Sir James Goldsmith passed on July 18. Your editor reminisces over a great evening at dinner with Jimmy, just the two of us (not counting his butler), at his beautiful London residence, and reminiscing on the above (excerpt #1) stirred us to wonder whether or not there were any bandwagons today.

The dollar and stock markets are at their heights, in full glory, truly a bandwagon. As we study those who are blindly bullish, the Italian proverb comes to mind, "He who knows nothing, doubts nothing." Meanwhile, there is also a bandwagon insisting that gold is going to collapse.

It also strikes us that everybody assumes Fedhead Greenspan controls interest rates. Nobody is considering the possibility of a currency or banking crisis that would force bonds lower and interest rates higher as happened in Mexico in 1994-95. We have long warned about "The Coming Currency Crisis," and we are pleasantly surprised that it has not already occurred, although Mexico's currency crisis almost triggered it.

The above excerpt #2 brought the current currency upheaval to the front page of the Wall Street Journal, actually including the words "financial panic." Later, they might look back and see that it began on July 2nd, when a small Asian country tucked away in the backwaters of Asia named Thailand, devalued its baht. Currency upheavals spread to the Philippines, Malaysia, Indonesia, Taiwan, New Zealand, Israel and Singapore. It did not stop there, as Brazil and the Polish zloty quivered, demonstrating not only how interconnected the world is these days, but how shaky this paper currency system is; for years we have described it as a bunch of staggering drunks holding each other up, while they mock gold the true money that could yet bail them out.

History never repeats itself exactly, but it imitates itself as when ontogeny recapitulates philogeny. Fearing a replay of the Mexican economic crisis, the International Monetary Fund rushed to give the Philippines an emergency loan. In these days of the Internet, as outlined in our Mass Psychology book, Mass Fear and Mass Contagion can ripple around the world with terrifying alacrity. In the Philippines, the devaluation will lead to higher inflation, wages and oil prices, as imports become more expensive, which will hurt the poor most.

Thailand pushed its real estate too high, as did Japan in the 1980s; banks loaned and customers invested heavily in what proved to be bad projects, borrowing from Japanese banks that are already suffering from their own real-estate crisis. With the Thai currency devalued, it would make those loans more expensive to repay. Copying the insane asylum of Mexican bankers, interest rates in Thailand will be pushed too high, which of course starts the self-destructive cycle of bankruptcies causing yet more bankruptcies. With empty buildings and abandoned construction sites already visible in Bangkok, more space is nonetheless added to the market every month like a snake slow to die, reminiscent of Tokyo early this decade. One of the reasons we have been so negative toward the international banking system is that they have loaned money for unrealistically overpriced real estate that threatens their collateral.

As Latin-American markets in Brazil, Peru, Argentina and Mexico were shaken, it seems to us that the world is increasingly vulnerable to a currency calamity. For example, with Japan's exports to Asia even larger than to the US, devaluations in Southeast Asia mean Asians can buy fewer Japanese goods; because the Thais owe in yen they will have to buy more yen to hedge their increased exposure, which would push the yen higher and which the Japanese need like a moose needs a hat rack.

Keeping in mind the predictions in your editor's second book The Invisible Crash, especially the warnings about "The Coming Competing Currency Devaluations," the Germans are definitely interested in a weaker mark, to help their exporters. So much for the European Monetary Union producing a currency as strong as the mark. And a currency upheaval in Europe is not what they need either. One of the reasons the dollar has risen against the mark was the assumption that Maastricht's strict standards were kaput, so the euro would be worth less than the present mark.

We have been warning about the Japanese banking system since 1989, and if their economy deteriorates much further the world will tremble. But if their economy gets better, and the Bank of Japan raises interest rates from their current near-zero levels, that might be even worse. Why? Because Japanese investors who want higher current income have been shifting their capital overseas, so higher interest rates at home would emulate Ross Perot's infamous "sucking sound" as Japanese savers withdrew liquidity from the world. Japan is bound to tighten monetary policy eventually anyway. The outgushing of capital from Japan has resulted in the purchase of 23% of all long-term US Treasury bonds between 1992-96. Japanese savers have been borrowing money in Japan costing practically nothing, and with the proceeds buying higher-yielding US and British paper; when this arbitrage unwinds there might be a plunge in US bond markets and much higher interest rates, regardless of Fedhead Greenspan.

The world needs to find a more dependable way to manage its currencies, and the answer resides in the very gold bullion that central bankers so despise. Jimmy Goldsmith was an ardent fellow goldbug, with a superb sense of timing, and perhaps he "cashed out" when the bandwagon toward paper currencies was at its apogee.

Keep an eye on South Korea, whose 25 commercial banks are buckling under the bankruptcies of some of Korea's biggest conglomerates. Whether or not the international banking system staggers through this financial crisis successfully or not, the fact remains that there is a potential calamity out there, and - anybody who owns paper currency or bonds should make sure that they also keep a "core position" in the precious metals, regardless of whether they rise or fall, and turn deaf ears to those who insist otherwise.