Regular readers of my work know that I have been outlining (and warning people about) two potential economic scenarios; as the West's terminally-ill economies lurch towards their final collapse. These hollowed-out, debt-saturated economies would (will) either crash under the weight of their own insolvency; or our governments will create a hyperinflation death-spiral in a last desperate attempt to avoid that bankruptcy event.
While both paths represent utter, economic suicide; the road to ruin is much different in these two scenarios. This has severely limited the investment options and strategies for any prudent investor. Forced not only to u201Cplay defenseu201D with our investing but to prepare for two more-or-less opposite events has made precious metals the one asset class which can protect investors from either of these fates.
I've explained on multiple occasions in the past why precious metals will outperform other asset classes in both a debt-default crash or hyperinflation-spiral scenario. The purpose of this piece is not to repeat that analysis, but rather to point out that as of this moment the u201Ccrashu201D scenario has become not only the most likely scenario, but an imminent event.
For those who have been paying attention recently as the West plummets deeper into Depression and the global economy teeters; the news that came out today was enough to send shivers down one's spine. On a single day we hear that Europe's interest rates have descended closer to the zero-percent graveyard already occupied by Japan and the U.S.; China has slashed its own interest rates again; and the (ridiculously inflated) U.S. u201CISMu201D service sector measurement has reached its lowest level in 2 years.
Each of these news items has dire implications, and so I'll spend a moment dissecting each of them. As I have detailed in past commentaries, any fiat-currency produced at zero cost (i.e. with interest rates set at 0%) is worthless as a basic tautology of logic and arithmetic. There can be no possible debate or equivocation here. Just as with the yen and the USD, the euro now lurches much closer to the same worthless status.
Meanwhile we see China, the growth-engine of the 21st century global economy, again lowering its own interest rates. With China's 1-year deposit rate on the renminbi now set at 3%, while the 1-year lending rate is now at 6%; China's interest rates are still sane (unlike the West) — and it's own paper is not (yet) officially worthless. However, China's latest cut in its interest rates signals another deeply disturbing aspect to the economic carnage created by the reckless/greedy/incompetent Western banking cabal.
What most other economic commentators still totally fail to grasp is that the terminal, economic death-spiral in which virtually all Western economies are now trapped bears absolutely no resemblance to any other deflationary collapse in the limited experience of these pseudo-experts. In a u201Cnormalu201D deflationary episode, by definition the value of the currency in circulation rises. This makes that currency an effective u201Csafe havenu201D.
Similarly, in previous deflationary episodes when our economies were still solvent, bonds also represented a safe haven: loaning money to the most reliable debtors, sovereign governments. Neither of these parameters exists today.
As Western economies accelerate toward their debt-default crash (i.e. bonds going to zero), we see inflation raging all around us (i.e. currencies going to zero). u201COfficialu201D numbers on inflation have become such absurd lies that they are now entirely irrelevant numbers. In the real world, inflation is now a double-digit plague in virtually every economy — and cutting interest rates stokes that inflation still further. Worse, because inflation (by definition) is the destruction of our purchasing power; such crippling inflation causes the collapse of these hollowed-out economies to accelerate. Thus we have a world where inflation and insolvency can and are simultaneously worsening.
While Europe and China are stoking the inflationary side of this economic nightmare with their interest rate cuts, simultaneously we get more terrible news out of the world's great, economic black-hole: the U.S. economy. While absurd statistical lies have transformed the U.S.'s Greater Depression into an u201Ceconomic recoveryu201D for the past 3 years, the short-term benefits of this propaganda campaign come at a terrible price.
Deluded Americans who should have spent the last three years bolstering non-existent savings and paying down their extravagant debts have instead done the opposite: they have stopped saving, while once again piling on more debt which they have no hope of servicing over even the medium term.
As usual, our greatest condemnation must be reserved for the mainstream media, a corporate propaganda machine which is entirely owned by a handful of Oligarchs. To protect the paper-empire of the felonious banking cabal, we have been fed an endless diet of u201Cdon't worry, be happyu201D tripe from the shameless shills employed by these Oligarchs.
News from the U.S. economy has been totally unequivocal, once realistic numbers on inflation are used to translate the economic fiction distributed by the U.S. government. Manufacturing has collapsed. The housing sector remains mired in the worst depression in U.S. history, and saturated with mortgage-fraud there is no prospect of this market healing during our lifetime.
Several months of terrible retail sales numbers are being accompanied by a marked sag in the official readings for the U.S. services sector. With consumption directly or indirectly accounting for well over 80% of the U.S. economy; each percentage-point drop in this sector of the economy translates almost point-for-point into a decline in GDP. While the crippled economies of Europe at least attempted (suicidal) u201Causterityu201D; the U.S. economy is drowning in such extreme levels of debt that its cowardly two-party dictatorship has refused to even attempt to control the exponential explosion in U.S. debt.
The U.S. economy is nothing but a credit card which is past the point of being u201Cmaxed-outu201D. The ludicrous notion that the U.S. can u201Cprintu201D its way out of insolvency is nonsense, for (among many) a reason which I've already provided: the U.S. dollar is already totally worthless. As a basic proposition of arithmetic, worthless paper cannot mitigate insolvency. However trying to do so is how governments produce hyperinflation.
It is the act of attempting to ward-off bankruptcy by printing ever larger mountains of (worthless) paper currency which has always been the catalyst for hyperinflation; as such extreme/reckless conduct shatters the final delusion of the Sheep that this worthless paper actually has value.
The analogy of a government which claims it can ward-off insolvency with a printing-press is a simple one. It is identical to the Deadbeat who assures a creditor that he can u201Cresolveu201D the problem when one of his bad-cheques u201Cbouncesu201D by simply writing another (bad) cheque. It doesn't matter if the Deadbeat writes one more bad-cheque or a million; none of his debts can be reduced, let alone repaid.
So it is with Deadbeat Governments claiming they can u201Cpay their billsu201D by simply printing more and more and more and more paper. It is not a question of u201Cifu201D the Sheep finally and totally reject all of this fiat-paper. The only question which remains is how many months until this occurs?
Understand that during the Panic of the crash which looms ahead of us that it is entirely possible that the (nominal) prices of our precious metals assets (whether bullion or the shares in the miners) could decline still further. This must not deter us, and above all we must not attempt to become u201Ctradersu201D in this extreme/insane environment.
Those (amateur) investors who naively believe they can trade in and out of such markets overlook one, gigantic variable which can (will?) destroy them. As our economies collapse it is inevitable that both our banking system and markets will be forced to shut down — likely for extended periods.
Those who sell their precious metals assets for the bankers' u201Cmagic beansu201D (i.e. fiat paper currencies) risk being caught holding that paper when our banks and markets are closed. By the time the financial system re-opens there is the very real possibility that any/all paper in their possession will no longer have any value whatsoever. Instead of prospering through their trading, such people can/will annihilate themselves financially.
Understand that what looms ahead of us is an economic cataclysm more severe than anything we have even read about in our history books, let alone experienced in our own lives. Understand what it means to u201Cplay defenseu201D, and do so now — before it's too late. Seats still remain in the Financial Lifeboats known as gold and silver, but the Titanic is sinking fast and the party is over.
Reprinted with permission from Silver Gold Bull.
Jeff Nielson is Senior Precious Metals Analyst for SilverGoldBull.com.