The gold price
Silver & Gold: "A Sure Bet" - 21 May 2010
Silver and Gold Investing highlighted by the Greek Eurozone crisis...
WHAT A SPECTACLE, writes Porter Stansberry in Daily Wealth...
In an utter and complete repudiation of its founding principles, the Eurozone central bank (ECB) has decided to copy the US Federal Reserve's 2008-2009 strategy of "papering over" Europe's massive debt problems.
The ECB will provide nearly unlimited credit to Europe's sovereign borrowers, while also buying troubled assets from Europe's largest banks.
This latest development has caused a significant change in what I call "the most important chart in the world".
Readers of my investment advisory are familiar with the chart by now...as we've been publishing it nearly every month...and even more frequently in the daily S&A Digest. It shows the value of US government long bonds (represented by the bond fund, ticker TLT), the price of gold (represented by the GLD Gold ETF), and the Silver Price (represented by the SLV silver trust fund).
This is the battle for monetary supremacy. Because the market is arguing over a fundamental question: What is money? Dollars? Gold? Or silver?
For more than 60 years, the US Dollar has unquestionably been the world's safest, most liquid form of money – its reserve currency. During times of economic trouble, investors rush to buy US bonds as a safe haven, causing their value to rise sharply.
And that's what happened – briefly – during the Greek crisis last month. But then, something changed. As soon as the ECB announced its big bailout and established a swap line with the US Treasury (more about this below), investors realized there's no real difference between the US Dollar and the Euro. They are simply different names for the same thing: paper money. And investors understand the value of paper money may finally collapse under the weight of these massive sovereign debts.
What did investors buy when they sold the US Dollar in this crisis? Where did they run? As you can see, in reaction to the ECB announcement, investors bought gold...and to an increasing degree, silver. I believe this preference for metallic money will continue to strengthen as the financial problems of the US Treasury begin to mount.
If you ignore this trend, you will be financially destroyed over the next several years. If you act now to protect yourself and your family, it will be the greatest single investment decision of your life.
Now, let's look more closely at what the Europeans have done to stave off the collapse of the European Union...
To maintain a veneer of legality, the ECB will create an off-balance-sheet entity to "borrow" roughly $1 trillion from itself, the US Federal Reserve, and the IMF. Europe's member states agreed to guarantee these debts, which the ECB claims will be "riskless" because they're simply loans between central banks.
At the root of every paper currency arrangement is a simple scheme to grant credit where none is due. In this case, the scheme is designed to give credit to bankrupt governments in the European Union, via guarantees from those same bankrupt governments and additional credit from the US Treasury, which is itself a troubled creditor at best.
In short, the ECB is going to print up lots of Euros and give them to the least creditworthy states and the worst bankers in Europe.
The politicians apparently believe this massive infusion of new money and credit will "jumpstart" the European economy, which will then produce enough tax revenue and banking profits to finance these new debts. Don't laugh...
Meanwhile, to ensure this action doesn't result in a collapse of the Euro currency, the Federal Reserve has agreed to open a "swap" line, which will allow the ECB to fund as much of these news "loans" with Dollars as is necessary to prevent a run on their currency.
Will this work? At the risk of dramatic future inflation, will creditors really be willing to accept devalued Euros, which offer investors almost nothing in interest payments? I don't think there's a chance in hell.
The reason paper money systems always fail is because they provide no practical limit to credit. New currency reserves can always be printed. Bad debts – credit defaults – can be "papered over" rather than restructured. The stability of paper money systems seems like a virtue. The ability to simply manufacture money – without a deposit or true asset as collateral – is the ultimate financial sinecure. As long as confidence in the system remains, the amount of credit that can be manufactured seems limitless.
Unfortunately, this always leads to more debt. At some point, the whole system simply collapses. The debts become so large, they create an untenable economic imbalance, overwhelming the real economy. And when the credit bubble finally bursts, it doesn't destroy just one or two banks' house of cards. It wipes out the entire system, which is linked together by the currency itself.
Remember...this just isn't about problems in Europe. The United States is in the same situation: under huge debts we cannot hope to repay.
I recommend you protect yourself by holding real assets like energy, gold, and Silver Bullion.
WHAT A SPECTACLE, writes Porter Stansberry in Daily Wealth...
In an utter and complete repudiation of its founding principles, the Eurozone central bank (ECB) has decided to copy the US Federal Reserve's 2008-2009 strategy of "papering over" Europe's massive debt problems.
The ECB will provide nearly unlimited credit to Europe's sovereign borrowers, while also buying troubled assets from Europe's largest banks.
This latest development has caused a significant change in what I call "the most important chart in the world".
Readers of my investment advisory are familiar with the chart by now...as we've been publishing it nearly every month...and even more frequently in the daily S&A Digest. It shows the value of US government long bonds (represented by the bond fund, ticker TLT), the price of gold (represented by the GLD Gold ETF), and the Silver Price (represented by the SLV silver trust fund).
This is the battle for monetary supremacy. Because the market is arguing over a fundamental question: What is money? Dollars? Gold? Or silver?
For more than 60 years, the US Dollar has unquestionably been the world's safest, most liquid form of money – its reserve currency. During times of economic trouble, investors rush to buy US bonds as a safe haven, causing their value to rise sharply.
And that's what happened – briefly – during the Greek crisis last month. But then, something changed. As soon as the ECB announced its big bailout and established a swap line with the US Treasury (more about this below), investors realized there's no real difference between the US Dollar and the Euro. They are simply different names for the same thing: paper money. And investors understand the value of paper money may finally collapse under the weight of these massive sovereign debts.
What did investors buy when they sold the US Dollar in this crisis? Where did they run? As you can see, in reaction to the ECB announcement, investors bought gold...and to an increasing degree, silver. I believe this preference for metallic money will continue to strengthen as the financial problems of the US Treasury begin to mount.
If you ignore this trend, you will be financially destroyed over the next several years. If you act now to protect yourself and your family, it will be the greatest single investment decision of your life.
Now, let's look more closely at what the Europeans have done to stave off the collapse of the European Union...
To maintain a veneer of legality, the ECB will create an off-balance-sheet entity to "borrow" roughly $1 trillion from itself, the US Federal Reserve, and the IMF. Europe's member states agreed to guarantee these debts, which the ECB claims will be "riskless" because they're simply loans between central banks.
At the root of every paper currency arrangement is a simple scheme to grant credit where none is due. In this case, the scheme is designed to give credit to bankrupt governments in the European Union, via guarantees from those same bankrupt governments and additional credit from the US Treasury, which is itself a troubled creditor at best.
In short, the ECB is going to print up lots of Euros and give them to the least creditworthy states and the worst bankers in Europe.
The politicians apparently believe this massive infusion of new money and credit will "jumpstart" the European economy, which will then produce enough tax revenue and banking profits to finance these new debts. Don't laugh...
Meanwhile, to ensure this action doesn't result in a collapse of the Euro currency, the Federal Reserve has agreed to open a "swap" line, which will allow the ECB to fund as much of these news "loans" with Dollars as is necessary to prevent a run on their currency.
Will this work? At the risk of dramatic future inflation, will creditors really be willing to accept devalued Euros, which offer investors almost nothing in interest payments? I don't think there's a chance in hell.
The reason paper money systems always fail is because they provide no practical limit to credit. New currency reserves can always be printed. Bad debts – credit defaults – can be "papered over" rather than restructured. The stability of paper money systems seems like a virtue. The ability to simply manufacture money – without a deposit or true asset as collateral – is the ultimate financial sinecure. As long as confidence in the system remains, the amount of credit that can be manufactured seems limitless.
Unfortunately, this always leads to more debt. At some point, the whole system simply collapses. The debts become so large, they create an untenable economic imbalance, overwhelming the real economy. And when the credit bubble finally bursts, it doesn't destroy just one or two banks' house of cards. It wipes out the entire system, which is linked together by the currency itself.
Remember...this just isn't about problems in Europe. The United States is in the same situation: under huge debts we cannot hope to repay.
I recommend you protect yourself by holding real assets like energy, gold, and Silver Bullion.
Porter Stansberry, 21 May '10
Porter Stansberry is founder and publisher of Stansberry & Associates Investment Research, a private financial publishing company based in Baltimore, Maryland, and editor of the monthly Porter Stansberry's Investment Advisory.
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