The following is an exerpt of an interview between Howard Ruff and John Williams:

If you look at the real numbers on the deficits, based on numbers published by the federal government, we really should look at it how it used to be. In the late ‘70s, the ten biggest accounting firms and congress said they could design an accounting system where the government will report its books the same way a company does. They finally got that into effect in 2000. Since then, instead of running deficits in the range of a couple of billion dollars, on a Generally Accepted Accounting Principal (GAAP) basis, the deficit has averaged $4 trillion a year. It was over $5 trillion in 2008 and will top $8 trillion this year.

This is unsustainable! You could not raise taxes enough to bring that into balance. If you wanted to bring it into balance, you’d have to eliminate Social Security and Medicare payments. It can’t be done.

HJR: Right now, Obama is spending money – I won’t say like a drunken sailor, because a drunken sailor spends his own money – but he is throwing trillions of dollars at the economic downturn, assuming it will stimulate us out. My personal opinion is that they are only stimulating government growth, and some day the average person may get a job, but his employer will be Uncle Sam.
What is the end result of creating all this money and throwing it at the problem?

JW: It will not stimulate the economy. The cost of all this is inflation. We will see inflation levels not seen in our lifetime by as early as the end of this year. Eventually we will see liabilities of $65 trillion – more than four times U.S. GDP, more than global GDP. There will be a hyper inflation where the dollar becomes worthless, where the paper is worth more as wall paper than as currency.

HJR: They couldn’t even use the money as toilet paper because it is a bad absorber of water. So we will have hyper-inflation. How can we protect the value of our assets, assuming that people have some discretionary money? Should they buy growth stocks because they are cheap, assuming “buy low, sell high?” Or are there better alternatives?

JW: We are headed into a hyper-inflationary depression that will become a Great Depression. When hyper inflation hits, it will disrupt the normal flow of commerce and turn it into a Great Depression.

What about paper assets based on the dollar? You want to get into something like gold or silver –physical gold or silver, not paper. Perhaps get some assets outside the dollar. It’s a time to preserve your wealth and assets, not to start speculating on the stock market. There is a lot of volatility ahead. Over the long term, gold and silver are your best hedges.

HJR: That sounds like the familiar tune I’ve been singing for several years. I’ve been publishing for 33 years. About 11 of those years I have been bullish on gold and silver as investments. When I abandoned gold in the early ‘80s, I was excommunicated from the gold-bug church because I was supposed to stay faithful to gold, but then the metals weren’t the right place to put your money. As a financial adviser, if I don’t have subscribers in the right investments, they will lose money and not renew their subscription to The Ruff Times. So I have a financial interest in being right. Yogi Berra said, “It’s déjà vu all over again.” the same thing is happening that I saw in the ‘70s that drove the prices of gold and silver to unprecedented highs – only more so now. They are creating more money than they ever thought of creating back then. We are using words like “trillions,” which we never used before. I’m not just looking at it as an investment and a place to make money. I am looking at it as a possible way to preserve the real value of your assets so you are not left destitute with a pile of worthless paper.

You showed me a display of Zimbabwe currency, where multi-billion dollar notes started out as $2-bill notes. We could face the same thing. The world is littered with worthless dead-paper currencies with an average life span of about 75 years. It’s always the same: we make too much of it ever since we created paper currency with the printing press, and creating too much of it to buy votes, diminishing its value.

A subscriber who wrote to me recently asking me that if the government and the bankers can manipulate the price of gold and silver, so couldn’t they do that for many years and gold and silver would go nowhere?

History doesn’t record a single example when a society inflated the dominant currency even near the quantities we are creating dollars now without destroying its value. Gold and silver, not being anyone’s debt or obligation, is where people ought to put their money.

I have been watching your work now for more than two years. I am amazed that you and I have arrived at the same conclusions from different sides of the street. I’ve learned a lot from your view of the numbers, and I’m a fundamentalist.

One reason I like you is because you agree with me. We like people who agree with us. Thanks so much for sharing your time and expertise with us.

JW: Thank you very much, Howard. I greatly appreciate the interview. I also appreciate your work. Indeed, we are in very broad and general agreement on where things are headed here. I have followed your work for many years; in fact, your writings back in the 1970s were part of my education as to the nature of the real world. Again, thank you, sir!

Shadow Government Statistics (www.shadowstats.com)

By Howard Ruff
The Ruff Times

*****

You can get more information from Ruff’s latest book Ruff’s Little Book of Big Fortunes in Gold and Silver or from his newsletter The Ruff Times. You can learn more about these on Ruff’s website, www.rufftimes.com.

Howard J. Ruff, the legendary author and financial advisor, has re-edited and re-issued his 1978 mega best seller, How to Prosper During the Coming Bad Years, still the biggest-selling financial book in history, with 2.6 million copies in print. He is founder and editor of The Ruff Times financial newsletter. This article is from a recent article in The Ruff Times. The newsletter is much more comprehensive and deals with a broad spectrum of middle-class financial issues and includes an Investment Menu from which you can build your portfolio. (You can learn about it here). The Ruff Times has served more than 600,000 subscribers – more than any financial-advisory newsletter in the world. His updated and revised book, How to Prosper During the Coming Bad Years in the 21st Century, is in book stores or at www.rufftimes.com. You can get it free when you subscribe to The Ruff Times, or if you buy the book at your favorite bookstore, you can deduct $10 from the subscription price.

The complete interview can be found on Kitco.com.

Is it any wonder the Chinese are "hedging" their bets? They no doubt have arrived at their conclusions independant of Ruff and co!

RUF