On September 12, Germany’s Supreme Court will decide whether Germany can continue to put funds in the Euro stability pact, bailout programs, and thus whether there will be a Euro bond program and whether the Bundestaag will lose control of their own government. How the court decides can affect the future of the Euro because Germany is holding everything together, and if Germany is no longer there then there is no Euro. The effects will be tremendous.
Carmen Reinhart and Kenneth Rogoff, in their excellent “This Time It’s Different,” wrote a book that should become a guide for all future policy makers. They examined the fate of countless nations in various types of financial crisis (internal defaults, external defaults, banking crises, exchange rate crises and inflation crises) and charted out the typical pattern of distress. They found that the unwinding of a financial caused boom usually entails declines in real housing prices (housing usually declines 35% over six years or more), bear markets in stock prices (which typically decline 56% over three and a half years or more), exploding government debt (usually an average of 86%), falling output, rising unemployment rates, collapsing tax revenues and spiking interest rates. What happens depends upon the type of crisis that occurs, with Reinhart and Rogoff finding that banking crises typically lead to sovereign debt defaults (there have been 250 cases globally since 1800), and sovereign defaults typically lead to inflation (greater than 20% per year) and currency collapses.
Peter Bernholtz, author of “Monetary Regimes and Inflation,” found that most every case of hyperinflation he studied in multiple countries looked the same and was caused by massive budget deficits which were financed mostly by money creation. The tipping point to hyperinflation came when government deficits reached 40% or more of government spending (not GDP). The debt increase often came as the result of some rare or extreme event such as a loss in war, regime change or regime collapse, rampant government corruption, or having ceded one’s monetary sovereignty to a pegged currency or some type of foreign denominated debt. So hyperinflations were usually caused by the political mismanagement of legislatures that – for whatever reasons — spent far beyond their means and racked up a debt load that became a large proportion of government spending. This is why governments all over are trying to instate austerity programs which have already started here.
A study of 775 fiat currencies by DollarDaze.org reported that 21% were destroyed by war, 20% failed through hyperinflation, 12% were destroyed through independence, 24% had to be monetarily reformed, and 23% were still in circulation awaiting one of these outcomes. Even if you assume that a fiat currency will last forever, monetary scholar Edwin Vieira has pointed out that every 30-40 years the reigning monetary system usually fails in some way, and then has to be retooled to start again. The sources I consult consistently say that a perfect storm of conditions has arrived that makes this likely. It might take 1 year or 3 years, but the writing in one the table. The can cannot be kicked down the road for much longer, so you must start thinking about these issues.
It may sound unbelievable, but in high banking circles (reported by Jim Willie in his excellent “Hat Trick” newsletter, and by many others) it is well known that China is getting ready to replace the dollar with a new reserve currency backed by gold; Russia will contribute oil and metals reserves to be part of it, and several other parties are willing to cooperate. China and Eastern nations don’t want dollars or Euros anymore because the nations just print them up they no longer represent anything of value, and they worry that the bonds they might buy will drop in value or interest payments will be defaulted. If countries don’t want the USD, it would also make the USD drop in value if other countries started abandoning it as the medium of exchange for international transactions. Those are just facts. We have been known to start wars with countries who made just tiny steps in this direction, but we cannot do that to China and Russia. Central banks have also quietly been buying gold and it may soon be accepted as a cash equivalent. For instance, in a remarkable development, LCH.Clearnet, the world’s leading independent clearing house, said yesterday that it will accept gold as collateral for margin cover purposes starting in just one week – next Tuesday August 28th. This is unheard of, and some speculate that the central banks will make gold a Tier 1 asset, which is equivalent to cash. They would only do that if the dollar was becoming worthless and institutions were seeking an alternative store of value, but it has not happened yet. One year out, three years out, it will probably happen.
Everyone is quickly realizing that they need a store of value other than the US dollar, and since that cannot be the EURO, 5000 years of history has everyone looking at gold. The Fed is even auditing its stores of gold at Fort Knox and elsewhere, and will release its audit figures soon! Gold is not a theoretical investment any longer because the big money is moving there. It fears the collapse of the dollar and the Euro (On Sept 12 the German Supreme Court is going to rule upon whether or not Germany can continue to put funds into the stability pacts and bailout program, and Germany right now has entered recession territory). Right now there’s some very real downside risk to the stock market if there’s no hint of new quantitative easing at either the Federal Reserve’s Jackson Hole meeting at the end of the month or the Fed meeting in September. Hedge fund managers say there’s the probability of a melt up in the gold price if there is any move toward quantitative easing at either event, and gold has already started moving upwards, which is why I’m writing.
The big hedge funds have also definitely started buying gold again (Obama supporter George Soros sold all his large American banking stocks and bought $$$ in gold as did hedge fund manager John Paulson). PIMCO has increased its commodity fund weighting of gold to 11.5%. I could go on and on, but it’s best to let someone else summarize the details, such as done in this excellent Max Keiser interview: http://www.kpfa.org/archive/id/83610 . He’s like the Alan Alda of financial reporting — irreverent but on the money, exaggerative, but point transmitted (unlike newscasters on TV). As he and others have stated, for protection against inflation and sovereign debt default, or devaluation, people are now turning to gold just as the central banks increase their precious metal purchases, looking for a store of value other than the dollar which is in trouble. This has been going on for awhile, and building steam.
There are so many issues involved with this. A contributing factor is that the financial corruption of Wall Street (that helped lead us to our financial mess) is not being prosecuted anymore, such as with the case of ex-Goldman Sachser, governor and political campaign contributor John Corzine of MF Global which promptly “lost” $1 billion is customer’s funds that it gambled away even though they were in segregated accounts. What is greatly worrying people who pay attention is a decision earlier this month in the 7th Circuit Court which effectively ruled that a bank does not owe you your money back if it loses it, which is another reason the elite are removing monies from the banking system and certain other financial institutions and parking it in precious metals stored at Gold Money and other safe institutions. The court actually ruled that once a banking customer deposits money into an account held by a bank, the funds then become property of the bank and the customer relinquishes all rights to that money regardless of any laws in place, legal assurances, claims or guarantees. This recent ruling extends from investments to private checking accounts. There is now a legal license to take away your money, so you can bet Wall Street will use this as a defense after they use client monies as collateral on speculations that go bad. Once the bank has physical possession of your money, they now own it and can use it for any means they deem fit. There is no longer any effective separation of customer and bank funds. They are now legally co-mingled. So what can the bank do with your money? The bank could use it to pay off debts, or as collateral for its own investing bets, and can use YOUR MONEY to buy stocks to try to make some extra cash. If the customer allocated funds are lost, the bank does not owe the customer the money back! Incredible! This has now been made legal. In other words, the entire concept of customer segregated funds is officially, completely, legally dead. That should worry everyone.
Jim Willie reports, “The Federal Appeals Court has explicitly stated that a Futures Commission Merchant (FCM) can use customer deposits to pay its debts, and that the customers themselves are subjugated and have basically no legal right to funds in their own accounts. The rules goes in direct violation of what standing legal statutes and regulations state. No longer are legal assurances, claims, or guarantees valid for client segregated funds held with an FCM or any other brokerage or depository institution. All client funds in the United States are now legally available property of JPMorgan, Goldman Sachs, Bank of New York Mellon, or other giant banks standing as the counter-party on the loans the FCM or depository institution.”
I’m not a financial advisor, so I am not telling you what to do, but I will tell you what the smart people, the insiders, the in-the-know people, the quiet Wall Streeters are doing right now. You must decide what to do on your own as 100% your own decision. But in my research I’ve found they have been buying physical gold and silver.
The true jobless rate in the US, as reported by shadowstats.com, is actually about 23% and getting worse, so the actually number is akin to a depression. With every new dollar of quantitative easing the debt is also piling up, and is now at a level impossible to pay back. History shows that when something cannot be paid back, it won’t be paid back. Furthermore, you cannot get out of a debt problem by issuing more debt, which is what everyone is doing. Either the government will default, which our politicians would not dare do (the only tool they have left hat 0% interest rates is printing more money, which they will certainly continue), or will print money to oblivion, in which case the dollar will devalue or we will see super inflation or hyperinflation. In both these scenarios, because the USD is the reserve currency, the only alternative would be holding the EURO, but because it too is in trouble, the only alternative is holding gold as part of your funds for protection. That is what people have done throughout history and what the big money is doing now, which is why I’m writing, because everything seems to be unfolding.
Historically people have turned to holding a bit of cash in a foreign country in the safe reserve currency, but if that currency is itself in jeopardy, they turn to gold and silver, which is what is happening today in the private markets. The central banks are buying furiously, the hedge funds are in, as are the insiders at the highest levels of the banking crisis. On the stock market, investors are buying physical precious metal trusts that actually hold physical gold and silver instead of paper promises, so they like the Sprott Gold Trust (PHYS) and Sprott Silver Trust (PSLV) funds but are staying away from paper silver and gold exchange-traded funds like SLV and GLD which might one day come up short in terms of the actual physical holdings of the metals they report holding.
I am not a financial advisor, I don’t know your personal situation, and I am not advising you financially or telling you what to do. I’m just passing along these strange events and the opinions of these financial reporters and analysts. Max Keiser (you can listen to his excellent interview) and many vocal others (Gerald Celente, Schiff, KingWorldNews, etc.) are saying to remove some of your money from the banking system, and buy gold or silver that is stored in a safe location such as Hong Kong or Canada but not the USA, Switzerland, or London where it can be confiscated or where rehypothecation games can be played with it. Rehypothecation is the big worry as when the money is lost via rehypothecation games, you will get nothing back — witness MF Global run by John Corzine. Basically people who thought they held physical gold at private banks in Switzerland are finding it was sold out from under them, so you need to hold it in a safe storage vault. There is no scaremongering here .. they’re just stating facts and saying that’s why they would do.