"reasons, part 4" - by don stott.

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    Reasons, Part 4

    Don Stott

    Today, we have a diminishing dollar, due to endless printing of it, thanks to endless welfare handouts, wars, silly legislation, and debts, debts, debts. Government prints to pay its bills, while the rest of the citizenry, or at least it seems like most of it, are in debt up to their ear lobes, and many with no possible way to extricate themselves from it. Mortgages on top of mortgages to ease the pain, and retain a bit of solvency for a bit longer, but the end result, is just too hideous to comprehend.

    I am well aware that scribes and prophets have predicted a cataclysm in economics, as well as earthquakes, tsunamis, and everything else that can go wrong. There has never been a scarcity of prophets of doom. The Jehovah's Witnesses have been predicting Armageddon since 1879, and the 7th Day Adventists did a similar thing a long time ago, and both were wrong. There are opinions on just about everything, and I seem to have one on everything, it seems. I seem to live in a black and white world, and if this offends you, I apologize. I can't help, it because as my wife says, the left side of my head is larger than the right, which means I am supremely logical. Maybe so, but I only write it as I see it, and try not to give advice. This morning, a guy sent me an e-mail, and told me to tell everyone in Hawaii and the west coast to flee, because all hell will break loose soon. I discarded that. How does he know?

    I do know however, that as my law states, "The more of anything there is, the less they will be worth," and this is all-inclusive. Since we deal with dollars hereabouts, it then behooves anyone with a grain of sense, not to save in them, nor place surplus assets in them. They are falling, and those in them will fall also. A friend of mine in Cheyenne, sent me a menu from a restaurant in Greybull Wyoming, dated April, 1943. Know what the prices were then? Try these, and eat your heart out. Steak dinner, 75 cents. Ham and eggs breakfast, 40 cents. Hamburger, 15 cents. Spaghetti & meat balls, - 40 cents. Had you been the owner of a surplus amount of dollars then, and placed them in a savings account, you would have been de-capitalized.

    Probably the richest man in the world is Warren Buffett. Buffett recently, along with Bill Gates, bought a huge amount of silver. Think they are stupid? He said recently,

    "The dollar cannot avoid further declines against other major currencies unless the US trade and current account deficits improve. I think, over time, unless we have a major change in trade policies, I don't see how the dollar avoids going down. I don't know when it happens. I don't have any idea whether it will be this month, this year, or next year, but we are force-feeding dollars on to the rest of the world at the rate of close to a couple billion dollars a day, and that's going to weigh on the dollar."

    Ever hear the name David M. Walker? He's in charge of the government's books, and his title is "Comptroller General." His reports are on the US Government Accountability Office (GAO) website. He says,

    "It's the real-life consequences of unchecked deficits that are truly frightening. If we continue as we have, higher interest rates are inevitable. As government borrows more and more money to finance its debt, less money will be available for companies to invest to stay competitive in today's global economy. Long term economic growth will suffer, and along with it American jobs and purchasing power. Even with the recent run-up in housing prices, the estimated total net worth of every American, including Bill Gates and other billionaires, is only $47 trillion. That means that every American would have to fork over more than 90% of their net worth to cover the government's current promises. The crunch is coming. We are at risk. We are at serious risk. I have two children, and it really bothers me."

    If you are full time American worker, your government has put you $350,000 in the hole, before you even count your personal debts. That means your country is technically bankrupt. Richard Russell prints his Dow Theory Letters 17 times a year, for $250. (PO Box 1759, La Jolla, CA 92038) A real bargain. In his latest, he examines the dollar, as figured by the American Institute for Economic Research, beginning with 1945, which certainly wasn't the beginning of the dollar's slide, as it had already slid by 50% because of the then recently ended war. At any rate, they placed the dollar in 1945, at 100%. Russell points out that a subway ride was a nickel, and postage was 3 cents, plus a lot of other comparisons. 15 years later, the dollar was at 61.1% of its 1945 value. In 1970, it was at 45.7%, 1980 21.1%, 1990 13.6%, 2000, 10.5% and in 2003, the buck was worth 9.9% of its 1945 value-purchasing power. In reality though, it was half that, or 4.9% of its value-purchasing power of 1940…before the war.

    Russell continues on his page four…

    "That's what the Federal Reserve and the fiat dollar has done for us. And here in California, Federal and State taxes knock off nearly half of every dollar I earn. So first the Fed, together with the US government, destroy the purchasing power of my savings. And if that isn't enough, today between the government and state, they tax away almost half of my yearly earnings." (He doesn't mention the host of other taxes, such as sales, fuel, phone, electric, gas, etc. He probably pays close to 90%) "And what have I got for this financial thievery? You know something, I'm just not sure. I do have a bigger and more intrusive government than ever. I have a government that has saddled me and future generations with trillions of dollars of debt, and more trillions of unfunded liabilities that will all come due in the years ahead, (when my kids will have to face the economic-music)."
    He goes on and on in a purely logical sense, as I have done already.

    We find ourselves on the edge of catastrophe…in my opinion. A client of mine in Naples Florida, bought a beautiful piece of waterfront land last year for a price that made me shudder. He just sold it at close to two times what he paid for it, and the realtor he used, warned him to sell off his speculations within a year. Does the realtor believe the real estate bubble will pop within a year? Thousands of people have sold at huge profits, and are renting. Just waiting for the real estate pop. A client of mine, retired, who used to live in New Jersey in a wonderful old home with $11,000 a year in property taxes, sold it and just passed through here on his way west. He got a great price for his home, and with his daughter, is renting. He is parking the proceeds of his home sale in gold, while he waits. He figures the real estate will plunge and gold will escalate, and he'll be in good shape. I can't argue with his philosophy, but my property taxes are low, and I love my 1887 brick Victorian in my small town, so I am not going to sell. My taxes are a tenth of what Lou's were, so he probably made a wise move.

    What to do? Use your brain, rather than your emotions. The left side of the brain? When will anything happen? When will the Yellowstone super volcano blow up, if ever? I do not know. Will gold and silver re-test their recent highs of $456 and $8.48, and go even higher? I really believe they will, but I cannot predict the future. I can only examine what has happened in the past, and use it, along with undeniable facts, to predict the future. Paper money has never succeeded as a store of value, and history will bear this out. So, I don't save in it. On the other hand, gold and silver were much much higher in dollars, than they are now…in 1980. Why? Because of Jummy Carter and Bunker Hunt? I think so. Will they go to that point again? I think so. I can only read, look at history, and attempt, in my small way, to protect myself, and give you some thoughts, based on my research. I hope the previous four pieces have been of help. Next week, I'll examine the Bunker Hunt thing back in 1980. Protect yourself.

    March 10, 2005

    Don Stott has been a precious metals broker since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com


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