In the last of couple of months I have read hundreds of articles, listened to dozens of interviews and commentaries and have read hundreds of posts and a couple of books. All of my attention has been directed towards the global financial crisis and the effects on the US dollar and the precious metals market. The more I read the less I know.
What I have achieved however is an overall perception on the state of things, this despite the fact that I started out with an abject distaste for conspiracy theories and now know not the difference between a conspiracy and reality. Some commentators that have certainly shaped my thinking are Jim Rogers, Peter Schiff and Ron Paul who I initially considered doomsday protagonists but whose views I now consider pivotal if America is to emerge from this mess with any hope in the medium term.
I get overwhelmed by too much analysis and too many predictions. I prefer after awhile to rely on that old fashioned and now little used method called common sense. I understand the demise of common sense because life has got so complicated. Common sense used to work in the old days because things were so much simpler, common sense less clouded. If one is prepared to take a step back though from the Brownian motion of markets, money and people, at least in my mind, a clear image emerges, one in which the US of A is clearly centred. This picture is a mosaic of the hard colours of economic facts and the hues of human psychology which blur sharp edges.
Let me start by claiming, in laymen’s terms, that the United States has well and truly blown its wad. There’s no turning back, there’s no “get of jail card”, there’s no knight in shining armour (because up until now the US was the knight in shining armour) and there’s no happy ending. The last few decades have been swept by unchecked human behaviour that has grown in its extent and its audacity, like a child who keeps pushing the boundaries of the parents discipline until there are tears.
Here lies the first paint stroke of my picture, a human’s innate propensity to push the boundaries of acceptable behaviour. This characteristic does not fade with maturity, we all have it, at all times and we are all guilty of it at some stage. As a child the consequences are “childish”, a smack or being sent to their room. In the adult world of politics and finance the results are disturbingly serious and will result in a market “smack down” and in many cases being sent to jail. I can’t stress enough the seriousness of what has happened in the last few years alone such as Enron, Madoff, Fannie Mae, Freddie Mac and Bank of America to name just a few of the hundreds of cases demonstrating a complete breakdown in moral certitude. Be certain that this cancer has spread its tentacles to far greater depths than we can even imagine, let alone to the depths we can imagine. Why am I certain of this, because it is human nature? We (meaning the media) write all these occurrences off after a particular story has made its headline and sold its paper or resulted in its website hit. It is beyond any individual to solve these problems or even rationalise these problems.
And here lies the second paint stroke of my picture. If you can’t trust people legal tender, aka fiat money not linked to a gold standard (or any standard), has no place in our society. There can be no more an encompassing statement than: “Without trust the promise attached to a dollar bill is not worth the paper it is written on”. I don’t need to debate this concept with an investment banker, or chairman of the Federal Reserve or a PhD in economics. I don’t need to read a thousand posts on any share market forum. The statement is self-defining; it is an axiom as much as it is common sense. This more than anything sets the scene for a change in attitude towards gold and silver. I am not making a prediction, I do not know for certain but I do know the broad implications of that previous statement for gold and silver. US politicians, proxies of the US government and the e-lite-on-morals bankers have not debased the promise, they have erased the promise.
Another sweeping view that I hold is that the only way forward for the US is through catastrophe and the complete collapse of the US dollar. I have arrived at this view firmly strapped into the harness of common sense. Let me explain. The US is increasing its debt at a virtually parabolic rate. The mainstream economists will state that this is all fine in the context of the size of the US GDP and is in fact the responsibility of the government to spend this money. They see this debt as something temporary that will be paid back in the future, no matter how big. How do they pay it back; simple, increase tax and cut spending. Firstly, what US government in history, let alone recent history has ever done this? I do not know the answer to this question but I expect the answer is, none! This is where we must return to discussion on human psychology. What has decades of consumption, living the high life, living beyond ones means, borrowing instead of saving for life’s next luxury, borrowing instead of saving for life’s next essential, having it today instead of tomorrow. It has done to the human financial psyche what candy has done to a fat and spoilt kid. People have been trained to think like the fat spoilt kid. I don’t need to debate this with a psychologist or political analyst (those academics who study how people vote and why). I know why the fat spoilt kid is fat and spoilt, greed and laziness. I know why people borrow beyond their means, greed and laziness. This is again a self-defining principle, it is an axiom as much as it common sense. So how, I might ask, does a greedy and lazy electorate vote in a politician (if they chose to vote at all) who will cut spending and raise taxes? Who will the fat kid run to, the parent holding the candy or the parent holding nothing? Will the chicken peck at the button that releases a pellet or one that releases nothing. Am I comparing the intelligence of a large group of humans to a chicken? Damned right I am.
It is too late for the US to emerge from this, catastrophe is inevitable. I have friends with young children in the States and their medium term future does concern me. I have listened to dozens and dozens of counter arguments to the doomsday scenario, all of which promote more borrowing. At what point in time do those with what I would call at the moment “mainstream views” realise the absurdity of borrowing from oneself to pay down ones debt? What has the world come to when the so called elite of the economics world actually even consider this, let alone do it. Again, I don’t need to debate this with anyone regardless of their view. I know, no matter what spin I put on it, I can’t lift myself of the ground.
I have to pinch myself even now, that right at this moment the Fed Reserve is buying government bonds by printing money.
I have to pinch myself even now, that right at this moment the Fed Reserve is buying government bonds by printing money.
I have to pinch myself even now, that right at this moment the Fed Reserve is buying government bonds by printing money.
Yep, I felt the pinch three times in a row, this isn’t a nightmare, it is really happening. I have no clue what this all means for gold other than the simple fact that if there was ever a time in history that favour the gold bulls nothing more than paper walls are holding them at bay.
