Economic Implosion? or Go Long on Gold and Silver

As the sovereign debt crisis unravels in Europe, the dollar has seen a resurgence against foreign currencies.  Long perceived as a safe haven, the United States profits from European economic uncertainty, but how long can this last?

You’ve heard of Black Friday… Well now you’ve seen Souvlaki Thursday (the Greek Debt Crisis is making its presence felt in the international markets) With a drop in the Dow this past Thursday of almost 9.2% (though it did rebound to a 3.4% loss) the market has shown its fragility. 9.2% is not small potatoes folks, and I can assure you that the big boys in DC are running scared.

As previously mentioned, however, the dollar is remaining strong against other currencies, but not against gold and silver. These two metals continue to rise, or rather hold their own against an inflating currency.

Throughout the history of mankind, no (that means not one) fiat (by order of government) currency has survived. Why is this? Well, the reason is that governments who have the power to “make” (in our case print) money have never been able to restrain themselves. When they need more money for their wars or their social programs… well they just crank up the printing press. And by the way, the constitution gives the Federal Government the responsibility of coining money… not printing it.

Since the federal government went off the gold standard (starting first with the Breton Woods agreement in 1945 and ending in 1973 with Nixon’s repudiation of the gold standard) we have had a fiat system. In the past several years, the money supply has nearly doubled courtesy of Mr. Ben Bernake. This causes inflation.

Inflation is a concept that exists primarily in fiat money systems (and baloons, tires, etc.) Essentially this means more money chasing fewer goods. As a simple guy, I like to think of it using the Coke Index. When I was a child in the late fifties, I could buy a Coca Cola for 5 cents… That same Coke today costs me 20 times that much. This is not due to scarcity of Coca Cola… They make lots more than they did when I was a child. This is not due to increasing corporate profits. If you look at those in inflation adjusted dollars, it’s about the same. Nope, it’s due to the decreasing value of our fiat dollar caused by the rolling presses in DC. Rolling to fund their wars (spreading freedom? what hogwash), rolling to fund their social programs (helping to fund the needy? more hogwash… funding votes).

I am getting away from the thrust of this blog, though. What you saw thursday is a shift along the seismic crack that is the world economy.  When the fault line opens?…   All these riches based on a house of cards. What happens when one of the bottom cards is pulled out?

Gold and silver can help to protect you, my friends, from the economic unravelling that is currently in progress, and will continue to progress. I urge you to have a garage sale, get rid of the stuff that’s filling your basement… buy silver coins. The cash that’s in the bank… buy silver coins with it. Load up… protect your wealth… you’ll be glad you did.

An Economic “Tipping Point” or Go Long on Gold

The PIIGS (Portugal, Italy, Ireland, Greece, Spain) have sort of dropped out of the news lately, but not because they lack importance as indicators of the current global economic crisis.

Jean Claude Trichet, the European Central Bank President has remarked that:  “The International Monetary Fund or any other body must not assume the responsibility of Eurozone Governments in dealing with economic problems,”  He has also remarked that  “The Greeks are crooks, and they’ve been lying about the numbers.

The Greek government currently has as a debt load equal to 150% of GDP, or so they say.  Others believe that the actual number is much greater.  They are on the verge of financial collapse.  This creates significant problems within the EU.  The French are large holders of this debt, and want to see this crisis resolved in a fashion that does nothing to hurt them financially.  The Germans on the other hand, are ready and willing to cast off the Greeks and send them on another, and perhaps even more fearful and painful odyssey than that of which Homer wrote over two thousand years ago.

According to Philip Manduca, head of  investment at ECU Group, a financial group based in the UK that is primarily a trader in currency, “We are at a tipping point.”  A lack of fiscal unity in the Eurozone may very well implode the currency, unless… “someone else takes the spotlight, and that may be you (meaning the US).”

Right now, we are  funding our wars and our social programs through debt, but when other nations like China start worrying about our ability to repay,  US bond yields must start to climb as  the perception of risk increases.  Manduca argues that when this happens, and if equities start to fall… we have a real big Uh Oh!

Even with all the stimulus dollars applied, the US has seen only a .1% increase in real GDP, and the government, a large part of that picture, is an unproductive sector of the economy.  The job market is flat, and unemployment has not seen significant change.  On top of that we’ve got Obamacare coming and business in the US is already talking writedowns.  We’re talking a continuation of the “perfect storm” here folks.

So for the average guy, what’s the answer?  Metals, I’m thinking.  Gold and Silver.  Right now, I prefer silver, it’s cheaper, you can buy more of it, and there’s more room to run.  While gold might double in the next few years, silver could increase by a factor.

When I say to you that I don’t want to see this happen, I mean it, and I hope that it doesn’t, but I don’t see any other plausible  outcome.  As an individual, I can live beyond my means for only so long.  It is the same for government, and we have reached the “Tipping Point.”

Watch this video, only 8 minutes long.

ECU Group’s Philip Manduca “We Are At A Tipping Point” And The Only Thing That May Save The Euro Is A Collapse Of The US | zero hedge.

True Fiscal Insanity: Creating Money to Buy Government Debt by Richard Daughty

I have been reading the Mogambu Guru on Lew Rockwell for several years now, yet have never posted any of his stuff.  He is a very funny guy.  Read this brief article… It will be good for a little education and a lot of laughs

True Fiscal Insanity: Creating Money to Buy Government Debt by Richard Daughty.