A horrendous economic calamity is descending upon our lives in the way that a growing avalanche halfway down a mountain slope threatens a village below. Only a few people see the looming danger because the snow is moving too slow, and its size is still too modest to create widespread fear. But its momentum is steadily picking up speed and bulk as the villagers cavalierly go about their lives of consumption and pleasure seeking. The avalanche is seen and reported on by a small band of villagers who realize that it will soon arrive with catastrophic force to destroy much of what lies in its path. But they are ignored, denigrated as “extremists” and “Cassandras” by the accepted authorities of the village.
Our economic avalanche is the presently unfolding Kondratieff winter with its massive debt crisis and depressionary collapse. As each month passes, more and more signals flash ominously as to what lies in store for us as a country. Corporate profits are drying up like creek beds in a Texas drought. Bankruptcies from Enron to K-Mart to United Airlines swell to new highs. Unemployment creeps relentlessly upward. Household, corporate and government debt as a percentage of income has skyrocketed to an all time record. Total American debt in 1977 was 100% larger than national income ($10 trillion vs. $5 trillion). By 2001, it had tripled to 300% larger ($32 trillion vs. $8 trillion). Central bankers have done to the dollar what the harlot does to sex. As a result the largest trade deficit in American history now threatens to send our currency down Argentina way. Congress has returned to deficit spending like an alcoholic to his whisky.
Unfathomable derivative trades dangerously saturate the balance sheets of our major banks. We have replaced manufacturing productivity with clever financial gimmickry as our means to propel the economy. Pilfering the pockets of our neighbors with progressive taxes is now preferred to saving our paychecks for retirement. Our politics, our businesses, and our morals are rusting away like junk yard jalopies. The motto of our lives has become: live fast and forget right principle. Transcending all these degradations is the Federal Reserve’s runaway expansion of fiat money to levels so egregious, so destructive, so irreparable that it will require decades of wasted lives to regain a system of integrity and productivity. This is not the America that the Founders intended. Our professors and our politicians have defaulted on the most fundamental rules of economics. It all began back in 1913 with the ” Creature from Jekyll Island,” then was compounded in 1933 with the confiscation of our gold, then compounded still further in 1971 with the closing of the international gold window. The distortions unleashed from these three events are now coming home to roost with a vengeance. It will be quite a while before there is true prosperity and stability in the land again. We are headed for some long dark years of reckoning.
What to Expect
All this insanity will create an explosion in the price of gold in the upcoming years as the world stampedes to own something with “inherent” value, something that cannot be corrupted by oily politicians and obtuse bankers. This desire for inherent value has driven gold bullion up over 50% in the last two years, while it has driven gold shares up 200% in the same time span. Shares got out a little ahead of bullion, and then bullion caught up with its recent explosion. After some consolidation, we should see them both begin to rise again as spot prices run to $500 perhaps by year’s end. Then god only knows how high as the economic avalanche reaches our village.
The only thing that could slow down the takeoff is if Greenspan and the Fed think they can perhaps avoid deflation by simply tinkering with interest rates. If they hold off on the actual printing of money to be “on the safe side,” then we could see deflationary forces creep in over the next two years, which could possibly bolster the dollar enough to check gold’s rise. So there are numerous uncertainties lingering out there. Remember Greenspan retires in June of 2004, and he might attempt to JUST GET BY until he can drop the mess of “irrational exuberance” that he created into the lap of his successor. In other words, promote no risky policy which may mean no heavy expansion of the money supply. When the Fed gets conservative, it takes a “wait and see” approach, which in this case would surely be deflationary. If the Fed lags on confronting deflation, then the avalanche will hit with a crash of prices that might bury the economy for years. Gold will perform well in such an environment, but it would be better to see Bernanke’s printing press brought out now, which will bring on what Harry Schultz calls “slumpflation.” Gold will perform very well in this kind of environment.
Can War Be Averted?
Wall Street seems to think Hans Blix’s statement before the UN put the upcoming Iraqi war on hold and maybe even ended its possibility. Thus they rally. Fat chance. America will find a pretext to invade, and they will do so with or without the UN’s resolution for the use of force.
Bush knows he has Britain and Australia with him, and he will go with that if he has to. He’s naturally hoping to get some Europeans on board so as to share the costs of both the war and the aftermath, but his administration is already committed whether they get help or not — has been for sometime now. Our Federal Government wants a military base in Baghdad in order to be able to wage a sophisticated war against al-Qaeda in the heart of its home territory. In addition, they want to get Iraqi oil abundantly flowing again so as to get prices back hopefully to $20 (and therefore help our ailing economy). And they are not going to let UN diplomats stop them.
What we are seeing from France and Germany in response to our saber rattling is first of all alarm in face of their oil dealings with Iraq put at risk. Secondly it is political posturing for the media in order to be on record that they didn’t kowtow to the world’s reigning superpower. This way they avoid appearing like lackeys of Washington to their constituents back home. But just as the Bush administration will not allow the lack of a UN resolution to preclude their plans, neither will they be deterred by protests from France and Germany.
In a recent press conference, Bush was as firm as iron: “If Saddam does not give up the weapons we know he is hiding, we will lead a coalition of the willing to do it for him!” This means that the UN inspections are irrelevant to Washington. They know that they will turn up nothing, for Saddam has his WMD too well hidden. Washington was saying in essence that if Saddam does not cough up something very substantial in the way of chemical and biological weaponry in the next 2-3 weeks, that they are coming in. And Saddam’s not going to give up his weapons. So war is coming. Can we be sure of it? Are redwoods tall?
It is very important to realize, however, that the war is only one small factor driving the price of gold. Far more important forces are the debasement of the dollar, the deterioration of our economy, the expansion of the trade deficit, etc. — in other words economic fundamentals. But while the war is not all that important, the peace will be. The Bush administration talks openly about the necessity of running a military protectorate for 5 years probably. Well, you can change that 5 years to 10 years and maybe even 20 years. How long have we been in Korea? A quick, clean MacArthurian style regime change like in post WW II Japan is illusory. The radicals of Islam are caught up in fanatic retribution for what they feel have been centuries of abusive Western crimes against their people. They will never relent. We will be embroiled in the region for decades. The cost will be staggering. Paper dollars will expand throughout our economy like fire in the Hindenburg.
The Crisis and Capitalism
All of this will bring to our waning Republic more and more repression of freedom, more and more centralization of government, more and more demagogues bellowing for higher taxes and expansion of federal power in Washington.
Numerous intellectuals in the libertarian movement here in the U.S. are all gaga about how the world is allegedly moving toward more freedom with capitalism on the rise. I don’t know what world they reside in, but it can’t be the one I’m in. What they are calling capitalism is not capitalism. Russia, China, India, Eastern Europe, etc. are not moving toward free enterprise.
They’re merely evolving from socialism to neo-fascism (from one form of collectivism to another), in other words, where state OWNERSHIP of the factors of production is returned to private hands, but still CONTROLED by the State. It’s what the journalist Garet Garett called “revolution within the form.” It’s not the shrill militaristic style of Hitler’s fascism, but it is certainly “economic” fascism where the State regiments and controls everything, and continues to tax the people into slavery. It fools the naïve into thinking a shift to more freedom is taking place because industrial ownership is being denationalized.
One of the grave dangers we face in the upcoming years is that capitalism will be blamed for the avalanche. All the terrible economic hardships that we are going to encounter because of the breakdown in financial order will not be attributed to the statist policies that caused them, but to the “evils of free enterprise and corporate greed.” The people do not understand that we abandoned free enterprise long ago in favor of Mussolini’s corporatism where Big Government, Big Business, and Big Finance form combines to exploit the people with monopolized prices and corrupted dollars. The statist mentalities in our universities and media will exploit this ignorance. As a result, the people will urge their congressmen to assume even more control over the marketplace — perhaps by nationalizing banks and gold mines. We must never underestimate the sheer ruthlessness of political authorities when their controls and corruptions are coming unwound. And it is a sure bet that we will never get the truth from the collectivist ideologues that dominate the universities. Their dream of a regimented egalitarian world can only be promoted by obfuscation of true causes and right principles.
The Crisis and World Leadership
If present trends continue over the next 50 years as they have in the past 50 years, then its a good bet that New Rome will fall, and China will take over the world! First through economic power, and then gradually through the integration of military force. They are in the process of shifting to economic fascism right now, yet so many of our pundits here in this country think they are “moving toward freedom.” Because of their immense economic productivity, and because of our immense economic irrationality, China will quite possibly do to America in the 21st century what America did to England in the early 20th century — dethrone us as the reigning superpower. The only difference is that it will be a bleak collectivised New World Order that they usher in rather than the era of unbounded freedom and independence that America gave to the world between 1787 and 1913.
Can such a tragic denouement be averted? Yes, of course; man’s fate is not preordained. He has the power of reason, and so long as he is free, he has the power to change public opinion through the dissemination of ideas. One of the great ideas that he can spread is the paramount necessity of maintaining a gold backed monetary system. Freedom must have gold if it is to survive. Fiat money has for 5,000 years brought tyranny in one form or another. Any man steeped in the study of history, who is objective, understands this.
Our hope for the future lies, as always, in the rationality and resiliency of human beings — especially American versions for we are more culturally inculcated with the code of independence than any other nation on earth. If there is to be a restoration of freedom in this upcoming century, it will be spearheaded by Americans, and one of our most effective weapons will be the power of gold and its restoration as money again. We live in momentous times. The issues at stake are enormous.