Gradually- then all at once!

I have spoken in the past about how many things happen so fast that most are taken by surprise.

It does not help that we are propagandized 24/7 about how “great!” things are so that most people cannot discern the real state of our economy. Add to that TRILLIONS in currency units to cover up the implosion of our economy and the illusion is maintained- at least for a while.

I woke up on Sunday morning to the news that Syria’s government had been overthrown. When I left my office on Friday, I had just read that Iraq was sending troops and equipment to help the Assad regime. I was stunned when just a few hours later the jig was up. Later on, we found out that Assad had fled Syria and was in Russia.

This got me thinking about how tenuous the situation must have been in Syria, but the real situation was unknown because of the propaganda that was being spread and kept most people in the dark. Even experts like Scott Ritter (Former UN arms inspector) were surprised by the ease with which the country was overthrown.

I am sure that MUCH more will come out in the future, but it appears that the military just decided to give up.

The reason that this appears important to me is that we could easily see a similar situation take place in our economy.

In reality, things that appear to happen in an “all at once” moment have been brewing for a long time until that final snowflake causes an avalanche.

In the past 10 years-at least- we (USA) have been attempting to overthrow Assad. Many other external enemies were attempting to do the same. The country has been at war for a long time. It is likely that all of the fighting and strife had sufficiently weakened the regime where all it took was an organized effort to end it.

I see a similar situation here. Luckily, we have so far avoided actual bombs going off and insurgent uprisings, but we are certainly participating in wars around the globe and are in a financial war with most of the rest of the world.

Our economy is so weak that it cannot function without trillions of dollars being conjured up out of nowhere. At the same time those “in charge” use the newly created debt to pretend that there is actual growth in the economy when there is actually contraction in economic activity.

Almost all of the metrics we would like to see rising like sales, earnings, economic activity, money velocity and industrial production are all falling- even when we count debt as growth.

Almost all the metrics we would like to see falling are rising like homelessness, joblessness, bankruptcies, home affordability, and PRICES.

I remember when the Soviet Union collapsed the propaganda was “All is GREAT!” right up to the day of their demise. In reality, it had been coming for decades. Who knows? If THEY had the world’s reserve currency maybe they could have gotten another decade or two of kicking the can down the road.

It is my opinion that our “point of no return” arrived in 2008. The system seized up and since then this has been nothing but a “printing” spree to mask the economic and debt rot that is plaguing the entire debt-based system.

This is not only a problem here in the USA but also in most of the developed world. It appears that everywhere you look there is an effort to postpone a debt-default by issuing more debt. This will just make the ultimate correction that much more severe.

As central banks conjure up cash out of nowhere and buy assets- mostly bonds and stocks- it causes PRICES to rise. The sad fact is that it gives an illusion of wealth to many where FAR less wealth actually exists. You see- the very act of “printing and buying” causes PRICES to rise but there is NO CORRESPONDING VALUE that is created. This creates a vacuum between the PRICE of an asset and its actual VALUE that has to be reconciled at some point.

How many 401k millionaires out there are placing their trust in these artificially inflated numbers for their future income and security?

Unless a miracle takes place and economic activity somehow starts to skyrocket, we have to expect what Jeremy Grantham of GMO calls a reversion to the mean- or a repricing of assets to reflect their actual VALUE.

Since each new unit of debt has INTEREST attached to it the increased interest payments are a drag on future growth. Money spent on interest cannot be used for investment or R&D, so a resurgence of growth is unlikely until the current debt is extinguished one way or another.

The extinguishing of debt by default would lead to catastrophic losses not only in bonds but also in stocks and real estate. Paying off the debt with newly created “money” would make today’s inflation look like the 1920s.

Keep in mind that the exact opposite is taking place in the gold and silver “markets” where paper contracts can be conjured up in almost unlimited amounts to give the illusion of FAR more gold and silver being available than actually exists. This fools the algorithms into selling and “investors” into panicking.

This allows central banks, major banks, and billionaires to get the gold at a major discount because even though central banks list gold as a tier 1 (riskless) asset the public perceives volatility as riskiness and leads them to shy away from holding it. How better to buy it all than to keep the competition out?

This worked for years until the central banks started BUYING particularly gold in record amounts. This is draining the physical metal and is leading to a price that is determined -as it should be- in the physical and not the paper “markets”.

The signs are all there. It is just that most people cannot see it.

Do not be surprised that at some time in the near future we have our “all at once” moment in our “markets” and we see circuit breakers kick in for at least a few days in a row. Some assets will be repriced FAR lower, and others will be repriced FAR HIGHER. BUY LOW-SELL HIGH.

Be Prepared!

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