Banks, Bailouts and B. S.

February 17, 2009 Gold Stocks, Politics, Predictions 2 Comments

Gold is going higher midst the banks, bailouts and B.S. The Fed and the government cannot stop the derivatives meltdown and have resorted to banks, bailouts and B. S. to cover their culpability.

I hope everyone enjoyed a relaxing president’s day. It appears that the DOW does not want this “stimulus” bill signed today and is voting with it’s feet. The Dow is down 258 at 7,591, the NAS is down 56 at 1,477, the anti gravity pill is still working for the dollar, up .216 (.28%) at 87.59 and gold has moved through the $952 resistance level, up $23.10 at $964.70. A close for gold above the $960 level would start this week off with a bang.

Today I would like to spend a little time and discuss banks, bailouts and the B. S. that is engulfing them. In general these thoughts apply to banks and bailouts globally, but being an American I will focus in on the problem as it applies to the United States. The Fed (which has nothing to do with the Federal Government), the U.S. Government, the Wall Street Banks and the US Congress are all throwing their two cents into the hat in order to protect themselves by lobbying the U.S. Congress to paper over the systemic problems in the banking system with the purpose of slowing the downturn and turning it around. This will not work because the problems are systemic and they all center around the ponzi scheme that is the derivatives market.

migrant mother Banks, Bailouts and B. S.

Pondering The Future?

As is usually the case with huge bureaucracies by the time that they realize that the entire system is in jeopardy it will be too late to stop the collapse. The incredibly stupid piece of legislation that is the “stimulus” bill (I don’t want to get into politics, so suffice it to say that this bill is a financial disaster no matter which party pens it) will most likely be signed into law this Tuesday. This will be the official go signal for inflation to start leaning towards the hyper-inflation mode. Gold & silver prices which are already decoupling from the dollar will be cut loose and move forward without a second glance back.

Gold stocks will soar, and so will metals stocks in general. We are switching from a debt driven economy to a hard asset economy. When the dust settles the major financial powers will have different names, but they will demand commodities in order to drive their economies. China and India will emerge as the worlds manufacturing giants and they will have their day in the sun at the expense of the U.S. Whether it was by accident or by design, the loss of the U.S. manufacturing base to China and India was the beginning of the end of the U.S. as a world power. That move left the U.S. depending on housing and the technology groups to keep the economy going. When the housing bubble burst, technology circled the drain with the banking system and now everything that they supported is being sucked under with them.

In the next few months, all of the supporting industries that feed off of these main groups are going to pull the pin and go under to some extent or another. Printing more money, creating more debt, will not solve the problem, rather it will exacerbate it. If you are driving a race car and you get a flat, you don’t keep racing, you pull into the pits and change the tire. Adding more debt to this financial crisis is exactly the same as continuing to drive with the flat. Wait, I take that back. The Fed’s response is more like, “!’m leading with a flat, so I should pit, add another flat tire and I will be twice as far ahead”.

The Secretary of State, Timothy Geithner (aka: THE ROOKIE) rolled out his plan, without details, last week and it was booed by those in the cheap seats. The “bad bank” idea where the government created a “bad bank” that bought up all of the toxic assets from banks was laughed off the stage because it would not have opened the lending spigots, rather it just saddled the U.S. taxpayer with all of the bad paper.

Another of Mr. Geithner’s ideas, the stress test for banks, won’t see the light of day because that will expose the banks that are in trouble and that is not what you want when your purpose is to paper over the problem. That is what a stress test reveals. On second thought it will see the light of day after all of the results are rigged to get the results that they desire.

The free market would clean up the bad banks if it were allowed to do so. Banks that made bad decisions go under and banks that are solvent buy up their assets at pennies on the dollar. It’s how free markets work. The government can stimulate the economy by reducing it’s size and offering tax cuts to stimulate business and consumerism. That’s what a government that is of and for the people would do.

The current Congress’s decisions might lead one to think that they have an entirely different agenda. Read this quote from Karl Marx in “Das Kapital”.

“Owners of capital will stimulate the working class to buy more and more expensive goods, houses and technology, pushing them to take on more and more expensive debt, until their debt becomes unbearable. The unpaid debt will lead to the bankruptcy of all banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism.”

You can take anything out of this quote that you would like, but it sure is timely and interesting.

As of this date the Fed’s actions and the government bailouts have not fixed the problems with Bank of America. If anything, B of A has become the “bad bank” housing the bad assets of Merrill Lynch and Countrywide. The $138 billion rescue package of B of A is already in trouble and the government will have to pony up more cash if it is going to have any chance of digesting its acquisition of brokerage giant Merrill Lynch. If Merrill Lynch was “too big to fail”, then it would follow that they will not allow B of A to fail since it consumed Merrill Lynch. Rumors have it that B of A will require $80 billion to cover future losses and to rebuild its capital. If that’s the current rumor expect that amount to at least double before the true numbers come out.

All of this banks and bailouts business is leading the government to promote more B.S. in hopes of keeping the lid from flying off. They will not succeed and gold and gold stocks will shine as we get deeper into this mess. You can look at gold as the canary in the mine shaft that signals when trouble is coming. The canary is falling off the perch and trouble is coming fast.

There will be ups and downs as the market in gold goes forward because markets just don’t go straight up or down. It is important that you take advantage of any decreases in the price of gold to accumulate both physical and paper gold (gold stocks). Now is the time to buy gold and gold stocks. There will be dips and plenty of opportunity to buy at good prices relative to where gold is going. Use the time and opportunity wisely.

Till next time, good luck and good trading!

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Anthony Williams says:

February 24, 2009 at 9:17 am

That Marx quote is a HOAX. It has been repeatedly debunked on the web. Marx never said anything close to that in Capital, or anywhere else. Tip off – there was no such thing as consumer “technology” in 1867. The scenario imagined in this quote has nothing to do with Marx’s thoughts on the transition from capitalism to socialism, it is a fabricated quote designed to scare people.
goldbug says:

February 24, 2009 at 9:45 am

Mr. Williams:

Good catch! God only knows that there is no reason to try to scare people today. I stand corrected and would like to see if you can debunk this one.

“The development of Modern Industry, therefore, cuts from under its feet the very foundation on which the bourgeoisie produces and appropriates products. What the bourgeoisie, therefore, produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable.”
(The Communist Manifesto)

The words are different but they convey the same message. I must never forget the golden rule. Believe none of what you read and half of what you see.

Thanks for the tip.