DON’T LOOK DOWN: PETER KATT
http://www.familysecuritymatters.org/publications/detail/dont-look-down?f=puball
The title refers to the loveable Wylie E. Coyote screaming off a cliff with legs churning and no recognition that gravity will eventually have its way with him. This gravitational force is a metaphor for an unsustainable worldwide financial system built on fiat currency debt. Collapse would be due to hyperinflation. Such a collapse could be sudden or ~ a decade. Unfortunately, even most self-reliant Americans have no clue what is headed this way because the MSM is ignorant and has a rooting interest in believing we are well on the way to recovery with unemployment falling, the deficit cut in half and soaring asset values. Utter rubbish. With information instantly available to all (www.zerohedge.com and http://www.economicnoise.com/ are a must), ignorance of “the rest of the story” is appalling – but bring a Fed official, CEO or rosy analyst into the studio and these intrepid reporters simply gush.
Obama isn’t the cause of the potential financial tsunami coming ashore, though he is a powerful accelerant to it with every policy he has put in place. Instead this possible collapse has been building since 1971 when Nixon took us off the gold standard. And of course W. Bush contributed mightily to our circumstance as the second largest spender in history and not noticing the debt bubble inflating.
As I believe correctly described here http://www.internationalman.com/articles/understanding-hyperinflation (see Loss Due to Hyperinflation), the hyperinflation that causes catastrophe will be unlike the 1970s with rising interest rates, prices and wages because we are far worse off now. If interest rates begin to soar in order to sell our debt, it is over.
The dollar is backed by nothing but confidence that the US will remain a financial and military superpower capable and willing to defend itself and paying its debts. In the cold light of reality our dollar has less value than your laundry ticket, because the laundry ticket is at least backed up by the value of the clothes it redeems.
While $17 Trillion is the agreed amount of the national debt, it doesn’t include all the unfunded and underfunded obligations and commitments of all governments (national, states and localities). According to various contrarian experts, the actual number could be in the $100 to $200T range. That it could be this high is due to government deception and incompetence. A very important recent study by professor James Hamilton of University of California – San Diego found that off-sheet obligations of the federal government were $70T in 2012, six times what was reported. Off-sheet obligations are government trust funds (the biggies Social Security, Medicare) and things like student loan guarantees and FHA and deposit guarantees. (See http://econweb.ucsd.edu/~jhamilto/Cato_paper.pdf).
There can be an unfathomable mystery to how financial information is reported by governments at all levels. I looked at the FHA 2013 Annual Report and found $213B loans insured (FHA liabilities), but the amount of asset reserves wasn’t noted. Amongst the flowery PC self-congratulatory language in the report was the comment “negative 1.44 percent capital ratio.”(It was plus 6.6 percent in 2008). I don’t know exactly what the capital ratio means in this context, but I’m sure it isn’t good since the report noted that FHA was implementing plans to improve it.
The illusion of financial security is due to the aforementioned deceptions and incompetence and the Fed continuing near zero interest rates and asset purchases (AKA, quantitative easing = money printing). But can we believe the Fed’s claim to have reduced its asset purchases and now telling us they will end them altogether in November? There are reports of very large Treasury purchases by a Belgium “investor”. This is suspicious because the amount of these purchases are three times Belgium’s GDP (www.zerohedge.com). Many close observers of our financial system do not believe the Fed can stop asset purchases (either officially or using surrogates) or let interest rates come off the floor without a recession / depression far worse than 2008 because there is no ammo left. So calamity, if it occurs, will be sudden. But for almost everyone, the obvious evidence will only be understood as history. Who knew?
If hyperinflation hits, our currency would soon collapse as in the Weimar Republic. But what is likely to be very different is that this it will be worldwide (e.g., the EU is in worse shape than we are and China has the real estate bubble of all time, and nearly all of its private lenders are bankrupt bringing the engine of its growth, individuals, to their knees). Chaos would follow collapse- a Mad Max existence (that would be infinitely worse if occurring on Obama’s watch). The self-reliant, already prepared and in defendable locales will do well under the circumstances if we are able to avoid WWIII. If so, new forms of barter / money will arise in many areas throughout the US and world that will eventually consolidate into a few. Certainly gold and silver will be central to some of these. And don’t be surprised if Bitcoin or its progeny play a role.
But we are good as long as Wylie doesn’t look down.
These Events Would Negatively Affect Confidence in the Dollar (Not Definitive List)
De-Dollarization – While not covered by MSM, many countries (notably Russia and China) are discussing and moving towards dropping the dollar as the currency for trade and using their own currency or a basket of “not-dollars”. Over the Fourth weekend the governor of the French National Bank and member of the ECB;s governing board issued a direct threat to the dollar remaining the world’s reserve currency. If this were to build and we lose our favored currency position many bad things would begin, including but not limited to spiking interest rates as bonds are rolled-over and new one’s issued (if there are buyers for them at all).
Where is the Gold? – Those paying close attention to gold believe that the NYC Fed and London vaults are mostly empty. After the Fed refused a German request to audit its gold in 2012, Germany requested its return in February 2013. After private negotiations it was “agreed” that the German gold would be returned in 2020. Now Reuters reports that Germany has “decided” not to bring back its 635 tons stored in NYC at all. (http://www.economicnoise.com/2014/07/08/got-gold-2/).
War, Not Nuclear -A regional conflict that is rapidly expanding and the US stays on the sidelines. There is no need to detail this as we all know the current and likely combatants. In this circumstance, not only would the price of oil soar but the international community would have full confirmation that the US has withdrawn. This concern would subside with a Republican president in 2017.
Derivatives Blow – These are mostly unregulated “bets” on the future result of a financial event as simple as whether a coin will land on heads or tails, or AIG’s contracts insuring the solvency of CDOs packaged and sold in the 2000s. AIG was bailed out by taxpayers to insure all of the banks got their money. Since derivatives aren’t regulated we don’t know the notional value of them worldwide. It has been reported they exceed $250T in US and ~ a Quadrillion worldwide.
Wave After Wave of Bad News – There are bubbles everywhere. They don’t have to burst at once. And here is one for you – Las Vegas is close to being out of water. The artificially created Lake Mead is at its lowest point since 1937 with no relief in sight. But why worry, Vegas only has one of the highest per capita daily water usages at 219 gallons compared to San Francisco’s 49 gallons. (See http://www.zerohedge.com/news/2014-06-30/las-vegas-screwed-water-situation-bad-you-can-imagine). How depressing if Las Vegas has to shut down until torrential rains (like, say Miami in the desert) or digging and hooking up a water-pipeline to the Great Lakes. Being a proud Michigander, the price would really need to be right.
Devastating 9/11 or Worse Attack – What needs to be said? We’ve been here.
Last Election
This heading refers to the oft mentioned pending political retirement of Obama. But events this week (invasion at the border) should cause us to wonder whether it is really referring to 2012 (or 2014) as the last American election, a culmination of the Cloward-Piven, Alinsky playbooks. Is this Obama orchestrated incursion at the border the plan to goad militias into a confrontation (Cliven Bundy like), that turns violent followed by the Obama forces slaughtering them and using this as a pretense to declare martial law?
What has stopped me from becoming downright paranoid is the thought that Obama doesn’t command that kind of loyalty of the various governmental jurisdictions to carry it out. Then July 12 Drudge posted this piece http://www.infowars.com/homeland-security-feds-swarm-small-town-in-bizarre-unannounced-show-of-force/, about a massive show of force that included federal and local forces (including a black helicopter) in an Illinois town of 850 for a raid on a house. The last paragraph is chilling, “Back in May, Indiana Police Sergeant Dan Downing admitted that the militarization of domestic law enforcement was partly to deal with returning veterans who are now seen as a homegrown terror threat. A local Fox affiliate reported that the cops were now “armed for war” against such threats.”
Perhaps even preparing for a financial collapse is too little – too late.
In any event, hope for the best but prepare for the worst (or reality).
FamilySecurityMatters.org Contributor Peter Katt is a nationally recognized insurance expert who has authored more than 200 columns and articles on various insurance issues.
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