It’s little wonder that so few people in the United States and Europe can think straight about basic economics with the constant flow of misinformation coming from the media and universities.  Here’s an interesting piece out of Scotland from an Oxford and Harvard trained editor titled “When inflation could be good for you.”

This one is interesting because it contains a bit of a head fake to start off.  When I first saw the title, I expected an immediate launch into an economic fallacy, but its author actually states the opposite:

“So could an inflationary inoculation work in economics, providing strong medicine for a serious economic ailment?

“With our economics strongly influenced by the experiences of the 1970s, the answer tends to be ‘no’. Inflation feeds on itself, workers chase higher wages to keep up with prices, costs spiral, companies lose the confidence to invest, and anyone on a fixed income – notably, pensioners – are the ones who suffer most.”

I guess by leading off with a little bit of truth, readers are expected to let their guards down in order to accept the information that follows.  When he states that “the the answer tends to be no,” we are immediately back on alert that fallacies are soon to follow.

But first he gives another nugget of truth:

“While interest rates remain at a historic low, with the base rate still at 0.5% and expected to stay there for a while yet, that means a negative real interest rate.

“To put it simply, the interest you get on holding money in a savings account is not enough to stop the value of your savings eroding.”

But he then uses this to conclude that a real negative interest rate policy is good because it encourages people to consume and not save their money.

“If inflation is officially encouraged to go a bit higher, real interest rates would fall, and people’s expectations of falling value of their savings could encourage them not to save but to get consuming again.”

So here we are again with the classic fallacy that consumption is the basis for economic growth. The idea that the only thing standing between us and a rip roaring economy is that we just need to stop saving and buy stuff. And if we really want to be prosperous, then we go into debt to buy stuff that we don’t really need.

This is, of course, complete nonsense.  Savings and production are the basis for economic growth. Standards of living are raised via increased productivity.  The more efficiently goods can be produced, the lower their cost. Wealth and financial independence are achieved by being productive and consuming less than you produce, not the opposite.

If this concept is not intuitively obvious, I highly recommend reading the first part of Irwin Schiff’s cartoon book “How an economy grows and why it doesn’t (Download PDF)“.  Schiff derives from first principles – or actually three men on an island – how an economy actually grows. Once you “get it,” the hazy concept of economic growth comes into sharp focus.

Ultimately the cry for more consumption is another attempt to kick the can down the road and extend the Ponzi central banking/fiat money scheme.  Particularly if we can extend it long enough to bail out the Too Big to Fails:

“Then, why-oh-why would we want to penalise thrift and savings, to encourage consumer demand, when excessive consumerism is precisely what got us into this mess?

“The answer is that – to misuse a political slogan from 2010 – we’re all in this together. Responsible behavior may have to be penalised so that savers, alongside everyone else, can get out of the current economic predicament.”

And there you have it.  If we allow our failed banking system to actually go bankrupt, it would result in a major recession.  So in order to muddle through this, the banks must be made whole again at the expense of the prudent folks who lived within their means.

And just in case those folks start getting any ideas about opting out of this arrangement, he states that:

“There’s not a savings product on the mainstream market that matches the current rate of inflation.”

But the last time I checked, gold has been doing exactly that and more for the last eleven years.

Richard (Rick) Mills

Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

In 1798 32 year-old British economist Malthus anonymously published “An Essay on the Principle of Population” and in it he argued that human population’s increase geometrically (1, 2, 4, 16 etc.) while their food supply can only increase arithmetically (1, 2, 3, 4 etc.).

“The power of population is indefinitely greater than the power in the earth to produce subsistence for man”. Thomas Robert Malthus

It is estimated that the population of the world reached:

• One billion in 1804
• Two billion in 1927
• Three billion in 1960
• Four billion in 1974
• Five billion in 1987
• Six billion in 1999

The second half of the 20th century saw the biggest increase in the world’s population in human history. Our population surged because:

• Medical advances lessened the mortality rate in many countries 
• Massive increases in agricultural productivity because of the “Green Revolution”

The global death rate has dropped almost continuously since the start of the industrial revolution – personal hygiene, improved methods of sanitation and the development of antibiotics have all played a major role.

You can view the rest of the article here…

http://www.silver-investor.com/pdf/ProvisionsShortageSparkedArabSpring.pdf

TEMR: David Morgan is an expert on silver, gold and precious metals investments.   He’s a world renowned lecturer appearing on CNBC and the FOX Business Channel.  He’s an author having penned, Get the Skinny on Silver Investing.  Mr. Morgan is a regular contributor and friend of The Ellis Martin Report.  David welcome back to the show and happy New Year to you.

David Morgan: Ellis thanks and happy New Year to you.

TEMR:  Are you optimistic for 2012 with regards to silver or metals in general?

David Morgan: If we take the whole year into account I am, yes. But, I think it’s going to be the most volatile year we’ve probably seen to date. 

TEMR:  Are you encouraged by the start of this week at all or are you just ignoring it and looking towards the long-term?

David Morgan: You can’t ignore one of the biggest gains on a one day basis for silver going back years. I mean, we got off to a rocket launch and of course you have to pay attention to that. But, that just goes back to the word I used just a second ago, volatility. I think you’re going to see a lot of movement both directions but overall the trend will be higher. And, I’m expecting actually to see silver pretty much double over the course of 2012, meaning going roughly from $30.00 to roughly $60.00.

TEMR:  So, you’re predicting $60.00 silver at some point during 2012. That’s a big number for silver.

David Morgan:  It is. It breaches the $50.00 psychological barrier that sells silver down ever since the Hunt Brothers situation. And, it was smashed down at that $48 1/2 level actually or $40 1/2 some time ago. And, it’s going to take some work to get through that but I believe this is the year that it will happen. And, I believe once we get through that psychological barrier that will become a floor for quite some time.  

TEMR:  Now as a subscriber to The Morgan Report or silver-investor.com, I get updates from time to time or I read them from time to time from you as do all of your subscribers. And, I while back I believe you mentioned, I may be paraphrasing here, silver as a buying opportunity at any price under $30.00. So, I took your advice and I went out and stacked up on some rounds. Are you buying more silver right now?

David Morgan: Yes I am. And, that’s exactly correct I said for a long-term investor, and long-term these days is like in the 2 to 3-year time horizon, anything under $30.00 buy physical. And, so far that’s proven to be pretty good handle on things because if you look at the chart and see how many days it’s traded under $30.00 there aren’t very many. And, even on the days where it’s printed in the $26.00 level there’s not many prints there. In other words you have to look at these markets in a way that most people don’t understand because they don’t really know how markets work. But, it’s like, I’ll use the car analogy. I know sometimes a lot of car dealers will put a car on display and it will be, you know, the super deal. And, it’s one at this price only. So, they have a lot of other cars that are almost identical to it but there’s only one at that specific price. So, it’s kind of the same thing for silver. How much $26.00 silver is available? And, the answer is far less than is available at $36.00, if you get my point. I hope I made that clear. People get the idea that once it gets to $26.00 or $22.00 or whatever their fantasy number is, I’ll put my $2 million dollars in there or whatever. Markets don’t work that way. There might only be enough silver at that level to take $100,000.00 worth of metal off the market and then the price starts moving back up. So, that’s something to bear in mind. There’s a lot of people out there that just don’t understand exactly how these markets work.   

TEMR:  Well, what surprised me the particular morning I actually physically drove to a bullion dealer in Los Angeles, a substantial dealer, I was the only one there buying silver. In fact, I was the only one in the showroom. I expected it to be packed. What’s going with regard to perception in the retail area and silver?

David Morgan: Well, it’s typical psychology. If you really want to do well in the markets you have to understand psychology more than the numbers. Numbers are important. They’re a tool. But, if you really understand human psychology you’ll do even better. And, well, let’s see, the price has gone off. The price has been below $0.50 May 1st and it’s going lower or I want to wait and see. So, you know, a lot of people that get that wait and see kind of an attitude and they’ll wait. They’ll watch. They’ll see the bottom. They won’t know it’s the bottom and they won’t buy. In other words they just watch the whole time. And, there’s lots of people out there like that because the psychology is they want to get the exact price, low. And, that’s an amateurs game. A professional looks at a market and says this is still a bull market. The major trend is still up. Nothing’s gone on in the financial system that’s made anything close to a resolution of these massive problems on a global basis. The metals is really the only safe harbor. Therefore, I’m going to establish a position and I’m going to keep building it. To use your words, stacking. Keep stacking up your gold and silver. And, a lot of people do get that but a lot of people don’t. They’re waiting and they’ll continue to wait and they’ll miss the market.

TEMR: Well, they’re going to wait until the price goes up I guess or until it goes down and it may not go down as low as they want it. Is that essentially what you’re saying?

David Morgan: Yeah. What happens is people do the wrong things. I mean, right now you were the only one in the shop. That’s a good indicator you’re buying correctly. I mean, if there was a massive amount of people in there you might question yourself. It doesn’t mean you shouldn’t buy. You might say, hmm that’s interesting. So, people should buy when they’re fearful, which is now. And, they should be selling or lighten up when they’re greedy. But, that’s not what happens if you study the markets. And, it’s not just the gold and silver markets. It’s the tech. It’s the housing boom. It’s any market. People get very euphoric at the highs. So as you said a moment ago silver starts moving back to number 35/40 you’re going to see a lot more enthusiasm and a lot people coming in the market that didn’t want to touch it when it was under $30.00. You know, they might have heard this radio show even and said, you know, that sounds really, really good but it’s going lower. And, they don’t do it. And, then it starts to move higher. And, some of those people will say, I’m throwing in the towel. I’ve got to buy it. I’m going to buy it now. Well, they would’ve had a much better profit base if they would’ve bought it when it felt wrong to buy it.

TEMR: And, we had this almost exact conversation well over a year ago when it was under $20.00.

David Morgan: That’s correct. You’ve got a great memory and that’s precisely accurate. We had a very similar conversation. And, you know, the thinking at that time, generally speaking, I’m paraphrasing, was that, oh my gosh $20.00. It was at $5.00 at one time. It’s a quadruple. Double-digits. Now that’s too high. Well, is $22.00 high when you’ve got an infinite monetary supply and governments that are so irresponsible that they won’t own up to the responsibility? You’ve got governments all around the world that don’t know what to do and they’re actually in a panic mode behind closed doors. They’re throwing rocks at each other. And, they don’t understand how to correct the system because it’s beyond correction. I mean, there really isn’t a physical paper price that you should focus on. We should focus on is, do I have metal or don’t I? You should focus on do I have more at the end of 2012 than I had at the beginning of 2012? And, that’s the way you should appropriate your wealth because it is wealth. It’s stored value and it’s for the future or spending on the present day if you choose to do so. That’s the only way to articulate it. But, people cannot get that paradigm shift in their thinking. Now if we were on a hard money standard then they would say well if I had more silver coins tomorrow than I had today I’m wealthier. And, that’s so simple to grasp that concept. But, when you put in the paper paradigm and everybody thinks of their net worth in terms of paper they can’t get the concept. They’re blinded to it. But, yet the reality is take that red pill. Get out of the matrix and look at your net worth in terms of how many coins do I have today versus what I had a year ago. Do I have more or less? And, that is true value. But, I can’t emphasize it enough and I certainly can’t put those rose colored glasses on everybody so they can see past the illusion into the reality.

Ellis Martin:  Well, let’s shift this conversation into another lateral realm more or less. When I think about silver rounds now having done business with a few silver producers based out of Canada and producing in Mexico and China and what have you, I can’t help but think about these companies producing silver right now and being a part of that. What are your thoughts concerning silver producers right now? Are you grabbing up more of that stock?

David Morgan: Absolutely. I mean, my belief hasn’t really changed. They’re the most undervalued best place to be in the market and of course this is the one that has the most fear surrounding it. But, if you are patient and you have conviction the best place to be is in the junior to mid-tier producers. Buy in over the next, I’d say, few to several months, meaning 3 to 6-months and hold to your hats because what’s going to happen in my very strong view is that to people that are extremely late to the party that we talked about a moment ago, that will have to pile into silver above $40.00, more above $50.00 and even more as it moves beyond that they’re going to feel they missed it. But, they’re also going to look at reality at some big way and say my IRA isn’t going to make it. My pension fund isn’t there. Maybe Social Security payments will come but they’re not going to buy anything. In other words, fear will drive the market. So, there’ll be a huge rush into gold and silver. However, most people will not go to coin dealers at that point in time. They’ll feel that the prices of have passed them by. But they will be looking for gold and silver mining companies like crazy. So, I predict that it’ll be similar to the tech or the housing boom only it will be as big as or greater than those in real terms. And, the reason I say that is there’s nothing like a fear driven market. When you think your money is going to lose value rapidly it’s huge motivator to move out of that currency whatever the currency. Be it the euro. Be it the U.S. dollar. Be it the Aussie dollar. Be it whatever. Into a gold or silver related asset. And, that will be the underlying equities because almost everybody in the U.S. and in fact globally has some type of a trading platform that’s computer based and they can click a mouse and buy a gold stock. And, once that phenomenon starts to grab hold, and I really think it’s going to take 1 1/2 to 2 years before you see this, but once it starts it is going to be, you know, the Albania all over again. You’re going to see some of these penny stocks go ten-baggers in a matter of weeks.

TEMR: So it’s ok to accumulate now but you must be patient. Look ahead for 2013 and 2014.

David Morgan: I really believe that’s the case. And, that’s the reason why if you really can think through these things and try to get your emotions out of the way you’re going to buy right now when the market’s quiet, which is exactly what you said. You walked in the coin shop you were the only one. That’s a quiet market. Never sell a quiet market, one of my favorite market adages. And, number two, you really want to be buying when everybody else is thinking about it. So, now is the time. It doesn’t mean this day. As I said, in the next 3 to 6-months I think. You’ve probably got that window of opportunity and then you’re going to start seeing a new base built and start moving up. And, It’ll move up I think well. But, not into the panic buying mode that I described a minute ago. That’s a couple of years off I think.

TEMR: Does politics per se have any immediate decision across the board with regard to influencing you over your investment decisions?

David Morgan: Somewhat but not much. I mean, the political spectrum is so corrupt that it is a situation that the analogy I use is it’s like changing captains on the Titanic. It doesn’t matter which party is in. It doesn’t matter who’s at the control. It doesn’t matter what blather lather speech they’re making. No real changes can be made. The hull has been pierced and the ship’s going down.

TEMR: So, you’re pretty much ignoring the news except for maybe a mild interest in what’s happening politically.

David Morgan: Yeah. Some people use it to trade. I let it influence me slightly. But, I mean, I look at the fundamental picture when it comes to politics. And, the fundamental picture in my strong view is that it’s corrupt and it cannot be corrected at this point in time. There’s some hopes out there. I mean, I’ll voice that I was honored of being able to have dinner with Ron Paul. It wasn’t a one on one. It was at the Austrians Group at San Francisco one time. And, I think he’s awesome. And, I even think if he’s elected he’d not be able to turn the ship around. I think it’s too late. That’s my opinion. But, I really don’t put much clout into the political system any more. I think it’s just really, really similar to the Roman Empire. We’re in the final days. And, at most the Congress critters and most of the senators are looking to fatten their own wallets on a personal basis and could give a hoot about the citizenry.

TEMR: Following up on an earlier point that you made just a while back in this conversation. You mentioned the real estate bubble. You mentioned the tech bubble of the late nineties and the early 2000s. Mining stocks, gold, silver, is that a bubble? Or will it act like one without ever popping?

David Morgan: That is a fabulous question. And, I wish I had an answer. My take at this point in time subject to change is that I think the equities could get into a bubble mode. I mean, It’s pretty easy to figure out what a company is worth based whatever the current dollar price is. And, when you’re in that kind of a blow off rally you got to kind of keep your head about you and realize that you’ve only got a derivative. So, what do you do with that derivative? And, the answer is quite frankly I don’t know. It’s a case by case individual basis but I’ve thought about it a great deal. So, my take would be to change that asset to another one. So, an example would be you’ve got very overvalued mining shares and maybe you could exchange that for the currency (inaudible) and move that quickly into a very undervalued asset such as a land position, raw land perhaps. Maybe real estate. Maybe income producing real estate. I don’t know. That’s the idea. I think you still want to be in a hard asset. And, so, you could either go into a land position or something along those lines. As far as the metal itself I’m reserving comment. My take today and it has been for the last couple of years is to go ahead and hold the metal itself. And, the reason being is that you don’t want to trade any physical metal for any piece of paper unless the whole system has been rectified to some large degree and you have confidence back in the system. And, if there is a currency that’s gold backed or that everyone trusts and confidence restored to the system and then certainly you can take a look at that and sell the physical. But, unless that confidence and trust is restored I don’t think it makes any sense to sell the physical. So, hopefully I was clear on that. You want to sell the derivatives and put it into some type of undervalued asset at the time and you want to hold the metals until you’re sure or as sure as you can be that there’s some confidence remaining in the system or it’s been rebuilt. In other words it’s fallen down as far as it can go. It’s bottomed and now confidence is being rebuilt and things are on the upswing again.

TEMR: If you don’t mind David tell our new listeners about your website, silver-investor.com or also themorganreport.com.

David Morgan:  Certainly. I think what I’d suggest to most people that are not familiar with my work is get on my free list. It is absolutely free. You’ll get The 10 Rules of Silver Investing. And, you can go through those. I think they come out about every 3 or 4 days. And, then I send out a weekly update to everyone for free on the economic conditions. And, it’s also a way to kind of track where I’m speaking or what I’m doing over the course of the following months or so. And, then if you like the way I write we offer usually a sample edition to report that you can read and view if you want to actually get my best thinking which is reserved for my members only.

TEMR: Well, David it’s a pleasure to speak with you. Again, I’ve been speaking with David Morgan, the silver-guru, expert on mining, money and metals. The website again is silver-investor.com and themorganreport.com. David thanks a lot for joining me today.

David Morgan: My pleasure Ellis. Thank you.

TEMR:  Listen to this segment again on the homepage of our website, Ellis Martin Report.com.  

copyright 2012 Ellis Martin Report all rights reserved. May be reprinted in its entirety. 

http://www.ellismartinreport.com   htpp://www.silver-investor.com

contact: martinreports@gmail.com

TEMR: David Morgan is an expert on silver, gold and precious metals investments.   He’s a world renowned lecturer appearing on CNBC and the FOX Business Channel.  He’s an author having penned, Get the Skinny on Silver Investing.  Mr. Morgan is a regular contributor and friend of The Ellis Martin Report.  David welcome back to the show and happy New Year to you.

David Morgan: Ellis thanks and happy New Year to you.

TEMR:  Are you optimistic for 2012 with regards to silver or metals in general?

David Morgan: If we take the whole year into account I am, yes. But, I think it’s going to be the most volatile year we’ve probably seen to date. 

TEMR:  Are you encouraged by the start of this week at all or are you just ignoring it and looking towards the long-term?

David Morgan: You can’t ignore one of the biggest gains on a one day basis for silver going back years. I mean, we got off to a rocket launch and of course you have to pay attention to that. But, that just goes back to the word I used just a second ago, volatility. I think you’re going to see a lot of movement both directions but overall the trend will be higher. And, I’m expecting actually to see silver pretty much double over the course of 2012, meaning going roughly from $30.00 to roughly $60.00.

TEMR:  So, you’re predicting $60.00 silver at some point during 2012. That’s a big number for silver.

David Morgan:  It is. It breaches the $50.00 psychological barrier that sells silver down ever since the Hunt Brothers situation. And, it was smashed down at that $48 1/2 level actually or $40 1/2 some time ago. And, it’s going to take some work to get through that but I believe this is the year that it will happen. And, I believe once we get through that psychological barrier that will become a floor for quite some time.  

TEMR:  Now as a subscriber to The Morgan Report or silver-investor.com, I get updates from time to time or I read them from time to time from you as do all of your subscribers. And, I while back I believe you mentioned, I may be paraphrasing here, silver as a buying opportunity at any price under $30.00. So, I took your advice and I went out and stacked up on some rounds. Are you buying more silver right now?

David Morgan: Yes I am. And, that’s exactly correct I said for a long-term investor, and long-term these days is like in the 2 to 3-year time horizon, anything under $30.00 buy physical. And, so far that’s proven to be pretty good handle on things because if you look at the chart and see how many days it’s traded under $30.00 there aren’t very many. And, even on the days where it’s printed in the $26.00 level there’s not many prints there. In other words you have to look at these markets in a way that most people don’t understand because they don’t really know how markets work. But, it’s like, I’ll use the car analogy. I know sometimes a lot of car dealers will put a car on display and it will be, you know, the super deal. And, it’s one at this price only. So, they have a lot of other cars that are almost identical to it but there’s only one at that specific price. So, it’s kind of the same thing for silver. How much $26.00 silver is available? And, the answer is far less than is available at $36.00, if you get my point. I hope I made that clear. People get the idea that once it gets to $26.00 or $22.00 or whatever their fantasy number is, I’ll put my $2 million dollars in there or whatever. Markets don’t work that way. There might only be enough silver at that level to take $100,000.00 worth of metal off the market and then the price starts moving back up. So, that’s something to bear in mind. There’s a lot of people out there that just don’t understand exactly how these markets work.   

TEMR:  Well, what surprised me the particular morning I actually physically drove to a bullion dealer in Los Angeles, a substantial dealer, I was the only one there buying silver. In fact, I was the only one in the showroom. I expected it to be packed. What’s going with regard to perception in the retail area and silver?

David Morgan: Well, it’s typical psychology. If you really want to do well in the markets you have to understand psychology more than the numbers. Numbers are important. They’re a tool. But, if you really understand human psychology you’ll do even better. And, well, let’s see, the price has gone off. The price has been below $0.50 May 1st and it’s going lower or I want to wait and see. So, you know, a lot of people that get that wait and see kind of an attitude and they’ll wait. They’ll watch. They’ll see the bottom. They won’t know it’s the bottom and they won’t buy. In other words they just watch the whole time. And, there’s lots of people out there like that because the psychology is they want to get the exact price, low. And, that’s an amateurs game. A professional looks at a market and says this is still a bull market. The major trend is still up. Nothing’s gone on in the financial system that’s made anything close to a resolution of these massive problems on a global basis. The metals is really the only safe harbor. Therefore, I’m going to establish a position and I’m going to keep building it. To use your words, stacking. Keep stacking up your gold and silver. And, a lot of people do get that but a lot of people don’t. They’re waiting and they’ll continue to wait and they’ll miss the market.

TEMR: Well, they’re going to wait until the price goes up I guess or until it goes down and it may not go down as low as they want it. Is that essentially what you’re saying?

David Morgan: Yeah. What happens is people do the wrong things. I mean, right now you were the only one in the shop. That’s a good indicator you’re buying correctly. I mean, if there was a massive amount of people in there you might question yourself. It doesn’t mean you shouldn’t buy. You might say, hmm that’s interesting. So, people should buy when they’re fearful, which is now. And, they should be selling or lighten up when they’re greedy. But, that’s not what happens if you study the markets. And, it’s not just the gold and silver markets. It’s the tech. It’s the housing boom. It’s any market. People get very euphoric at the highs. So as you said a moment ago silver starts moving back to number 35/40 you’re going to see a lot more enthusiasm and a lot people coming in the market that didn’t want to touch it when it was under $30.00. You know, they might have heard this radio show even and said, you know, that sounds really, really good but it’s going lower. And, they don’t do it. And, then it starts to move higher. And, some of those people will say, I’m throwing in the towel. I’ve got to buy it. I’m going to buy it now. Well, they would’ve had a much better profit base if they would’ve bought it when it felt wrong to buy it.

TEMR: And, we had this almost exact conversation well over a year ago when it was under $20.00.

David Morgan: That’s correct. You’ve got a great memory and that’s precisely accurate. We had a very similar conversation. And, you know, the thinking at that time, generally speaking, I’m paraphrasing, was that, oh my gosh $20.00. It was at $5.00 at one time. It’s a quadruple. Double-digits. Now that’s too high. Well, is $22.00 high when you’ve got an infinite monetary supply and governments that are so irresponsible that they won’t own up to the responsibility? You’ve got governments all around the world that don’t know what to do and they’re actually in a panic mode behind closed doors. They’re throwing rocks at each other. And, they don’t understand how to correct the system because it’s beyond correction. I mean, there really isn’t a physical paper price that you should focus on. We should focus on is, do I have metal or don’t I? You should focus on do I have more at the end of 2012 than I had at the beginning of 2012? And, that’s the way you should appropriate your wealth because it is wealth. It’s stored value and it’s for the future or spending on the present day if you choose to do so. That’s the only way to articulate it. But, people cannot get that paradigm shift in their thinking. Now if we were on a hard money standard then they would say well if I had more silver coins tomorrow than I had today I’m wealthier. And, that’s so simple to grasp that concept. But, when you put in the paper paradigm and everybody thinks of their net worth in terms of paper they can’t get the concept. They’re blinded to it. But, yet the reality is take that red pill. Get out of the matrix and look at your net worth in terms of how many coins do I have today versus what I had a year ago. Do I have more or less? And, that is true value. But, I can’t emphasize it enough and I certainly can’t put those rose colored glasses on everybody so they can see past the illusion into the reality.

Ellis Martin:  Well, let’s shift this conversation into another lateral realm more or less. When I think about silver rounds now having done business with a few silver producers based out of Canada and producing in Mexico and China and what have you, I can’t help but think about these companies producing silver right now and being a part of that. What are your thoughts concerning silver producers right now? Are you grabbing up more of that stock?

David Morgan: Absolutely. I mean, my belief hasn’t really changed. They’re the most undervalued best place to be in the market and of course this is the one that has the most fear surrounding it. But, if you are patient and you have conviction the best place to be is in the junior to mid-tier producers. Buy in over the next, I’d say, few to several months, meaning 3 to 6-months and hold to your hats because what’s going to happen in my very strong view is that to people that are extremely late to the party that we talked about a moment ago, that will have to pile into silver above $40.00, more above $50.00 and even more as it moves beyond that they’re going to feel they missed it. But, they’re also going to look at reality at some big way and say my IRA isn’t going to make it. My pension fund isn’t there. Maybe Social Security payments will come but they’re not going to buy anything. In other words, fear will drive the market. So, there’ll be a huge rush into gold and silver. However, most people will not go to coin dealers at that point in time. They’ll feel that the prices of have passed them by. But they will be looking for gold and silver mining companies like crazy. So, I predict that it’ll be similar to the tech or the housing boom only it will be as big as or greater than those in real terms. And, the reason I say that is there’s nothing like a fear driven market. When you think your money is going to lose value rapidly it’s huge motivator to move out of that currency whatever the currency. Be it the euro. Be it the U.S. dollar. Be it the Aussie dollar. Be it whatever. Into a gold or silver related asset. And, that will be the underlying equities because almost everybody in the U.S. and in fact globally has some type of a trading platform that’s computer based and they can click a mouse and buy a gold stock. And, once that phenomenon starts to grab hold, and I really think it’s going to take 1 1/2 to 2 years before you see this, but once it starts it is going to be, you know, the Albania all over again. You’re going to see some of these penny stocks go ten-baggers in a matter of weeks.

TEMR: So it’s ok to accumulate now but you must be patient. Look ahead for 2013 and 2014.

David Morgan: I really believe that’s the case. And, that’s the reason why if you really can think through these things and try to get your emotions out of the way you’re going to buy right now when the market’s quiet, which is exactly what you said. You walked in the coin shop you were the only one. That’s a quiet market. Never sell a quiet market, one of my favorite market adages. And, number two, you really want to be buying when everybody else is thinking about it. So, now is the time. It doesn’t mean this day. As I said, in the next 3 to 6-months I think. You’ve probably got that window of opportunity and then you’re going to start seeing a new base built and start moving up. And, It’ll move up I think well. But, not into the panic buying mode that I described a minute ago. That’s a couple of years off I think.

TEMR: Does politics per se have any immediate decision across the board with regard to influencing you over your investment decisions?

David Morgan: Somewhat but not much. I mean, the political spectrum is so corrupt that it is a situation that the analogy I use is it’s like changing captains on the Titanic. It doesn’t matter which party is in. It doesn’t matter who’s at the control. It doesn’t matter what blather lather speech they’re making. No real changes can be made. The hull has been pierced and the ship’s going down.

TEMR: So, you’re pretty much ignoring the news except for maybe a mild interest in what’s happening politically.

David Morgan: Yeah. Some people use it to trade. I let it influence me slightly. But, I mean, I look at the fundamental picture when it comes to politics. And, the fundamental picture in my strong view is that it’s corrupt and it cannot be corrected at this point in time. There’s some hopes out there. I mean, I’ll voice that I was honored of being able to have dinner with Ron Paul. It wasn’t a one on one. It was at the Austrians Group at San Francisco one time. And, I think he’s awesome. And, I even think if he’s elected he’d not be able to turn the ship around. I think it’s too late. That’s my opinion. But, I really don’t put much clout into the political system any more. I think it’s just really, really similar to the Roman Empire. We’re in the final days. And, at most the Congress critters and most of the senators are looking to fatten their own wallets on a personal basis and could give a hoot about the citizenry.

TEMR: Following up on an earlier point that you made just a while back in this conversation. You mentioned the real estate bubble. You mentioned the tech bubble of the late nineties and the early 2000s. Mining stocks, gold, silver, is that a bubble? Or will it act like one without ever popping?

David Morgan: That is a fabulous question. And, I wish I had an answer. My take at this point in time subject to change is that I think the equities could get into a bubble mode. I mean, It’s pretty easy to figure out what a company is worth based whatever the current dollar price is. And, when you’re in that kind of a blow off rally you got to kind of keep your head about you and realize that you’ve only got a derivative. So, what do you do with that derivative? And, the answer is quite frankly I don’t know. It’s a case by case individual basis but I’ve thought about it a great deal. So, my take would be to change that asset to another one. So, an example would be you’ve got very overvalued mining shares and maybe you could exchange that for the currency (inaudible) and move that quickly into a very undervalued asset such as a land position, raw land perhaps. Maybe real estate. Maybe income producing real estate. I don’t know. That’s the idea. I think you still want to be in a hard asset. And, so, you could either go into a land position or something along those lines. As far as the metal itself I’m reserving comment. My take today and it has been for the last couple of years is to go ahead and hold the metal itself. And, the reason being is that you don’t want to trade any physical metal for any piece of paper unless the whole system has been rectified to some large degree and you have confidence back in the system. And, if there is a currency that’s gold backed or that everyone trusts and confidence restored to the system and then certainly you can take a look at that and sell the physical. But, unless that confidence and trust is restored I don’t think it makes any sense to sell the physical. So, hopefully I was clear on that. You want to sell the derivatives and put it into some type of undervalued asset at the time and you want to hold the metals until you’re sure or as sure as you can be that there’s some confidence remaining in the system or it’s been rebuilt. In other words it’s fallen down as far as it can go. It’s bottomed and now confidence is being rebuilt and things are on the upswing again.

TEMR: If you don’t mind David tell our new listeners about your website, silver-investor.com or also themorganreport.com.

David Morgan:  Certainly. I think what I’d suggest to most people that are not familiar with my work is get on my free list. It is absolutely free. You’ll get The 10 Rules of Silver Investing. And, you can go through those. I think they come out about every 3 or 4 days. And, then I send out a weekly update to everyone for free on the economic conditions. And, it’s also a way to kind of track where I’m speaking or what I’m doing over the course of the following months or so. And, then if you like the way I write we offer usually a sample edition to report that you can read and view if you want to actually get my best thinking which is reserved for my members only.

TEMR: Well, David it’s a pleasure to speak with you. Again, I’ve been speaking with David Morgan, the silver-guru, expert on mining, money and metals. The website again is silver-investor.com and themorganreport.com. David thanks a lot for joining me today.

David Morgan: My pleasure Ellis. Thank you.

TEMR:  Listen to this segment again on the homepage of our website, Ellis Martin Report.com.  

copyright 2012 Ellis Martin Report all rights reserved. May be reprinted in its entirety. 

http://www.ellismartinreport.com   htpp://www.silver-investor.com

contact: martinreports@gmail.com

Tracy Weslosky:          Happy New Year, David.  It’s our first Currency Countdown for 2012, how are you today?

David Morgan:           I’m well, thank you, Tracy.

Tracy Weslosky:          Well let’s talk about what’s happening with the Euro.  I’d like to start about the bonds and the impact from the collapse of the Euro.  Where do you want to begin? 

David Morgan:           The overall conditions in Euro, in my view and many commentators is the Eurozone continues to deteriorate, and we’re in a situation where you just cannot get this group of individual countries banded together for political purposes on an economic basis that it is equal for everybody.  It’s impossible, and the markets are bearing that out.  So strength in one area, weakness in another, and that will continue.  As the old adage goes, a chain is as strong as its weakest link.  The weak links are several.

You’ve got Spain, Italy, Greece, and others, Ireland.  And they’re basically in a depression, these countries.  And there’s all kinds of people literally in the streets.  So even though France might look good today, and Germany might look good today and the last week or so and there’s all kinds of commentary about resolution of problems and the ECB coming to the rescue.  In my view it’s a smoke screen; things are deteriorating basically before our eyes. 

Tracy Weslosky:          Yes let’s talk about smoke screens.  And in particular the impact on bank lending; I would suspect that’s one of the examples of how this is affecting all of us.  Can you talk to us about banks and their lending and how they’re going to cope with all of this?

David Morgan:           Well that’s the crux of the problem.  The basic situation is extremely similar to what happened in the 2008 financial crisis in the United States.  And to be specific, what happened at that point was that inter lending– bank to bank loans were not being performed.  What that means is that bank A didn’t trust bank B which didn’t trust bank C.  Well all these banks are interconnected, but none of them were trusting each other, and the whole system is based on confidence.

So at the last minute, so to speak, and the Fed didn’t waste any time, came in and said “Okay, bank A, B, C, D what we’ll do is we will eat your toxic paper and we will substitute Treasury bills, Treasury notes, Treasury bonds for that paper” and trading continued because all these banks were willing to trade their toxic waste assets for government backed paper.  And the system did not fall over the cliff.  

We’re in a similar situation the Euro; the interbank lending for all practical purposes has ended.  These banks don’t trust each other.  You don’t know what the loan rates are, and you don’t know what the discount rate’s going to be in the future.  You don’t know how much the interest rate will be pushed up.  Basically you just don’t have any confidence between Eurozone countries.  However, you still have the ECB, the buyer of last resort similar to the Federal Reserve in the United States.  And so even though this over subscription to the French last bond program, which is currently going on, I think that’s more of a, again, smoke screen meaning that the powers that be are there saying “Yeah, yeah we want buy French debt.”

Sure they do.  Well fine, the real truth of the matter is that these banks are scared to death.  They don’t trust each other, and that further deteriorates the system.  So I think we’re getting near the end game here. 

Tracy Weslosky:          I want to talk about the Asian markets and how they’ve been impacted.  It seems that the press is starting to see a correlation; what do you think?

David Morgan:           Global markets have been global for some time.  I mean regardless of the different currencies, everybody is tied together.  I mean without the export ability of China, and the ability of the Westernized nations, Europe as well, to be able to export funny money to the producers you’re not going to have world trade.  So we’re all interconnected.  And we’re all connected to the U.S. dollar, although that has been lagging of late, meaning more and more we’re seeing Russia and China say “We will trade with each other without going through the dollar first.”

It happened again recently with other countries and China.  Some entities and nation states are going to use the Yuan directly and peg some of their trades in the Yuan without going to or pegging to the dollar.  So you’re seeing more and more undertones in the real world where trade will continue but the dollar isn’t used as the supreme currency, and that trend will continue. 

Tracy Weslosky:          Hitting the ground running in 2012 I’m reading all kinds of documents and e-mails on the impact of reflation, and how this is going to cause a beautiful boomerang in the resource sector.  Can you tell me if you agree with that or what everyone’s talking about?  Do you think you could define that a little better for our listeners?

David Morgan:           I think I can help.  I’ll add to it.  The defaults are going on left and right.  The depression is real in a lot of the European Union, and especially in Eastern Europe.  And I think the analogy and even one of the leaders of one of the main banking sectors has used the word “depression” recently.  What happens during these defaults is really one of two things.  One you default on the currency as we’ve talked about.  Or two you can default on your ability to pay back.

And as we’ve discussed on Currency Countdown three weeks ago, when Greece was repositioned at about 50 percent, in other words their bonds were subject to a 50 percent hair cut; they’re now worth half what they were previously.  That’s a default or partial default on the bond itself.  And the other way is that you default on the currency where it isn’t trusted anymore, and that I think is the route that we’re going to see come to the fore especially in the United States.  

So what takes place is the currency becomes worth less and worth less, and finally it’s worthless or perceived to be going to worthlessness.  And at that point there is a huge rush in anything tangible. 

Tracy Weslosky:          I want to ask you about gold and what’s happening with gold right now and for the new year.  I thought I’d throw this in.

David Morgan:           Well gold is the main barometer for economic health on a global basis.  And we’ve had an 11 year run in gold for consistently 11 years in a row the road to gold prices continued to increase year over year over year.  I believe that trend is still in place, and I believe for 2012 we’re going to get a new nominal high.  If you take the inflation adjusted high of $8.50 January 21^st, 1980 and you project it forward to today using government numbers, which are suspect in my view, you would come out with roughly $2,400.00 gold. 

I think you’re going to see $2,400.00 gold by the end of 2012.  And all that says is that it’s back to its old time high in real terms.  So in other words, $2,400.00 equals $850.00, again using government numbers, which again are a bit suspect but that’s the case.  And so then I think after that we’ll go up from there.  Now obviously I’m making a forecast here, and it could be off but we’ll see.

I really do think that over the next two to three years that as this unwinds further, meaning the global economies and this currency problem continues, you’re going to see a huge flight in to the precious metals, silver included.  And a lot of people are going to wake up to the fact that – be it Canada, be it the United States, be it South America or in Asia somewhere, that their savings are being deteriorated and you need to protect yourself.  You need to get something of value that will hold value.  And since the global economy is much more inner connected than ever before, and the access to precious metals is greater than its ever been before, I think it’s will be the mother of all bull markets in the precious metals.  But we’re not there yet, but we’ve certainly built the foundation to build upon to get to that place.  So I look for huge increases in real purchasing power for gold and silver over the next few years.

Tracy Weslosky:          David, thank you so much for joining me today on Currency Countdown.

Here’s an excellent interview with former Dallas Fed Vice President Gerald O’Driscoll in which he exposes the Federal Reserve’s recent dollar swaps with the European Central Bank for what they are: a continued bailout of Europe’s banking system by the US central bank.  It’s unusual to see such forthright honesty about what is going on from someone formerly associated with the central banking system.  Mr. O’Driscoll does not mince words or shy away from calling a bailout a bailout.

The subject at hand is the recent arrangement between the Fed and the ECB to swap dollars for Euros.  According to O’Driscoll this indirect loan method was necessary because the Fed was embarrassed by the court upholding of FOIA (Freedom of Information Act) requests in which the Federal Reserve was forced to reveal their direct bailouts of foreign banks and corporations.  In this case there is an extra layer of obfuscation as dollars are provided to the ECB and the ECB then engages in the bailouts. /> /> The important takeaway from all of this for precious metal investors is that it is clear that, one way or another, the central banks are going to attempt to devalue their way out of this mess through the creation of new money and credit.  Keep an eye on the balance sheets of the central banks.  As long as they are continuing to to go up then the answer to the ultimate question of deflation or inflation seems very clear.  And as you can see from the graphs below the monetization of debt and near worthless assets continues unabated. />    />

Gold serves as the basis of the global monetary system for the simple reason that it exists as a finite, physical store of value. And unlike every issuance of debt or piece of printed money, there is no counter party risk – unless, of course, you don’t actually have the physical gold in your possession. Then it’s no more a basis of one’s reserves than all of the digital money created with a keystroke.

Hugo Chavez understands this and that’s why he ordered all of Venezuela’s gold to return home. He’s also not a particularly popular guy in the West which works to his advantage in this case. He’s not afraid of upsetting the fractional gold apple cart by pulling 100% of his country’s gold deposits. It’s not nearly so easy for European countries, who are under intense pressure to leave their gold in the possession of the United States and the Too Big to Fail banks.

Take the case of the Netherlands. After much inquiry from the Dutch citizens about the details of their gold, the president of the Dutch Central Bank Klaas Knot admitted that a full 90% of the country’s gold reserves were not in their possession. Gold is the fallback in the case of a worst case financial crisis, but what good is it in that scenario if you don’t posses it?  Knot claims that this arrangement saves on shipping if they ever want to sell it. But why on Earth does the Dutch government need to be poised to sell 90% of its gold on a moment’s notice?  It doesn’t make sense.

The London Gold Pool was an arrangement of eight central banks and several European countries to pool their gold in the United States during the 1960′s for the purpose of defending the $35/ounce price of gold. Could the real reason the Dutch and so many other European countries keep their gold in the US be an unofficial version of the London Gold Pool? It would certainly explain why these countries continue to give away their best financial insurance in what promises to be an epic financial storm of either debt destruction or currency debasement.

Here’s an interesting article from last October The Dutch Central Bank Answers Ten Questions about its Gold which led up to this latest admission.

Since 2008, Mass Metal in Lawrence, Kan., has helped individuals buy, hold and sell gold and silver through its online service, SilverSaver. Now the company is offering SilverSaver as a voluntary benefit program.

Josh McCleary, Mass Metal’s chief operating officer, says that the SilverSaver benefit program is the only service that enables participants to automatically save in precious metals through the convenience and safety of payroll deduction. It was developed in response to customer demand for an easier way to buy silver and gold as a hedge against what they see as loose money policies by central banks.

It took a year to build the back-end system to support the voluntary benefit program, which was launched earlier this summer. Todd Fletcher, the company’s voluntary benefit specialist, reports that several employers have contracted for the service, though none have gone live with it yet.

“Employers are extremely excited about being able help their employees do something that typically upper management has been able to do for itself,” Fletcher says. “They can take this down to hourly employees.”

For sponsors, there is no cost to offer the benefit program and little administration required, says McCleary. Employers complete a simple online signup process, and employees use a single form to choose how much physical silver or gold to save. The metal is housed in a secure facility, or employees can arrange to have it shipped to them. Employees pay transaction fees on purchases, though the cost is less than Mass Metals charges individual clients.

To address employer concerns about fiduciary liability associated with the purchasing service, Fletcher says that the forms that employees sign include disclaimers releasing the sponsor from any responsibility.

“Employees must understand that all markets have volatility, and they should understand that if they are saving in gold and silver, they should be looking at a minimum of a three-to-five-year period,” he comments. However, he also notes that if SilverSaver account holders have a financial emergency, they can sell their metal back to the company at no extra charge. “It works like regular savings account at this point,” he says.

“Our goal has always been to get physical precious metals into the hands of everyone,” says Jeremy Brakenhoff, president and CEO of Mass Metal. “Creating the ability for companies to offer SilverSaver through payroll deduction makes accomplishing it that much easier.”

For more information, visit www.silver123.net. Inquiries about the voluntary benefit program should be directed to support@silver-investor.com

David A Banister- www.MarketTrendForecast.com

The market has been in the process of a near 13 Fibonacci week corrective rally since the October 4^th 2011 lows at 1074 on the SP 500.  So far the highs reached on the initial rally of 218 points were in October at 1292.  That has remained the high water mark as we have consolidated over the last many weeks.  I expect the market to complete this counter-trend ABC bounce during the Dec 27^th-29^th window, followed by a good sized correction into Mid-January ahead of the earning season.

The patterns that I am seeing are based on crowd behavioral “Elliott Wave” analysis that I perform at my TMTF and ATP services, and this analysis now favors a 70% probability of a bearish decline beginning very shortly to the 1150’s area on the SP 500 index.  To wit, Investment Advisors in recent surveys have over 45% Bulls and only 30% bears with typical tops forming around 47-48% Bulls in surveys.  In addition, the rally has been on light volume and recent action seems to be forming a rising “bearish wedge” pattern at the same time.

Reversals in the market often come when few expect it whether they come near bottoms or tops.  My most recent forecasts called a bullish turn after Thanksgiving Day when most were bearish in the 1160’s on the SP 500 index.  We then rallied 109 points to a 1267 high, which we are re-testing now.  As we recently pulled back into the low 1200’s, I again said to watch for a major market turn on Dec 20^th. We then immediately rallied so far into the 1270 area from the 1203 lows.

Below is a chart I sent to my subscribers on Dec 24^th, having projected a continuing rally into the 27^th-29^th window of trade.  If you’d like to benefit from our market turn calls and crowd behavioral based pattern analysis on the SP 500 and Gold and Silver, check us out at www.MarketTrendForecast.com to sign up for our FREE FORECAST or GET 33% HOLIDAY DISCOUNT ON OUR PREMIUM GOLD AND SILVER FORECASTS.

The 99% and the 1%. We see it all over the news. There are protest movements in almost every major city focused on it. We all know that something is wrong, but almost no one can put their finger on the root cause. The reason is that the vast majority of people have no idea how banking works or where money comes from.

Did you know that only about 3% of money exists in physical form as coins or bills? The remaining 97% of money exists as numbers in bank computers representing various account balances. /> /> Most people believe that the balance on their bank statement is just a symbol representing how many physical dollars, contained in the bank’s vault, that belong to them. It isn’t. The fact is, the number on the statement is the money. Think about it – there is more than 30 times as much money on bank account statements as there exists physical currency. The number on your statement is the money.

Most people have a quaint notion that banking works something like this: Joe Customer goes down to the bank to deposit his hard earned money into a savings account, which pays him a return based on an interest rate. The bank then loans that money out at a higher interest rate and profits from the difference.

If that were the case, then how can the money be both loaned out by the bank and available for use by the customer at the same time?

The answer is it can’t. Somewhere along the line, the bank obtained more money than was originally deposited.

So where did the extra money come from? Well, remember that the number on the account statement is the money. So if you’re a bank, it’s pretty simple: Create an account and key in a number. Done. Instant new money.

Of course they can’t do this completely willy nilly. There are certain rules and procedures that must be followed. Namely that the new money in accounts must be loaned out and that there are limits as to how much money can be created versus how much was actually deposited.

But at the end of the day, for every new dollar deposited into a bank, almost 99 new dollars can be created out of thin air by the banking system. But here’s the best part: The bank earns interest on all of those dollars it just created! You and I must work for our dollars before they can earn us interest. No such requirement for a bank.

And it gets better. Let’s say there was some sort of collateral promised against a loan and the loan goes bad. The bank then gets ownership of real stuff (a house, a car, a boat, etc) even though the money it “loaned” was nothing more than a number keyed into an account.

That’s quite the business model. No need to actually produce anything when the government grants you the legal right to create new money. Bankers figured out long ago that working for a living was for the middle class.

And speaking of the middle class – and the rest of the 99% – I’m afraid the bad news doesn’t end there.

There’s a larger price to pay for all of this banker privilege beyond just having to work for a living. You’ve heard the expression “there is no free lunch”, well it’s true. When a bank creates new money, it reduces the purchasing power of all other money, including the money in your savings account and your paycheck.

The average person – who doesn’t know how banking works – observes this as the price of things going up. “Gee honey, the price of milk just went up again. It must be getting more expensive to produce milk.” Wrong. It’s actually getting cheaper to produce most things due to increases in productivity. It’s just that your money and your savings and your income are losing their value faster.

Computers and electronics are an interesting case. They get cheaper every year because the gains in manufacturing productivity are so great, that even bankers can’t devalue the money that fast. But this is the normal action of prices in a sound money system. Sound money retains its purchasing power, and almost all manufactured goods cost less to produce every year. If our monetary and banking systems weren’t based on fraud, a person would never need to get a single raise or increase in pay to see their standard of living rise every single year. Please take a minute and contrast that with your experience in our current system.

That 3-10% price inflation we see is how much purchasing power our incomes lose every year. To say it another way, our standard of living falls 3-10% every year after year after year. It wasn’t that long ago that a middle class family in America could comfortably get by on a single income. It is now often necessary for a household to have two full time incomes just so it can struggle by..

So how did the 99% become the 99%? It’s because that is exactly what our monetary and banking systems are designed to do. It is an institutionalized system of wealth transfer that acts slowly over time. Like the boiling frog, most don’t realize what has happened until they’ve been cooked.

Perhaps at some point you’ve stumbled across the famous quote by Henry Ford:

“It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

Now you know what he was referring to.