John Williams publishes the Shadow Government Statistics newsletter. He is an amazing professional economist with a tremendous grasp of the real economy. Shadow Government Statistics reconstructs published government statistics the accurate way we used to do it, making them actually reflect reality (as opposed to the way Washington now manipulates these numbers). In so doing, he comes up with different conclusions about the economy, such as the Consumer Price Index (CPI), and other revealing areas published by government. Here’s a portion of an interview I recently did with him in the Ruff Times.
JW : In the late ‘70s, the ten biggest accounting firms and congress said they could design an accounting system where the government will report its books the same way a company does.
They finally got that into effect in 2000. Since then, instead of running deficits in the range of a couple of billion dollars, on a Generally Accepted Accounting Principal (GAAP) basis, the deficit has averaged $4 trillion a year. It was over $5 trillion in 2008 and will top $8 trillion this year.
This is unsustainable! You could not raise taxes enough to bring that into balance. If you wanted to bring it into balance, you’d have to eliminate Social Security and Medicare payments. It can’t be done.
HJR : Right now, Obama is spending money – I won’t say like a drunken sailor, because a drunken sailor spends his own money – but he is throwing trillions of dollars at the economic downturn, assuming it will stimulate us out.
JW : It will not stimulate the economy. The cost of all this is inflation. We will see inflation levels not seen in our lifetime by as early as the end of this year.Eventually we will see liabilities of $65 trillion – more than four times U.S. GDP, more than global GDP. There will be a hyperinflation where the dollar becomes worthless, where the paper is worth more as wall paper than as currency.
HJR : How can we protect the value of our assets, assuming that people have some discretionary money? Should they buy growth stocks because they are cheap, assuming “buy low, sell high?” Or are there better alternatives?
JW : We are headed into a hyperinflationary depression that will become another Great Depression. When hyperinflation hits, it will disrupt the normal flow of commerce and turn it into a depression. What about paper assets based on the dollar? You want to get into something like gold or silver – physical gold or silver, not paper. Perhaps get some assets outside the dollar. It’s a time to preserve your wealth and assets, not to start speculating on the stock market. There is a lot of volatility ahead. Over the long term, gold and silver are your best hedges.
HJR : That sounds like the familiar tune I’ve been singing for several years. I’ve been publishing for 33 years. About 11 of those years I have been bullish on gold and silver as investments. When I abandoned gold in the early ‘80s, I was excommunicated from the gold-bug church because I was supposed to stay faithful to gold, but, back then, the metals weren’t the right place to put your money. As a financial adviser, if I don’t have subscribers in the right investments, they will lose money and not renew their subscription to The Ruff Times. So I have a financial interest in being right. Yogi Berra said, “It’s déjà vu all over again.” the same thing is happening that I saw in the ‘70s that drove the prices of gold and silver to unprecedented highs, onl! y more so.
You showed me a display of Zimbabwe currency, where multi-billion dollar notes started out as $2-bill notes. We could face the same thing. The world is littered with worthless dead-paper currencies with an average life span of about 75 years.
History doesn’t record a single example when a society inflated the dominant currency even near the quantities we are creating dollars now without destroying its value. Gold and silver, not being anyone’s debt or obligation, is where people ought to put their money.