By James R. Cook A statist is someone who believes the government should have a large and prominent role in human affairs. They believe the state to be supreme, or at the least, mandatory for solving societyâ€™s problems. Both liberals and compassionate conservatives are statists. Mr. Obama and Mr. Bush are statists. Virtually all members of congress are statists. Our founding fathers were not statists.
Statists believe they can solve todayâ€™s economic problems by implementing the policies of John Maynard Keynes. This economist argued that economic downturns must be reversed by aggressive government spending. Little did Keynes know that this narrow advice would expand into a litany of government interventions. Among these were artificially low interest rates, government bailouts, massive government deficits, mortgage guarantees, widespread subsidies, coercion of lenders, gargantuan borrowing, huge trade deficits, credit excess, inflating and dollar debasement.
Our statist leaders are practicing an error. Our monetary and budgetary policies are an attempt to get something for nothing. No good can come from passing out money to a populace that didnâ€™t earn it. The disastrous economic and monetary policies implemented by the government and the central bank have led us to the abyss. Despite the sorry results more of these failed initiatives will be force fed to the country.
Statists never learn. Despite the numerous regulatory failures, they push for more regulation. Despite the colossal behavioral collapse among welfare recipients, they push for more social programs. In spite of soaring medical cost brought on by subsidized healthcare, they push for more costly benefits. Examples like this are endless. When you never bother to analyze the results of your policies, you tend to push for more of the same. Ultimately, statism exhausts the resources of a nation. The country will be in ruins and statists will still not know why.
THE DEFLATIONARY ARGUMENT
Writing in his newsletter, The Privateer, Bill Buckler conveyed these ominous thoughts.
"At present, it is the enormous and global scale of events which seems to confuse most people. The situation is indeed global and has all the economic similar or parallel markings of being a replay of the early part of the Great Depression in the 1930s. The sad likelihood is that this episode will be much bigger. Last year, the entire global economy stood with a GDP of about $US 54 TRILLION. It is against this that the already reported $US 70 TRILLION global write-down has to be measured. Clearly, more than global annual GDP has been written off. This write-down took place in the world's stock, real estate and commodities markets. What is now approaching is bigger than all three put together. What is on the horizon is the write-down of the world's bond markets - from US Treasuries and Agencies all the way down to the most toxic of debt paper. The starting signal for this will be when US interest rates start to climb, causing US Treasury debt to fall in value, followed by all the other forms of commercial bonds, etc. No form of debt paper can withstand a collapse in the form of paper universally deemed the "safest".
The Coming Bond Fires:
There is a fact often lost sight of in everyday life. A nation's bond markets are bigger in monetary and financial terms than the capitalization of the same nation's stock markets. On a global basis, that makes the bond market the biggest financial market in the world. Historically, and especially after the end of WW II, the US Treasury market has set the global standard. Interest rates on offer there have acted as a gauge against which the debt of all other governments was measured. Other governments found that to hold their money inside their own monetary system, they had to offer a rate of interest somewhat higher than Treasuries and commercial bonds had a rate of interest somewhat above that. That has now ended.
It has ended because the US Federal Reserve's policy of 0.00-0.25 percent official US interest rates is making the US Dollar, or US Treasuries etc., not worth holding. It has ended because from here on, US interest rates can only go up, which means that US Treasuries will go down. Globally, the world of bonds has lost its reference marker, the reference all have used to price more risky government bonds as a premium added to the equivalent US Treasury maturity. To that, of course, can be added the policy of the US Treasury itself, a policy which can be described as deficit spending disregarding any and all limits.
Not Enough Net Savings In The World To Fund The US Budget Deficits:
Finally, there are the reports from the Bank For International Settlements (BIS). For more than a decade, the BIS has repeatedly pointed out that the US is absorbing about 60 percent (or slightly more) of the rest of the world's net monetary savings! This fact, all by itself, proves that the huge US budget deficits now officially planned cannot be funded by the rest of the world because there is not enough net monetary savings to do the job. The US Treasury cannot fund its own spending budget and Americans don't save enough to fund it. Now the rest of the world cannot fund the US Treasury either. At the end of that road lies a day where the US Treasury cannot sell its debt paper."
Holding paper looks riskier than ever these days. For that matter, holding most assets looks dangerous. What would you rather own â€“ stocks, real estate, bonds, currencies, collectibles or silver and gold? These two precious metals have a history of performing well when other assets shrivel in value. We believe itâ€™s downright neglectful not to have a minimum of 10% of your net worth in silver.
Up to a few weeks ago, 100-ounce bars were nearly impossible to get. Lately weâ€™ve been able to line up a supply of attractive new bars. The nice thing about 100-ounce bars is that theyâ€™re not too heavy. Theyâ€™re portable and they stack well in a safe or small hidden space. You get a lot of silver for the money with these 100-ounce bars and they are highly liquid. We donâ€™t know how long these bars will be available. Demand could once again overwhelm supply. Buy some of these bars now and salt them away. Each one could become a significant repository of wealth. Call us now at 1-800-328-1860 and order 100-ounce bars.
James R. Cook President
P.S. Twelve years ago I wrote the following: "America lives beyond its means. Long-term trends in profits, incomes, savings and investments are unhealthy. Runaway consumption, debt and speculation, on top of soaring trade deficits, canâ€™t be sustained. They threaten a financial disaster of a magnitude that exceeds anything in history.
Money and credit trends give even more cause for alarm. Monetary easing and declining long-term interest rates fuel a boom in mortgage refinancing and consumer borrowing. This, along with reduced savings and stock gains propel spending and economic growth. A huge credit bubble is lockstep with a huge speculative stock market bubble lays at the core of U.S. economic strengthâ€¦ Massive exposure to derivative risk by U.S. banks is another alarming trend. Major banks appear to be speculating heavily in currency and derivative markets.
Our economic sins are real. They defy ready solutions. Consequently, you can lose enormously on your paper assets. Your retirement and savings plans can be devastated. The government can be overwhelmed trying to cover guarantees and losses, to say nothing of trying to solve its own debt and currency problems. What passes for economic normalcy in America today is pure folly."