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 ( Bullion Bulls Canada) -- With many investors now having descended back to full-fledged panic mode, it is obviously the perfect time to explain why 2011 could never be another event like the "Crash of '08." In distinguishing 2011 from 2008, many of the distinctions involve the degree of collapse which is possible/probable. Thus, I am not rejecting the suggestion that we are on the brink of another "crash," but rather pointing out that the nature of any such crash would be remarkably different. While most sectors of the economy (and most markets) are in worse shape than when the Crash of '08 commenced, there are a couple of sectors which are quite clearly much stronger than in 2008. When we explore this dichotomy, it will quickly become obvious why events could not repeat the scripted "crash" of 2008.
How was this possible? Via leverage. In the case of the silver market, the "excessive leverage" had to be "manufactured" (artificially) through the five, rapid-fire increases in "margin requirements" by the CME Group. Even though this leverage was totally artificial, the banksters were able to take down the market of the world's most undervalued commodity by over 30% in a matter of days. In the summer of 2008, not only was all of the commodities leverage very, very "real," but it was at a level which dwarfed what existed in the silver market in May of this year. As a result, the Crash of '08 saw plunges in commodities prices which roughly ranged from 50% to 75%. More leverage means greater manipulation is possible. Period. In the summer of 2011, leverage in commodities markets is much, much lower than in the summer of 2008. For this, we can thank the propaganda machine and the banksters themselves. Ever since commodities began their inevitable bounce-back, beginning in 2009 we have had a farcical (and very public) "debate" about literally "inflation versus deflation." Since deflation is unequivocally bearish for all commodities (but not gold and silver as "money"), the relentless propaganda in never allowing this "debate" to die down for even a single minute has not only greatly reduced the ratio of "longs" versus "shorts" (compared to 2008), but those who are long are much more cautious than their 2008 peers. In 2008, we had a massive, uninterrupted "run" in commodities markets more than two years in duration. Since 2008, every time there is any sort of "spike" or "froth" in commodities markets, the deflation "Chicken Littles" start their shrieking and the banksters start another shorting "operation." The result is much, much less overall exposure. Less leverage means less "crash potential" -- a lot less.
In 2008, the reckless Ponzi schemes of the compulsive gamblers in Western banking had just begun to implode. They had not (yet) emptied out government coffers in bankster welfare. They had not (yet) destroyed much of their own businesses -- through scamming countless victims with blatant acts of fraud. Thus with a handful of blank checks and a few, convenient "slush funds" these fraudsters were able to avoid instantly vaporizing themselves. However, $trillions in unrealized losses from their scams remain on their own books -- despite best efforts to offload it all onto the balance sheets of sovereign governments, and/or Ben "I buy anything" Bernanke. Fraudulent accounting rules may allow these banking Oligarchs to hide their crippling losses, but the invisible "albatrosses" remain around their necks. Compounding their folly, having avoided even token efforts at "regulation" these compulsive gamblers immediately reverted to placing more massive, leveraged bets in equities markets and their own "casino" (the derivatives market). Give a cocaine addict $100 and he will run to the nearest "crack house." Give a compulsive gambler $100 and he will run to the nearest casino. Our servile governments and central bank "facilitators" fronted these gambling addicts $trillions more (of our money). And now, in any "crash" scenario, those bets will also implode -- and add to their existing, hidden $trillions in losses. While bankster losses are set to hit new, record levels, these ultimate parasites have already emptied out the Treasuries of literally every government in the Western world (and Japan). They have also totally exhausted the tolerance of the "little people" living in these nations. Through first scamming them ruthlessly with their acts of fraud, and then forcing them to cover the banksters' gambling losses -- and now facing punishing "austerity" so that our governments can (supposedly) pay down the added debt from those $trillions in bankster handouts -- there will be no more public bankster welfare. What the corrupt (and unaudited) central banks do privately (via their printing presses) is another matter entirely. With much larger losses, and much less potential for mooching handouts, the banker parasites will not be able to induce another "crash" in 2011 without wounding themselves far more severely. As a reminder, in the world of these reckless gamblers losses far in excess of 100% are not only possible, but likely. The
30,000% loss suffered by Morgan Stanley in a credit default swap "bet" with Citigroup is a good example. The banksters are sitting on tens of trillions of dollars of these bets, in credit default swap markets alone. collapse of Western solvency. Between the $trillions doled out in bankster welfare, and the $trillions in "emergency" payments to the banksters' victims, there has never been such a large and simultaneous explosion in sovereign debts in history -- with the vast majority of this increased debt being piled onto Western economies which were arguably already insolvent.
At the same time that Western debts (and interest payments) have soared exponentially, Western revenues have fallen off a cliff -- the worst
"revenue crisis" in the history of our economies. It comes from a combination of taxing the very wealthy at the lowest rates in history, while having already squeezed dry everyone else. Thus, in any 2011 "crash scenario" Western governments would be looking at the following parameters: 1) A further collapse in revenues. 2) A massive increase in interest payments on debt as soaring total debt and rising interest rates hit these governments with a double whammy. 3) A massive increase in the need for "emergency" transfer payments from their shell-shocked populations. 4) No one (anywhere in the world) who is prepared to lend another dime to these spendthrift Western governments. What this means is that in any crash scenario there are two (and only two) possibilities for Western governments: a) Massive public and private defaults (on tens of trillions of dollars in bad debts), something never before collectively experienced in the global economy. b) Hyperinflationary money printing, as governments with no revenues, no creditors and massive spending requirements have no source of "funding" except the banksters' printing presses. Understand what is really being implied by these scenarios. We will either experience first (a) and then (b) -- or else our governments will simply skip ahead straight to (b). Either way, it is 100% certain that most Western currencies would plunge to near-zero which (naturally) implies the same thing for the tens of trillions of dollars in Western "bonds" which are denominated in those currencies. If a $1,000 bill is worthless, then so too will be any $1,000 bond denominated in the same, debauched currency.
Despite this decade-long bull market, gold and silver collectively account for little more than 2% of global financial assets -- far below previous, historic levels. While frightened sheep ran away from gold and silver in the Crash of '08, they would obviously be running toward those glittering metals in any future market collapse. With not enough metal to "wedge" many more investors into the gold and silver sectors, I have argued strenuously that
gold and silver miners (racking-up "record profits" quarter after quarter) will soon decouple from all other classes of equities -- as those who cannot get their hands on bullion will be forced to settle for the next-best thing. As I continue to acknowledge both publicly and privately, we cannot "rule out" a severe (total) collapse in our economies, suffered as the result of a systemic debt default scenario -- and massive public and private bankruptcies. Those in charge of our governments have absolutely no idea about either what the real problems are in our economies, or what to do about those problems. I simply remind investors of two realities: all investing represents betting upon "probabilities," and the most obvious probability is that the banksters and politicians will continue to attempt to "solve all their problems" with their printing presses. This would mean all paper assets reversing higher, commodities doing better still, and gold and silver (and the miners) doing best of all. The other reality is that both gold and silver bullion (and the shares of the miners) have already proven they could withstand such a crisis (in 2008) -- and in any future "crash" they would be universally preferred by investors (either before or after "cash" goes to zero. There are two very divergent scenarios looming before us. Fortunately there is one strategy which will suffice in all worlds.