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Auguries — Bonapartism

November 10, 2011

By Kevin Michael Grace

Gold was down (at press time) $5.90 (-0.3%) for the week to $1,759.20, and silver was down $0.54 (-1.6%) to $33.96. Gold almost reached $1,800 Monday, a development attributed by Kim Covert in the Financial Post (and many others) to “investors seeking a safe haven amid the turmoil in Europe, where the focus has shifted now to Italy.” By Thursday, gold had fallen back almost to $1,700, a development attributed by Reuters (and many others) to “technical weakness and unwinding safe-haven play as nervous investors reacted to headlines painting a mixed picture of Europe’s debt crisis.”

Given that the Italian debt crisis was just as dire Thursday as it was Monday, the juxtaposition of these quotations proves the difficulty, not to say futility, of attempting up-to-the-minute explanations of gains and losses in a world economy that has broken free of its moorings. The Panic of 2008 (and its unresolved aftermath) is said by many to reveal a “crisis of capitalism.” Perhaps, but the events currently unfolding in Europe certainly reveal a crisis of democracy.

November 10, 2011

Daniel Larison declares in The Week, “Europe’s debt crisis is reminding the world that Western democratic governments can have either fiscal austerity or democratic accountability, but they can rarely have both.” Larison asserts that former Prime Minister George Papandreou had no intention of holding a referendum on the Greek “rescue”; his promise was a cynical and failed attempt to stay in office. With his departure, “Greece will be governed by a coalition that will then force through the measures the Greek public hates.”

Larison asks us to consider Greek irrationality: “Polls show that 60% are against the rigorous terms of the bailout; but 70% want to stay in the Euro.” He concludes, “Perversely, the Greek public wishes to remain in the straitjacket of the common currency that requires the spending cuts that they overwhelmingly reject… While they may not realize it, the Greek public is complicit in sabotaging its country’s self-government.”

If the Greek public is characterized by a perverse belief it can eat its cake and have it, how does Greece differ from anywhere else in the Western world? And if the Greeks believe this, who has persuaded them that they are not foolish but wise?

During last night’s Republican debate, a panic-stricken Jim Cramer of CNBC practically demanded that candidate Ron Paul embrace the bailout consensus. Paul refused: “You have to let it liquidate. We’ve had—we took 40 years to build up this worldwide debt. We’re in a debt crisis never seen before in our history. The sovereign debt of this world is equal to the GDP, as ours is in this country. If you prop it up, you’ll do exactly what we did in the Depression, prolong the agony.”

Michael Brendan Dougherty of Business Insider admires Paul but concludes sadly that his honesty and integrity doom his campaign. “Voters like to be flattered. The media criticizes candidates for what they call ‘pandering.’ But voters want pandering. That is how they determine whether a candidate even understands their concerns.”

Concerns are one thing, but judgments made in the absence of data are useless. This space noted last month that their party leaders did not tell Ontarians the truth about their debt crisis. Premier McGuinty now has a mandate to keep things exactly as they are, a mandate he will abandon with alacrity. Just like Greece, Ontario will have a government that forces through the measures the public hates. Assuming, that is, Premier Dad doesn’t prefer economic collapse to being thought “mean.”

Politicians are terrified of being thought mean, and this cowardice is endorsed and propagated by the media. On Tuesday, Finance Minister Jim Flaherty abandoned his government’s promise to balance the federal budget by 2014. “We will not be bound by ideology,” he declared, thundering against those “urging us to slash spending across the board, no matter the effect it will have on services we provide to Canadians.” Where some would see cynicism, Lawrence Martin of the Globe and Mail sees political prudence. “In tough economic times,” he instructs us, “precedent suggests it is the government that acts callously that pays the price. The Conservatives are avoiding that pratfall.”

Martin concludes, “Phrases like balanced approach and not being bound by ideology have a strange ring coming from Harper Conservatives. But it’s that kind of flexibility that will stand them in good stead.” Yes, it may stand the Conservatives in good stead (for now), but what of the Canadian economy? And what of those voters who chose the Conservatives in 2008 because of their promise not to run a deficit and in 2011 because of the promise Flaherty made and now condemns as evidence of a callous “ideology”? Are they right to feel cheated?

Before the Ontario election, David Dodge, former Governor of the Bank of Canada, predicted, “Whoever wins will be seen to have lied to the public.” What some would deem deceit, others would deem a higher calling. The late James Burnham called it “Bonapartism, a name derived from the regimes of the two Bonapartes, particularly from that of Napoleon III.”

Burnham writes in The Machiavellians, “The Bonapartist leader claims, with more than a show of justification, to be the most perfect embodiment of the will of the group, the people. Everything, therefore, is permitted to him, since he is merely the symbol of the group as a whole.”

Burnham regarded Bonapartism as “the logical culmination of democracy.” Napoleon III died exiled and disgraced, but as the examples above demonstrate, the leader principle in democracy is stronger than ever. Precedent suggests that the consent of the governed may be notional so long as our leaders can preserve us from impoverishment and the collapse of civil order. Should Greece become a failed state, democracy will be in the dock and not just in Europe, because the economic and social conditions that obtain in Greece also obtain, to equal or lesser degrees, all across the Western world. When confidence in government withers, confidence in fiat currencies does likewise. And that is why so many now place their trust in gold.

But those that do are warned by Jeff Clark of Casey Research, “As bankrupt governments get increasingly desperate for revenue, any monetary asset held domestically could be a target.” He argues that the four primary risks now faced by investors in gold and silver are confiscation, capital controls, asset seizure and lack of personal control. Clark advises, “These risks can be reduced, not eliminated,” by means of “political diversity of asset location.”

Another problem faced by those that seek protection from fiat currency through exposure to precious metals is that while mining companies publish their information in English, this might as well be Greek to the uninitiated. To help dispel this ignorance, Ivan Lo at Equedia has prepared a “Mining 101″ primer.

And now to cases. At the Globe, Darcy Keith reports that Cosmos Chiu of CIBC World Markets is sweet on gold producer Richmont Mines TSX:RIC. Chiu has “raised his price target by $2 to $16 [now trading at $12.07], commenting the company is still his favourite stock for exposure to small-cap Canadian producers.”

At Seeking Alpha, StockMarketPundits present “10 leading gold explorers/producers with market caps under $2 billion that should benefit from a resurgent interest and flow of funds back into gold”: AuRico Gold TSX:AUQ, Exeter Resource TSX:XRC, Golden Star Resources TSX:GSC, Jaguar Mining TSX:JAG, Mawson Resources TSX:MAW, MineFinders TSX:MFL, Minera Andes TSX:MAI, Paramount Gold & Silver TSX:PZG, US Gold TSX:UXG and Vista Gold Corp TSX:VGZ.

And at the Financial Post, Peter Hodson does not share the Pundits’ enthusiasm for Golden Star Resources TSX:GSC, which he characterizes as consistently underperforming. Hodson notes, “Despite the analysts’ lack of enthusiasm, their target prices for the stock are still averaging 67% higher than where Golden Star’s stock is today.” He concludes, “We would use caution on this one.”

Finally, Newfoundland Lieutenant Governor John Crosbie scandalized the nation last week with an attempt at humour. How do you get 100 Canadians out of the pool? Warn them you’re going to tell a joke.

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