Posted on 10/05/2008 6:52:37 PM PDT by Lazamataz
We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars.
Investors will learn today whether the Paulson bail-out - fattened to $850bn (£480bn) by Congress - can begin to halt the death spiral in the credit system. So far, the response looks terrible.
Germany is now in the hot seat. The collapse of a rescue deal for Hypo Real Estate on Saturday threatens a €400bn (£311bn) bankruptcy that nearly matches the Lehman Brothers debacle for sheer scale.
Chancellor Angela Merkel has been forced to pull her head out of the sand, guaranteeing all German savings, a day after she rebuked Ireland for doing much the same thing. Reality intrudes.
During the past week, we have tipped over the edge, into the middle of the abyss. Systemic collapse is in full train. The Netherlands has just rushed through a second, more sweeping nationalisation of Fortis. Ireland and Greece have had to rescue all their banks. Iceland is facing an Argentine denouement.
The US commercial paper market is closed. It shrank $95bn last week, and has lost $208bn in three weeks. The interbank lending market has seized up. There are almost no bids. It is a ghost market. Healthy companies cannot roll over debt. Some will have to sack staff today to stave off default.
As the unflappable Warren Buffett puts it, the credit freeze is “sucking blood” out of the economy. “In my adult lifetime, I don’t think I’ve ever seen people as fearful,” he said. We are fast approaching the point of no return. The only way out of this calamitous descent is “shock and awe” on a global scale, .....
(Excerpt) Read more at telegraph.co.uk ...
Our current situation began during World War 2, adopting a new and untested economic model different from the well known and understood economic model before it.
The essence of the new model was easy credit at all levels. The US government began doing it, followed by the rebuilt European governments. Unfortunately, it was a flawed model, in that it contained open ended debt growth. Eventually it had to come to an end.
This odd notion defied the old rule of credit, that “you can only have a loan if you don’t need it.” Instead, at all levels, there was a reliance on three things: even increasing debt, growth and inflation.
Everyone would go into debt far deeper than their savings. They would use that debt to grow their budget, and at the national level, inflation would favor debtors. So, even today, you take out a student loan, that gives you an education so you can make more money, so you can pay back your student loan.
The first signs of problems with the idea happened in the 1960s, when the public became aware of the US governments rapidly expanding national debt, borrowing money far beyond tax revenues to pay for programs beyond our national means. And once made, there was no effort at justification, paying off these debts.
And now our national debt stands at 9.7 Trillion dollars.
Importantly, even today, the only two tools that worked when easy credit was threatened, growth and inflation, both involved spending even more money. Creating even more debt. But finally, now that the system has been pushed to the limit, there *is* no more credit to raise the national debt.
Had it been limited to just the US government, who knows how long the system would have gone without running out of credit. But largely unregulated leverage securities, called derivatives, turned a chronic problem into an acute problem. Their debt is over 130 Trillion dollars. And it is just one market out of many caught up in this problem.
This means that there is only one real solution: it is time to stop making new debt at all levels. The US government must stop spending more than the tax revenues it brings in.
But it is worse than that. The rapidly contracting economy is going to give much lower tax revenues in the coming year. Perhaps double digit lower tax revenues. And worse still, even if large parts of the government are shut down, which now seems almost inevitable, a balanced budget will not be enough. If the government hopes to improve the situation, it will need hundreds of billions of dollars surplus money in the budget to put into the economy.
And this is not just the US government, but many other governments around the world face the same dilemma.
Right now, the last gasp of the old system is found in corporations hoarding their money so they can continue operating, without any need for outside credit. The only place they think they can trust to put this cash is in US government Treasury bills.
But this was the way the US government got so deeply in debt in the first place. There is already something of a countdown to how long the US government can continue spending money in gross amounts before it can no longer pay back these Treasury bills. National bankruptcy.
That is, most of the corporations hoarding money instead of loaning it to other corporations, are putting it into T-bills. But soon, there will be little money left to borrow from these corporations. And when there are no more creditors, the US government goes bankrupt.
So what happens then? The national budget is instantly balanced, because they will not have one dollar over tax revenues to spend. If there is no more money, federal employees don’t get paid, federal money doesn’t go to the States, Social Security, Medicare and Medicaid checks don’t go out.
Parts of the government have to shut down so that their budgets can be transferred to essential parts of the government. Pending contracts are canceled.
Corporations that put their liquidity into T-bills will have no cash. Those that just hung on to their liquidity will still be operational, but there will be profound deflation, so there will be almost nobody to buy what these corporations make.
If the government is wise, its #1 priority will be to insure that Americans have shelter and food. Then the process will begin of restoring an old-style restricted credit economy. At the individual level this will mean that your wealth is based not on your credit, but on your savings and cash in hand.
And “you can only have a loan if you don’t need it.” That is, if you can put up a little more than 100% collateral, carefully appraised for value, then you can have a loan to that amount.
I will add that despite the suggestion of the article, gold bars will be fairly useless, as they will not be redeemable for anything else.
Hopefully, it will not come to this, or if it does, it will be mitigated by taking years to come about, during which time gradual adjustments can be made to reduce its impact.
Greedy liars took great risks for high payoffs and lost. When they lost, they wanted someone to cover their bets.
It'll probably work for a short period of time - but we can't cover all the stupid bets placed around the world. Probably can't cover all the ones placed here...
I asked the nice teller what the lower limit was on cash withdrawals that required this extra hassle.
She said sweetly, “I'm sorry sir, but we are not at liberty to divulge that information.”
That was about 3 years ago. I can only imagine what it'll be like tomorrow.
Street price here is spot plus $1-3 depending on the day and previous movements.
Yeah, 5,000 years of recorded human history don’t mean squat.
Anything not invented after 1900 or so just don’t mean nothing.
“Gold is not useful for much beyond fillings and jewelry.”
The use of the item is not at issue. The issue is the ability to create it out of thin air like we do with the dollar and its resulting credit. Gold is still rare and takes tremendous effort to mine it. It cannot be created arbitrarily nor destroyed so easily. It is also rarely consumed by industrial processes. That makes it an excellent buffer against manipulation and for holding wealth.
That’s for silver? About a 10 to 30% commission over spot?
BTTT !
From Vanguard, regarding my money market fund which is asterisked as “Unavailable”:
Unavailable shares detail
Purchases by personal check, a check written on a Vanguard® account, a cashier’s check, an IRS-certified check, or electronic bank transfer are subject to a 10-calendar-day hold. You cannot redeem shares subject to the hold, but you may exchange them to another identically registered account.
Recently purchased shares of your linked money market fund may not be immediately available to pay for transactions in your Vanguard Brokerage Services® (VBS®) account. VBS may restrict your ability to trade in your brokerage account until the linked money market fund collects payment for recent purchases into that fund.
Well I've a very longstanding relationship with this person, so I paid 1.50 an oz over spot.
He did have a couple of Krugerands left and told me that the premium on those was 1.75 TIMES spot. That's frigging outrageous.
His posted price on Prospectors (silver 1 oz round) was 2 times spot, and that's if he had any which he didn't.
So that would put the cash in hand price on silver at around 22 bucks an ounce. That's just crazy. I don't know how much that helps. A price on something the dealer doesn't have ain't worth much.
My data is good as of Friday. Sorry I can't be of more help.
L
Who is Bob Brinker ?
Cancelled my scheduled TDY for this week.
Yep. That is if you can even get it. Almost all the street bullion has been taken. My dealer buys it at a price and must sell it at that price, which the prices have fluctuated so much that they could be way down the day I go in so there is the premium. There is a serious disconnect between market price and street availability.
Just 18 months ago I could buy at spot any day for any number of ounces in any form, but not any longer. It simply isn’t available.
WOW! Physical PMs are drying up, while the make-believe paper PMs on the COMEX are dropping. Something is seriously wrong here!
I stopped buying PMs about 3 years ago, and at that time gold was something like 4% over that day’s spot price. I forget what it was for silver, about the same or a little higher.
Surprising that the same thing happening in Europe. At least, with America, the population is growing so there’s a reason for the expansion of the housing supply. But with Europe, the population is declining throughout the continent so how can a bubble exist in the first place?
Same here in Mobile. No gold or silver for sale anywhere.
Should Obama get elected, we face a total global financial collapse within hours.
All the big investors are well aware that Obama is vaporware, and they will hold onto their wealth and say ‘tough’ to everyone else until the people have all surrendered their stock for next to nothing. They will of course have made a foolish mistake, and those that have bought their shares will own it all.
Do not under any circumstances sell into a rapidly falling market; buy if you can.
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