World Financial System In A State Of Insolvency

Posted: February 21 2009

The tenor of the gold market has changed. Gold has decoupled from the dollar and at the moment it is not driven by fear of inflation or hyperinflation, but by a flight to quality. What else can be expected when the media reports that governments are deliberately creating inflation to offset deflation? Jewelry demand that normally makes up 80% of gold demand has dropped and investment demand is what is now driving buying. SPDR Gold Trust, the ETF GLD, has added 200 tons of gold over the past six weeks and 62,000 ounces last week alone. We are very skeptical regarding GLD’s gold purchases due to a tight market and no reports of their purchases. They may be using derivatives illegally and if they are and the derivatives fail the owners of the fund will be left with little of their investment.

The US dollar is no longer the premier safe haven, gold is. Gold is finally being recognized as wealth insurance. It has also decoupled from the influence of oil and other commodities. Even Russia in the face of terrible oil prices and one devaluation after another has purchased 90 tons of gold over the past 15 months.

Banks are being nationalized worldwide and people are becoming frightened and well they should be. The world is facing a major depression and banks are broke and being nationalized, and this is only the beginning.

The global financial system is in a tailspin and world leadership in Europe, china, Japan and the US act like the situation is some temporary breakdown. The system is beyond saving and the elitists planned it that way.

We have entered depression, which is stage 2 of the crisis and simultaneously stage 2 of the long bull market in gold and silver. As autumn comes the dollar will have broken to new lows versus other major currencies and gold and silver, as inflation rages. We could be looking at a dollar trading between 40 and 65 on the USDX, dollar index. In 2010 economic and financial distress will worsen. Some countries will slip into chaos. The fabric of society is going to be torn apart.

Today’s financial system is in a state of insolvency. The best example is the highly volatile combination of US dollars and dollar denominated assets and debt. Their problems are shared by most nations, their having copied what the US and England were doing.

These problems unfortunately have yet to be adequately addressed and that is why the situation gets progressively worse. Massive injections of liquidity were used in the 1930s with similar unsuccessful results. How can anyone believe that substituting public debt for toxic private debt is any solution? In the US $12 to $13 trillion has already been injected into the system, truly a mind-boggling amount and that is in just one year.

This exchange of debt is not only foolhardy but it assesses a hidden tax on the public via inflation, particularly on the poor and those who are retired. Minute by minute it steals their assets. The result is that this exponential increase of public debt is making US Treasuries as toxic as the private toxic waste taken in as collateral. It is a massive transfer of wealth from the people to banks, Wall Street, insurance companies and elitist corporations.

The nation depends on the dollar for financial stability and yet everyday it is being debauched. Every nation will suffer, but particularly the US and UK. The nations may be trying to replace disappearing assets, but it won’t work. It is just a temporary palliative and in the end the result will be the same. Moving debt and loss of assets from one place to another doesn’t make it go away.

Fortunately free trade, globalization, offshoring and outsourcing are dying an ignoble death. A death well deserved. There are few dangers of returning to protectionism. It has been a US government policy from 1800 to 1980 and it has been quite successful. You might say in time America will return to normality. We already see our president talking of buying American. British PM Gordon Brown is deliberately competitively devaluing the pound. Mr. Sarkozy in France is subsidizing the vehicle industry as is the US and Japan and just about everyone has a stimulus plan. This is extremely good news for Americans. Now we can again control our own destiny and not be at the mercy of transnational elitist conglomerates, who make 40% of their profits by manufacturing outside our country, importing those goods and then keeping their profits offshore to avoid 33% taxation.

This means WTO will have lost its teeth and NAFTA and CAFTA will die slow deaths. The G-20 meeting this summer will turn into a donnybrook as any pretense of free trade disappears as solutions to worldwide depression is short term. Unemployment by summer will be 20% in the US, 13% in Europe and in the second and third worlds much higher. It won’t be long and everyone will be a protectionist. All will be serving domestic markets to avoid collapse. All nations, some more than others, are facing a crisis of historic dominations. We see the eurozone and European Union breaking apart and there is even a possibility that the United States of America may no longer exist. You can’t imagine how nasty this is going to be.

The seeds have been planted. Mr. Sarkozy of France blames the Anglo-American business model, and wants to limit businesses’ relocation from country to country. Gordon Brown in England wants job priority for British workers ahead of foreigners, including EU citizens. The Chinese want out of the dollar as Mr. Obama prepares an offensive against China’s human rights and trade tactics. Russia blames the US for the crisis and rightly so.

The degenerative process in this phase of disintegration began in June of 2002. That was the point of no return when interest rates began to be lowered and when money and credit was expanded to smother deflation. This time the end of free trade will expedite the process over the next two years.

2009 should begin more accelerated disintegration of the international financial system. 2009 could be the big year of the crash, but it will take a little longer we believe – perhaps 2010 or 2011 – we’ll see.

We see wishful thinking in Europe and Canada. They expect to fare better than the US. That will not be the case European banks are as insolvent as US banks if not more so. Germany’s government, but not the people, wants the eurozone to stay together. More than 70% of Germans want out. They are sick and tired of supporting the rest of the zone, especially Italy, Spain and Ireland, which for all intents and purposes are broke. France stumbles along in an insular manner, while selling off its gold. Then there are the Eastern European debt problems, which Western Europe has to cover. The Swiss are not under pressure. They are concerned about the franc rising in value not falling in value. Canada ships 80% or more of exports to the US. The US is in depression and Canada and Mexico will soon follow. Worldwide trade is about to come to a virtual halt and that means all of the above are in serious trouble. The G7 and G20 talks might just as well be called off – it’s now everyone for himself. You must have 85% to 100% of assets in gold and silver related assets. If you have not done that do it now with gold close to $1,000 an ounce and silver close to $15.00. This is only the beginning of phase two of at least four phases upward in prices. The only way you can financially survive is with these two assets. Everything else will fall 60% to 95%. This depression will be far worse than the “Great Depression.â€