Saturday, December 11, 2010
The recent disclosures about the Fed bailouts are an important milestone in the ongoing global currency/sovereign-debt crisis. The American people are slowly beginning to realize the people who control the value of their money can't be trusted.
Remember... we were told the Fed's trillions of dollars in bailouts were an emergency measure... only temporary... and only done for companies that posed a "systematic" risk to the global markets. It turns out none of that was true. Instead, the printing has become permanent policy. The bailouts have continued – and gotten bigger. And the rescued companies were politically sophisticated, not crucial to the economy.
What's next? True political rage over the idea we should bail out Europe. I was interviewed in the Gold Report this past July about the building crisis in Europe. Everything I predicted has come to pass...
Porter Stansberry: From my perspective, nothing Europe has done so far is anywhere in the ballpark of allowing them to pay down the principal on their obligations. They haven't massively devalued their currencies, although Hungary is in the process of doing so with its florint. They certainly haven't lowered the structural costs of their economies, and I don't know that they will be willing or able to do that.
Let me be very clear. I am not at all in favor of competitive devaluation. That's one of the big weaknesses of the world's paper currency standards. Every country gets out of trouble by basically robbing its citizens by taking away their purchasing power, but that is what has to be done in the world as it exists today.
For Europe to get back on its feet and to have real growth, it's going to have to massively devalue the euro, and I expect the euro's structure to change significantly. These governments can cut their budgets and live under "austerity," but all that's really going to do is slow down their economies even more and make them even less competitive globally. That's why gold and silver are such important hedges for people to have.
The Gold Report: So austerity won't work.
Porter Stansberry: No, I don't think the European model is going to work. And because it's the world's largest economic bloc, you're not going to see global growth rebound until some kind of drastic restructuring of Europe's sovereign debts takes place, or until the euro massively devalues.
As more creditors come to doubt these debt structures, you're going to see a really big problem because Europe will be forced to monetize a lot of debt. That eventually will result in a lot of devaluation and a lot of inflation. Investors see all this coming, and of course are withdrawing from that currency zone...
I think eventually you'll see some global solution to the sovereign debt problem... What I foresee is the Fed opening big swap lines with the ECB, and the European Central Bank buying sovereign debts of all these garbage states as they did with Greece. They're just going to do their very best to inflate it away.
Will they be successful? I can't say; this is a huge experiment in central banking. But if and when the Fed starts buying up Spanish debt, the American people will go haywire. They won't stand for it. I don't want to be long in stocks that day, I'll tell you that.
As longtime readers know, I've been warning about the current crisis since 2005. I saw it coming by looking at the books of the world's major corporations – GM, GE, Fannie, Freddie, etc. Since then, central bank bailouts and off-balance sheet arrangements – like the U.S. bailout of Fannie and Freddie – have passed on these debts to sovereign borrowers.
Here's the key point to remember: Bailing out the banks and the corporations didn't make the debt go away. It merely socialized it. And the only way to actually pay it back is through an enormous inflation. That's what is underway right now. That's why energy prices are soaring. That's why agricultural prices are soaring. And that's why precious metals prices are soaring.
It doesn't take a financial genius to realize we can't all get rich through inflation. Sooner or later, this thing is going to crack. When it does, there will be hell to pay. What do you think will happen when the 40 million Americans on food stamps can't afford to buy bread anymore because it costs $10 a loaf? Can't happen here? It already is.
I don't think another analyst in the world has spent as much time as I have studying these bad debts and the coming crisis. I urge you to watch the video I've made about these issues. I caution you, it's about an hour long. There's still time to protect yourself from the crisis that's about to take our country by storm... But not much... All I can do is warn you. You have to educate yourself. And you have to take action.
Date Range:12/2/2010 to 12/9/2010
Date Range:12/2/2010 to 12/9/2010