Economic Depression and Gold
- We are undoubtedly in a Depression. The MSM is coming round to that now. What most people still do not realize is that it will not be better than the 1st Great Depression. It will definitely be a lot worse.
- Banks in America and EU are largely bankrupt. We have seen 2nd bailouts for countries like, US, UK, Germany, Denmark and many more countries to come. Are there any doubts that US and UK are bankrupt ? Both countries are facing massive collapse which the MSM is trying to hide or are putting a positive spin to it. No one knows how much more money the banksters need to bailout their failed banks! The exposure of the Top 3 banks to derivatives are as follows :
Bank of America – US$ 38 T
CitiBank - US$ 40 T
JP Morgan – US$ 91 T
Total derivatives exposure is : US$169 T
Their combined assets are : US$6 T .
- By any reasonable fair accounting standard, mark to market means that they are all insolvent. These derivatives are no doubt difficult to value in the current market conditions. But to say that fair value is < 50% of book value would not be unreasonable. In fact some would argue that there is hardly any market value for them as there is no market for most of these derivatives at the moment.
- Taking just a 50% haircut, they will need additional capital of about US$ 80 T . This is way more than the entire world’s GDP of US$ 50-60T. So will the 2nd, 3rd, 4th… bailouts be successful? There is not enough money in the world to bail them out. The fact of the matter is : the banksters are going to bankrupt US, UK and Western Europe and possibly even Japan.
- Martin Weiss writes in Warning: Mega-banks Could Fail Despite Federal Bailouts :
Shares in failed banks are worth zero, and that’s where Bank of America’s are headed. Citigroup’s are already close, making it almost impossible for the company to raise capital from investors. In light of these facts, how can the government save America’s megabanks?
Wall Street is hoping that the Obama administration will create a separate , government-run “bad bank” to take bad assets off their hands. And some pundits are even proposing that the U.S. government nationalize the big banks in trouble. But …
Neither approach addresses the obvious reason our nation’s banks are in the ICU to begin with: Excess debts and risk-taking. In fact, these “solutions” would merely pile on more of the same . Meanwhile …
Both approaches spread and transform the contagion from a Wall Street debt crisis into a Washington debt crisis, as the federal deficit explodes to as much as $2 trillion in fiscal 2009.
Washington Will Ultimately Lose This Epic Battle!
No matter what the government does, it cannot patch back together the busted market for mortgages, derivatives and especially credit default swaps. It cannot stop a pandemic of loan losses among large AND small banks as the economy sinks and traditional bank lending goes bad.
It cannot stop the contagion of falling confidence, fear and panic. It cannot outlaw gravity or stop investors from selling. Nor can it turn back the clock and reverse years of financial sins. So don’t count on Uncle Sam to save your bank, your business, or the economy.
- Unemployment is skyrocketing worldwide. Caterpilla just announced a 20,000 lay off exercise. Ambrose Evans-Pritchard reports in Bad news: we’re back to 1931. Good news: it’s not 1933 yet :
Barack Obama inherits an economy already contracting at an annual rate of 6pc, much like the mid-Depression year of 1931 (-6.4pc). This may beat Germany (-7pc) Japan (-12pc) and Korea (-22pc) over the fourth quarter. But that merely underlines the dangers ahead as the collapse of global trade chokes the mini-boom in US exports, setting off another stage of the crisis.
The US is losing 500,000 jobs a month. Brazil lost 650,000 in December. Beijing says 10m Chinese have lost their jobs since the crunch began. Japan’s exports fell 35pc last month, year-on-year. The central bank is printing money furiously, buying bonds to prevent a relapse into deflation.
So yes, it is like early 1931. Citigroup and Bank of America have more or less disintegrated. JP Morgan’s health is failing fast. General Motors and Chrysler survive only on life-support from the US taxpayer.
But it is not yet like 1933. That second leg down was the result of “liquidation” policies by a Dickensian leadership blind to the dangers of debt deflation. By then the Gold Standard had degenerated into an instrument of torture. It forced the Fed to raise rates from 1.5pc to 3.5pc in October 1931 to stem gold loss, with predictable results for shattered banks.
It is worth glancing at the front page of New York Timeson Monday March 6, 1933 to see what the world looked like three days after Franklin Roosevelt moved into the White House. The newspaper splashed with the story that FDR had closed the US banking system – invoking the Trading with Enemies Act – and ordered the confiscation of private gold. From left to right, the headlines read: “Hitler Bloc Wins A Reich Majority, Rules Prussia”; “Japanese Push On In Fierce Fighting, China Closes Wall, Nanking Admits Defeat”; “City Scrip To Replace Currency”; “President Takes Steps Under Sweeping Law of War Time”; “Prison For Gold Hoarders”.
- The ponzi fractional reserve banking system is close to collapse in America and UK. We will undoubtedly see another major leg down when people come to realize that there is no way out. The banksters have defrauded America and the bill has been shove down their throats.
- The British Sterling Pound has been under onslaught for the past few weeks. It has collapsed spectacularly. Jim Rogers said to sell anything sterling and get out. I agree. What you must also realize is : the USD is headed the same way too. With it the entire Western world’s currencies including Japan’s. The threat is a worldwide competitive devaluation. All efforts to re-inflate have thus far failed! Will we see protectionism again ala 1929-1939 ?
- One thing for sure: Gold is increasingly look upon with favour. It has tested US$900/ounce and looks like trending higher. Christopher Laird in Deteriorating World Economy Leading to Currency Instability and Strong Gold :
If a trade war develops and there are competitive currency devaluations (each country lowering its currency to try to stimulate exports) then you can guarantee that gold will rise inexorably. Gold will then detach from its commodity correlations, and become primarily driven by currency developments around the world. This is already starting to occur.
With the trouble the British Pound, the Ruble, the Euro, the Korean Won, and the USD are facing, and then add this pending competitive currency devaluation, gold will be the final measure of the whole situation. It will rise relentlessly in all of these currencies.
Now, gold is already near new highs to the Pound and the Euro. It’s not at a new high to the USD as of yet because the USD has risen so much since April of 2008, from about 70 on the USDX (basket of currencies heavily Euro weighted) to around 85 now. But gold will rise to new highs in the USD too, and we believe likely this year.
- Paper currency is rapidly losing value. Worldwide the electronic fiat money printing presses are working 3 shifts every day to reflate the economy. I may be wrong but how can Gold not go higher ?
Disclaimer – I am not a financial advisor. This is not an advice to buy, sell or hold any stocks or bonds or any precious metals.
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