One Down, and One to Go?

August 16, 2001

Economics 101, Logic 101, Physics 101, and every other "101," says that what goes up, must come down, and furthermore, a balloon cannot be forever inflated, without it bursting. The way I see it, there are two bubbles or balloons. One has already burst: the stock market, NASDAQ in particular. The other bubble is inflating rapidly, and no one knows where the shut-off valve is located. Most contributors to GOLD-EAGLE, long prior to the stock crash, had warned of it, predicted it, and knew it was inevitable. We warned that P/E ratios in the hundreds, or even non-existent, were sure signs of stormy weather. The CNBC gang, stock brokers, and financial advisors by the thousands said 'all was well.' It wasn't. Down the NASDAQ came. It was as certain as a dime store plate thrown from a third story window would shatter.

The experts still say, "We had no warning." Do they know what the letters "BS" stand for? I'm giving the experts another warning, and when it comes to pass, they will recite the same liturgy, with bowed heads and deep circumspection. Several trillion bucks vamoosed with the last bubble-bust. I wonder how many dollars will vanish the next time? Over a million jobs have already been lost. What will happen when the second balloon pops?

What is that balloon, or bubble? Think about it.

Real estate sales are up. Home prices are up. Auto sales are up. Interest rates are down. Jobs have disappeared. Tourism is down. Mortgages are being placed by the thousands each week, at good interest rates. Commercial and office space goes begging, with businesses failing at record rates. The dot coms have bit the dust like a thrown rodeo bareback rider, and now the telecoms are laying off, and throwing in the towel. Does any of this make sense? Yes it does…to me anyway. It is the second balloon that is inflating, and which will eventually burst like the NASDAQ did.

The second balloon is credit. Seeming limitless credit. Credit to one and all. Credit to the jobless, and minimum wage earners. Mortgages, credit cards, and no payment or interest due till February! Come, buy now, and pay later. Buy now, and enjoy. We trust you!

Has any new wealth been created? No. All that has been created is the credit bubble. Home builders and purchasers get mortgage money created out of thin air by Freddie Mac, Ginny Mae, or the bank at the corner, who immediately sells the 'paper.' No new wealth; only diminution of the currency's buying power, as trillions more dollars are created by the presses or ledger entries. Hundreds of thousands of notes are signed, and pledges are made to faithfully pay each month for 30 years, or 5 years, or whatever time one is sworn to uphold. Has new wealth been created? No.

Pieces of paper with ink on them by the hundreds of billions are spent, signed, recorded, notarized, and agreed to by borrowers, lenders, suppliers, manufacturers, and consumers. All the while, the telecom and fiber optics industries are trying to finish construction on their new factories so they can sell them. No one wants to buy an unfinished building, and maybe not even a finished one. Ask Corning. With joblessness high, trillions of dollars vanished, factories closed, and tourism off, how can home and auto prices and sales go up? Easy! Credit. Credit where no one seems to lose, but everyone gains. Another NASDAQ type bust being created, in other words. How can it all end? I spoke in a previous piece about $25 ice cream cones, remember? Try $50 ice cream cones, or maybe $100 ice cream cones. Last week a friend took out $100,000 from her bank checking account, because the interest paid for the month was $10. (She's not a client of mine, just a friend who is misguided) She bought a government piece of paper that pays 5%, but even she admits that after taxes and inflation, she's losing. CD's paying two percent, and when the fed lowers the interest rate again, will pay even less. Saving will virtually cease, and all loans will have to be made with "money" created out of thin air. Why should anyone save, when it is a sure loss?

As the credit (money supply) zooms heavenward, the dollar becomes worth less, as the numbers escalate. Since the dollar is the world trade vehicle, and other currencies are measured in terms of their relationship to the dollar, other currencies are also being printed with thoughtless abandon. Time will tell, but the point is that no new wealth has been created. None. Only the paper thin "prosperity" has been stretched to the breaking point. How does it break?

It breaks when all faith is lost in paper money and the governments that print it. Faith is lost when more and more realize that it is smart to go into long term debt with an interest deductible 30 year mortgage, which may be paid off by selling a bag of salted nuts in the year 2031. Already the Ruskies have made their Chevronets gold coin legal tender, and several other 'backwards' nations are making silver coins, which can be used in trade. China is considering doing the same.

The point is, that when the credit bubble gets to the point where it must burst due to total lack of faith in pieces of paper with ink on them, and ice cream cones sell for $100, a wheelbarrow will indeed be necessary to buy a loaf of bread, just like the Germans needed in 1924.

Like Germany in 1948, the US government may one day say, "Dollars are no more legal tender, and we will now use the red, white, and blue, patriotic 'Franklin,' which we have already printed three trillion of, and you must exchange 100 dollars for one Franklin, which we have already supplied your bank with last night."

When enough frustrated citizens see their currencies become worth less every day, week, or even hour, and a new one is substituted, it is over for the governments that were responsible. Enough citizens will throw caution to the winds and become violent, when their life's blood has been drained yet again. It has happened time and time again in history, and usually it was because of empty political promises and worthless currencies. When could this happen? Soon? No, but it may in our children's lifetime, and the thought is not a pleasant one. Historically, no nation has ever begun inflating, without the process escalating, and the currency becoming absolutely worthless in the end. It has happened in American three times already, and we are on our way to a fourth. Are politicians more trustworthy now, than they were a hundred and fifty years ago?

The same gang has been messing with the true money (gold and silver) for three years now, keeping the prices absurdly low, because: (1) they need to repay the gold they borrowed, and (2) if gold and silver are allowed to rise to their true value, their dollars will look very bad, and even if the loans are repaid, $650 gold and $15 silver won't make paper dollars look very stable or wonderful. The good thing is, that until their efforts fail due to inevitable market pressures, it is a great time for us to get some for ourselves.

Protect yourself.

If the reader is interested in my opinions on all sorts of stuff besides economics, I am sending my book "CONSEQUENCES" by e-mail only, since all printed copies are gone. Guns? Welfare? Free trade? Government? Militias? Schools? Rich and Poor? Prisons? Law? 230 pages, and they're all covered. Request one at gold@gwe.net

In every cubic mile of sea water there is 25 tons of gold

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