Monday, December 12, 2011

The Euro Non Solution

Ummm.. tell me, the big Euro summit has accomplished exactly what? Promises to be good little boys and girls and adhere to “strict:” budget targets? That should have been done long, long ago. The elephant in the room that remains is this issue of sovereign indebtedness and sovereign solvency. Words on nice parchment treaty paper are not going to fix anything. These European problems threaten to drag on for months more, as they now have until MARCH to write a new treaty. God help them if any country decides it needs to referendum the matter and see what its people decide. I suspect something will blow up before March, or there will be some moment of near blowing up that will require some sort of coordinated rescue. The Central Banks see the short term result of their recent intervention and they surely must like playing god (notice the small-case g).
As meatloaf sang, 23 Out of 27 Ain’t Bad, and that’s what we have here. Britain is going its own way and wants nothing to do with this bull ___ (fill in the stinky blank). Britain will ultimately have to face its own fiscal ills and it will do it by itself, or with a little help from a friend (channeling the Beatles): The US Fed, Japan (if they can etc). It is taking the isolationist route. At total debt of nearly 1000% of GDP, it is destined to fail. Light out eventually, good night bub, and without the help of mainland Europe.

This sobering chart has been making its way around the net. Yikes!

As for the stock market and gold, the BAD news is going to be GOOD news for the near term. There will be a fairly bullish bias to stocks until the recession in Europe starts to take victims in the U.S. Santa will try to stick around and then take a bow to the so called January effect. Eventually, the IMF is going to attempt to put a fire out, or the Fed will do so leading to more 'hopes' and the speculation that leads to volatility. Remember: The secret to their interventionist sauce, which is really not so secret, is that they are using monetary gasoline to put these fires out. That can only be good for gold in the long run. Long run for stocks? Perhaps not so good as the system crumbles under the weight of tremendous debt. As I’ve previously stated, 10s of trillions in funny money has already been magically produced to save only the banks, and no not by way of dead president notes, but through digital monetary creation of banking reserves which has kept things flowing. There cannot be seizure anywhere and the PTB will see it through for as long as it can.

When you think about it, if UK total debt to GDP is at about 1000%, Japan at somewhere in the 700% range; and both can have functioning societies, then how much time is left for the Fed with U.S. total debt at a “mere” 300% of GDP? This could be a drawn out problem, or am I giving too much credit to the Banksters who are keeping the ball rolling, as evidenced by the latest Wall Street rally? The doomers who are looking for it to all apart very soon, think that I give too much credence to the cleverness of banks who own the Fed in keeping our “system” alive, but hey — this has been an going theme for years. And yes, I am aware that past performance does not mean the same outcome in the future.

I am not saying that doom to the system won’t happen espescially when these excessive debt levels are taken in to consideration. When the paper fiat ponzi fails (since adding new debt to pay old debt is not a solution and will be laughed at by the future generations who will look back at this time), paper will go to its fair value of zero as the punishment for an abusive the system that puts the banking interests before all others in society. This end to fiat money has happened numerous times before. Google “currency death” just for fun.

Gold’s dollar valuation will get jostled as the dollar and other curerncies fall apart, but when all is said and done, gold will remain. It will still have value. That’s the long term key for anyone who is purchasing gold: long term VALUE vs the nothingness of paper when there's too much of it disguided as money (again, this has happened before). Sure, life will manage to go on, but the transition will surely be rotten; the desperation to keep things as they are now will get ugly. A workout of debt that exceeds GDP of many nations is not going to be pleasant. How could it be?

The big question now is timing. You may need to hold your gold wealth patiently for longer than expected and weather the storms. “They” will keep this fiat regime going for as long as possible, and that potentially could mean several years more of miserable extend and pretend. Not rocket science, not fear mongering, it’s a proposition of ridding oneself of the demons of denial and looking at reality. Whether 1000% of GDP in the UK, or 300% of GDP here in the U.S. -- now that's a reality that is not going to go away anytime soon by itself.  The transition out of this debt conundrum will be gut wrenching in the years to come.

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