You Ain't Seen Nothin' Yet

Is This the Beginning of a Worldwide Depression?

If the U.S. and world economy fail to grow exponentially, then the banking elite temporarily lower interest rates to “stimulate” the economy. Under low interest rates, people are more willing to borrow, and more money is created to slosh around in the economy. If the economy still does not grow, then the effect of the extra money will noticed immediately as increases in prices of products and services. Because wages never increase as fast or as high as the price increases, society must accept ever increasing prices of all products and services and a decreasing standard of living.

If money cannot be pumped into the system fast enough or the people receiving the money cannot be encouraged to spent it in ways that support and maintain economic growth, then the money will not get distributed around the economy in a way that permits all borrows to pay their debts. Then, big trouble begins. When people fail to make payments, mortgages fail, and banks fail; when banks fail, the money supply contracts; when the money supply contracts, wages and Government tax receipts fall; when wages and tax receipts fall, both Government and people can pay even less. So, a vicious reinforcing cycle develops. Yes, the details on how this scenario can be triggered and progress can be mind-numbingly complex. Suffice it to say, a “Great Depression” is very bad.

One way the Federal Reserve can expand the U.S. money supply is to lower interest rates. That is why the Fed just announced an emergency 0.75% interest rate cut, today January 22, 2008. That move cut short what was shaping up to be a 400+ day drop in the Dow Index. What they did not say was than any tangible effect of a rate cut will not be felt in the economy for six months. The move was purely psychological. If the bleeding does not stop, more cuts will come, and the Fed will use other tricks as well. But, rest assured that the Fed will fight tooth and nail to prevent a contraction in the money supply. Ben Bernanke arrogantly believes the Fed has all the tools and methods today needed to always successfully increase the money supply and avoid depression. He might be right. Then again, he might not. The Titanic was unsinkable until it sank.

If the bankers succeed in preventing depression, there will be inflation, and lots of it. Gold and silver will be excellent investments. And, the horrible monetary/banking system will continue until world population growth and resource exploitation can no longer be maintained. Then, the mother of all crashes will occur.
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The dust has almost settled on recent "events". Hopefully, many of the "weak hands" in the Precious Metals have been finally washed away. In tomorrow's post we will take a look at where we've been, and where we may be going soon. Support at $850 Gold and $15 Silver look set now. Is the sky the limit?