In Jim Cook's Archive


In countries that suffered past hyperinflations the citizenry were taken by surprise.  Nobody saw it coming especially the politicians and monetary authorities who were in charge.  That’s the way it is in America today.  Nobody sees it coming.  That’s a necessary adjunct to runaway inflation – a populace who scoffs at the possibility and leaders who are oblivious.

In America our government debt mounts relentlessly.  By any definition spending is completely out of control.  Our deficits are paid for by the printing press and computer entries that create money out of thin air.  The great Austrian economist Ludwig von Mises (1881 – 1973) wrote about this policy, “If the practice persists of covering government deficits with the issue of notes, then the day will come without fail, sooner or later, when the monetary systems of those nations pursuing this course will break down completely.  The purchasing power of the monetary unit will decline more and more, until finally it disappears completely.”

Should we give credence to these warnings from Mises (pronounced Meesez)?  The accomplishments of this Austrian born genius are amazing.  In 1920, he showed that socialism and planning must fail because of the lack of market pricing.  Mises’ brilliant checkmate to collectivism was widely acknowledged when communism collapsed seventy years later.

Among other things, Mises was able to show that inflation was no more than taxation and redistribution of wealth; that prices will most often fall without government induced money injections; that increases in the money supply, e.g. a sudden doubling of everyone’s money holdings benefits society not an iota and in fact only dilutes purchasing power; that only growth in the factors of production, land, labor, plant and equipment will increase production and standards of living.

In a brilliant and important theoretical accomplishment Mises traced the demand for money back in time to a useful barter commodity (e.g. silver and gold). That meant money could only originate on the free market out of demand.  Government could not originate money.

Ludwig von Mises emigrated to the U.S. in 1940.  He lectured and taught at NYU.  Here he pointed out how central banking acts as an accomplice to government money expansion.  And he began to explain his great business cycle theory.  Recognizing that the market economy could not generate by itself a series of booms and busts he fixed the blame on an outside factor – habitual expansion of money and credit.

If Mises were alive today he would be dumbfounded that our nation could be $16 trillion in debt.  He would point out the risks to the dollar’s role as a reserve currency when other nations hold so much of our debt.  In a recent article analyst Morris Hubbartt spelled out China’s latest moves against the dollar.  “An unconventional battle has started.  The Chinese government is taking all the steps necessary for their currency to become a world reserve currency, while America’s government falls behind.  China has been very busy, making over 20 bilateral trade agreements to eliminate the dollar from their trading activities.  They have also begun making credit available to key trading partners in Chinese currency.  In the last week China continued to work to promote their currency and undermine the U.S. dollar.”  Has it occurred to our leaders that China could destroy the dollar and ruin our economy with one phone call?  If they sell our bonds en masse, we’re finished.

If the dollar loses its role as the world’s reserve currency a massive quantity of dollars will come back to haunt us.  The analyst Martin Katusa described what would happen.  “The value of the U.S. dollar is based on this role as the conduit for global trade.  If that role vanishes, much of the value in the dollar will evaporate.  Massive inflation, high interest rates, and substantial increases in the cost of food, clothing, and gasoline will make the 2008 recession look like nothing more than a bump in the road.  The government will be unable to finance its debts.  The house of cards, built on the assumption that the world would rely on U.S. dollars forever, will come tumbling down.  It is a scary proposition, but don’t bury your head in the sand because countries around the world are already starting to ditch the dollar.”

The late economist and author Henry Hazlitt gave a clear description of what’s happening in America.  “When the Federal Reserve banks buy government notes or bonds in the open market, they pay for them, directly or indirectly, by creating money.  This is what is known as ‘monetizing’ the public debt.  Inflation goes on as long as this goes on.”

A student of Mises the late economist and professor Hans Sennholz issued this warning, “If a government resorts to inflation, that is, creates money in order to cover its budget deficits or expands credit in order to stimulate business, then no power on earth, no gimmick, device, trick or even indexation can prevent its economic consequence.”

Ludwig von Mises observed the great Weimar Republic inflation first hand.  He concluded, “Whatever people may say about a policy of increasing the quantity of fiat money, there is one aspect of it that even the most obstinate of its advocates cannot deny: Inflationism cannot last; if not radically stopped in time, it must lead inexorably to a complete breakdown.  It is an expedient of people who do not care a whit for the future of their nation and its civilization.”

Nevertheless, our nation is wedded to money creation and credit expansion.  Our government would have to stop spending to stop inflating.  It won’t happen.  No politician will stop funding social programs and there would be riots and voter recalls if they did.  Our government wants to inflate its debt away as do all world governments.  That’s why Mises concluded “The monetary and credit policies of all nations are headed for a new catastrophe.”

We base our argument for silver on these ideas.  Mises was no lightweight.  He wrote dozens of books and articles.  The brilliant French economist Jacques Rueff said of him, “…Ludwig von Mises has safeguarded the foundations of a rational economic science…”  The economist Ralph Raico wrote, “Decade after decade he fought militarism, protectionism, inflationism, every variety of socialism, and every policy of the interventionist state.”  The late economist Murray Rothbard called Mises “the pre-eminent theorist of our time,” and “one of the great creative minds of the century.”  There’s no doubt his arguments have proven correct time and again.  That’s why you should listen to his warnings and act on them.

Mises explained how future inflation would unfold.  He asked, “How long can a central bank continue an inflation?  Probably as long as people are convinced that the government, sooner or later, but certainly not too late, will stop printing money and thereby stop decreasing the value of each unit of money. When people no longer believe this, when they realize that the government will go on and on without any intention of stopping, then they begin to understand that prices tomorrow will be higher than they are today.  Then they begin buying at any price, causing prices to go up to such heights that the monetary system breaks down.”

That is what’s going happen in the U.S.  It’s the reason you must have a supply of silver on hand to fund your purchases.  I was sitting with a group of old and new friends in Chicago last week.  They asked me about silver.  I explained that they should have a supply of silver at home to use for money in case of runaway inflation.   One guy was amused.  The fact that no one believes this is possible makes me all the more sure that it’s inevitable.

Mises once proclaimed, “Government cannot make man richer but it can make him poorer.”  Nothing can make man poorer than hyperinflation.  Precious metals are the best answer to offset government mismanagement of our money.  Hold silver until you have weathered the monetary storm ahead.

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