Friday, June 29, 2012

Connecting The Dots

This week may very well go down as 'connect the dots' week. Things have been moving so quickly, so let's step back briefly and review the big picture from the week's events:

1) After weeks... months... even years of posturing and denial, Spain and Cyprus became the fourth and fifth countries to formally request aid from Europe's bailout funds on Monday.
In doing so, these governments have officially confessed to their own insolvency and the insolvency of their respective banking systems.
Meanwhile, Slovenia's prime minister said that his country may soon ask for a bailout. (Humorously, Slovenia's Finance Minister denied any such plans.)
Spain's 10-year bond yield jumped to over 7% again in response, and many Spanish banks were downgraded to junk status by Moodys.
2) Over in the US, the city of Stockton, California filed for bankruptcy this week... the largest so far, but certainly a mere drop in the proverbial bucket.
3) JP Morgan, considered to be among the few 'good' banks remaining in the US, conceded that the $2 billion loss they announced several weeks ago might actually be more like $9 billion.

Time For Plan B
In the United States and elsewhere, this is shaping up to be the retirement era of scraping by and making do.
But not everywhere. In some key spots, not only can you maintain the standard of living you enjoyed during your hard-working years...you can improve it! You can live better than you ever did "back home."

4) The Federal Reserve reported yesterday that foreigners are reducing their holdings of US Treasuries.
5) Countries from Ukraine to Kazakstan to Turkey announced that they have purchased gold in recent months to bolster their growing reserves.
6) Chile has joined a growing list of countries that has agreed to bypass the US dollar and settle all of its trade with China in renminbi.
7) China has further announced plans to create a special zone in Shenzhen, one of its wealthiest cities, to allow full exchange and convertibility of the renminbi.
8) World banking regulators from the Bank of International Settlements to the FDIC are proposing that gold bullion be treated as a risk-free cash equivalent by commercial banks.
So... what we can see from this week's events is:
- European governments are insolvent
- European banks are insolvent
- US governments are heading in that direction
- Even the best US banks are not as strong as believed
- Foreigners are abandoning the US dollar and seeking alternatives
- Gold is money
These events are all connected, and the trend is becoming so clear that even the most casual observers are starting to wake up.
When you connect the dots, the next steps lead to what may soon be regarded as an obvious conclusion: the system, as it exists right now, is crumbling.
No amount of self-delusion can make this go away.
Rational thinking and measured action, on the other hand, can make the consequences go away... turning people from victims into spectators of the greatest bubble burst in modern times.
Until tomorrow,
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Simon Black
Senior Editor, SovereignMan.com

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