This is a time when investors should really be concerned, and not because of the current correction in the gold price. What we are facing is an unprecedented situation with most sovereign states being bankrupt, and the banking system also being bankrupt.
But at the same time stock markets are at a high, and so many investors are happy. They are being led into having a false sense of security because they don’t understand that it’s the printed money that’s creating another asset bubble in the stock market.
Printed money is looking for a home and the stock market is the most obvious one. This asset bubble will lead to a disaster. The stock market is headed for a major long-term decline that will begin in 2013...
Only a very small handful of people know what’s happening today. My wish is that even more people around the world will tune in to the wisdom of your guests in the coming year.
Take Jim Sinclair as an example, his interviews are invaluable to your readers. Jim has no vested interest, but still he spends most of his time trying to educate investors as to how to preserve their wealth. Jim understand what’s happening today with money, major markets, derivatives, and he also understands the risks the global financial system faces going forward.
So when Jim tells people to get their money out of the banking system, investors should take this very seriously. Jim is also communicating to people that it is urgent they take action immediately. Remember, you can’t buy fire insurance after the house has burned down.
There will be exchange controls in the future, and assets in the financial system, whether its cash or pension money, are likely to be appropriated and then used by governments to shore up their balance sheets. Also, remember that when gold was confiscated in 1933, gold owned and stored outside of the US by Americans was not confiscated. It is much harder for a government to reach outside of their own country.
But wherever we look there are massive problems with the financial system, and the world economy is on quicksand. Look at Cyprus as an example: Of course Cyprus doesn’t have the $13 billion they need in order to get the $10 billion from the EU. So the EU won’t help them.
The bail out now needed is $25 billion. That’s $5 billion higher than first anticipated, and they will probably need more than that. And look at the rumored gold sale for Cyprus. That was nonsense from the beginning. I’m sure Cyprus doesn’t even have that gold. It’s most probably been lent into the market already.
Take Portugal, the austerity measures imposed by the EU were blocked by the constitutional court last week. And those austerity measures were a condition for further EU financing. This is what I have been saying for some time that austerity will not be accepted by any country because any government that tries austerity will be thrown out.
So Portugal is in a real mess again. They owe 78 billion euros to the EU, and now they must turn to the market to finance further borrowing requirements. They will require another 14 billion euros in 2014, and the EU has said they won’t lend it to them. The banking system is failing in Slovenia, and their toxic debt is 18% of GDP. So the banking system there is essentially bankrupt and they will need a package soon.
Look at Spain, where house prices continue to collapse. They are now down more than 30% in some areas since the peak in 2006, and the Spanish non-performing loans are surging. This means that the Spanish banking system is bankrupt. Their loans will most likely never be repaid.
Malta is also about to make the news because of their problems, and Greek youth unemployment has now reached a remarkable 60% as the Greek tragedy continues to worsen. The situation in Greece really is catastrophic, and in other Southern European countries it also continues to deteriorate.
We will then see the problems emerge in Italy and France. But as you look further north you have Holland and the UK which are headed for disaster. So all of Europe will be under pressure over the next couple of years.
But it’s not only Europe. If you look at the US, the US is just lucky they can print money. The US has the same problems as most European countries with its massive debt and deficits, but the US still has the reserve currency of the world so they can print $85 billion each month. You have to remember that the US also runs another $100 billion deficit each month.
So the US is in a bigger mess because of the size of the economy, but they are lucky that in the short-term they can print money without the dollar collapsing. But that will change over time and eventually the dollar will collapse. Even if you look at China, China has a massive credit bubble. Total loans in China are now 240% of GDP, and corporate borrowings are massive as well. This will only lead to internal defaults on debt and more money printing from the Chinese.
The bottom line is that wherever we turn there is pressure on the financial system and that will only increase, and in the next few months we will see fires begin to burn in several countries. This is when countries around the world will have to take joint action, and at that time people will see a massive global package. This package will include the Fed, ECB, Bank of Japan, Bank of England, IMF, and possibly even the Bank of China. This will be a stunning package in terms of its size.
Remember, the global derivatives have increased in size from $100 trillion in 1998, to $1.2 quadrillion today. A lot of these derivatives are worthless, especially when the counterparty fails, which will happen. And when we see that counterparty failure, this will lead to unimaginable money printing.
So, I believe people are really beginning to understanding that they must take action now. They shouldn’t be concerned about the temporary pressure on gold. This decline has nothing to do with the physical market because enormous demand for gold continues.
The paper market in gold is not a real market, and at some point in the near future paper gold holders will wake up and realize they are holding are worthless pieces of paper. This is when the world will witness one of the greatest short squeezes in history as investors panic in to physical and the price of gold explodes to the upside.