Sunday, February 14, 2016

Some previews from the past

Do you remember the 2008 financial crisis?   It will soon be returning to a neighborhood near you, only it's going to be even bigger this time.  In the last eight years every nation has gotten deeper into debt, and the surviving banks (those that were bailed out in 2008) have gotten bigger and have taken even greater risks, thanks to seven years of 0% interest rates, $3 trillion printed by the Fed, and trillions more printed by other central banks in Europe and Asia.

You may think you have money in your bank account, but even in good times the vault doesn't have a single penny with your name on it.  There's a number on a computer somewhere that indicates your account balance, but the money isn't there.

Tom asks for $242 dollars, which before 1935 was equivalent to 12 ounces of gold.  Do you have 12 ounces of gold?  If not, it will cost you $14,800 to get it at February 2016 prices.

On the other side of your bank account there are people with student debt, car loans, and home mortgages who will soon stop making their payments to your bank.  In theory the bank can repossess the cars and homes and get *something* back when the borrowers default, but if everyone defaults at the same time, and cars and homes all hit the auction block simultaneously, then prices will plummet and the banks won't recoup the money that you think is in your account. Corporations have also been seduced into borrowing billions of dollars that they can't pay back, and much of their debt is in the bond market where it waits to implode.  When this all goes down, the ugly truth will finally slap you in the face: the banks can't even maintain the electronic numbers, let alone actual physical money.  It's all gone.

... UNLESS the Federal Reserve Bank steps in first and prints trillions of dollars more in order to bail out all of the bad debt before the implosion happens. Yes, that will ensure that you still have your electronic numbers at the bank, but the fatal side effect is that you'll be spending $1000 per day on food.  As I've been saying for a while now, one way or another, "a great deal of illusory capital is about to disappear."

1 comment:

Cathy said...

After we got done rolling on the floor with that South Park clip . . . we started looking for the local coin shop.