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Saturday, 3 October 2009

Deferring Financial Disaster

James West says .....
Those who read the contrarian and alternative financial commentators may well be forgiven for wondering why the financial doomsday oft predicted hasn't quite materialized. The financial crisis heralded by the crash in October 2008, preceded by the demise of Bear Stearns and Lehman Brothers, among others, by all accounts was the tip of the iceberg and the advent of the Great Depression of our age.

Exuberant markets and slap-happy finance ministers, combined with record profits at the investment banks of Mordor, or Wall Street, are supposed to convince us that the worst is over, calamity has been averted, and with sober and moist eyes we roll up our sleeves to prevent the ghosts in the machine from re-emerging. A more masterful symphony of optical delusion has never been conducted, and the invisible puppeteers manipulating the strings of marionettes Ben Bernanke and Timmy Geithner are smug in their continued anonymity.

Meanwhile, unemployment continues to rise, foreclosures and delinquencies ditto, and but for select industries, decline and bankruptcy are the measure of balance sheets, not growth.

The principle tool of deception for this motley crew of G7 finance ministers and the Invisible Hands that control them is currency. With these key economies now flush with capital in the uppermost layers, victory can be claimed by pointing to the balance sheets of those institutions who have averted disaster by capturing the lion's share of this manna from heaven. That the capital is not filtering down meaningfully into the broader economy in the form of investment and lending is the clearest sign that the worst is yet to come, and we now merely pause in the eye of this economic hurricane.

Keep in mind, if the Great Depression that started in 1929 is a fair analogy, then we are in the autumn of 1930, and the peak of contraction globally did not manifest itself until 1933, when unemployment in the United States reached as high as 25% in some areas. Within that four year overall plunge were several mini-bull rallies that lent solace to the fearful, albeit temporarily.

The major difference between the period from 29-33 and now is that the governments of that era did not have either the ability or the willingness to print money with abandon, because they knew that the outcome of such policy would certainly be future inflation, which would itself handicap any chances of recovery.

Since we now live in an era where its only what is happening right now that matters, the financial overseers seek solutions that immediately repair the illusion of prosperity in perpetuity, even if it means a smaller and smaller percentage of the population is fooled.

The act of printing currency with abandon equates to deferring the financial reconciliation required to achieve balanced budgets into future generations. As long as we print money, and agree to value that money as legal tender, the illusion can go on ad infinitum.

But what happens if, from the bottom up, people start saying "Hey wait a second…this cash is counterfeit!"?

Well that's what is happening with the price of gold. Even the government of China is hedging its bets that its own currency will suffer devaluation in lock-step with the excess of U.S. currency afloat. After all, China's foreign reserves are the largest collection of American funny money there is outside of America.

So despite the glad-handing and cheerful sentiment echoed by the mass media controlled by about 7 men, the financial disaster continues to unfold, and the only reason the masks are still on the players in the ersatz performance is to pick clean the pockets of those susceptible to such disingenuous rhetoric.

For the rest of us, preparations must be made for the next leg down.

There are two things to own going forward. Precious metals and the companies that mine them. The very worst tsunami is a boon only to the surfers crazy enough to catch the wave, and that will exactly be the situation when the fragrant chile hits the fan part 2. Instead of a thrill though, the owners of shares in mines that produce gold will be rewarded with financial security in perpetuity, barring unforeseen acts of foolishness.

Gold producing operations will soon see their valuations increase dramatically. Lifted on that rising tide will certainly be soon-to-be-producers and to a lesser extent, explorers of advanced economic deposits.

The long term deterioration of the U.S. Dollar has been underway for decades. Its days as a viable currency are numbered. History proves this. Buying gold and gold related assets will soon also reveal itself to be the only sound investment of the next 10 years.

With due apologies and full credits to the author


20 comments:

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