James Dines: America's Second-Biggest Blunder

Written by James Dines
Posted August 24, 2019

Publisher's Note: The Dines Letter has been published since 1960. With nearly 60 years of experience and analysis, today we're looking to Mr. Dines for his take on one of the most vexing problems facing the U.S. today.

Call it like you see it,

Nick Hodge Signature

Nick Hodge

Experience is the comb that Nature gives us when we are bald.

                                                            — Belgian Proverb

In our last TDL, we covered “China’s Three Great Blunders.” And now here are America’s:

Parents who fail to perceive that their offspring have grown up should be familiar with this American blunder. The late 1800s in the United States was a time of fantastic new inventions, one after another. John D Rockefeller discovered how to “crack” crude oil, which provided kerosene for the world’s lamps, decimating the whaling industry and thwarting the annihilation of the last 10% of what whalers called the “right” whales. Bessemer discovered the steel-hardening process that enabled much taller buildings, which again changed the world, with cities suddenly enabled to rise vertically instead of laterally. Elisha Otis invented the modern elevator, advertising that being in a rising elevator would be like sitting in your home’s family room instead of laboriously climbing stairs — further propelling building of skyscrapers. Yes, and providing fabulous wealth, as elevators were adopted worldwide, sparking planet-wide construction booms.

We could provide many other examples of that time, which we might do in another TDL. For the moment, we’ll focus on how those so-called “Robber Barons,” first were awash with sobs of gratitude and wealth. But then the world ended up hating those genius pioneers even though their contributions had helped the whole world. Huge corporations became a wonderful new phenomenon. But then the robber barons were attacked due to their horrible treatment of workers: with medieval greed they literally worked them to death. As an ironic consequence, the first labor unions arose.

Thus was born a cultural hatred of large corporate power in America, spawning the advent of organized labor unions strong enough to push back against big corporations — “trusts” as they were then called. More significantly, “antitrust” laws were adopted, in line with societal norms that regarded any business getting big as bad.

Since America had such a large portion of the world’s economic power, it fell to its own government to break up those trusts. However, more recently, China has gained economic power comparable with the U.S., with India on the horizon, along with Africa and Eurasia eventually, so America is no longer competing solely on a domestic scale!

America had been playing by its own rules against monopolies and economic rapacity, while other areas of the world were not legally obliged to play by those rules, and have grown up to be powerful external competitors.

In 2019, America was confronted by an international monopolistic producer of rare earths, which are crucial in products from wind turbines and smartphones to guided missiles. We had begun pondering on this area back when we ourselves witnessed China’s government rapaciously slashing rare earth prices to well below their own costs. With no international antitrust laws, China legally drove its American competitors out of business with predatory pricing, and then bought the crushed ruins for pennies — completing its monopoly. The U.S. had pioneered the rare earths industry, and TDL was first and alone in forcefully speaking out for America to wake up, on television, lectures, the radio, and in TDL, of course. In desperation, we attempted to signal to somebody — anybody — that rare earths were a critical and strategic commodity. We told one American Congressman about it, who disbelievingly said it was a “crackpot” idea because, “How could there be a shortage of earth when the planet is made of it?” He did not grasp that rare earths were chemically valuable metals, and not ordinary earth. Other politicians were likewise not interested. The U.S. government even now, after all these years with China’s stranglehold on a growing number of the world’s elements, still sees rare earths as an area of low importance. So do too many Americans, perhaps too comfortable to care. We hope to get TDLers used to recognizing States yourselves, detecting them without us. Our rare earths idea was of strategic importance, far from being crackpot, and our warnings were to no avail — a long-term tragedy, still not fully comprehended by our leaders.

The result is that around 90% of the world’s rare earths are now processed in China. Even though China’s mines produced around 70% of the world’s total in 2018, most non-Chinese global producers, including those from America’s recently-reopened Mountain Pass mine, have no choice but to ship their rare earth ores to China for processing. America must be less dependent on any foreign source. To create fairly competitive markets, similar to the ones that antitrust laws promote on a domestic scale, it might require America to fund the development of competition in critical industries as kind of “national champions,” — as China does for its own large corporations — for individual U.S. companies confronting a foreign monopoly that domestic antitrust laws don’t affect.

China is also taking control of other industries, a variant of what the robber barons did in the late 1800s, except this time it’s raw materials. Copper, zinc, and other critical materials are slowly being accreted to China, following rare earths out of the world’s grasp.

We have contributed our sentinel duty and, while our warnings have not yet done much good, we are in the High State of Serving, and now the children will get put out into traffic. Too many Americans seem unable to heed warnings until dangers actually begin to appear on the horizon, which could be too late, as was for example before Pearl Harbor. TDL became “The Original China Bug” right after Mao died, predicting that “China would dominate the 21st century,” even now not widely believed or confirmed.

We cite that America has always been supportive of China, and Americans deserve to be proud we were the only nation in the world to have provided China with financial, human, and military assistance in the ghastly years before and during World War II. China is now accused of illegally smuggling opioids into America as revenge for having been forced to endure the scourge of opium brought by the British in the 15th century. China’s leaders are making unnecessary errors.

We add that since both China and America are capable of prospering simultaneously in equitable accord, the U.S. and China should never, ever, go to war with each other. We should insist on honesty, no stealing, high integrity, and tariffs if necessary — but war, never. Because we sense unacceptable multi-century consequences.

China will own its own sphere of influence in the western Pacific, inevitable if only due to its sheer size, although still relying on America’s sphere as customers. China should no longer engage, like the robber barons, unrestrained in Low States (Lie, Steal, Cheat) that will bring counterveiling bad luck to China, possibly a health crisis. Perhaps in its farm animals. Or the current unrest in Hong Kong, indicating that sheer strength can be as brittle as China dishware.

The widely-followed, major American television show “60 Minutes” again covered rare earths on June 9, 2019. The interviewing reporter expressed shock that America’s F-35 fighter jet, most advanced of the world’s fighter planes, requires 500 pounds of rare earths for each machine — and China controls that supply! Considering what China accomplished with rare earths, TDL yet again calls for an immediate review of antitrust and rapacity laws to make them either internationally inclusive, or void in America. Hopefully, a TDLer would be able to awaken our leaders.

Due to the past experiences of our warnings on rare earths going unheeded, it is likely that this rare earth feature will again change nothing. The only reason we chose to review this topic again is to hope the warning falls on someone’s ears who could succeed in doing something about it, since we could not. Like some carefree adolescent, the world is always on its own.

Adhering to the 100-year cycle, from the late 1890s, when the robber barons prospered, we had been waiting for the next wave sometime in the 1990s. That’s why, in 1994, we took one look at the Internet and became “The Original Internet Bug.” We boldly predicted the Internet would be the greatest invention in human history. American tech companies were glorified and their stocks made fortunes for their founders and shareholders. And as with the robber barons, after having been adored as recently as two years ago, FAANG leaders are now despised by increasing numbers of critical people.

In the late 1800s, the oligarchs began to intrude on each other’s turfs. It should happen again this time, and there is already talk these days that Google’s search monopoly might collide with Amazon’s web commerce empire. It’s even in the press; see the two excerpts below. This history review might have been a shock to modernity’s well-educated children, for whom history only began yesterday, but keep in mind the Dines Long-Wave Theory should rise again near the end of the 21st century, with the emergence of another wave of geniuses, and we hope they’ll be in America again.

Oh yes, America’s biggest blunder? Severing the link between its paper money and gold/silver. Now we have $22.5 trillion in national debt, a deficit rising around one trillion dollars a year, unpayable, and heading for “The Coming Currency Crisis.” We recommend owning some gold and silver.

James Dines is legendary for having made correct forecasts that were in complete contradiction to the rest of the financial community. He is the author of five highly regarded books, including "Goldbug!," in addition to his popular newsletter, The Dines Letter, and videotaped educational series. Dines' highly successful investment strategies have been praised by Barron's, Financial Times, Forbes, Moneyline, and The New York Times, among others.

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