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The Coming Financial Tsunami
In light of what’s happening right now (and the fact that I never posted it on ZH before), I thought it relevant to post this article that I wrote in the February of 2009 as a primer for friends and family to help them become aware of what was happening (and prepare for what I saw coming). Remember – this was written for people who were very much enmeshed in the MSM propaganda world and had no clue of the reality behind our economic, financial and monetary system. The idea was to gently introduce them to the truth and give a brief overview, so you won’t find me going into the full technical and gory details; plus I wanted to keep the length manageable so as to not put them to sleep.
If you find it worthwhile, feel free to forward it to your near and dear ones who are still entrapped in The Matrix. Here it is:
What's happening now is just the beginning of the collapse of a multi-decade debt bubble. All the so-called "growth" since the 70's has been based on ever increasing amounts of debt - not just the US, but the entire world. Here is a US Debt (public and private) to GDP percentage graph:
You can see that the debt has increased exponentially since ’71. In fact, the last peak occurred at the time of the Great Depression in the 30’s, and this one is even bigger than that, so you can imagine what the crash this time is going to be like.
A bit of history first. It really starts with the creation of central banking paper-money system in the US in 1913 - the Federal Reserve System, but for brevity's sake we'll just jump onto the story after World War II, as the biggest structural economic imbalances have occurred since then. After World War II, all the major countries decided on the US dollar as the reserve currency for international trade (since the US was the most powerful nation left, and with the biggest reserve of Gold at 20,000 tonnes). All countries would base their currencies on the US dollar, which was in turn backed by Gold. So, in effect, all countries' currencies were backed by Gold. This is also known as the Bretton Woods System. Under this system, all foreign countries could redeem their dollars for Gold. This kept a limit on the number of dollars in circulation and consequently, the debt in the world economy - basically it imposed discipline on all parties concerned. With the Vietnam War, US deficits started to soar and it could no longer afford to redeem dollars in Gold. Its gold hoard was down to 8,000 tonnes from 20,000 tonnes. So under President Nixon, they decided to delink the dollar from gold (Bretton Woods II). From now on, no country could exchange its dollars for gold. They called it a “floating” exchange system, but really, in terms of purchasing power, all currencies started to sink together. What followed was an explosion of money, as the US could now issue (print) virtually unlimited paper dollars for all its purchases. Other countries followed suit, in order to maintain their exports’ competitiveness. This explosion in money fuelled (or rather was fuelled by) an explosion of debt. I shall leave the detailed mechanics of all this for another post, but suffice to say that this explosion in paper money has caused massive misallocation of resources throughout the US, and indeed, the entire world. The stock market boom in (crashing in 2000) and the massive real estate boom (crashing in 2007) were both manifestations of these misallocations. The global boom starting in 2002 was caused by the Federal Reserve printing money and keeping interest rates artificially low (in order to boost consumption and maintain GDP "growth"), and thus injecting massive amounts of money into the economy - which had no basis in the real productive growth of the economy. Since the dollar is the reserve currency used for world trade, this artificially inflated the entire world economy, which is now crashing. This was done to alleviate the fallout of the 2000 crash, but the cure turned out to be worse than the disease. The "Subprime Crisis" was just the tip of the iceberg and, in fact, an effect not a cause of this meltdown. The real cause is unbridled growth of money supply and debt by the Fed and other Central Banks of the world.
At heart, this economic crisis is in fact a currency crisis. Throughout history no paper currency (or "fiat currency", since it is accepted as money by virtue of Government fiat or decree) has survived, and this time will be no different. The average lifespan of fiat currencies has been 16 years*. The present system is unique in that it has survived for 38 years and for the first time ALL countries throughout the world are on a fiat money standard. This means that the resulting crash will be on the scale of something the world has never seen. This will be a time of hardship for many, but for those who are "economically literate" and prepared - they will come through largely unscathed, even prosper. If there ever was a time to educate yourself about financial matters, this is it. And don’t listen to the stock-pumpers and so called “analysts” on television – who really are just a part of the Wall Street sales force. These are the same guys who peddled complete garbage as “AAA” securities and that there was no “bubble” in real estate. The rating agencies (Moody's, S&P, etc.) are in cahoots with these crooks, and in their pay. The same goes for the regulatory agencies in the US such as the SEC (and I think pretty much everywhere), which was caught not only napping, but deliberately ignoring the doings of the biggest "Ponzi Scheme" perpetrator of all time - Bernard Madoff. All they are interested is in making a quick buck off of you. Doing your own research on the internet is the only way of finding unbiased information. Just switch off the TV, and switch on the Internet.
I am no financial adviser or any kind of expert, but an ideal portfolio in my opinion would be majority in Gold (strictly physical – no ETF’s or any kind of “paper” gold), some Silver (again, physical) and some cash for day-to-day needs. As you must be aware, more and more banks are failing every day, so it’s not advisable to keep an amount over and above that insured by the FDIC in any single bank. If you are not sure about the solvency of your bank (which can be said of pretty much every bank these days), you can also park your cash in short term Treasury bonds. It is also advisable to keep some cash at home in case there is a “bank holiday” or withdrawal restrictions are imposed by the government. Why the bias towards gold, you may ask. Well, gold is a long and complicated subject so I can’t explain it here (although I do urge you to explore it on your own), but suffice to say that not only will it protect your assets in case of Financial Armageddon, but is sure to rise manifold in value as this crisis progresses. It has retained its purchasing power for thousands of years, and this time will be no different. The record of paper currencies on the other hand is quite dismal, to say the least. This is a once in a 100 year crisis, so you really need to have a historical perspective about this. I reiterate - NO other asset is safe, not even the dollar itself. If anything, gold is a sort of insurance for your portfolio that you will not regret buying. And beware of people who tell you that gold is just an "asset" or "commodity", for they don't know what they are talking about. It's not. It's a currency - the best there is.
At some point, after a huge crash has occurred, the stock market will rise. In fact, it may rise tremendously. It will rise not because of strong fundamentals of the economy, but because of the depreciation of paper currencies (hyperinflation). Hence, any steps that you take to retrieve your investments from the stock market will only prove useful if you invest the proceeds in Gold, as Gold will rise much, much more than the stock market at that point. In fact, in such a scenario, it may even become impossible to obtain physical Gold in exchange for paper currency.
There is a lot more to this than what I have just mentioned, so I urge you to do your own research and take the steps necessary to protect yourself and your family financially. We are heading towards a global currency crisis and it will affect everybody throughout the world.
[Update 13th May, 2010: I originally provided a list of blogs/websites, books and people to follow as a starting point for their research, but some of them have since become dated/irrelevant in my mind. Feel free to provide them with your own list]
And if you think the Government can get us out of this mess, think again. They had a major role in screwing things up so far, and what they are doing now will only make a bad situation even worse. This crisis was caused by excessive money printing and debt, and guess what the Government's solution is - more money printing and more debt. The best they could do in this dire situation was to come up with a budget full of pork randomly throwing money - our money - here and there without any rhyme or reason. All it will do is ensure that the ensuing collapse is even more severe than it otherwise would have been. The Government and the politicians will keep mouthing lies such as it's going to get better next quarter, next year, ad infinitum even as thing get worse and worse everyday. Don't believe them. All they are interested in is preserving their own power. Read a bit of history and know that it's every man for himself now.
As you may or may not be aware, Gold recently hit $1000 an ounce for the third time in history. It started rising from 1999 onwards when it was priced at around $250 an ounce. This is the proverbial "canary in the coal mine" telling us that the international monetary system is at risk of collapse. I can't put a finger on when this is going to transpire - it may happen next month, next year or in a couple of years – but happen it will and the risks today are greater than they ever were. As I am writing this, another crash is brewing in the global stock markets (it may not happen now, but it will - sooner or later). On Friday, the US stock market closed at its’ lowest level since 1997 - over a decade of gains wiped out. Gold has receded in price a bit, presently undergoing a correction after a quick rise from $900 to $1000 an ounce within a span of ten days in February. It has become pretty volatile in the short term (although the long term trend remains up and away), so I am not sure how long this correction will last. It may continue moving a bit downwards or sideways for a while, but it may just be the last chance we have to get it at such low prices. America's - and indeed the world's - disastrous experiment with paper money is about to end in a catastrophe.
*I’m not sure where I got the 16 year figure from.
Brief Opinion: Massive PM Demand in Europe
As an aside, ZH just reported that bullion dealers in Europe were sold out, with many such as Kronwitter having to shut shop temporarily due to their inability to meet the massive demand [sure, they might open back up ala 2008 with or without massive premiums above the spot price, but they just as easily might not if there starts a real run on the PM’s with unlimited demand (i.e. the beginning of hyperinflation) - which WILL be the case at some point in the not too far off future].
Here is what a potential run on bullion looks like:
Kronwitter Sold-out page (translated using Google translate)
Here is one of the bigger dealers Proaurum:
(Translated using Google translate)
Another one Westgold sold out:
(Translated using Google translate)
Tell me, what good is the paper price if you can’t buy the real metal at it? The only thing providing credibility to the paper/futures price is its link to the physical metal. If there is no metal available at that price then it’s just a worthless paper ticket with the words Gold/Silver printed on it. You think that was silver you just bought in the futures market? Nope. More likely a WORTHLESS contract to deliver and it’s not even paper, just some bits in a computer somewhere! (This is practically true even right now for certain corrupt exchanges like the COMEX, considering how hard it is to obtain delivery there). If there is no metal available at the “displayed” price, then it’s just a government dictated price level (ala price controls), with an illusion of free trading thrown in to draw the retail suckers into the casino – just like the stock market. What’s more, due to these hidden price controls created by massive government interference in various markets, we have no price discovery in ANY market right now.
Got Gold?
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You have no concept about economic reality.
Deflation is legitimate, hyperinflation is the speculative error.
Hyperinflation in assets already occured. You can print all the dollars you want and it only brings the number of dollars to assets into parity.
Also, there you go making the assumption that anybody that is not "pro gold" is "pro paper."
Do you have any sense at all?
I mean, I've never seen an argument from you aside from "gold is honest money".
The people buying into gold right now are making the same mistake as the people who bought askjeeves.com and houses in 2006.
Bravo, I am getting used to your new name.
Most of us here are not telling you (or anyone else) to be in Au at a real high percentage of your wealth. 5% - 10% has been what many NORMAL invesment advisers have been comfortable with for decades.
OK, there are some here who are all-in in gold. Not me. But, having some of that pretty yellow insurance in case Obama screws things up even worse (looking very likely) makes me, and several people I know, sleep better.
By the way, my cousin (approx. 47) just asked me how much he should expect to pay over spot. And he told me he is, in essence, heading for the hills.
Cheers Hulk, Gordon, Cheeky and Chumba!
I could easily rebutt every one of your pathetically weak arguments against gold, and in defense of the financial establishment and its paper Ponzi schemes, but it is SO much more entertaining to watch you beat your head against the wall of reality, and rage against the inevitable!
Beause gold is honest money, it is disliked by dishonest BITCHEZ!
..dropping against Gold alright, but thats normal. there's a famous tale about being able to buy a whole block in Berlin for 1oz of Gold at the height of their experiences.
In case you have not noticed, house prices are dropping against fiat cash as well.
I will go ahead and suppose that, by "experience", you mean the Weimar Republic hyperinflation episode.
Do you have a reference for this? My apologies if this is what you posted after your comment, but it's unreadable in my current browser.
Did a little search and this is the closest I can find to answer your question:
Dear Mr Racoon, many thanks for this.
Now, I know what I'll do with the few ounces of Gold I have squirrelled away... If, of course, hyperinflation hits.
The sum of $500 would translate into 25 ounces or thereabouts.
GG,
I've been following this website for about two years now and have learned many things but have never posted until now. I've been slowly informing family and friends what is coming and every time I bring up the subject they give me that look, the look I have no doubt everyone on here has seen "your fucking NUTS look"! This piece from you puts it in layman terms that I think even the die hard denials would take notice. THANK YOU!
Hi WineGuy,
When I discuss these issues with family and frenz, not only they give me this deer-in-the-headlight look, but they recommend me to "relax" and "watch some tv"! I believe the general pop is so drugged by propagenda, their fav sports team, latest fashion, it's hopeless
It's exactly that "deer in the headlights" look that says gold is NOT in a bubble.
Nobody was giving anyone deer in the headlights looks when they were buying Pets.com stock in the late nineties.
Nobody had that look when you said you were buying a house in Sacramento for $800K.
Right and people are buying gold coins with 0% down payments or pumping their earnings into gold because they don't have to pay taxes on their investments through there job.
Your argument is pathetic.
I know! It's extremely frustrating. But all we can do educate people to the best of our ability. If they decided to bury their head in the sand so be it. Cheers
There's a reason why they give you that look.
Also, there's nothing in this piece that suggests anything, except that the debt is high, and gold is rising. Whoopdiefuckindo. Already baked in.
Two targets for gold, bitches:
1251: target of smaller IH&S, 1304, target for larger IH&S.
Then it's NO LUBE, BITCHES!
GG. Thank you very much. Printer picked a lousy time to quit but i will get it fixed and copy this. I need all the ammo of this kind i can get. Its hard to get truh to folks cause the world keeps on turning and they havent suffered yet. The Tv makes it all seem fine to most of us. we as a people are unaware of the seriousness of our sitiuation. I see that everyday. Were i not looking on the net i too would be in lala land.
Well BJ don't say we didn't warn you when you are starving because you were the greater fool holding the bag.
Johnny, if you have arguments to make, then make them. People may not agree with you but they will read them and think about them. If your goal is to change people's minds, then present a cogent agument and support it with facts and figures and reasoning.
However if you are here to be some idiotic clownfuck that everyone will simply "junk" for junk's sake, you are off to a good start.
Why not contribute something meaningful?
Trust me when I tell you, you don't have a prayer of out-insulting Chumba, and you certainly so far have proven you can't present any remotely credible argument against GG.
Anyway, I'm sure you'll come up with some prison themed insult, but figured I would try to reason with you anyway.
Thanks for your contribution GG.
Good going there. Hell, he's not even a good troll. For the very reasons you cite.
You're welcome.
I am no financial adviser or any kind of expert, but an ideal portfolio in my opinion would be majority in Gold (strictly physical – no ETF’s or any kind of “paper” gold), some Silver (again, physical) and some cash for day-to-day needs
Sounds like my portfolio, except I am also short stocks.
Good stuff, GG
Along with that portfolio, I suggest a moderate long position in weapons/ammo companies. Smith & Wesson or Ruger, as examples. I don't have any of those positions, but I'm strongly considering them.
Among other things, consider it a hedge on the confiscation of physical gold.
+ 9mm
+ 7.62 x 39
Don't forget a bit o' the .380 for trading with the folks who carry every day.
Ruger LCP (my personal carry) and Taurus ACP are pretty popular.
Buy it when you see it 'cause you might not see it again for a while.
The wife carries a Sig 45 but that's her service weapon anyhow. I would avoid her when she's in a bad mood...
if its hyperinflation...should we not be long stocks?
I think you will see selective hyperinflation in raw material and input costs (eg oil), and these costs won't be able to be passed to the jobless consumer with credit spigot being dead. So in this case you would see companies with massive margin erosion which will exacerbate layoffs. Gold could still go higher in this situation due to lack of faith in fiat even though there will still not be a increase in money supply (debt) in circulation.
The only way you will see a "pure" hyperinflation in the Weimar sense is if the US gov starts printing US Treasury notes rather than federal reserve notes, and distributes thru some mechanism like massive retroactive tax rebates. Kind of like just giving everyone 50K or 100K and telling them to go nuts. In that case gold would of course go hyperbolic.
So, to answer your question, I don't think it makes sense to own stocks right now as I see the 1st scenario occurring.
No. Gold is the only asset that is pretty, shiny, and you can hold in your hand. Plus, with the 10 trillion dollar national debt, there's never been a better time to buy GOLD from Rosland Capital.
Remember, the stock market is manipulated up, but the price of gold is manipulated down.
Well, it's only manipulated down every day it's down ten bucks. When it's up ten bucks, it's GOLD TO 60000 by this summer, bitchez!
Also, you're right about what you said, and I'm just being sarcastic about the other things. Still, it's what goldbugs say. They're kinda gay though.
Master Baiter was your better name. You lack the brain power to remember your password and were beaten so badly by counter arguments that you needed to come up with a new name because "master bates" had lost all credibility or because TD shut down the troll and you re-applied.
A troll replies like an emotional wreck without logic, or reason just an attempt at emotion shouting please believe me, you must listen to what I say and if you don't you are a ____ fill in the blank. Trolls also work in unison often replying to their own comments with another login name, colluding to influence opinion just like the banks. Only a paid stooge or a mental patient would litter this site with so many inane comments and attempts to be heard. I am reminded of the Seinfeld episode with the fur coat - Look at me, love me, kiss me - he's a real fancy pants. You probably drive a yellow vehicle with 50 bumper stickers on it.
Why don't you come up with your list of reasons why gold is not a good investment over the last ten years. In fact, counter these reasons for owning gold:
I'm waiting.
Hey, MB/JB, how's it feel to be bitch slapped?
Jim Willie CB has his function, and that is to scare the living crap out of us! How reliable his contacts are is in question though.
Still, he called in Jan 2008:
"2008, The Year the System Breaks" (or pretty close)
The guy (JimWillie) sure is a hoot, without a doubt!
I always picture him pounding on his keyboard at 1:00 AM while buzzed on 20 cups of dark roast coffee and bankster-induced adrenaline. He does have a hyperbolic style of prose, and while I don't doubt his good intentions or sincerity, he does have a tendency all too often to play a bit fast and loose with the facts, and to give full credit to unsubstantiated stories and rumors.
He may not always be on the mark with his facts or analyses, but I still consider him one of the "good guys".
Crickets. I love the sound of crickets in the late afternoon...
Sure did drop the noise levels around these parts AN. Thanks! Well done
Good to see GG come out of his shell...I keep thinking the Jr miners with forward production still unsold, should be gobbled up at will. In crises though they will be nationalized Chavez style.
How can you have hyperinflation if home prices are dropping ?
Oversupply of homes + low demand +no access to credit = Lower home prices. Got it??
"How can you have hyperinflation if home prices are dropping ?"
THE UNITED STATES WILL BE ZIMBABWE IN THREE MONTHS! HYPERINFLATION LIKE THE WEIMAR REPUBLIC! GOLD TO 2000 BY JUNE!!! GOLED BITCHEZ!!!!
Oh wait, there is no hyperinflation, there isn't going to be, the U.S. is nothing like Zimbabwe, and gold is in a bubble.
One thing I did notice is that people stopped parroting the gold bitchez thing here. Good, it's annoying...
$1.00 in 1913 equals $0.02 today. You have a unique way of defining deflation.
Adios, Johnny Bravo!
How did you manage the conversion? What is your methodology?
http://www.measuringworth.com/uscompare/
Amazing. There was someone who didn't already know this?
Thanks for the nice link. Adding it to my library.
There's nothing more pathetic than a troll who is reduced to having a conversation with himself.
Beat it, JohnnyDraino ---- your idiocy and anti-gold spin simply do not fly here.
Actually, there's nothing more pathetic than somebody who hits "junk" because they don't have a rebuttal.
I just replied FOR them, because it's so obvious what they're going to say.
So, go fuck yourself akak!
Thanks,
Johnny
Bates, you are stooping to swearing again. That is why you changed your name last time.
No, I changed it because my name was offensive, for one, and also I changed my password and have no idea what I changed it to!
It was something weird like ASDF45$%asdf or something, but I can't remember the right combo.
Well, I'm glad to see you back Bates / Bravo, you made the right choice in changing your name. The old one was offensive and made your sometimes really good arguments look unreliable, unstable.
When you get into your tussles, best not to do the profanity thing makes you look like a wanker...
Now if we can convince you to read some history and look REAL CAREFULLY at what is happenning to us and Europe, maybe we can drag you over to our side:
Team Gold!
Easily done...if you're really drunk.
May I suggest your visceral hatred of gold might in part be due to the fact that its relentless appreciation keeps confounding your predictions of imminent collapse, and this makes you feel (and look) a bit foolish?
Look, some years from now in a post-fiat era, when gold has indeed grown into the biggest investment bubble in human history, it WILL burst - it's inevitable! But that won't be a consolation to you because by that time you won't have any credibility left.
he has'nt got any credibility now.
Maybe try "I-lick-Bernanke's-sphincter" ---- I bet that will open it up.
Hey, Akak, you've moved up! I used to be the fella he wanted to meet. I should be jealous, but -- what the hell. You can have him.
LOL Rocky!
Oh what a dubious honor!