by Jeff Berwick: It’s
All Been Done Before
The most surprising
thing about the recent downgrading of nine Eurozone countries by
S&P is that anyone is surprised to hear that the government
debt of any of these countries is risky!
From the Financial
debt crisis returned with a vengeance on Friday as Standard
& Poor’s, the credit rating agency, downgraded France
and Austria – two of the currency zone’s six triple
A rated countries – as well as seven nations not in that
top tier, among them Italy and Spain.
under political fire since it announced a review or eurozone debt
in December, gave 14 of 16 countries – including France,
Italy and Spain – a negative outlook, which it said meant
a one-in-three chance for each country of a further downgrade
this year or next.
It seems as
though it is only a matter of time before they each fall to bankruptcy,
no matter how many bailouts they can muster. It’s almost enough
to make us change our logo. But, we’ve always said the euro would
fall before the US dollar. The dollar will be the last in what will
be a crescendo of currency collapse.
What the students
of the Austrian School (aka real economics) have understood since
the turn of the 20th century was that this was the inevitable result
of the pursuit of the socialist utopia where humans would not have
a worry in the world, cared for from cradle to grave by the all-knowing
Welfare/Warfare state was born in the in late nineteenth-century
Imperial Germany under Chancellor Otto von Bismarck – his intention
was clear from the outset:
idea was to bribe the working classes, or shall I say, to win
them over, to regard the state as a social institution existing
for their sake and interested in their welfare.”
Bet you never
saw that quote in your government-run schoolbooks. Frideric Howe,
an admirer of the german system wrote that under the system, “The
individual exists for the state, not the state for the individual.”
We are now
witnessing the end result of the institutions of bribery and theft
that swept the rest of the world in the first half of the 20th century.
The most extreme
version of socialism implemented under the murderous Soviets collapsed
under its own corrupt weight over 20 years ago. Now the “Social
Democratic” states of the west that thought they could find
a third way with their middle of the road policies are discovering
that the corruption of socialism has eaten away at their foundations
engineers wished to control life, tame the markets and create a
predictable, ordered society, directed by enlightened bureaucrats.
They wanted to put in place what Marx called the "anarchy of
production" the exclusive monopoly of the state.
are coming home to roost. And what unrest we have seen is only a
taste of the real turmoil to come when the pampered children of
the nanny state realize they will have to put food on their plates.
Of course the
ratings agencies aren’t telling the whole story. They suffer
from the same fatal conceit that Central Bankers do – namely
that a central planning agency can steer the actions of hundreds
of millions of individuals to a predetermined goal. These are the
same agencies that had rated subprime paper as AAA right up to the
moment they weren’t, and they do the same now for sovereign
debt. It shouldn’t be AAA or AA… it should be an F for
all the PIIGS, France, the UK, Japan and the US…. just to name
The US Government
has created a cartel of rating agencies. It officially recognizes
S&P, along with Moody’s and Fitch, as Nationally Recognized
Statistical Rating Organizations (NRSRO’s) and, moreover, requires
financial institutions to constrain the riskiness of their portfolios
in line with the assessments of those agencies. They have created
an oligopoly controlling the financial future of entire countries.
So it is not unthinkable that the US Government would use the S&P
as a weapon to destabilize an economic region. In fact, the “shock
and awe” approach of downgrading nine countries at once has
the US Government’s fingerprints all over it. The US Military
has been “war gaming” financial scenarios under its “Unified
Quest 2011” codename and it would be no surprise that the
recent attack on the Euro nations came out of this unit.
War has now
gone financial and the US is trying to protect its dollar imperialism
that supports the Federal Reserve Note at the expense of the world.
A rare hero
does sometimes emerge from the financial megamonstrosity that dares
to call itself “capitalism”. Devan Sharma, former head
of S&P stood up to the beast this summer and downgraded the
US Government’s credit rating. He was axed days later amongst
irony, coinciding with this latest European downgrade, the US has
AGAIN bumped up against its debt ceiling. The constant drumbeat
of the Eurozone crisis acts as a nice diversion from the true state
of US finances.
The US Government,
when accounted for by GAAP accounting, has a deficit of $4-5 trillion
per year. The US has a deficit nearly equivalent to the value of
all the gold in the world ($8 trillion) every single year. That
fact alone should tell you that the future value of gold will be
far higher than it is today as the worth-less US dollar floods the
global marketplace. A GAAP deficit of $4-5 trillion/year makes for
about $13 billion per day more than the state can squeeze from its
helpless victims. Ignoring for the moment that the gold in Ft. Knox
has not been audited in more than fifty years and that the U.S.
government has again changed the way it describes its gold
from “gold reserves” to “gold and gold-swaps”
with NO break-down on how much gold has been “swapped”
(i.e. lent to a 3rd party), and how much gold the U.S. government
actually “possesses”. If we were trust the government’s
numbers the total amount of gold in Ft Knox is worth $235 billion
(147 million ounces x $1600). At current rate of expenditures, the
US Government would be spending the total amount of gold held in
Ft. Knox every 18 days, in DEFICIT spending (not even total spending)
DAY OF THE
We now inhabit
not a land of zombie banks, but zombie states. This is the financial
system of the walking dead. Governments, in their current form,
will not exist in the very near future… and neither will their
currencies… not in this form (it will all-out collapse or massive
devaluation and at least a gold backing) very soon. That’s
why we pay little attention to these sideshows – the US Government
and its witches coven of Ratings Agencies playing chicken with the
Eurozone, upping the ante to push the Euro over the edge and squeeze
a few more years into the US dollar as the world reserve currency.
a game of emperor has no clothes at this point… and the emperor
might as well be Ron Jeremy. If you allow yourself to get caught
up in the parade and circuses of it all you might get fooled into
believing this system is sustainable.
times such as these, you don’t want to own any paper assets:
government bonds or fiat currencies. If you are holding stocks,
be sure your stock certificates are registered in your name (you
can do this by following the process denoted at TDV’s BulletProof
Shares) and geopolitically diversify your assets and your life,
as much as possible.
truly has no clothes. Western banks and nation-states are walking
dead. While the rest of the chattering classes go on about his fine,
silk garments and don’t notice he’s been dead for years, rearrange
your affairs behind the scenes. Because once they all realize he
has no clothes, that’s when things will really get interesting.
with permission from The
Berwick [send him mail]
is an anarcho-capitalist freedom fighter and Chief Editor of the
libertarian, Austrian economics grounded newsletter, The
Dollar Vigilante. The Dollar Vigilante focuses on strategies,
investments and expatriation opportunities to survive & prosper
during and after the US dollar collapse.