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Fear & Loathing in the Sovereign Debt Markets

Hunter S Thompson would love the scene, macabre and getting worse…
 
When big banks were caught with loads of toxic debt on their balance sheets in 2008, political leaders on both sides of the Atlantic took the easy way out, transferring those debts to government balance sheets, not unlike when a little kid cleans his room by just shoving everything under the bed. The bedroom is still not cleaned up, just as the toxic debts have still not been properly priced and/or purged out of the system.
 
The first signs of govt debt issues came about in Spring 2010 with the birth of the PIIGS acronym, the name given to the financially weaker members of the European Union – Portugal, Italy, Ireland, Greece, and Spain. The Euro dropped all the way to under $1.20, a bailout was reached (again, shoving everything under the bed), and the Euro bounced back strongly.
 
Now jump ahead to mid 2011 – Greece is again a mess in need of a bailout, Spain has 21% unemployment and the accompanying unrest, Italy’s debt is 120% of GDP and, at 7 times larger than Greece, has been called both ‘too big to fail’ and ‘too big to save’. Meanwhile, Portugal’s new premier has stated “…I will not stand by and allow Europe to govern Portugal”, referencing the European Union mandated austerity measures which have already rocked Greece, triggering riots and unrest as the banks/bondholders demand full repayment of their bonds. Here in the states, all the tough talk on the debt ceiling has quieted down, as even Republican leaders have instead talked of the dire consequences of not raising the debt limit (which without drastic future spending cuts – at least $8 trillion over the next 10 years – is yet again, just shoving everything under the bed).
 
So how does this relate to precious metals, shining ever so brightly these days with silver back above $40/oz and gold at all time highs over $1,600/oz? Well, contrary to what our Central Banker in Chief (Big Bad Bearded Ben) said last Wednesday (at the 4:58 mark here), gold and it’s ‘lesser’ cousin silver ARE money. Additionally, people are realizing that precious metals are better money than the unbacked currency we use everyday, as they hold their purchasing power in a time when Dollars and Euros are being printed ad infinitum to paper over the sovereign debt issues both here and abroad. 
 
Outlook
It’s hard to say exactly how all this is going to turn out, but it will definitely be messy. There are many signs that the EU (European Union) will not hold together in its current form, as the the whole premise was flawed from the get-go…how can you have a one-size-fits-all monetary policy when each member country has its own, distinct fiscal policy? Here in the states, again contrary to what BBBB (Big Bad Bearded Ben) says, we are experiencing inflation that is NOT transitory in nature, as China has been not only raising wages paid to its workers (thereby also raising the prices of all products made there), but also aggressively buying more of the same stuff we buy – more money in their pockets, greater demand for the same amount of goods – prices rise. For example, look at pork – it represents over 1/2 the meat they consume, they are buying more of it these days, and hence pork prices are up 38% so far this year.
 
The bottom line is, we are not the huge elephant on the block anymore, dominating the global economy like we have in the past. Prices will rise in spite of flat to reduced demand here in the states due to the poor economy. The best way to defend yourself from the ravages of this price inflation, as well as our govt consistently debasing our currency, is to buy precious metals…ergo, gold is poised for its 11th straight year of price gains, and silver’s rally continues as well, now up around 10-fold since late 2001.
 
– Todd S Robinson, Global Bullion Advisory Services
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