What Happens When the Great Correction Comes?

April 1st, 2012 → 10:52 pm @ // No Comments

Posted by SilverBombSquad

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

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 rightand 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 hyper-inflation 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 the pattern of ignoring of 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 US, 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 U.S.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 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 agaist the uncertainty of their nations 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-Fail’s 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.

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