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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Debt Crisis Investment Critical Mega Developments & Select Gold Antidote

Stock-Markets / Eurozone Debt Crisis May 25, 2012 - 03:38 AM GMT

By: DeepCaster_LLC


Best Financial Markets Analysis Article“When the ECB is forced to cave and act it may finally become clear to market participants that the body politics around the world will demand that central banks implement debt eroding inflations.” 

At the Threshold of the End of Central Bank Independence, Gold is Compelling”, Frank Veneroso, A Rock Meets a Hard Place, 05/20/2012  

Indeed, the Central Banks are already implementing Debt-Eroding Inflations. E.g., Real Inflation in the U.S.A. is already at 9.9% ( – See Note 2).

But unimpeded Monetary Inflation inevitably leads to Debt Saturation, and leading Sovereign (and not just in the Eurozone) Nations are Hyper-Saturated with Debt already.

Several Sovereigns, can not under any realistic Scenarios ever pay their Debts, unless they are inflated or repudiated away.

Indeed, public Pronouncements to the contrary, the Mega-Bankers are covertly preparing for Hapless Greece’s departure already.

“Come with me through the streets of Athens, not far from Syntagma Square, and your mind will reel with the horrified realization that history is not a one-way ratchet, that human progress is not guaranteed, and that a proud country can be reduced – by years of torture and bullying – to a state verging on total political, economic and moral collapse. (The Euro is a) … doomsday machine, a destroyer of jobs and a killer of growth.”

London mayor Boris Johnson, The Telegraph, 5/24/12

Headed in the same direction are 4 other “Euro-Project” Victims, Spain, Portugal, Italy, Ireland. And France and the U.K. and, arguably, the U.S.A. are also Debt Saturated.

But Monetary inflation (via Credit Inflation) is limited by Debt Saturation, not only because debts can not be paid but also in the sense that Hyper-Monetary-Inflation leads eventually to Hyper-Price-Inflation (Think the Weimar Republic and, more recently, Zimbabwe and Argentina).

Thus, Debt Repudiation must be considered as One Antidote going forward. Indeed, Iceland and Greece have already implemented various forms of Debt Repudiation, and Greece is considering a Second Tranche soon.

And it is likely that Further Debt Repudiations will be implemented by several Sovereign Nations.

So consider the Rationale and Key Consequences.

One such analysis is provided by The Dollar Vigilante:

“The horrific experiment in social democracies in the west, replete with their welfare (left wing statist) and warfare (right wing statist) state factions and accompanying fascism and communist-fashioned central banks is coming to an end...  Every country in the west is reaching the end of their ability to keep up the illusion that they can spend more than they produce for eternity.

“This point was nearly reached in 1980 when, after less than a decade with gold underpinning the dollar the entire system nearly collapsed.  There was only one reason it didn't.  The debt levels of the western countries only had 9 years to build up and they had not risen to an unsustainable level.  So, as inflation from central bank money printing began to get out of control they had an option: to raise interest rates to the point where inflation was stifled. 

“But now, western countries have built up massive amounts of debt.  In 1980 the US had $900 billion in debt.  Today it has $16 trillion.  And now they are the victim of a double whammy. 

  • They cannot find enough buyers for all the debt as it grows to massive proportions.  This is why the Federal Reserve is now the largest owner of US Treasuries, by far.  In 2011, a stunning 61 percent of the total net Treasury issuance was purchased by the Federal Reserve.
  • They cannot allow interest rates to rise to levels to quell the monetary inflation.  At $16 trillion in US Federal Government debt, an interest rate of only 10% would require $1.6 trillion per year in interest payments.  Total federal tax revenue in 2011 was $2.5 trillion, meaning more than half of tax theft revenue would go to interest payments alone.  If interest rates were to rise to the levels they achieved in 1980, of 18%, interest payments would be more than the total tax theft revenue of the Federal Government, at $2.8 trillion.

“In other words: rock meets hard place…. (Alternatives are…)

  • A) The US and other western countries default on their unpayable debt.  But, because the entire monetary system is based on this very debt it will entail a complete implosion of the financial system that feeds the political class...
  • B) Inflate more to fool people into thinking the economy is recovering and get them to destroy more of their own wealth in chasing the next bubble.  But, the US has just achieved its 40th consecutive month of double-digit monetary inflation.  That is an all-time record.  This means that a further increase in inflation pushes the US to the brink of hyperinflation.  Once we enter hyperinflation, the US dollar likely reaches its intrinsic value of zero within 6-18 months.
  • C) Confiscate more of the wealth of the citizenry to keep the system alive a little longer.

(A) is politically impossible.  Obama's "hope and change" and nothe Marxist slogan, "forward", does not work well with him stepping up to the microphone to say the US is broke and there will be no socialist security checks or welfare checks issued tomorrow.  Therefore, (B) is where we are most likely headed.  But, in order to stave off collapse just a little longer, (C) is now looking like an all-you-can-eat restaurant to a bunch of fat people who haven't eaten in six hours.”

“The Dollar Vigilante: A Rock Meets the Hard Place”, 5/16/12

But consider another Argument that Recovery is Possible only after Debt Repudiation/Default.

Iceland’s ongoing recovery would seem to support this argument.

“Why should the Greek people be financially destroyed and rendered destitute by forced German and Brussels EU austerity measures and more loads designed only to pay the interest on the debt to the big banks? What if the banking and media establishment are dead wrong about nations withdrawing from the Euro like they have from the beginning of the crisis? I suggest a strong economic recovery is the likely result rather than depression as forecast by experts working for the banks that have enslaved Greece.

Recovery is Only Possible Outside the Euro and After Sovereign Debt Repudiation

“Many EU member states should simply withdraw from and repudiate the failed monetary and political experiment that the European Union has become. In addition, Greece should repudiate the excessive sovereign debts owed primarily to German banks and restore an independent Greek currency, the Drachma, at a lower and more favorable exchange rate to stimulate tourism and foreign investment….

“I believe the EU siren call for Greek austerity and bailout is just a political disguise for more fleecing of the populace through fears of government bankruptcy in order to steal more wealth and cut more benefits, while the real solution for most nations is to tax and steal less and reduce bloated programs and benefits. The way out for Greece and most other European nations is to withdraw from both the Euro and EU and do the above after repudiating the sovereign debt and becoming debt-free nations….”

           “Greece: Dump the EU Now for An Economic Recovery!” Ron Holland,

 , 05/16/2012

But one problem with wholesale Debt Repudiation (in addition to the Systemic Threat issue) is that it does not address the ethical and ethical-legal issues of breaking promises/contracts consciously made in good faith.

Here is one Antidote to the Debt Saturation Problem, which could Work for the U.S.A., and with modifications for other indebted countries suggested by a Commentator on the Daily Bell article excerpted above.

“(Regarding) … Repudiation of Government Debt

“This solution is not fair to the people, businesses, and foreign government entities who trustingly bought US Treasury Bills and Bonds, i.e., the US government debt. Therefore, I would modify this alternative in a way that, in my opinion, makes it a viable possibility.

Repudiate ONLY that part of the government debt owing to the private, for profit Federal Reserve. Here is that reason that this action is both ethical and fair.

The Fed conjures up the money for buying US bonds. Central banks like the Fed conjure up the money with a book-keeping entry that records the bond purchase.  Adding insult to injury, they then collect interest on the bonds... bonds bought with money that was created by the stroke of a pen [or computer].

In other words, I think that government debt should be put into two piles.  That part owing to those who loaned money that they had earned and saved.  And that part owing to a central bank [the Federal Reserve], which loaned money created by themselves out of thin air.

The first pile represents honest debt and should be honored. The second represents bank sleight of hand, such as led President Andrew Jackson to swear in 1832 that he would "kill" the Second Bank of the United States.

Finally, consider that finding a “Solution” to the Sovereign Nations’ Debt Saturation Crises must be accomplished soon, because the Systemic Stress is approaching the Breaking/Collapse Point. (This Creates both Opportunities and Dangers for Investors as pointed out in Note 1 below.)

One Manifestation of this Approach to Collapse is the Proliferation of Derivatives used by the Mega-Bankers to (inter alia) “manage” the Financial System.

Consider that OTC (i.e., Dark, Not Exchange-Traded) Derivatives are increasingly used (inter-alia) to Hedge Risk and Financial System “imbalances”. But the Notional Amount of OTC Derivatives Extant has grown from about $600 Trillion during the 2007-2009 Financial Crisis to over $1 quadrillion today.

The Key Point is that because of leverage, derivatives can immensely magnify losses.

Just ask JP. Morgan Chase with some $70 Trillion Notional Value Derivatives Outstanding. Consider Jim Sinclair’s comment:

“One quadrillion one hundred and forty-four trillions dollar of OTC derivatives are still out there. Don’t believe the 700 Trillion advertised by the BIS (Bank for International Settlements (BIS), the central banker’s bank, ed.). They got that figure by changing the computer model that was at the figure I and the BIS gave before the overhaul.

“Do you recall that the Lords of Derivatives, the International Swaps and Derivatives Association, are meeting soon on the subject of interest sensitive OTC derivatives. There has to be more than Morgan with their assess in another OTC derivative sling. This time it is the interest sensitive variety of those weapons of mass financial destruction still overhanging and threatening the very fiber of the Western world financial system.”
Jim Sinclair,, 05/11/2012

Thus, Antidotes to Consider are:

  • Physical Gold and Silver, personally held which allows one to get outside of the Fiat Currency – based Banking System.
  • High-Yielding Securities aiming for a Total Return (Gain plus Yield) in excess of Real Inflation (e.g. 9.9% in the U.S.). See Note 3 regarding Deepcaster’s High Yield Portfolios.
  • For Sovereign Nations (I.E. Taxpayers) some limited form of Debt Repudiation, such as already implemented by Ireland and Greece.

Best regards,
Wealth Preservation         Wealth Enhancement

© 2012 Copyright DeepCaster LLC - 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.


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