Symptoms

If you have a pain in your chest, you just might be going to, or actually having a heart attack, and especially if the pain lingers. Far too many people ignore it and get into serious trouble, and if they had gone to the ER, they might have saved their life or at least their life style. It may be indigestion, but then again, it may be far more serious. If your car pulls to one side, it may be a tire going flat, or a brake pad sticking, but it symptomatic of something. If you stop and look at the tires, you may not have to buy a new one, because running on a flat one always ruins it. Symptoms always mean something, be it in a marriage, piece of machinery, the human body, or an economic situation. I really believe that the economic symptoms going on now mean something serious. Really serious, and while we may not be able to stop the inevitable, we can surely protect ourselves from it.

A client of mine sold her house north of Reno, and moved to California, where she rented, and still does rent. Why didn't she buy? Because she thought prices would go down. They have, and aren't finished yet. Real estate prices all across the nation are falling or crashing, depending on where you are. Adjustable Rate Mortgages (ARMS) are coming due by the tens of thousands every week, with resultant increases in payments of many percentage points. Gas prices, thanks to increased oil consumption by the Orient, plus shut down Alaska pipes, has gasoline at over $3 per gallon, and over $4 in some places. Everyone has to drive and live in an abode of some sort. This simply means that to live, go to work, sleep at night, and have a roof over one's head, those basic costs are rising rapidly, and show no sign of decreasing.

Saturday, my wife was in a fabric store, and the gal in front of her had purchased $3.17 worth of some sort of fabric. She proffered a credit card, and it was refused. Not even $3.17 worth of reserve left. She mumbled about the rotten banks making mistakes, and her father paid the $3.17. At the local hardware store Sunday, Betty the clerk who I have known for years, rang up a $5 pump on a woman's credit card. After she left, I asked Betty if credit card sales had increased of late. She said yes, and by about 400%. She then chimed in that the local Wal Mart had started its own bank, and given checks and debit cards without even requiring a deposit, with the result that no one around here will take a check or debit card from the Wal Mart bank, so many of them have bounced. Are people living as long as they can with what credit card reserves they have left?

We all do what we can to survive, and that's the way it should be. Self preservation is universal, even with animals. What isn't universal, is economic sense, and the piper is now being paid. Americans have been on a spending spree for years, with 2nd mortgages, increased 1st ones, credit card reserves by the trillions of dollars, and easy money galore. Foolish Americans have reveled in it, and spent all they can, by maxing out home values and credit card reserves. It is all coming home to roost now, and I am afraid of what the process can come to, because I see no way of stopping it. How can credit cards be paid down if they are needed to buy gas to get to work, or the reserves are used to make mortgage payments? How can the economic situation be reversed?

I don't know. Common sense says that when a family doesn't make enough to make the payments, or even the interest, something's got to give. A 250 pound man can't walk on a scaffold designed to carry 150 pounds without it breaking. When payments demanded by creditors exceed income after taxes, what is there to do? Is there a recession or depression coming? If not, what can occur to change the seeming inevitable? To me it seems inevitable anyway. Damn! I hope I am wrong, but history does indeed repeat itself.

The repeating will unwind with millions of bankruptcies and foreclosures. Literally. People will be foreclosed upon and have no place to live. Credit cards will be seized by the millions, and as a last attempt to use, the clerk will seize it and get a $25 reward. As economic woes increase, the homeless will be multiplied, and they won't be alcoholics and bums, but displaced families who are paying for their past mistakes. Hind sight is always 20/20, but foresight rarely is. People right this minute, are frantically attempting to sell their homes for the balances due before the foreclosure starts, or they get behind in payments. Has Wal Mart started their own banks at most locations, and not requiring deposits before issuing checks and debit cards?

As times get worse, naturally the layoffs will proceed at a rapid clip, thereby exacerbating the process of an economic melt-down. Will it be a depression or recession? Or will it be possible to stop the inevitable process by the D.C. Gang doing something? Such as what? Hyper-inflating, maybe. The Fed lowering rates, 50 year mortgages, millions of government jobs created to replace the private sector layoffs? It all goes back to the Great Depression of the 1930's, which was created by the Fed in the first place. We got out of that one by FDR's getting us into WW II, which indeed did get us out, but at a huge price. In the 1930's there were no credit cards, No ARMS, few easy to get mortgages. Times are a bit different now. Then, the stock market bubble was going like mad, just as it did here a few years ago. It crashed then, and sort of crashed here, but not totally. As Richard Russell says, we have not yet seen a true market correction. When we do, we will find stocks giving a 6% dividend, and P/E/ ratios at about the same. Will the stock market be held as it has been for five years, perhaps by the PPT (plunge protection team)? Since there is so terribly much consumer and government debt now, how else can it be paid, other than by hyper-inflating? Flood America with dollars, or as Helicopter Ben has said, the Fed will do that if necessary.

During the great depression, the government created jobs by the millions. New post offices, forest clearing, road building, dams, and all sorts of government edifices were constructed, built and paid for with funny money. It didn't work. The Civilian Conservation Corps (CCC) hired tens of thousands to do work and get paid. The Dust Bowl, as has been vividly portrayed by Steinbeck's novel, and the wonderful film of it, "The Grapes of Wrath," gives a vivid picture of a true depression. Not pleasant. But all the D.C. Gang's efforts and flooding America with dollars and jobs didn't get us out of the great depression. It took a war to do it. I think the portents today are more severe than they were in the 1930's, because of the excess credit devices not extant 75 years ago.

We're already in a war, but not a world war of course. Iraq and Afghanistan haven't solved anything on the economic front, in spite of the enormous funny money spending. The military was minimal in the 30's, and didn't grow till Pearl Harbor was bombed on Dec 7, 1941, and Germany declared war on us Dec 11, 1941. Was Pearl Harbor known to FDR and allowed to happen as a last resort to get us out of the depression? Several books seem to prove it. What can be done now? If the stock market goes to where it should, to make stock prices true bargains, we might have a few more "Black" days, when stocks literally crash. My Friend Bill E's father started one of the great stock brokerages in New York back in the 1920's and sold out early because he knew what was going to happen. Bill's father saw men literally jump out of windows, so great was their loss and being totally wiped out. The last stock crash, saw $5-$7 trillion of wealth wiped out in a week or so. Will it happen again with men selling apples on street corners?

A recent trip to the nearest large city to us, with a population of 50,000, saw endless empty store fronts and bankrupt businesses. There are a few here also, and a brand new shopping center seems to have far too many un-rented stores to make it be profitable for its builder…it seems to me anyway. So, maybe I am Mr. doom and gloom. Maybe I can't see how wonderful America is, and how wealthy we are, which is the common thread coming out of D.C. and over the air waves. Will this all work out OK, the factories re-open, cars begin to sell, stores be rented, and foreclosures and bankruptcies cease, even though they are at record levels? Maybe Ben will indeed drop dollars out of helicopters or perform some 'miraculous' act, which will make it all well, like some miracle antibiotic. An economic miracle anti-biotic, which will erase all the mistakes hundreds of millions of Americans have made? An act which will defy all the laws of economics, and heal everyone? If such a 'miracle' happens, I will be delighted! The 'miracle' however, will probably be hyper-inflation, and this means all your gold and silver will be the same stuff, but in dollars, be 'worth' more than you can ever dream of now! - Protect yourself.

August 17, 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