The Twilight Zone, 2011

It's been a while since my last imparting. It's not that I've been uninterested it's that I've been traveling in another dimension, a dimension of not only of sight and sound but of mind. (I'm pretty sure that how Old Rod (OR) Serling said it in the late 1950s).

The sight is of continuing money creation out of nowhere at a level unimaginable even three years ago. The sight is also of the Federal Reserve being the largest buyer of the debt issued by the US Treasury with said created money. The government is buying what it's selling. Hmmm, somebody actually thinks this is a good idea.

The sound is of the Federal Reserve openly admitting that it is creating all this money to make the stock market go up so people will feel wealthier and spend more to buy things which will create a market for goods which will prompt businesses to produce more and so feel the need to hire more people. Who knew prosperity was that easy to achieve? Why didn't other people think of this before? In fact others have, lots of times.

I recently read about one such instance in When Money Dies by Adam Furgusson which details the events that occurred when Germany tried unrestrained money printing to help deal with the consequences of the reparations demanded of it following World War One. The mark soon became worthless. One trillion mark notes (Zimbabwe now has Z$100 trillion banknotes) were printed and distributed in 1923. One story told of an American tourist staying in a hotel in Berlin who had two suitcases full of 500,000 mark notes in his room. A burglar broke in, dumped the notes on the floor and stole the suitcases.

Inflation hit over 1000% per week. No one would accept cash for anything unless he knew of someone else who would immediately accept the cash for some good or service. Any good or service. Such people were very hard to find. This is the "mind" part of the opening paragraph. If the citizens don't have confidence in the currency they won't hold it and tumult follows.

During this time the German stock market went up nicely though not nearly enough to keep up with the plunge in purchasing power being experience by the German people. Gold in terms of marks skyrocketed. The victorious nations--France and Britain in particular--would only accept gold marks as payment and those were in short supply. One report had it that an ounce of gold could have bought a block of real estate in downtown Berlin in 1923.

All of this took a few years to evolve but when it hit things went to hell in a hurry. I fear a lesser but still dreadful reenactment of this will happen in the US unless by some miracle those in power begin to act very responsibly very quickly. This seem unlikely, to say the least, as they rightfully fear the pain involved would mean they'd be voted out of office and have to work for a living.

The December Consumer Price Index (CPI) showed a rise of 0.5% or 6.0% annually. That's a lot but not to worry as the core CPI was only 0.1% so unless you eat or drive there's no problem.

Oil has been around $90 a barrel for about a month and this is not usually a particularly strong seasonal time for oil prices. Summer driving season, if there is one this year, is the strong seasonal time and is five months away. If we start getting into triple digits all the talk of an economic rebound will be silenced. Then there's the fact that money to buy the oil largely goes to those who hate us and would like to see us destroyed. Still Obama won't drill in the Arctic or the Gulf of Mexico.

The prices of grains, meats, cotton and fertilizer are soaring as demand for these grow monthly and weather conditions in countries, except the US, that produce these have been abysmal. Also oil is needed to run the equipment used to plant and harvest the commodities just mentioned and to produce the fertilizer needed to grow them further adding to the price rises.

To conclude I'll just return to my refrain from past rants and say buy gold, silver and oil. Gold (current price $1367 versus $1229 as of my August posting) has been a store of value for five millenia and every time governments have strayed from its', or silver's, currency backing the results have been the same, economic chaos. To quote Voltaire: Paper currency eventually returns to its' intrinsic value, nothing. (See the 13th Rule of Life).

Silver (currently $28.80 versus $18.20 in August) is more affordable than gold and has industrial uses that gold doesn't have.

Oil (currently $91.38 versus $40 in August, yipe) will be essential and in diminishing supply for decades to come and so will be ever more valuable.

You will probably be a lot worse off in years to come but if you invest in gold, silver and oil you will be better off than most if that's any consolation. Oh yeah, buy some guns who knows how the masses will react if the above comes to pass.

WAD

Phlintheart Gloomgold. PhD.