Spurious rumors, small substantiating facts, incontrovertible
evidence, and finally, undeniable conclusions. Were
now at the undeniable conclusions stage. The buildup has been slow, but steady,
the dots, sometimes slow to connect, are now doing so, and the only question
remains how many more sets of eyes will be opened before the inevitable
Obviously, anyone who writes, talks, or communicates about these
matters does so in the hopes that it will prompt even one more person to wake
up and take measures to protect themselves and their own. Those who choose
the blissful elixir of ignorance have no one to blame but the guy in the
mirror. Many have written me saying they missed the boat and as such are not
going to bother trying because itll all
work out somehow. I literally weep for those of you who think that any of
these people have your best interests at heart when they create and implement
policy. If you arent concerned for
the future of your children, grandchildren, and the health of this nation,
please depart from us. Go read the sports page or the funnies. Seriously.
This material is not for the faint of heart or mind or those who lack
Never before in American history have we seen such a pitiful,
pathetic, and anemic response to challenges and trials. We are truly a
society of wimps. Spiritual wimps, devoid of any courage and conviction when
it comes to speaking the truth, and milquetoast coelenterates for failing to
look past our own materialism to accept the common truth that what we have
been doing is simply not sustainable. You and me both. Lets
dig into the undeniable conclusions, shall we?
Chasing the Parabola
Even beyond the common sense of anyone willing to grasp the concept
that we are in debt not for $16+ Trillion and growing steadily, but many
times more than that when an honest derivation is compiled, is that there is
simply no way to pay this back using conventional means. By conventional means
I mean producing beyond consumption, saving, and paying down the debt. Why?
We live (despite some recent shifts) primarily in a petroleum based economy.
There simply isnt enough oil on
this planet to burn that would permit the kind of growth necessary to pay off
our debts. Never mind the fact that America is still running massive monthly
trade deficits. So were still diving further into the
red. The USGovt is still borrowing money
nearly $5 billion a day at last count, and were STILL going
110 mph in the wrong direction. We cannot even logically begin the discussion
of improving things when there is absolutely no recognition of the fact that
were still piling on the mistakes.
Before the problem can even be addressed, our leaders would have to
come up with and implement a plan that would set us on even keel on an
annual basis, then move forward from there. The
social and economic pain necessary to do that is politically unfathomable to
those who serve no useful purpose outside the arena of politics. And we have
allowed it to become this way. We allowed them to transition from public
servants to lifetime wards of We the People.
This is not a political essay, but in short, we cannot expect our leaders to
the do the right thing. They have neither the courage to do what is right,
the expertise to identify the right steps, nor the skills to implement them.
Government does not create; government destroys. And the bigger government
gets, the more it destroys. Ours, along with those of most of the developed world,
has become a wrecking ball on steroids.
The national debt will not be paid off. Yes, it is
very likely that well be
asked (more likely mandated) to sacrifice the rest of our freedoms, economic
and otherwise, in the pursuit of such a goal, but we will be asked to do so
by people who already know that it is an impossible task to accomplish. One
must really begin to consider motives if any honest discourse is to be had
regarding this topic.
Asian Signposts Directions for
the New Paradigm
The old adage that misery loves company is absolutely true, and
nowhere is this clearer than with Japan. Buried by its lost decade, Japan is
a country without the ability to play the fiat game because its people are
savers not spenders. Savings and inflation via fractional reserve banking
just arent compatible. The Japanese people
exemplified the way to beat a fiat system, but unfortunately they didnt go far enough. They needed to
oust their leaders who were bent on destroying the country via Keynesian
largesse, rather than just succumb to the eventual order of all ahead flank regarding the printing presses.
Japan is a tale of two cities. It is one of Americas
largest creditors albeit in
absentia at bond auctions of late and at the same time it is in
debt up to its own eyeballs.
Slowdowns in Europe and America, coupled with constant and mounting
pressure from China on all sides, whether it be
disputed islands or trade and currency wars, have crippled the island nation.
And all that happened before March 11, 2011 when a devastating earthquake and
subsequent nuclear disaster proved to be the coup de grace for the
once-great nation. While it is certainly true that Japan may muddle along a
good bit longer, dont expect much. Their markets are
suspect, particularly the bond market. And this is not a hit piece on Japan
either. Neither this firm nor any of our clients are short Japanese debt, so
lets get that out of the way right up front.
For proof, lets
look at Japans ability to pay off its own great debts. First of
all, it can expect little or nothing in the way of substantial payment from
America, save for inflated and increasingly worthless dollars. As a result,
that cash flow is illegitimate and unreliable at best. Second, Japan has
comparatively little in the way of natural resources because it is land-locked.
So that is out. Where America can send her producing assets like toll roads,
water systems, and even the Pennsylvania lottery
abroad to appease foreigners, Japan has precious little in the way of
opportunities in this area. Exports are sluggish thanks to stagnant aggregate
demand globally, which I have chronicled ad nauseum.
And anyone who wants to be competitive has to fall into the badly ending
scenario of competitive currency devaluation.
What exactly is the end game of competitive currency devaluation (CCD)
anyway? Well, lets set the mechanism in order.
Banks across the globe (USFed, ECB, BOE, and now
the BOJ) engage in QE to infinity. They print money. Lots of it. This allows
them to do two things.
First, they buy the debts of countries that the people of those
countries are responsible for paying. Essentially it is an annuity for them.
In perpetuity. They know the debt can never be paid, but theyll put Joe Global Citizen on the
hook for all of it and the people of the world can spend the next hundred or
more years working to pay it all off. The money is worth nothing really, but
this is about control.Were
not talking about Robin Hoods here, but of hoods that rob. They are petty
thieves and nothing more.That is the first result.
The second is that in the act of creating all this money, they can buy
up commodities, productive assets, companies, and basically anything of value
without having to even break a sweat. They declare their money to have value,
declare they have lots of it, then enslave the worlds
population with it. Pretty simple. They get the mine and we get that tunnel
part come on, you know what Im
talking about here. Again, the sports page is available at your nearest
newsstand for anyone who cant handle the simple truth of this
matter. I hear there is a great write up on the upcoming Stupor Bowl.
The Crack Up
However, CCD eventually reaches an absolute bottom and a reordering
must take place. That is the stage were getting to now, hence the fact
that the mainstream financial press is FINALLY starting to talk about
what they are calling currency wars. As usual,
they are years behind the curve. I will admit up front that I have no inside
knowledge of or idea when well see
this re-ordering other than my own instincts. My opinion is that nearly all
of those who claim insider knowledge are
profiteering, save for a precious few. Youll
have to discern for yourselves who is being honest
and who is not. However, despite the profiteering aspect, the realities they
portray are, for the most part, accurate.
Like Ive said many times before, the
ingredients for the re-ordering are already in the mixing bowl. It is all a
matter of when someone or a black swan type event
throws the switch. It could happen next week, next year, or a few years from
now. The bottom line, and the most important thing
to remember is that it will happen. That is an undeniable conclusion.
It cannot be avoided. The time for talking about reversing course is long
As stated above, this re-ordering could happen fairly quickly or it
could get dragged out a few years. Many will say that once the US crosses the
debt/GDP ratio of 106% (where were at now) that will be it because
that is when Europe started to go into the tank. I disagree. Our piggybacking
bank was already doing heroic measures long before we got close to 90%
debt/GDP, whereas it took the ECB a while longer to get on board. The idea
that theyre now on the job has
quieted many of the fears and that too is a pure falsehood. Europes
reckoning day is ongoing, not gone. Even the IMF has acknowledged that 2013
will be a year of contraction in Euroland. There is
no easy exit for anyone. Assertions to the contrary are based either in
deception, fantasy, or vested interest - perhaps a little of all three.
Enter China Tungsten to
Remember all those stories about salted gold bars, filled with
tungsten? The only reason those bars were even discovered is because the
Chinese have been systematically converting their
massive gold reserves to 1Kg bars, complete with Chinese government insignia.
Theyre going to put out the next gold-backed currency,
at least a partial one. The Russians want in too and theyve been buying gold with both hands.
It might end up being a regional hybrid between the Ruble and the Yuan. It
will likely replace the dollar as the reserve currency because gold is a
legitimate reserve. Every central bank around the world has been buying gold
like crazy while having their henchmen in the financial press bash it as a
barbaric relic. They know how this ends and are already positioning for it.
Just keep in mind, theyre not doing it on your behalf.
Remember 1933? The government did the gold version of a gun buyback program,
got the public gold, then promptly devalued the
If anyone here really thinks that Main Street America will escape the
age of dollar hegemony without a severe haircut on its purchasing power, Id
seriously like to hear from you because we have much to discuss. There is not
a person reading this that doesnt
have exposure in one way or another. Whether it is a pension plan, a bank
account, an IRA, a government bond, a derivative, or some other vehicle, you
will be affected by the paradigm shift that is already at our door. The real
question looking back will be Where were you the day the music
W. Sutton, MBA
Chief Market Strategist
Sutton & Associates, LLC
Sutton & Associates, LLC is a
Registered Investment Adviser in the Commonwealth
of Pennsylvania. This message, and its contents is intended solely for the
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