James Cook Market Update

ENEMY WITHIN

January 1997

"The proper and limited use of government is to invoke a common
justice and keep the peace - and that is all."         Leonard Read 

When the things you believe in seem to be ignored by events, it's a
good time to "check your premises". I went back to the late Leonard
Read, one of our most articulate freedom philosophers. A half
century ago, in 1946, Leonard Read warned about the inroads of
government. ..."more and more people are coming to believe that the
free market should be shelved and that, in its stead, government
should use its police force to take the income of some and give
it.....to the government's idea of the needy." In other words, from
each according to his effort, to each according to his lack of
effort. 

A half century ago Read could write, "Socialistic practices are now
so ingrained in our thinking, so customary, so much a part of our
mores, that we take them for granted." We know that today's scope
and size of public housing, Medicare and government subsidies dwarfs
anything in Leonard Read's time. He, I'm sure, would argue that we
have embraced socialism all the more. Today's numbers are
staggering. In October of 1996 the government spent $140 billion.
They collected taxes of $100 billion and went in the red $40
billion. Much of this deficit went to pay for soaring entitlements. 

One sure sign of the damaging effect of these subsidies showed up in
the recent election. Joseph Sobran aptly describes the reason the
incumbent won. "Voters who live off taxpayers are the Democrats' ace
in the hole. The Democrats created the big programs and never let
the recipients forget it. This gives them an initial advantage of
tens of millions of votes in any presidential election." 

Leonard Read held these vote-buying government programs in contempt.
He wrote, "... statism is but socialized dishonesty; it is
feathering the nests of some with feathers coercively plucked from
others - on the grand scale. There is no moral difference between
the act of a pickpocket and the progressive income tax or any other
social program." He explained, "That there is no greater dishonesty
than man effecting his own private gains at the expense of others."
Ominously he argued, "That the practice of dishonesty is evil and
that retribution follows the doing of evil. Every evil act commits
us to its retribution." 

We can talk about markets crashing- and the consequences of runaway
deficit spending, but these pale in comparison to the moral dilemma
that Leonard Read raises. This is a kind of peril that goes beyond
financial considerations to the future of our civilization and
survival itself. He believed a social and economic collapse to be
probable. Yet he saw freedom and limited government reborn out of
this chaos. 

Leonard Read asks, "Is the extortion of your income (in order that
another may have the say-so as to what it will be spent for) a
creative act?" His answer, "Extortion coercion - is destructive. It
destroys your freedom of choice! Coercion, by its nature, is
destructive." (In this context coercion means forcing a citizen to
do what he or she would not do if left to their own devices.) He
quotes Frederic Bastiat as the litmus test on whether a government
action is aggressive or violent. "See if the law takes from some
persons what belongs to them, and gives it to other persons to whom
it does not belong." 

Because of government coercion, a trickle of people are beginning to
leave the U.S. Some leave to escape the high taxes. Others resent
the degree of government intrusion. These libertarians are searching
the world over for comfortable climates, amenities and maximum
freedom. Others consider leaving because they are horrified by the
results of government programs that foster crime and bad character.
They look for crime-free zones within and without the U.S. 

Towards the end of the Roman Empire its citizens began to leave Rome
(300 AD). They preferred to live with the barbarians. It was the
only way to escape exorbitant taxes, mobs of poor clamoring for
government handouts and heavy handed bureaucrats strangling private
business. We haven't quite come to that yet, but present trends of
redistribution spell disaster for our grandchildren. The policies of
the liberals and socialists are the prescription for national
suicide. If not reversed, they make a diaspora (massive flight of
the most productive American citizens) inevitable. 

Leonard Read argued that income redistribution harms everyone
involved in the process, starting with the person whose property or
assets are taken. It discourages private charity, "that kindly
sentiment and conduct which strengthens the bonds of a common
brotherhood." Read saw voluntary charity as a highly important
attribute of society and decried its decline. He complained, "The
state will practice charity for you. A common brotherhood, by some
quirk of reasoning, is to become a collective act of compulsion!" He
also saw enormous economic damage. Savings (now taxed off) would
otherwise have been invested to benefit mankind through capital
formation (tools, machinery and factories) creating jobs, wealth and
greater financial security. 

Of the person in need Leonard Read writes, "Does any able adult
person 'in need' really benefit by living on the confiscated income
of others? Does this ever improve his character or his mental and
physical faculties? His growth? Does anyone ever benefit by the
removal of self- responsibility?" He adds "To live on loot appears
to be no further removed from evil than to take the loot." It should
be plain to see "that the evil means of confiscating income must
lead to an evil end to those who live on it." 

Evil end indeed, with this perverse twist. As crime rates rise the
working citizens who pay the taxes grow ever more fearful of
criminals who were spawned by a welfare system that relies on those
very taxes. In Los Angeles the staggering number of wrongdoers
arrested daily has overwhelmed the facilities available for their
incarceration. They go back on the streets unpunished and
unrepentant. Despite any short-term statistical dips to the
contrary, we are creating a growing army of criminals. What could be
more destabilizing and dangerous to a country's future? 

Of the bureaucrats who tax and enforce Leonard Read wrote, "I cannot
indulge in my own upgrading at the same time I am inhibiting someone
else's creative action. Therefore, to the extent that one's life is
spent in using force to coerce others, to that extent is one's life
destroyed, its higher purpose frustrated." 

Government efficiency suffers not only from this lack of creativity
but from rigid rules and regulations, credentialism (only those with
degrees advance), fear of rocking the boat and a consequential lack
of motivation. Furthermore, government has embraced wholeheartedly
the hiring and advancement of people for reasons other than merit.
This further lowers efficiency. A successful organization must rely
on the quality of an employee's work when judging and rewarding
employees, otherwise it will be left behind by competitors. 

The government can't measure economic results since they have no
bottom line and no profit or loss to judge their performance.
Government thinks success comes from spending more rather than
spending less. Despite these drawbacks and limitations, people still
insist that government provide them with crucial services such as
retirement, health, housing, insurance and numerous guarantees.
Incompetent government will ultimately fail at this task. To rely on
the government to solve all of life's problems has become a glaring
weakness of the American people. 

Leonard Read knew that the absence of government intrusion was
responsible for the great burst of creativity that lifted our
country to its exalted economic position. He wrote, "The
Constitution and the Bill of Rights more severely limited government
than government had ever before been limited." Two benefits
occurred. "...individuals did not turn to government for security,
welfare, or prosperity because government was so limited that it had
little on hand to dispense..." and this limited power did not
"permit taking from some citizens and giving to others." 

So, "The American people gained a world-wide reputation for being
self-reliant." And since the government did not much interfere, tax
away income or force people to do what they otherwise wouldn't do,
"there was a freeing, a releasing of creative energy on a scale
unheard of before." 

What causes this creativity that leads to material progress and
prosperity? The great Austrian economist, Ludwig Von Mises answers,
"Production is a spiritual, intellectual and ideological phenomena."
Coercion and excessive government (Socialism) intimidate and
discourage this process. Says Read, "Nothing creative is induced by
compulsion." In other words, "Law and decree cannot serve as a
creative force, any more than can a gun." 

The Russians showed the world just how sterile and destructive to
human creativity is Socialism. They survived on what they stole,
borrowed or copied because "Socialism depends upon.....material
achievements which socialism itself can never create." This is the
definition of a parasite. "Socialism takes and redistributes wealth,
but it is utterly incapable of creating wealth." In other words,
every single social program detracts from our prosperity. 

Leonard Read further warned, "Man cannot feign the role of God
without finally playing the devil's part." Is there any better
example of this than in the socialist Russia of Lenin and Stalin?
Through the horrible deeds and consequences of collectivist actions
we can see clearly "that man playing God is a prime evil, an evil
seed that must grow to a destructive bloom, however pretty it may
appear in its earlier stages." 

Read wrote, "that we cannot maintain the present degree of statism,
let alone drive further toward the omnipotent state, without our
great economy flying to pieces." He warned of this peril decades
-ago. Yet he has passed from the scene and no serious collapse has
ever occurred. Why then haven't we seen a crash? How have we avoided
a crisis? The answer: inflation. We take larger and larger doses of
financial narcotics to forestall pain. 

By inflation I mean diluting the means of exchange through
increasing the money supply. Says Read, "Inflation makes the
extension of socialism possible by providing the financial chaos in
which it flourishes. The fact is that socialism and inflation are
simultaneously cause and effect; they feed on each other!" 

Inflation also keeps the financial markets rising. New money funnels
into speculation, leveraging, borrowing and refinancing. It
lubricates a vast credit and debt expansion, encouraging consumers
to borrow to the hilt, thereby feeding a consumption boom that keeps
the economy humming. Inflation provides short-term bliss while
monstrous balance of payment deficits, reliance on foreign lenders,
low capital formation, meager savings, faltering productivity, and
runaway public and private debt chronicle the insidious works of
socialism. 

That's what our whole government edifice is - Socialism, a word less
and less used to describe what's happening more and more. Social
Security, unemployment compensation, Medicare, public housing,
welfare benefits, Medicaid, agricultural subsidies, school loans -
you name it - it's Socialism. The use of the socialist label has
become old- fashioned and quaint, branding the person who uses the
term as a reactionary out of step with modern trends. Sorry.
Ultimately, all of these socialistic programs are going to fail and
disappear. The country as we know it may disappear with them, but
one way or another they are going to disappear. 

Socialism kills progress, destroys creativity, smothers freedom,
chokes off production and bleeds the citizens dry. It bankrupts
nations. It has hidden its sorry results by lurking behind mountains
of debt and by slowly ruining the currency through inflation. When
its dirty work is finally exposed, the economy will be ruined, the
markets in a shambles, the currency debased and the people in shock.
A wise man said, "Ultimately with God's aid, Truth always emerges
and finally prevails supreme in its power over the destiny of
mankind, and terrible is the retribution for those who deny, defy,
or betray it." 

This crash we so often talk about will not be postponed
indefinitely. The single best historic indicator of past market
reversals, economic collapse and shrinking prosperity has been
unprecedented extremes in debt, speculation, real estate values,
consumption, leverage, stock values and-social trends. It is these
excesses that can turn normal corrections into panics because the
margins for error have been eroded by excessive optimism, greed and
arrogance. 

The refusal to see the enormity of the current excesses and to
ignore the sorry historical record of panics and crashes is in
itself a sign of trouble ahead. It's quite possible that this
nearsighted nation stands on the precipice of a historic collapse.
The wealth of the American people is at risk. Years ago Professor
Von Mises, in comparing the expansion of paper wealth with a
disparity of capital goods issued an appropriate warning. "In fact,
all this amazing wealth is fragile, a castle built on the sands of
illusion. It cannot last." 


GOLD

Who said you can't have your cake and eat it too? The money we send
overseas to buy goods returns to the U.S. to buy government bonds.
In other words, our runaway trade deficit finances the government's
huge budget deficit. One grievous economic sin finances the other
grievous economic sin. No nation ever got by with either one of
these offenses for long without suffering serious consequences. 

How Wall Street can sustain euphoria in the face of these and other
obvious transgressions defies rational explanation. We violate sound
economic principles at will. A low savings rate is a well-recognized
economic sin. Low capital investment and low productivity are
obvious economic sins. Overconsumption is a textbook economic sin.
Inflation is a classic economic sin. Leveraging, speculation and
excessive borrowing are all historic economic sins. That's a lot of
economic sinfulness without much retribution. 

Other sins include high taxes, excessive regulation and endless
litigation. Then there's social programs and safety nets that erode
the work ethic. There's the kind of political extortion that causes
business to hire lobbyists to shmooze politicians and regulators.
All are economic sins that take a toll and exact a fretful price.
These economic transgressions and their negative impact on the
future are not factored into the markets. If they were, gold would
be $6,500/ounce and the Dow 378. 

It's easy to see all this if you want to look. But most people can't
see anything that might impair their stock gains. Everyone
concentrates on buying assets that will go up the most and generate
the greatest profits. Some of this money should be going to buy
assets that will go down the least and generate the smallest losses.
Gold is the best of these. It can also show a profit. More
importantly, gold can't go bankrupt and it won't default. It
protects the people that own it. In the crash of crashes it will do
what it always does; enable mankind to rise from the ashes and
rubble of lunacy and excess. 


GOLD OFFER

Here's a set of coins you should own. It's made up of 5 $20 Extra
Fine Liberty coins (with 96/100 of an ounce of gold each). There are
five different dates over 100 years old. These historical gold coins
were the bedrock asset that helped to build America. This is a nice
collection of antique gold. The cost is $2,780. 

To go with the above set we have 5 separate dates (all over 100
years old) of $10 Extra Fine Liberty gold coins with almost 1/2
ounce of gold each. This is a valuable and historical set. The price
is $1,525. 

Another great set to own is 10 different dates and mintmarks of
Almost Uncirculated Saint-Gaudens. These are beautiful and
historical coins from the early part of the century. You should try
to own a good quantity of the Saint-Gaudens. They are still
cherished the world over and in the past have carried a premium of
over double their gold value. The 10-coin set is priced at $5,840. 

We also have Constitution Coins (.24 of an ounce of gold). They give
you a nice diversification into a smaller unit of gold. It's wise to
own a selection of smaller gold coins. The U.S. mint sold them for
$225. Our price is $138. 

It's crucially important that you get a bedrock position (10% of
your assets) in gold Double Eagles or bullion coins. Don't buy high
grade rare coins or any other coins until you get a core position in
gold. Some vendors may try and switch you out of gold coins into
(MS-65) high grade rare coins. That's wrong. Hold onto your gold and
keep adding to your core position. Call 1-800-328-1860 and add these
gold coins. 

Sincerly, 

James R. Cook 

President 


*Prices subject to market fluctuations.

P.S. If you are wondering what might collapse our fragile economy,
topple the debt superstructure, and sink a vulnerable stock market,
here's a list: 

   1.The Japanese stop buying our debt. 
   2.The slowing economy turns into recession. 
   3.Corporate profits decline. 
   4.Unemployment jumps causing personal bankruptcies to soar.
   5.Credit issuers begin to fail. 6.The dollar plunges. 7.Tax
   receipts fall causing government debt to rise. 8.Interest rates
   rise. 9.The world economy slows. 
  10.Awareness grows that the clock is ticking on all of the above. 

     Investment Rarities Incorporated has prepared this material for
     your private use. Although the information in this publication
     has been obtained from a source which Investment Rarities
     Incoporated believes to be reliable, we do not guarantee its
     accuracy and such information may be incomplete or condensed.
     All opinions comprised in this publication are those of
     Investment Rarities Incorporated and are subject to change
     without notice. Gold, silver, and rare coins are not necesarily
     a medium appropriate for every individual.