I have decided, for no particular reason,

That everything we see or hear about the economy and it's international future is dross.  I believe I see clearly what others don't, because I have no skin in the game.  It doesn't matter to me what happens outside my small community of acquaintances. Some share my views; some don't. The ones who do are are either petrified into inaction or are pretending nothing is wrong and the world can borrow it's way out of debt.

That isn't possible, but you aren't going to hear it much.  What you WILL hear is to pay down your debts and buy precious metal.  By paying down your debt, you are only helping to make their toxic assets good.  You aren't helping yourself.  Any buying into a precious metal bubble, (even though some pretty smart people I know  believe that silver is going to go higher than $100 an ounce and gold may hit $12,000).  Not possible.  If it were going to be worth that kind of money, NO ONE WOULD BE SELLING IT!  Just like my friends who didn't sell gold at $1,960 because they are convinced it is going to $12,000.  But suppose it goes to $300 instead and silver goes to $12?  There is ZERO reason that cannot happen tomorrow.  When it does, those people will be stuck in what is now the new buzzword: Liquidity trap.  Or, an upside down liquidity trap, depending upon your point of view.  The result is the same.  You have something – property, metal, whatever, that you bought to hedge against loss of wealth but you can't sell it, it is worthless.  You can try to negotiate with the bank, but you won't be able to because you have nothing to bring to the table.

The bank won't take gold – and the people who have it won't be walking through town with twenty or fifty pounds of gold or silver.  But they do not realise it quite yet.

When no sovereign country can pay it's debts DEFLATION happens first, with higher interest rates and tight credit. The money supply won't crash because of printed dollars.  It will crash because the number of printed dollars in circulation will have to equal the actual market value of the equity that it can be exchanged for.  That is not a printing function – it is a market function and it is completely out of balance.

However, banks and lenders learned nothing after 2008 and are back to business as usual.  I have a friend whose house is worth about $100k.  A lender sent an appraiser who appraised it at about $260k.  So my friend paid off his higher-interest debt AND took $150k in cash out at a pretty good interest rate. 

Think about it.  if the crash happens and banks and lenders have to mark-to-market, they will take a $160k haircut on the property value.  That means they will also have to reduce the amount of the loan proportionally, or my friend will walk away from the mortgage.  Conversely, if they hold the original value on their books to prop up their debt ratio requirements so they don't go bankrupt, my friend can either demand a reduced loan amount or simply stop paying and the bank can't repossess – or, again, it would have to mark the property to market and explain why the sold a liar's loan when THEY are the liars.

It becomes more interesting every day.



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