Tuesday, June 7, 2011

We've Got A Long Way To Go On This One Folks...............

Financial sanity is returning to the world. The silver bubble has burst. The debt ceiling won’t be raised. The government is going to make trillion dollar cuts in spending. Osama bin Laden is dead, signaling the end to the war on terror. Greece is going to be bailed out. Everything is dollar positive and it is time to dance, right? Don’t hold your breath.
Most bear markets follow the same characteristics. They start with a major wave down, followed by a brief counter trend move to the upside, only to be finished off with an even stronger and final collapse. If you look at the 2008 crash as the first wave down, and the following 3 years after that as the counter trend move, then we are due for the final collapse very soon. The reason is quite simple, none of the problems that caused the crash in 2008, have been corrected. In fact, by all accounts they have gotten much, much worse. Not only are things worse, there is no room for error. A major collapse now would be exacerbated by the fact that all of the safety nets we had in 2008, are destroyed.
I am not a market timer and don’t trade, I spot trends and see their inevitable outcome. My job is to pick the right asset, and to stick with it, until the trend changes. The big trend at work here is a shift away from fiat, paper assets to REAL assets. This is a trend that has been in the making for over a decade. If you take any commodity and compare it to any paper asset, you will see that REAL assets are the place to be. This is not necessarily because the price of these REAL assets are going up, as much as it is the value of their measuring sticks (the dollar) are going down. The more dollars that are put into circulation, the less they are worth. This dilution of purchasing power is caused by Zero Interest Rate Policy (ZIRP) by the Fed and their Quantitative Easing (printing money out of thin air.) Now that the Fed has announced that it is no longer going to do QE, does that mean the end of this trend? Don’t hold your breath.
Our money system is one that is based on debt. For every dollar that comes into existence, there is a dollar of debt AND interest that is owed on that dollar. Quite simply, the only way for our debt based monetary system to work, is that every year debt must be increased in excess of the debt AND interest accrued the year before. This debt can NEVER be paid off, because if it did, there literally would be NO money in the economy and there would still not be enough money to pay the interest back.  Please read that paragraph over again, it is so important that you understand that simple principle.
If debt is not increased on this exponential climb, we get what we saw in 2008, a massive de-leveraging and massive defaults. This is why there are “too big to fails”, because if this collapse was left unchecked, it would lead to systemic collapse. (The end of the dollar paradigm.) The Elite cannot afford to let their quadrillion system of banking, media, military, corporate and political power to collapse. So what do they do? They bailed everyone (the big boys) out and allowed them to consolidate power. The Elite has to be careful, to keep us guessing and in the dark. If the average person or say China, saw this game of money printing, they would seek to protect themselves by buying REAL assets. That would destroy the ability of the Fed to create money that has any value.
The modern Elite always err towards inflation, because we live in a fiat world. Inflation allows for old debts to be devalued and overall debt to increase, because it is more affordable. Can you imagine taking a $750,000 mortgage in 1960? We live in a world unhinged by any monetary anchor, and like I said before, debt must be increased every year in excess of the debt AND  interest accrued the year before. There was a time when deflation strengthened the banks positions, but that was when we had hard money that they coveted. Now they get systemic risk of collapse as people walk away from their debts. It does the Elite no good to seize assets if they lose control of the banking system. The game is to create bubbles, pop bubbles and liquify the system again. They make money by knowing what comes next. Since we will never know the timing or extent of their moves, one has to focus on the end game.
So here we are in the eye of the hurricane. We know that the debt must be increased or else we will have a systemic deflationary collapse. Any debt increase will lead to further weakening of the dollar and much higher inflation. This is because smart money and foreign nations to dump their dollars for REAL assets. Given this Catch 22, here is what I think the Elite have in the works.
First attack the Elite attack commodities to scare investors back into the paper system. You can see that the coordinated attack of silver (the anti-dollar) and Osama bin Laden, was a tour de force by the Elite. They essentially said to the world, “look what we can do.” I look at it like a sucker punch from a stage IV cancer patient. The punch hurt, but it does not show that they have any long term strength. There could be one more attack in the works, but I just don’t see that they are going to be that aggressive again. They were smart to wring out all of the weak hands of the bull chasers, but now all that is left is strong hands. Now more than ever, those strong hands only want physical silver. Any further attacks will lead to further pressure on the physical market, which will eventually bring about a physical default of the CRIMEX.
The timing of the next step is tricky. The Elite need to increase the debt to keep their game going. Americans are broke and at their max with mortgage, auto, credit card and student debt. Corporations see the weakness of the American consumer and will not take on more debt and hire new jobs. State and local governments are at their max and desperately trying to keep things going. Which leaves the spender of last resort, the Federal Government. I wrote that the debt ceiling will be raised despite all of the soap opera like antics of Congress. (The Contrived Drama of the Debt Ceiling and Count On It!) In the end, they will either raise the debt ceiling or the Elite will cause a stock market collapse. Remember what they did when  Congress balked at the $700 billion dollar Bankster bailout? The next day they smacked the stock market down 777 points. I feel that there will be a coordinated collapse to make everyone BEG at the alter of the money gods. This will lead to QE3, government bailouts of corporations, states, and I believe personal bailouts.
The personal bailout I feel will come out of necessity to keep Americans from revolution. This collapse will cause already desperate Americans to say, “enough is enough.” We are seeing a rise in violence and people shooting over 99¢ burritos. Americans will see a system that no longer benefits them, and they will want blood. I believe that the government will attempt to quell the personal pain with extensions of benefits and actual checks. This will be short lived, as Americans finally wake up to the lie that they have been living.
Foreign holders of the dollar will see any inflationary action as a good reason to dump their dollars for the only logical asset class, REAL assets like gold and silver. This will lead to more dollars eventually finding its way back to American domestic economy, putting even more inflationary pressure on us here at home. Foreigners have already shown that they are not interested in buying anymore of our debt. They have already started dumping their dollars for trade settlment. They are already buy oil with other currencies and not the dollar. They are already buying gold outside of the Anglo American Empire. What are we going to do if we cannot export dollars for 25% of the worlds oil?
I still believe that before all of this is over, the Elite will steal American’s retirement savings. (Read: The Treasury is Coming and Don’t Say I Did Not Warn You.) This may happen as a means to pressure people to raise the debt ceiling or they might just steal that wealth by hyper inflation. At the end of all of this, there is either a systemic deflationary collapse of the dollar or a hyper inflation. My best guess is that there will be a small deflation or panic that will serve only as an excuse for more money printing. There is no scenario that I can even begin to conceive that will not end in the destruction of the dollar and priceless silver. If you try to trade this market, I believe you are crazy. Even if you are right in the short term, you risk having your wealth in a paper system that might collapse overnight, look at Belarus. You may think that we can extend and pretend forever, but I would not hold my breath.

1 comment:

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