The world's monetary and financial system is flat assed broke!

From Bill Holder for GATA on Oct. 25They can't see it?


To all; as the title implies, I just don't understand how ANYONE "can't see it". "It" being the most blatant and obvious fact that the world's monetary and financial system is flat assed broke! Europe is absolute toast, fair value on Greek bonds is less than 50% of par value and everyone knows it. Their banks are insolvent even without any haircut from Greek holdings and everyone knows this. Italy, Portugal and Spain are all beyond fiscal sanity or repair and this also passes as common knowledge. The real estate markets are deflating across Europe (and the entire globe) after previously being blown to huge overvaluation levels with the help (prodding) of European banks and this is also widely known. The European Central Bank does not have enough money, muscle, options (or even competent leaders it seems) to even flatten out the path much less pull out of it's nosedive and even mainstream media is reporting on this. If you add these "well knowns" together then you can logically make the leap that the Euro currency is done, it's life ended and will be replaced.
Then you "cross the pond" to the U.S.A. and guess what? Same thing! The banks are insolvent if they actually marked assets to market, everyone knows this.


Municipalities and States are fiscal beggars on their way to bankruptcy courts and this is already widely known and visible in the last couple of weeks with the first actual filings. Next you turn your eyes to Uncle Sam and his finances, yep another deadbeat here and even the "hometeam" rating's services have taken notice of this. You could do a poll from any inner city to remote corner of the country and EVERYONE knows deep down that the U.S. is financially (and morally) broke beyond any repair. EVERYONE knowa that EVERYTHING is broke, busted and insolvent!


So what is my point? My point is this, THIS is how every financial panic in all of history has happened. THIS is how the children's tale of "The King with no clothes" was penned. So if everyone knows that everything is broke then why do hear on CNBC et al that "we can work our way through this and muddle along"? Because as Jack Nicholson said in A Few Good Men, "you can't handle the truth!". This has to be it. I cannot think of anything else because to me it has been MORE THAN obvious for quite some time. I have heard plumbers, farmers, bankers, real estate agents, city workers, you name it, tell me that "the government is broke" yet when I ask "what are you doing about it?", they say, Ï have my money in an FDIC insured bank account". Yes, some are now getting around to buying some physical Gold and Silver but mostly because "they are going up". The point is this, people "know" but they just can't make the leap to acting on what they know.


I believe that this phenomenon along with "you can't handle the truth" is a function of very long term brainwashing and "false education", it must be. Using ANY logic at all would lead you to "pull" as much of your investable assets OUT of the system. "Out" meaning out and away from the obvious damage that the broken fiat system will inflict. "OUT" meaning into physical metals and assets, OUT meaning into the companies that produce these physical metals and assets. To me, it is so, so sad to see people who have worked, lived and saved their entire lives within this fiat system like "good little boys and girls", about to get completely wiped out. When I say "wiped out", I mean penniless!


Think about it, everything, and I do mean EVERYTHING within the current fiat, paper, fraudulent system is going to be valued at what it is truly worth...ZERO. If you can wrap your head around this (admit it to yourself), you can act accordingly. The day is coming when EVERYTHING "paper" is going to stop. Banks will not open, credit cards not function, (I believe physical Dollars will actually spend for anywhere from 2-10 days until they too become unacceptable) and the entire system will sieze up and into a barter society until a NEW and "acceptable" (from a confidence standpoint) is issued and circulated.


We are very, very close as there are now calls for a new "World Central Bank". This has been floated in recent days by none other that The Vatican. I do not want to get into religion here, I bring this up because there is very credible evidence that The Vatican accumulated massive amounts of Gold during and especially toward the end of WWII. It is possible that they are actually the largest holders of Gold in the world. I mention this because any new currency MUST have some tie to Gold and the limited Gold that is above ground MUST be revalued higher as there is not enough at current prices to support a 7 Billion person global economy...but I digressed didn't I? Long story short... how can anyone not see what is about to happen? The whole fiat episode is like your crazy Aunt in the basement, everyone knows she is there but no one is willing to talk about it. Those who do are branded as crazy and no one wants to believe it anyway. Regards, Bill H. P.S. maybe there are a few more investors who "do see it", Gold is up nearly 3% today and thus violating it's decade+ long 2% collar!


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We Are Witnessing The Death of the Dollar

What do you get when the producer of the world's reserve currency takes on too much debt? Nothing less than the end of the US Treasury-based monetary system.

So says Eric Jansen, economic and financial market analyst and proprietor of iTulip.com. In chronicling the decline of the global economy over the past decade, Eric has formulated a framework called the "Ka-POOM" theory, which endeavors to understand how the immense run-up in global debt will be resolved.

In short, it looks at the credit bubble that began in the early 1980's, started accelerating in 1995, and has now reached epic proportions. The amounts are so staggering at this stage that Eric believes it is too politically undesirable to let natural market adjustments clear them away -- the magnitude of the deflationary pain this would create is simply unacceptable for politicians looking to get re-elected. The only other available option is to service these debts via a dramatically devalued currency. Hence the key role the Fed is playing today.

The Fed is at the epicenter of this process, intervening heavily to keep the natural corrective market forces at bay. In this, it has a dual strategy. The first is to keep asset prices high (i.e., fight asset deflation), which it is doing by keeping interest rates historically low. The second is to keep wage and commodity costs under control, which it primarily does via devaluing the currency (maintaining a "weak dollar").

And, of course, through its intervention, the Fed is doing all it can to keep the current financial system in place to perpetuate the process for as long as possible. The end result is a fundamental shift in risk from Wall Street to the taxpayer.

So the big question is: How long can this last?  Is there a point at which confidence in the system breaks and market forces finally overwhelm the intervention?

Eric's answers: "Much longer than most people expect." And "Yes."

First off, as the most important central bank in the world, the Fed has supernormal powers. In theory, it can expand its balance sheet infinitely. Its ability to absorb massive amounts of new liabilities is theoretically limitless, much of which can be easily concealed from an accounting standpoint.

And since the US is both the world's largest economy, as well as the provider of its reserve currency, other countries are compelled to support the current regime. A mortal crack-up in the US economy would deliver undue pain to all its trading partners, so they continue to buy Treasuries in sufficient amount to fund US economic activity.

But that's not to say they're happy about it. And here's where attention should be paid (and where the importance of gold comes in).

For much of the past century, the United States comprised approximately 54-58% of the global economy. Today, its share has shrunk down to about 18%, meaning its relative importance to the global system has diminished.

Issuing the world's reserve currency is a privilege that must be continually earned through transparency and sound stewardship -- qualities the US has flagrantly lacked in the past several decades as it has been blowing asset bubbles and running trillion-dollar deficits, via incurring massive debts and increasing its money supply tremendously. So, even as they continue to support the current Treasury-backed monetary regime, the world's central banks have begun hedging their exposure.

After several decades of being net sellers, the world's central banks became net buyers of gold in the second quarter of 2009. As Eric puts it:

There was no Plan B in the global monetary system when it switched over to the US dollar reserve basis for global monetary reserves. The only fallback is gold, gold is the only reserve asset that central banks hold other than dollars, and to some extent euros, but it is mostly gold. So gold is the fallback. So what I thought was going to happen is that over time, gradually, that there would be an increase at some point in gold holdings by central banks as they hedged the marginal increase and the number of Treasury bonds that they needed to hold as a result of conducting trade with the US and also simply maintaining the US economy through low interest rates and providing sufficient investment to continue to offer the US government.

So what is very interesting to me is [that] starting in the second quarter of 2009, right after the financial crisis, is when global central banks became net buyers of gold, which to me indicated that they had as a group, determined that it was time to more seriously hedge their dollar assets, even as they continue to buy Treasury bonds to increase their hedging.

Before that, there were effectively two teams: There were the buyers, who were countries like India and Russia and China, and the sellers, which are most of your European countries. And that structure of the gold market occurred and was maintained until the second quarter of 2009, and it shifted to a much broader base increase in the number of governments participating in the gold market, including Saudi Arabia, Mexico, and other allies of the United States.

Eric sees this move by central banks, of positioning themselves closer to the door, as a natural step to the inevitable endgame here, which is the dissolution of the US Treasury dollar-based monetary system. Due to entrenched special interests, politics, escalating commodity scarcity, and other factors, he does not see the US taking necessary corrective action before confidence in the solvency of the US and its currency collapses.

As such, Eric advises investors position themselves into gold and assets that take advantage of rising rents and energy prices.

Click the play button below to listen to Chris' interview with Eric Janszen (runtime 43m:46s):

 

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