However controversial this might sound to you dear reader, this article sums up the handwriting on the wall - no sugar coating. Follow Bob Chapmans references down the rabbit hole at your own risk. I don’t really care for the conspiracy stuff anymore even though I have my fair share of insights. This blog is about how to prepare yourself in times of change as well as explaining the lies of financial media in simpler terms - not so much about the conspiracy you inevitably find doing research. Thing are happening, knowing about why is secondary. Knowing how to act to protect you purchasing power is primary.
Most observers discuss Europe’s problems and the plight of the euro, pound, and the Danish and Swedish koronas. They believe these European currencies will plunge lower versus the dollar and that the dollar will maintain, even after a dollar rally from 74 to 81 on the USDX. As we have said before the euro was unnatural creation born of a desire to usher in a world currency. As we shall see in the future the euro will fail. In spite of that the dollar is certainly no bargain, because next year America will be totally bankrupt. As a result of the terrible conditions among currencies, gold makes great gains. Last year and so far this year gold is up 10% to 24% against many major currencies. This kind of action of course proves again that gold is the world’s strongest currency. We might add here that we believe that it is only a matter of time before the LBMA, or Comex, or the ETFs, GLDs and SLVs are enveloped in scandal. As so often has happened in history fiat currencies have collapsed. Thus, it will happen again. Those of you not in gold and silver related assets will lose most of what you have worked for your entire lives.
Like I said, no sugar coating, from Bob Chapman of The International Forecaster.
I got a question from a friend today and I thought I’d share it with you here on my blog:
Question: The value of the dollar has gone up recently and it seems to be holding steady. Why is that so?
My short answer is this:
First, the derivatives and equities markets are highly leveraged. This means that fund managers borrow cash, with stock or other assets as collateral, to buy even more stock.
The more they borrow the worse their credit rating gets and the more interest they have to pay on their loans, their “leverage”. How do they get a better credit rating? They call AIG and purchase a “credit default swap”, insurance from defaulting on loans, and they borrow even more…
Now, when the value of the stock invested fall, they get a “margin call” from the bank or institution that provided the borrowed cash. This means that the fund manager by contract is forced to sell.
The loan for the cash is taken in USD, but the stock bought with the cash is often purchased on a stock exchange outside the US in the currency of that market. When the stock is sold, due to the margin call, this sale is also done in the local currency. But since the loan is denominated in USD the fund manager first have to sell the local currency and buy back USD to pay back the loan to the issuing institution (paying back the loan is called “deleveraging”). This creates a temporary demand for USD which causes it to go up compared to the local currency.
Also, the second point to be made is that US government bonds are considered to be a “safe haven” in times of turmoil. This is because the USD is still the preferred reserve currency of central banks. This is about to change as inflation kicks in due to the expansion in the money supply and the mega borrowing from the Fed. When the deleveraging is over, and the central banks around the world realize that the USD is no longer a safe haven, the USD will drop like a stone – game over. The other currencies will then shortly after collapse as well. Only gold and silver will preserve your purchasing power at that point.
In late 2009/2010 the USD has been rising again. This is caused by the massive short on the Euro in connection to the crisis in Greece. The financial industry will hammer the Euro, Sterling and eventually the USD again. Remember, all fiat paper will go down to its true value Zero. It’s not how high gold will go, it’s how low paper will fall.
As many of you know Peter Schiff is now running for Senator in the State of Connecticut. Schiff is an American economist of the Austrian School, author, commentator and popular video blogger who regularly appears in the role of a bearish pundit on numerous financial news networks. He predicted the Dotcom crash of 2000 and the Housing crisis of 2007/2008 and like the author of this blog he belives that the US Dollar is heading for hyperinflation. He is a licensed stock broker, the president of Euro Pacific Capital with a 100 employees who successfully protect their clients wealth by moving out of the US dollar and into real money such as gold etc.
If you want a crash course in the problems with the US economy, watch this. A good hour well spent with a lot of information and humor. Enjoy.
Disclosure: I have no vested interest in Euro Pacific Capital nor do I receive any payment for writing this.
Cutting the federal deficit is the only way back to a sound economic recovery and job creation. You can’t keep spending money you do not have forever. The fact is that the US is broke. Until the federal deficit is turned back to a surplus the Fed will keep printing money through “quantitative easing” which should more appropriately be called “massive worsening” leading to hyperinflation and the death of the US Dollar. Obama plans to “cut spending” with a total of 250 billion US Dollars over 10 years. Yes, 10 years. Thats 25 billion each year at the same time the official expected federal deficit is 1.35 trillion. Thats 1 350 billion. Obama just announced “savings” of less than 2%. I guess its a start…
Overnight news out of Dubai has sent global equity markets reeling and generated a safe haven flow into the US Dollar as carry trades are unwound and a flight away from risk occurs. Dubai has asked for a 6 month moratorium on its debt obligations, which for all practical purposes is a type of default. Needless to say, this came with little to no warning and has sent the markets into quite a tizzy.
Gold shot higher on the news and touched a record $1,195 before some light long liquidation connected with carry trade unwinding got underway. Look for it to be well bid on any setbacks in price as this sort of news is extremely disturbing. After all, we are talking about the financial hub of the Middle East. Imagine the repercussions that would occur should London have announced this sort of news and you can understand why stock markets were pummeled overnight.
Stocks have been floating higher and higher for the reasons described yesterday (increased profits due to expense cutting plus easy money and lots of liquidity) but this is the kind of news that could cut off all such rallies right at the knees. The reason – it creates fear and uncertainty, two of the prime ingredients in a selling binge. If Dubai could go under, then who or what might be next becomes the nagging question hanging over the markets like the proverbial sword of Damocles.
We are in a period in which we could experience price swings across the markets of the magnitude which will parallel those that we witnessed as the Japanese Yen Carry trade was unwound last year. Huge leveraged bets employing the Dollar as the borrowed currency have set up a situation in which billions of Dollars in one way bets are once again on the table. These idiots never learn as their greed will be the ruin of them all but unfortunately, it is always the innocent and those who play by the rules who get caught in the crossfire generated by the pond scum hedge fund community.
Be careful out there and be thankful that you own gold. Things are coming unraveled at an alarming speed. Just imagine the kind of losses that are now on the books of those banks who hold Dubai sovereign debt. Then again, that should not be a problem. The Central Banks can just print them some more money to replace those losses. Heaven help us all…
Johnny Mellgren is a Swedish entrepreneur with a keen interest in macro economics and macro politics. This is his web site where he blogs about the economic collapse of our time, what to do about it and the economic future we create together. Contact Johnny Mellgren.
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I provide advice on investment portfolios for private and corporate clients. I also hold lectures in the history of money and the current economic collapse and how to protect your wealth in a time of transition.
