Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

When Risk-Free Becomes Risk-Certain, Repercussions of the S&P Announcement

Interest-Rates / Credit Crisis 2011 Aug 08, 2011 - 06:25 AM GMT

By: Jeff_Berwick

Interest-Rates

Best Financial Markets Analysis ArticleLate Friday evening, Standard and Poor's was the first US credit ratings agency to actually whisper that, possibly, the emperor has no clothes.

The emperor, in fact, has been standing there naked for years.  All one has to do is look at the growth in US Government debt and that fact is clear.


There aren't many charts that look like that in finance - or nature - that don't end in something dramatic happening... like an explosion... or extinction.

But, just the fact that one of the US credit ratings agencies who also thought Sub-Prime debt was fine - until it wasn't - thinks that there might be a problem with US Government finances isn't really big news.  Stating the obvious should never be such a big deal.  But, as George Orwell said, "During times of universal deceit, telling the truth becomes a revolutionary act."

If the response by the Federal Reserve, European Central Bank and the G-7 is any indication, S&P's downgrade is a revolutionary act.

Within minutes of the announcement the Federal Reserve held a news conference at 9:30pm Eastern to calm the markets.  Then, over the weekend, the European Central Bank also tried to assuage fears about Italy and Spain.  And, finally, the G7 came forth with the most strongly worded statement.  They stated that they will take "every action" to "stabilize" global markets.

That is quite a statement.  Every action?  To stabilize the markets of the world?  The Plunge Protection Team has gone global.

Gold registered its verdict quickly.  It opened up $30 Monday morning in Asia and nearly surpassed $1,700.  Gold is now within $20 of overtaking Platinum.

Risk-Free is Dead

What many don't understand is that this entire western financial system is a completely artificial, non free-market system.  If it was a free-market, the Federal Reserve wouldn't exist.

The whole financial infrastructure constructed over the last century all has one big, gaping fallacy at the heart of it: the entire edifice is based on US Government debt - Treasury bonds - and the idea that these scraps of paper are "risk free".

Nary a bigger lie has ever been told.  Of course, if you are so foolish as to think the US dollar never depreciates and that it will always exist then you could fall for the trick.

This is the set-up. They say that a 30 year Treasury bond with a nominal value of $1 million will be paid back in 30 years with $1 million.  And this, actually, is true.  The rub is, however, that what you can buy for $1 million today looks nothing like what you can buy in 2041 for $1 million.  Today you can buy a very nice house almost anywhere in the world for $1 million.  In 2041, your $1 million will just get you confused looks and people looking on the internet to see what a "US Federal Reserve Note" is.  You might get "something" for it, but it likely won't be much... maybe enough to buy a sandwich at The Museum of Fiat Currencies.

Yet, this is what is the foundation of the entire system.  The lie that Treasury Bonds are "risk free" because, when worse comes to worst, Helicopter Ben can always print up more Federal Reserve Notes to give you back your money.

That is why what happened Friday sent reverberations throughout the entire world's financial structure.  Nothing fundamentally changed.  The US Government has been broke for a while.  The US dollar has been headed towards worthlessness since 1971.  But, just by someone from within the financial structure actually saying that maybe everything isn't as it seems, it shocked the world.

It's because, at this point, as Ben Bernanke has repeatedly stated, it's just a con-game.  It's only about confidence.  He has repeatedly stated that confidence is critical.  The entire system is bankrupt.  But, as long as no one says it is, then maybe they can keep the game going.

What Are the Repercussions of the S&P Announcement

The announcement, in and of itself, may not have any great effects.

However, this may mark the beginning of the end for the system.  It certainly, almost unquestionably, marks the end of the 30 year bond bull market.  That would have happened with or without the announcement but now that someone has finally flinched it will likely lead to a cascading effect as more people worldwide realize the jig is up.

Risk-free was always a ruse.  But, now, Treasury Bonds become risk-certain.  Those who believed in risk-free will find out that it was the riskiest place of all. 

Hold on to your hats.

Subscribe to TDV today (90 day moneyback guarantee) to access our Special Report on How to Own Gold as well as get complete access to our newsletter and portfolio selections.

The Dollar Vigilante is a free-market financial newsletter focused on covering all aspects of the ongoing financial collapse. The newsletter has news, information and analysis on investments for safety and for profit during the collapse including investments in gold, silver, energy and agriculture commodities and publicly traded stocks. As well, the newsletter covers other aspects including expatriation, both financially and physically and news and info on health, safety and other ways to survive the coming collapse of the US Dollar safely and comfortably. The Dollar Vigilante offers a free newsletter at DollarVigilante.com.

© 2011 Copyright Jeff Berwick - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules