Just a simple click on the Economy tag, at the bottom of this post will list a ton of articles illustrating our dire circumstances we find ourselves in so I don’t intend to dissertate on the how and why we got here but rather what I think will happen from here on out.
Silver has made the most noticeable move recently falling 30% in a week. It was on the brink of setting an all time high when the CFTC stepped in and manipulated the rules of the game by tightening margin requirements. This coupled with a dollar rally sent the market into a tailspin as investors wonder if this is 1980 all over again. It’s not.
Let’s consider our situation, we are currently 14.5 trillion dollars in debt, we have to finance 1.6 trillion dollar deficit as well as rolling over 2.4 trillion in expiring debt. This is 4 trillion dollars that someone must buy. Is Japan buying in the wake of one of the worlds worst natural disasters? No. Are the American people buying when a 3 year T-bill yields less than 1% meanwhile inflation even by official measure is running more than double that? Only a fool would be considering you are losing at least 1% per year and closer to 8-10% since the government stats are bogus anyway. China has drastically cut back its buying of US Treasuries so the privately owned Federal Reserve buys somewhere in the vicinity of 70-90% of US Debt.
Unemployment remains at least 10% in reality it’s close to double that, house prices continue to fall off a cliff, the dollar, though it has rallied sharply this week still is in the tank and consumers are feeling high inflation in the worst places, food and energy.
So what can the Fed do?
In decades and years past any time unemployment rose, or the stock market fell they would lower interest rates…… Can’t do that now they have been at 0 for 3 years.
In decades and years past when inflation got to high they would raise interest rates…… Can’t do that either, doing so would destroy the feeble housing market, make the interest on the national debt close to 1 trillion per year by itself, destroy corporate earnings due to higher borrowing costs coupled with the fact that consumers couldn’t afford to borrow to buy things and their house prices would be falling off of a cliff, the stock market would tank because people aren’t buying things and 70% of GDP is based on consumption.
So as you can see these bankers have themselves in quite the pickle. When QE and QE2 were announced enough deleveraging was going and had gone on that consumer prices remained relatively stable, oil was well under 100 and this kept a lot of food prices in check. This time when QE2 runs out next month inflation is apparent everywhere you look. Food prices are high, gas prices are high, materials are expensive etc. There is no way that even the braindead Americans will buy the “there is no inflation” line of crap from Ben Shalom Bernanke.
So quite literally they are darned if they do darned if they don’t. Either fork in this road that they chose is going to decimate our way of life. The problem is we are on the wrong road. We say it all the time but it is Gods honest truth, our government spending is so out of control that it has brought the strongest nation in the history of the planet to the bring of total collapse. If government doesn’t cut 75% of it’s spending and not just balance the budget but have 1 trillion per year in surplus than there is a 0% chance of survival.
So from here on out was the original intent of the post. What will they do? Same thing they always do, the only thing they can, print money on a Biblical scale. So what should you do for long term investments? Buy things that will benefit from this money printing. For me it’s Gold and Silver (also lead and brass) if you know of anything better I’m all ears.
Silver may still slide farther, may move sideways for months, but I would take this 30% drop as a gift from above. You thought this ship had sailed? Well it has turned around and headed back to port, make sure you jump on it this time. Ask yourself, does it honestly matter if you buy at 35 and 2 months later it goes to 25 (at which time you should buy more) but 5 years from now it’s 100?