The world seems to be economically shattering. As an example, Argentina, the third biggest economy in South America, has just, for the ninth time in its history, defaulted on an interest payment, this time of $500 million. Like all corporate and national defaults, Argentina is attempting to ‘restructure’ its debts. Guess who loaned them the billions? Bond buyers and money managers around the World, plus a couple of American hedge funds such as Blackrock and Pharo. Like Venezuela, Argentina, at one time was one of the most prosperous nations in the world, with natural resources, and superb climate. Buenos Aires was, and probably still is, one of the World’s most beautiful cities. Debt, politicians and of course mismanagement, did them in. Aren’t you glad you didn’t ‘invest’ in the Argentina or Venezuela economies?
Back home, Hertz has gone bankrupt, with $19 billion in debt, made up of $4.3 billion in corporate bonds and loans, and $14.4 vehicle backed debt. “Vehicle backed debt?” Hertz doesn’t even own the 770,000 cars it rents to customers. They are rented from another firm, and Hertz missed a payment. That’s probably it for Hertz, except of course, they are attempting to “restructure,” like Macy’s which closed all of its 775 stores. The list of bankruptcies goes on and on, and I won’t bore you with them now, but one single factor, outside of the Covid virus, has caused the problem in the business and corporate area, and that is debt. Just suppose there was no debt in the business world, and there are trillions in debts in America alone. If corporations and businesses had no debt, when the virus hit, they could easily hold on, especially if they owned their property free and clear, rather than renting it. With no interest payments on business or corporate debt, the prices we for their products would be far lower.
A hundred fifty or so years ago, there was little government, business or personal debt. Credit cards didn’t exist. Interest therefore, wasn’t added to the prices of things sold. Debt today, often created out of thin air by the lenders, is a major cost expense in virtually all corporations and businesses. The grocery store you buy your food from has debts in the billions if it is a chain, and the car you may buy has a couple hundred dollars on its price added to pay the interest the manufacturer has to pay on its debt, and the dealership even may have a lot of debt, with its interest payments tacked on to the price of the car. Millions of households in America and the world, have credit cards charging 19% interest or more at times, and the card holders never pay them off, but pay the 19% interest and keep buying, trying to keep their limit under control. How sad! Debts in all sectors, are an albatross hung around everyone’s neck, and the virus has tightened the choke hold. When I was eighteen, I came to Colorado for the first time, and rode the narrow-gauge train from Durango to Silverton. For an eastern boy, it was great, and has thrilled millions since. The round trip fare was $3.00, for basically a 90 mile trip! Today, it is about $89 for the same trip, with the same track, locomotives and cars. In 1952, I was buying gas for 20 cents a gallon, so maybe a $3 round trip train fare, was even then bargain. I kept one of the railroad’s brochures, and I could never remember where I stored it. Two days ago, I found it in an old book. I can’t attach it to this column, but if you e-mail me, I’ll send it to you. It shows how our dollars have eroded by inflation since I was a teenager. Inflation, is an increase I the money supply, caused by endless borrowing and printing press money by our government to pay its debts.
Corporations and businesses all seem to have huge debts and interest payments, and the Covid virus has hit the weakness of most businesses, many of which may never re-open. Thanks China, and I dearly hope you all will use every effort to not buy anything made in China. Speaking of China and my prediction that it will eventually go the way the Soviet Union did in 1991, here’s another hint of what will happen. You all know what the GDP is don’t you? It’s the Gross Domestic Product, which means all the business, government, and personal spending. The GDP is a thermometer indicating the health of a nation, and it is anxiously awaited by economists. On Saturday’s Journal, a front-page headline read, “Beijing Retreats on Key Goal for Economy.” The GDP being hidden by China, caused a Journal writer to say in one paragraph: ”Ultimately, the scrapping of the GDP, serves as a blunt reminder of the magnitude of the many risks that loom over China’s economy in the coming months.” I needed a new electric sander a couple of days ago, and went shopping for one. Of all the many brands available, all were made in China, but one, and that was “Milwaukee,” which I bought.
When inflation continues and gets gradually worse, as it always has in all nations in history, 100% of the time, all prices will go up, indicating that the dollar will go down in purchasing power, as in “Stott’s Law” in a previous column. Will gold and silver go up? Of course, but remember as I have said over the years, “Two silver dimes will always buy a gallon of gas,” and, “An ounce of gold will always buy a good men’s suit.” Today the bid price of a ‘bag’ containing 10,000 silver dimes is $11,726, and two of them are worth $2.34. Still works, in other words. I haven’t bought a new man’s suit in many years, but I assume $1800 would still buy a good one. The message today is, save in gold and silver, and don’t buy Chinese anything.
-Don Stott
don@coloradogold.com