The Morgan Report Blog

Inflation or Delation–???

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David Morgan Interviewed by Ellis Martin on The Opportunity Show

October 29, 2009, Part 1

 

Ellis Martin: We’re joined now by the silver guru, David Morgan of The Morgan Report. His website is silver-investor.com. Mr. Morgan is one of the preeminent world experts, not just in silver, gold, and precious metals, but also related issues in the mining sector. David is also an author, having penned the book, Get the Skinny on Silver Investing. He’s a teacher, lecturer, world traveler. David, welcome back to The Opportunity Show.

 

David Morgan: It’s always great to be with you, Ellis. 

 

Ellis: You know I follow The Morgan Report, and recently you talked about what history has taught us about the currency crisis, and I want to hear more about it right from your mouth.

David: Well, Ellis, thanks for asking. This is a subject that has been one of my main big-picture themes. Something that I had been thinking about previously is what silver will do in a deflationary environment, and the question that I was getting most frequently is, “I’m really worried . . . are you sure you’re right,” and question after question along those lines.

So I went back and I studied even harder how silver does do in a deflation. The best body of work on that was from Professor Jastram, who wrote, Silver: The Restless Metal, because he had the same question after he wrote The Golden Constant. The Golden Constant lays out a very strong case that gold does very well in a deflationary environment. In fact, Professor Jastram’s conclusion is that gold does best during a deflation, and yet, almost everyone who’s a gold bug or in the sector will tell you that gold is an inflation hedge. I’m not saying it’s not. What I’m saying is what Professor Jastram’s conclusion was in that book, which was printed in the early 1980s if I recall correctly (and he’s now deceased).

So, markets change and they do move to different beats from time to time, but overall I do believe that gold will do well, either inflation-wise or deflation-wise. Silver is a mixed bag, but I believe this time, regardless, it will do well.

Coming back on point, what I said in January and what I continue to say, especially in The Morgan Report, is that I’m looking beyond the inflation/deflation argument. Certainly they’re important but I think the bigger picture is a currency crisis. A currency crisis is when the currency is basically shunned. People have this idea that they’d rather own anything other than a U.S. dollar. They’d rather own gold, land, a hammer, a third automobile. . . . In other words, the currency becomes, in the mind or the psychology of the dollar holders, something they don’t want. They want something different than dollars. Now what’s so interesting this time around, Ellis, is that I believe that’s going to take place on an international, big scale, and not on a micro scale. Let me develop that thought a little more.

What we’re seeing and we can verify is that China has made sounds in the public financial markets again and again and again, indicating that they are not happy with the United States dollar and they’re looking for a substitute. So on a macro scale, one of our biggest international trading partners that’s holding approximately 1.4 trillion U.S. dollars in long-term and medium-term bonds and also the short-term notes is very unhappy with the performance of the United States dollar and they are looking for an exit. And the IMF has come up with special drawing rights and even Secretary of the Treasury, Timothy Geithner, has said we haven’t ruled that out. From all fronts in the mainstream, there are very specific instances where the idea is in the forefront that the United States dollar will no longer be the reserve currency of the world. It’s at the top of the screen, so to speak. So, moving back, that means there is a possibility, and I believe it’s a strong one, that at some point our international trading partners like China, Japan, the Middle East, and even Europe to some extent are going to say, “I want something else than the dollar,” and exchange it for some other product, be it gold, special drawing rights, euros, whatever. However, on the micro level, meaning on Main Street—not on Wall Street or in the mainstream big financial markets—there are many people who wish they had more dollars than they do. They’re unemployed. Their unemployment insurance benefits are running out. They’re not gold bugs. They don’t really probably understand anything about monetary history or what’s going on. All they know is that the job they once had is no longer available. It’s hard to find work. They are striving for dollars. I want to be very clear here that you can basically have these separate markets. You can have the Wall Street/Main Street dichotomy. You can have the financial markets, the big owners of dollars that want out of them; then on kind of the home-front scale, people that really are striving to gather dollars from whatever place that they can.

 

Ellis: We’ll continue our conversation with the silver guru, David Morgan, in the next segment.

 

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