In Jim Cook's Archive


Quite a few years ago the late silver guru, Jerome Smith, came to visit my company. We had a nice few days talking about economics, the government and silver. Jerome was the ultimate government hater. He claimed that whatever bad happened in the world, if you looked far enough, you would see the government caused it. I was pretty skeptical about that generalization. However, from time to time my mind would return to that statement and leave me wondering.

We’ve had some tragedies in Minnesota lately. The most recent was a flood in the southeastern part of the state. Numerous trout streams, valleys and small communities make up the area. A heavy rainstorm turned the creeks and streams into raging torrents that tore away homes and coated the towns in mud. Lives were lost. One young man gave up his life to save his wife. “Take care of the children,” he instructed as he was swept away.

On top of the hills surrounding the streams are farms. To the west the valleys peter out, replaced by tens of thousands of acres of farmland. Virtually all this land is tiled and drains into ditches or into the headwaters of the trout streams. No fields, low areas or ponds are left to absorb and hold water. It drains off quickly. Most assuredly this runoff accounts for the severe flooding, building loss and deaths. The blanket of mud the villagers complain about is really topsoil from the farmland.

Where does the government come in? They paid for all the farmers to install tile and dig all the drainage ditches. They subsidized the farmers to “clean up” their land. No thought was given to those poor souls downstream where the excessive runoff wreaks havoc.

You’ve heard about the bridge tragedy in Minneapolis. Thirteen people died while more than a hundred were miraculously spared. The politicians and newspaper columnists are blaming government for ignoring clear warnings of a failing bridge span.

Jerome Smith was wrong when it comes to natural disasters. You can’t blame the government for a hurricane such as the one that hit New Orleans. On the other hand, you can blame the government for building and monitoring dikes that were clearly inadequate. The aftermath of the storm revealed a high level of government incompetence. Unfortunately, the horse was out of the barn by the time the government rode up.

Government has no bottom line. Businesses cut costs and try to spend less while government aims to expand its budget and spend more. Government relies more on degrees and credentials than merit. They also are huge affirmative action employers, a policy which puts race and gender ahead of merit. Government employees are bound by vast numbers of rules and regulations. Creativity and innovation suffer. Since you can make more money in the private sector, entrepreneurs and self starters that get things done are missing from government.

Sad to say, the government is in charge of our money. They have a monopoly. Years ago gold evolved as money. Paper itself could never evolve into money. It had to be linked to gold. Then government cut the link. They did that because gold money could not be created out of thin air, printed in bales or expanded through credit. That was the chief excellence of gold. The government and the politicians could not spend, subsidize, socialize and squander as much with gold money. They got rid of it. Now gold as money is a quaint, historical memory. Money has taken on a whole different meaning.

We do not know currently whether we are in the eye of the liquidity storm or whether it has passed. We do know that trillions of dollars are on shaky ground and trillions would be required to bail out the losers and the plungers. Jim Sinclair warns, “This is the first episode of a meltdown in financial instruments that represent between $20 to $30 trillion dollars.” As predicted by the Austrian School of Economics, we are careening from one crisis to another. The monetary authorities have endangered our money to the extent the government probably has to support our stock and bond markets, and perhaps, even real estate.

Do you totally trust the government’s management of our money, economy and markets? You should be skeptical when you see how they inflate like mad to keep every crisis from worsening. It’s always the same cure, water down the dollar. That is all they know. An abundance of anything reduces its value. Currency debasement can get out of hand. The low inflation that everyone seems to love can turn into something much worse. Ultimately there is no good outcome. Hope for the best, but make some preparation for the worst.

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