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Jim Cook



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 Bill Buckler
February 26, 2009
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Live By Credit - Die By Debt:

The seventeen years between 1990 and 2007 saw the biggest credit inflation in human history. Gargantuan quantities of real economic structures were constructed on the false basis of an endless credit expansion. Now there are no customers and the structures are shutting down. What is being unveiled on a global basis is history's biggest bout of malinvestment and over-investment. The most telling sign that this is true is the simple fact that industrial wages have barely climbed over the last thirty years in real terms! Had the economic expansion been soundly based, industrial and other wages would have

climbed commensurate with output. Instead of higher real wages - wage earners were offered credit.

The FOUR Economic Fundamentals:

These are: capital goods, consumer goods, time and money. They are the four corner pillars of any economy. One could think of them as being the corners of a square with the hard centre of the square being REAL savings - the stream of savings which goes towards maintaining and/or expanding the current stock of capital. Credit - in the form of more money lent - is NOT a substitute.

At present, the global capital structure is horribly misaligned. The wrong factories with the wrong tools and equipment are in the wrong place. As evidence, foreign investors in China's export industries have shut down 45,000 of their factories since June. China itself has already shut down another 20,000.

This is an economic picture of the future as malinvestments are written off and new capital is being made.

The Source Of The Problem:

In economic terms, the point of origin of the present global financial and economic crisis is not hard to find. It originated in the US. Between 1990 and 2007, total mortgage debt held by Americans rose from $US 2.5 TRILLION to $US 10.5 TRILLION. That alone is a $US 8 TRILLION credit surge.

The Global Spill-Over:

That surge, and others like it, spilled over the rest of the world. US imports exploded upwards as new, additional US Dollars surged out - and imports from the rest of the world surged in. The US balance of trade fell into a huge deficit. For all of 2008, the US trade deficit narrowed to $US 677.1 Billion from the $US 700.3 Billion of the previous year. Even now, well into a deflationary depression, the US budget deficit has widened to $US 83.8 Billion (as of January) as US federal spending soared and US corporate tax receipts shrank, a Treasury report showed on February 11. This federal budget deficit, in its own right, feeds straight into the US external deficit as a large part of it flows overseas, in turn hauling foreign imports into the internal US economy.

A Fiscal Mirror To The Internal US Economy:

The US budget deficit widened in January as federal spending soared and corporate tax receipts shrank, putting the US Treasury on course for a record annual shortfall of more than $US 1 TRILLION. Federal spending grew 30.6 percent while revenue dropped by 11.4 percent! This is a deficit chasm opening.

US corporate tax revenue in the past four months is down 44.3 percent from a year earlier. Corporate taxes are a proxy for how well the US internal economy is doing. This massive fall is an open trap door under the US Treasury, a hole it can only fill by more borrowing. Worse, the figures show that the US corporate sector is in a full-scale collapse. From here on, US unemployment will really accelerate.

Back To The Four Corner Pillars:

Capital goods, consumer goods, time and money are the corner pillars with savings in the middle of them. In the US, it is the savings - the monetary savings - which are missing. Centred in the US, a global attempt has been made to replace the missing savings with credit. Credit is defined as present goods for future goods. In the US, the means - the real factories - are no longer there to repay the credit by delivering new economic goods now - in exchange for all the goods received earlier on credit.

We Don't Make Things Here No More:

The situation described above is self-evidently a state of national bankruptcy in economic terms. What the US faces now is not only that economic bankruptcy, but also the stark

necessity of rebuilding its stock of capital anew - and nearly from the ground up. That takes the "four corners" down to the economic level of the individual American. All sound economic reasoning has to start from direct exchange or barter. Money, historically, is a late arrival, even though it has been around in coin form for nearly 3000 years. What money does is to facilitate trade and exchange by developing money prices for most goods. With money prices comes the indispensable boon of economic calculation - impossible under barter.

As an intellectual exercise, place yourself right in the middle of the "four pillars" at the spot named - SAVINGS. Stand there with some money and enough basic consumer goods to last for a week or so and look in the direction of time. How long will the consumer goods and the money last?

When the goods and money are gone, you have run out of time. Now, look in the direction of capital. Capital comes in two forms, intellectual and real physical capital. The first is the knowledge of how to do things, the second is the means to

get them done.

Making Sure Of The "Four Pillars" :

Or - how to get through economic depressions successfully. The first requirement, as The Privateer has been maintaining for a long time, is to keep a personal cash holding in your own hands sufficient for sixty to ninety days of normal expenditures. That places time in your own hands. Then hold Gold in the form of bullion or bullion coin equal to 15-25 percent of your monetary wealth - that is your "monetary" wealth, not your TOTAL wealth. The Gold holding is your personal safety anchor. With that in hand, you will always have real monetary means with which to engage in any exchanges.

Ó 2009 – The Privateer

(reproduced with permission)


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