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By James R. Cook
For the most part, everybody in America stubbornly refuses to acknowledge the severity of the current downturn. Let’s face it, the cutting edge economy of the future, formerly centered in the Internet, computerization and new technology has grossly failed to deliver the goods. The new era we believed in not so long ago has taken a devastating downturn. When you superimpose the sorry state of domestic manufacturing on top of the deflated technology bubble and a bloodied NASDAQ, the future profitability of manufacturing and technology corporations looks bleak indeed.
That’s not the half of it. The massive money and credit expansion of recent months, along with phenomenally low interest rates, have failed to re-energize the economy. If that’s not worrying the monetary authorities to death, it should. The problem stems chiefly from debt service. Freshly borrowed money goes to pay compound interest rather than to sponsor anything constructive. Furthermore, the vast drain of capital going overseas to buy foreign goods severely contracts our domestic producers.
We’re choking on debt. Three quarters of GDP consists of debt service. Huge quantities of junk bonds and lesser quality debt instruments are in default, or close to it. Big corporate names experience downgrades and investors shed the debt of major companies. Meanwhile, profits can’t improve because of a paralysis in business spending. Among consumers and corporations, delinquencies and defaults are rising sharply. A mad rush by the Fed to push out new money and credit exists side by side with the chronic destruction of money and credit from growing numbers of bankruptcies.
A trillion-dollar budget deficit now looks likely and the line of spongers at the government trough grows longer by the day. The airline industry comes hat in hand for additional subsidies. It never dawns on this spoiled nation that we may have to forego airline routes or raise fares. It’s simpler for the government to pay. If this keeps up, government finances will hit the wall and the dollar will suffer grievous depreciation. The government bailouts that would be necessitated by a credit collapse stagger the mind. Anyone holding strictly paper assets in today’s economic environment could very well be shooting themselves in the foot.
Despite the loosest money and credit policies in our history, the consumers and the companies that serve them are starting to take some hits. A reversal in our anemic savings rate would deprive the retail sector further and they would fall like dominoes. Risks of a great depression grow by the day. Dr. Kurt Richebacher warns, "Systemic risks in the economy and the financial system are not diminishing but worsening. Don’t expect a new dip of the U.S. economy. Prepare for much worse to come."
SILVER AND GOLD
How would silver and gold react to a depression? Industrial demand for silver and jewelry demand for gold would both fall off. However, monetary buying from worried citizens around the world would pick up. All of Ted Butler’s arguments also underpin the bullish case for silver.
The only solution that central banks have to combat a recession is to create money and credit. They will monetize the government debt (create money to pay the bills) in untold quantities. If things get tough enough, they will, virtually, throw money at borrowers. At some point corporate bailouts could be commonplace, with newly created money. The pathway out of a depression will be massive inflating. That’s why I believe we’re in for an inflationary depression. That economic disaster is the worst of all worlds.
When you buy silver you are protecting yourself against these negative contingencies. At today’s low price you have limited risk. In a depression most things are going to go down, but since silver hasn’t gone up in decades it doesn’t have the same air pockets beneath it. Silver is the ultimate insurance policy. It protects you in a crisis and it holds all the promise for gains that Mr. Butler articulates.
If the Federal Reserve successfully extricates us from the current economic decline, it will be through raw inflating. There’s no other way. The return of positive economic trends will surely be paid for by a depreciating dollar. Risks are everywhere. This could be worse than anything that’s come before. Don’t mess around. Get real money and hard assets that have never failed in history. They are precisely what you need to weather any storm. You need to be somewhat contrarian and think independently about the markets. If and when everyone wants to buy gold and silver, you should have yours put away. Furthermore we only talk about 10% to 20% of your net worth in silver and gold. Is there one chance in ten that our warnings are correct? I think you will grant us this likelihood. Don’t delay. Call us now and start acquiring silver. Here’s a suggested $25,000 portfolio to get you started (subject to daily price fluctuation).
- 1,000 silver one-ounce U.S. Eagles
- 10 – 100 ounce bars of silver (.999 fine)
- 2 bags of Kennedy circulated silver half dollars (1430 ounces)
- 25 – 10 ounce silver bars (.999 fine)
All of these silver items are of the highest quality and are checked carefully for weight and authenticity. Call us today at 1-800-328-1860.
DOUBTS ABOUT DEBTS
The dark side of credit creation has surfaced with new worries about debtors’ abilities to repay what they owe. The U.S. economy requires huge injections of credit to keep consumers spending and mortgage finance booming. Any large-scale suspicions about credit quality can have severe consequences and threaten a systemic crisis. Credit card debt, mortgages, auto loans, home equity loans and personal loans, are often packaged together and sold as securities to large financial entities (retirement plans, banks, brokers, hedge funds, etc.). These asset-backed securities run into the trillions. They have two major problems. Since the originator of the loan knows it will be quickly turned over and sold to someone else, they don’t apply the same stringent loan requirements that a bank applies. Credit standards are far more relaxed. Furthermore, the purchasers of these asset-backed securities don’t have a clue as to the creditworthiness of the people who have borrowed money from them.
Not only can virtually anyone get credit under today’s loose system, the whole credit apparatus is geared to make it easier and easier to get credit. That’s because of the dire consequences that ensue from lack of liquidity. It’s expand credit now or suffer the depressing consequences of prior credit excess. No doubt you have noticed the innovative new credit opportunities. You can drive a new vehicle out of the dealership with nothing down, no payment for a year and several thousand dollars of rebates in your pocket.
Frenzied growth in asset-backed securities are symptomatic of an over-aggressive financial sector with lack of concern over credit quality. But, suddenly worldwide perceptions of risks in asset-backed securities have taken a turn for the worse. Finance companies that originate and package the loans are experiencing significant financial stress. This impairs their future landing ability. Any fall off in credit availability puts a chill into lenders worried about erosion in the value of collateral.
Bankruptcies and financial failures are everywhere and growing. If managers start taking a second look at creditworthiness across the board, then a crunch in asset backed lending, junk bonds, mortgage debt and non-bank lending will begin in earnest. Already credit availability for business has deteriorated, further impairing capital spending. Once this process starts in earnest and continues its spread to consumer loans and the mortgage bubble, the devastation will be profound. No wonder gold and silver have started to edge up. This is as serious as it can get.