On Printed And Borrowed Money

The warning signs have never been so many and so obvious. Every single economic indicator for housing, employment, consumer spending, foreclosures, tax collections, commercial property, trade and shipping is unsettling. And yet the stock market rises. I hope I am wrong but it is my view that the speed and trajectory of the current rally could well be matched by the suddenness and depth of a subsequent plunge if meaningful structural changes are not implemented.

In the meantime anaemic growth will fail to provide the new jobs needed by new entrants into the workforce and this will be worsened by the baby boomers that have either come out of retirement or delayed retirement due to worsening finances.

Through all this, gold and silver keep stepping on the system's heels like an Ethiopian runner on the second last lap. Suddenly the bell will ring and gold and silver will break into a sprint for the final lap. When exactly this will happen is hard to say. But where will you be when the line is crossed? Cheering because you backed the winner or whingeing because you didn't realise that gold and silver have genes that have withstood the test of time and human stupidity without mutation?

I urge every American to take a snapshot of both their finances and their surrounds. I want them to sit down and write how they feel about their nation, their economy and their future. Take plenty of snapshots dear people because the decay that lies ahead will be telling. Have at least some evidence of the "glory days" of consumerism to show and tell your grandchildren about when they are older.

Everyone has their eyes glued to the Dow Jones, the TV and the computer screen waiting for some kind of breakthrough to happen. There will be no breakthroughs just breakdowns for as long as government at all levels is seen as the saviour rather than the Judas who has betrayed its people.

The people of course carry a great deal of the blame. The siren song of bankers with the full orchestral backing of the US Fed proved too powerful and sweet to ignore. The concert as you know has been sponsored throughout by cheap Chinese money. In the 19th Century the Chinese government had tried to ban the importation of opium into China by the British. This time round there were no Opium Wars, there was just pride that America was seen as the best place for Chinese money. The nation was and still is hallucinating on borrowed money. What could not be borrowed has been printed.

So what should be done?

So far there has been talk of deleveraging but the process is far from over due to the government's persistence in blowing air into a burst balloon. This has provided some expensive stabilisation to a terminal situation which will either cause an even bigger heart attack or alternatively a very long and drawn out illness. Deleveraging must be allowed to happen. Yes, it will cause loss of jobs and homes, businesses and investment portfolios but it must happen. Every gardener and forestry worker knows that pruning and back burning is necessary. Unless this deleveraging takes place people will not be able to deleverage their life styles and this is where the crux of the problem lies. This deleveraging will cause further pain and losses, but will stop when that which is left is productive rather than seductive, deserving rather than self-serving and needed rather than wanted. This is the simple formula that should be applied at all levels.

You see Americans cannot just demand universal healthcare at the expense of sending the nation broke. They must also take care of their health. If you are a smoker and are diagnosed with lung cancer then a surcharge of $xxx thousands of dollars should be imposed on you (or your estate). Would you be covered for a car accident if driving while under the influence of drugs or alcohol? With health care being the way it is, it simply rewards negligence and not just bad luck or old age.

Instead of just letting shareholders in entities such as General Motors taking direct hits, they should also let depositors take a percentage hit on their savings as well. If losses are not flushed out of the system then no lasting improvement can be expected. Telling people that their savings are safe and guaranteed but then lumping bank losses and failures onto the public purse is a circuitous subterfuge that breathes life into a monster rather than slaying it.

Instead of cash for clunkers, the government should have been distributing public transport tickets worth $4000 for each clunker handed in and also upgrade the system in the process.

As for the bonuses of high flying bankers and CEO's I strongly urge that they be placed into a trust and be paid out only after five years subject to conditions. In addition to deleveraging, the top 5% of the population (by wealth and income) must desist from accumulating more wealth in the downturn unless it wants to risk a calamitous response and climax.

The system has a moral obligation to look after the weak. It does not however have a mandate to MAKE its people weak. Unfortunately this is exactly what it has done unwittingly through a string of wars, budget deficits, irresponsible spending and social molly coddling. At the root of all this lies the destruction of that part of its constitution which provides that only gold and silver will be considered as currency. Unfortunately western nations everywhere have followed suit.

The currency of a nation is the lifeblood of all transactions. A currency cannot simply be a promise to pay tomorrow; it must in fact BE payment today. The toil and sweat of people whether they be social security contributors or foreign investors cannot continue to be converted into Government IOU's anymore than toilet paper can be converted into the Magna Carta. People must snap out of the catatonic state they have fallen into. The past, if it could speak would laugh at us and the future (if it were here) would condemn us.

In the third paragraph I urged Americans to take stock of where they have been and where they have arrived. Unless individuals AND governments do this exercise the nation will drift until it goes over the edge. The nation and all its individual citizens must draw up a balance sheet of the good and the bad and in the process must make gold and silver the only two common denominators of all future transactions. It is these two pillars that guarantee that we live within our means.

Whether gold hits $1000 and silver $20 is neither here nor there. In the years and generations ahead these metals will still be here and the phoney substitutes that rely on an increasing string of zeroes will become the money in Monopoly Games distributed by Santa Claus.

Whether you view gold and silver as investments, insurance or both is academic. Gold and silver are to financial health, what logic is to human intellect. Ignore them and you will succumb to madness when the system unravels.

Just take note of the Chinese Government urging its people to invest in gold and silver whereas the US administration is encouraging more debt and more consumption. The future will belong only to those that have a disciplined system and people. Both are missing in the USA.

And so I ask, "where, oh where are you Messrs Jefferson and Jackson?" Where are the men and women with virtue, a philosophy, a vision and a strategy? Unfortunately they are nowhere, because people everywhere have been electing politicians rather than leaders for far too long. If Americans and people everywhere want better days then sacrifices must be made and true leaders who can make unpopular spending cuts must be elected.