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Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Insurance Against Continuing Financial Meltdown

Commodities / Gold & Silver Oct 30, 2008 - 07:08 AM GMT

By: David_Vaughn


Best Financial Markets Analysis ArticleWow! Are you excited?

The entire world is going through a generational and even a once in a hundred year cyclical change right before our eyes and we are witness to these historical events. All of these gold and financial sites for over 10 years have been predicting that this financial meltdown was coming.

And don't fool yourself here. The most important element for survival for those who survived the 1930s were those who were out of debt and had assets that were paid for free and clear.

And what about those feet of clay?

One man comes to mind. Alan Greenspan. Remember when he was worshiped as a god? He was the financial pied piper who successfully led the entire world to riches beyond their wildish dreams. And where are those riches and treasures now? In the dust bin of history. I think they all moved to Japan to feel more at home.

“Hi David, I really enjoyed your latest article… I laughed at the tomato and bean with bacon soup idea. Not because it is a bad idea, rather, because it is so true. I am going to be the "toilet paper guy", so look for my booth at the big worldwide barter market. One can of soup per roll sounds about right. If you can't live without it, better get lots of it now!” T. H.

But, really, don't be angry at Allan Greenspan. He is merely a puppet following a script written by others. Same for every other financial and world leader. As you watch CNN, CNBC, Fox, MSNBC and other news shows have you noticed the fear these commentators and analysts are showing on their face? Yes, many of these fellows are rich including Bill O' Reilly, Rivera, Lawrence Kudlow and others. But they are still seeing their wealth cut in half. It's interesting that not one of these “experts” saw this meltdown coming. But if you were a regular reader to these websites then you were up to date. But these fellows will still have enough wealth to live comfortably even with a 60% portfolio decline.

But what about you?

For those who were in debt to the stratosphere and cannot even refinance their homes they are in very difficult times. Yes, as always it is the middle class that will bear the brunt of this financial pain. The poor have nothing to lose and the rich will have plenty left over after all the losses. But the middle class who are all living on the edge? God help us all as this class generally has the greatest personal debt and whose every asset is financed 100%.

And what more can we learn about gold? Kitco 's analyst, John Nadler, does an excellent job of defining gold's role as portfolio insurance. Listen to what he says below so that you might keep things in perspective as this market continues to meltdown. Very important comments below.

Jon Nadler, Kitco - “By and large it (gold) has already proven its insurance attributes by virtue of the fact that it outperformed the S&P just sitting around stable.” “…it's certainly done its job.” “Gold doesn't need to go to $1,200 or $2,200, as all of the doomsayers were saying, to prove itself. That would be more like proof that something has gone extraordinarily wrong in the global system and it's a scenario you really don't want to wish for.” “…stability is preferable.” Jon Nadler recommends “…not [to] be focused so much on price performance, because most people ought to be buying gold as the allocation device that it really is, and then mobilize it only when absolutely needed, rather than buying because they think they'll “make money.” “The long-term 10% life-insurance type of allocation is the key here for many.” Jon Nadler,, 10-24-2008

I like Jon Nadler's commentary. Did you catch that last text?

“The long-term 10% life-insurance type of allocation is the key here for many.”

Has a way of balancing things out and helping us to keep the proper outlook on gold. In a nutshell do not wish for this meltdown to grow, but pray for stability. Believe me, our lives will be much more complicated if we can't achieve stability.

What is the one thing you should not be doing as this meltdown progresses? It's easy to get frightened and to become frozen and do nothing. The news pundits are advising people, stupidly, to stay the course and sit back and to ride this storm out. Worst thing you should do. Start thinking now what is immediately in the best interests of your family. Don't ignore what is going on. This is hell in a hand basket. And you don't want to remain in that hand basket.

For years, a Congressional hearing with Alan Greenspan was a kingly pageant. My, how things change. Well, Alan Greenspan had to testify in front of Congress this past week. Greenspan's continued self defense was that he just put too much faith in the free market. Just simple questions asked. Why is the economy crashing?

“…given the gravity of today's financial crisis, one name stands out above others. The "maestro…” “From August 11, 1987 to January 31, 2006, as head of the private banking cartel euphemistically called the Federal Reserve. That Ron Paul explains isn't Federal and has no reserves.” Stephen Lendman,, 10-27-2008

Greenspan doesn't “understand.” Totally confused. Seems I remember him telling the world that regulation of the derivatives market was totally unnecessary. He did it! No, she did it! Sounded like a chorus of children during the Congressional interview. Alan Greenspan sat before Congress for four hours of questioning as they threw him off of his previously held throne. During the questioning Greenspan admitted to making some very bad judgment calls and mistakes. He acknowledged that these mistakes of his contributed very much to the present "once-in-a-century credit tsunami." Mr. Greenspan was the primary fuel for the deregulation of financial institutions.

“…he refused to accept blame for the current crisis…” “Said he was in a "state of shocked disbelief." Unclear on what went wrong.” “…he (Alan Greenspan) abhorred regulation and championed derivatives.” “The latter what investor George Soros won't touch "because we don't really understand how they work." “His (Alan Greenspan's) job was to transfer wealth from the public to the rich. In that he succeeded mightily but look at the cost.” “Now 82 and unapologetic to the end.” Stephen Lendman,, 10-27-2008

Greenspan could only sit quietly in his chair as committee Chairman Henry Waxman chewed him out for failing to do something in his last years as Fed Chief. Mr Waxman told Greenspan that "The Federal Reserve had the authority to stop the irresponsible lending practices that fueled the subprime mortgage market." "Over and over again, ideology trumped governance.” and “and now our whole economy is paying the price."

Greenspan sought to blame others for refusing to take action and presumed it best to also do nothing. The pain! The pain! "We have to do our best, but not expect infallibility or omniscience." In the 1990s Greenspan fought a vigorous battle to prevent Congress from regulating intricate derivatives. Greenspan just could not “understand” what went wrong with that ole' market. Wasn't his fault. Reminded me a lot of Bart Simpson's famous line. “I didn't do it. Nobody saw me do it, you can't prove anything!”

For the 18 years he held his post as Fed Chief he continually resisted tighter market regulation. "…I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well…” “This crisis,” Greenspan told Congress, “has turned out to be much broader than anything I could have imagined.” Blame, blame, blame! Poor guy. Now retired and an old man and having to fight for his very reputation and credibility.

Who, ultimately, is responsible for the financial meltdown occurring around our feet? While it's great to point names, in reality, the type of culture we have become as a people is responsible. Remember in 1987 (20 years ago) when Gordon Gekko made the following comment? “Greed is good.”

Gekko - “ America , America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions.” “The new law of evolution in corporate America seems to be survival of the unfittest.” “The point is, ladies and gentleman, that greed -- for lack of a better word -- is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind.” Gordon Gekko (Michael Douglas), “Wall Street,” 1987

Our ancient grandfathers and grandmothers learned the excesses of greed as they worked to survive during the Great Depression of the 1930s. It looks like now it is our generations turn to learn these same lessons. The real price of raw, unadulterated greed. And that lesson will be harsh and painful.

What clarifies us today as a nation? We do not build anything. We do not produce anything. What do we call ourselves today? A service economy. What a load of bunk. We serve only ourselves playing financial games that will only benefit ourselves. Is it any wonder that our factories all have left our shores to find more fertile ground? What is America 's number one goal today as a people? To retire with a rich 401K portfolio when we are even too old to enjoy it. What a moral waste.

For the past 10 years we have stood around the money cable stations watching our portfolios climb and building larger houses and buying bigger cars more than we could afford. But we counted on the guarantee of growing wealth that would eventually pay for these massive debts. And what happened? 10 years later and we are poorer today than we were 10 years ago.

Now, we have a 50 trillion plus market called “credit default swaps.” Of course a lot of folks have made tremendous amounts of money, but like a ponzi scheme the bill is left to be paid by the average consumer. During the dying days of another great civilization the most powerful people in the world gathered to observe. The end to unbridled free market capitalization. The elite and super wealthy partied on their muti million dollar yachts in the Mediterranean as the Western worlds banking system ground to a halt.

When we have an emotional involvement in an issue we are capable of suspending normal reasoning. So, the unreal market conditions we have witnessed now for many years we have not even questioned. And those unreal market conditions have led to a growing pile of illusory wealth. The unreality and unsustainability behind the creation of that growing wealth are now tossed out with the bath water.

The illusion these past five years has been abnormally growing real estate valuations. Our homes had become fat bank accounts. Unreal. Can't last forever. And so the illusion collapses.

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“We are in the midst of the worst financial crisis since the 1930s.” George Sorus, The New Paradigm for Financial Markets, 2008

And let's hear one more comment from George Sorus before we go. Just a reminder that the days of the US dollar being the world's reserve currency are coming to a gradual conclusion.

"… the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency.” “The current crisis is the culmination of a super-boom that has lasted for more than 60 years.", 1-23-2008

David Vaughn

The future legacy of the United States will be the refined art of financial leverage.

© Copyright 2008, Gold Letter Inc.

“The Worldwatch Institute, an organization that focuses on environmental, social and economic trends, says the current rate of global demand for resources is unsustainable.”  

The publisher and its affiliates, officers, directors and owner may actively trade in investments discussed in this newsletter. They may have positions in the securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advisor. Subscribers should not view this publication as offering personalized legal, tax, accounting or investment-related advice. The news and editorial viewpoints, and other information on the investments discussed herein are obtained from sources deemed reliable, but their accuracy is not guaranteed. © Copyright 2008, Gold Letter Inc.

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