In Jim Cook's Archive


The highly successful newsletter publisher, William Bonner, lives on a rural French estate. He recently sized up the American economic predicament. “We have been saying for years that consumer spending cannot make people rich; instead, it makes them poor. You don’t get rich by spending; you get rich by saving…and building new businesses, new factories, and new and better products. You get rich by foregoing consumption in favor of production – so you can produce better automobiles, for example, than your competitors. But the United States has done just the opposite. In consumes…and allows its competitors to invest and produce.”

He continues, “The biggest single asset people all over the world own is the U.S. dollar in various forms – notes, bonds, stocks…At some point…perhaps soon…people will realize that those assets are not worth as much as they think they are. They could rush for safety at any time – which would cause the very disaster they fear: the dollar would crash, stocks would collapse, bonds would become nearly worthless.”

Recently there’s been a lot of talk about deflation. Although the economy does appear to be slowing down, it’s not going to eliminate inflation. In fact, the monetary authorities will react aggressively by throwing in the towel on the inflation fight. If they have to lower interest rates they will. Stephanie Pomboy of Macromavens recently wrote that for all practical purposes, the Fed may already have stopped tightening. “In the last week,” she wrote in early May, “The Monetary Base staged its largest weekly increase since 9/11.”

The idea that the Fed may wind up pushing on a string, as they did in the 1930s when they failed to pump out enough money and credit to offset a depression, fails to take into account the following factors.

        1. Today we have a globally coordinated monetary policy. When we need help from the Asians, we get it.
        2. Nowadays, the government intervenes in currency markets in a big way and probably does the same in stocks, gold and bonds. That didn’t happen in the 1930s.
        3. The Federal Reserve is more creative, aggressive and proactive at inflating than in the past.
        4. Government comprises a much larger segment of our economy than in the 1930s.

All of these things favor more inflation rather than deflation.

One of the reasons that savings are so low in the U.S. is that inflation erodes the purchasing power of money. Low interest rates further lower the incentive to save and these low rates are also the primary method of inflating. Our solution is for people to save in the form of precious metals. Silver and gold were the worlds money for three thousand years up until the 1930s. They are still considered an alternative money. Someone once said that when you buy these metals, you take your money out of the system and put it on the sidelines. Taking it out of a depreciating currency and parking it in silver seems like switching into a form of savings that not only protects your wealth, but can make it grow.

In silver you have an ageless precious metal with an intrinsic value still selling at close to historic lows. This tangible asset stands outside the paper monetary system. There’s nothing else like it. It has universal demand by industry and by people around the world who value it because it’s scarce and precious.

Silver became money on its merits before there was such a thing as industrial development. Then, fifty years ago industrial uses for silver literally exploded and the above ground supply, that was once used for money, was rapidly depleted.

Ted Butler says, “On the first real price rise, the owners of that tiny remaining inventory will realize simultaneously just how valuable their property is, and will do what people have done for the entirety of human existence – they will hold their property tighter than ever before, or demand an ever-escalating price. And it will come overnight. That is the silver window that is about to shut tight for perhaps another 30 or 40 years.”

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