Twenty of the top most economists met last weekend, to try to figure out what to do to fix the world wide depression, which has just gotten started. The “G-20” people, I am certain, had all expenses paid and spent the weekend in posh luxury, which of course, is what all government representatives should do. With the world in virtual chaos, tens of millions of jobs lost, millions of foreclosures, and in general, the beginning of a first rate depression, it would be interesting to know what ’solutions’ these economists came up with, wouldn’t it? One must remember that they only have one type of ammunition to fight the depression with, and that is paper, un-backed, ’money.’ I placed the word ’money’ in quotes, because ’money’ should indicate value, and today’s ’money’ represents legal tender laws, and nothing else. If the treasury decided that Monopoly money was ’legal tender,’ we could pay our bills with Monopoly money.
All these fellows could do, was to figure out what to do with their various currencies. “Shall we bail out this bank or corporation?” “Shall we raise taxes?” “Shall we cut taxes?” “Shall we nationalize this or that?” “Oh dear, what can we do?” Not much. Jut imagine what the world would be like, or America even, if dollars were backed with gold, there was no fractional reserve banking system or Federal Reserve. Answer: We wouldn’t be in the current fix. Sub-prime mortgages would have never been made, there would have never been a “Freddie Mac”, or “Fanny Mae.” Millions of mortgages would never have been bundled and sold around the world. The ’money’ would be so valuable that it wouldn’t be squandered and loaned with little or no regard or sense of safety.
Doesn’t it make sense, as I have said in a previous column, that ’money’ should be valuable, and not just a piece of paper with no value, other than a law which states that it has value… but of course doesn’t? If you buy a car for money, shouldn’t the money you buy the car with, be as valuable as the car? If you buy a gallon of milk or a piece of lumber, shouldn’t the money you exchange the merchandise for, be as valuable as the thing you are buying? Equals for equals, in other words. If you barter eggs and butter for a chicken or roast of beef, you are exchanging one valuable for another. If you trade one car or piece of furniture for another at a yard sale, you are trading one valuable thing for another, aren’t you? Why shouldn’t money have actual value? What is wrong with money having value? If the money doesn’t have value, or is backed by something of value and exchangeable into something of value, what’s the point in saving in it?
If you’re going to fight a war, you need ammunition, not blanks. The 20 economists which met to figure out how to fix a wilted economy, have nothing to fight with other than paper scrip. If the world’s currencies had value, there wouldn’t be the mess we are now in, and there’s absolutely no question about that statement. The whole purpose of having money, is to be able to compactly store value, and exchange value for larger or sundry things. Money is supposed to be valuable, as well as compact, easily stored, and readily exchangeable for larger things of value. One can’t carry around a refrigerator or five gallon can of gasoline with which to trade, and besides most people don’t want a refrigerator or five gallon can of gasoline in the first place. Man’s wants and needs are infinite. In any one single day, a man may want a dozen different kinds of food, some hardware, office supplies, car parts or fuel, a newspaper, clothing, a bottle of wine, or a sandwich at a restaurant. In order for a logical, sensible trade to take place, it is necessary to have a money which has actual value, so that the trade can be made with equals. If the money is ’valuable’ only because a government says so, and that same government can print a billion of them with no limits, obviously that money can become valueless, regardless of laws which supposedly give it value.
Meantime of course, we have the Fed Chief on “60 Minutes” Sunday, saying that he thinks the depression will be over this year, but unemployment won’t improve. Huh? If people will continue to get laid off, businesses continue closing, and tent cities springing up in various warm places such as California, Arizona, and Florida, with more to come, please explain how the depression will be over? Will someone please explain to me why the Dow goes up, undoubtedly as a ’dead cat bounce,’ with all the bad news? (Actually, during the great depression, there were several such bounces, but all for naught). Please tell me why $165 million in bonuses was given to AIG brass, who bought the derivatives and bankrupted the outfit? And why is queer Barney getting so upset, when it was at his urging that the depression got started in the first place?
Let’s examine the “investment” sector of our economy. With an average CD rate of about 2%, and on rare occasions more, shouldn’t the interest earned, at least equal the inflation rate, for an investment to be a method of securing one’s net worth or assets? No one really believes that the current inflation is 2% or even 3%. If you look at prices in general, you just have to admit to close to 10% per year. If you want to make it 5%, I don’t care, because no dollar investment in a CD can possibly give one a 5% interest rate. You say, “Gold and silver don’t pay any interest.” You’d be correct, because no tangible investment of any kind, be it antiques, old cars, or rare postage stamps, pays any interest. Tangibles cannot pay interest. It is impossible for a tangible to pay interest, because they just sit there. They aren’t ’deposited’ or ’loaned.’ They just sit there. If you need money and need to cash in a CD, you wait till it matures, or you don’t get any interest. If you need money, you sell your stocks. If you need money (dollars) you sell your tangibles, which are just sitting there, and the chances are about 99% that when you sell a tangible like gold and silver, you will make more profit (not interest) than a CD’s interest. I am certain, several times more!
The way to get out of a depression is to let the market operate all by itself. It will weed out the bad guys and stupid operators. In any correction, people will get hurt. Trillions of dollars have been wiped out in the dot com and current bust. Wealth has been eradicated. No one who holds precious metals has ever been wiped out. There have been corrections, and there are corrections today as I finish this piece. Corrections are merely a buying opportunity. No one is going to get wiped out in a tangible thing. 15 years ago, when gold was $250 and silver $4, many people thought they missed the boat when gold got to $300 and silver $5. Oh sure they did.
I have no client info on a computer, so no one can rob their names. They’re all on 4 X 6 index cards. Here is a random example. George H bought 15 Maple Leafs on Oct 20th last year for $842. Today, they’re $949.80. Jeri H, on Oct 10th, of ’07 bought 26 Krugerrands @ $750.70. Today, they’re $949.80. Just typical examples, both next to each other in my card file. All tangibles require capital, machinery, labor, and effort to produce, whereas a CD or dollar bill can be issued with miniscule energy, effort, or capital required. Cut down some more trees, make fancy paper, print fancy engravings, and that’s wealth? Gold and silver require no backing, because they are self backed. Any tangible, no matter how beautiful, ugly, desirable or undesirable, large or small, will always have some value and cannot go to zero, as can a stock, or paper currency. Even a rusted, banged up, useless car, is a tangible, has some scrap value, and will never go to zero. It just so happens that gold and silver are compact, historic money, beautiful, and easily stored, bought and sold. And they won’t rust nor require a tow truck to cash them in. So why do people still save in failing bucks? I haven’t the slightest idea! Happy St. Patty’s Day!