G&D Part Two

Don't stop me, I'm on a roll. First of all, I always write in the front of books I read, giving my opinion about it. I have a book titled "Bankruptcy 1995." It was published in 1992, and I read it in 1993. My comments at the front are: "3/23/93 good, basic, well written. Chapter 8 outstanding." Hey, I read that book over 13 years ago! So I go to chapter 8, and the following are a few quotes:

"If the United States were the first country in history to experience the crisis that our debt and deficit are about to bring down on us, government officials might have some excuse for what they've done. "Gee," they could say, "We didn't know it would come to this." If they didn't know where they were taking us, they should have known. The crash we are about to experience has been experienced many times before. Why, for instance, did Rome fall? Three successive emperors- Caligula, Claudius, and the fiddler Nero- emptied their treasuries to pay for lavish ceremonial feasts, luxurious villas, elaborate temples, no-show civil servants, and bribes to the army and Praetorian Guard to insure their loyalty. (With variations, that goes on today).

The book's chapter eight then goes into Germany in 1924, and I won't rehearse that again, other than to mention one statistic I have never heqrd before, and that is, as the book says, "While Austria got inflation, Germany experienced hyper-inflation - a 1.02 TRILLION percent increase in prices during the 16 months from August 1922 to November 1923." (Fantastic).

"In 1985, just before Bolivia suffered a few months when inflation reached record annualized levels of 50,000 percent, the country's tax revenues covered just 15% of government spending. Argentina's deficit reached 11% of its gross domestic product in 1985, resulting in an annual inflation rate of about 672%. (Our tax revenues don't even cover the interest on the national debt).

Chapter eight then goes into Hungary and Poland, when they extricated themselves from the Soviet Block, and their enormous debts and inflation. Next is Italy. "For some time mow, Italy has had Western Europe's worst budget-deficit problem. Italians' national debt surpassed 100% of their GDP at the end of 1990, up 60% from 1980. Interest on the debt has for years been the largest item on Italy's budget." (Our taxes don't cover the interest, much less the incessant reckless spending).

Then, chapter eight goes to England, praising Margaret Thatcher. "In her years in office, Thatcher reconciled the difference between demand and supply. She lopped 100,000 civil servants off the payroll in 1980 alone, and she cut the tax rate by 3%. In 1984, she stood up to a national coal strike, refusing to meet wage demands." (Coal was nationalized decades ago in the U.K.). "Prime Minister Thatcher did what was necessary to re-float Britain's economy so it could get under way again. She turned an $18.1 billion deficit into a $5.9 billion surplus. Thatcher used budget surpluses to pay back $47.7 billion of the country's debt, reducing it from 51% of GDP in 1979 to 27% by 1990, a remarkable feat that undoubtedly saved Great Britain, If the United States has its own Margaret Thatcher, we haven't elected him or her to national office yet." So much for a 15 year old book, which said basically that it was to be all over for the U.S. by 1995, or eleven years ago. Am I then, a calamity howler? (I'll send the book free to the first person who requests it, postage paid).

The book was wrong. We are still here, with all the same symptoms, only larger and more threatening. Will we collapse suddenly? Doubtful. Will we collapse at all? I am sure the dollar will do so, but we'll still be here I believe. Should I be preaching about "doom and gloom" in the first place? I think I should, because if one has a lot of symptoms, one should seek to either get treatment, take medicine, to a doctor, or do SOMETHING. If one's car knocks, the brake pedal goes too far down, or there is smoke, wheel shimmy, or other symptom, one should get it fixed, stop driving it, or junk it. If one gets a broken bone, or symptoms of dreaded cancer, one should promptly do something towards a cure. Pain pills are not a solution to a medical problem, and not fixing a problematic car will not suffice. Printing dollars to pay for government spending is no cure.

We have no Margaret Thatcher around, so the symptoms will, continue I am certain. The symptoms are continually printing money to pay bills. Bills and debts which are so high, as to make them virtually un-payable. Long term debts, which we now have or are committed to pay in the future, are $70 TRILLION paper dollars it is estimated, a figure which it totally incomprehensible to anyone, including me. Seventy trillion dollars is as mysterious as is a "light year," which is the distance light will travel in a year at a speed of 186,000 miles per second. No one can grab onto either of those, and actually understand the amount of dollars or distance they represent. Forget trying. Just understand that it is a debt that cannot be paid legitimately. "Legitimately" means paying debts with sound currencies. The U.K. did it, and Canada is doing it, and as a result, the buck is sinking towards equality with the Canadian dollar and British pound. They both have a handle on their economies, and America doesn't. This means that we must, as I always say, protect ourselves, or elect another Margaret Thatcher. I can see no Maggie Thatcher on the horizon.

Real Estate has not been a method of protecting ones self if it was used as an investment, or one bought a home at the top of the bubble. I have a few examples: The entire front page of the Rocky Mountain News of December 5th, was in full color, and the huge headlines read, "FORECLOSURES ECLIPSE RECORD." The details also on the front page, regarding foreclosures which are for the current year, astronomical. One of the statistics is for a luxury home development named Highlands Ranch, where there are 25,421 homes in foreclosure, and this has to be close to 35-40% of all homes ther I believe, but hope I am wrong. A client e-mailed me yesterday, and said that his neighborhood in Florida is two blocks long, and there are 13 empty homes on that two block stretch. Grand Junction, Colorado, a city of 40,000 which is growing rapidly, has 18,784 foreclosures this year. Real Estate is a necessity, because we all have to have a roof over our heads. I hope no one is now stuck with a home worth less than what is owed for it.

What is the ultimate result of the unavoidable and continuous dollar printing to pay government debts? A currency which reaches zero in purchasing power eventually, which is what has happened in 100% of the times in history if government didn't change its ways. I believe that our government has gotten itself into so much debt that 'changing its ways' is impossible. I wish it weren't so, but I cannot imagine ever paying $70 trillion in non-inflating dollars. If then, the dollar is failing, one should get out of dollars if one has a surplus of them. Buy something! At age 72, I have never had a savings account, because I have always spent my dollars on things. Even as a kid, I never saved dollars in a bank or savings account. I never bought a whole life policy or a life insurance policy of any kind. Never, because I love tangible things. As a kid I loved Lionel Trains, tropical fish, ham radio, and mechanical things of all kinds. At age 13, I had saved enough to buy a gas powered reel type lawn mower. Rotary mowers hadn't been thought of then. I used the lawn mower to cut grass and make a few dollars. I used to always carry a camera with me, and when I saw an accident I would photograph it and sell the picture to a newspaper, for $25, which always paid for the camera, and got me a free roll of film, plus photo credit at the bottom of the published picture.

Not to bore you, but think of things you can do with surplus dollars other than leaving them in dollars in banks. Pay off all debts and owe no one anything would be my first suggestion. Then, fix anything around the house or car that needs fixing. Then, if you don't want to buy gold or silver; and you should of course, get a hobby and invest in it. Anything but staying in dollars, is the point. Gold and silver are security, but not much fun I suspect. I am not trying to talk you out of gold and silver, but trying to convince you of the futility of saving in dollars. I've got a lot of stuff other than gold and silver. Lots of beautiful antiques, original art, books, tools, old cars, hundreds of movies, thousands of books, and on it goes. All of them give pleasure, and all are a hedge against inflating dollars, although none of them are as easily stored and disposed of as are gold and silver. Just protect yourself in whatever means you choose, but get OUT of dollars.

December 7, 2006

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