first majestic silver

What happened to the middle class?

October 4, 2001

The middle class in the American Civilization is all important in our society. The middle class are the ones who travel, eat out, buy new cars, homes in developments, and generally are the absolute backbone of America. Without the middle class, we will fail. If the middle class is injured, a national depression will occur, which will be extremely difficult to extricate ourselves from, regardless of Greenspan's reduced rates. Our present plight is almost an exact history replication of 70 years ago. The middle class was severely injured then, as it has been currently. (If only everyone knew that the "federal reserve" is an unconstitutional private bank, the majority stock of which is owned by other than Americans, and that is it responsible for 90% of America's economic ills since its founding in 1913.)

The lower class, generally exists from hand to mouth, lives in rented quarters, and usually has nothing left at the end of the week to save or invest. Unfortunately, their numbers have been swollen since FDR's instituting of the welfare system. They may keep the beer manufacturers busy (80% of the beer is drunk by 20% of the population), and the various state lotteries clicking, but the lower class generally doesn't buy stocks, mutual funds, or gold and silver. The lower class are not bad people! They are necessary for a successful society. They perform invaluable services, and do jobs that are very important. One should never disparage the lower class of America. The FDR begun, LBJ attenuated welfare recipient class, is not the lower, working class, and are a drain on society.

The upper class is also necessary for a successful American civilization. These people are usually well educated, tasteful, patrons of the arts, live comfortably, and without them, a civilization would crumble almost instantly. The upper class builds the industry and furnishes the needed capital for expansion, manufacturing, leisure, export, transport, banking, and many other vital parts of a society. The upper class usually consists of the professionals, such as doctors, lawyers, merchants, and CEO's. Some of the upper class are totally incorrigible and as crooked as a pretzel, such as the Kennedy's perhaps, but America needs the upper class, the lower class, and above all, the middle class. It does not need the welfare recipient class.

So what happened to the middle class? Before you think too hard, remember that the middle class is the largest sector of America. The Middle class are the ones who have credit cards that carry high interest rates, pay on mortgages and cars forever. It is the middle class that takes those two or three week vacations that keep the tourist industry humming. It is the middle class that keeps car salesmen and aluminum siding contractors busy. It is the middle class that goes to restaurants, movies, and video tape rental shops far more than do the other classes, if for no other reason, than because they are the largest sector of America. Think about it. Who bought the stocks continuously at the urging of commission grubbing brokers? Who lost most of the many trillions of dollars that have ceased to exist with the crumbling of the stock market? The middle class, that's who. It's the middle class that probably has huge credit card debt, and is the majority of the millions of jobs lost. Literally, a hundred million of the middle class have taken a huge hit in the solar plexus because they thought the bubble could continue forever. It couldn't, and didn't. The answer then, to "What happened to the middle class," is that it has been overwhelmingly decapitalized and injured. A retired friend of mine lost $36,000 in one month, due to her stock's decrease. Stocks merrily bought for $120, are now worth a dollar. Trillions of dollars are now non-extant. The poor didn't own stocks, and the upper class, mostly, have weathered the storm.

Since the middle class has been hit, guess what the result is? It's easy to see. Hotels have laid off hundreds of thousands. Every industry has laid off employees, and was doing so even before the September 11th atrocity. The middle class are afraid to fly, and Las Vegas is in deep trouble, because most come to Vegas by plane. Car dealers are charging no interest on new purchases up to 36 months, and still the layoffs continue. Theatre chains are in bankruptcy, and airlines have laid off tens of thousands. The tech sector is dead, stock wise, and communications aren't far behind, nor are computer makers. Compaq had a loss in the last quarter. Thousands are taking their remainders out of mutual funds, so they can save what little of their net worth is left. An utterly tragic situation, with the middle class being hit the hardest by far.

What stocks are going up? Gold stocks, and silver stocks in the main. Why not? Those that have some assets left, are rushing to safety in the form of tangibles that are easily stored, are historic wealth, and are downright beautiful. Gold and silver have been refuges of safety and shelter for thousands of years. (The first coins struck, over a thousand years ago, were made of silver, not gold�just in case you wondered.) Gold coins and jewelry found at the bottom of the sea by Robert Ballard and other explorers of the deep, find that gold never tarnishes, and is as pretty now as when it went to Davy Jones' Locker hundreds of years ago.

Now we have the federal government doing exactly what precipitated the great depression of the 1930's, and that is endless pump priming. In the thirties it was a lot more difficult than it is now, because the dollar was backed by gold, and the coins were made of silver. Today, the buck is backed by nothing, and the presses can run ad infinitum, to finance lifetime paychecks, and subsidies for everything. FDR got us out of the depression by getting us into WW II. His "public works" projects helped not a bit, and now the "economists" are urging a whole slew of more "public works." Japan reduced its interest to zero and self-bankrupted itself with "public works," and it didn't help. While most never learn from history, couldn't we at least learn from the immediate past in Japan? The Japanese situation isn't even old enough to be history yet, but current observation. Depression isn't cured by interest rate cuts, but by profits. Profits are made by cutting costs, and layoffs are the way to show profits. Economic downturns are a natural way of the world, and meddling by government only exacerbates a normal situation, and slows, or even prevents recovery. Interest rate cuts harm savers and drive them into my arms, because they can no longer stand a taxable 2% interest on their savings. Especially when we are having a provable 15% inflation.

Is Dubya going to get us out of the depression with an FDR like war on a philosophy, rather than a definable nation? Is he going to bomb Afganistan and inflame the entire Muslim world of 2 billion? This would be a disaster of the most heroic proportions. Get Bin Laden and hang him by his gonads, but remember we financed him. Get rid of the CIA tomorrow. No matter what happens, the future looks as dismal as at any time in our history, other than when dishonest Abe began the War Between the States, killing 620,000 Americans. The World Trade Towers outrage killed more Americans than were killed on D-Day, 1944.

As Ludwig von Mises said, when speaking of economics, a simple definition is: "People Act." People act to preserve their lives, family, property, welfare, security, and way of life. Smart people, knowing that the dollar is being printed without limit, get out of them, as if they were in a building aflame. Any measurement is better than a shrinking dollar, but preferably ounces of silver and gold.

I have clients in all 50 states, and now even Singapore. They all report the same, and that is, the layoffs continue, and paper money is disintegrating in confidence and purchasing power. A man called me from Oklahoma last week, and at 7 cents a minute on my "800" number, endlessly told me how bad an investment gold and silver are, despite the fact that they are both up, and will go astronomically higher. He recited his philosophy to me about how wonderful the stock market is, now that it has crashed and is at the bottom, and that the dollar is strong. He sounded like he should be a CNBC host. Strong compared to what? If the $1.00 cup of coffee that used to be a nickel in America, is comparable to paper currencies around the world, check your premises. If all paper, unbacked, worthless currencies are acting like a demolition derby simultaneously, and nickel coffee costs a dollar everywhere in the world, how is any currency strong?

Why has gold been stagnant? Because if it rose to its true value, even by cost of production measures, it would be a proof that world wide pieces of paper with ink on them known as dollars, francs, pesos, pounds (no longer Sterling), etc. are all going down the tubes together, rather than separately, as happened many times in history. By every possible effort, deception, and manipulation that can be conceived, the powers that be, in every government in the world, are trying to keep gold and silver from rising to their logical prices, because it makes their paper look like what it really is: nothing. They are in the process of failing. In 1924, when the Reichsmark went the way of all flesh due to the printing press, the dollar was backed by gold as were other currencies. When it happened again in 1948, the same was true. When, in history, a paper currency has bit the dust, there were others that were strong, because of being backed by precious metals. Now, the ultimate has happened, and none are backed by anything other than (excuse the pun) "The full faith and credit of the (fill I the blank) government" which phrase perhaps should be used by Saturday Night Live. The whole thing is so absurd, and at the same time frightful, that the ultimate end is as difficult to predict as was the World Trade Center demolishment. Whatever it is, it won't be pleasurable, and I urge all readers to protect yourself, as no one else will.

Don Stott

October 4, 2001

Don Stott has been a precious metals broker since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com


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