2008年10月8日 星期三

The Day The Earth Stood Still

www.kitco.com

Advice

Here is the advice I am updating now.

  1. Prices will rise sharply due to monetary inflation, which eventually results in price inflation!

    Today I received an email from Money News.

    "The earthquake will come via a collapse in the market for U.S. government bonds as domestic and foreign investors realize that the only way Uncle Sam can meet his future spending obligations is to print massive quantities of money," warns Boston University economist Laurence J. Kotlikoff.

    "The result will be sky-high inflation and interest rates and, most surely, a prolonged reduction in output and employment."

    "This could happen today. It could happen tomorrow. But it will happen here just as it has happened in every other country that tried to spend far beyond its ability to pay," he writes.

    Nevertheless, Kotlikoff figures the real total debt of the government right now is $70 trillion. Never mind the personal debts – credit cards, mortgages, cars, and other loans – Americans would face as our economy heads, potentially, into a deep recession.

    Compare that figure to the entire U.S. economy, which amounted to $13.8 trillion in total economic output in 2007.

    And don’t forget the automakers and airlines who want us to give them a few billion dollars. “If we keep our promises to the retiring baby boomers, we'll be paying out $4 trillion a year that we don't have for decades,” says Kotlikoff.

  2. Normal commerce is crippled by inflation. The commodities you ordinarily will be able to buy whenever you want, at the price you want, may not always be there, as inflation has driven up the cost of fuel so the trucks will find it harder to pull up to the back door of your local store and restock the shelves.

    You must turn a liability into an asset. Prices will rise higher and higher. How do you turn this into an asset? By buying things now while they are still relatively cheap, storing them away and then consuming them later when prices are higher.

    This includes every commodity you would buy at your local store, ranging from food, to diapers, to soap, to auto parts, to everything else.

    Some people call this “hoarding.” So be it! I don’t want to be politically correct by not “hoarding” if I will be hungry and my family will not be able to eat. In the real world, so few people will take my advice I will have little impact on the rest of the world.

    (By the way, Karen Varner is still very helpful with planning food storage or 24-hour kits. You can call her at (801) 225-0948 or email her at your 72hrkitlady@yahoo.com. You’re welcome!)

  3. How do you take Will Roger’s advice and invest in inflation because it’s going up? Several investments will benefit.

Gold and Silver

The stars of the show are gold and silver, with the emphasis on silver. Why will they boom?

Historically, the world is littered with dead paper currencies. Major currencies disappear about every 70 years, and historically at these times, people have instinctively turned to precious metals because gold and silver coins have a long history as money.

We have been using them as money since before Roman times, and metal coins protect you against inflation because they boom. They do not increase in price; the currency diminishes in value in relation to them and precious metals reflect this phenomenon.

Gold gets all the headlines, but the real star will be silver. Gold is not as much of a monetary commodity except in the theoretical sense as backing for paper currency.

Silver has been actual money. When the Romans conquered Spain, they took over the Spanish silver deposits lying relatively close to the surface. Silver coins were the basic currency of Rome, and for centuries it was valuable because that was the only kind of money there was. But then the Roman Senate decided they had to gain the support of the populace. They were beginning to sleep under bridges and needed to be entertained housed and fed.

So they built the coliseum and began to show bouts between lions and Christians (lions 200, Christians zero). “Bread and circuses” were the watchwords of the day, and as soon as the Roman Senate made the decision to cater to the mob, they had to figure out how to stretch the money when the silver mines began to run out.

They started out by making silver coins thinner and smaller, and then clipping the corners, then mixing them with base metals. People caught on real fast, and they wanted more coins in return for their goods and services (“rising prices?”).

This monetary inflation turned serious when the far-flung Roman legions began to distrust the value of the currency in which they were paid. So the Roman legions began to desert. Monetary inflation brought down the Roman Empire and made it impossible for them to defend themselves when, centuries later, the barbarians were at the gates.

Then we invented the printing press.

Paper to Money

How did paper currency first begin? It started out as warehouse receipts for gold and silver in the warehouse (bank). If a duke or noble wanted to conduct a war, he would simply go to the warehouse and take out some of his gold and silver and use it to pay the troops and buy weapons.

They soon discovered that rather than going to the bank and getting the metal, it was easier just to pass the receipts around so the other guy could go get the metals.

In other words, the warehouse receipts began to be accepted as currency representing the coins. It seemed like a good idea at the time.

Paper started turning into money when the warehouse owners (bankers) realized that nobody knew how many receipts there were, and they began to create more receipts than there was money and passing them around as if they were backed by real metals. After all, who would know?

Soon, and it didn’t take long, people began to look upon the paper receipts as though they were real money. It was convenient. It was a lot easier than going to the bank and getting the metal.

Eventually, as paper lost its relationship to actual stored metals, governments began to ignore the fiction that it was a warehouse receipt.

In the U.S., the receipts backed the gold in the warehouse, and individual countries could bring their receipts to the Federal Reserve gold window and exchange them for gold.

However, soon we had created so many receipts that we began to lose too much gold at Fort Knox. So President Nixon yielded to reality and closed the gold window. He gambled that nations would look upon the currency as money and that decision would be accepted. He was right.

Since Nixon closed the gold window, there is no gold backing for the paper. The paper is considered money all by itself. The race was on. The restraints were gone.

Congress found that they could buy votes by the simple act of creating paper currency. The paper currency has undergone lots of evolution since then. With the birth of the computer, they don’t even have to print anything. Only about five percent of the so-called Money Supply is actually minted, printed or coined. The rest of it is on the computers of banks.

Politicians found they could buy votes by simply creating more receipts through modern means. That’s where we are now.

Congress is engaging in an orgy of vote-buying, driven by socialist dogma. That’s what is at stake with this crazy attempt to create $700 billion to buy up defunct mortgages.

The capper on this deal was when mortgage lenders discovered they could package thousands of mortgages into bonds and sell them for investment then re-loan the money again, and again.

The fed cooperated by keeping interest rates at one percent per year to prevent an economic collapse. American suckers bought in and got easy mortgages to buy property in areas like Las Vegas, Arizona, Florida, and Southern California, and real-estate prices soared.

Eventually, of course, this could not be sustained, and the real-estate bubble has burst. Many mortgages under the teaser-starter rates have now found they can’t make their payments and began to default. This has resulted in the biggest burst bubble in the history of bubbles.

I saw a picture of the Democratic leaders of Congress: Harry Reid, Barney Frank, and Nancy Pelosi (aided by George Bush) doing their best to look like they were heroes on a horse in the public square, bragging about how they would solve Wall Street’s problem by getting banks to buy up these rotten assets, establishing a market value for them.

In a rare display of common sense, Congress has chosen not to fall for the scam. As this is written, we (and they) don’t know what the heck they are going to do. But we do know the Federal Reserve has issued billions of dollars to favored firms so that some chosen bankers can buy up other institutions, buying the rotten assets so the old world can continue.

They are trying to maintain a sick society by eliminating the voter’s consequences for stupidity. This is why I have placed the biggest blame on the suckers who fell for the deal and bought homes they really could not afford.

Congress wants to buy up these securitized mortgages, change the terms, and ensure that people don’t get thrown out of their homes. If they succeed, it might work for a while, but America has so far said no.

What will be the result? I don’t know, but no solution is being proposed that doesn’t involve the creation of money and an inflationary spiral.

When you combine this with the fact that other socially acceptable entitlement programs, like Social Security, Medicare and Medicaid, are unsustainable and can only be maintained by creating money, we have a lead-pipe cinch guarantee of more inflation in the future.

It has already started. Look at the recent prices in the super market. Look at the recent price of oil and gas.

Prices will not go straight up. Take oil for example, the price has recently plummeted. Of course, it jumped again once the so-called bail-out failed. But it is possible that oil may fall to as low as $60 per barrel temporarily, but that doesn’t matter. If inflationary prices retreat temporarily from time to time, you can buy now at low prices to later consume at higher prices.

Gold and silver will do extremely well. Silver has several things going for it:

  1. It has always been a real monetary metal, which naturally responds to inflationary pressures.

  2. It is a critical industrial metal, with over 2,000 industrial uses.

  3. There is no stockpile of silver sitting around to be dumped. It’s all gone; used up by industry. So it is immensely price sensitive. There are those like Ted Butler who have alleged that the price of silver has been manipulated and kept artificially low, and they are probably right. I don’t completely understand Ted’s reasoning, but I won’t argue with him. The point is that it is artificially cheap and should be bought now.

The Stock Market

Stay away from the stock market generally. Avoid blue chips and most mutual funds, as they are an endangered species. This week’s decline of 777 points in the Dow is a harbinger of the future. The stock market is not a single entity. It has many independent pieces, and some aspects of the stock market should prosper.

  1. Uranium mining stocks. In the quest for cheaper energy, we will build nuclear plants. If they proceed with the nuclear plants that are on the drawing board or under construction today, there is only half enough uranium above ground to provide their needs. So buy the mining stocks, I added one more to the list this week. The Investment Menu should boom for years.

  2. Oil service companies such as Schlumberger and Halliburton. We will drill for oil off shore, and the companies that build and service the oil rigs will do very well indeed. In the long run, they are an excellent bet.

    We will be exploiting oil sands in Idaho, Utah, Wyoming and Colorado. I haven’t identified yet the best stock buys in that area, but stay tuned. By the next issue, I should have a list for you.

    There is a lot of controversy over oil sands. They could be disasters environmentally, so I’m holding off a bit, but we will drill for oil off shore.

    In the meantime, we will watch with interest what dumb thing Congress finally decides to do. It will be done by throwing money at the problem and creating runaway inflation.

    I repeat again what Will Rogers said, “Invest in inflation; it’s the only thing that’s going up.”

By Howard Ruff
The Ruff Times

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