"The collapse of the U.S. economy is a certainty - only the manner
in which it will happen has yet to be determined. It is just a matter of time
before the global derivatives bubble will produce the same result that has
occurred to every other currency not backed by gold throughout history -
those currencies, our 'money', will become worthless."
Those were the alarming words of Jeff Nielson of BullionBullsCanada.com
in a recent speech* which has been edited and reformatted below (with his
permission) for the sake of brevity and clarity.
Derivatives: An Unregulated One Quadrillion Dollar Market
"Warren Buffett once described derivatives as 'financial weapons of
mass destruction' - and for a very good reason. While U.S. 'unfunded
liabilities' are larger than the entire global economy, the derivatives
market is 20 times larger than the entire global economy - at an astonishing
$1 quadrillion. Yes, you heard me correctly - $1 quadrillion! And get this -
this derivative market is totally unregulated. It is totally lacking in
transparency, meaning that all we know about this $1 quadrillion mountain of
banker-paper is what the bankers tell us."
Nielson pointed out that "During the 2008 U.S. financial crisis, the
Wall Street banks required $10 trillion in loans, hand outs and guarantees
just to temporarily prevent their bankruptcy - more than all other bail-outs
for all the rest of the world, for all of history, combined - and the entire
crisis was based upon settling the derivatives positions of just one Wall
Street investment bank, namely, Lehman Brothers - and even that $10 trillion
was not enough to prevent the collapse of the U.S. financial sector."
Furthermore, "The Wall Street banks also needed to have the U.S.
accounting rules changed, so that they could assign their own 'fantasy
valuations' to the debts/assets on their books, instead of the actual market
value of those assets" said Nielson. "Without those most radical
accounting changes in history the Wall Street banks would have been reporting
their own bankruptcies rather than reporting their supposed 'record'
profits."
All Is NOT As It Seems
Nielson went on to say that "While the Wall Street banks brag about
billions in supposed profits, there are still trillions of dollars of toxic
assets being hidden off their balance sheets. We know there has been no
increase in the real value of these 'assets' because, in just 2 years, the
average amount of losses on their books has increased 5-fold relative to the
value of their assets when the first bank failures occurred. Thus, if
anything, these 'toxic assets' are even more worthless than they were when
the collapse began.
Despite this huge mountain of unstable debt, Wall Street has actually
increased the size of the derivatives bubble by 30% since the U.S.
housing-bubble first burst. This caused Neil Barofsky, the U.S. 'watch-dog'
assigned to oversee the TARP bail-out, to exclaim recently that the risk of
collapse of the entire U.S. financial sector has increased not decreased
saying:
"Even if TARP saved our financial system from driving off a cliff
back in 2008, absent meaningful reform, we are still driving on the same
winding road, but this time in a faster car."
A Serious Dilemma Faces Investors
"As I see it," said Nielson, "there is no solution for the
U.S.'s economic problems. "With U.S. hyperinflation likely, but a
deflationary collapse still possible, this not only creates a frightening
scenario for us to face as individuals, but a serious dilemma for investors.
Do we prepare for deflation, or hyperinflation - or, is it possible to
prepare for both?"
"Such a defensive investment philosophy is called wealth preservation
and, in my opinion,' said Nielson, "investors need precious metals
components, i.e. 'good money', in their portfolios because they are
'currencies' that cannot be diluted through inflation or destroyed by
imploding debt."
Why the Need for 'Good Money'?
Nielson pointed out that, while paper 'money' is both uniform and evenly
divisible, it is neither rare nor precious and that the paper it is printed
on has no intrinsic or aesthetic value compared to precious metals.,
reminding his audience that "In less than the 100 years that the Federal
Reserve has existed, the U.S. dollar has lost approximately 97% of its
purchasing power."
It important to understand the above properties of 'good money' said
Nielson "because, contrary to the economic propaganda from the
mainstream media, the events of today are unparalleled in history." He
then conveyed that:
- more countries are carrying debts than at any time in history
- the aggregate size of these debts are more than ten times greater than at
any other time in history
- the whole world is off a "gold standard" for the first time in
history - meaning there is nothing backing all these mountains of debt.
What Happens to Money During a Deflationary Implosion or a Hyperinflationary
Scenario?
a) Hyperinflationary Scenario
"Gold and silver have always retained 100% of their value in past
hyperinflationary environment while paper money has gone to zero"
maintained Nielson.
b) Deflationary Scenario
Nielson believes the circumstances surrounding a potential deflationary
collapse are unique this time round in that we are not talking about a
"recession" or even a "depression" but, instead, about
entire nations effectively going bankrupt and defaulting on their massive
debts claiming that "with none of the world's currencies backed by
anything, paper "money" is now essentially nothing but the
unsecured IOUs of the governments issuing those currencies. As such, he
postulated that:
1. were such governments to default then billions (trillions?) of dollars
of government bonds would have very "questionable" value - if not
become totally worthless
2. were government bonds to become worthless, then the paper currencies of
those governments would also become worthless
3. were government bonds to become worthless, then the government would
have no ability to borrow any money to fund government spending - and would
have no choice but to simply print unlimited amounts of un-backed paper money
that would be nothing more than unsecured IOUs. Nielson conclude the
aforementioned with the question: "What is the value of an IOU from a debtor
who has already defaulted on his debts? The answer is: zero."
Summary
Nielson explained that "Where a deflationary implosion differs from
hyperinflation is that in such an implosion all asset-prices become severely
depressed and most people are more likely to move to cash because of its
supposed buying power. Eventually, however, in either scenario, paper
currencies would go to zero."
Conclusion
He concluded his remarks with the following advice: "You need to hold
'good money' and the ultimate 'stores of value' - the only "good
money" - is gold and silver and thus the best protection from the
events that lie ahead."
*Source: http://www.bullionbullscanada.com/index.php?o...&Itemid=141
