"How could you be expected to govern a country that has two hundred and forty-six kinds of cheese?" General Charles de Gaulle, Newsweek, 1 Oct 1962

"You'd be surprised how much it costs to look this cheap." Dolly Parton

According to an ancient allegory, Truth and Falsehood bathed together. Then Falsehood came ashore and ran away dressed in Truth's clothing, leaving Truth the choice of either putting on Falsehood's clothing or wearing no clothing at all. Truth chose none, from which evolved the English expression "the naked truth." Charles de Gaulle's Finance Minister, Jacques Rueff, with whom your editor had a memorable meeting at L'Academie Française, had a high opinion of your editor's second book The Invisible Crash because it contained the naked truth about currencies, that with so many of them around the world being printed at different rates it was impossible to have a stable currency system. This is the Key Perception that The Dines Letter (TDL) offered to share with the world, that our currencies are flawed and unstable, which is the very source of inflation/ deflation swings, wild interest-rate oscillations, overexpansion of government powers, and the origin of much poverty and other misery in the world. Currencies are the very life blood of countries, so when they are flawed nothing else will work quite right. Nobody could offer a greater service to the world than to reform the world's currencies. So far, our only contribution that has been accepted is the phrase "Mass Contagion," pioneered in the Mass Psychology book, but even at that The Hive morphed it into "Asian Contagion" as if it could not spread here. No person is an island, which would be not atoll proper.

Our reasoning behind currency rot was laid out in sedulous detail in your editor's second book The Invisible Crash, as many of the predictions in that book are already coming true, especially "The Coming Currency Crisis" and "The Coming Competing Currency Devaluations." There needs to be a link between paper currencies and gold in order to have a "common denominator" among all currencies, and gold is the "fuse" that prevents governments from running printing presses with blithe abandon. To fully understand how we see the nature of money and how savings represent postponed pleasure, TDLrs are advised to re-read their Invisible Crash. The bottom line is, nothing has changed since last summer. As the US, behind the semi-transparent veil of international institutions, rushes hither and fro throwing money at nations that have gotten into currency trouble, there is still no realization at the highest levels that these "bailouts" and "solutions" are in fact temporary and useless palliatives that cannot last. We observe no government recognition of the relationship between the currency upheavals of Italy and the United Kingdom in 1992, of Mexico in 1994, and Asia in 1997, because our leaders do not grasp that there needs to be a link between paper money and reality, and that running the printing presses is analogous to watering the milk. It takes a lot of nerve for us to write this because gold is now so despised, denigrated, scorned, with central bankers selling gold reserves, that anybody who stands up for gold is considered a "kook." Yet governments have no answer as to why these currency crises get worse and worse (as evidenced in the excerpts at the end of this feature). We have predicted many times over the years that these currency crises will indeed worsen until there is an economic calamity of the first magnitude, mark our predictions well.

And if you lose your memory, forget about it.

Another important prediction revolves around Japan. We flashed a Major "Sell" signal on Japan's Nikkei at 38,000 in 1989, and even though it has dropped by around 50% since then there has been no change in our weltschmerz during the intervening period. Japan is now well into what we called its "Time of Troubles," a path unwisely followed by other incautious Asian central bankers who are now entering their own Time of Troubles, beginning with their very own 1929-style crash that is replete with increasing numbers of tragic suicides. We still expect "The Coming Japanese Calamity" to be signaled by a yen crash against the US dollar, when their wealth goes to what we call "Money Heaven."

As this is written, the consensus is that the Asian crisis is behind us, that the US has successfully bailed out Korea and others, whereas TDL believes that currency crises will continue until, finally, Japan sinks and, when it does, it will end the economic world as we know it. Japanese real estate dropped for the 5th-consecutive year in 1997, now a piddling one-fifth of 1989 prices, and we are still bearish. Real-estate investors worldwide should run for their lives. We have long believed that it would be a currency crisis that ended Wall Street's "Mother of All Bull Markets," which is why we immediately took Asia's crashes so seriously last July; whether this is the final blow or not remains to be seen as we move into the coming period. But we still expect currency upheavals to represent the biggest redistribution of wealth in the history of the world. After all, depressions are not useless. They have a function. The purpose of a depression is to return property to its rightful owners. Who are those rightful owners? The people who wind up with the property! And our goal is to make our loyal TDLrs beneficiaries. It is inconceivable that Japan, the world's second-largest economy, could cave in without dragging down the rest of the world with it and, indeed, in our last TDL, excerpts began to show that others are suddenly concerned about a crisis in Japan. It amazes us how slow our kakistocracy has been to pick up on this situation, as we are not smarter than anybody else, although definitely more resistant to being pushed around by the "politically-correct" Gestapo when we publish our independent thinking. That's why we never make the same mistake twice, or we'd never get around to making all of them.

We define a "Taxpig" as any government official for whom no level of taxation would ever be high enough, and who would seize on any excuse to raise it, even during a currency collapse when the wise thing to do would have been to slash interest rates and taxes so as to take pressure off the beleaguered "little guy." Instead, Taxpigs are raising taxes and interest rates in Asia in order to make their toilet paper more attractive to the gullibles who are incredibly willing to hold a rapidly-depreciating paper currency just for the extra income. People trust gold, and that drives legislators crazy. Cunanan cashed a gold coin in his desperate hour, and now patriotic Korean citizens are donating their gold jewelry to their government, so the wise move would be to set up a new gold-linked currency. We are highly confident that interest rates would subsequently collapse from the preposterously high levels of 50% per annum now extant in Asia that are ruining the working class. We are more certain than ever that currencies and interest rates must be removed from the heavy hands of governments who operate on the theory that people are not wise enough to determine their own currency and interest-rate values by themselves, yet these are the very same people who are in government setting the rules! We believe central banks should be abolished and interest rates allowed to float freely in the marketplace, although it might already be too late for that. Central bankers use the Tonia Harding method of interest rates, clubbing any economy because it is doing well. For example, Canada's quack central bankers who sold their country's gold backing for their currency, now want to raise interest rates to forestall prosperity, and their currency is breaking down to new lows what a surprise.

Why "too late"? The Internet will offer e-cash, ciphers representing zeros and ones in cyberspace that enable individual issuers to produce their own money, reminiscent of the 19th century when private banks issued their own currencies backed by gold before governments seized the monopoly on money. The Internet is an entirely separate topic that we will cover more thoroughly in future TDLs, but one important aspect is TPG, whereby what we call "Northward" represents less government, and the Internet is as far Northward as anarchy can get. Money will soon transcend national borders, beyond the control of central bankers, regulations, taxation, and cybercash will halt the profits from "seigniorage" whereby a government takes a piece of cheap metal worth a penny and stamps it into a coin that it sells to the public for 25 cents. Listen, maybe you can't take it with you, but if you spend it now you could at least keep others from taking it with them after they've taken you away.

With all the voluminous press and media commentary on Asia's currency crash, there has been absolutely nothing yet including "Asia's money supply," which of course is a key determinant of the value of a currency. But if the Internet transcends national borders then how could we even talk about the money supply of an individual country? E-cash might even disintermediate the banking system but, whatever it does, e-cash will rest entirely on the confidence of the recipient and the issuer. In other words, in the midst of a horrendous currency crisis that governments do not even understand is a function of our predictions of "The Coming Gold Crisis," the Internet appears with a revolutionary dynamic and nobody has any idea how this all might end. We have seen the future, and it is expensive.

As pointed out in Mass Psychology, when a flock of birds or a school of fish all turn at the same time it is allelomimetic behavior, now very visible in the Mass Contagion and Mass Fear sweeping Asia. We do know that our old predictions of all the world's markets tending to move together are becoming more apparent as currencies march to their own drummers, because the Mass Psychology of all investors is alike everywhere. That currencies are at a crucial crossroads might be what the stock markets are telling us in this moment of their indecision, weighing the wind, and observing that Hong Kong refuses to let its currency float in order to avoid currency instability ironically the reverse has come true with increased volatility instead. By the Dines Nature of Paradox. Now, TDLr Joseph Karkut from Connecticut, presents us with a bold new concept, regarding currencies as "exotic derivatives." Psychiatry might not cure schizophrenia, but at least it lets you know how the other half lives.

As terrified capital storms out of Asia, the Mass Psychology is directing it toward the US dollar in a traditional "flight to safety," which is why our utility, blue-chip, bond and financial-instrument markets have been moving up. At the beginning of 1998, the majority now believes that the US dollar will reign almighty forever, but our prediction is still that all paper currencies will be swept aside in "The Coming Currency Crisis" destined to end in the final stages of "The Coming Gold Crisis." That specifically includes a collapse of the US dollar, so keep in mind La Rochefoucauld's dictum, "We all have the strength to endure the misfortunes of others." Ignoring that "dollars to doughnuts" might finally become an even bet would be like workers at the mint going on strike to make less money!

With today's consensus being that Asia's self-feeding downspiral is ending, we think it has just begun, which is why our gaze is locked on developments there before events Mass Contagion to the rest of the world. The US is bailing out Korean banks because banks in the US, Japan and Europe have loaned so much money there; the "Korean bailout" is really our own banks getting bailed out. In effect, the banks are lending to themselves so as to avoid their crashing, and doesn't that concern anybody else? Besides, when Japan goes down, banks worldwide will confront a calamitous situation not only because of the losses on their loans but because of "The Coming Derivatives Crash," a topic we will cover in a future TDL. Meanwhile, however, the initial reaction of the average Asian investor has been to criticize "capitalism" instead of the folly of their own central bankers for having sold off the gold backing of their currencies. Hopefully, there will not be a political backlash Southward to communism, from the fire back into the frying pan, but these currency upheavals are bound to be reflected politically, a consideration we see nowhere else yet.

Never trust banks to get their figures right. If bankers could count, why do they always have 6 windows but only 2 tellers?

The naked truth is that it is the United States itself that should be aggrieved because virtually every country in the world is devaluing against our dollar in order to boost exports to us. There is bound to be a political firestorm over our upcoming soaring trade deficits. "The Coming Trade Wars" are also getting under way. With huge automotive overcapacity already extant, and lower Asian prices a certainty, US corporate earnings are bound to decline, leading to more corporate layoffs and politically protectionist shrieking. Well, you know you're getting middle-aged when you start giving advice you never followed in your own youth.

The impact on China especially fascinates us. When we became the first bulls on China in 1979, we predicted that the 22nd century would look back on the 21st as "The China Century," just now inching toward what they daintily refer to as a "market economy" but in naked truth should be called "capitalism" -- reflecting residual communist denial and the Low State of Needing To Be Right. While China did not actually cause the Asian wave of devaluations, it began when they devalued their currency in 1994, which made them overly competitive with neighbors; subsequent devaluations by Thailand, Malaysia and the Philippines were actually defensive moves again fulfilling our numerous predictions of "The Coming Competing Currency Devaluations." Were China to devalue again now, it could trigger world chaos such that the Dow-Jones might gap downwards by huge numbers of points, which is why we do not wish to be overinvested in the stock market right now and enter this year with uncharacteristic caution. Unnecessary debt can be an evil, and China fortunately came to the party late so it is not as overburdened by debt as are its neighbors. Furthermore, in the Futurology chapter of our Mass Psychology book (page 138) we predicted that, as prosperity continued westward from Japan around the planet, China, India and finally Africa would experience progressive waves of prosperity. While we are less bearish on China than on other Asian nations, there will still be short-term bumps on the road. Long-term we would be looking to buy into Chinese stocks at the end of their next bear market, detectable by everybody getting as bearish on China again as they were when we first turned bullish on it 20 years ago. But for most investors patience is a virtue that takes too long to learn.

As precipitously plummeting plunges appall Asian pride under a calvacade of reeling currencies, the meltdown has a Vesuvian finality that marks it as their 1929, so imagine their shock. Using current exchange rates, Korea's economy has been in a freefall from 11th-largest to 20th-largest, about the same size as Argentina's. The United States dollar in the 1970s was up, so our crash was "invisible" (whence the name of our book The Invisible Crash). After all, who adjusted their salaries for inflation rates of 20% per annum? But the Korean meltdown has both stocks and their currency melting down, forcefully. Asia is a fascinating laboratory for us to study Mass phenomena, because it will happen to the rest of the world. We are now told it is politically correct to call a stroke a "brain attack," which certainly sounds to us like the work of central bankers whose Chiclets-for-brains can't even see the top line of the E chart, much less what's really happening, or the way out of this morass.

As if the current currency fen, "the millennium bug 2000" and e-cash were not sufficiently disrupting, *Europe is planning to introduce its own "euro" currency in 1999, toward which we remain skeptical because it is yet another duplicitous attempt to tie weak paper currencies together in the hope that the staggering drunks will remain erect. Gold is already the common currency. There will be a flight from the euro to the US dollar, and later into gold. If the euro is really not to be linked to gold, then it will be merely another card in a house of cards, and will be dealt with as are all cards. So to speak. Years ago it was children who didn't know the value of their currency, and now it's Britain, France and Germany.

We hope TDLrs realize that the US paper dollar, now the recipient of a flight to safety, is the last barrier to the flight to gold that we still calmly predict is inevitable. We have been bullish on the dollar all the way up, it has been strong, we are still bullish on it but, sooner or later, the US dollar will have a cyclical decline and the critical Mass-Psychological factor of confidence will have been shaken sufficiently that frightened wealth satisfied merely to avoid losing it will go into gold, silver, and platinum. The only advice you will ever get from Wall Street more specific than that will be a margin call. It is thus extraordinary that gold shares are at low prices right now, at the dawn of what might be some fantastic currency pyrotechnics in the next year or two, presenting a once-in-a-lifetime opportunity not only to preserve capital but hopefully also to make a killing.

The euro will be vulnerable to political infighting, socialist attitudes, inflexible labor legislation and nationalist rivalries. As holders of the weakest currencies worldwide try to exchange them for increasingly safe money, it will look like a game of who gets stuck with the Old Maid. This currency crisis is now in uncharted waters, never before having been so international, with the true cause not yet clear to our leaders, so this arena has every risk of getting much worse. Isn't there anybody else out there who noticed that the IMF bailout did not help Thailand, and who wonders why then it should help other nations? Or, with so many Americans in the stock market, a bear market here could by itself start a recession because of a contraction in what we define as "The Money Supply"? Or that American corporations might object to paying taxes to help Korean firms, thus subsidizing their competition, competition that sold below cost to buy market share and unsurprisingly got into trouble during the first setback? Also, did the recent release of the movie Titanic merely happen to coincide with the currency crisis, or was it a reflection of an underlying Mass Phenomenon?

We take a philosophical view of things, for if God had intended us to be rich he would never have given us the stock market. Personally, we have a Zen philosophy about stocks, because we've heard of some Asians who started out with $1,000,000 and Zen they had $500,000, and Zen they had $50,000. We advise Asian investors to think positively, because if their stocks keep dropping, look at all the money to be saved on prune juice. Especially when they say the market is having a "technical reaction." That's right, it can tech every nical they've got. Beware of those "diversified portfolios," 20% in Utilities, 30% in oils, 50% in electronics, and 100% in hock. Many investors in Asian no-load mutual funds are finally figuring out that the "no load" refers to their wallets!

Ah, please forgive our gallows humor, but it bugs us that irrationality is the ultimate refuge of error.

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