Game ON

It is interesting to watch people watch a world-wide financial crisis unfold and take no action whatsoever to protect themselves from what they know is coming and the outcome which is so crystal clear. I am always surprised at how much people are aware of the crises and the issues, yet hope someone else will fix it.

Whenever a discussion arises about the economic malaise arises it quickly evolves into blaming the Republicans and Bush or the Democrats and Obama or the repeal of Glass-Steagall and the political push to expand home ownership under Clinton or Greenspan or Bernanke or Trichet or Hu or (I would name the leader of Japan but it would fill 8 pages to list them all for the last decade). No one takes responsibility themselves or wonders about where the legendary can kicked down the road winds up or what it means for them.

We all know that Greece cannot pay the debts that have been accumulated. Nor can Portugal. Nor can Ireland. Nor can Hungary (which along with Argentina are at the forefront of governments who have seized their citizens pension funds setting a precedent for predatory bureaucrats world-wide). Nor can Spain. Nor can France. Nor can the United States. Nor can Japan.  The reason the debts in Greek have not been restructured is because no one can agree on the percentage that the holders of the debt will accept “voluntarily”. The 50% default agreed upon only drops Greek debt to 120% of GDP from 180%, both levels of which are unsustainable, so the write-down must be much larger to drop to a level where the debt can be paid and the interest as well. A number as high as 70% has been suggested. The catch is that the debt-holders won’t accept it and if the default then becomes involuntary it triggers Credit Default Swaps and other derivatives which then become the responsibility of the parties that underwrote the debt instruments to begin with.

No one will advance Greece any more money (sic!) until this issue has been settled. With huge numbers of Euro coming due in the near future, the cradle of democracy must receive this funding to roll-over the debt and negate the deflationary contractions to the balance sheets of the holders. If you hold the debt, your gamble is that if the “insurance, the hedge, the safety-net” is triggered that the party who sold you the coverage (and collect the premiums for that protection and took it as income) can pay. The reason you would not trigger this clause is because if they cannot your write-off goes to 100%, not limited to whatever number is agreed upon. You have figured out how to live with 50%, more becomes a problem for your balance sheet. You also know the CDS are worthless-the major banks of Germany, France and the UK are holding this debt and HFT hedge funds  bursting in and out trying to make a short-term, highly-leveraged .1% are all players-and add the major US gamblers with customer deposits who hold the vast majority of the $707 trillion in nominal derivatives all trying to squeeze fees and trading profits out of the circumstances on the premise that the US Government, the Fed , the ECB, the Water district of Poughkeepsie will absorb the paper and make them whole (logical, because this is how it has worked so far).

This story will play-out in each of the crises mentioned and more besides which are awaiting their 15 minutes of fame. Each of these stories have their  happy-endings predicated on their economies growing at a faster rate than their interest costs are rising, without adding any new debt or growing the principle amount owed on which the interest can be paid, so that tax revenues (and collections) can increase to reverse the spiral.  Reinhardt and Rogoff have chronicled how this turns out in This Time It’s Different and have shown that the serial defaulters seem to be able to repeat this performance every 30-60 years. The debt  is always “paid” by default.

In Currency Wars, James Rickards has detailed how every government seeks to find growth through exports and how each government than seeks to protect their own markets while seeking access to others. Neither of these brief synopses do justice to the depth, breadth and insights of these two books, which are really essential reading for investors hoping to survive.  An insight repeated frequently in Currency Wars is that when your currency becomes worthless, the assets held in that currency become valueless as well.

Let’s now make you a citizen in Athens, deposits in a Greek bank-the rising tide of sentiment now seems to be that Greece will default, withdraw from the Euro, and reinstitute the drachma-immediately converting all the Euro debts to drachma and “pay off” the debts with the new currency. Your Euros when converted to drachma will have a small fraction of their current purchasing power. Do you just sit there and wait for this to happen? Multiply this by the number of crises and the number of people who will be seeking safe-haven and think about what a safe-haven is in the context of devaluing currencies.

Let’s bring this closer to home-foreign holdings (read primarily China and Japan) of US Treasuries are dropping every month. The supposed safest entity in the world, and an increasingly risky world, and fewer are being held by those who own the most. The debt is being financed by the Federal Reserve and computer blips. China has just worked out deals with Japan so that the trade will be done in yen and renmimbi instead of the Reserve Currency of World, the US Dollar. China has eliminated the dollar in trade with Iran (one of their key oil suppliers). Iran and Russia have eliminated the dollar. The drop in usage for the dollar drops the demand which lowers the value which increases your cost at the gas pump. It also puts and keeps those dollars in circulation.

Other countries that have positive balances of trade, and , consequently, pile up dollars are finding means to protect themselves against the policies, regardless of administration, which lead to a cheaper dollar to get that doubling of exports in 5 years that President Obama is striving for, and diminish the value of their holdings.

Central banks are buying gold..this is all easily documented by country and trends plotted..and buying with increasing frequency and in increasing amounts and buying them with dollars..which puts the dollars back into circulation.

The expansion of the money supply has been astronomical-when the velocity of turnover begins to grow-and it will-because the longer you hold the more you lose in purchasing power, the falsified low-inflation numbers, will explode-and the velocity will increase as people convert to real assets. This will have the effect of doubling, tripling, quadrupling the supply and the rapid loss of its value to the extent that growth exceeds the growth of production. This will seem like it happened overnight.

Rickards has a really interesting matrix showing how when a certain number of people do a certain things, it triggers another group doing the same, which triggers another group, each exponentially larger-think of the housing bubble, the tech stocks in 1999-2000 for real-world experiences. In essence, every one wakes up on the same day with the same conclusion.

Dollars are being dumped for hard assets by central banks and government. All governments have a policy of debasing their currencies for competitive reasons. The velocity of expanding money supplies is going to increase. Everyone will wake up on the same day and want to own precious metals to protect their personal assets. Everyone knows in their heart that this is true.

I can help you own metals…call or email me. I am backed by one of the largest dealers in the country.

John Cox


6 thoughts on “Game ON”

  1. I read your “game on ” article at the 321gold website which pretty much sums up the present global financial situation regarding the gagging debt levels of all governments.

    However I have to put you in the same camp as Peter Schiff. . Your a salesman and a bullion dealer with a heavy bias. Its your job to be an irritant and create an atmosphere of fear so people will buy your products. Just sayin.

    1. Thanks for your comment, Ken. This commentary was also posted on TFmetalsreport and Zero Hedge and received the same positive responses regarding the summation of the global situation. Yes, I do make some income when people buy precious metals through me-the percentages are incredibly small and I have a full-time job with Graebel Van Lines(check me out on LinkedIN) so any additions to my personal money stream are very small.
      I am concerned, however, about the ecoomic future for average, working people who may not be getting the best advice. I read 3-4 hours per day (more on week-ends) and try to summarize events as they unfold for people who can’t do this. In discussion, the questions that would arise is where do I buy them, how do I buy them, what do I buy? I set up a mechanism to help and given what I do to provide the information and service is an extraordinary value.
      My reporting, commentary and opinion do not, however, cause these events nor the ramifications that result from them. Nor do they cause many to take action to protect themselves. The irritant and an atmosphere of fear is there…I didn’t create it…and it is there whether reported or not. People who take no action to be responsible for the own future and well-being are irritants and ulimately panic fear responders. Just sayin.

  2. Thanks for an interesting article. I was surprised that you didn’t include the US in the countries that have seized pension funds. I suspect it is because the social security funds that the US government have seized and replaced with a promise aren’t specifically named “pension funds”? If so, the US government “do nothing” jobs (jobs that produce nothing of real value) such as our military adventure “jobs”, TSA, Boarder patrol, etc. are different than the WPA or CCC “make work” jobs.
    As to your offering to sell precious metals, I understand that after demonstrating your understanding of finance above you invite readers to consider you as a source of precious metals but that is all. You would only profit from any purchases that those who look decide that you also offer the best value for their investments. Pretty good deal for someone needing enlightenment. Good for you.

  3. Great response John – you can lead a horse to water, but….

    Just keep doing what you’re doing. We neer “town criers” as badly as we did when they were in vogue….

    Hang in, and take care!


  4. Your article seems to be right on about the state of the world’s monetary system and the politics behind it. But buying gold is not the answer. If or when gold goes to $10,000 an ounce (be careful what you wish for, you might get it), there will be nothing to buy with your gold, and 90% of the population will be dead or dying. You have a 90% chance of being in that group. The answer is to prevent gold from going to $10,000 an ounce. Get involved with a group of like minded people and stop the fraud and money stealing. Get involved with the political system and stop the madness. Stop this freight train into a brick wall or die.

    1. If I follow your logic, then I have a 10% of being there at the end, with or without $10,000 gold. I pick with! I suggest my odds of being there are much higher if I have some assets along the way that have value and are usable in transactions.

      The political system just might be the madness. Before I save the world, I need to save myself.

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