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To: Frank Pembleton who wrote (93299)	8/8/2001 2:09:03 PM
From: Ronald J. Clark	Read Replies (1) \| Respond to of 95453

AGAs +80B

To: Frank Pembleton who wrote (93299)	8/8/2001 2:09:24 PM
From: Frank Pembleton	Read Replies (2) \| Respond to of 95453

WEEKLY COMMENTARY -- Gloom & Doom August 7, 2001 DEBT BUBBLE By James Cook As I see it, my task is to frighten you enough about the economy so that you commit 10% of your assets to silver (or gold). I’ve been scaring people for almost 30 years, and like the boy who cried wolf, most people that listened to me along the way no longer do. Through my company’s sales literature, I’m always trying to recruit converts to the gloom and doom scenario. To some extent that has worked. At least 20,000 people every month visit our website. We are lucky enough to have a reasonable following and we sell enough silver and gold to stay around in anticipation of the day our services will be mandatory for a person’s economic survival. For the most part, people who have heard our advice over the past three decades dismiss it as having been incorrect. "The things you warn about never seem to happen," they often say. "You have been wrong," others tell me. Or they shake their head and dismiss our advice as self serving. Certainly our influence has shrunk from the heady days of the gold and silver boom in 1980 until we, ourselves, have become the main proponents of our financial subculture. We are the sole major purveyor of precious metals for protection and profit. Our competitors push rare coins and foreswear gold. Or they sell leverage rather than physical ownership. Or they convince people to sell their gold and silver and convert the funds to whatever they’re selling. Life would be easier if we concentrated on selling expensive rare coins and joined the mainstream who believes the economic future will be bright. Yes, life would be easier if we called the tens of thousands of customers we have acquired in three decades and told them to convert their gold and silver. But we are not going to do that. We are going to defend gold and silver and promote these precious metals more than ever. They are the one and only thing that can save your wealth in a severe crisis. A mere 10% of your net worth in silver can grow by ten times. If the other 90% of your wealth shrinks to 10% of it’s former value, you’re even. We have not been wrong for 30 years, we have been early. The crises we warn about have been put off time and again by the massive creation of money and credit. We have inflated our way out of every tight spot, every recession and every economic dilemma. Do you know that all the major economists that existed in the world prior to 1950 would without fail condemn our country’s current policies as monetary madness? The important principles about money and credit that all economists have historically concurred on have been grossly violated by the U.S. Most of these economists have warned about horrid financial repercussions that result from such loose monetary policies. I’m not writing this to merely frighten you. I want to scare the wits out of you. The amount of debt in the U.S. has become so enormous and unmanageable that the monetary authorities must now pump out enough new money and credit to service this debt, re-ignite the stock market and foster renewed capital investment until it cures a sick economy. So far it hasn’t worked and it’s a remote possibility that it ever will. The main reason it won’t work is that our debt levels are out of control. That’s also why the U.S. cannot stand a contraction. A debt implosion and cascading bankruptcies will obliterate the U.S. economy. Do you think it’s healthy that the public massively uses the refinancing of their homes to maintain their living standards? Is it a good thing that so many second mortgages amount to more than the total equity of the home and that people refinance to the hilt today’s runaway home values? What happens if home prices drop? What about the new mortgages (including so many jumbos) on homes sold with minimal down payments and 100% financing? What about the lending practices of Fannie Mae and Freddie Mac that aggressively underwrite half the mortgages in America and want to insure that every credit risk can buy a home? The housing boom is a rapidly inflating bubble financed by the same kind of loose money practices that fostered the Nasdaq boom. The nation is $27 trillion in debt. This debt must be serviced. The credit cards, auto loans and consumer loans require steady payments. So does the massive indebtedness that clouds the balance sheets of America’s corporations. This much debt places the nation at grave risk at a time when serious economic problems are surfacing virtually everywhere. Contrast today’s weakness with the situation in 1929. Back then, credit expansion fostered a boom followed by depression. But three things stand out today that make us much weaker than we were back then. In 1929 there was a high level of domestic savings. Furthermore, corporations had fattened their balance sheets in the 1920s and were strong and liquid. In addition, there was a national surplus rather than a deficit. Today we have no savings, massive corporate debt and we owe foreigners into the trillions. You cannot have a worse set of economic imbalances than those afflicting the U.S. today. The most important thing to restoring our economic vigor is a rebound in the profits decline now ravaging American business. But it’s not going to happen. First of all, when we send so much money out of the country it takes it away from our own companies and becomes a huge drag on profits. The trade imbalance also means we have to compete with foreign corporations and sell with lower profit margins. Secondly, the cost-cutting, downsizing and restructuring of American corporations, when taken in total depresses everyone’s business volume. Thirdly, lack of capital spending on new plants and equipment reinforces the profits downturn and vice versa. Finally, the debt buildup that caused overbuilding and overexpansion in the boom period still must be serviced while these corporate miscues are liquidated. Telecom provides a good example of too much debt and too much capacity. Without a profits renaissance, the economic downturn must worsen. So I ask you, how is the debt to be serviced by faltering corporations and consumers with job insecurity? How is the stock market to rise with this profits monkey on its back? How will consumers keep spending when they are in hock up to their eyeballs? How long will the dollar hold up in the face of worsening U.S. economic conditions? How long will foreigners continue to finance us when they are getting clobbered in our markets? This is the worst economic predicament the U.S. has faced since the Civil War. If we manage to crawl out of this hole through the massive inflating we are now attempting, the outcome will be even more insidious. Otherwise, we take our medicine now and suffer through an economic collapse of epic proportions. Americans can’t keep taking on more debt. In fact, as the economic news gets worse, people begin to save more, spend less, repay debt and stop their borrowing. When this happens the economy can’t help but freeze up. In a recession or depression gold and silver historically rise. It’s not the depression itself but the action taken by policy makers that makes these metals go up. The vigorous implementation of inflationary policies in a crisis causes a run into gold and silver. We are experiencing lower interest rates and loose money in response to the current slowdown. Every attempt is being made to inflate. These same money and credit excesses that have spawned financial disaster for mankind time and again are pursued more vigorously than ever by the monetary authorities as a cure for a recession. Gold and silver will inevitably rise in this environment. We are the largest economy in the world by more than double. That we could experience a banana-republic type of bust seems unimaginable. Deep in their hearts people don’t think this can really happen. But I am telling you, it’s already started. Our consumer credit excesses, our massive retailing, and financial edifices that feed the great consumption boom and the sorry state of corporate America’s overextended finances have left us vulnerable. You know from the Nasdaq what happens when a bubble bursts. There’s a bubble in financing, there’s a bubble in consuming, there’s a manic housing bubble, there’s bubble trouble in the S & P and the Dow, there’s a derivatives bubble, a trade bubble and a dollar bubble. And all anybody notices or cares about is whether the stock market goes up. The death rattle of this civilization’s wealth will surely be stock analysts on television telling listeners it’s a good time to buy. Frankly, it’s all too worrisome to think about. Protect yourself and hope for the best. gloomdoom.com