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The Phony War

We are told that those who do not learn from the mistakes of history are doomed to repeat them.    Our elected leaders have consistently studied the history of the Great Depression and are quick to assure us that they have indeed heeded the “mistakes” made in the Great Depression and are taking steps to make sure that this time around, things will be different.
What if we are looking at the wrong time?      Is this a depression or an economic war?
One could liken the current situation to the onslaught of the Second World War.    Not to trivialize the pain and suffering that outright war causes, but economic suffering is occurring right now, the pain is real and debilitating.   
Leading up to the war was a time when the powers that be, allowed Nazi Germany to rise in power and strength.    Treaties that limited what war machines could be produced, what naval ships could be built, what army strengths could be fielded were one by one, surpassed without more than a muted outcry from the allied camp.    It was claimed there was “Peace in our time” as appeasement was the order of the day, rather than oversight.
Leading up to the collapse in 2008, Banks and Financial institutions grew ever larger, creating new and interesting derivatives.   Bank lending standards were put aside and everyone who was anyone was encouraged to indebt themselves because there was money aplenty to lend.    Financial enterprises were busy with fractional lending, CDO’s, CDS’s, speculative buying and short selling.    Limits were ignored in favor of profits and life was good.     Give Wall Street what it wants; don’t look too close at what is happening.
   In September of 1939, the Blitzkrieg devastated Europe.    In a few short weeks, the German Army overran Poland.      France and Great Britain rushed to the trenches to face the Germans in what seemed to be a repeat of World War I.    For months, the two sides in the conflict faced each other during a period that came to be called the Phony War for what appeared to be a lack of action.    The Allies didn’t want to take the hard action called for and deal with the problem; instead they played a waiting game.
If that doesn’t describe what has happened since the collapse, I’m not sure what does.   We threw our tax dollars into the trenches to support the financial sector, creating too-big-to-fail and rescue programs.    We created tax breaks and Cash for Clunkers and there are more on the drawing board.   But we didn’t do what should have been done, we have given the financial sector the time it needs to re-inflate the bubbles, re-boost the stock market, and claim that we are holding the line.
That illusion came to a close in 1940, when the German Army, given the time to shift its resources, smashed through what was previously considered to be impassable terrain and repeated its devastation, overrunning France in a matter of weeks and shattering the carefully laid plans to wage trench warfare in a policy of containment.
What will be our moment of illusion shattering?    Will it be the Commercial Real Estate?    Will it be a free falling dollar?     Will it be the realization that the unemployment figures and CPI figures being dispensed with such dignity are no better than the doctored balance sheets at the too-big-to-fail banks?
Will it be the realization that the Fed has taken a large portion of the toxic waste onto the taxpayer’s books and saddled the taxpayers with an unimaginable debt that is currently nearly 12 trillion and counting?     I don’t remember giving the Fed the right to spend my tax dollars or electing any of the Fed members.
 
We are in the trenches right now; the politicians are claiming success in taming the economic beast and holding it at bay as they figure out the right way to put this genie back in the fiscal bottle.    The fact that the bottle is busted is of no importance since the neck and cap are still intact!   Put the genie in and cork it and we’ll all be right as rain.
But the troops are on the move, the same Blitzkrieg that smashed things a year ago are rising again and this time they will be more terrible than before.     A Goldman Sachs advisor told a panel in London this week “We have to tolerate the (pay) inequality as a way to achieve greater prosperity and opportunity for all,”   Brian Griffiths may be an international adviser, but he sounds like a propagandist.    It’s another example of “I have mine, I don’t care about you,” mentality that exists in the financial sectors.     We have sent our troops to the front lines.   We have added 1.4 trillion dollars to our public debt in a single year, we have doubled the official unemployment rate (almost tripled the unofficial rate), retailers are struggling and the consumer is down for the count.     Yet the enemy will likely strike where we do not expect and we will be left scrambling backwards, fleeing in retreat as we try to salvage something from the defeat.
In this war, the enemy has the money and is not afraid to use it.

Disclosures: Long GLD/SLV, Physical Metals, retirement accounts