In Jim Cook's Archive


Most wealthy men and women turn their finances over to professional money managers.  Lately some have been turning to hedge funds.  These managers tend to run in packs.  They pretty much follow the investment logic of Warren Buffet who pointed out that twice in his career his stock portfolio fell by half.  He only had to have patience and in time it recovered and grew from there.  All these folks buy into the theory that everything will be fine and recoveries are inevitable.  None of them understand that we face an inflationary crisis that can vaporize much of their wealth.  They don’t get it and when they hear economic warnings they ignore them. Most buy into the Keynesian argument that all we need is more money.  Print and be happy.  Ultimately, however, a price must be paid for this inflationary process. In fact, inflation has been much worse than the government tells us. No matter how many millions you have, at least half of its purchasing power may have melted away so far in this century.

In the face of this coming inflationary turmoil conventional investments aren’t going to cut it.  At some point the currency markets and the world could turn their back on a depreciating dollar.  If inflation runs away you can no longer bail out the economy with newly created dollars. Then you have the advent of depression. The late economist Hans Sennholz (1922-2007) wrote about what’s coming after runaway inflation destroys the dollar’s purchasing power. “In the dusk of the paper system that springs from political power and economic redistribution, the dreaded depression that was so long delayed in coming will finally make its entrance with irresistible force.”  In this environment bonds will have been obliterated and stocks will have crashed.  The rich will be less so.

Members of the affluent upper class think they can offset the ravages of inflation and depression with their holdings of stocks, bonds, or tangible assets.  However, real estate, antiques and art can suffer major losses in a precipitous economic decline. Many affluent people rely on interest payments, dividends and annuities for income. Inflation is the greatest danger they face. That’s why it’s so important to have 10% of your net worth in silver and gold. They have a history of offsetting inflation.

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