Redneck Review
No. 94 - 2/6/2017
Last week in review #93, we closed with a comment that the stock market was overdue for a major downward correction, possibly to 50% of its present value, and that precious metals, especially silver, was ripe for an upward boom to $100 or even $1000 an ounce!But I hasten to add here that it is not a prediction of mine that these things are going tohappen, but only that those results are being argued by very credible experts!
Already back in review #27, a long look was taken at the Austrian School of Economics founder, Ludvig von Mises, whose book HUMAN ACTION discussed conditions which include predictable inflation. Out of that theory comes the simple little equation MV=PO, where M is the money in circulation, V the velocity, the number of times that money turns over in one year, P is the price level of the goods and services available, and O is the total output of the production system which supplies those consumer goods. Essentially, it is argued that increasing money, M, faster than the goods produced, the O, eventually forces prices to go up, the P in the equation. Simple! If the amount of money circulating exceeds greatly the amount of goods produced, inflation is the necessary result!
Now it is a well known fact that the national debt in our country is now pushing 19 trillion, and that policies of the new Trump administration could easily cause this figure to grow significantly! So it is a no brainer that this huge increase in the money supply and the easy, low interest rates which accompany it, have provided the fuel which has driven our stock market to record highs! One must ask, how long can it continue? The news item last week that the FED interest rate will not be raised at this time proves once again that a significant rise in those rates would be a disaster to the stock market as well as to most creditors, and thus has to be avoided at all cost! And the Austrian economists will argue that a more serious inflation will be the result!
And can this impact our economy? Study the similar conditions during the "Roaring 20's"when near zero interest rates stoked a roaring market much like ours today, and bingo!...all of a sudden it came to a screeching halt! Can it happen again? Or can the cheap and easy money, supplied by more and more debt, create an ever increasing prosperity with no upper limit in sight? Some think it is possible! But one has to wonder!
And what about silver? Can an increase to $100 or even an unbelievable $1000/oz be at all possible? Many experts are saying so, and doing so for the following reasons:1)Available silver around the world today has declined to about 1/5th the amount of gold, whereas five decades ago, the silver supply exceeded the gold five times over! Why?2)Modern electronics uses silver in nearly every thing electrical, in small amounts it is true, but those bits are lost every time those items are lost, discarded, or replaced. Note also,3)That silver is being touted again as an effective agent in controlling virus and bacteria infections, and is being used in toothpaste and medicine for these purposes. Also, 4) The current price has limited production, and thus nearly all new silver produced is used in the production process, leaving limited amounts for speculation and saving! 5)It is becoming a known fact, that the price of silver has been held down artificially by several big banks for several decades, using short sales to drive the price down when increases are threatened, then buying up and storing the actual bullion in anticipation of large price increases. And of course, 6)The current ratio of silver value to gold of about 75 to 1 is far out of line with the historical ratio of 15 or 16 to 1 that is recorded in our early history. An adjustment is coming and is long overdue. And it is being said here, that you can count on it! But when????
Jake Wren

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