THE BIG ONE
The possibility always exists that a stock market decline, a jump in interest rates, or a weakening dollar can lead to something worse. The first reason to own silver or gold is the potential for an unmanageable financial crisis. The second reason is hopefully to make a lot of money. For sure the most important reason is to get you through a financial catastrophe in one piece should it occur. An economic collapse can mean runaway inflation or asset deflation or both. It can mean an economic depression and financial collapse. Are these extreme events probable? Most people would laugh at such dire predictions. Nevertheless, these are real enough possibilities to make the ownership of silver and gold sensible.
I have for many years studied the economic arguments of the Austrian School of economics. Their greatest thinker Ludwig von Mises would be issuing the most dire warnings were he alive today. Mises instructs us that the central banks’ issuance of money and credit heats up the economy. When concerns about inflation cause the monetary authorities to raise interest rates and withdraw the purchasing media (as they are today), the boom will turn into a bust. The stock market will crash and the bond market collapse. That will cause the central bank to renew monetary easing and try to restore the boom. Inflation will then worsen and if the loose money policies aren’t quelled, runaway inflation begins. If you stop the inflationary policies you have a depression. If not you destroy the purchasing power of your money. In either case, the end game is a disaster.
Mises put it this way, “The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media [money and credit] are no longer thrown upon the loan market. If the credit expansion is not stopped in time, the boom turns into the crack-up boom [hyperinflation]; the flight into real values [hard assets] begins, and the whole monetary system founders. Continuous inflation [money and credit creation] must finally end in the complete breakdown of the currency system.”
Frankly, there is no good way out. The monetary authorities will do anything to forestall deflation and a depression. Thus, they will destroy the purchasing power of the dollar by keeping interest rates artificially low and pumping out money and credit. There is no middle road. Most people will be wiped out and only a few nimble investors will survive intact.
