first majestic silver

Adding Liquidity! - (urp!)

September 27, 2001

For crying out loud people, this is a disaster, not waiting to happen, but actually happening! Just forward this to everyone you know, and see if it can knock some sense into their heads. Stott's rule #1 "THE MORE OF ANYTHING THERE IS, THE LESS THEY WILL BE WORTH." Let's suppose that a man comes across a warehouse in some obscure mountain town in remote West Virginia, and in that warehouse, are ten thousand brand new oak dressers, which have been selling in antique stores for a thousand dollars. They have been untouched in that warehouse for 90 years. The roof hasn't leaked, and they are in new condition. Know what they would bring? Not a thousand dollars, but probably less than half that. A new supply had been discovered, and suddenly the supply of antique oak dressers had expanded by a hundred fold. If an alchemist discovered how to turn lead into gold, the supply of gold would zoom up, the market would be flooded, and the price would go down. "The more of anything there is, the less they will be worth." If new sources of anything are discovered, and whatever it is can be mined or produced cheaply, the price of that item will go down. When the Arabs produce more oil than is needed, the price goes down. If there were millions of 1955 Ford Thunderbird sports cars around, their price may be less than the current $30,000. After all, they only cost $2,700 new.

Now think about dollars. In just the last couple of weeks, there has been an 'injection of liquidity,' as it is politely called, of hundreds of BILLIONS of dollars. In other words, the presses have been running overtime. Sunday morning, on a news show, I heard that the 'givernment' (that's appropriate, as it gives away dollars) is going to pay the full salary of all those poor dead souls that died in the World Trade Centers bombing for 30 years! And of course the airlines are getting many billions, plus there is talk of paying all the businesses that suffered from the terrorism too. Pay, pay, pay, print, print, print, and guess what? "THE MORE OF ANYTHING THERE IS, THE LESS THEY WILL BE WORTH," and that especially means dollars. Not only are the billions being "added," but 'givernment' makes it ever harder to turn a buck each day. More and more rules, regulations and laws make our taxes higher, and our lives and earnings more difficult. Tax cut? Where is it? Capital gains tax cut? WHO HAS ANY CAPITAL GAINS? Everyone has lost their shirts on the stock market.


Pieces of paper with ink on them that are "backed" are fine, and there are many of them. A piece of paper with ink on it, such as a deed or title, have a car or property to back them. A stock certificate means you may own only a hundred millionth of General Motors maybe, but at least that piece of paper is backed by something. A marriage certificate binds two people together, and birth certificates prove birth dates. A check means that your piece of paper is backed by dollars in a bank. All are pieces of paper with ink on them, that mean something, or are backed by something. With checks, it is worthless dollars, but the check is backed by them. Now what backs the dollar? Nothing. What does the dollar represent? Nothing. Define the value of the dollar. Impossible. What does "dollar" mean? Nothing. Why save in them? Their purchasing power declines daily, and especially now, when huge amounts of "liquidity are being added!" Isn't it nice? "Adding liquidity," sounds do awfully civilized, doesn't it?

When you 'hedge' yourself, you use your dollars to buy something not denominated in dollars. You are then out of dollars and into ounces, tons, acres, square feet, karats, board feet, gallons, or any measurement other than dollars, which is a poor measurement, and means nothing. When you want to buy your groceries, and milk has gone to $10 a gallon, you sell your silver, which has gone to $35 an ounce, and buy your milk. If you had kept your dollars in the bank, you would have gotten a taxable 2% interest…if you were lucky…and in other words, been decapitalized. Raped by the fed, if you don't mind crude phraseology. When you hedge, do so with something that is immediately, or at least easily liquidated. I deal in precious metals, so you know what my recommendation is.

It's all happened before in every sector of the earth. No one learns, and most suffer from printing press money. World War Two was fought with it, and prices were almost exactly double in 1945, as they were in 1941. All wars are fought with printing press money in forms of bonds and other gimcracks. We are supposedly declaring war on terrorism, and according to the President, it will last for many years. I can't object to that, but it won't be cheap, and you can bet that the presses will continue to roll to pay for it. In other words the dollar's skid is being greased. Get out of them.

Literally, hundreds of billions of dollars of 'liquidity' are being 'added' by the fed. "Liquidity" by the buckets full. I hear that if the dollar were to be backed by gold tomorrow, the price of gold would have to be $35,000 per ounce. Don't worry, it won't happen. If someone discovered the mythical 7 cities of gold, gold would go down. If someone found silver by the ton and it was easily mined, silver would go down. Incidentally, my favorite little mountain town is "Silverton," Colorado. It got its name back in the 1880's because the mines didn't have much gold, but they had "silver by the ton", hence "Silverton."

Guess what? There is no silver or gold being produced there now. Thanks to the 'givernment' and its agencies like the EPA, OSHA, MSHA (mining equivalent of OSHA) and THA (tree huggers anonymous), etc., the mines are closed. Any gold or silver left in them? Sure, but it is impossible to mine with all the regulations and prohibitions, so Silverton is now home to under 400, rather than the 5,000 it once had, when the mines were running, jobs were plentiful, and precious metals were streaming from the Shining Mountains. All over now, and of course with few exceptions, mining is a lost cause in America. If it can't be grown, it has to be mined.

Times are rough, and are going to get rougher. Check at the bottom of this column, and click on the other stuff I have written. The very first piece was titled "Diary of a Depression." It has all come true…tragically. Protect yourself, as no one else will!

The total world's holdings of gold could be transported by a single solitary oil tanker.
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