Deadbeats Bailing Out Deadbeats
The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- A few weeks ago I wrote a piece noting that Western regimes that had mismanaged their economies to the point of structural insolvency are now only able to forestall their own debt-defaults by resorting
to "check-kiting."
By that, I meant it has been many decades since most of these nations have actually been paying their bills.
Instead, Western economies have been financed by these Western governments simply writing new checks with nothing backing them to cover the old checks they wrote that also had nothing backing them. This is cheque-kiting, pure and simple.
And the only reason that these sovereign deadbeats haven't yet suffered the inevitable fate of all deadbeats -- having their credit refused and thus being forced into bankruptcy -- is because somehow their propaganda machine has been able to prevent that realization from sinking in with the masses.
This apathy and/or lack of comprehension by the citizenry is disturbing but not surprising. However, where we move past "disturbing" and into the realm of the totally absurd is when media propagandists write about these economies being
"bailed out."
Once again, to truly illustrate this insanity we need to define our terms. A "bailout" implies some entity which possesses financial assets bestowing those assets, either via gift or loan, on some entity lacking financial assets. Immediately upon engaging in this simple exercise, we can state a definitive conclusion: none of these deadbeat-debtors have been "bailed out." Indeed we can go farther than that: it is not even theoretically possible to bail out any of these deadbeats.
Why? That's because all Western entities are net-debtors with their "national account balance" less than zero. Surely even the media drones and market "experts" can understand the concept that one deadbeat with no money cannot financially bail out another deadbeat with no money?
Apparently not. This begs the question: How is it possible that people whose profession it is to understand such concepts are totally incapable of comprehending the simplest possible proposition of logic and arithmetic: You can't "bail out" someone else with nothing?In this case, these people or so-called "experts," are incapable of grasping such elementary premises because they are brainwashing victims. Specifically, they have been deluded into thinking that the banker-paper being conjured-up on the bankers' printing presses (at zero cost, and in near-infinite quantities) has value.
The truth, of course, is entirely opposite. Even from a purely monetary standpoint we can see this has to be the case. Once the last vestige of our gold standard was assassinated by Richard Nixon in 1971, our money became mere "fiat currency." It became mere paper, with no intrinsic value (unlike
actual "money," and doomed to suffer the fate of all fiat-currencies which came before it: collapsing into worthlessness.
However, that element of "worthlessness" on a fundamental level has been replaced by a much more immediate and concrete demonstration of the worthlessness of all this banker-paper: It is being created in near-infinite quantities, and at essentially zero cost.
Any item which is produced in infinite quantities and at zero cost is
by definition worthless.
If this were not the case, the possessor of this infinite quantity of a zero cost good could simply conjure up as much of that good as was necessary and then exchange it for all items of real value which exist in the entire world.
Indeed, this describes our modern monetary system perfectly: a cabal of crooked bankers trying to hide the fact that they are conjuring up infinite quantities of their worthless paper and using that it to buy-up any assets of value which they come across. There is only one difference between an ordinary person seeking to use a massive stack of "Monopoly money" he had accumulated to buy assets or retire debts vs. what our bankers are doing with their mountains of fiat currency: Our governments have decreed that the banker-paper must be accepted as payment. There is absolutely no difference between the two stacks of paper themselves: neither has the tiniest element of intrinsic value.
This concept is absolutely crucial in understanding how close we are to financial Armageddon, for once we understand that our currencies only retain a slight vestige of value by virtue of decree, then we understand that as soon as that "decree" loses its status, the paper instantly becomes worthless. In turn, this is a concept which few readers can grasp: How can the decree of a sovereign entity lose its status?
In the specific case of a decree which turns worthless paper into currency, the decree loses its power the moment the sovereign entity is perceived as being insolvent by the majority.
Thus if insolvent Greece were forced out of the eurozone and began issuing its own currency, it faces a significant obstacle: having anyone inside or outside of Greece accept this new currency as payment for goods. Without broad acceptance, the new currency would quickly plummet into worthlessness from the lack of confidence in its value. Clearly, any new Greek currency would only be stable if it were "backed" - i.e. by reintroducing a gold standard of some sort for Greece's currency.
The situation is no different for all the rest of the Western deadbeat-debtors. All that separates our monetary systems from total and immediate collapse (i.e.
hyperinflation is the erroneous belief of the masses that the worthless paper in our wallets has paper.
The moment this fragile myth is shattered, no more "bail-outs" will be possible -- and all of these check-kiting economies will go under. Because when that day occurs I will no longer be the only one laughing the next time a headline appears about some deadbeat-debtor being "bailed out" via printing stack of worthless paper.
The day that the paper confetti in our wallets loses its status is also the day that the tens of of trillions of dollars of "value" in all these Ponzi-scheme "bonds" also
instantly vanishes. Anything denominated in a worthless currency is by definition worthless.
The reason why it's so important for readers and investors to identify these bond-bubbles today and flee these unstable Ponzi-schemes is because when the bond-holders suddenly all attempt to unload their trillions of dollars in worthless paper this raises yet another question: Where will all those investors take their dwindling wealth?
Note that currencies plunging to zero also implies at least temporary chaos in equity markets, meaning that in any crisis scenario that investors will only be willing to park some of their capital in those markets. As has been the case for thousands of years, there is only one asset class which provides a true "safe haven" for ordinary people in times of financial calamity:
precious metals.
Apart from all the fundamentals-based arguments made by myself and others explaining how and why gold and silver are grossly undervalued today, there is an equally formidable argument to be made on the basis of supply and demand: That soon a tidal wave of frightened investors will all seek to gain entry into this safe haven -- and only those near the front of the line stand any real chance at gaining protection. Those near the back of the line will find that their paper has already lost too much value: that the "price" for gold and silver is now prohibitive.
Like many other communal animals, our species exhibits a distinct "herd complex": the illusory belief that there is always "safety" implied by being part of the herd. Sadly, as is all too well illustrated within the animal kingdom, the safety of the herd is non-existent once
a pack of predators is turned loose.
In yet more absurdity, the propagandists attempt to portray the precious metals sector as representing some
herd-induced "bubble." The facts demonstrate the exact opposite. Historically, precious metals have been an asset class which represented between 5% - 10% of the average portfolio. Today, with most of the herd having shunned precious metals that average is little more than 1% -- making gold and silver and the miners of those metals the most under-owned assets on the planet.
The financial storm is raging. The good-ship "Deadbeat" is about to crash on the rocks. The sanctuary of gold and silver still beckon. It is not yet too late for financial salvationfor those willing to flee these Western paper Ponzi-schemes.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
