Friday, December 9th, 2016 MST

Devastating Depression

Monetary Digest, December 1974

The Dines Newsletter, one of the foremost pessimists on the economy and advocates of silver and gold, continues to maintain that we are headed for a devastating depressions in 1975 or 1976. In the November 22 issue, Dines maintains that there will be stock market rallies along the way, even a year-end rally. However, Mr. Dines still maintains that in spite of such rallies a depression is inevitable.

Mr. Dines sees a major, “historic” uptrend in silver and gold.

Recession or Inflation Battle?

It is now becoming increasingly clear that the government is going to fight a recession instead of inflation. Remember, President Ford held a summit conference so the brilliant economic minds of this country could show him how to fight inflation. A majority of those economists insist that the interest rates must be lowered and that the Fed must “loosen up the money.”

So, the soldiers went to do battle against inflation and came out fighting a recession. This is equivalent to rescuing the settlers by selling guns and ammunition to the Indians.

Italians Offer Gold, Germans Accept

On September 2, the Italian government pledged, as collateral for a $2 billion dollar loan from West Germany, part of its gold reserves. The price agreed upon for the purpose of this loan was about $120 an ounce.

This must be particularly frustrating for U.S. Treasury officials because they have been trying to get European officials to “demonetize gold.” This is obviously a setback for all opponents of gold.

Considering the Italian’s sad financial shape, it would hardly be prudent for anyone to loan them money without collateral for those World War II loans?

Copper Production Down

Phelps Dodge Corporation has announced it will cut copper production at three mines by 81/2%. Since approximately 70% of all silver production comes as a by-product of base metals, primarily copper, we can expect a decrease in silver production. A continuation of this same trend can be expected as the depression gets worse.

Inflation Continues Upward

As measured by the Consumer Price Index, inflation continued upward during October. Officially, the Consumer Price Index stands at 153.2% of the 1967 average. The 153.2% compares with the 151.9% in September for an annualized rate over 10%, again double digit.

The chart, taken from the November 25, 1974 issue of the Wall Street Journal, shows the rapid climb in Consumer prices we have suffered over the past four years.

Good News and Bad News

Good News: Ford Motor Company has reduced the price of the Pinto by $150. Bad News: This is further evidence that we are in a recession which is rapidly becoming a depression. Ford is cutting price, which lowers the profit margin, in an effort to stimulate sales. This is a classic sign of bad economic times.

The government recognizes the dire straits of the automobile industry. We predict moves by the Federal Government to stimulate auto sales. Perhaps even four-year financing with a government guarantee.

Swiss Charge Interest

So many people are seeking to convert unstable currencies to the Swiss Franc that it has created a problem for Switzerland. Incoming currencies have an adverse inflationary affect on the Swiss economy.

Therefore, to discourage an inflow of foreign currencies, the Swiss government has imposed an annual 12% negative interest charge on non-resident Franc deposits. In other words, you now have to pay 12% to keep your money in a Swiss account.

Shades of WPA

Already the government is pumping a billion into a make-work program for the unemployed. And, President Ford wants another $3 billion in unemployment reaches 6.2%. Under the Ford plan, a jobless rate of 6.5% would cost us $5 billion.