fiat currencies will fail

There's a sentence in the last paragraph that sums this whole articule up.
"When something is backed by nothing it eventually becomes worth what backs it which is NOTHING"

Motel 6

Don Stott

When a lad of 18, I decided to explore the American West, which I had read so much about. I took my 1941 Plymouth and headed out. I kept a diary of each day's expenses, and counting meals, gas, motel, etc, I did indeed keep it to $30 per day. Motels then were maybe $3-$4 per night, gas a quarter a gallon or so, and a breakfast with a couple of eggs, toast, and hash browns a buck or even less. I saw the sights on $30 a day total. A revolution came a few years later when "Motel 6" came about. Here was a quality place to stay…at least back then, compared to others…for $6 per day! WOW! Or didn't you know where "Motel 6" got its name? What should it be called today? "Motel $89.95?" Then "Motel 8" came along, which meant a room for $8. In 1972, in my Grand Imperial Hotel in Silverton, I was renting rooms with private bath, etc for $16.

Of course I am preaching to the crowd, and I know it, but 99% of Americans think that "prices are going up," which they are, but teesny numbers of Americans know why. This is why I hope you forward my stuff to those who don't know, and that's why preachers say the same thing every Sunday, week after week, year after year. "Jesus Saves, Pray to the Lord, have faith," and the list is a common one for all denominations. Year after year, churches admonish and urge their flocks to have faith, pray, and do all sorts of things required by their respective faiths. Does it work? Yes, because church attendance seems to be up by all accounts. Is it up because the populace fears for their future? Maybe, but I don't know. All I know, is that preaching to the choir, as I seem to do once in a while, needs to be done.

No graphs, charts, or technical stuff, because that's not my cup of tea. I have always likes basics. KISS means "Keep it simple stupid." Simplicity is wonderful. The restaurant which has a simple menu has to have cooks which can do a few things well, and have fewer things on hand to do them. Simple? Let me tell you of another simple thing, and that's what I do. I deal in bullion stuff, and am not concerned with age or condition. Simple.

Now as to why prices "are going up," let's look at the current oil situation. Saudi Arabia, as an example, sends the U.S. 1.5 million barrels of oil a day. At even $50 per barrel, each day, $75 million of our dollars goes to Saudi Arabia. It costs couple of bucks a barrel to pump it, and for that matter, much of it flows by itself. The former poverty ridden, sand patches of the Mid-East, now are so rich, as to defy counting their wealth. So much wealth, that they buy our debts, and still have hundreds of billions left over each year. The royal family lives sumptuously in many palaces, drives endless Rolls Royces, and lacks nothing. Our capital is going to Saudi-Arabia, a bit to Venezuela, Nigeria, and some to a few other sheikdoms. As our capital leaves, some say it returns by buying our debts. It does, but this means they are owning us more each day. With dollars, anyone can buy our real estate, businesses, and commercial properties. America, which used to be king of the world, with everyone owing us, now owes everyone.

When foreign nations buy our debt, they do it as an investment. When one invests in something, they expect a return on their investment. If a bank loans money, they charge interest, (we won't go into where the bank got the money at this time), to get a return for the use of the loaned money. If one buys a stock, one expects a dividend as a return on an investment. Saudi Arabia's buying our debt, (because we can't even come close to balancing our budget), expects a return on their investment. Interest, in other words. All of these investments are in dollars, which so far, is still considered the reserve currency of the world. If you invest a billion dollars of oil profits in U.S. debt, also in dollars, all is well, isn't it?

The more dollars which go overseas, and the more dollars the U.S. is in debt, the more dollars which have to be produced (printed) to pay the bills. The more dollars there are, the less they will be worth, so the prices of things go up…in dollars. This explains why as an 18 year old, I could travel, all expenses included, for $30 a day, and why Motel 6 came into being. I love old radio and old radio shows, which no longer exist. That's too bad, but my life isn't affected. Radio disappeared, but life goes on. Another idea of what has happened to prices brings back memories of radio. "Pepsi-Cola hits the spot, twelve full ounces, that's a lot. Twice as much for a nickel too. Pepsi Cola is the drink for you." Know what a 12 oz Pepsi costs now? Not a nickel! When dollars go down, everyone is affected, because prices in everything go up in dollars. Wages increase with prices…you say? Figures don't agree. Figures say that wages are not keeping up with price increases. Even if they were, saving in a decreasing value currency, thanks to government waste and profligacy, makes no sense.

This means that since dollars are losing value, it makes no sense to save in them. But what about foreigners who invest their surplus dollars in U.S. debt? The reason the fed continue to raise interest, is because it must in order to attract foreign investors into buying our debt. As the dollar loses value, the return of interest paid on an investment must increase, or no one will buy the debt. At the same time interest rates are raised, it hurts the already hurting housing industry, because it costs more to buy a home. And those ARM mortgages are notched up when they come due, making payments higher, and causing even more foreclosures and bankruptcies. The Fed is in a "Catch 22" position. They're damned if they do, and damned if they don't.

Why do foreigners invest in dollars if they're losing value? Because first of all, all paper currencies are losing value, and secondly, the dollar is still the 'reserve currency' of the world, even though it's losing ground fast. The Saudi's buy our debt because we buy their oil. The oil is going up in dollars, and the dollar is going down, so interest rates have to be raised to counteract the decreasing value dollars. The lower the dollars go, the higher the interest rate will have to be to attract investors. At the same time the interest rates go up, the American housing markets plus others as well, will be harmed. If enough foreclosures come about, and enough workers are laid off due to everyone having to tighten up, just to survive, a collapse could occur. "Catch 22" situations are difficult to get out of. The American economy is caught, and the only thing they can do is print more dollars. Printing dollars is placing a tin can under a leaky roof. Nothing is solved. The problem is being ignored, but hoping it will go away won't make it happen. What else is there to do? I can think of nothing. Foreign investors, in spite of our buying their oil are shying away from dollars and removing them from their stash. Eventually, the dollar will have lost so much value that no one will invest in them. Eventually, more and more Americans will flock to tangible gold and silver to protect themselves.

Currently, as I write this, metals have had a sharp decrease, along with the stock market. Remember I said the stock market would do this? Corrections in the gold and silver prices are merely a buy opportunity, and nothing to worry about. Continual, endless printing of dollars is something very much to worry about, and especially if one has surplus dollars. If the boat is leaking, an analogy to failing dollars, get out of the boat before it sinks, or fix the leak. The leak is impossible to fix, because this exact same situation has occurred over and over again in the history of un-backed paper currencies, and it will happen over and over again in the future. When something is backed by nothing, it eventually become worth what backs it, which is nothing. This exact same thing has happened to every nation on earth at one time or another. It is a sort of religion, this faith in un-backed dollars. It is a false belief. Protect yourself.



May 18, 2006

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