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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 Richard Russell
September 24, 2009
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In its initial leg down in this bear market (2007 to 2009), the Dow lost over 7000 points. At the same time, US consumers were $13 trillion poorer through stock market and housing losses. Those losses had a profound deflationary effect on consumers and the US economy. Fed Chief Ben Bernanke sensed the danger of the US lapsing into a second Great Depression. Bernanke believed and explained that he knew how to defeat a potential deflationary depression. It was easy, he would halt the bear market and hold off the depression with an avalanche of money printing. America was not going to suffer a repeat of the 1930s. How much money was Bernanke willing to create? The answer was "whatever it takes."

So far, it's taken currency creation in the trillions of dollars. The US had never before seen such a rise in the national debt.

How to get those frightened and stubborn consumers to buy? The word was "stimulation." Frightened and beaten US consumers must be almost forced to spend. Cars were underwritten by the Fed, first-time home buyers were given tax breaks if they would only buy. Artificial stimulation was pressed on American consumers.

My reaction is that the Fed cannot change or reverse the great tide of the stock market or the economy. The stock market's reaction, so far, is that Bernanke's Fed has won the day. The numbers are improving. "Less bad" is the new "good." A huge short position was frightened. The stock market did a U-turn. Fund managers piled into the rising stock market. The potential horror was over. The worst bear market decline since the 1930s turned out to be a nonevent.

A relieved Ben Bernanke announced to the world that "the recession is very likely over." The expectation was that Americans could start buying and running up their debts again. So far, it hasn't happened.

Looking back, it really wasn't that bad. At the March bottom the market never caused "blood in the streets." There were no price/earnings of 5 or 6 in the Dow or the S&P. Dividend yields on the Dow or the S& P never rose to the 5-6% zone. Wall Street wasn't destroyed. Big bonuses were paid out, and golden parachutes survived beautifully. True, Obama no longer ran the country, Goldman Sachs did. But then Goldman knew things that Obama never dreamed about. "Government" Sachs know-how and Ben Bernanke's power saved the nation from a full-fledged bear market and maybe from a second Great Depression.

The only thing is that I don't believe we got off that easily. I don't think money-creation turned the tide. Today people can't find jobs. Today inflation in groceries and services are driving Americans up the wall. Today unemployment remains high. Today, corporations are not buying "the worst is over" argument. They're not buying the government's story because they don't see it, and they don't feel it.

Against history, the US is no longer able to drag the rest of the world out of recession. It's the American consumer that the world turns to -- to buy its exports. But the American consumer is no longer in shape to bail out the world. The new "savior" is China, and China has other ideas. China no longer wants to depend on its exports, China wants to build its own customers from within. China wants to buy up the world's wealth at bargain prices. China wants to be on a par with the US in terms of world leadership. China knows that to weaken a nation, you must first attack its currency. China wants more dollars, but it does not want to accumulate dollars, it wants dollars in order to buy up the assets and treasures of the world.

China wants to accumulate gold. Unlike the US, China understands gold. China considers gold long-term, eternal wealth. China knows that holding dollars for the long-term is a ticket to losses in purchasing power. China knows that as long as it lends dollars to the US, the US can buy China's goods. China will go along with that system as long as it benefits China. The minute the system is more of a problem than a gift, China will opt out of the system. It will halt buying US bonds.

Nobody knows the future. Nobody knows whether our future will be deflation or inflation or hyper-inflation. We don't know the future because we have never seen any government increase its national debt into the multi-trillions. On the face of it, the only way to handle this kind of debt is to "pull its fangs." That means resorting to -inflation to render the debt harmless, But inflation means that interest rates must surge, and the bond markets must collapse. What happens then? Nobody knows, but it can't be good.

The Bernanke plan to halt deflation must have unintended consequences. Some economists believe we're on "the eve of destruction." When all is lost, and when nothing can be trusted, men turn to time-tested wealth, the only wealth that has endured for thousands of years. China's leaders know this. They know that eternal, proven wealth is gold

And I ask myself -- in a rocky world, does it make sense that an agency of the government can issue trillions in fiat money, money that is legally declared wealth, and that paper will halt a world that is deflating and suffering from over-production?

It all goes back to the central banks and their deathly fear of gold. As gold rises, the rise symbolizes the world's doubts about the worth of fiat money produced by the central banks. What we're really seeing now is the critical battle between time-tested intrinsic money, gold, vs. paper created by man and mandated by fiat to represent wealth.

I can't ever remember anyone writing about the following. Remember, the Fed and central banks the world over employ tens of thousands of people. These central bank people know that as long as the world population accepts their fiat money, they have jobs. They will remain employed. But if fiat money is no longer accepted, then the chief product of the central banks no longer exists. In that case, the Fed and the central banks will have no further reason to exist. If that happens, thousands of central bank workers will join the ranks of the unemployed. If gold conquers fiat paper, the central banks and their fiat paper will have failed. No wonder the central banks and their employees have a mortal-fear of the power of gold.

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