By Mickey Walker-October 2, 2011
Someone asked me today to call them up this afternoon and
please give them a lesson in what is going on in our financial world. Does that bring a smile to your face? It brings a crooked one to mine. How could I possibly know? I think at times that maybe the
Illuminati doesn’t even know. And
word is they are supposed to know sh—from Shinola. If those world barons of finance and
government control really exist, right?
Stocks have crashed this week almost 600 points on the Dow,
Gold is down today, September 23, 2011 to $1666.00 per troy ounce (whoops, now
at $1650 in less than 10 minutes) from a high 30 days ago of $1924.00. Wait, make that $1648 in less than a minute! Silver follows gold like a thirsty Heifer
being led single file to the slaughter. So what’s going on? Precious metals seem to be on a tailspin death dive after climbing
steadily without much of a hitch for many months now. The boys in the back room of financial institutions
recommend having lots of physical gold and some gold certificates in your
portfolio. Why? Because, the smart money says, you
might need it if paper fiat money inflates off the face of the earth and your dollars burn up and go “poof” from
the Fed’s printing too many of them. Last count shows that the Fed has printed over 2 Trillion in new bills
in the last 2 and a half years. Such dilution of value is scary. Prices at the grocery have already shot up like a rocket in just a
year. Is inflation beginning to
rear its ugly head as we were warned it would? And if gold and silver would replace dollars as a medium of
exchange for gasoline, food, and other staples, would this be a world we would
want to live in? A chilling thought.
Greece, they say, is close to the edge of the world in
default and is about to fall off. So what does that mean? Well, one of the proposals to get Greece on financial life-support once
again mandates giving Greek bonds a 50% haircut. What that means is that normally a bond
matures and is worth a preset redeemable amount of 100 cents on the
dollar. That is called PAR. So magic scissors come down with an
unseen hand and cut the bond interest rate in half.
If you hold $10,000 Greek bonds @ 8% interest per year worth
of Greek bonds that were sold to you at Par yesterday, now the interest rate
has been haircut to 4%. So instead
of getting $800 per year off your Greek bonds, you will now receive $400 per
year. Pay no attention to the
$10,000 printed on neither the bond certificate nor the man behind the screen
with the scissors. Your $10,000
Greek bonds would be worth much less than $10,000 due to the arbitrary
adjustment of interest downward. Would it be apropos to say, hair(cut) today, gone tomorrow? Or par today…….gone tomorrow? It is indeed a messy business
haircutting the value of bonds from Greece and other countries in the world
just so the countries can stay afloat.
So what does this do for Greece? It cuts their debt in half. Instantly. Greece
is in business again. The amount
of interest Greece has to pay on its debt to maintain its life as a real country
with traffic cops, mayors, sanitation workers, dept. of tourism, and national
parks like the Pantheon, for example, is cut in half. Buys more time quite neatly. And those left holding the bag are the bondholders whose
capital in Greece bonds is cut in half. To get there, to reorganize Greece must default on its original bonds.
Greece is in the world spotlight, so how is this affecting
world markets in other lands, and what is causing their markets to plunge,
too? The ripple effect of fear
seems to be alive and well. Simply
stated, the rest of the world fears that they might be next. And the stock markets in most all
countries and their massive amounts of borrowed money in the form of bonds is
susceptible to the same austere ring of “No tickee, no washee.” Everything falls down in disarray when
countries default on their loans. And Americans are feeling a bit skeptical what with 14.3 Trillion
dollars borrowed and spent and the compound interest that is accumulating with
every tick of the clock. So what
might happen if the United States would ever default on its debt? Perish the thought. Things like government services would
cease to be. Social Security
checks would not get sent out. Hospitals would not accept Medicare. Governor Rick Perry might be hard pressed to pay his
electric bill, but not really because it is certain he has emergency generators
in the wings. Buses would stop running. There would be a run on banks with mobs seeking to get their money in
their hot hands. Police, firemen
and garbage men would be without pay and fuel to get to their destinations. Pandemonium would prevail.
How did we get to this place? You know, on the precipice to disaster where many nations of
the world have borrowed so heavily that they could just fall like dominos one
after another? More to the point,
could we have prevented such a crisis? Why did no one protest very strongly when all this borrowing began? In a Cabinet meeting of Bush II, a
question arose about borrowing more money to finance all the wars, the
expensive toilet seats Uncle Sam buys. Bush II was against it, but Cheney piped up that “It is our mandate now
to follow through on military spending to defeat terrorism, and Reagan taught
us that deficits don’t matter.”
A deficit is the shortfall of funds that you need to borrow
to keep operating as a nation of governed people. That is the amount short of federal income from taxes and
royalties that is needed to keep the country running and the bills paid on
time.
In Greece’s case, Goldman-Sachs propped the country up with
derivatives, a temporary measure to buy them time, and derivatives turn out
usually to be more disastrous than real cures. And they were. Goldman only made things worse.
When all the countries of the world are so accustomed to
borrowing the shortfall amounts needed to run government services and then that
ability to borrow is suddenly frozen, it becomes crunch time. What to do? Right now, Japan and China are making noises about not
getting further into debt with the United States. Those countries are threatening to stop lending to the
United States to cover its needs in paying for services and commodities already
on the books and a vital part of America’s existence as a nation. China says it favors taking away the US
dollar as the world currency. Now,
for example, if a country wishes to buy oil it first has to convert its
currency to US dollars, then purchase the oil. Many economists predict financial Armageddon for America if that were to happen. Who can say what the financial
landscape would look like if it came to pass? No one knows, but it looks grim.
The tough times began to come to our shores when borrowing
and spending became a way of life. Ronald Reagan borrowed 3 Trillion dollars in 8 years to defeat Russia,
the Evil Empire, he called the Russians. Then Bush II borrowed and spent an additional 4 Trillion dollars on
attacking and occupying Afghanistan and Iraq. It has been over 8 years since that time and the debt has
grown immensely. We cannot pay
just the interest on what we have borrowed from the Chinese. We ran out of money. And now it appears we will run out of
lenders to help us stave off bankruptcy and shutting the government down. See it’s not just Greece’s problem, it
is ours and the rest of the world’s problem. We borrowed too much and spent too much for our own
good. President Obama and the
Congress have said much about the problem we face. There has been much jaw-boning, but very little progress on
meaningful solutions. We borrowed
too much and lived too high on the hog, that’s all. Plain and simple. So what will happen when the sh—hits the fan? I don’t know. Will angry people all over the world riot for food and water
and medicine freshly ripped from their hands because now their respective
government cannot pay the piper? I
hate to say it but I don’t know that either. It is hard to know much after everything of real value gets
shelled out and the husks discarded on the ground.
Should we buy US Treasury Bonds now? The yield is at an historic 60-year low
in yield because of great world demand in panic scenarios. But why would they want US bonds when
we have a 14.3 Trillion dollar debt? Does it seem like the US is a good risk right now on paying interest and
making good the principal of its bonds? It would appear that that is true as the world flocks to US Treasuries
like never before. Apparently the
world still sees the United States and its recently downgraded Standard and
Poor’s paper as a better risk than any other time in history. But why? I wish I knew that answer too. But I don’t. These are new times.
A Blackjack dealer in Vegas told me once that if the world
ever fell upon hard times there were 2 staples to own and hoard. These 2 items, she said, would never
lose their luster and demand, and would sit on the shelf forever with no
tending. I begged her to tell me
about these 2 items, and she said with a wry smile, “Whisky and
Cigarettes.” Hmmm. In lieu of the great financial gurus
and geniuses that have led us to this dark crossroads in our history, and their
track record, maybe Whisky and Cigarettes would be one of the best hard-times
investment vehicles one could buy. To trade, of course, for like food and gasoline.