I am back…

I’ve been away sorting out some personal matters and have not been posting for the past few days.

As I return to something resembling my normal routine there are so many things I’d like to write about I don’t know where to start. Things that go from the Kafkian absurdity of Italian life to the absurdity of the commercials being run on Dubai TV aimed at inducing some interpretation of morality, to the ongoing blatant criminal actions of our governments, to musings on life as a legal alien in societies that so desperately want to emulate the West but can’t.

I need some time to figure out how I am going to put all this down in a way that wont make me look like I’m having a hysterical fit.

In the meantime, deflationary forces are bearing down on our economies and our way of life with increasing intensity. Unsurprisingly, the people I have come across during my travels in the past two weeks are more concerned with Iran and North Korea than with the fact that our governments are bankrupt not only materially but morally too. So just when I thought that the bastion of idiocy that is the mainstream press had outlived its usefulness, I am forced to admit that they have been remarkably successful in conjuring and foisting upon the masses a version of reality that finds fault in everyone else and everywhere else but our politicians or our system of government.

But what is more disconcerting still is the virtually total ignorance of what a monetary system is, what it should do or how it should work let alone have an idea of what are the characteristics and ramifications of a fiat monetary system.

As I type this I take a peek at the Money Multiplier. What the MM is telling me is that despite all the Trillion Dollars that have been shoveled into government projects, into banks and selected companies each new Dollar generated no longer has a multiplier effect on the wider economy. Now; considering that our health care systems, our schools, our hospitals and the infrastructure of our cities have been neglected over the years ostensibly due to lack of funds but that in just twelve months we were able to produce several Trillion Dollars worth of cash and guarantees to “save” the banks, the MM tells me that the banks have not been saved and neither has industry or the consumer.

And here is the kicker. If I am right and we are now about to embark on a second round of asset devaluations, those banks we saved by merging them with other banks because either the latter or the former was too big to fail, are now in some cases twice as big since then. Hence they are now twice too big to fail… which begs the question… how many more Trillions are we going to produce to “save” these monoliths? Can we produce several dozen more Trillion Dollars at will and without consequences?

Bullion is still looking awfully good from where I’m standing.

Addendum written on Sept 20th

I’d like to clarify the conclusion of the piece above.

If I am right that the underlying causes of the crisis we are witnessing have not been tackled and have actually become worse, then it follows that the problem banks that were folded into the presumably healthy banks still represent the same or greater risk.

If that is the case, as the second round of asset devaluations unfolds, problem banks have now become much larger than they were a year ago. So, if the problem was too large then, today the problem would be cataclysmic and this time it will be on a biblical scale.

In this regard, these people have nothing good to report regarding banks:

http://us1.institutionalriskanalytics.com/pub/IRANews.asp

Excerpt:

In Q2 2009 the preliminary bank safety and soundness ratings calculated by the IRA Bank Monitor using the data from the FDIC indicate a dramatic climb in the stress in the US banking industry, up 23% to 6.87 in Q2 2009 (1995=1) vs. the preliminary Stress Index value of 5.57 in Q1 2009.”

Now, the reason I advocate holding bullion is not because I fear hyperinflation as popular wisdom holds. I advocate holding bullion because I fear the destruction of a number of the most important trading currencies globally. In my opinion, bullion is now the only viable currency along with some other resources too.

Pundits declaring that bullion is an inflation hedge obviously make use of a definition of inflation that is faulty. Inflation as measured by the expansion of credit and money has been running at over twice the rate of GDP expansion for the past thirty years. So for the best part of 30 years we’ve lived in a highly inflationary environment and yet gold lost ground in a manner of speaking. However today, total credit and money are contracting indicating deflation. Deflation brings about the bankruptcy of leveraged entities. Today, nobody is more leveraged than the governments of Japan and the West. Sovereign bankruptcy will bring about the failure of currencies. That being the case, gold and silver are responding as strong currencies would; they are rising in price against a basket of currencies and other assets.

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