Every Wednesday at 8:00pm Eastern (5:00pm Pacific), Peter Schiff broadcasts Wall Street Unspun, which is his mid-week run-down on the market dealing with any issues making the headlines at the time. This week’s episode is one of the best I’ve heard yet, in fact, I think this episode may actually be one of the best talks on the current economic crisis that I’ve ever heard, period. Highly, highly recommended.

Initially, Peter Schiff talks about Barack Obama’s newly unveiled stimulus package. He highlights some obvious holes in that package and uses that as his launching off point. He compares the stimulus package to an individual home owner: Say you’re deep in debt, you’ve lost your job, and you’re generally in the midst of a severe financial crisis, would the solution be to remodel your house? Of course not. Obviously it would be nice to have an updated infrastructure with new roads and bridges, but this is the worst possible time to undertake that kind of activity, since we don’t have the money to do it. Read on for the rest of the episode split into 6 parts:

Schiff asks a rhetorical question that really highlights the flaw in Obama’s plan: “Why don’t governments in poor countries make their countries rich by building roads and bridges?”, Because it doesn’t work that way, obviously. The money has to come from somewhere, and that somewhere is from an already bankrupt nation. But Schiff isn’t just finding fault, he’s offering a solution. Instead of taking money and filtering it through the inefficiencies of government so we can build infrastructure, why not leave the money in the hands of the private sector so they can use it to build factories or other things that will increase our productive capacity and allow us to pay back the trillions we’ve already borrowed from foreign countries so we can actually get out of this financial mess.

Schiff uses Obama’s plan to point out the flaws of Keynesianism (aka Keynesian economics), and how we’re now moving away from a more market based economy to a centrally planned one, which could have horrifying consequences for not only the economy, but for our social freedoms as well.

In the second half of the episode, Schiff begins moving from general to specific, and starts giving advice and predictions for the next few months and years. First off, he says the bond market is going to tank on a grand scale, as in, worse than the housing bubble. The scary part is that a bond bubble bursting means the government is going bankrupt, and the only way the government has to prevent a catastrophic drop in the bond market is the rev-up production of money to buy back bonds. But here comes the really scary part: if the government turns on the printing press and prints out money, that means inflation, and inflation has the direct result of undermining the bond market and making bonds a worse investment. That cycle will cause an out of control event called hyperinflation.
The takeaway for Common Sense Investors: GET OUT OF THE BOND MARKET!

He also talks about real estate and buying a home in this market. His advice is to rent for now, since there really is no reason to buy a home. One caller near the end of the episode points out that nominal house prices will go up in a hyper-inflationary environment, or even in one with just really high inflation… but Schiff points out that real house prices will not; that means a house may go from costing $500,000 to costing $3 million in a year, but that same $3 million won’t buy as much food or gold or anything else that the $500,000 did just 2 years before.

The main takeaway for Common Sense Investors here: unless you can find a no money down deal, avoid buying a house in this economy, rent for now. If you’re looking for investments, go with commodities, go with gold, go with foreign equities, follow Schiff’s advice and you’ll make it out of this mess a wealthier person.

It’s just Common Sense.

Part 2

Part 3

Part 4

Part 5

Part 6

This is an excellent ReasonTV discussion about the financial bailout and the high level of frustration that the economically literate are feeling in response to it. Tim Cavanaugh has a great line where he points out that the bailout redistributes wealth from “the prudent to the profligate.” And again where he says this bailout was “perfectly designed to punish the just and reward the wicked.”

One of the major issues that frustrates economically minded people is that the media portrays them as ideologically motivated, or worse, unserious when it comes to this bailout. The media has almost wholly supported the bailout from the beginning, and the issue was portrayed by them as the government having no choice but to swoop down and clean up the “market failure” of the private sector; whereas economists and other informed people tried to explain that this bailout was just a poorly designed attempt to stop the free market from naturally adjusting to problem caused mainly by government intervention in the first place.

Despite all the negativity and frustration, Len Gilroy makes an upbeat prediction that I really hope comes true, but I fear probably won’t. He says that because of all this financial trouble, the era of cheap money is over for state and local governments. Combine that with the fact that it’s going to be near impossible politically to raise taxes and we may have the perfect storm for free market based policies. There is already a huge interest in privatization of roads and bridges and such and it’ll only increase as governments start to realize they need much more money then they have available. Hopefully, as that privatization is obviously successful, it’ll open the door for more market-based policies in different areas of government. It may be the silver lining to this, the worst economic disaster in United States history.

After a short break in the Schiff videos, here’s another where he deconstructs Stephen Leeb’s hilariously off-base comments. Only when it comes to political ideologies can a person be wrong so many times and still keep the same opinion. Remember these videos where Peter Schiff got everything right and his laughing opponents got everything wrong? Or these?

Stephen Leeb just won’t learn.

In the December, 1958 issue of economic journal The Freeman, Leonard E. Read first published his essay I, Pencil: My Family Tree as told to Leonard E. Read. It’s been 50 years since that initial publication, and in celebration of that anniversary, we’ve reprinted the entire essay here, including Milton Friedman’s afterword added in 1976.

I, Pencil is one of the most insightful and important works explaining the necessity of free markets and the impossibility of centralized economic planning. Clearly written and easy to understand, it’s perhaps the most elegantly written essay on how market economies work. Long before much work was done on complex adaptive systems, Read explained them perfectly. It’s required reading for all Common Sense Investors.

Read on:

I, Pencil
By Leonard E. Read

I am a lead pencil—the ordinary wooden pencil familiar to all boys and girls and adults who can read and write.

Writing is both my vocation and my avocation; that’s all I do.

You may wonder why I should write a genealogy. Well, to begin with, my story is interesting. And, next, I am a mystery —more so than a tree or a sunset or even a flash of lightning. But, sadly, I am taken for granted by those who use me, as if I were a mere incident and without background. This supercilious attitude relegates me to the level of the commonplace. This is a species of the grievous error in which mankind cannot too long persist without peril. For, the wise G. K. Chesterton observed, “We are perishing for want of wonder, not for want of wonders.”

I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall attempt to prove. In fact, if you can understand me—no, that’s too much to ask of anyone—if you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing. I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple.

Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn’t it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.

Pick me up and look me over. What do you see? Not much meets the eye—there’s some wood, lacquer, the printed labeling, graphite lead, a bit of metal, and an eraser…

Innumerable Antecedents

Just as you cannot trace your family tree back very far, so is it impossible for me to name and explain all my antecedents. But I would like to suggest enough of them to impress upon you the richness and complexity of my background.

My family tree begins with what in fact is a tree, a cedar of straight grain that grows in Northern California and Oregon. Now contemplate all the saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding. Think of all the persons and the numberless skills that went into their fabrication: the mining of ore, the making of steel and its refinement into saws, axes, motors; the growing of hemp and bringing it through all the stages to heavy and strong rope; the logging camps with their beds and mess halls, the cookery and the raising of all the foods. Why, untold thousands of persons had a hand in every cup of coffee the loggers drink!

The logs are shipped to a mill in San Leandro, California. Can you imagine the individuals who make flat cars and rails and railroad engines and who construct and install the communication systems incidental thereto? These legions are among my antecedents.

Consider the millwork in San Leandro. The cedar logs are cut into small, pencil-length slats less than one-fourth of an inch in thickness. These are kiln dried and then tinted for the same reason women put rouge on their faces. People prefer that I look pretty, not a pallid white. The slats are waxed and kiln dried again. How many skills went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts, motors, and all the other things a mill requires? Sweepers in the mill among my ancestors? Yes, and included are the men who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant which supplies the mill’s power!

Don’t overlook the ancestors present and distant who have a hand in transporting sixty carloads of slats across the nation.

Once in the pencil factory—$4,000,000 in machinery and building, all capital accumulated by thrifty and saving parents of mine—each slat is given eight grooves by a complex machine, after which another machine lays leads in every other slat, applies glue, and places another slat atop—a lead sandwich, so to speak. Seven brothers and I are mechanically carved from this “wood-clinched” sandwich.

My “lead” itself—it contains no lead at all—is complex. The graphite is mined in Ceylon [Sri Lanka]. Consider these miners and those who make their many tools and the makers of the paper sacks in which the graphite is shipped and those who make the string that ties the sacks and those who put them aboard ships and those who make the ships. Even the lighthouse keepers along the way assisted in my birth—and the harbor pilots.

The graphite is mixed with clay from Mississippi in which ammonium hydroxide is used in the refining process. Then wetting agents are added such as sulfonated tallow—animal fats chemically reacted with sulfuric acid. After passing through numerous machines, the mixture finally appears as endless extrusions—as from a sausage grinder—cut to size, dried, and baked for several hours at 1,850 degrees Fahrenheit. To increase their strength and smoothness the leads are then treated with a hot mixture which includes candelilla wax from Mexico, paraffin wax, and hydrogenated natural fats.

My cedar receives six coats of lacquer. Do you know all the ingredients of lacquer? Who would think that the growers of castor beans and the refiners of castor oil are a part of it? They are. Why, even the processes by which the lacquer is made a beautiful yellow involve the skills of more persons than one can enumerate!

Observe the labeling. That’s a film formed by applying heat to carbon black mixed with resins. How do you make resins and what, pray, is carbon black?

My bit of metal—the ferrule—is brass. Think of all the persons who mine zinc and copper and those who have the skills to make shiny sheet brass from these products of nature. Those black rings on my ferrule are black nickel. What is black nickel and how is it applied? The complete story of why the center of my ferrule has no black nickel on it would take pages to explain.

Then there’s my crowning glory, inelegantly referred to in the trade as “the plug,” the part man uses to erase the errors he makes with me. An ingredient called “factice” is what does the erasing. It is a rubber-like product made by reacting rapeseed oil from the Dutch East Indies [Indonesia] with sulfur chloride. Rubber, contrary to the common notion, is only for binding purposes. Then, too, there are numerous vulcanizing and accelerating agents. The pumice comes from Italy; and the pigment which gives “the plug” its color is cadmium sulfide.

No One Knows

Does anyone wish to challenge my earlier assertion that no single person on the face of this earth knows how to make me?

Actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others. Now, you may say that I go too far in relating the picker of a coffee berry in far-off Brazil and food growers elsewhere to my creation; that this is an extreme position. I shall stand by my claim. There isn’t a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how. From the standpoint of know-how the only difference between the miner of graphite in Ceylon and the logger in Oregon is in the type of know-how. Neither the miner nor the logger can be dispensed with, any more than can the chemist at the factory or the worker in the oil field—paraffin being a by-product of petroleum.

Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this: Each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

No Master Mind

There is a fact still more astounding: The absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred.

It has been said that “only God can make a tree.” Why do we agree with this? Isn’t it because we realize that we ourselves could not make one? Indeed, can we even describe a tree? We cannot, except in superficial terms. We can say, for instance, that a certain molecular configuration manifests itself as a tree. But what mind is there among men that could even record, let alone direct, the constant changes in molecules that transpire in the life span of a tree? Such a feat is utterly unthinkable!

I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human masterminding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.

The above is what I meant when writing, “If you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing.” For, if one is aware that these know-hows will naturally, yes, automatically, arrange themselves into creative and productive patterns in response to human necessity and demand— that is, in the absence of governmental or any other coercive master-minding—then one will possess an absolutely essential ingredient for freedom: a faith in free people. Freedom is impossible without this faith.

Once government has had a monopoly of a creative activity such, for instance, as the delivery of the mails, most individuals will believe that the mails could not be efficiently delivered by men acting freely. And here is the reason: Each one acknowledges that he himself doesn’t know how to do all the things incident to mail delivery. He also recognizes that no other individual could do it. These assumptions are correct. No individual possesses enough know-how to perform a nation’s mail delivery any more than any individual possesses enough know-how to make a pencil. Now, in the absence of faith in free people—in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity—the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental “masterminding.”

Testimony Galore

If I, Pencil, were the only item that could offer testimony on what men and women can accomplish when free to try, then those with little faith would have a fair case. However, there is testimony galore; it’s all about us and on every hand. Mail delivery is exceedingly simple when compared, for instance, to the making of an automobile or a calculating machine or a grain combine or a milling machine or to tens of thousands of other things. Delivery? Why, in this area where men have been left free to try, they deliver the human voice around the world in less than one second; they deliver an event visually and in motion to any person’s home when it is happening; they deliver 150 passengers from Seattle to Baltimore in less than four hours; they deliver gas from Texas to one’s range or furnace in New York at unbelievably low rates and without subsidy; they deliver each four pounds of oil from the Persian Gulf to our Eastern Seaboard—halfway around the world—for less money than the government charges for delivering a one-ounce letter across the street!

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.

Afterword
By Milton Friedman, Nobel Laureate, 1976

Leonard Read’s delightful story, “I, Pencil,” has become a classic, and deservedly so. I know of no other piece of literature that so succinctly, persuasively, and effectively illustrates the meaning of both Adam Smith’s invisible hand—the possibility of cooperation without coercion—and Friedrich Hayek’s emphasis on the importance of dispersed knowledge and the role of the price system in communicating information that “will make the individuals do the desirable things without anyone having to tell them what to do.”

We used Leonard’s story in our television show, “Free to Choose,” and in the accompanying book of the same title to illustrate “the power of the market” (the title of both the first segment of the TV show and of chapter one of the book). We summarized the story and then went on to say:

“None of the thousands of persons involved in producing the pencil performed his task because he wanted a pencil. Some among them never saw a pencil and would not know what it is for. Each saw his work as a way to get the goods and services he wanted—goods and services we produced in order to get the pencil we wanted. Every time we go to the store and buy a pencil, we are exchanging a little bit of our services for the infinitesimal amount of services that each of the thousands contributed toward producing the pencil.

“It is even more astounding that the pencil was ever produced. No one sitting in a central office gave orders to these thousands of people. No military police enforced the orders that were not given. These people live in many lands, speak different languages, practice different religions, may even hate one another—yet none of these differences prevented them from cooperating to produce a pencil. How did it happen? Adam Smith gave us the answer two hundred years ago.”

“I, Pencil” is a typical Leonard Read product: imaginative, simple yet subtle, breathing the love of freedom that imbued everything Leonard wrote or did. As in the rest of his work, he was not trying to tell people what to do or how to conduct themselves. He was simply trying to enhance individuals’ understanding of themselves and of the system they live in.

That was his basic credo and one that he stuck to consistently during his long period of service to the public—not public service in the sense of government service. Whatever the pressure, he stuck to his guns, refusing to compromise his principles. That was why he was so effective in keeping alive, in the early days, and then spreading the basic idea that human freedom required private property, free competition, and severely limited government.

you can listen to an audio version of the essay here: The author’s reading of I, Pencil

In the wake of the largest swindle Wall Street has even known, everyone is questioning how this could have happened. How could anyone run a 50 billion dollar Ponzi scheme right under the SEC’s nose? The SEC, with virtually limitless resources, has the power to do essentially whatever it wants when investigating fraud. So how could they miss this? Is this just a failure of the free market, an example that those hedge funds just have too much freedom, and government regulators need more power and resources? Not at all – in fact, quite the opposite.

This is a wake up call for investors and the public. Where the SEC failed to spot a problem, the free market saw it. Eighteen months ago, a firm named Aksia run by Jim Vos and Jake Waltour, warned clients not to do business with Bernard Madoff’s investment fund. Aksia is what’s called a due-diligence firm, and they’re an example of what regulation would look like in a true free market.

Because of the lack of government regulation in hedge funds, these due-diligence firms emerged. Investors wanted to be assured that their money was going to a reputable fund, so these companies thoroughly investigate hedge funds for a fee.

Since these firms are operating in the free market and competing with one another (as opposed to the SEC, which has a monopoly on the business of regulation), they have incentives to do the best job so that they gain the best reputation in the business, thus increasing their customers and their wealth.

And Aksia was thorough; they found a number of red flags in Madoff’s fund during it’s investigation, including:

1. The Madoff investment strategy, called “split-strike conversion,” is known to be very volatile; it involves trading huge positions around options expirations. Despite that volatility, its returns over the past decade were an amazingly stable 8-10 percent.

2. Aksia discovered a 2005 letter to the Securities and Exchange Commission from a financial advisor who supposedly studied Madoff’s operations. That letter asserted Madoff was running a Ponzi scheme. There was also a Wall Street Journal story at the time about one of the Madoff’s associated “feeder funds” getting shut down in 1992.

3. Madoff’s strategy was bizarre: He said he would move $13 billion in various trades at once, yet Aksia couldn’t find traders who saw his trades. There were also no regulatory filings. And family members were running the firm.

4. The comptroller of the firm was based in Bermuda. Most mainstream hedge fund investment advisers have their comptroller in-house. Madoff’s so-called feeder funds, meanwhile, were audited by respectable auditors. That gave the impression that Madoff had a professional operation. But the central investment action wasn’t with the feeder funds, but in Madoff’s New York City headquarters. And those activities were audited by a smaller, lesser known firm.

5. Madoff sent out accounting statements by mail. Most hedge funds email statements and allowed them to be downloaded via computer for easier analysis by investors.

6. Aksia wasn’t the first firm to check out Madoff’s activities. A two-man shop (not counting the secretary) which operated out of a small office in Muncie, N.Y., was also looking into Madoff’s activities.

So whats the moral of this story? The SEC simply cannot protect investors as well as free market systems can. The SEC failed to protect investors from mortgage-backed securities and credit default swaps and collateralized debt obligations – and now it failed to notice a $50 billion dollar Ponzi scheme masquerading as a hedge fund. Unfortunately, some people will see those facts and come to the conclusion that we just need more regulation and the SEC needs more resources.

The SEC failed because it’s a centralized monopoly, it’s that simple. And Bernie Madoff’s scheme succeeded because investors had a false sense of security in that bad system and it’s regulations. Take away that monopolistic regulatory giant, and a system of due-diligence firms would spring up to take it’s place. That type of decentralized system of competing firms is many orders of magnitude better at finding fraud and protecting investors; and it’s been proven so. It would be less expensive and more efficient than the SEC, and it would lower taxes and place the financial burden on the actual investors instead of the entire US population, including non-investors.

It’s just common sense.

In case you missed it, October 29th was the official “Day of Prayer for the World’s Economies” according to international nutcases, Mike and Cindy Jacobs. And what did they do on the day of prayer? They went down to Wall Street and prayed to the big bronze statue of the bull. Sound familiar? Good thing Moses wasn’t there.

“We are going to intercede at the site of the statue of the bull on Wall Street to ask God to begin a shift from the bull and bear markets to what we feel will be the ‘Lion’s Market,’ or God’s control over the economic systems.”

Wow. I remember reading somewhere that god’s not a big fan of people worshiping golden cows. Maybe I’m wrong, who knows. Check out the video:

And this is Cindy Jacob’s statement from her website:

For thus says the Lord of hosts: ‘Once more (it is a little while) I will shake heaven and earth, the sea and dry land; and I will shake all nations, and they shall come to the Desire of All Nations, and I will fill this temple [house] with glory,’ says the Lord of hosts. ‘The silver is Mine, and the gold is Mine,’ says the Lord of Hosts.” Haggai 2:6-8

We are calling for prayer for the stock markets, banks, and financial institutions of the world on October 29, 2008. Why the 29th of October? The stock market of the United States collapsed on that day in 1929 and a great economic depression ensued.

At the beginning of the 2008, intercessors began to hear from the Lord that without divine intervention, a major shaking was coming to Wall Street. This would spread until there were food shortages. In fact, we heard that 2009 would be worse than 2008! Of course, it goes without saying that this would affect markets around the world.

During the same time period, a dream was given that showed 50 boxes of iniquity representing the economic systems in all 50 states. The lid was off and the stench was terrible. God gave an instruction in that dream that we were to “put the lid back on the boxes” until a biblical economic structure could be built in its place. Of course, this could be said of economies around the world as well.

For this reason, we are meeting with intercessors at the New York Stock Exchange and the Federal Reserve Bank and its 12 principal branches around the U.S. on October 29, 2008. We are also going to intercede at the site of the statue of the bull on Wall Street to ask God to begin a shift from the bull and bear markets to what we feel will be the “Lion’s Market” or God’s control over the economic systems. While we do not have the full revelation of all this will entail, we do know that without intercession, economies will crumble.

Please gather with your prayer groups and networks at financial institutions around the globe. Intercessors are already going to some of the stock exchanges in other nations, but do not assume this is so and make sure that the one in your nation is covered in prayer. Also intercede for the banks and financial institutions in your area.

Here are a few suggested prayer points for the day:

1. Repent for any personal greed. Ask God to show you any personal connection that you have with mammon.
2. Repent for the economic sins of your nation. Ask God to forgive the greed, avarice, participation in mammon, etc., that has taken place in your nation’s economic system.
3. Repent for any excessive participation in debt and the use of credit. Ask God to give a strategy both to you, personally, and to your country to heal your economies.
4. Repent for a lack of love for the poor. Ask God to forgive any way in which you and your nation have not addressed the needs of the poor, either in the work force or through racism.
5. Cry out to God for mercy for your nation. Plead with Him according to 2 Chronicles 7:14 and tell the Lord that you will turn from your wicked ways.
6. Pray for wisdom for the leaders of your nation on how to deal with the current financial crisis.
7. Ask God to stabilize the nation’s economy, putting the lid back on the box as shown in the dream given.
8. Begin to intercede and ask God to establish righteousness in the stock exchange, expose corruption and bring to justice those who have sinned against God and the nation. Ask God to heal the economy.
9. Pray that God will raise up an economy based upon biblical principles.
10. Intercede that a great revival will break out in the marketplace as a result of the shaking. Pray that God will begin to give wisdom in the midst of the shaking to shift the wealth of nations in to the hands of the righteous.

Cindy Jacobs

via Pharyngula

If you’ve been following along this financial crisis, listening to Common Sense investors like Peter Schiff and Jim Rogers; and keeping an eye on the commodity markets, you know that gold is where to be right now.

But it isn’t as easy to invest in gold as it is to invest in the stock market proper. Many people don’t even know where to start. And if you search online for information about investing in gold, often you’ll only find websites talking about benefits or disadvantages of investing in gold; without any black and white facts on how it’s done. Well, here you are:

How To Invest In Gold

Aside from the futures market, there are 4 major ways to invest in gold: 1.) Digital gold currency; 2.) Direct ownership in gold bullion, coins, or certificates of ownership; 3.) Owning stocks in gold mining companies, or mutual funds consisting of gold mining companies; and 4.) Owning Gold ETFs (exchange-traded funds).
Let’s start with the simplest method, and go from there.

Gold ETFs

Gold ETFs are the simplest and most attractive form of gold investment for many people. It’s basically an investment in gold that’s 100% backed by physical gold held in some allocated form, and traded on the market like a single stock. They were invented to give private investors the ability to own gold and gain exposure to the price of gold without the inconvenience of storing bullion or opening a futures account.

So Gold ETFs are the user friendly version of gold investments, but there are a few drawbacks. First of all, since it’s a fund, it needs to be managed by someone, and that person or company wants to get paid, so there are fees to these ETFs. The upfront commission is typically about 0.4%, and there are also storage fees, insurance fees, management fees, etc. Those added expenses can pile up and put a dent in your investment down the line.

A more frighting, although less likely, aspect of owning Gold ETFs (the funds based on the US, at least) is the prospect of having the allocated gold confiscated by the US government during a financial crisis. This actually happened in 1933, and can happen again anytime the government so decides.

Examples of Gold ETFs:
SPDR Gold Trust – GLD
Central Fund of Canada Limited – CEF

Gold Mining Company Stocks and Mutual Funds

Investing in gold mining companies and mutual funds made up of them is an indirect way of investing in gold. This type of investing is generally more complicated than simply investing in gold. You have to take into account all of the aspects of that particular company: Is it profitable? Stable? Does it offer dividends? etc. Investing in mining companies is inherently higher risk than buying gold directly. Gold mining stocks can be 3 to 4 times more volatile than gold itself, so many investors try to offset that volatility by investing in a mutual fund made up of many different mining companies.

Examples of gold mining companies and mutual funds:
Individual company stocks:
Newmont Mining Corporation – NEM
Barrick Gold Corporation – ABX
Mutual Funds:
Market Vectors Gold Miners – GDX

Gold Bullion, Coins, or Certificates

This option probably seems like the most difficult to the majority of regular investors, but it’s actually the least expensive way of investing in gold, since the brokers commissions are so low. Bullion coins are minted in inexpensive and easy to manage weights like 1/20 oz, 1/10 oz, 1/4 oz, 1/2 oz, and 1 oz (about 31 grams). But if you get gold coins, remember that the price isn’t the face value of the coin, it’s based on the spot price of gold and will change over time.

You can also get gold bars in very small sizes. In Europe, many regular retailers sell ChipGold, which is a small, vacuum-sealed gold bar in a credit card shaped package available anywhere from 1 gram to 1 ounce. The Union Bank of Switzerland offers the kinebar, which has a hologram imprinted on the reverse side of the bar, and is sold in a similar credit card shaped package as ChipGold.

Places to buy gold direct:
eBay
The Perth Mint
If you’re interested in gold certificates, then the Perth Mint Certificate Program is also essentially the only game in town.

Digital Gold Currency

This is the newest and most interesting form of gold investment. It’s a form of electronic money that’s based entirely on gold. Typically, each unit of currency is based on the gold gram or the troy ounce, although many other units can be used. Digital gold currency is backed by gold through unallocated or allocated gold storage, just like the US dollar was pre-1933.

I think this method has the highest potential for future use. It could potentially become a new gold-backed currency in widespread use. Highly recommended for Common Sense Investors.

Some Digital Gold Currency providers:
e-gold
GoldMoney

This is a must watch for common sense investors. It’s absolutely imperative that people understand the ideas in these videos. In the United States, especially now, there is a dangerously widespread misunderstanding of what the free market is and how it really works.

Here at the Common Sense Investor, we’re going to start our multi-part series on the free market this week, including topics like spontaneous order and complex adaptive systems. These topics can help give people a better understanding of how the real free market works. We’ll try to make it as simple as possible, with plenty of videos and real world examples.

For now, check out the rest of the 20/20 Guide to Politics after the jump:

Part 2:

Part 3:

Part 4:

Part 5:

Part 6:

The real problem in the US isn’t that people can’t afford health insurance, it’s that they choose to spend their money in other ways. Roughly 45% of all uninsured people could afford insurance right now if they wanted it. But it would mean spending less on cigarettes or Friday nights, so they choose not to get it. It’s simple economics, people are using the funds they have and prioritizing what they want. You simply cannot have everything you want.

Politicians aren’t going to get votes if they tell people to change their lifestyle though, so they tell people they’ll solve all their problems for them. This is how politics works, unfortunately, and it’s why we’re in the economic position we’re in today. Think about it, be a Common Sense Investor…and a Common Sense citizen.

The Financial Times interviewed Jim Rogers in late 2007. They were trying to get an idea of where he thought the US economy was headed in 2008 and beyond. He makes some very insightful comments about Ben Bernanke, the FED, and the recession on the horizon.

We have a complete transcription of the interview after the jump, enjoy:

FT: You said you’re selling US assets. So what makes you so bearish on the dollar?

Jim Rogers: Well the US dollar is a terribly flawed currency. As recently as 1987 the United States was a creditor nation. We’re now the largest debtor nation the world has ever seen in only twenty years. We owe the rest of the world over thirteen trillion with a “T” US dollars. That’s a bad number, but what’s worse is our foreign debts are increasing at a rate of one trillion dollars every 15 months. It’s simple arithmetic at how fast it’s going to go up, but its pretty terrifying arithmetic. I don’t want to own a currency which is being debased that way. The central bank in America has said that they’re going to print as many dollars has they have to drive down the value of the currency. The secretary of the treasury is trying to drive down the value of the currency. I mean it doesn’t take a genius to figure out that it’s a currency that’s going to be going down for some time to come. They want to debase the currency. The head of the central bank has been printing money since he got there for two years. He’s printing money very rapidly now, especially since this summer. This is a man who his whole intellectual career has been spent studying the printing of money. Now America is giving the printing presses. I don’t want to be in a currency like that.

FT: So what’s your assessment of Bernanke’s performance so far?

Jim Rogers: Well it’s been a disaster.

Did I make myself clear? He’s been a disaster. I mean he’s been printing much too much money, since the beginning. Last summer he bailed out his friends on Wall Street, said there was some kind of problem. I mean the stock market was down 6%. If a 6% decline in the stock market causes the man to go and cut interest rates by a half a percent, when inflation is running rampant, when the dollar is under pressure anyway, what’s he going to do when the market is down 36%? What’s he going to do when they have a real crisis? I mean he’s going to print money until we run out of trees! I don’t want to own US dollars in an environment like that. I don’t know why you would. I don’t know why anybody would.

FT: So is the US already in a recession?

Jim Rogers: In my view yes. We know that housing is in worse than recession. We know that automobiles are in worse than recession. We know that many parts of the financial community are in worse than recession. We know that machinery — Caterpillar Tractor, one of the largest machinery companies in the world, has said it’s the worse they’ve seen in 50 years. There are a lot of sectors of the American economy that are in serious trouble, shall we say. The government says it’s not a recession. I’d like to know from them, what’s keeping it up, that if all these other sectors — and you know housing and automobiles are two of the very largest sectors — what is not in recession? Retail sales are down; I could go on and on.

FT: So what’s next? What do you think is coming?

Jim Rogers: Well for the dollar? Well probably the dollar is going to have a big rally about now, because everybody in the world is short the dollar. In my experience in the investment markets, when everyone is on one side of the boat, you’d better think about going to the other side of the boat for a while. I suspect there’ll be a rally; I have no idea what will cause it. And if there’s a rally, for a few weeks, a few months, I would urge you to sell that rally — that’s my plan — to get the rest of my money out of US dollars.

FT: You’ve actually been bearish on the dollar for more than a decade. So why are getting headlines now? Is it to do with promoting your new book?

Jim Rogers: I didn’t know I wasn’t getting headlines, you called me, I didn’t call you. The dollar has been steadily going down, as you know, for several years. It’s not been a wonderful place to be. I have no idea. Maybe it’s because now the dollar’s starting to crescendo a little bit more. And actually now that I think about — I don’t think it has anything to do with me — as you probably know, the dollar has never gone below 80 as an index, which is a federal government report; it’s never gone below 80 in the history of the world. Until the last two or three months, when Bernanke started printing all this money and cutting interest rates; in a terribly inflationary environment he was cutting interest rates. It’s broken below that level, so it’s now going to the lowest level in history. So maybe that’s why more and more people are starting to pay attention to the dollar.

FT: You’re known for being apolitical. Are you backing anyone in the next year’s US presidential election?

Jim Rogers: Well, yes. A pox on both of their houses, as far as I’m concerned; the Democrats and the Republicans. I rarely if ever pay much attention — I always vote – but I don’t pay too much attention to them, because I know they’re pretty hopeless. However in this election, if Ron Paul gets anywhere near the nomination, I will certainly support him. I mean he’s the only one I’ve seen in American politics that seems to have a clue about what’s going on in the world.

FT: Will he win?

Jim Rogers: If I’m backing him, there’s no way, no way I assure you. Poor Ron.