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10
.5
ISSUE
12.3
Harvey’s Investment Review
September
2012
Third QUARTER
2012 STATISTICS
Gross Domestic Product
(GDP)
1st Qtr 2012 +2.0%
2nd Qtr 2012 +1.3%
Consumer Price Index
(CPI) / Core
Jul: -0.2%
Aug: +0.6%
Oil (light crude)
Sep 28: $92.19 bbl
3-Month T-bill: 0.10%
10-year T-bond: 1.65%
(Sep 28)
Gold
Aug 31: $1,770.00/oz
Sep 28: $1,776.00/oz
$/Euro at 1.2856
Yen/$ at 77.991
(Sep 28)
Unemployment down:
Jul: 8.3%
Aug: 8.1%
**Sources provided on the
Explanation Page. Please note
that past performance is no
guarantee of future results
Harvey A. Wartosky
A Financial Representative
offering advisory services and
securities through Lincoln
Investment Planning, Inc.
Tel: 800 251 1995
Julius Caesar in 48 B.C. defied the money
changers and usurped their power to coin an
unlimited amount of silver and gold. He set the
stage for Ben Bernanke who revealed on
th
September 13 that the Federal Reserve (The
Fed) would inject $40 billion each month into
the economy. Welcome to QE-ternity.
Jesus threw money changers from the Temple
in 30 A.D. and set a precedent for monetary
control that lasted 16 centuries through the
Middle Ages when the Church forbade
charging interest on loans. It wasn’t until 1509
that King Henry VIII in England relaxed the
laws against usury and Queen Elizabeth took
control of the national money supply in 1558.
This government monopoly led to the creation
in 1609 in Amsterdam of the first central bank,
the ancestor of today’s Federal Reserve.
Bank of England officials asked Benjamin
Franklin in 1764 to explain the prosperity of the
Colonies in America. He informed them that
the Colonies issued their own money in
proportion to the demands of trade and
industry, and paid no interest to anybody.
Franklin omitted to tell the British about an
economic fact of life. A government cannot
issue an unlimited amount of debt-free money
without destroying the economy. At the start
of the Revolutionary War in 1775, the
Continental Congress had to print money to
finance the conflict. At the outset, the money
supply was $12 million. At the end of the war,
it was nearly $500 million. The Colonial Scrip
became worthless and inflation exploded.
On the verge of bankruptcy, Congress
authorized a private bank to issue federal debt.
The US Constitution in 1787 was silent on who
had the authority to print money, and it wasn’t
until President Jefferson in 1893 sold a chunk
of territory called the Louisiana Purchase to
Napoleon that the US became solvent again.
Central banking remained in private hands
until the reelection of President Andrew
Jackson in 1832 who opposed the corruption
of private central banking. Jackson warned
that “The hydra of corruption is only scotched,
not dead.” Before revoking its charter in 1838,
the bank retaliated by sharply contracting the
money supply, calling in loans and refusing to
issue new ones. A financial panic resulted,
followed by a deep depression.
By 1860, the Union had broken the economic
back of the southern states through an embargo
on cotton. War ensued and President Lincoln
printed $450 million of no-interest bills in green
ink and called them “Greenbacks” to finance the
conflict. When Lincoln asked Congress for
more money, the bankers retaliated by seizing
the monopoly for issuing US debt. Just before
his assassination in 1865, Lincoln reportedly
wrote, “The money power preys upon the
nations in times of peace and conspires against
it in times of adversity. It is more despotic than
monarchy, more insolent than autocracy and
more selfish than bureaucracy.”
Following the financial panics of the last part of
th
the 19 century and the increasing need for
institutionalized control of national debt,
President Woodrow Wilson signed the Federal
Reserve Act in 1913 that brought into existence
a quasi government/private bank that had the
power to create money out of nothing through a
four step process that has changed little in the
past 100 years:
1. The Federal Open Market Committee approves
the purchase of US bonds
2. The Fed purchases the bonds from banks
3. The Fed pays for these bonds with credits to
the seller’s bank
4. The banks use the credits as reserves and
can loan out over 10 times the amount of total
reserves to borrowers, all at interest.
Since its creation in 1913, the Federal Reserve
has played a pivotal role in financing two world
wars, managing the supply and price of gold,
financing the country during the Great
Depression of the 1930s and all the great debtgenerating events of the past century up to, and
including, the current global financial crisis.
The Federal Reserve has taken a commanding
role in the management of the country’s money.
But, should a bank have this much influence?
Mayer Rothschild, founder of the bank House of
Rothschild, gave us an implicit warning when he
said, “Let me issue and control a nation’s
money and I care not who writes the laws.”
Best Regards,
ISSUE
12.3
Harvey’s Investment Review
September
2012
Federal Reserve Act: is an Act of Congress that created and set up the Federal Reserve System, the central
banking system of the United States of America, and granted it the legal authority to issue Federal Reserve Notes
(now commonly known as the U.S. Dollar) and Federal Reserve Bank Notes as legal tender.
Federal Open Market Committee: is a committee within the Federal Reserve System charged under United
States law with overseeing the nation's open market operations (i.e., the Fed's buying and selling of United States
Treasury securities). It is the Federal Reserve committee that makes key decisions about interest rates and the
growth of the United States money supply.
S&P 500: is a value-weighted index of 500 widely held stocks often used as a proxy for the stock market. The S&P
500 index includes 500 of the largest stocks (in terms of stock market value) in the United States and represents a
sample of top companies in leading industries in the U.S. economy.
Dow Jones Industrial Average: is a price-weighted average of 30 significant stocks traded on the New York
Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
New York Stock Exchange (NYSE): is the world’s largest stock exchange by market capitalization (with listed
companies at $12.25 trillion as of May 2010), located on Wall Street in lower Manhattan, New York City, USA.
Gross Domestic Product (GDP): is a measure of output from U.S. factories and related consumption in the
United States. It does not include products made by U.S. companies in foreign markets.
Consumer Price Index (CPI): measures prices of a fixed basket of goods bought by a typical consumer, it is
widely used as a cost-of-living benchmark and uses January 1982 as the base year.
Oil (light crude): Crude oil is the world’s most actively traded commodity. Oil is considered light if it has a low
density and low wax content and may be considered sweet if it contains relatively little sulfur. Light crude oil is
more desirable than heavy oil since it produces a higher yield of gasoline. Sweet oil commands a higher price than
sour oil because it has fewer environmental problems and requires less refining to meet consumption standards.
Treasury bills (T-bills): are short-term securities with maturities of one year or less issued at a discount from face
value. Treasury bills are the primary instrument used by the Federal Reserve in its regulation of money supply
through open market operations.
Sources and ideas for information in this newsletter: The Economist, The Wall Street Journal, The
Financial Times, Investor Business Daily, Bloomberg, Market Watch, Reuters, US government web sites, Morningstar,
CNBC, James Surowicki, Niall Ferguson, Heather Wagner, BNP, private foundation reports, Peter Bernstein, Goldman
Sachs Research and Ned Davis.
*Sources of Statistics listed on front page:
Statistic
GDP
CPI
Oil
T-bill & T-bond
Website name
Bureau of Econ. Analysis
US Dept. of Labor
CNN Money
US Dept. of the Treasury
URL
Gold
Exchange Rates
Kitco Bullion Dealers
Yahoo! Finance
http://www.kitco.com/
Harvey A. Wartosky
Unemployment
US Dept. of Labor
http://data.bls.gov/timeseries/LNS14000000
A Financial Representative
Advisory Service and Securities offered through Lincoln Investment Planning, Inc. Associates of The Wartosky Group, LLC are financial
representatives of Lincoln Investment Planning, Inc. Lincoln Investment Planning, Inc. is a Registered Investment Advisor, Broker Dealer,
Member FINRA/SIPC. The Wartosky Group, LLC and Lincoln Investment are independently owned and each is responsible for its own
business. Lincoln Investment supervising office: 218 Glenside Avenue, Wyncote, PA 19095 (800) 242-1421.
offering advisory services and
securities through Lincoln
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
http://data.bls.gov/timeseries/CUUR0000SA0?output_view=pct_1mth
http://money.cnn.com/data/commodities/
http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.as
px?data=yield
http://finance.yahoo.com/currency-converter/?amt=1&from=USD&to=JPY&submit=Convert
#from=EUR;to=USD; amt=1
Investment Planning, Inc.
The Wartosky Group, LLC. 84 State Street, Boston, MA 02109
Phone: (800) 251-1995, Fax: (617) 227-1993