Unfortunately, most people think that when the fed reduced the interest rate by a quarter percent, they were in good shape. Really? Within minutes of the rate reduction, the price of oil went up $4, and the dollar sank like a lead sinker. Make sense? Maybe not to the sheeple, but consider the economic facts. Oil is sold world wide in dollars. The dollar, being the world’s ’reserve currency’, things like oil and gold are priced in dollars. In the UK, if you ever listen to the ’Beeb,’ (which is what the Brits call the BBC), when they speak about economics, even though they use the pound, most reports are spoken of in dollars.
How long can the world use dollars to price everything? I would estimate not very long. Why not? Because if a nation has a $40 trillion, un-payable debt, can’t control its spending, is very war-like, which costs a lot of money, thereby decreasing it’s currency’s value, the world will naturally say to itself, “Hey guys, we’d better find another reserve currency, as this one’s going down the tubes.” When the rate was cut, as when any rate is cut, the value of the merchandise is looked upon as being worth less. If you go to a store and see closeouts in men’s clothes, will the close-out shirts and suits usually be desirable? Or will they be outrageous colors or size XXX large, which no one is particularly in the market for, so they are being sold cheap? Anything which is really “on sale,” is of lower value and demand. When the interest rate on a currency is lowered, that currency is of lower value, an ironclad rule. Would you buy a note which pays 6% interest, or 7% if they both were offered to you as an investment and the notes had equal credit-worthiness? The higher interest one, quite naturally.
When the D.C. Gang tries to sell their debt to anyone who will buy, if they lower the interest rate paid, potential buyers will shop for the best interest rate, or the note which has the higher credit worthiness. Hopefully you realize that the phrase “Full faith and credit of the U.S. Government,” has lost much of its appeal, which is a mild understatement. Naturally, many overseas buyers of our debt keep doing it because they sell us a lot of their merchandise and are paid in dollars. They are damned if they do, and damned if they don’t. The D.C. Gang is also damned if they lower it, and damned if they don’t. Why? because if they lower the interest rate, the debt is harder to sell, but at the same time it may give the real estate crash a bit of breathing room. Either way, neither bodes well.
How long will China and others keep buying U.S. Debt? I wouldn’t, but millions of Americans do every day by buying treasury notes, which pay a few little percentage points in taxable interest. Foreign nations don’t have to pay US taxes when they ’invest.’ When American investors buy T bills, they are losing their capital, because the inflation rate is a lie and the interest is taxable. Would you loan money to an entity with all credit cards maxed out, and not enough income to pay the interest on them? That’s what Americans and foreign nations are doing, when they buy our government’s debt.
Some say that times are bad, but hopefully, they will improve. I wish it were so, but I keep getting confronted with inescapable facts and figures. With an admitted current national debt of $9 trillion, and promises of future payments for the various welfare schemes such as Medicare, Social Security, and the like, making the debt $40 trillion, how can they get better? I wish I could be an optimist…I really do. I wish I had a set of rose colored glasses which would make it all be so fine down the years. Maybe a new President can fix it? Republicans can fix it? I just don’t know how $40 trillion, or even $9 trillion, if all future payments were cut off, can be paid. Correction, I do know! You print the money to pay the debts! Oh thank you Lord, we have found a way. We’ll print the dollars to pay the bills, so everything will be OK after all! How wonderful that we can not be a dead beat.
Are you laughing? If the dollars were printed to pay $9 trillion in debt, each dollar would be worth less than a penny. A gallon of gas would cost $30,000. Now you see why I am afraid that the buck may not last much longer as the world’s ’reserve’ currency, and why you should not store surplus assets in them. What can we do to change things? I am afraid that it would be like trying to make a lady out of Britney Spears…it’s too late. All we can do is protect ourselves from the ills and troubles the D.C. Gang, over the years, has piled upon us with depreciating dollars, huge taxes, endless wars, illegals flooding our land, and lies by the millions exuding out of the Nation’s Capital. How can we do this? Economically, by getting out of dollars, like you would a room full of spiders, snakes, or cockroaches. I wouldn’t be caught dead with extra dollars! People ask me what percentage of their wealth should be in gold or silver, and I am not the one to ask, because I will tell the truth, and truth angers some people. I practice what I preach, and as I write this, I just bought 500 ounces of silver.
I also have little to no faith in the stock market or real estate. I think the stock market will plummet eventually, and real estate is already doing that. This is not meant to be an advertisement! If you read my screed and buy from someone else, I don’t care. If my scribblings help other precious metals dealers, that’s just fine. Just compare prices, is all I ask.
There have been some wonderful things which have happened to the U.S. and the world, and I cannot negate them. Wonderful inventions have made our lives ever so much easier and convenient. The internet alone, allows me and others to preach at virtually no cost, and for those not interested, to turn me off. Autos are ever so much better, as are double glazed windows, great insulation, microwaves, frozen foods, big TV pictures, DVD’s, satellites, polyurethane, computers, calculators, transistors, and the list is long. Wonderful things are taken for granted now-a-days, so used are we to them. It’s just that we are no longer a wealthy nation and a free people as we were a hundred years ago. If we can watch a big picture on our TV set, while we are being de-capitalized by our government, it is not good.
99% of Americans think, “All is well, inflation is under control, we needed to go to Iraq and Afghanistan, and the influx of tens of millions of illegals might not be good, but it hasn’t hurt me individually. Admittedly prices are going up, but so are my wages, so don’t bother me with your alarmism. There’s always someone trying to confuse people and get everyone upset. Leave me alone. I’m fine.” The reason they feel and act that way is because our decline is sort of like termites in your house. They eat away, destroying the very foundation, and no one knows till you step through the floor maybe. So be it. That’s it people. Next column will be about something else. I could continue this for many more columns, but it takes a lot of time, and I am not a writer, just a precious metals broker. Notice that all those people you thought were so funny on TV, aren’t there any more? Their stuff was written for them by writers who are now on strike. Perhaps, after these 16 columns, you might realize that the slush coming out of D.C. in the form of statistics is pure rubbish. You, hopefully, will realize that we are no longer wealthy, and depending on dollar savings is foolhardy. How long can we last? A long time, I am sure, but times will be rough in the future. Protect yourself.