In Jim Cook's Archive


Anthony Cherniawski wrote this in his newsletter, The Practical Investor: “One of the great lessons of [classical] liberal theory concerns the extraordinary capacity of free exchange to create wealth. Trading makes both parties better off. Saving makes resources available for investment. Investment creates jobs that yield more products for people to purchase. Through this mechanism the West grew rich.

The economics of stimulus are not as complicated. They amount to taking from some and giving to others. There is no wealth creation at all. There is no magic ‘multiplier’ to turn stones into bread. The economics of stimulus is value-destroying, because property is pried loose from owners who are putting it to socially useful purposes, and given to government so it can pass it out to friends. This process is costly to overall wealth production – and most of those costs are unseen. We will never know what kind of real stimulus could have taken place had the property been left in private hands. What jobs might have been created, what investments might have been made, what kind of business expansions might have taken place? We will never know.”


“Our government has just finished spending upwards of $15 trillion and what have we got to show for it? An economy that is sinking deeper and deeper into the worst recession since the 1930’s and dragging the rest of the world down with us. However, this time, instead of being the world’s largest financial super power, our country is now in the worst financial condition in its history and the powers that be are doing their best to panic us into doing the same as what got us into this situation in the first place.” Dr. Aubie Baltin, newsletter editor

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“We’re in a primary bear market. All my studies suggest that primary bear markets run to conclusion, which is another way of saying – ‘exhaustion.’ A basic tenet of Dow Theory states that the primary trend of the stock market can not be manipulated. I interpret this as a way of saying that the bear market in stocks, come what may, will continue until a decisive bottom develops. As long as the stock market continues to make new lows, it will be saying that the economy will continue to deteriorate. Thus, I see this bear market leading to a great tragedy in the US if not the world.” Richard Russell, Dow Theory Letter

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“President Obama’s massive mortgage-bailout plan is nothing more than a thinly disguised entitlement program that redistributes income from the responsible 92 percent of home-owning mortgage holders who pay their bills on time to the irresponsible defaulters who bought more than they could ever afford. This is Obama’s spread-the-wealth program in action. Team Obama is rewarding bad behavior. It is enlarging moral hazard. It is expanding its welfarist approach to economic policy.” Larry Kudlow, TV personality

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“We’ve definitely entered what I describe as the Greater Depression. It’s not coming; it’s here. It’s going to get much, much worse as far as I’m concerned and unfortunately, it’s going to last a long time. It doesn’t have to last a long time, but the root cause is government intervention in the economy and everything they’re doing now is not just the wrong thing, it’s the opposite of what they should be doing. It’s almost perverse. The distortions and misallocations of capital and the uneconomic patterns of production and consumption that have been going on for over a generation need to be liquidated and changed but everything the government’s doing is trying to maintain these patterns. So it’s going to be horrible. In addition, the government is necessarily directing more power toward itself with all of its actions. If I were you, I’d rig for stormy running for a good long time.” Doug Casey, Best-selling Author

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“The new Brothers Grimm, Bernanke and Obama spun their fairy tales this week. Contrary to the happy news out of the Fed and the Administration, the U.S. economy is in a protracted and rapidly deteriorating recession. While there are no signals for a rebound in place before year-end 2009, there also is nothing on the horizon that would suggest a return to economic normalcy in 2010. At best there may be occasional bottom-bouncing at low levels of activity, as discussed in the SGS Newsletter No. 49. There also are suggestions that the banking solvency crisis is intensifying, once more. As to the formal budget deficit, look for it still to top $2 trillion in 2009, with new Treasury funding needed to cover that. The cost of the Federal Reserve and Administration’s actions remains inflation, much higher inflation in the year ahead.” John Williams, Shadow Government Statistics Newsletter

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“Not only will tax increases have an appalling economic effect, they will also be very difficult to fit into Obama’s political timetable. Tax increases that took effect in 2009 to 2010 would be disastrously counterproductive, reproducing almost precisely Hoover’s blunder of 1932. However, massive tax increases that took effect in 2011 or 2012 would have an equally massive adverse effect on Obama’s re-election chances, particularly if they caused even a minor relapse in the U.S. economy. Hence, all but modest tax increases are likely to be delayed until 2013 or later, and the U.S. budget deficit is likely to remain at least well above 5% of GDP until then. That will increase U.S. public debt to around 100% of GDP by the 2012 election. It will also cause a massive increase in interest rates, which will doubtless be resisted to the utmost by the Ben Bernanke Fed. That, in turn, will cause a resurgence in inflation, probably at a speed and to a level that will make the late 1970s seem like child’s play.” Martin Hutchinson, Editor

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“The markets remain frozen and despite, lending or spending almost $3 trillion over the past two years, financial institutions are still grappling with the same problems when the crisis seized up over eighteen months ago. As it happened, by running the printing presses overtime, the government is creating a monumental monetary overhang that raises the inflation risk significantly and even bigger financial instability. Looming in the background are some $3 trillion worth of once highly rated asset-backed securities backed by subprime, credit cards commercial mortgages or complex derivatives that are festering on the banks’ books that have yet to be sold or dealt with.” John R. Ing, Newsletter Editor

“Today, investors in financials have lost nearly everything and before this is over, I suspect the majority of banks in the West will be nationalised. This would mean a total catastrophe for those who invested in bank stocks or corporate bonds. So, no matter how strongly your private banker pushes you to load up on ‘cheap’ financial stocks, please DO NOT go ‘bottom fishing’ in this bankrupt industry. Banking is no longer a growth industry and financials will disappoint investors for many years. Furthermore, if you have any exposure to hedge funds, structured products, accumulators or derivatives of any kind, I sincerely urge you to get rid of all this highly toxic garbage. Such ponzi schemes were very good for the private bankers (due to the huge amounts of commissions involved) but they are a disaster waiting to happen. Today, our planet has roughly US$600 trillion worth of derivatives and this is roughly 10 times the size of the global economy! So, please get rid of your derivatives based ‘investments’ immediately.” Puru Saxena, Asset Manager

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“We are facing the greatest, globally coordinated monetary reflation in human history. Granted, this is also the first globally coordinated reflation – but that doesn’t negate the fact that we have never witnessed anything like this before. Every currency will be debased; every economy will suffer from dramatic levels of inflation. Moreover, there will be no currency…no economy…no market offering refuge for investors, except for gold and other tangibles. It will be like the 1970s. On steroids.” Brien Lundin, Gold Newsletter


Newsletter blogger Karl Denninger recently won the Accuracy in Media annual award for Grassroots Journalism for his critical scrutiny of the financial ethics of banks and regulators. He writes about the capital markets.

Recently he wrote that the indicators he watches were “painting a picture of the Apocalypse.” Here’s his list of what’s going to happen if Washington doesn’t change policy immediately. We’ve taken the liberty of condensing his viewpoints.

  • All pension funds, private and public, are done. If you are receiving one, you won’t be. If you think you will in the future, you won’t be. Pension Benefit Guaranty Corp. will fail as well.
  • All annuities will be defaulted… The state insurance funds will be bankrupted and unable to be replenished. Essentially, all annuities are toast. All insurance companies with material exposure to these obligations will go bankrupt, without exception.
  • The FDIC will be unable to cover bank failure obligations. They will attempt to do more of what they’re doing now (raising insurance rates and doing special assessments) but will fail; the current path has no chance of success.
  • Government debt costs will ramp.
  • Tax receipts are cratering and will continue to. I expect total tax receipts to fall to under $1 trillion within the next 12 months. Combined with the impossibility of continued debt issue, a 66% cut in the Federal Budget will become necessary. This will require a complete repudiation of Social Security, Medicare and Medicaid, a 50% cut in the military budget and a 50% across-the-board cut in all other federal programs. That will likely get close.
  • Tax-deferred accounts will be seized to fund rollovers of Treasury debt at essentially zero coupon (interest). If you have a 401k, or what’s left of it, or an IRA, consider it locked up in Treasuries; it’s not yours any more. Count on this happening – it is essentially a certainty.
  • Any firm with debt outstanding is currently presumed dead as the street presumption is that they have lied in some way. Expect at least 20% of the S&P 500 to fail within 12 months as a consequence of the complete and total lockup of all credit markets which The Fed will be unable to unlock or backstop.
  • The unemployed will have 5-10 million in direct layoffs added within the next 12 months. Collateral damage (suppliers, customers, etc.) will add at least another 5-10 million workers to that, perhaps double that many.
  • Civil unrest will break out before the end of the year. The Military and Guard will be called up to try to stop it. They won’t be able to. Big cities are at risk of becoming a free-fire death zone. If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go ‘feral’, witness New Orleans after Katrina for how fast, and how bad, it can get.”

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