by David Galland: An
American Concept: CrushingDebt
I had more time, I would occasionally play Oblivion, a video game.
A game so addictive, it’s been known to contribute to flunking
out of colleges and the failure of marriages.
in a sword fight, your computerized opponents were prone to angrily
muttering the phrase “Why won’t you die, damn it!”
pops to mind as I watch the global stock market continue to get
hammered, as gold continues to battle the headwinds with impressive
So why won’t
the damn crisis just die – and with it, gold?
my intention to rehash the details of the events leading so many
economies to this challenging place. Instead, I’ll cut right
to the chase by stating my firm opinion that the reason this crisis
is so persistent – why it won’t die anytime soon, and
not without a lot of thrashing about – has to do with the debt
at its core.
I was trying to explain the situation in terms appropriate to my
son’s 13-year-old mind. I put it something like this…
you made $12,000 a year working as a counter clerk at the local
pizza parlor. Then imagine you had foolishly run up $12,000 in credit
card debt, the proceeds of which you had frittered away on consumables
that contribute in no substantive way to creating future wealth.
someone was foolish enough to continue lending you money, so that
you were able to spend approximately 40% over the amount you earned
– or $16,800 in total, some percentage of which was the interest
you were paying on your overhanging credit card debt.
set-up, I asked, how could you possibly pay off your debt?
better job?” He responded.
A good answer,
out of the metaphor to the actual players in this drama, the indebted
nation-states, how do they get the equivalent of a “better
job?” Which is to say, raise revenue?
Only one way,
really. And that is to raise taxes. But taxes can only be raised
so far before they hit a wall beyond which people simply won’t,
or can’t, pay them. And raising taxes by a sufficient amount
to count, in the teeth of an epic downturn, will only further hobble
For the time
being, thanks to all sorts of machinations, the U.S. Treasury is
finding lenders willing to buy its debt and keep things afloat.
But now jump
back to the pizza counter help and imagine what would happen to
his or her finances if (a) the foolish lenders wised up and refused
to keep trading good money in exchange for highly suspect IOUs backed
by nothing… while simultaneously, (b) the credit card company
bumped the interest rate on the debt outstanding from 3% to 10%?
In a nutshell,
this is the current set-up of things. While the specifics will vary
depending on whether it is the flag of Greece, Spain, Portugal,
the UK, the U.S., Japan, etc., which flies over the home turf, the
fundamental realities of this being a debt crisis are immutable.
And, as the
EU is now learning, intractable. Which is to say, the only way that
this crisis will die is if the debt can be reduced to a manageable
Given the sheer
scale of the debt problem, all the easy ways for that reduction
to occur have long ago packed up and left town.
At this point,
any real solution will likely involve all of the following:
investors being wiped out, or at least suffering serious losses.
Tough luck, a non-bond investor might be tempted to think. But before
you do, make sure you checked the prospectuses of your money market
funds and the paper being held in great piles in the financial institutions
where you currently park your money.
Why pay back $1.00, when you can pay back 50 cents?
3) A wholesale
canceling of contracts. Okay, so you thought you were going
to collect Social Security in your declining years – think
again. And that nice government pension? Oops.
taxes across the board. Congress is getting ready to quadruple
the federal tax on oil. And the imposition of a VAT in the U.S.
is a near certainty, albeit with all manner of politically convenient
but ineffective provisions to make it look like the Democrats aren’t
breaking their pledge to not raise taxes on the middle class.
defaults on sovereign paper. Like the indebted pizza jockey,
once it begins to be hard to find lenders, and those that you can
find are only willing to lend at much steeper rate, all that is
left to you is to borrow enough gas to drive down to the nearest
office of Dewey, Cheatem & Howe and start the process to declare
In other words,
this crisis is not going to go quietly to its dirt nap. Instead,
the end will almost certainly be akin to a Viking funeral with the
political equivalent of rape followed by a raging fire on a sinking
ship. Riots in the street and a serious degradation in the quality
of life of the majority of the citizenry are all but inevitable,
followed by a sea change in the political landscape.
Then, and only
then, can the world get back to the business of forgetting the lessons
learned in order to repeat the cycle all over again.
As for gold,
the fact that it has refused to die as the world’s only reliable
form of money over the last seven millennia should give you the
confidence to include it in your portfolio at today’s purportedly
the editor of Casey’s
Gold and Resource Report, has been saying it for years:
Buy physical gold and silver. And if you want even greater gains,
invest in solid, undervalued gold producers that can provide leverage
of up to 4:1 to gold itself. Read
more in our report, here.
is the managing editor of Casey