first majestic silver

Hot Potato!

November 9, 2002

The old game of tossing a hot potato from one to another, because if you held it too long, you'd get burned, applies now. Think about it, and once again compare it to 1924 in Germany, writ much slower. In Germany, the currency was declining in value so fast, that workers were paid two or three times a day, so they could spend it before it declined even further. A person would buy a cup of coffee in a restaurant for 5,000 Reichsmarks, and a second cup may cost 10,000. You had to spend them before they went any lower. Hundreds of presses were turning out Reichsmarks by the billions, and there was a constant shortage. They stamped new values on old bills, to save time. If it hadn't been so tragic, it would have made an excellent silent film comedy, featuring Ben Turpin.

The following table is from a Gold-Eagle poster

on the German hyper-inflation in the 1920s

Currently, in Afghanistan, they just issued a new currency, the Afghani, which is supposed to be 1,000 times as valuable as the old one. Those that saved in the old Afghanis are lost. The new Afghani has already lost 40% of its value. The people who saved tens of thousands of Afghanis can't even buy a loaf of bread with them. There are trillions of them floating around. It is absurd to hold on to currencies or save in them…anywhere.

Today, China and Japan are accepting billions of basically worthless dollars that are backed by nothing, in exchange for tangible goods. I despise the fact that our industry is gone, jobs are gone, and we are the largest deficit nation in history. The Chinese or Japanese are merely taking advantage of a situation. What is the situation? The situation is that the US government taxes its citizens at a rate probably approaching 90%. (If you don't accept this, go to the bottom of this column and click on other columns I have written, and it is explained. Or else e-mail me at [email protected] , and I'll send you my book free, by e-mail only, and you can consult the chapter on taxes. You'll probably like the other chapters too.) We are not only being taxed to death, literally, but bureaucrats make it virtually impossible to make anything, because of absurd rules about safety, pollution, or dozens of other absurdities. As a result, factories are closed, and Americans make only 16% of what they consume. The Chinese and Japanese have minimal regulations, as well as low wages. They make trillions of widgets, and ship them here for a fraction of the cost we could make them. America has a huge trade deficit, and is shipping capital overseas at the rate of half trillion dollars a year. Dollars and capital are not synonyms. More about that next week.

One can't siphon gas out of a tank forever. The tank eventually is empty, and no more gas can be obtained. How long can America send half trillion dollars, every year, to foreign lands, and not eventually run out of capital? When will we run out? This cannot continue forever, and when it ceases, the government will buy a few dozen more presses, and attempt to keep up with the demand for ever decreasing value dollars. With decreasing value, more physical paper is invariably required. IT ALWAYS HAPPENS THIS WAY. HISTORY CONTINUOUSLY REPEATS ITSELF. BASIC LAWS OF ECONOMICS CANNOT BE DEFEATED. We are de-capitalizing ourselves on a daily basis with a continuous siphon of our dollars for merchandise made and sold to us by foreign producers. These dollars will go down in value, as their number is increased. Printing press "money" isn't wealth. If it were, the whole world would be rich, as anyone can do it.

American factories that produce Japanese cars are no answer, as profits go straight to Tokyo. This is merely making the rope to hang ourselves, as Karl Marx prophesied. "Only two things are infinite: The universe and human stupidity, and I am not sure about the former." - Einstein

I cannot stand to hold dollars. I have no savings account. Never had one. My checking account has just enough in it, to operate my business correctly, and pay the bills as they come in. I consider the dollar to be a "hot potato." If it goes down the tubes quickly, or even overnight, I don't want to get stuck holding them. Like musical chairs, one must grab a chair quickly when the music stops, or you are left out in the cold. Get rid of the damned dollars, and turn them into tangible things, and do it quickly…before the music stops.

So here are these Orientals accepting billions of bucks for their stuff, which is shipped to the left coast in thousands of containers. When they take these bogus bucks, do they keep them? No. They build rockets, bombs, guns, dams, and infrastructure. They outfit troops, send some to our supposed enemies, steal a few copyrights from us to make black market videos of our flicks, and thankfully, are against our invading Iraq. After all no one is entirely bad.

You think I exaggerate? I think not, because the whole thing could come down like the World Trade Centers. In their wildest dreams, even after two planes were lodged into the buildings, no one ever thought they would come down. I sat, stupefied, as I watched them go down, one after the other. Imagine the horror of it all. As if it weren't bad enough that two planes were deliberately crashed into two 110 storey buildings, both buildings came down, simultaneously. No engineer or architect would have postulated this to happen. Few today think the dollar could crash like the Trade Centers. Remember Barings Bank, when you say "impossible." Barings is no more, thanks to one trader. Think about the tens of trillions of dollars in derivatives that just three or four huge banks have hanging over them, and then maybe you will realize that it could happen quickly. Long Term Capital Management (LTCM) went down just like the World Trade Centers…quickly…and that almost killed the American system. Literally. Sir Greenspan came to the rescue with $3.5 billion, but that is small change now, compared to the big banks' exposure and risk. The Turks' paper money lost 50% overnight, in the last month.

The interbank rate has been reduced by half point, which may drive the interest rate for homes down a bit more. If you go to your local bank for a mortgage, do you think they loan out of their funds? Never. They are merely a broker for a large mortgage company, and usually charge 1% for their services, or one "point." Does the large mortgage company keep that mortgage on their books? No. They usually sell to "Fanny Mae." Smart people don't keep dollars, as they go down in value. "Fanny Mae," being a pseudo government operation, is stuck with them for as long as the term lasts. Fortunately for them, most mortgages are paid off in just a few years, because Americans are a mobile people, and love to buy and sell homes, change locations, and try new things. Those who take out 30 year mortgages, and stay in their homes, paying them off regularly over 30 years, will defeat the system. The "system" depends on American desires to move and experience change.

Investing in a 30-year mortgage, doesn't mean the number of dollars is not safe. The NUMBER of dollars is "safe," and will be paid off in an orderly fashion, and if you invest in such, your "dollar return" will be absolutely safe. As a matter of fact, as the dollar plunges, you will be even safer…in the number of dollars you have invested. The item on which you have a lien, to secure your long-term investment, will go up in dollar price, and the number of dollars required to replace it will go up, so the NUMBER of your dollars are safe. Are dollars safe? NO. Dollars are literally hot potatoes. Get rid of them as fast as possible.

For you who say I write this because I am a gold and silver dealer…I never used the words except in this sentence. You want to loan your dollars to people for long terms? Go to it. You want to have savings accounts that pay 1.5% interest, while the dollar volume goes up, and their value goes down? Do whatever you like. I am not God. You want to pay taxes on your 1.5%? Have at it. Keep those paper dollars. Buy government bonds or whole life policies. Store them under your mattress, and by all means keep them safe. Watch their value disappear right before your eyes, as have all paper monies in history. Forget shiny tangibles. The question I have for you, is why do you read You are like the sinner that goes to confession every Friday, is drunk all the next week, and confesses every Friday. Maybe you are waiting for gold to go to $200 and silver to go to $2. I'll wait with you, and also till the sky falls, pigs fly, the federal budget is balanced, and the "full faith and credit of the federal government" comes true. Meantime, my surplus hot potatoes are transferred to tangible, beautiful, compact, historic money. (Still didn't use those words)

The term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.
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