Tuesday, March 2, 2010
Let Them Eat Paper - Qu'ils mangent de papier
"Qu'ils mangent de la brioche" or "Let them eat cake" has become a phrase used to denote the obliviousness and selfishness of the ruling establishment. Well, with a slight twist it's apropos in the case of paper debt-backed paper currency regimes under stress. Cranking up the debt presses to ease the nominal pain of asset price declines destroys the savings of those who are conservative with their money. Such a monetary system, when in its terminal phases, forces citizens of the world into a dangerous casino to maintain the purchasing power of their savings.
We are all speculators precisely because the value of our savings is constantly at risk due to the over-the-top glut of paper promises coming out of every government and central banksta orifice. Staying in cash may feel like a victory during a 3 month market crash or when the U.S. Dollar Index goes up for the day, but this is a fool's game over the longer term.
When a paper-promise, debt-based monetary system is under stress due to economic difficulty, there is only one play in the playbook - defile the currency. Drop the interest rates, guarantee everything in sight, print new public debt to replace the private debt gone bad, "stimulate" the economy (i.e. steal prosperity from the future to make a small segment of the current population feel good), take over and bail out corporations and entire industries (i.e. fascism by definition the way practiced in the U.S., since the profits are not shared but the losses are), "create" jobs (HAHAHAHAHAAAAAAA!) and by all means punish anyone who tries to speculate to keep ahead of the currency destruction.
Let the sheeple eat the paper we have created for them. Never mind that the paper promises they already hold from the past are now worth much less - we will just create new paper to replace that older paper. Please don't misunderstand the end game. Never forget it when looking at daily squiggles. Remember the lessons of the 1930s and 1970s - when all else fails, create a new monetary system that screws everyone counting on the integrity of the "outdated" currency system.
If you don't hold actual physical precious metal at this point in the economic cycle then you haven't read your history. If you aren't additionally invested in the Gold patch via paper Gold proxies and/or Gold mining equities, then you believe "this time is different." Do you think the brain trust that makes up the current federal reserve is anything more than a band of self-serving thieves? Do you really believe "they" are anything more than cunning enough to "look out for number one" but not necessarily smart enough to "avoid stepping in number two" when it comes to the integrity of the country and its currency?
You will eat their paper. You may not like it, but you won't have a choice if you insist on being a paperbug. You won't have a choice unless you are invested in real, tangible assets that retain their value in the setting of an economic depression. Real estate is out (unique individual opportunities aside). Stocks in aggregate are out when inflation-adjusted returns are of interest. Commodities are a question mark during an economic depression. Gold is money and we are in a bear market, so cash is king. But hold false money and you are playing with fire, especially once a depression has begun and the only play in the apparatchik playbook is needed to stop it.
The paper promises will be multiplied again and again before they collapse. Greece will be bailed out and so will Portugal, Ireland, Italy and Spain. In addition to these countries, pigs will also be bailed out by the debt press (i.e. UK, US and Japan are the pigs, not smaller European economies!). Greece is to the US/UK axis as a pimple is to a patient with terminal, rapidly progressive cancer. Gold will triumph over paper this cycle, as it always does during an economic depression, because markets (i.e. human behavior and mood) are cyclical and paper bubbles collapse during secular credit contractions.
Don't eat paper. Buy Gold and protect yourself. Once you're protected with adequate physical metal insurance (10, 20 or 50% or your liquid net worth depending on risk tolerance), then and only then does investing in other things make sense at this point in the cycle. The Dow to Gold ratio will go to 2 and may well go below 1 this cycle. Since we're around 9 in the ratio right now, that means more than 300% gains for Gold in terms of stock purchasing power and it shouldn't take more than 5 years to achieve these gains. Even paperbugs should understand how good such gains are over so short a period of time.