The world’s banking system (which is the western banking system) has the same problems that existed before the collapse in 2008, with two exceptions: 1) The problems are much larger; and 2) They have been shifted to the public. Since 2008, the Fed has loaded up on all sorts of “toxic debt”, including Fannie & Freddie (MBS), FHA, US Treasuries ($900B) and many more. Newly issued US debt ($2T annual deficit) is being purchased/monetized by the Fed and those holdings along with all the previously mentioned toxins are now backed by the US Treasury. As of October 20, 2010 the Fed’s balance sheet exceeded $2.3 trillion ($832b in Treasury debt). What’s the Fed’s plan to manage this liability in the event of a dollar collapse? Suffices to say, the US citizen is now the largest debtor in the history of the world.
Who’s Holding the Bag?
The Bernanke recently stated publically that: “Under a scenario in which short-term interest rates rise very significantly, it’s possible that there might come a period where we don’t remit anything to the Treasury for a couple of years. That would be I think a worst-case scenario.” You need to understand that all of the Treasuries purchased by the Fed will soon be ‘under-water’ which would result in the Fed being insolvent. This new twist allows the Fed to pass losses to the Treasury via interest payments (or lack of) on the US Treasury Bonds (i.e., paid by the US citizens). In simple terms, the US citizens are now the holders (back-stop) for the massive amounts of debt, debt that CANNOT be paid under any circumstance. That means the next insolvency crisis, which is a certainty, will be one of a sovereign nature. This fact changes significantly how the markets will react.
What Ignites the Next Blaze?
The potential list is long, so I’ll mention only a few. All of these things could happen in the next couple years, the first of which will start a fire the likes of which we’ve never witnessed. It could be US municipal defaults, policy shifts from the Chinese, a EU crisis, or an expanded war in the Middle East. I could go into detail about the crisis-solution agenda, but I’ll leave that for another day.
The US Market
QE2 is set to expire in June 2011 and The US Congress will need to address the debt ceiling by March. Expect the debt ceiling to be revised up in the near future and QE3 will probably be masked under a different name, but make no mistake, it’ll be money printing all the same. My understanding is that the banking system intends to continue increasing credit/debt throughout the world.
Through the next month or two (through Feb) we’ll likely see a continued rise in commodities and US equities. Picking a line in the sand is tricky business though, so making preparations now is prudent. As food and energy prices rise, nations will feel the sting of money printing (already happening). This will only increase the number of civil protests (RIOTS). Developing nations will feel the brunt of higher inflation, which will lead to various measures to control price increases (e.g., Russia’s recent announcement of food controls or COMEX margin hikes). The increased costs of commodities will be a drag on the world’s economy as well as the attempted policies to control the rise. As a result, I expect significant volatility throughout 2011. The global slowdown will lead to a drop in US markets by the middle of the year, giving the Fed impetus for more money printing. For anyone still expecting a return to ‘normal’, 2011 will be a wake-up call.
Beyond 2011
Similar to the “Choose-Your-Own-Ending” books (remember those?), the Fed has gone too far down the easing path to save the USD as it exists today. In the short-term, the USD is still being managed by the Fed, but this is only a temporary mirage. For the sake of this article, let’s assume they try (though highly unlikely) to restore confidence in the USD. The Fed could allow the bad debt to default (written off). As defaults rage the USD would skyrocket, due to massive liquidations and to a lesser extent, the safety trade. However, as a result of massive defaults, US banks would immediately be unable to honor deposits. Of course, the government could “back stop”/guarantee all the banks, but then we’re back into easing which puts the currency at risk. In addition to the banking collapse, The Fed and US Treasury (as the Fed’s back-stop) would default. Since this would be a sovereign default, and the USD is stock of that sovereign entity, the USD would collapse. There is one possibility in reviving the USD, albeit under a new/old system. That new system would require a huge revaluation in US gold holdings to be used as backing for the new USD. Jim Rickards has done some good work on the process and price of gold to make it a reality. Whether this happens or not remains to be seen.
As we work through this crisis, there will be a combination of defaults and austerity. Pensions will be slashed, state assets will be sold to the highest bidder (at massively undervalued prices), while new and existing taxes are imposed on the citizenry. Government services will be slashed and newly privatized assets will increase all types of expenses – things like water, energy and transportation. See the IMF blueprint for how this works, or ask an Argentine.
Civil unrest will increase dramatically, in places never before expected. Tensions between nations will rise and war will inevitably breakout throughout the globe. Sound gloomy? This too shall pass.
What to do?
If you have wealth to protect, a minimum of 30% should be held in gold, silver or productive land. I do not advocate 100% into PMs. Although the outcome of the USD is abundantly clear, current laws enforce the USD which should be held for expenses, emergencies, purchases and so forth. Rather, I suggest 30% be stored in physical gold and silver, 30% in cash and 30% in growth. Within the growth category you will have many paper options and should look to exceed the rate of inflation. As a further precaution, it’s advantageous to hold assets and citizenship outside of your primary residence.
The issues we face today are extremely complex and although the outcome appears certain, the specific events and timeline are impossible to predict. By maintaining a sound portfolio, you will afford yourself the most protection against a variety of financial outcomes.
Non-Financial
You should have water and food stocks along with necessary supplies, such as water filters, alternative heat sources, community networks and other essentials for surviving disasters. In all likelihood, systems will continue to function, but on a temporary basis, these items will keep you comfortable (relatively).
Learn who you are and what’s important to you. Find the meaning of your existence and strive to fulfill your purpose. Live in harmony with your surroundings and community. Love God and men. Don’t follow any institution and think for yourself. When making charitable donations, give them personally. I advise reading the bible (KJV), starting with the New Testament. Most importantly promote and vigorously protect freewill. If the Euro crashes, reduce USD positions!
~david freedom
david@thevictoryreport.org
The other day I reported on a Hollywood Reporter story about how Uwe Boll is filing a lawsuit against the Berlin Film Festival over the matter of the fest's differing requirements when it comes to the 125 euro ($170) entrance fee. The man himself then shot me off an email to clarify that his lawsuit is about more than him and a petty sum of money.
Here's what Boll had to say (I cleaned up his English a little):
"If you read the guidlines to the festival it is clearly stated that everybody must pay the 125 euro or you cannot run in the festival. So what the festival says is in fact untrue. Because the (fest) director (Dieter) Kosslick waived the entry fee for a lot of movies he breached the rules and I and thousands of other filmmakers have the right to get their 125 euros back. We are talking millions of dollars."
Basically, he's fighting not just for himself. He's fighting for every filmmaker that has ever had to pay the entrance fee and believes every last one of them should be issued a refund because the Berlin Film Festival's entire financial set-up is corrupt.
Boll then forwarded me a German article that details the lawsuit from his perspective better clarifying what exactly this is all about. Here's the link to the full length article. I think these selected paragraphs pretty much get to the heart of the matter.
"Now he raises new, serious allegations against the head of the Berlinale. “I raise this criminal complaint representatively for all the umpteen thousand candidates who pay the 125€ film admission fee from their pockets and think they’d have a fair chance - but in reality do not”, says Boll to “Welt Online”. “The whole pay system is just there to rob the small directors so that the Berlinale can cover its expenses.”
"He’s also meaning the trips abroad of the festival chief and his employees on which they watch films, which they consider interesting for the Berlinale. By his own statement Kosslick won the US western “True Grit” of director brothers Joel and Ethan Coen, which got nominated for 10 Oscars, for the Berlinale on one of these travels abroad. Boll: “A film, which I could have gotten for the Berlinale with an email, because it is showed in US cinemas for two months now and badly needs publicity in Germany! You don’t have to travel for something like that!”
But Boll is also talking about other trips. Kosslick is said to have told “Focus” about a visit of actress Cate Blanchett: “We know each other quite well now and became friends, I’ve even visited her and her family last year in Australia!” Boll to that: “So, guess who’s paid for that? Hopefully not the tax payer.”
Boll is sure that this way Dieter Kosslick is on up to 20 trips per year. “Of course always with the justification of having to screen films and meet people. If he was seeing the films which got handed in for the fee of 125€, he would not have to be out making sure the world is round indeed”, says Boll."
Expect to hear more about this lawsuit in the weeks to come.
- The Foywonder
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Submitted by Foywonder on Sun, 02/13/2011 - 9:13pm.
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