An Insane Financial World

We know that most western governments are deficit spending, borrowing heavily, in debt beyond the point of no return and must increase taxes and appropriations from their citizens.

We know that politicians will take the politically expedient path instead of addressing financial problems.  We know they will “extend and pretend,” delay, and distract the populace.

We know that war has been a nearly constant distraction since 9-11 and that a crisis is often used as a justification for economic insanity, such as borrowing more to address an excessive debt problem.  It seems likely that weakening economies, deflationary forces, excessive debt, massive unemployment, riots, economic anxiety, consumer price inflation, and so much more, will require more distractions.  We should “rig for stormy weather” and expect another crisis and more wars.

Bankers, politicians and military contractors will benefit.  IN OUR INSANE WORLD WE MIGHT ASK:

• What happens to our financial system and the price of gold when western central banks are no longer willing or able to ship gold to Asia in exchange for fiat currencies held by Russia and China?
• What would happen if the Chinese government announced that it will buy gold at $2,000 per ounce to boost their stockpile? When gold is no longer available at $2,000 per ounce, might they offer $4,000 or $6,000?
• What would happen if the central banks of the world admitted that Quantitative Easing is primarily beneficial for banks and the wealthy, and that QE has been a failure at stimulating western economies?
• What would happen to global confidence if central banks admitted that consumer prices will rise substantially due to QE and inflation of the money supply?
• What would happen if commercial banks announced they will charge you for depositing your currency in their bank? (Oops, that has already happened.)
• What should we expect if banks penalize savers for depositing (loaning) currency to a bank? We should expect an increasing use of cash – actual paper notes.  But there appears to be a “war on cash” in western countries.  Discourage cash, force deposits into banks, charge for those deposits, squeeze savers as much as possible, increase controls, and boost financial system bonuses.
• What if bail-ins occur, and the banks take your deposited funds to pay off creditors, such as other banks who bought or sold derivative contracts? (If the bail-in is announced late on a Friday and the banks are closed the next week for “restructuring” you will have no opportunity to remove your currency from the bank.  In Cyprus the insiders and politically connected escaped with their funds while many other individuals and businesses discovered their accounts had been “bailed-in.”)
• What happens if governments eventually announce that most retirement accounts and pension plans will be required to purchase continually devaluing government issued bonds?
• What happens if trust and confidence in the financial system are lost, banks no longer trust banks, businesses no longer trust they will be paid, and individuals no longer trust their governments or the pieces of paper we call money?
• The Fed has reduced interest rates so investors are chasing yield in all the wrong places, such as junk bonds. What happens when many of those junk bonds, which may have been stuffed into your bond mutual funds and pension plans, are priced at their true value – much less than face value?

What are the consequences?

A few words come to mind:  anger, anguish, bankruptcy, betrayal, depression, recession, repression, riots, stagflation, and trauma.

In a saner world, we will depend far less on fiat currencies that are devalued easily and inevitably.  Instead we will trust gold and silver more and paper much less. 

My advice:  Create your own financial sanity!

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Gary Christenson

The Deviant Investor