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The Prodigal Son: Federal Reserve Bankruptcy; Silver Lining or Wall Street Marvel?
The $64 Trillion question is, will the US Government Default? Actually, counting unfunded government mandates and derivatives held by the top 25 American banks, it is over a $300 Trillion question that may dwarf the productive capacity of our economy for decades as it did from 1929 to 1954.
While Moody’s lowered its AAA credit rating on United Kingdom Gilts to AA, it so far held steady on the United States. In a previous post, we noted how often credit rating agencies punt.
One respected market analyst who fled failed permabull Merrill to return to his native Canada, noted the deteriorating level of credit quality fully 18 months into this crisis.
http://online.barrons.com/article/SB124363549160067701.html
So are we all to assume that gold or silver are the quick and strong answer to sovereign credit crisis? Maybe not.
Like the 9-11 implosion of the World Trade Center Buildings, we think the Depression debt default driven implosion of our economy may not be razed, repaired and rebuilt for some time. This may hold true particularly if government again tries to postpone the inevitable cleansing with yet more debt and spending.
This is not cause for alarm or fear but careful intelligent action.
Long-term market trends suggest it may pay better for awhile to sell gold, silver and some commodities. Short positions of the largest traders and the large headline popularity of inflation hedges persuade us that we may see a bigger bounce in bonds than inflation hedges for a time.
http://futures.tradingcharts.com/cotcharts/GC
http://www.cftc.gov/dea/options/deacmxlof.htm
We think the intense inflation-deflation argument confusion may miss this key point:
Financial reality is that different market sectors inflate (go up) and deflate (go down) at the same time.
For example, oil, real estate and stock prices fell after 2007 while bonds, gold, silver and the cost of living continued to rise.
