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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