When Money Dies

I was going to go on to other currencies this week, leaving Japan alone, but it turns out I haven't finished with Japan. Or rather, Japan hasn't finished with itself…if indeed it can survive its current crisis. A correction first. The yen was not at 7.9 cents to the dollar, but rather 1.3 cents, and I thank a thoughtful reader, who pointed out to me that 79 divided into 100 is not 7.9, but 1.3. Thank you reader. My basic arithmetical calculating ability should have been learned in the third grade.

Also please note, that as of the day of this writing, Tuesday, December 8, 2001, the dollar is higher against the euro, and of course the yen too, which continues to slide, currently at 133 to the buck. Will it go to 150, 200, 300, 400, 500, or 1,000? Maybe, depending on the 'strength' of the paper money imprimatured with American signs, called the dollar. Cal Thomas wrote today, in a silly column, that the euro looked like Monopoly money, and that it didn't have any class. Well, Whoop-tee-do, Cal! He never touched on the basic fact that no paper currency has any value, and that the most glamorous looking currencies in history, have gone to zero, just like they all will…eventually. Who cares what they look like? The new American paper is ugly too, in my opinion anyway. It's what can they convert into, and what backs them, that counts. Zilch is the answer. The buck is sliding slower than the rest, because it is still the currency used to trade such things as gold and oil. The price of gold, in every currency except the dollar, has risen steadily, because the dollar has kept "strong," in relation to them. The termites haven't chewed through the main beam of the dollar yet, whereas other pieces of paper are failing…regardless of their appearance. The political and governmental termites love to make paper money. It saves them for a few additional moments in the time line of history.

Now about the yen, and Japan in general. It is the second largest economy in the world…thanks to America. A bit of diversionary history, if you please. At my advanced age, I well remember General MacArthur becoming a hero to the Japanese after they killed hundreds of thousands of our boys in WW II. He virtually wrote their Constitution for them, and saw to it that they were amply rewarded for their wartime treachery, which included torture, forcing Korean women and girls into free prostitution for Japanese soldiers, hideous "medical experiments" on innocents, and other assorted atrocities. They still teach their toddlers that we started the war. The Japanese got lots of American bucks to help them recover. They copied the German Leica camera exactly, and called it the Canon. With their new, unearned largess, they bought new, state of the art, steel mills and manufacturing capability, while America's were worn out from the war. The Japanese had microscopic labor costs, no defense expenses, and began exporting to America and other places, huge quantities of garbage merchandise, which gradually improved, and became excellent. They copied American patents with impunity, paying no royalties, and began making American invented VCR's, TV's, cassette players, and a host of other electronic stuff. They began exporting their cars, which initially were also junk, but eventually got better and better, until they became excellent. They then sent their manufacturing to America, and built auto plants, in non-union, depressed locations, and were successful. So successful, with all the profits going back to Tokyo, that Tokyo land went to the heavens, and as I said last week, was selling by the square inch. The land collapsed, as it was terribly over-priced, and the banks were left holding the non-performing loans, which is where they are now.

In the Japan Times Online today, the headline reads, "JAPAN SEEN ON THE ROAD TO DEFAULT." The article goes on to say what I said last week. The banks are at a negative $1 trillion net worth, major banks will fail, (why not all of them?) the entire banking system will collapse, and the government will issue a huge amount of securities (print money). "Japan's deflation and debt crisis now constitute systemic risk to the global economy. As a result of the issuance of a huge amount of government securities, Japan's public debt will jump immediately by about 15%, and the surge in liquidity will cause Japan's currency and bonds to collapse. The Japanese government, foreseeing a run on banks, may postpone the March 31 termination of its full refund guarantee for deposits at failed banks. But this will only delay the outright collapse of the banking system." Japan has been our actual economic enemy for many decades. China is currently even more so, and a pox on anyone who buys things made at either location.

Innocent Japanese citizens will now watch their savings in yen, buy less and less, with prices going higher and higher, as happens when every currency or "money," dies. They will try to take their yen out of the banks to buy tangibles, because all prices will rise, and it wouldn't surprise me if the government declared a "bank holiday," or limited withdrawals, to postpone the inevitable. As I have been counseled previously, the inevitable is not always the immediate, but in this case, it may be fairly soon. How many tricks can politicos have left in their scarlet bags? The 100% remedy in economic history, is to start the presses. The presses have turned out trillions of dollars in the last few months here in America, and it continues. If the Japanese cash in their American bonds and T-Bills, there goes the American bond market. If the collapse occurs, (how can it be avoided?) the crash of the second largest economy in the world, will have devastating consequences on every other economy, which are collapsing on their own, and don't need help from Japan.

ANYONE WHO STORES THEIR SURPLUS ASSETS IN THE CURRENCY OF THEIR NATION, IS NUTS!

Stott's law: "The more of anything there is, the less they will be worth." This applies to everything Cal, including dollars and ugly euros.

Japan has succumbed to the same fate of every nation that inflates, (all of them) and has a false "boom," built on paper values. "Booms" in an economy, are simply the beginning of the old axiom that goes, "Whatever goes up, must come down." It happened with the NASDAQ and the Dow, and it will surely happen again, as they're going up, with poor to ridiculous PE ratios. It happened in Argentina, France, Germany, and in every known part of the world, for all practical purposes, during the last 300 years. The device which allows it to happen, is Guttenberg's invention of the printing press. Politicians and governments have conveniently used the printing press for their own benefit for centuries. Politicians and governments know only one thing, and that is get re-elected, and stay in power. Is Alan Greenspan so stupid, that he doesn't know what's going on? Of course not! He has fame, prestige, and not too many years to live. He probably hopes he will be dead when it all comes down. In the mean time, he can continue to use a thousand words to say an unintelligible thought, and carry his own brief case wherever he goes. I'm sure he adores and adulation of the morons on Capitol Hill, in DC. Greenspan can be quoted over and over, as knowing what's going on, but I'll just repeat one.

In 1966, Greenspan wrote: " (The) abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit…In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value, as was done in the case of gold…The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves… (This) is the shabby secret of the welfare statist's tirades against gold. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

Will the Japanese wish they had gotten into tangibles, such as gold and silver, rather than trusting in the politicos? Hindsight is always 20-20, but when their land values crashed, and the banks became insolvent, it was common knowledge in Japan. Millions of words were written around the world about Japan's insolvent banks. Few acted, and many will suffer. The ones who suffer, when the presses get going in earnest, are those with the most to loose, because they have surplus assets. The working classes, who live from paycheck to paycheck, aren't hurt, as their wages usually go up with the inflation, albeit usually lagging a bit. Those who have prudently saved and thought for the future, are the ones who get ruined, every time.

Today, Americans are suffering from Greenspan's cutting rates 11 times, which makes a bank savings account pointless. So what are they doing? Of course! They are removing dollars from banks, and not knowing what else to do, they buy stocks! This makes the stock market go up, even though the layoffs continue and business is bad. Even my local plumber, who is right now working in my bathroom, has suffered from the depression. His business is down. The stocks will go up…till they come down, and everyone suffers a second time. How many trillions will be lost the next time? Who knows. Protect yourself and yours, because no one else will!