point they will re-adjust gold to its true value, instantly causing massive chaos in the fiat currency markets and leaving the world little alternative but to implement a complete currency reset.

Since the middle of 2012 or so, the Comex has been forcing gold contracts to settle not in metal, but in cash. If you don't like it, they will ban you from the Comex. There's been very little if any settlement of gold futures contracts for two years in gold metal. They're not a gold market anymore, they're a derivative market for gold instruments. And since late September, Shanghai has been offering a gold and futures contract, and they're settling in metal.

Several economic analysts, including John Williams, Peter Schiff, Dr. Paul Craig Roberts, and Gerald Celente all gave predictions earlier this year that a global currency reset event would take place in 2014, with most believing it would come before the end of summer. However, the U.S. is not on board with the rest of the world, preferring instead to seek military conflicts in order to delay the end of the petro-dollar system. Meanwhile, both Russia and China have accelerated their efforts to create infrastructures that will allow a more fluid transition for global trade once a currency reset actually takes place.US_Gold_Certificate

1922 US $20 Gold Certificate

Over the past several weeks, the dollar has grown in strength while the rest of the world's currencies have been collapsing. Because of this, global accumulation of physical gold at depressed levels is running near historic highs in an attempt to hedge sovereign currencies that have depreciated from years of low interest rates and slow money velocities.

As several global financial indicators are more intertwined and threaten to bring the world into an economic crisis, China has recognized that physical gold is the ultimate catalyst to force an end to the domination of purely fiat finance, and that revaluing gold to its rightful price will have the effect of both protecting their own currency, and wresting financial control away from the West and the system of dollar hegemony.

Alan Greenspan, who served at the helm of the Federal Reserve for nearly two decades, recently wrote an op-ed for the Council on Foreign Relations discussing gold and its possible role in China, the world’s second-largest economy. He notes that if China converted only a “relatively modest part of its $4 trillion foreign exchange reserves into gold, the country’s currency could take on unexpected strength in today’s international financial system.”

In a world filled with fiat currencies, how important is gold’s role in the financial system? Proponents often view the precious metal as a hedge against economic chaos, while critics typically claim gold is hardly more than an unproductive rock. Interestingly, some countries appear to believe gold is quite important.

On November 30th the Swiss people will vote to return their currency to a gold standard, making their currency the first to be partially backed by gold since the US went off the gold standard in 1971. Maybe other countries will soon follow or they may be forced to by China.

Do you think the US should return to a gold standard? Is gold and/or silver a part of your Security Plan? 

Free Information about including Precious Metals as part of your Security Plan,  Click Here.

Topics: Gold, Precious Metals, Gold Standard, Security Plan

Lasting Effects of the Great Recession

Posted by Wendell Brock, MBA, ChFC on Wed, Nov 05, 2014

It is an interesting time that we live in. Consider some of the current economic themes in households, businesses and markets throughout America:

In October 2007, U.S. stocks were hitting an all-time high, jobs were plentiful and homes were expensive. Two months later, the Great Recession began to eviscerate the economy, ultimately sucking $10 trillion out of U.S. stocks, collapsing a housing bubble and pushing the unemployment rate over 10 percent.

Seven years later, most Americans have tried to put their finances in order, many are reducing their debt and working to save more. But Americans are making a lot less money and own fewer assets, even as stocks reach new highs, according to the Federal Reserve Bank.

Great_RecessionHousing prices are still 13 percent below 2007 levels. Fewer Americans own houses - sending rents up 16 percent, to an average of $1,100 per apartment in metro areas.

Educational loans are up, by $2,500 for the median family paying off student loans. That is prompted by tuition increases and a surge of people going back to school. Post-secondary enrollment jumped 15 percent, or 2.8 million, from 2007 to 2010, according to the U.S. Department of Education.

Jobs may be coming back, but good jobs are still scarce. More than 7 million people are working part-time jobs when they'd prefer a full-time position, 57 percent more than in 2007. And more than 3 percent of adults have left the workforce entirely since 2007, according to the U.S. labor force participation rate.

Increased government regulations have made it increasingly difficult for small businesses to grow, let alone stay in business. The uncertainty of new regulations and the differing political winds have all but removed the stability of our Republic. It was with this political stability that ideas and businesses thrived over the past 238 years. Instability causes uncertainty, hence in October we saw huge swings on Wall Street.

The Financial Select Sector SPDR (XLF), an exchange-traded fund targeting banks and investment firms, had the biggest withdrawal last week since 2009 amid concern that low interest rates and market swings will hurt profits.

Investors pulled $913.4 million from the $17.5 billion ETF, whose top holdings include Berkshire Hathaway Inc., Wells Fargo & Co. and JP Morgan Chase, a shift that turned its flow of funds negative for the year. The SPDR fund tracking financials is the largest and most-traded among the 40 U.S. listed ETFs focusing on that industry. Its shares outstanding decreased 5 percent, the biggest weekly decline in more than year.

Commercial Banks have waited for years for higher rates and more robust trading to b


oost revenue from lending and market-making. “Weaker-than-expected global growth could prompt the U.S. central bank to slow the pace of eventual interest-rate increases,” Federal Reserve Vice Chairman Stanley Fischer said. The severity of market swings last month also boosts the risk that some investment banks will incur losses while facilitating client bets, and it may slow mergers and acquisitions.

All this combined makes me wonder if we are indeed out of The Great Recession, as some say we are. Are the strategies proposed by the central banks as well as politicians designed to keep our economy down or to help it grow as they insist?

The outcomes of the elections this week will be very telling as to how Americans are feeling about the realities of what they are experiencing, day in and day out.

Topics: Great Recession


Wendell W. Brock, MBA, ChFC

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