facts are being interpreted with emotion and hype and hysteria. The predictive value of mis-emotion is usually
chaos. There will be no Great Depression.

First, let’s review what happened in the last few years in simple terms:

1. The Federal Reserve manipulated interest rates below the real market rate for over a decade, creating dislocations in the normal
markets.

2. Low interest rates forced retirees and savers to abandon safe investments and buy into all sorts of higher risk investments, including the
stock market. (As a grandmother of one of my employees said many years ago, “I can’t afford to live on 3% interest when I use to get 6%”
…a sad but true story).

3. Easy money created speculation and an artificial business expansion as the good times rolled.

4. The dot.com bubble was the first sign of trouble from the recent easy money regime. The solution: more easy money to bail out Wall
Street and avert further panic.

5. Commercial banks are allowed to become investment banks as Glass- Steagall is repealed. Commercial banks can now invest and
speculate globally outside of their normal areas of expertise.

6. Real estate booms, as new and creative ways to lend money appeared. Lending became a no brainer as loan packages could be sold
away to another institution covered by a new insurance scheme (Credit Default Swaps). Therefore credit worthiness of customers became
less important. Lenders became undisciplined. Who cared if the loan defaulted if the loan was “insured?”

7. Other exotic derivatives were concocted by the investment banks and commercial banks to make more fees and profits. Tried and true
centuries old banking policies 101 were thrown out the window.

8. The government pressured financial institutions to lend money for homes to millions of borrowers who were not only unqualified but high
credit risks.

9. The excessive and low interest rate loans for homes fueled an even more
over-heated and extended housing boom and housing price inflation – creating a housing bubble.

10. The over-the-counter derivative market went beyond $300 trillion and no one cared. $400 trillion – no problem. $500 trillion – no big
deal.

11. Wall Street and the establishment press and authorities did not pay attention to the hard money newsletter writers who were screaming
bloody murder about derivatives: Schultz, Skousen, Dines, Wood, Daughty, Sinclair, Russell, Mauldin, Casey, Katz, Turk, Taylor, Adens,
Coffins, Lundin, Morgan, Ruff, Roulston, Grandich, Nadler, Bonner, Day and others.

12. Complacency was everywhere. The Dow was over 14,000. Wall Street and Main Street thought the economy was “fine,” paper money
was “working” and debt levels were high but no big deal, the Fed was in control. So far so good.

13. The banking industry usually gets hit hard when the economy gets hit hard. But this time the major commercial banks were also
speculating along with the investment banks.

14. Huge losses from leveraging and speculating in stock and bond markets as well as derivatives start showing up at the largest
commercial and investment banks in the U.S. and abroad.

15. A national nightmare now is confronting Washington.

16. Global stock markets collapse and credit markets seize up everywhere. Many foreign countries are as bad off as the U.S.

The financial pyramid was brought on by easy money. We are now faced with global investment losses and economic numbers that are at
dangerous levels, and foretell a drastic future.

But the future will be the exact opposite to what Wall Street and Main Street think will happen.

Why There Will be No Depression

The Fed, U.S. Treasury and foreign central banks will print their way out of the problem. A bad solution to a bad problem.

The U.S. is in a recession. This is the natural reaction following the huge economic paper money binge that has taken place the last 15
years. The major banks, insurance companies and investment houses are in real trouble. The pain is too much and the government will
print the money to bail these institutions out.

3 million people are losing their homes. They should never have bought the homes in the first place. These people will go back to being
renters. The homes are still there, they have economic value.

Investment bankers that busted Lehman, Bear Stearns and Merrill and lost their jobs will form hedge funds and buy many of these homes
for 30 cents on the dollar. Then they will sell them in a few years for 50 cents on the dollar to people and other funds. Some people will
move into a home and get a good bargain. Funds that buy these 50 cents on the dollar homes will sell them in 2-3 years for 70 cents on the
dollar. Life goes on.

Banks and investment houses that lost money on these homes are already being bailed out. The losses are being covered by the printing
press or debt from Washington

Unemployment: This is bad. In the U.S. we are at 7.2% and going higher. We are not at 10.8% (’82 recession) or 9% (‘74-’75 recession)
and may not even get to these levels. Sophisticated investors say, “Unemployment is being low-balled by the government, it’s much higher”.
I agree. But check out Shadow Government Statistics’ website run by brilliant economist Walter (John) Williams (who should be a White
House Adviser). This shows that the “shadow or real” unemployment number could actually be 17%. Sounds like a disaster. 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 average wage earner in the U.S. makes $47,000 a year. Multiply this by a possible 12% official unemployment rate which would be
considered a disaster in this country, and you have the following: 18 million people out of work. Using $47,000 per person, this would equal
about $850 billion a year of lost income and GDP. That would be a huge hit to the economy.

But wait a minute. Unemployment insurance for a $47,000 worker is about $400 a week. That reduces the $850 billion considerably. Also,
the Government will simply print more money to handle this. They could print half the amount of the possible lost GDP - $425 billion. Using
Washington logic, this would effectively handle half the consequences of 18 million unemployed people. Then it would be like there were
only 6% unemployed. Printing or borrowing $425 billion would not be difficult compared to what they are already doing.

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.

The 74-75 recession had an 85% (that is eighty five % and not a typo) decrease in the price of the average NYSE stock from the previous
high in 1973 and the Dow was down 41%. In 1982, the Dow Jones dropped 34% from its previous high. Both these market wipe outs were
handled by the money supply being increased by 12.6% in 18 months in 74-75 and 14% in the 81-82 period.

The money supply increases in 2009 and 2010 could reach 50%!

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.

This means that we are not going to have a Depression but a huge paper money induced boom. It will be artificial and inflationary. It is all in
the works right now.

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.

The financial system will be temporarily “saved” by paper money but working people and savers will be eventually crushed by this currency
depreciation. Capitalism and free enterprise will get another bad rap when inflation rips through the system. Honest capitalism and classic
free enterprise does not include paper money….the cause of all modern day economic problems.

What to Do

Expect Inflation not a Depression.
Expect a boom to start sooner than later.
Know the past and respect logic, not headlines.

Am I telling you all is OK? No. I am telling you things are as bad as you think. But the authorities are using this crisis to bail out the system
with paper money and because of that, the economy will once again go into a so-called boom that will be very inflationary. If you think a
Depression is coming you will have your assets in the wrong place at the wrong time.

What Happens Next

The economy stagnates for another 9-12 months then turns around.

Unemployment goes down with the induced economic upturn.

The stock market rallies but never gets above its old highs.

Inflation comes back with a vengeance.

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

Interest rates will go up with inflation and probably to much higher levels.

The stock market will go down when interest rates start going up.

Long term bonds will become the worst investment in the world.

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

Gold will go to new highs.

Housing and real estate will recover but higher interest rates will slow this sector down considerably in the future.

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

The price of oil will go up due to inflation and global production declines of 5-8% per year from most of the largest oil fields in the world.

The U.S. “recovery” will help the world recover and almost all countries will have another artificial economic expansion from all the paper
money they have printed as well.

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.

The U.S. will have even more economic dislocations from all the new paper money and debt taken on by Washington.

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

A Depression is impossible in the old sense of the word. If one describes a depression as the loss of purchasing power of the wage
earner (a correct definition), then we have been in one for the past 50 years since wages have not kept up with the cost of living. But since
everyone is thinking breadlines and the 1930’s, I will stay with that picture for our definition.

It is not going to happen. Also, remember that the $2-3 trillion bail out numbers you are reading about can easily be bumped up to $4-5
trillion. Why not? The reason for the increase is simple…..”We are heading into the Greatest Depression in history.” As long as this
misguided concept gets press and the NY Times, the media and politicians buy into it, then the government has a green light to create as
much money as is needed.

Kenneth J. Gerbino

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