Financial bubbles collapse and usually initiate a depression. Whether it’s tulips in Holland or livestock in Africa, when it hits, the rich become suddenly poor. People starve to death in a lot of cases because their wealth vaporized in front of their eyes, now they have no money.
We are looking at people very well off that all of a sudden become destitute, through no real fault of their own. You have a million dollar tulip that drops to zero, or 1,000 head of cattle that you can no longer afford to feed. A miss allocation of resources given enough time, the expected outcome changes into to something unimaginable.
The Great Depression of 1929 was one of them, only it didn’t start in 1929, more probably closer to 1926 with the hurricanes hitting the Florida coast. And of course, it didn’t come into full bloom until 1934 and some argue 1937. At that point people thought they were in a bottomless pit and things could only get worse. There was no unemployment insurance, or food stamps, or welfare and the old people in the streets scavenging trash cans for food was probably enough of a government embarrassment to start up Social Security. The wealth of a nation had gone down the drain. Between the banking system and the stock market the average saver had lost 90 percent of their savings and investments. And when you examine the era, it was the age of Radio, the light bulb, the telephone, airplane travel, motor cars, harvest machines, and tractors.
Then we come to today and everyone believes that things are different now, we have avoided a Great Depression. Food stamps and unemployment insurance have eliminate the food kitchens and the people queuing up to be fed. So there is an invisibility factor that leaves this great depression labeled the “Great Recession.” The stock market has not crashed, and the bond market is paying zero interest, which is an absurdity beyond comprehension.
The Great Depression was ended by a world war. Half of the world was destroyed and our economy produced what they needed to get back on line. This is what brought us out of the Great Depression. What may not have been observed is the savings of our middle class ready for retirement was destroyed in this fiasco in 1929. If you were ready to retire, you were ruined. The World War also ruined those retired in Europe. The process of a depression or war is selective, it is the retirees that pay the ultimate price.
So now we have a country that has figured out that it can spend our collective savings because we have no need for it until retirement. It has borrowed 17 trillion which is the collective amount that we have saved, I wonder if that is a coincidence? You can’t borrow what isn’t there.
From here, we have a problem with the recovery. Everyone owes money. There are no destroyed world economy’s to rebuild. So what we have, is a world that has everything and needs nothing really, unless you are talking about a new Iphone or Galaxy.
Gold silver and Platinum have dropped below their mining profitability price. Looks like people are in a need to raise money. I always joke about stock traders selling the blue chips and holding on to the dogs hoping they will come back. But if you’re broke, you are going to sell whatever has the highest value and least utility, like wedding rings, and old silver. The things that have held their value well will be sold first, it is human nature to not want to suffer a loss on an investment. And you don’t realize the loss until you sell it.
Our national debt is at 17 trillion and if the interest rate went to 10 percent, we would be in default in a matter of minutes. Food stamps, unemployment insurance and Social Security would not necessarily stop, but our government would not have the option to borrow, only to print. At that point, the government would be called upon to redeem the debt in some manner. The most likely scenario is to issue new dollars that are each worth 10 of the old dollars. So the national debt would lose a zero and become 1.7 trillion, which would be economically manageable. At this point we could be facing very severe deflationary spiral. Or keep printing, until the minions no longer accept the dollars. Toilet paper could reach $1,000 a roll and what the heck put it on your credit card, you get 1 ½% back on all purchases, what a deal.
The question, “Where too from here,” comes to mind. If the government cannot pay back what it has borrowed, at the stated interest rate, and is in default, does the absurdity of the amount borrowed from the banks have any relevance? Or does the absurdity of the amount borrowed leave one to wonder how the act was accomplished without using a gun.
In a financial bubble, of which this one is worldwide, currencies can fluctuate in value all the way to zero. Precious metals have a base price. An ounce of gold can fluctuate from a week’s wages to a month’s wages. Silver can fluctuate between a day’s wages and a week. The neat thing about precious metals is that the price is independent of government control.
Then there is the argument that gold, platinum and silver have lost half of their value in 3 years. Many investments fall out of fashion and drop in price only to later come back. Gold, Silver and Copper have dropped out of our coinage. The penny became worth more than a penny (it cost the government 1 ½ cent to buy the copper to make it). From that you can kind of figure even if you don’t understand the mechanics of inflation, that something isn’t quite right.
Let’s do a comparison 100 ounces of gold purchased at $1,200 an ounce verses 120K in the bank. If the government does a 10 for 1 conversion of the120k, you net $12,000. That $12,000 will now buy 10 ounces of gold. Notice you had to do nothing for the conversion to take effect, it is automatic. For every dollar of debt you held, you would get 10 cents in the new currency. Using this method, our government could wipe 15.5 trillion dollars of debt off of the books with the stroke of a pen. Social Security, unemployment, welfare and food stamps could again be funded with further borrowing. What do you want gold or currency?
The neat thing is that if you are dead broke, you lose nothing. So the poor won’t riot in the streets from the loss of funds, but if you are an employer trying to make payroll, you may come up a tad bit short on the conversion.
The only thing that we can really extract from a global financial collapse is the mobility of precious metals. All other assets are subject to what the buyer is willing to pay for it and what the seller will accept. Those with a lot of toys, might find the taxes too high to pay to keep them. Most rich people only have a vague idea of what they are worth, it is the cash flow pumping through their empire that keeps everything afloat. Destroy the cash flow and most of the real rich will wither away. I’m not talking about someone with one million in the bank, I’m talking about someone who has a payroll of one million a month and if he has to sell the place from a lack of business, he gets 100k because no one wants to buy the company.
The bottom line is this, things are not as they appear. World governments have stepped in and manipulated the financial markets to their advantage. The only people that they can borrow beg and steal from are the savers. They have done that. They cannot possibly repay what they have borrowed, they can barely pay all of the benefits promised to the people waiting in line for them.
We are at a peculiar point in time, the spread between gold and platinum is only one hundred dollars. It could be time to trade some of your gold for platinum. It is 30 times scarcer than gold. It is almost a given certainty that a new model of international trade has to emerge. And it will have to be based on gold and silver, but platinum could be the new guy on the block.
I am not sure where we are going, but if you think that our government has your best interest in mind, you’d better think again. If you are broke, penniless, and illegal, they have your interests in mind, we know that. So where to from here? Somewhere between nowhere and the poorhouse. You can save all of your life and still go broke, go figure. The scary question, will this just involve the United States? --To quote Shakespeare; "Methinks not."