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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 Michael Pento
May 27, 2009
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The government is now hopefully learning a valuable lesson. A country can’t manipulate interest rates lower and stimulate the economy by piling on an insurmountable level of debt without consequences. The problem they face is clear. The incipient healing of the economy hinges on the continuation of very low borrowing costs for the consumer and government, as well as an economy that enjoys price stability. Record levels of debt require interest costs to remain low otherwise debt service becomes intractable. On the other hand, the massive build up in the monetary base and levels of debt demand for commodity prices to rise, the dollar to fall and bond yields to soar.

The point is they just can’t have it both ways. The government will have to decide to either step up their purchases of coupons in a direct assault on the bond vigilantes or acquiesce and allow rates to rise above inflation. The more long term debt they purchase by expanding money supply, the more inflation they will create. Therefore, the higher those yields must eventually rise. If they were to have a change of heart and allow the free market to work, rates would rise initially because they have been suppressed for so long. But although that would cause an extreme amount of economic pain in the short term, it is the only path that leads toward the long term health and viability of the country.

This is a critical time in our nation’s history. The bond, foreign exchange and commodity markets are forcing government’s hand. Comments made by Timothy Geithner and Alan Blinder last week give us a clue as to what road they will take. The Treasury Secretary and former Vice Chair of the Federal Reserve clearly indicated that it would be a serious problem if government exited its prodigal spending too soon. If that wrong decision is made and the government doubles down on its losing bet to artificially control interest rates, we face an economic environment that will be stigmatized by stagflation as far as the eye can see.

If higher inflation, more taxes, and debt lead to economic prosperity the economy is right on course. If however, you believe that a sound currency, low inflation, les debt and lower taxes lead to productivity gains—the only real way to grow an economy—you may have to wait until the next life.