Or have our financial woes only just begun?
By Craig R Smith, Chairman, Swiss America
July 28, 2010
The average person on the street believes the worst of this financial crisis is behind us and the economy and the country are now on the mend.
While that assessment is debatable I will indulge such a scenario to be a good sport. Let's say all is well and that we are miles away from the edge of the abyss we stared into in the fall of 2008.
What will be the aftermath of the recent crisis? And what, as producers, consumers and savers in America can we reasonably expect? In my opinion, the takers aren't entitled to expect anything; including their next unearned check.
Let's look at some of the economic challenges we still face and the possible solutions being proposed to address them.
America, along with most of the world, is still steeped in excruciating levels of debt. Governments globally have bailed out banks and financial institutions from the brink with borrowed money. If these governments had worked from a surplus, there would be no further burden. However these countries, and as such their citizens, now carry all those losses in the form of additional debt. Our national debt alone is $13.5 trillion.
How will this debt ever be repaid?
America is facing an annual budget deficit in excess of $1.5 trillion with no end in sight. At that pace we will soon face over $15 trillion in short-term debt with long-term obligations well over $120 trillion. This is unsustainable under any scenario. We cannot grow our way out of a debt that ominous. Especially when more takers are being added,through entitlements, to the dole daily.
Truth be told we need a complete overhaul of entitlements in America but few elected officials have the political will to make that happen. As the number of takers grows and producers diminishes, I am becoming less optimistic about the prospects for a happy outcome.
So that brings me back to where I started.
Let's say the worst is behind us. What lies ahead?
More of the same we have experienced over the last four decades. A long-term devaluation of the U.S. dollar, additional government spending adding to the debt and higher cost of living for each citizen as the government continues to mismanage the nation.
There have been no appreciable fundamental changes to the structure that caused the 2008 crisis. Banks are still operating with the same blindness to risk as they were pre-crisis. In fact America's portion of the worldwide $1.28 quadrillion in risky derivatives has still yet to be addressed. People who took out mortgages are still defaulting on their obligation to pay without any penalty. Unemployed people are continuing to receive benefits for not working instead of being forced to get a job and even multiple jobs if necessary. 40 million Americans are now receiving food stamps with the number growing 20% a year. And soon the best news of all: free healthcare. Did you hear Mr. Obama? Free!
At a time when we should not be spending money on entitlements, Obama and company have opened the spigot full blast. The birthright of every American now includes food, shelter, clothing, healthcare and a pay check regardless if the individual actually has a job.
Therefore, I expect we will continue to see exactly what we have seen since 1971. Lower dollar values and higher costs of living as taxes and devalued dollars steal wealth from each one of us. This will include an ever-increasing dependent class of Americans who expect government to meet their every want and need.
As a result, we at Swiss America have implored the public and our clients alike to purchase gold as a hedge against what we foresee ahead. Massive increases in the size of government and its spending habits have all but assured the demise of the U.S. Dollar.
As for those who would tell us all is well and buying gold is foolish I have the following answer; YOU ARE WRONG! Gold opponents always point to the last run up in gold back in 79/80. The price exploded from $100/oz to $850/oz only to fall back to $300/oz and sit there for 20 years. But keep in mind, 79/80 was only an eight-month event. A result of four years of Carter's mismanagement, inflation and the Misery index.
The recent move in gold has been a 10-year building process. A direct result of nations, including ours, debasing their currencies in order to address rampant runaway debt. Investors, bankers and money managers worldwide have responded to the reckless fiscal behavior of these countries, like Greece to superpowers like the United States, by purchasing gold for protection.
After several attempts to bail the world out through financial bubbles, intelligent people have awoken to the truth. That the path we have been on is not going to be altered and will produce the same results as in the past.
The only answer for a country who can print money is to do just that. It is well known Mr. Bernanke and the Federal Reserve have pumped over $3 trillion into the system to “save” it. They have saved it alright. Only to live another day until it collapses in the future, when its no longer their problem.
The days of living from financial bubble to bubble are over. From the dot com bubble, to the stock market, to the housing market and even now the bond market. The bubbles have all burst and now is the time more than any other in the past to be prepared with assets that withstand the test of time.
Gold prices could easily move north of $2,000/oz with all the world debt we can anticipate maturing in the near future. The recent pullback in gold prices represents a great “entrance point” opportunity.
So for all those who would have you believe the worst is behind us and all is well, they may be right. But it will be short lived. When the next crisis comes, and the experts all agree it will, will you be prepared? Or will you be a day or two too late? When inflation and the ramifications of debasing international currencies all hit at once, gold at $1200 will look like a bargain.
Gold will not look back after that day.
Boom and bust have been our history. The “Gay nineties” led us into the crisis of 1907. The “Roaring Twenties” led us into the Great Depression of 1929-1942. The “Fabulous Fifties” ended with the massive recession/inflation of the 1970s. The “Decade of Greed” led to the dot com bubble, the stock bubbles and the recession of early 2000. The “Recovery of 2002” led right into the housing bubble of 2004-2007.
Will we get through this crisis? Absolutely. And while the jobs have yet to return there are some hopeful signs going forward. But will that be enough to address the debt and burdens the world faces or is it just a lull until the next crisis befalls us?
I am convinced the next crisis is going to be of such proportion that the recovery will be far more painful, if not impossible, than prior crisis/recoveries. Why? Because the U.S. Dollar will not strengthen, it will weaken. We will not see balanced budgets and repayment of debt. We will see governments defaulting on obligations that cannot be met without printing money 24/7.
And when that day arrives, which I and many others see in our future, gold will be your only safe harbor. Rich and poor will be created overnight. The ones who will benefit are the ones who have prepared.
Ask yourselves one question: If all is well and the world's countries are going to pay off all their debt, balance their respective budgets, live within their fiscal means and have far more producers than takers in their systems; why is gold still just under $1200/oz? Why has it not gone back to $300/oz? Why hasn't every central bank sold their gold instead of what they are actually doing? Buying more. Why has the bond market not reversed from a record 10-year rate below 3%? Why haven't all currencies strengthened and full employment returned?
You and I both know the answer. So don't wait to buy gold. Buy gold today and wait.