Gold Values Up, Financial System Down

Those who read the contrarian and alternative financial commentators may well be forgiven for wondering why the financial doomsday oft predicted hasn’t quite materialized. The financial crisis heralded by the crash in October 2008, preceded by the demise of Bear Stearns and Lehman Brothers, among others, by all accounts was the tip of the iceberg and the advent of the Great Depression of our age.

Exuberant markets and slap-happy finance ministers, combined with record profits at the investment banks of Mordor, or Wall Street, are supposed to convince us that the worst is over, calamity has been averted, and with sober and moist eyes we roll up our sleeves to prevent the ghosts in the machine from re-emerging. A more masterful symphony of optical delusion has never been conducted, and the invisible puppeteers manipulating the strings of marionettes Ben Bernanke and Timmy Geithner are smug in their continued anonymity.

Meanwhile, unemployment continues to rise, along with foreclosures and delinquencies, and but for select industries, decline and bankruptcy are the measure of balance sheets, not growth.

The principle tool of deception for this motley crew of G7 finance ministers and the Invisible Hands that control them is currency. With these key economies now flush with capital in the uppermost layers, victory can be claimed by pointing to the balance sheets of those institutions who have averted disaster by capturing the lion’s share of this manna from heaven. That the capital is not filtering down meaningfully into the broader economy in the form of investment and lending is the clearest sign that the worst is yet to come, and we now merely pause in the eye of this economic hurricane.

Keep in mind that if the Great Depression that started in 1929 is a fair analogy then we are in the autumn of 1930, and the peak of contraction globally did not manifest itself until 1933, when unemployment in the United States reached as high as 25% in some areas. Within that four year overall plunge were several mini-bull rallies that lent solace to the fearful, albeit temporarily.

The major difference between the period from '29-'33 and now is that the governments of that era did not have either the ability or the willingness to print money with abandon, because they knew that the outcome of such policy would certainly be future inflation, which would itself handicap any chances of recovery.

Since we now live in an era where it is only what is happening right now that matters, the financial overseers seek solutions that immediately repair the illusion of prosperity in perpetuity, even if it means that a smaller and smaller percentage of the population is fooled.

The act of printing currency with abandon equates to deferring the financial reconciliation required to achieve balanced budgets into future generations. As long as we print money, and agree to value that money as legal tender, the illusion can go on ad infinitum.

But what happens if, from the bottom up, people start saying “Hey wait a second…this cash is counterfeit!”?

Well, that’s what is happening with the price of gold. Even the government of China is hedging its bets that its own currency will suffer devaluation in lock-step with the excess of U.S. currency afloat. After all, China’s foreign reserves are the largest collection of American funny money there is outside of America.

So despite the glad-handing and cheerful sentiment echoed by the mass media, the financial disaster continues to unfold, and the only reason the masks are still on the players in the ersatz performance is to pick clean the pockets of those susceptible to such disingenuity.

For the rest of us, preparations must be made for the next leg down.

There are two things to own going forward. Precious metals and the companies that mine them. The very worst tsunami is a boon only to the surfers crazy enough to catch the wave, and that will exactly be the situation when the fragrant chile hits the fan part 2. Instead of a thrill, though, the owners of shares in mines that produce gold will be rewarded with financial security in perpetuity, barring unforeseen acts of foolishness.

Gold producing operations will soon see their valuations increase dramatically. Lifted on that rising tide will certainly be soon-to-be-producers and to a lesser extent, explorers of advanced economic deposits.

The long term deterioration of the U.S. Dollar has been under way for decades. Its days as a viable currency are numbered. History proves this. Buying gold and gold related assets will soon also reveal itself to be the only sound investment of the next 10 years.

Comments

[Mad Hedge F...:]

txe Of course you knew it was going to happen like this. After churning around just below the old high, and sucking in as many profit takers and short sellers as possible, gold blasted through to a new high for the year of $1,038. Never mind that the triggering event is complete balderdash, a story in Britain’s Independent newspaper asserting that the Middle East is holding secret global talks to price crude in the yellow metal or other currencies (click here for story at www.independent.co.uk/... ). It didn’t hurt that Australia cut its interest rates by 0.25%, the first G-20 country to do so. There probably isn’t enough gold in the world to finance more than a few weeks of global oil production. Total gold holdings would only fill two Olympic sized swimming pools. But never let the truth get in the way of a good trade. The confirming moves couldn’t be more ubiquitous, with the Canadian, New Zealand, and Australian dollars all up big, commodities strong, and silver also going ballistic. Regular readers will all recognize these as old friends of mine, core longs that I have been strongly recommending since the beginning of the year. I have been trying to get investors into gold since it was at $800. If you aren’t in gold by now, I can only tear my own clothes and flagellate myself for my abject failure to convince you of gold’s merits. US government debt is exploding, and with foreigners holding a large part of our paper, the only way to get out of this mess is to devalue the dollar. It’s like Obama invited China’s president Hu Jintao to dinner at an expensive Upper East Side restaurant, and was suddenly called away by a crisis, leaving him with a big fat bill. Next stop $1,200, then $1,500, then the old inflation adjusted high of $2,400. If you want me to help you get set up to trade futures in any of this stuff, please email me at madhedgefundtrader@yah... If you want to know where to buy physical gold and silver in size with the tightest spreads over spot, check with the experts at www.millenniummetals.net

Oct 06 01:52 PM

[User 353732:]

The usual trajectory in history is that a local currency becomes a regional currency as the polity that issues the currency ascends to greatness. When the polity becomes a world(the term world being defined differently in different epochs) power or global power its currency becomes a reserve currency. The currency and global status of the polity become inseparable.
The ruling elites then become irredeemably corrupted by virtually untramelled power. They seek to aggrandize and perpetuate themselves at the expense of historical values and traditions , the welfare of the citizens and even the very strengths and qualities that made the polity remarkable and great in the first place. The elites become so self obsessed and so consumed by their appetites for wealth, control and fame that they sell the soul of the Nation. They initiate the tragic and toxic process of unrestrained spending, high taxes, and suffocating regulations. Since even this does not suffice, debt is issued in accelerating and vast amounts and when there are no assets to support the debt, fiat money is issued without restraint or shame in flagrant abuse of the reserve currency power and privilege. The responsibilities that accrue with being a reserve currency are discarded with contemptuous ease. This is where the US governing elites and where America is today.

The fiat money period usually only lasts a relatively short time, since the world is pretty good at distinguishing a real asset from a vapor asset and an asset backed currency from a propaganda backed scrip.The global power status of the polity whose currency is now fake erodes to the point where several other nations or polities openly challenge or mock or even attack the economically enervated and morally depleted polity.
At that point, the fiat money becomes fake money and its exchange rate with real assets (these by definition, the elites cannot degrade) plummets. That is the cusp. The citizenry can then either become aroused and act to protect themselves via a mighty reform or thorough purge of the elites or resign themselves to successive humiliations, retreats and painful compressions of material life,culture and civil society.

History, of course, is not a prediction, even though it may be, a partial prefiguration, of the future; and America, even at this late stage in the currency debasement--institutional corruption process and arc of descent is no ordinary great power. If any polity has the latent resources within its ordinary citizens to break the spell woven by its elites and dispel the delusions of materialism, instant gratification , false entitlements and victimhood(the four horsemen of the National moral disaster) it is America. There is always a first time in history and historical firsts are what made America exceptional.

Oct 06 03:18 PM

[Leftfield:]

User353732: Thanks for the exceptional analysis and ultimately, potentially, uplifting message you bring.

Oct 06 03:58 PM

[Mark Bern:]

Thank you to the author for saying much of what I've been thinking (but in a much more concise and informative manner). I've had the concern rattling around in my little pea-brained head that we are on the verge of coming to a fork in the road. The path we take will be of historic importance.

User353732 has put the argument into a historical perspective in a his or her usual eloquent style. Very well done!

Let me try to put the argument into another form. The U.S. was already a great nation before the Great Depression, but it did not ascend to the height of its power and prestige until after WWII. A major difference between then and now (I hope, but not necessarily) was that, even though poor decisions were made throughout the Depression, both home and abroad, what pulled us out was not good policy, but war. We didn't decide to take the right path, that path was thrust upon us. We even tried to stay out of the war and were willing to let the Axis Powers take control of Europe. We were also overly tolerant of the Japanese in East Asia and the Pacific. We were producing the materials used in war and selling them at a profit (at the beginning we even sold to both sides). We were in denial, believing that we could avoid conflict if we didn't get involved. We didn't take a stand until u-boats attacked our merchant ships and then, later, Japan attacked Pearl Harbor. At that point, we no choice. Greatness was thrust upon us and we measured up to the task. The rest is history.

Today, our leaders are not solving the problems that have beset our economy. They have only done the best they could to stave off the worst for awhile longer. Pushing the punishment off into the future. Unfortunately, this time the future will become the present much sooner than they hope. Crisis is still on the horizon, no matter what the likes of Helicopter Ben, Timmy, BO, and the MSM tell us.

The banks still have huge amounts of nonperforming and under-performing assets on their books. They are valuing these assets using proprietary models that retains much of the original value of the asset whether that value could be obtained in the market or not. They do so because they can (since the accounting rules were changed to permit the deception). Granted, some of those assets should not be written down because they are still performing or are likely to re-establish better performance levels in the future if the economy recovers and jobs become plentiful again. Unfortunately, that day is further away than our leaders would have us believe. It's there, somewhere in the future. But it's not just right around the corner.

Bernanke admits that unemployment will probably stay above 9% all through 2010. Does that sound like a robust economic recovery? The stress test that was performed behind closed doors by Treasury used parameters that defined worst case as much more mild than where are now, relative to unemployment, and we still haven't hit bottom. It the holiday season is a bust this year (and how could it not be) where is the catalyst to pull the economy out of its downdraft?

The stimulus, you say? If you hadn't noticed, the stimulus has not been able to do much more than keep the economy from falling faster. All that money hasn't been spent yet, but will it create jobs? Think about it. Why is it taking so long for the Administration to let loose of all those dollars? There are two probable reasons:
1) The Administration is hoping that all of the spending won't be necessary and intends to stop once the economy show positive signs of improvement and sustainable growth (I only wish they were this smart).
2) The Administration is hoping to use all that stimulus money to prop up their candidates with pork spending running up to the mid-term elections (I suspect this to be the more likely objective).

The problem with either plan is that the spending is not focused on creating permanent jobs in the private sector. Everything is temporary. It's not even addressing much of the deferred infrastructure maintenance and improvements that will never be accomplished by local and state governments such as sewer and water lines that are more than 100 years old in many of our major cities. Many of such projects would have taken as long as a decade to complete, creating much needed jobs in construction.

We are nearing the crossroads. Not our leaders. Us. Our leaders have already decided on a path. It takes us down the road of mediocrity, the loss of our reserve currency status in the world, and the further loss of what is left of our manufacturing base. It include higher rates of poverty, inflation well above normal, and the los of buying power for the middle class; a lower standard of living for all but the super rich elites.

We need to take back the America we know and love. It's not a matter of one party or the other. Both Republican and Democrat leadership will just keep us heading down the path of impotence in the world. We need to take the path that leads us back to the principles upon which this nation was founded. We need to oust all career politicians from office. We need term limits. We don't really need new ideas. We need the same ideas that made our nation great. We need elected leaders who we can trust. Ones who will vote exactly the way they told us they would during their election campaigns. We need honesty. We need fiscal responsibility brought back into our government and into our business practices.

How do we get from here to there? Become more active in the political process. Do not trust those in office unless you have checked their voting records and it conforms with their previous and proposed promises. Demand term limits. If your representative won't accept term limits they must be thinking more about themselves than of their constituents. Elected office is supposed to be about "serving one's country."

If you agree and want to do more, consider going to goooh.com for more information. Goooh is short for "Get Out of Our House!" The concept has a lot of potential and its supporters are growing significantly.

Disclosure: I do not work for goooh.com. I haven't even joined yet, but will soon. I just like the concept. Especially the part about holding elected officials to a contract to do what they were elected to do.

Oct 06 05:24 PM

[The Geoffster:]

Mark Bern for President and User 353732 for Treasury Secretary

Oct 06 06:16 PM

[Student of ...:]

How do we get from here to there?

Follow the money... Go to where the grass is truely greener. Years ago the rich moved to Ireland and gave up their US citezenship in order to avoid the higth taxes. Now Ireland is joined at the hip with the rest of europe since they gave up their own currency (and monetary freedom/destiny). England is probably "Eating their luch" when it comes to exports...

I'd guess these days the smart wealth is moving to some place like Dubai or Singapore?


On Oct 06 05:24 PM Mark Bern wrote:

> Thank you to the author for saying much of what I've been thinking
> (but in a much more concise and informative manner). I've had the
> concern rattling around in my little pea-brained head that we are
> on the verge of coming to a fork in the road. The path we take will
> be of historic importance.
>
> User353732 has put the argument into a historical perspective in
> a his or her usual eloquent style. Very well done!
>
> Let me try to put the argument into another form. The U.S. was already
> a great nation before the Great Depression, but it did not ascend
> to the height of its power and prestige until after WWII. A major
> difference between then and now (I hope, but not necessarily) was
> that, even though poor decisions were made throughout the Depression,
> both home and abroad, what pulled us out was not good policy, but
> war. We didn't decide to take the right path, that path was thrust
> upon us. We even tried to stay out of the war and were willing to
> let the Axis Powers take control of Europe. We were also overly tolerant
> of the Japanese in East Asia and the Pacific. We were producing the
> materials used in war and selling them at a profit (at the beginning
> we even sold to both sides). We were in denial, believing that we
> could avoid conflict if we didn't get involved. We didn't take a
> stand until u-boats attacked our merchant ships and then, later,
> Japan attacked Pearl Harbor. At that point, we no choice. Greatness
> was thrust upon us and we measured up to the task. The rest is history.
>
>
> Today, our leaders are not solving the problems that have beset our
> economy. They have only done the best they could to stave off the
> worst for awhile longer. Pushing the punishment off into the future.
> Unfortunately, this time the future will become the present much
> sooner than they hope. Crisis is still on the horizon, no matter
> what the likes of Helicopter Ben, Timmy, BO, and the MSM tell us.
>
>
> The banks still have huge amounts of nonperforming and under-performing
> assets on their books. They are valuing these assets using proprietary
> models that retains much of the original value of the asset whether
> that value could be obtained in the market or not. They do so because
> they can (since the accounting rules were changed to permit the deception).
> Granted, some of those assets should not be written down because
> they are still performing or are likely to re-establish better performance
> levels in the future if the economy recovers and jobs become plentiful
> again. Unfortunately, that day is further away than our leaders would
> have us believe. It's there, somewhere in the future. But it's not
> just right around the corner.
>
> Bernanke admits that unemployment will probably stay above 9% all
> through 2010. Does that sound like a robust economic recovery? The
> stress test that was performed behind closed doors by Treasury used
> parameters that defined worst case as much more mild than where are
> now, relative to unemployment, and we still haven't hit bottom. It
> the holiday season is a bust this year (and how could it not be)
> where is the catalyst to pull the economy out of its downdraft?
>
>
> The stimulus, you say? If you hadn't noticed, the stimulus has not
> been able to do much more than keep the economy from falling faster.
> All that money hasn't been spent yet, but will it create jobs? Think
> about it. Why is it taking so long for the Administration to let
> loose of all those dollars? There are two probable reasons:
> 1) The Administration is hoping that all of the spending won't be
> necessary and intends to stop once the economy show positive signs
> of improvement and sustainable growth (I only wish they were this
> smart).
> 2) The Administration is hoping to use all that stimulus money to
> prop up their candidates with pork spending running up to the mid-term
> elections (I suspect this to be the more likely objective).
>
> The problem with either plan is that the spending is not focused
> on creating permanent jobs in the private sector. Everything is temporary.
> It's not even addressing much of the deferred infrastructure maintenance
> and improvements that will never be accomplished by local and state
> governments such as sewer and water lines that are more than 100
> years old in many of our major cities. Many of such projects would
> have taken as long as a decade to complete, creating much needed
> jobs in construction.
>
> We are nearing the crossroads. Not our leaders. Us. Our leaders have
> already decided on a path. It takes us down the road of mediocrity,
> the loss of our reserve currency status in the world, and the further
> loss of what is left of our manufacturing base. It include higher
> rates of poverty, inflation well above normal, and the los of buying
> power for the middle class; a lower standard of living for all but
> the super rich elites.
>
> We need to take back the America we know and love. It's not a matter
> of one party or the other. Both Republican and Democrat leadership
> will just keep us heading down the path of impotence in the world.
> We need to take the path that leads us back to the principles upon
> which this nation was founded. We need to oust all career politicians
> from office. We need term limits. We don't really need new ideas.
> We need the same ideas that made our nation great. We need elected
> leaders who we can trust. Ones who will vote exactly the way they
> told us they would during their election campaigns. We need honesty.
> We need fiscal responsibility brought back into our government and
> into our business practices.
>
> How do we get from here to there? Become more active in the political
> process. Do not trust those in office unless you have checked their
> voting records and it conforms with their previous and proposed promises.
> Demand term limits. If your representative won't accept term limits
> they must be thinking more about themselves than of their constituents.
> Elected office is supposed to be about "serving one's country."
>
>
> If you agree and want to do more, consider going to goooh.com
> for more information. Goooh is short for "Get Out of Our House!"
> The concept has a lot of potential and its supporters are growing
> significantly.
>
> Disclosure: I do not work for goooh.com. I haven't even joined yet,
> but will soon. I just like the concept. Especially the part about
> holding elected officials to a contract to do what they were elected
> to do.

Oct 07 03:17 AM

[5142152-337:]

.....and SILVER!!! Don't forget silver!

Oct 07 08:16 PM

[Albertarocks:]

On Oct 06 01:52 PM Mad Hedge Fund Trader wrote:

> After churning around just below the old high, and sucking in as many profit takers and short sellers as possible, gold blasted through to a new high for the year of $1,038. Never mind that the triggering event is complete balderdash, a story in Britain’s Independent newspaper asserting...<

Gold was already well on it's breakout over $1000 ($1,020 to be exact) when that story broke. Whether it was true or not, that story had nothing to do with gold's ultimate path, nor was it a catalyst of gold's break over a grande.


> It didn’t hurt that Australia cut its interest rates by 0.25%, the first G-20 country to do so.<

I'm not sure what sources you're using for your info, but if I were you I'd consider changing them. Australia didn't cut their interest rates, they raised them.

You aught to proof read at least once before you go nuts with the cut and paste routine. And just a friendly suggestion... try using paragraphs. It would make your comments more readable and much less likely to be skipped over.

Oct 08 12:08 AM