Our Current Financial System Is So Toxic, A Collapse Is Imminent

As the Dow and the S&P 500 make new record highs, other global equities are also enjoying a run to the upside.  Yet, many of these economies have little to no economic growth, government debt is rising and in some cases unemployment has hit record highs. Since when do equities rise in the face of dismal economic conditions? The answer is clear. It has happened ever since the US Federal Reserve as well as the other major banks have been printing more money. In other words the prices of global equities are been artificially propped up by this intervention by these central banks.

At the same time, these bankers have managed to supress the price of gold creating the illusion that it is good to invest in equities. After all, bonds yield almost nothing, and owning gold offers no return or any capital appreciation. And, having cash in a bank will simply result in depreciation of purchasing power. In other words, people around the world are being carefully manipulated into buying equities.

Recently, I read an amazing report on how toxic our foodstuffs have become. Our cattle are fed with bad feedstuffs that in some cases include animal parts. They are injected with massive amounts of hormones and antibiotics. Our agricultural lands have been poisoned with toxic fertilizers that rob the soil of its nutrients and our fruits and vegetables have been sprayed with toxins. The thing is, the average consumer has believed all the commercials on TV and believes that all is well with our food.

In reality nothing can be further from the truth. The same applies to our financial system. While you may believe that all is well with the major economies around the world, this is not the case. When it comes to our health, all this toxicity will ultimately manifest itself in terrible diseases and ill-health. And, in the case of this financial toxicity, the eventual consequence will be a collapse in the system. Of course it is difficult to predict the timing of this, but it is better to be prepared now. And, the one way to prepare for a financial meltdown is by owning some physical gold and silver.

While the price of gold remains at these low prices, we have seen strong demand internationally for gold bullion bars and coins. Government mints, refiners and bullion dealers around the world report demand as high as in the aftermath of the Lehman crisis. Many bullion dealers and brokerages have made comments about the overwhelming number of buyers compared to sellers which is making for a tight market with rising premiums. And, the main sellers have been mostly traders using gold futures or options or people liquidating their positions in ETF’s or unallocated positions and opting for taking physical possession or the increased safety of allocated accounts.

The typical investor is adding more physical gold to his/her holdings of gold and have no intention of selling in the coming months even when prices recover. They take a long-term view and understand the dire consequences of the current expansionary monetary policies of the major central banks.

This increased demand only goes to show how many people around the world want to own some physical gold and, the latest attempt to supress prices gave them another incredible buying opportunity.

Central Banks policies vs economic growth

Last week, international markets were influenced by three main events namely the latest policy statement from the US Federal Reserve, then an announcement from the European Central Bank (ECB), and finally the release of the latest employment figures in the US.

Last Wednesday, the US Federal Reserve said it will keep buying $85 billion in bonds each month to keep interest rates low and encourage economic growth.

In a statement the Fed described the economy as expanding moderately but also reiterated that unemployment is still too high, reinforcing their intention to keep buying assets until the outlook for jobs improves substantially.

“Fiscal policy is restraining economic growth,” the Fed said in its policy statement. “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation.” It was the first time, it formally stated that it could increase or decrease bond buying from the current pace.

Economic growth showed some signs of recovery in the first quarter after a dismal end to 2012, but the 2.5% annual rate of expansion fell short of expectations for 3.0% growth, underlining concerns over the outlook for the economic recovery.

While the US housing market continues to show signs of strength, with home prices posting their biggest yearly gain since 2006, economic data released on Tuesday showed that the Chicago purchasing managers’ index dropped to 49.0 in April from 52.4 in March, the lowest level since September 2009.

Since the financial crisis and recession of 2008, the Fed cut overnight interest rates to effectively zero in late 2008. It has also bought over $2.5 trillion in assets, more than tripling its balance sheet, to keep long-term rates low. The Fed’s quantitative-easing program, which raises the risk of inflation, has helped to support gold prices as the

On Thursday last week the European Central Bank cut interest rates to a record low of 0.5% in an effort to combat the deepening recession across the Eurozone. The ECB has cut its benchmark interest rate from 0.75% to an all-time low of 0.5% in an attempt to stimulate the economies in the Eurozone. The decision to cut rates was announced on Thursday by ECB President Mario Draghi at a press conference following a policy meeting in Bratislava.

The move comes on the heels of dismal economic indicators for the 17-country Eurozone. In recent months, inflation has plunged, economic confidence has worsened and unemployment has risen to a record 12% across the single currency region for the first time ever and European youth unemployment remains above 24%. French youth unemployment has risen for 13 months in a row to a record 26.5%; Figures released last week showed the number of jobless people in Spain had reached over 6 million to a record 27.16% during the first three months of this year. Spain (at 57.2% of under-25s unemployed) is catching up fast to Greece’s stunning 59.1%; but perhaps the most concerning for the broader economies is the fact that Italy’s youth unemployment has now topped that of Portugal at 38.4%. The only nation to see a drop in its youth unemployment was Ireland.

Above all, the debt-plagued Southern European countries are not doing as well as hoped, with the economies of Greece, Italy, Portugal and Spain buckling under harsh reforms and soaring unemployment.

The ECB pledged to continue to provide banks with as much liquidity as needed to keep credit flowing in the debt-wracked Eurozone. Speaking at a press conference after the ECB announcement, Draghi said it would keep its liquidity channels wide open.

The ECB will continue to conduct its main weekly refinancing operations (MROs) “for as long as necessary, and at least until … July 8, 2014,” Draghi said.

And the bank’s special refinancing operations “will continue to be conducted for as long as needed, and at least until the end of the second quarter of 2014,” he said.

The three-month longer-term refinancing operations (LTROs) would continue “until the end of the second quarter of 2014,” added the ECB chief.

On Friday, the eagerly awaited non-farm payroll report was released in the US. According to the US Bureau of Labour Statistics, the total non-farm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5%. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.

The total non-farm payroll accounts for approximately 80% of the workers who produce the entire gross domestic product of the United States. The non-farm payroll statistic is reported monthly, on the first Friday of the month, and is used to assist government policy makers and economists determine the current state of the economy and predict future levels of economic activity.

While the policies of central banks have propped up the price of global equities, it has not yet had the desired effect of generating any economic growth. As these banks will persist with their current programmes, the value of their respective currencies will depreciate. At the same time, people who have savings will see the value of their funds gradually erode.

Ireland’s Finance Minister, and current European Council President, Michael Noonan, are keen to introduce a proposal to European finance ministers that will hit depositors that hold over €100,000 in the event of future bank collapses. Noonan is proposing that large depositors (over €100,000) are “bailed in” as part of future bank wind-downs.

According the The Irish Times, “Under a compromise text proposed by the Irish presidency, uninsured deposits of over €100,000 would be “bailed in” in the event that a bank is resolved, but depositors would rank higher than other creditors in the event of a wind-down.”

In this set up there would be “deposit preference” where creditors would first assume losses and bank depositors would accountable at the end of the process.  Can you believe this insanity? Depositors would incur losses that shareholders and creditors would have to suffer in regular insolvency proceedings that apply to other private companies.  But, how come these lying thieves do not mention anything about distributing the bank’s profits to these shareholders in good times. Of course not! Profits are for them and losses are for their depositors.

If you get my message, then you will see how important it is to own some physical gold and silver. In the long-term, they will prove, once again, to be an effective preserver of wealth. Take advantage of the current low prices.

Technical picture

technical_picture_may_7_2013

The price of gold has rebounded from recent lows, but is facing resistance at around $1480 an ounce.

David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients. For more information go to: www.lakeshoretrading.co.za

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