Posts Tagged ‘Global Economic Crisis’
“Sabotaging the System”
Think of all of your monetary wealth:
Checking Accounts
Savings Accounts
CD’s
IRA’S
401K’S
Stocks
Bonds
Mutual Funds
Annuities
Insurance
Social Security
All of these monetary instruments are controlled by computers. Less than 3% of all money in the system is actually printed. That means 97% of US dollars are electronic.
These are the paper assets that you count on to be there when you need them, now and in the future.
Now imagine they are all wiped out in a nanosecond by a cyber attack that erases all financial data and fries the interlinked banking and financial systems.
The public thinks that these systems are impenetrable. Think again. This isn’t science fiction, this is science fact. It has already happened. The US Government’s military defense system was hacked into and controlled for a few days! One banking system was hacked to the tune of $10 million. These attacks are common and worldwide. In this report from 60 minutes in November of 2009, an ex-government official acknowledges the vulnerability of our internet based security.
Scenario, you go to your bank, they have no records. All the bank loans and records are erased the bank has no information of what they owe you or who owes them. Your brokerage account and the stock exchanges have no record of who owns what, and so on down each layer of the financial system. FDIC is broke and they don’t have a clue as to how to restore the system. You’re left with the money in your pocket and any physical gold you own.
Even though this 60 minute segment is old I thought that it is good for us to be aware of. There are a million scenarios that can happen, but if we have a plan we can succeed. Those without plans and protections in place will be in trouble. I urge you to acquire physical gold. Then at least you are prepared for anything.
PART 1 http://www.youtube.com/watch?v=vbOLlNtRcQA
PART 2 http://www.youtube.com/watch?v=lbxRSAFB0TI&feature=related–
Central Banks Join the Gold Rush
In an article dated June 18, 2010 on CNNMoney.com, central banks around the world have been buying into the gold rush as fears of Europe’s debt crisis mount in conjunction with a slow worldwide economic recovery. All of this fresh buying has pushed gold to new record highs. Gold closed at a new record high yesterday at $1,248.70 and so far today has reached a new intraday high of $1,263.50.
For the first time since 1997 foreign central banks are net buyers of gold. Prior to last year they were all pretty much net sellers with the exception of China who has increased its gold reserves 76% since 2003. Most central banks like to diversify their holdings in order to decrease risk, but with the US dollar and the euro under extreme pressure due to money printing, central banks are turning to gold as a hedge against paper currencies. Because unlike fiat paper currencies, gold has an intrinsic value that cannot be manipulated by any governments’ economic policies.
The countries that are buying the most gold are Russia (26.6 tonnes 2010), Kazakhstan (3.1 tonnes 2010), Philippines (9.6 tonnes 2010), India (200 tonnes last year) and China (454 tonnes last 7 years).
Look for the trend to continue as sovereign debt crisis continue to mount. As the gold prices continue to rise rare gold coins will benefit as they tend to lag behind spot gold in their price action (this is not always the case but has been lately). As spot gold rises in value it signals the general public to buy, and most buyers of rare gold coins are private individuals not large institutions. The supply of rare coins in the market is limited by the fact that there are only so many of them in existence. Therefore relatively small changes in demand can have big effect on value. The more new private buyers that enter into the market for rare coins the faster the prices rise. This simple set of circumstances explains why rare gold coins tend to out perform gold bullion in the long-term.
US Inflation Effect on Gold Prices
The simple definition of inflation is the printing of money. Those in the media, government and Federal Reserve would like us to believe that inflation is the rising of prices. Typically you will hear this described as “price inflation” rather than “monetary inflation” which more accurately describes what is really going on. According to the government, at this point inflation is not an issue. This is because the CPI does not include food, energy, and healthcare and makes exceptions for advances in technology; therefore the CPI is always grossly understated.
Why we haven’t seen significant “price inflation” yet is due to the fact that money is not being lent out. Banks have around $1 trillion in reserves held with the Federal Reserve. Credit has gotten much tighter, unemployment has increased and overall credit worthiness has declined. These set of circumstances has kept money on the sidelines of the economy. When this money floods the system we will most certainly see price inflation.
As far as monetary inflation is concerned we have seen an enormous amount of this here is the US. The M3 money supply has increased more than 10 fold since the 70’s and I have heard figures that the Fed has printed 2.5 times the money supply in the last 18 months with no signs of stopping. The Bush administration was running a deficit of about $1.7 billion per day, whereas the Obama administration is running about $4.5 billion a day. It took 204 years to create the first $1 trillion; we will create the next $1 trillion within the first seven months of 2010. This is a staggering amount of monetary inflation.
How does all of this affect gold prices? Gold is a hedge against inflation. In dollar terms gold has consistently proven to hold up to inflation. For example, 100 years ago an ounce of gold could buy a nice men’s suit, today an ounce of gold will still buy a nice men’s suit. So as price inflation heats up expect more people to jump on the gold band wagon. This demand will create higher and higher highs in the price of gold.
Jim Rickards said, “It is the case that real debt cannot be repaid through any feasible combination of growth and taxes.” Therefore the only option is to continue to print money which will lead to inflation, then hyperinflation and then collapse of the dollar. Gold will do progressively better in each one of these circumstances. So look for the rising gold trend to continue if for no other reason than the government is printing money at an alarming rate.
The SDR’s, yet another reason to Own Gold!
The SDR (Special Drawing Rights), created by the IMF in 1969 is a non-convertible reserve asset distributed by the IMF. Let’s back up before we move forward. Any currency is simply a tool of barter that enables a population to specialize because it can be converted into the goods and services needed. For example, if you want an apple, you do not need to own an apple tree. If you have US dollars you can go to the grocery store and convert them into an apple. The US dollar is a convertible reserve asset, and as “The” world’s convertible reserve currency, it was the only currency that could be used globally to settle debts, therefore it could be used to convert (buy) to oil, steel etc. between countries.
The SDR, as a non-convertible reserve asset, acted more like an ice cube in a glass of water. You have a glass of water half full, you throw a bunch of ice in and now it looks full, but when you drink the water, you’re left with the ice cubes. So the IMF would give the SDR’s primarily to third world nations and that would make their reserves look full and then they could take the limited amount of US Dollars they held in reserves and convert them into oil, steel etc. In addition it was used to increase a particular country’s foreign exchange reserves so that their books looked stronger making it easier to borrow money on a global basis. Originally the SDR’s value was based upon gold, but now its value is based on a basket of four of the top trade weighted currencies. This basket reweights every 5 years and according to the IMF website, the next scheduled reweighting is the end of 2010.
About a year ago it seemed as if everybody was calling for a new world reserve currency to supplant the US Dollar. China and the UN happened to mention the SDR. This made the most sense because of the SDR’s long history and significant infiltration throughout the global postal services, the travel industry, not to mention that all governments now hold them in their reserves, so governments and central bankers are used to them.
In August of 2009 the members of the IMF met and passed the fourth amendment, which went into effect on September 9, 2009. With regards to the SDR, the IMF allocated $250 billion worth of SDR’s in order to increase global liquidity (inflate the world’s monetary system). There have been two other SDR distributions; the first was between 1970 and 1972 and the second time was between 1979 and 1981. Can you remember the bouts of inflation experienced during these time frames? But those SDR amounts were miniscule compared with the current allocation. This allocation increased the amount of SDR’s in existence from $4.3 billion to $254.3 billion. Quite a significant jump, but here is the kicker. The SDR prior to September 9th 2009 was a non-convertible reserve asset. On September 9th 2009 the SDR became convertible. That means that whoever holds SDR’s can now convert them into oil, steel etc. and is in direct competition with the US dollar. What’s more, as of February the SDR was listed on the Forex currency exchange under the symbol of XDR, making the conversion to a full official currency complete.
The dollar’s dominance is being eroded in a world of debt based currencies. No currency’s purchasing power is safe as long as it remains under the control of governments out of control spending, and central banks unlimited ability to create more debt and stick the citizens with the bill. Everyone who owns dollars needs to start acquiring gold. Build your position before it is too late.
The European Union doesn’t have the Resources to Support 5 Members Failing Economies
The Euro is loosing buying power daily against other global currencies and flights out of the troubled Euro (to GOLD and the IMF’s SDR’s, NOT DOLLARS) are fueling global concerns for the economic future of the G-20 and the dollar.
The PIIGS (Portugal, Italy, Ireland, Greece and Spain) are also on the verge of economic implosion. This 20 member union does not have the deep pockets needed to support one failed economy (Greece) let alone 5 of its members. This house-of-cards has a huge global impact as all financial markets, which are now and forever interdependent, rely on each other for liquidity, financing and investment.
The crisis has become so critical that the IMF is convening next Monday May 11th to discuss some drastic measures to save the G-20. One topic of discussion, expanding the IMF’s SDR’s, this would hasten the replacement of the dollar as the world reserve currency. IMF meeting press release: http://www.imf.org/external/np/sec/pr/2010/pr10171.htm
The stock market took a wild ride Thursday loosing almost 1,000 points before finishing the day with a net drop of 347 points. The fundamental fears of a potential domino-effect economic collapse still remain in Europe and Wall Street’s blood pressure is spiked waiting for the next shoe to drop. 5/6/2010 Wall Street Journal, Market recap: http://www.marketwatch.com/story/us-stocks-struggle-data-retailers-in-focus-2010-05-06
The US markets and the dollar have real problems of their own and the possible European start, of a global financial meltdown aren’t making the dollar an attractive alternative. Gold is looking better with every market report.
CNBC video on the crisis in Greece and the economic fallout:
http://classic.cnbc.com/id/15840232?video=1485831315&play=1
Watch for the press conference after the IMF meeting next week there is a lot riding on its outcome.
Assessment of the IMF & World Bank April Meeting
http://www.brookings.edu/opinions/2010/0430_global_governance_lombardi.aspx
April 24th Bailout too Little too Late?
http://news.yahoo.com/s/afp/20100424/bs_afp/imffinanceecono