Long Silver John

Weekly Recap: Is the U.S. Going Bankrupt?

If the Treasury is shifting to short-dated maturities to carry a growing debt load, and if the Fed is therefore even more reluctant to raise short-term interest rates, then if velocity starts taking off, what's left to stop the runaway train of inflation? How can reverse repos be undertaken in sufficient quantity to offset Treasury needs to borrow for both principal and interest payments? What tools would be left?

Unemployment: The Gathering Storm

I'd guess there will be an emphasis on less specialization and more self-improvement into generalists. This will cut down on the need for a regular cash generating job to pay taxes, and use the rest to pay cash to have specialists handle every little aspect of your life. I grew up on farm and bartering among friends and family is routine (as most folks lack ready cash). So you'll see more of that. There will be more emerging technologies that drive growth. When I got out of law school in 1982, there were no jobs. That was a year before the PC revolution took off like a rocket creating whole new industries, followed by the internet wave, etc..

Will the Dollar Decline Forever?

In 1923, as I recall reading, there was a fairly steep drop in the value of the Mark on world currency exchanges (down 2/3rds in four months). Then it paused with government intervention. Then, as the dam broke and faith evaporated, the value of the Mark simply vanished. The ones who survived were those who bailed out and converted into gold/silver. If the same pattern is happening here, look for a 3-4 month steep drop in the dollar (spike in gold/silver), followed by government intervention, then a swift demise of the dollar as the Chinese and others bail out of Treasuries. Just think of that. The Chinese are able to destroy our country by doing almost nothing. We can then expect to see political instability here, as the Internet makes organizing against government that much easier, accompanied by military adventurism by rogue states abroad (just wait and see as Iran gets the bomb). All this because our elected leaders believed their primary objective was to get re-elected.

Fed Unwinding Won't Be Easy

Chris, you state: "Either the counterparties no longer exist, or if they do, some will decline (read: refuse) to buy the assets back, because doing so would bankrupt them (due to the fact that the assets are worth a lot less than the price the Fed bought them for)."

This seems to be the crux of your article, yet it is stated very briefly. Can you enlarge upon that theme?

Reich Is Right: Watch Your Wallets

I read an article last fall that South Korea had a culture where layoffs were shunned. Instead, everybody took a pay cut but kept their jobs. I wonder how Korea is doing now, compared to the US? Anybody following that story?

Paul Volcker: The Voice in the Wilderness

Mr. Volcker should resign from the non-position he holds in the Administration (probably intended only to control him) and take a candid, hard leadership stance against the excesses of both political parties... time is running out. Speak up Mr. Volcker!!!

Obama's Sure-Fire Formula for Accelerating Inflation

I think we should be allowed to print our own money on home computers. When the paper runs out, we just use thin slices of baloney. That removes any pretense as to what's going on. I would like to know the Fed's exit strategy for removing excess reserves. Don't they have to sell something? Like toxic assets on their balance sheet? Or can they just tell the banks to give the money back?

Gold as an Inflation Hedge

It's pretty simple: physical gold and silver are the only assets I can think of where I no longer have to trust anyone. Our history is replete with examples of how the government, their banking pals, industry and others having control over money can't be trusted. For fun, read the "gold cases" from the US Supreme Court in the 1930's, where they turn themselves into a pretzel to renege on the plain promise stamped on every Gold Certificate, that it can be redeemed for gold coin. They completely reneged on that promise.

Oracle of Omaha Warns of 'Onslaught of Inflation'

In Weimar Germany, just as inflation was taking off, it's my understanding from Rothbard's analysis of the Great Depression, that the wealthy and upper middle class moved their wealth in to gold. They survived financially. The middle and working class families, and those who didn't convert to gold, were wiped out by the hyper-inflation.

The Shedlock-Schiff Affair: A Chronicle

Austrian economic theory predicts that when the money supply becomes artificially expanded, there will develop a "cluster of errors" whereby smart business people as a group make systemic errors of judgment. It is because the money supply pushes them further out on the risk curve.

This is what happened in the 1920s and which happened again in the past five years. Peter is basing his overall judgment on the validity of Austrian economic theory. I believe he will be proven correct, despite the near-term glitch caused by the deleveraging.... Time will tell.

Let the Peter Schiff Backlash Begin

Time will tell whether the Austrian Economic viewpoint (followed by Peter) or the Keynesian proponents, are right. If you read Murray Rothbard's "America's Great Depression" (free on PDF) it gives an uncanny historical analysis of the lead-up and response to the 1929 crash that is very similar to what is happening now. I'm also reading his book about the Crash of 1819. Based on this track record, I'm betting the Austrians have it right...

Is the U.S. Solvent?

When the Fed starts buying up all the new Treasuries that need to be issued, exactly how does that result in monetizing the debt? I know intuitively that this must be correct, but technically, how does the money that the Fed gives the Treasury get into circulation? Is it through government expenditures (e.g., procurement on contracts, Social Security payments etc?). Insights?

Trust: The Biggest Casualty of 2008

A gold standard via government is not feasible, as it requires those in government office to agree to reign in their free-spending. This will not happen.

What can happen is for the free market to establish its own gold standard. Take a look at Goldmoney.com. It's basically a gold vault backing electronic money tradeable in grams. No fractional reserves. No fiat currency. Just weighted measures of gold.

I think this type of system, if run properly (including careful checks and balances and audits) can provide a free-market gold standard that will run in parallel to the world's fiat currencies.

Governments cannot be trusted. And they will not relinquish their control over the fiat money supply. We can all see that around the world.

What can be trusted and what does not depend on government action, is direct ownership of gold. I prefer holding the metal myself, but if you are looking for a gold standard monetary system, you might study goldmoney.com and systems like it for some ideas.

We need to remember, historically, that money can be strictly a free-market commodity that is not dependent on any government.

Nine Predictions for '09

My Predictions: We're headed for hyper-stagflation in Q3 2009, wiping out any remaining savings of the middle class, political instability and mass unemployment by 2010. There will be massive devaluation of fiat currencies worldwide against gold, silver and other hard assets, as a historic transfer of assets from creditors to debtors takes place. Formal monetary systems will be eclipsed by private gold-based currencies, such as GoldMoney.com (the new Switzerland) as financial survivors lose all trust in governments. Regional wars will flare up all over the globe, as political instability translates into armed conflict and leaders attempt to divert attention away from domestic problems to foreign affairs. There will be attempts to grab physical gold/silver stocks in nearby nations. The rise of political fringe groups to power will come next, as mainstream politicians cannot deal with the problems. There will be further destabilizing effects as corporatism (facism) rears its head again, and the government represses individual freedoms of dissenters worldwide. With major powers focused on their own problems at home, nuclear weapons will proliferate in Iran and other trouble spots. A nuclear conflict with Israel will result, in which Israel launches preemptive strikes at several neighbors at once. Later, Israel will be attacked and its cities will be largely destroyed. After a radical Islamic takeover of Pakistan, nuclear exchanges against India and against American troops in Afghanistan will follow. We will retaliate against Pakistan, destroying its major cities. Russia will retake border areas of its former empire, while China will take Tawain, creating tensions among the superpowers, and a final thrust toward world communism and eventual showdown with the West. Timeline: 2012.

Fiat Money and a Profligate Congress: A Bad Combination

That law was called Graham-Rudman, and the exceptions ate up the rule. Same thing for gold standard. When deficit spending got out of line with gold supply, the government devalued (1934) or went off the gold standard (1971).

What's lacking is the willpower of our leadership, which is focused on getting themselves re-elected, taking PAC-money from the special interests.

Volcker is the only guy (short of Graham and Rudman and maybe Bob Dole) who had the guts to take a stand. Volcker must be getting extremely nervous about this whole thing.

Obama will have his chance, but the preliminary indications are that he's going to spend like there's no tomorrow. Doesn't look good for the dollar (which is why I'm long on silver (and gold)).