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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Aubie Baltin
November 4, 2010
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A fiat currency is only as strong as the belief it inspires to its holders.
I have been postulating that Treasury Bonds are in an expanding bubble and have become the New Toxic Assets that will end up being the Biggest Exploding Ponzi Scheme in history.  At some point in the not too distant future, the markets will realize that Treasuries can never be repaid and the currency in which they are denominated in is dropping in value like a stone. So if they are to be repaid at all, they will be repaid in worthless Fiat Dollars. When such realizations finally occur, a massive exiting out of Treasuries will begin, resulting in a huge shift to commodities and precious metals as a safe haven. But here is the tragedy: Increased inflation will not be perceived – at least not at first – as anything to worry about. As each monthly rise will not be perceived as anything worrisome, it will be considered as a good thing because of the current IRRATIONAL fear of deflation that we are in. Therefore any pickup in the inflation index will be interpreted as a pickup in the overall economy. Eventually, however, as inflation continues its steady month over month rise, the price increases will begin to really hurt and the job market, instead of improving, will actually get worse. Suddenly the American people will no longer be swayed by phony government statistics and wake up to the fact that we are in a Major Depression as the inflation rate soars past the 1979 high of 14%.
But there is a key difference between today and 1979: Bernanke and the Federal Reserve cannot raise rates to reign in incipient hyperinflation, like Volcker did.  Back in 1979, there was no such thing as Derivatives that now total 1000 times more than World GDP of $60 trillion, which if interest rates begin to rise as they did back then, will bring the world’s financial system crashing down.
Apart from the obvious fact that Bernanke is not half the man Paul Volcker is (both literally and figuratively), he lacks the backbone and more importantly, the common sense to realize that he has been making a mistake all along. If there is a run on Treasuries, Bernanke will not be able to raise interest rates to hold Treasury Investors – if he did, he would wipe out all the Too Big To Fail banks, and break the Treasury of the U.S. Federal Government (both of which depend on the Fed's cheap money as completely as if it were oxygen). What is even more dangerous is what rising rates would do to the quadrillions of dollars in Derivatives (something that I have been warning about since 2006). To make matters worse, FINREG did nothing to even address the Derivatives or any of the other real problems.
Back in 1979, Volcker didn't have today’s constraint. He could raise rates – but even so, he paid for it with a 4% increase in unemployment.
However, unemployment today is already at 10% (17% to 22% in reality) and that’s in a soft credit environment. So even if he didn't have the TBTF banks and the Federal Government on cheap money life support, Bernanke cannot raise rates in order to stop a run on Treasuries, stop a run-up on commodities, and stop incipient hyperinflation. The economy is too weak. Adding 400 basis points to the current unemployment situation – that would drive US unemployment to 14% (25% in reality, the same as the highest rate hit during the 1930‘s) or more.  It would cause political pandemonium, not to mention riots.
Finally, Bernanke won't raise rates – can't raise rates – because of the disease of the mind that he has: Due to Alan Greenspan's pernicious, destructive influence, which I have discussed at some length, Bernanke is a Keynesian Ideologue and thoroughly believes that only liquidity injections and cheap money can save the economy – he is doing his best to create inflation. He is so terrified of the American economy going down the deflationary drain that he is deliberately going in the other direction.
Bernanke doesn't realize that inflation is a symptom that can augur many things. He is convinced that inflation means growth – the opposite of deflation. So all his liquidity windows, all his cash infusions to prop up the Too Big To Fail banks and their huckster operators, QE, QE-lite, and the forthcoming QE2 – all of it is being carried out by Bernanke so as to cause inflation. He is convinced that inflation will signal that the economy is recovering and that the Federal Debt will be inflated away, and then we can all live happily ever after.
We are now about to experience one of the most dramatic political revolutions in our nation’s history.  But will the new Congress be any better and will a new leader spring up in 2012 to save the day?
Even if the new Congress only succeeds in blocking new stimulus programs, it will be a major reversal in economic policy with a potentially colossal impact on the economy and the investment markets.

  • We may see a correction in Gold of $100 - $200. But it will be a huge buying opportunity. Gold will then soar BEYOND $1,500 per ounce before the end of this year, just as I predicted back in February.
  • After a brief rally, the U.S. dollar index will continue to sink and will not hit rock bottom until maybe 2012.
  • Oil and energy investments will swing wildly, but will NOT hit new highs since the demand for oil will shrink drastically as the USA drags the world into Depression.
  • Both the U.S. Bond and Stock Markets may continue to rally in the very near-term but soon plunge, culminating in the worst Bear Markets in history as the Depression spreads round the world.
It’s one of the reasons why, for the past few years, I’ve continuously advised you I own physical Gold and Silver — at least 35% to 50% of my total liquid assets. Yes, the price of Gold and Silver took a swoon this past week because the U.S. Government is making sounds like it will support the dollar. But for the long term, precious metals are still the safest place.