first majestic silver

When Money Dies - Part 1

January 4, 2002

While the term "money," doesn't indicate life, it is necessary, for civilization as we know it, to exist. A medium of exchange, that is compact, valuable, acceptable to the masses, and divisible into various sizes, is one of the ways that has made man a bit higher than the beasts. Money allows the value of labor to be stored and spent. Money allows profits, assets, purchases, and virtually every single facet of a civilization to be transferred, and stored for future use. Commerce is impossible without money, and without money, it is difficult to imagine the quandary, in which mankind would be placed. Without exception, every "money" which governments have printed, has died. Silver and gold have been the only true, historic money, and they have been manipulated to make the dying monies look alive.

Man has used various things as a medium of exchange. Tree bark, cigarettes, sea shells, and other things, but 99% of the time, it has been pieces of paper, imprimatured with ink. What has given these pieces of paper value, and what has killed them? In 100% of the time, it has been government. When these paper currencies have been backed by gold and silver, or the actual coinage has been silver or gold, this money didn't die, but kept its value. For 150 years in America, prices didn't go up, because the American dollar was backed by, and consisted of, physical gold and silver. Governments pass "legal tender" laws, which force the use of their paper for "money." This column will be read in 174 lands around the world, and all of these nations have some form of paper currency, which goes under various names, such as pesos, francs, pounds, or what have you. All of these currencies are created by government, and none have a single thing to back them, other than the "full faith and credit of the…government." In other words, EVERY SINGLE CURRENCY OR 'MONEY' IN THE WORLD IS VALUELESS. In succeeding columns, I will examine several monies that have died. I will also examine a few of the 100% that are now dying…perhaps a bit faster than others. ALL THE WORLD'S "MONEY" IS A MATTER OF FAITH, NOT VALUE.

Let's begin with the Japanese Yen, which might well be on its death-bed. A few years ago, downtown Tokyo land sold by the square inch. Japan was in the midst of a huge economic boom. Nothing was out of reach for them. Japan was bursting at the seams. Exports to America, especially, were enormous. Japanese autos had laid a hold on female America, because of their size, and seeming long, and trouble free life. Japan exported its factories to America, and stole American patents with great relish, failing to pay royalties on things we invented. Japan had no immigration problems, as no outsiders were welcome into Japan. All seemed wonderful, and America thought it had much to learn from Japan. The Japanese Yen and stock market peaked about April 1995, with the yen being worth about 7.9 American cents. The Nikkei stock market stood at 39000, and the Japanese psyche was operating at 100%. Today, the Japanese stock market has declined to about 10000, and the yen is worth three quarters of a single US cent. (The Japanese started all over again, with a "new" yen, Nov 1, 1984.)

Japanese banks loaned money to one and all, virtually without question, as everyone knew Japan would once again reign supreme in the world. It had virtually no military expense to worry about, and Americans were buying Japanese computers, TV's VCR's, cars, and every other gizmo their factories could turn out. Ah! Prosperity. As with all over blown markets, it had to crash. All things that are over priced, in any currency, will have to crash, just as gold and silver did, after reaching an unprecedented high of $850 and $54 in 1980. All unbacked currencies have to die. The Japanese banks loaned yen profusely, when the Japanese economy was going strong. With the Japan economy in rubble, those loans are still on the bank's books as non-performing loans.

When an economy collapses, those who have the least amount of money in that economy, and the most tangibles, come out best.

Collapsing economies and dying money, can have a radical effect on other economies. The Japanese hold $400 billion in US debt. Suppose they decided to cash it all in, to raise their "liquidity?" The US bond market would crash, because suddenly, huge amounts of US debt would be for sale. The inter-related, fine details, and consequences of the second largest economy in the world going down the tubes is frightening, but it is happening right before our eyes. The Japanese "money" is in its death throes.

All the 'money' in the world is dying, and gold and silver, the true money, are being manipulated in an attempt to give undeserved, and unsustainable 'life,' to worthless money. Can gold manipulation, plus millions of ounces of make believe silver in contract form, continue to exist? What if everyone decided to take delivery of their 5,000 ounce silver contract? Silver prices would skyrocket in "money," because it no more exists than does actual value of a yen.

The Japanese economy has crashed, and taken the stock market and yen with it. A slow, arduous, painful climb would be possible, and may happen, but the banks are in ruin, and if they wrote off their bad debts, all confidence would be lost, and the undeserved be made richer. Unbacked 'money' depends 100% on confidence, and when there is no confidence, what is worthless anyway, will continue to be, and become more so.

Japan's central bank has reduced interest rates to absolute zero, in a feeble attempt to get the economy moving. (Sound similar to Fed's attempts to rejuvenate?) The Japanese have done huge "public works" a-la FDR in the 1930's, in an attempt to stimulate their economy, and it didn't work for them, any more than it did for FDR. All they got for it, was more debt and more government projects and buildings. The Japanese banks now have a NEGATIVE NET WORTH of about US $1 TRILLION! The yen is dying, and the banks are dead. When the inevitable runs on the banks occur, in an Argentine like attempt to buy tangibles, to get out of worthless paper, the yen will be finished. All too late. The common man, for whom Aaron Copeland write a stirring fanfare, usually acts too late. Will the Nippon government place a limit on withdrawals?

"Money" around the world, is dying. The Japanese are in a true "Catch 22" situation. All the manipulations, borrowing, finagling, and attempted confidence boosting, can't last long. The road to recovery for Japan would be long and difficult, if they pursued the correct means, which would mean no more printing of yen, either physical, or with bonds and government securities. It would mean cutting government to the bone, firing millions of bureaucrats, slicing welfare to zero, and going through birth pangs of a nation's re-birth. This has never happened in history. When situations like this have happened in other lands, in times past, the presses have been started, and that spells the end. Politicians love their posh offices and keeping the Pooh Bah image. They do what seems necessary, and that is to print their way out of debt. It never works, because the way to pay off debt is to work it off, not print it. The banks cannot survive without getting rid of the non-performing loans.

If you owed $350,000 on your home, and it was only worth $100,000, would you make the payments? Or would you walk away from the loan? Walking away, is what the borrowers have done, understandably even, but it has caused a national bankruptcy. Who is to blame? The borrowers who lacked the honesty to honor their contracts possibly, although myriad bankruptcies would have had the same results. Sound economics and logic would have kept individuals from going down with the economy, just as logic and sound economics would have caused Americans to get out of the stock market before it crashed. Why? Because it was over priced, as was Japanese land. Banks should have never loaned on land that was absurdly over-priced. To get the bad debts off the Japanese banks' books, the loans must be repaid, and not wiped out. This would save the economy, but it won't happen, because it is virtually impossible. If government printed, and paid the loans to save the banks, the yen would decline to zero, and ruin millions of honest citizens who had faith in the yen. They have already been mostly ruined anyway, with their 'money' going from 21 cents to 3/4 of a cent US. All those thrifty Japanese, who have meticulously saved every yen in those banks or mattresses, will be the ultimate losers, because the money is dying, and those who save in dying money, will lose their assets. Prices are not going up. Money is going down.

Saving surplus assets in any money, rather than tangibles, when all money is dying, is foolish. Maybe that's why I am a precious metals dealer. Yes, the American dollar has died by close to 99% in the last hundred years, and no, it will never go up again. It can only go further down, because we have no gold to back it, even if we wanted to do so. How will it all end? I don't know, but I do know that saving in any "money," is foolish! Protect yourself, because no government ever has looked out for the welfare of anything but itself.

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