Ken Gerbino posted an article on the Kitco web site, dated 1/27/09, entitled: “Relax: There Will Be No Depression”. He compares the recessions of 1974-75 and 1981-82 with the current recession, and points out that the U.S. government, working with the Federal Reserve Bank, “printed the way out of recession.” That is, by printing paper money and infusing burgeoning amounts of the fiat currency into the economy, a “depression” (as classically defined) was avoided.

The result was that the U.S. dollar lost much of its previous “purchasing power” and the cost of goods (including commodities) and services rose to new levels. He points out that this is the same plan that is presently being followed and the outcome will be the same. A depression will be avoided, for the present, and the prices of goods and services will rise. What this means for those of us invested in mining and exploration stocks is that the prices of those stocks will also rise.

In fact, the prices of gold, silver, platinum group metals, and base metals will probably rise more rapidly and higher than in the past for two reasons. One, the supply of reserves of these metals waiting to meet demand is lower than during these previous periods. And, two, the economies of China and India (also Brazil, Russia and other countries) are much larger and healthier than they were during these previous periods.

Some of his observations are the following:

“Unemployment: This is bad. In the U.S. we are at 7.2% and going higher. . . . But back in 1994, the “shadow” unemployment number was 15%. So what happened in 1994? GDP was up 6.2%. The S&P 500 the following year was up 34%. There was no Depression from this horrendous unemployment. Official U.S. unemployment hit an 8-year high in 1992 at 7.8%. The solution to this was a 14% increase in the money supply (M1) and the stock market went up 6%. Do not panic because of unemployment.”

“There are still 144 million people getting paychecks. This means the economy is not dead yet. They will either spend the money or save some of it. When they save it, sooner or later the banks will lend to someone to buy or build or invest in something.”

“The great recessions of 1974-5 and 1981-82 resulted in the following: GDP increasing on average 15% within 36 months, the stock market booming the following year, and unemployment going down dramatically the following two years. Why? Because they increased the money supply and “bailed out” everyone with paper money.”

“So far, with bailouts, guarantees, the stimulus packages, $2-3 trillion of new money is already a foregone conclusion. This will equal a 25-35% increase in the money supply. The U.S. government will print as much money as is needed. They have panicked and are now going overboard. It is obvious that whatever happened in the past is going to happen again.”

“Finally, if we were going to have a so-called Depression, why is copper above $1.50? Copper for delivery in December of 2009 and 2010 is above $1.60! You have heard the expression Dr. Copper. It is because as this commodity goes – goes the industrial world. It has always been a great economic indicator. Copper prices would be at 60 cents if a Depression was coming. Copper above $1.50 is saying, despite all the horrendous layoffs and headlines, that there is a lot of life left in the global economic patient.”

Mr. Gerbino then makes the following predictions of what we can expect in the near future, based on what happened in the past from similar financial “stimulus”, which is especially important to us as investors. Some of the more significant are:

“Inflation comes back with a vengeance.”

“Commodities resume their bull market and turn the deflationistas into inflation believers.”

“The dollar will go down but so will other currencies as many world governments print their way out of their economic woes as well.”

“The gold and silver mining stocks will become the best performing sector on Wall Street for many years.”

And this one is my favorite, because it confirms what other analysts have been saying about commodities, and particularly base metals, soon resuming their rise in price:

“China and India will create more shortages of basic materials and commodities by the sheer size of the populations and their economic and industrial progress.” [emphasis added]

And lastly, just to give us an idea of the window of opportunity before the next recession takes place and turns the economy down again, he predicts:

“The country gets set up for the next horrible recession some time in about 3-4 years.”

If you want to read this well-reasoned article by Ken Gerbino, you can click on the following link on the Kitco web site to see it in full:

http://www.kitco.com/ind/Gerbino/jan...