What Happens When the Great Correction Comes?

October 18th, 2012 → 4:38 pm @ // No Comments

Which way will it go from here, and what you must do no matter what

Recession, Depression, Stagflation, Hyper-inflation…endless
arguments abound about what lies around the corner. So, who’s right?
All of them are. All of them are right…and wrong. It may not even
matter, since the future belongs to those who prepare. Fortunes have
been lost, even in the best of times and fortunes have been made, even
in the worst.

We are already in a Recession that will eventually prove to be far
more devastating in scope than the so-called Great depression. Some of
those who lived through the belt-all-the-way-tight times of the 1930’s
may take umbrage to that statement, but that umbrage could very well
give way to a desperate search for daily bare necessities, especially for
those who are unprepared. What we are going to see will
unquestionably be the Greater depression.

Certain market areas may not be touched at all, but for the greatest
majority, continued and worsening economic misery will be
experienced. Part and parcel of the present recessionary, or let’s face it,
the present depression cycle will be prolonged corrective deflation in
real estate values and in things we don’t actually need to live. It is a
buyer’s market, especially in the luxuries market, for the foreseeable
future.

On the other hand, for things we need to live, particularly, food,
energy, health care, and even water, continued inflationary hikes in
price will be the norm, followed, at first by sporadic, then increasingly
frequent episodes of hyper-inflationary end-game price spiking. As
hyper-inflation creates contractions in the economy, fear of deepening
depression will continue to mount. For those who presently have the
power to create money through the rearrangement of electrons, the
temptation to do so will be too great. More “stimulus” money will be
pumped into the system and more inflation will result. It will be a
painfully slow war of attrition with the forces of overheat and hyperinflation
repeatedly battling economic anemia, and market malaise to a
standstill The cost of living in real terms cannot help but continue to
escalate, and the standard of living will decline.

The western industrialized nations have enjoyed global dominance
and a higher quality of life than the world has ever known, and have
done so for long enough that it is expected that it should always be so.
It is so expected, that it is not even thought of as a higher quality of life,
but instead is understood as the acceptable norm, or simply as the
western standard of living. A rude awakening is imminent, particularly
for millions of Americans who do not understand, or have not cared
what is happening before their very eyes.

There is no mystery to the equation. The most basic fact of basic
economics is that it is not long sustainable to spend more than comes in
as income. Also known as deficit spending, or living beyond one’s
means, this results in un-cleared debt and insolvency. By borrowing, in
the form of the issuance of debt instruments that promise interest and
by inflating the monetary base, in the form of currency printing, the
central banks of the world have only postponed the inevitable. A great
global financial reckoning is due.

A vicious cycle of un-sustainability has resulted wherein the assets
of the privately held central bank are increased by charging interest to
create debt for the Treasury in order to fund more spending, including
for military aggression, in order to secure more resources, and to create
larger profits for a select cabal of supra-national corporations,
ultimately at the expense of the population. The collateral damage
caused by following this policy cycle is assumed to be an acceptable cost
of doing business, as long as it is not felt by those doing the damage.
Like the ballooning cumulative budget deficits, aka the national debt, it
can be ignored, as long as it isn’t directly felt by those who owe.

The repeating of this cycle will most likely be the prominent feature
of the decline of the Dollar which signals the last throes of the dying
empire. It is unavoidable that those who now have control of the
money mill will continue to use it, until they no longer can.
What is not avoidable is the inescapable end of the US Dollar
dominated, empty paper fiat currency world. The temporary illusion of
relief bought with more deficit spending through more money printing,
or more accurately through more electronic currency expansion, will
cease to be possible as the world will no longer buy the debt for sale in
the form of negative yield US T-bills.

At the heart of the current monetary system is the level of trust
extended to borrowers that they will repay what has been loaned to
them. Complex systems of credit ratings, based on credit history, assets
on hand, and future income are used to judge the credit worthiness of a
borrower. It matters not whether the borrower is an individual looking
to finance a house or car, a corporation wishing to use credit leverage
for expansion or acquisition, or if it is a bank or even a sovereign nation
in need of monetary liquidity. All are rated according to past
performance, net worth, and present cash flows.

Trust is key in a debt–based economy. Only if lenders have a
reasonable assurance of being kept whole through the borrower’s loan
repayment, with interest, can they afford to extend credit.
Uncontrolled “stimulus” borrowing or debt creation by the central
banks of the insolvent western empire has rendered all credit rating
parameters as moot. As further loans are extended to un-worthy
borrowers, especially to central banks and sovereign national treasuries,
the entire concept of creditworthiness is negated. The rules no longer
seem to apply, which calls into question whether they are actually rules.
The more that the pattern of ignoring the rule book is rendered as the
new modus operandi; the worse there is a lack of confidence in the
overall debt system. When the confidence level wanes enough, a new
crisis is faced. The result more and more is simply a trust crisis.
It has already begun. The Treasury is finding limited interest in T-bill
auctions, as the realization is spreading that buying US debt instruments
renders the buyer as just another player in a western-banker-officiated,
and therefore rigged, game of global wealth consolidation. In
December 2011, the Federal Reserve reported that holdings of U.S.
Treasuries by foreign central banks fell by a record amount of $69 billion
in the last four weeks of trading. Had it not been for increased
purchases by the central bank of Japan, the drop would have been more
pronounced.

The threat to the foreign holders of reserves of US Dollars and of US
debt (the largest amount of which is held by China) is that should they
attempt to get their money back and de-leverage out of the USD too
quickly, the likely result will be an accelerated drop in the value of the
remaining reserves of US Dollars that they still hold. There is significant
potential for sparking off a large run on the Dollar, as other debt
holders, as in creditors, see movements towards the door. This in turn
could create a big enough drop in the USD’s value that its holders may
face outright default on the part of the U.S., and would be cut off from
any hope of return on their investment.

China, and other nations, are quietly making their way to the exit
from the United States home field with its fiat currency artificial turf of
US Dollars.

Beginning with banks ramping up lending against physical assets of
silver and gold, the intrinsic value of metal as money is again being
recognized.

The Chinese government is actively encouraging their citizenry to
buy as much silver and gold as they can. After decades of it being illegal
for them to buy and own gold, The Chinese people are now doing so
with great relish.

The economic powerhouses of the East, China and Japan, the
second and third largest economies on the globe have begun bi-lateral
trading directly from Yuan (Renminbi) to Yen and back again no longer
using the Dollar as the medium of exchange and standard of evaluation.
China is already buying oil from Iran in gold, instead of in post
Bretton Woods, post gold-backed (US) petro-dollars. Pressed by
western trade sanctions, Iran is using gold bullion and oil as currency to
pay for vital food supplies. Regardless of European Union sanctions
against dealing gold in Iran, The Iranian populace is buying gold as a
currency hedge against the uncertainty of their nation’s future including
currency depreciation.

These are but a few of the examples of the world-wide shift towards
commodity precious metals as money.

There’s simply no way out of this cycle until the dollar collapses, and
is replaced as the world’s reserve currency by silver and gold. The place
where it became prudent to apply the brakes is barely visible in the
rear-view mirror. The opportunity to let free market forces take care of
deadwood economic underbrush, even if that translated to a bit of
cleansing wildfire, was lost when the Too-Big-To-Fails where bailed out.
The time for reform of securities definitions to end the creation of
shameful confidence swindles such as toxic mortgage backed
derivatives and default swaps has been postponed by the powerful
printing presses over at the Fed. Lagging interest rates, which was
coincidentally one of the conditions maintained during the great
depression, are not going to be helped by the borrower-encouraging
promise over at the Fed credit window to keep zero or even negative
interest rates, creating a cap on the cost of money. The steps to
prevent the present slide down this ever steeper and more slippery
slope of currency debasement have already been blown past by the
powers that be.

It is true already, but it will be more starkly evident in the near
future. The truth is, if it is not in your hand, you don’t actually own it.
Bonds, stocks, even bank account balances are vulnerable to the
slightest tremors of bank and stock market failure. As the people in
Greece found out, it could happen in an instant that ATM cards cease to
work and depositors cannot access their balances. There may be longer
term repeats of times when stock brokers cannot buy or sell a single
share for their anxious clients, since the markets have taken a holiday.
When they do reopen, there is no guarantee that anyone’s holdings will
be fairly credited, or in the case of a total collapse, compensated for, or
even if there will be any surviving record whatsoever that there ever
were any assets.

It may not necessarily be a dramatic event at all. The potential
exists for the collapse to happen in such slow motion that it will be
imperceptible, not only to the average person, but to many avid market
observers who will be distracted by watching closely for a dramatic
occurrence, as the rug is incrementally, and therefore imperceptibly,
pulled out from under them.

There does not need to be any actual interruption in daily business.
It happened in the UK in the sixties, and recently in Switzerland.
Depositors woke up one morning to find that the central bank had
devalued the currency and any assets valued in that currency now had a
fraction of the purchasing power that they had the day before.
The United States is the current location of the western imperial
court, so it is incumbent upon the U.S. to attempt to shape the way
things hit the bottom and how it all shakes out afterward.

The time in between now and the final reckoning will not be a
pretty picture as the U.S. Government may resort to severe emergency
economic powers as granted in the International Economic Emergency
Powers Act (IEEPA). The IEEPA grants the President with the authority
to act as an irrepressible dictator with the powers to seize assets, freeze
accounts, and confiscate any natural resources deemed to be in the
national interest.

It may be perceived to be in the national interest to confiscate all
gold lying within the national borders. This would include the stored
deposits of foreign holders of gold, if they are stored within the U.S.,
such as those held in the vaults at the Federal Reserve. As the greatest
amount of physical gold is currently held inside the borders of the
United States, doing so would position the U.S. to dictate the new global
precious metal reserve standards, and shape the international currency
again as it had in the past.

When the dust finally settles, a new U.S. currency, as well as all
currencies that had formerly been tied to nothing but the US Dollar, will
be re-issued in silver and gold, or at least will be some form of currency
that is directly redeemable in silver or gold.

It may not necessarily be a U.S. currency at all. That may come as a
shock to Americans, but it is not even a strange concept for people in
many other countries. Those outside of the U.S. that up to the present
have been used to trading in USD’s are quite familiar with the concept.
In the Philippines, for example it is difficult to find an establishment that
will not take, and up to just recently, prefer to take US Dollars over
Philippine Pesos. It may be a natural progression that transactions
around the world, including even in the U.S., begin to be negotiated in a
stable metal–backed currency. The shoe may soon be on the other
foot.

The sheep led to slaughter who for whatever reason can’t wake up
to the truth, will see hard times. Those who position themselves to take
advantage of the monumental trend we are now coming into will
prosper. All cycles and trends have winners and losers. This is the
grand-daddy of all trends in history and billions of people will not know
what hit them but the few who took interest in the world that
surrounds them and how it works and who prepared for the change will
ride the wave of fortune. We will see mass wealth transferred from the
paper/digital domain into the resource/tangible domain. Honest money
is coming, are you prepared?


Tags: , , , , , , , ,

Leave a Reply