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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
December 17, 2009
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In less than three weeks, the first decade of the 21st century will be over. So will the second year of the economic malaise which has gripped the US and the world. By their own official reckoning, the US government counted six straight quarters of “negative” economic growth from the beginning of 2008 to the middle of 2009. That string was broken by the 3.5 percent growth figure for the third quarter of this year. The “growth” figure for the third quarter was brought about entirely by government “stimulus”, as proudly touted by the US government itself.

By other measures, the malaise has lasted far longer. The Dow, for example, is languishing at the same levels today as it was in mid 1999. US house prices in many major cities are back down to their levels of the mid 1990s. One in six Americans - and again these are the government’s own figures - are said to be not only living in poverty but to be going hungry. Today, 44 percent of Americans say that China - a“Communist” nation - is the world’s leading economic power compared to 27 percent who pick the “Capitalist” US. Less than two years ago, the score was the US at 41 percent vs China at 30 percent. Ten years ago, the question would have been laughed at by any American who was asked it.

What is failing today, and not before time, is the global “experiment” in REPLACING capitalism with government control. In the US, this experiment has been played out continuously for almost a century. The cost has been enormous, inexorably transforming the US from the freest and most prosperous nation in history into the overstretched and indebted hulk which Mr Obama presides over today.

The simple and unassailable proposition is that the freedom, prosperity and happiness of a people is inversely proportional to the size and power of its government. To blame “capitalism” for the current financial and political situation in the US is grotesque. At a time when governments everywhere are baying for more regulation, more power and more control over the lives and wealth of their citizens, capitalism has never been more conspicuous by its absence. And THAT is the whole problem. . . . . . .

The Global Market Report

Four Decades of Global Fiat Money – Will There Be A Fifth?

Begin by casting your mind back ten years - to mid December 1999. The end of the century and
millennium was approaching. On the global financial system and on the markets, the only shadow on the horizon was the”Y2K” bug with huge concern about computers everywhere falling over as they had to change the first number in their dates from a “1" to a “2". In the event, nothing much happened at all

In the US, the stock markets were finishing up one of the best years in their history. The Dow had exceeded the 10,000 level for the first time ever nine months earlier in March 1999 and stood well above the 11,000 level in December. Over the past five years, it had climbed more than 200 percent - but had been stalled in a tight trading range since May 1999. The Nasdaq was nearing the end of a year in which it had nearly doubled in percentage terms as the “dot com” boom accelerated seemingly without end.

In December 1999, US stock market valuations were more than 50 percent of the combined valuation of ALL world stock markets. In “normal” times, total US stock market valuations stand at about 50-55 percent of US GDP.  In December 1999, they stood at a valuation of more than 150 percent of US GDP.

In the US “private” economy, Americans had given up all “traditional” forms of savings in favour of “investments”, notably stock market investments. The US government, benefiting from the huge surge of“ capital gains” of all descriptions, had been touting actual budget surpluses for years. They weren’t real surpluses, Treasury debt rose every year, but nobody questioned government “accounting methods” in the 1990s. Indeed, in fiscal 2000, the Treasury managed to hold the annual increase in its funded debt to a mere $US 17.9 Billion. For the US, the last half of the 1990s was the grand climax of the fiat money era. Everybody was getting rich by borrowing and spending without a thought for tomorrow.

The Lost Decade:

Now, here we are ten years later as we approach the end of the first decade of the 21st century and the fourth decade of the global fiat paper money era. In the fiscal year which ended on September 30, 2000, Treasury debt increased by $US 18 Billion. In the fiscal year which ended on September 30, 2009, it increased by $US 1,885 Billion. Over the past ten years in the US, we have seen one (housing) bubble and two giant busts. The first was the dot com crash in 2000-02. The second has been the crash in almost all markets as the Global Financial Crisis (GFC) took hold just over two years ago.

In fact, for the US and the world, the decade just ended has been the second “lost decade” of the fiat currency era. The first decade was the 1970s, the decade of moribund paper markets, skyrocketing interest rates and consumer prices and a huge spurt in government deficit spending. It is hard for a young American today to believe, let alone visualise, what it was like at the end of the 1970s with US interest rates soaring towards the 20 percent plus levels and their fathers and mothers abandoning US Dollars and US investments in favour of precious metals and foreign currencies.

It would be hard for ANY American to imagine a repeat of the “cure” that was applied to the US financial system by Fed Chairman Paul Volcker at the end of that first “lost decade”. In October 1979, Mr. Volcker stopped targeting interest rates and started to target the US money supply. The consequence was an 18 month period of 20 percent plus interest rates and a deep recession. The final result was the successful luring of the world back to the US Dollar. Today, that “cure” would kill the patient stone dead.

Over the past decade, the US Treasury has added more than $US 6 TRILLION to its debt. Nearly HALF of that total has been added over the last quarter of the decade, the period since mid 2007. In 1979, the Fed funds rate soared from 10 to 17 percent. In 2009, it has not budged from ZERO percent. If Mr. Volcker had chosen Mr. Bernanke’s path, the paper US Dollar would have died thirty years ago.

A Collapse Merely Waiting To Happen:

In the 1970s, the US Dollar was supported (reluctantly) by Treasury debt buying out of Europe. In the 1980s and most of the 1990s, the major buyer was the Japanese. At the beginning of the 1990s, the Japanese financial system keeled over under the strain. By the late 1990s, all of Asia went through a near death financial collapse as investments were repatriated to keep the boom in the US (and to a lesser extent in Europe) going. After that, Asia decided that they were going to build up their “foreign exchange reserves” to prevent a recurrence. Over this decade, the major buyers of the debt issued by the US Treasury have been the Asians. Since about 2002, China and India have come to the fore as the major suppliers of consumer goods to the US. While some of these goods have been paid for with huge exports of raw resources by nations like Australia, the situation is different for the US. All of the REAL goods exported to the US over this decade have been “paid for” with Treasury IOUs.

Over the past two years, these Treasury IOU’s - especially the short-term ones, have paid next to no rate of return. In addition, the US Dollar has fallen nearly 40 percent on a trade-weighted basis since the Chinese and the Asians became the major Treasury creditors early in this decade. There is no chance whatsoever of this state of affairs lasting through the next decade, the one which begins in just over two weeks.

The US Dollar Legacy - With Gold - And Without It:

As already reported in our “Inside The United States” section in this issue, US Treasury debt is now hovering just below its present “limit” of $US 12.104 TRILLION. Next week, Congress considers a bill to raise that limit by nearly $US 2 TRILLION, by far the biggest “one off” increase in debt limit history.

Here are the increases in the US Treasury’s debt limit - decade by decade - over your Captain’s lifespan:

1950-1959 - up $US 20 Billion
1960-1969 - up $US 82 Billion
1970-1979 - up $US 453 Billion
1980-1989 - up $US 2,292 Billion
1990-1999 - up $US 2,828 Billion
2000-2009 - up $US 8,050 Billion *

* The figure for 2000 - 2009 assumes that the $US 1.8 to $US 1.9 TRILLION debt limit increase proposed by the US Congress is passed before the end of this year. It will almost certainly be passed next week. This increase is intended to last for about ONE year, sufficient time for the US government to get through the “mid-term” elections to be held in November 2010.

Over 30 years, between the start of the modern Treasury “debt limit” in 1940 and 1970, the limit climbed by $US 328 Billion. $US 251 Billion or 76.5 percent of that total took place over the four years (1941-45) of US participation in WW II. In 1944, the US Dollar became the world’s sole “reserve” currency.

In August 1971, the US Dollar ceased to be redeemable in Gold by anyone. The global fiat money era began. For Americans, it had begun in 1933 when they were prohibited by their government from redeeming US Dollars with Gold or from owning Gold at all except in tightly controlled circumstances.

Over the 40 years since 1970, the Treasury’s debt limit will have been raised by $US 13,623 Billion once the proposed increase in the current limit of $US 12,104 Billion is passed by Congress and signed into law by Mr Obama. When that happens, debt limit increases since 1970 will make up 97.3 percent of the total.

This debt limit increase will be the FIFTH since September 29, 2007. In the five years between August 1997 and June 2002, the debt limit was not increased at all. The momentum is nothing short of awesome and cannot be maintained. The almost 40 year “experiment” of money without Gold is nearing its end.

The Appalling Contrast:

Look at the last two decades of the pre global fiat currency era in the US, the 1950s and 1960s. The total increase of the Treasury’s debt “limit” over those TWENTY years was $US 102 Billion. At the end of the 1960s, the population of the US was two-thirds of what it is today. Because the US government still faced the possibility of having to redeem its Dollars for Gold, that was as much as they dared borrow to “govern” just over 200 million people.

But the US government has not faced that possibility now for almost four decades. Look at the cost deemed necessary to govern just over 300 million people today. Over the first two months of fiscal 2010 (October - November 2009), US Treasury debt increased by $US 292 Billion. That’s an average of $US 4.8 Billion every single DAY - 365 days per year! In the 20 years between 1950 and 1970, the debt “limit” increased at an average rate of $US 5.1 Billion every YEAR! Such is the damage which has been done by removing the discipline of Gold convertibility from the monetary systems of the world.

There is no “cure” for the present situation short of an almost instant reversion to GENUINE budget surpluses, an act which would cut the spending of the US federal government by well over 50 percent instantly. Both the welfare state and any vestige of “stimulus” packages would have to be totally jettisoned. There is neither the political will nor the demand from Americans for ANY of this to take place. The situation is very simple. We have seen the last full decade of the fiat currency era. The only question now is how much of the next decade will pass before it collapses.


Ó 2009 – The Privateer

(reproduced with permission)


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