Danger Will Robinson

October 20, 2000

Way back in the 1960's, there was an American television show called "Lost in Space". In this show, a robot, quaint by modern standards, would shout out "Danger Will Robinson" when danger appeared. Will Robinson, a young boy character played by Billy Mumford, would then take defensive measures. Where is our robot, now that our planet descends into chaos?

In economic terms, precious metals should be our robot alerting us to the rapidly approaching economic tidal wave. Yet, precious metals have been silent in the face of the MidEast explosion. Whether you believe there has been an orchestrated media propaganda blitz against gold and silver doesn't matter. Whether you believe there has been an orchestrated campaign to keep gold below $300 an ounce is also moot. The answer is there has and it's working quite effectively.

The good news is this conspiracy will eventually collapse under the huge short positions of precious metals. It will collapse under its own weight, greed and denial of political and economic reality. Like Shakespeare's King Lear, the fiat, credit and debt crowd are standing on the beach commanding the tide not to come in. King Cannute, the historical figure Shakespeare based his play on, was at least wise enough to realize his folly. But not the "new economy" crowd. They have deceived themselves into believing not only their own economic delusions, but that their power to maintain the current credit and fiat folly is limitless.

The bad news is I believe the fiat crowd's delusions will take our economic system down with them. Simply put, gold and silver haven't increased because things aren't bad enough yet. The reason precious metals lie dormant isn't because things aren't bad enough. The reason is because people haven't realized just how bad things are going to get. The last several weeks have been simply amazing. I knew things were going to get strange after homosexual activists at the Democratic convention booed both the Boy Scouts and the American flag. I just didn't realize how strange.

I believe a series of economic, political and environmental earthquakes have already happened. This seismic activity has taken place deep beneath the surface and is only now being registered in people's minds. Instead of the bus in "Waiting for Godot", we are waiting for the wave to hit. In real life, the kind outside of Washington, D.C., the Tsunami, or Tidal Wave, which would devastate Oregon's coast begins several thousand miles away and on the seabed deep below the Pacific Ocean's surface. Coastal residents wouldn't have a clue to their danger until it was too late. It's a fact that a tidal wave, dozens of feet high on the beach, is only one or two inches high as it ripples across the ocean. Until a tidal wave hits the coastal shallows, the last mile or two, it's undetectable by anyone on the beach. Of course in real life, we have seismic monitoring stations and emergency broadcasting systems to give people an early warning. For instance, Tillamook, Oregon has one which they play a tape of a cow mooing for their system tests. We're way beyond the economic mooing stage and chest high into the economic manure phase in my opinion.

Exactly what are the earthquakes I'm talking about? First, there is the environmental one. The Ozone hole over the Antarctic, currently the size of the continental United States, is drifting northward over southern Chile. It is exposing Chileans to damaging levels of ultra violet radiation. How damaging? Seven minutes exposure on unprotected human skin will cause sunburn kind of damaging. It's likely that soon populated areas of New Zealand, Australia, Chile and Argentina will become dangerous to human life. A further sign the earth is "out of balance" as Mark Farber of Hong Kong puts it. We are seeing the first one inch wave of global environmental degradation. We will see more. Anyone remember the Bible verses talking about how men are burned by the sun if they go outside? Combined with the predictions about Jerusalem, military conflicts in the MidEast and oceanic pollution, they make for grim reading.

The second earthquake is of a geopolitical nature. Besides the usual suspects, China and Taiwan, India and Pakistan, along with a collapsing Russia, there is the looming specter of a MidEast anarchy. Serious MidEast anarchy-the do not pass go kind. Anarchy which will slap the SUV crazed, apathetic and ignorant American populace between their glazed eyes. Current MidEast events are poised to drive a pointed stake through America's economic and political heart. Not that the implications are able to cut through the "Who wants to be a Millionaire" psychology mind you. In my opinion, "Survivor" better describes what is being unleashed upon the United States. The U.S.S. Cole is only the beginning of a resurgent global terror campaign.

The world is now faced with the prospect of civil war in Israel. The MidEast problem is no longer a state to state issue between Israel and the PLO. It's now a tribal, or ethnic, conflict between Arabs and Jews. Yugoslavia shows where that road leads. As an ethnic conflict between common people, the MidEast spirals out of the reach of a political solution. Camp David and the Egyptian summits were state to state, leader to leader negotiations attempting a political fix. As such, they were doomed to failure, since the problem is now a people to people conflict. The so-called "cease fire" will fail because neither Barak or Arafat can control the passions unleashed by those two pictures. Once this obvious fact, at least to me, dawns on people in general, and investors in particular, the economic holocaust will pick up speed.

If you don't understand anything I've said to this point, at least understand this. The MidEast has entered a new phase of direct armed conflict inside Israel, the Gaza Strip and the West Bank. Our current political and economic system is impotent to control the situation on the ground. The MidEast vortex will suck the world into chaos. There is no political solution for the MidEast. Of course, this only means that a global political fix, via the United Nations, will be attempted. United Nation peace keepers in Jerusalem by Christmas and after that, global dictatorship here we come.

Aside from an increase in terrorism, the MidEast will cause severe economic problems for the world and the United States. The first economic effect will be oil. Already the United States is heading into the winter heating season with reduced supplies and expected large price increases. Natural gas rates are going up 25% in the Portland metro area alone. Gasoline is hovering near the $2 a gallon level again. Not that any of these price increases are reflected in the official government inflation statistics however. We used to call it lying and deceit; now, we call it statistics and public policy. If all this is true now, what will the situation be in a month or two, even assuming the MidEast doesn't explode?

Secretary of State Albright didn't know we import over 500,000 barrels of oil daily from Iraq. A grand total of 129 million so far this year from our favorite whipping boy Saddam. Since Saddam, who is dying of cancer and looking for his legacy of destroying the United States, is moving combat troops into Western Iraq near Jordan, isn't it possible he would shut off the oil and cause economic chaos? The people of Israel know something is coming since they are lining up for gas masks again, just like when Saddam used his SCUDS in 1991. Given our tight supply situation, given our refining bottlenecks and given our scheduled refinery shut downs in November, the United States is going to barely get through this heating oil season. Add a cold winter, MidEast supply disruptions, or even the tooth fairy, and the price of oil skyrockets.

No problemo, you say- just have the Saudis pump more oil. The Arabs are gathering October 21st for a summit to discuss Jerusalem and the proper response to recent IDF actions, like strafing Arafat's headquarters for instance. May I humbly suggest gold eagle readers that perhaps, or perhaps not, another oil embargo is in the offing? At any rate, energy price and supply instability, to put it mildly, will continue for the next few months. I wouldn't look for the Arab world to help the United States much in the near future. Some of the comments the Saudi princes have made would lead a reasonable person to conclude they were not so subtle warnings of another oil embargo. We'll know shortly.

In this economic and political climate, MidEast violence and Arab anger, anyone want to make a bullish case for the United States economy and stock markets? Not moi, but I'm sure Mr. Vronsky would give space, if such a lunatic were to be found. To paraphrase Dolly Parton's song, what part of energy crisis, stock market collapse and MidEast anarchy, don't you understand? American stock markets, and probably the economy too, are poised to head so far south the Penguins are getting nervous. Let's hope the ever trusting New Economy investors bring lots of UV sunscreen.

Stock market investors are said to be rational and not likely to panic sell. Well now, my Ma and Pa Kettle investors from a few essays ago must have noticed energy prices are going up. They must have felt the $1000 more on average they've spent on energy this year. Remember Clint Eastwood's famous line, "Are you feeling lucky, punk"? I say, "Are you feeling confident consumer"? What we have now is a dual assault on the American consumer. A mugging of their wallets and their confidence I would say. Retail sales are down. The economy is slowing down. The stock market is teetering. I think it's only fair to point out there is also a negative wealth effect. If, as the Wall Street Bulls constantly tell us, people feel richer when the market goes up, it's logical they feel poorer as they go down. For this kind of logic I'm called an economic extremist and a doom and gloomer. The coup de grace is I like precious metals. I'm an economic heretic and proud of it thank you.

Observing the NASDAQ and DOW shows the first phase of the tidal wave. The NASDAQ is down 1000 points, roughly 25%, from its highs. The DOW is foundering around the 10,000 level. The NASDAQ 100 has been below the critical 3350 level for several sessions. The markets are on the edge of an abyss. Consider yourself warned and take protective measures. Your economic blood is on your hands not mine.

Economically, the only protective action possible for us peons is the possession of physical gold and silver. Gold coins, in one quarter, one half and one ounce sizes, are what those of us low down on the food chain should be buying with our extra money. I'd fill the heating oil tank first by the way. I can see in the distance the curling top of the tidal wave heading for the American economy. I can hear the faint roar as it picks up speed and thunders towards the oblivious sunbathing hordes on the beach. Once it hits, our dreams and hopes, delusions and illusions will be swept away. Our fiat fantasy, credit, stock and debt bubbles will deflate with explosive force.

Whether the American people choose to return to their constitutional and limited government roots, or howl in despair for the corporate, military, governmental blob to save them, I don't know. All I know is this. Those of us who have seen through the fiat folly and physically own gold coins will have a better chance of surviving economically. Those who trust in the present corrupt economic system will be swept away. It may be we will be swept away-yes, it could get that bad. At least I, and many GOLD-EAGLE.com readers, will have a life jacket. From my heart, I think that's the best we can hope for in this uncertain time.

In 1792 the U.S. Congress adopted a bimetallic standard (gold and silver) for the new nation's currency - with gold valued at $19.30 per troy ounce

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