first majestic silver

"It's Like a Train Wreck in Slow Motion"

August 1, 2001

So said David V., a client of mine who, if there ever was someone in the thick of the financial world, it is he. David, on a daily basis, trades the big stuff, for a large New York company. He's sharp, experienced, and savvy. He's buying gold and silver as he watches the economic situation decline on a daily basis.

My first piece for GOLD-EAGLE was titled, "Diary of a Depression" and can be accessed by clicking on it at the end of this column. It all is coming down just like a train wreck in slow motion. In that first piece, I noted the failure of a Heilig Meyers furniture store in a nearby town of Delta. Now the entire outfit, with all their hundreds of stores is kaput. I said that it would be a chain of events that no one would know how to stop, and just look at the latest figures:

(1) Earnings at Dow-Jones fall by half

(2) Knight Ridder's newspapers are on a huge decline because of lack of ads.

(3) Kodak sees no signs of recovery.

(4) Cummins diesel engine sales in Dodge trucks and Rec Vees fall by 41%.

(5) Gateway's sales down 21% last year and 16% so far this year.

(6) Denver's office vacancy rate is 32.6%, as opposed to 3.8% before.

(7) Hundreds of thousands laid off.

(8) European business is in a huge slump as are their stock markets.

(9) Japan's economy is a shambles as is its stock market.

As I said previously, when hundreds of thousands of employees are laid off, they simply cease buying consumer goods such as furniture, automobiles, and appliances. They cease taking vacations, or if they do, they stay in the cheapest motels. Tourism here in my beautiful Colorado is way off, some say by 40%, but at least by billions of dollars, regardless of the percentages. Tourism is off everywhere because of the layoffs, stock market fizzle, and just plain uncertainty. The slow motion train wreck is the gradual layoffs of more and more job holders, because of no purchases of the things they provide or manufacture. What will stop the progress of a depression on the make? FDR did it with World War II. Will we do it with a Middle-East war? The rumor is that Saddam's troops are headed for Israel. Will American troops being used as cannon fodder, be the 2001 method of getting out of a depression?

Smart people pay their debts, look for work, and attempt to survive, rather than buy. With the entire world's economic system on the brink of deep depression, if it is not already there, the various currencies will surely bite the dust, with the "buck" being the last to go…maybe…but it's ultimate demise is as sure as is tomorrow. When the buck inflates like the Reichsmark did in 1924, all those mortgages and debts will be paid off in virtually worthless pieces of paper with ink on them, and then we can begin again.

How else could there be a new beginning, until the old system is gone? How can any economic system survive with presses around the world running night and day? The M3 money supply is careening upwards right now at over 18% s far this year, and M1 is not far behind, in spite of the false re-assurances by CNBC. Even Alan Greenspan is not too hopeful.

The Ruskies now have dragged out their "Chervonet" gold coin, and made it legal tender. This means that the dollar, in Russia, may be over the hill. Russians who save, if there are any, I am certain would rather save in legal gold coins, than paper dollars. I have been unable to get them so far, and am not certain I even want to, any more than I would sell a Chinese coin.

So what are we to do? We must protect ourselves by NOT SAVING IN CURRENCY DENOMINATED DEVICES. If your savings are in currencies, and the currencies continually lose their purchasing power, you are self - destructing. Also, with six rate cuts already, and some say a seventh is coming, the interest you get on your savings is cut also. Savings accounts now pay less than 2% interest in many cases, thanks to the interest rate cuts. Cutting interest rates was supposed to help the economy by making money for business and investments cheaper and more available. However, the reverse is true for savers in currency denominated devices such as CD's and passbook savings accounts. Meddling and lowering rates has helped borrowers, and harmed savers. The predictable result is, more and more are withdrawing their savings, thus harming the banks. It is a vicious circle, which contradicts itself at every turn. Spend in currencies immediately, or long term, with 30-year mortgages. Pay them off in candy bars in fifteen, probably.

If we make more than we spend, what are to do with the extra? You know as well as I do what to do, but do not save dollars, francs, yen, pounds, or lira. Spend them as soon as you get them! Take a trip. Go to a movie. Buy a book. Enlarge your land holdings. Add to your home. Buy gold and silver. Buy antiques. But don't accumulate currencies, as they are going down at the same rate as their numbers are increasing. Did you know you can buy things with gold? I ordered a new Mercedes with gold, way back in 1980, when I was living in Phoenix.

I wanted a new turbo diesel, which would take six weeks to get. I was about to leave on a six week precious metals speaking trip up the Pacific coast. I wanted to order, and brought out Krugerrands as a deposit. The salesman showed them to his boss, who was delighted to accept them as a deposit. When I got back, the shiny new turbo diesel was waiting, and I got my Krugs back. He wanted to apply them to the purchase price of the car, but I declined, as at that time I wanted a fully tax deductible lease for the car. One should always take the road in which one pays the least taxes.

As the economy continues its decline, gold and silver will become more and more usable, and even requested for purchases. A couple of countries are now making silver coins for trade as this is being written.

I continually get the question asked of me, "What if the government seizes all the gold and silver like they did in the thirties?" First of all, the government didn't seize anyone's gold, it merely ordered it all to be turned in, under threat of a fine. Many foolishly did, but I would imagine most didn't. How would government know who has gold, any more than they would know who has silver flatware and candlesticks, a garden, antique furniture, or a TV set? Gold and silver carry no deed or title, and certainly are not "registered" with any government. The law, at one time, foolishly said that the maximum speed was 55MPH. Did anyone drive 55MPH? No, they bought radar detectors. The dollar is eventual bathroom material, and smart savers don't save in it. Just because all the other paper currencies in the world bite the dust, can the dollar be immune? When the flu spread around the world in 1918, killing hundreds of millions, was America exempt? The tiny town of Silverton, Colorado, high in the mountains, and sheltered and isolated from every other community by sheer cliffs and high mountains, lost 30% of its population from the flu. No village, or sheltered area was immune from the flu. No worthless, unbacked piece of paper with ink on it will be exempt from ultimate degradation.

In my last piece I offered my entire book, CONSEQUENCES" free on e-mail, and the response has been overwhelming. Request it at [email protected] The offer still stands, but to all you readers of Gold Eagle, do not keep these columns to yourselves. Forward them to all who have a brain, can still think and would be helped by them. Don't hide these lights under a basket, but let them shine. Gold Eagle's knowledge and thoughts may be of great help to friends and loved ones, as the American dream becomes a nightmare. I do not know what will happen tomorrow. No one does. Back in Jimmy Carter's administration, when we paid to get rid of the Panama Canal, and mortgages carried a 20% interest rate, many of us thought the dream was ending there. It wasn't, but the decline of the dollar's purchasing power never faltered, and still hasn't. I do not write this to infer that tomorrow everything will collapse. It may, but no one knows, any more than one would know if a huge fire will break out, or tornado will suddenly strike. We should just prepare for the worst and hope for the best. After a disaster happens, it's too late to prepare for it. After the manipulating of gold and silver cease, as all laws of economics say they must, it'll be too late to buy at these rates.Protect yourself.

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