Wealth Protection Conference 2011 Script
Presented April 22, 2011 – Tempe, AZ

Over the past few week’s I have been filling in as substitute host of Hard Money Watch on KFNN Sunday mornings at 10:00 AM PDT, until Pat returns to the microphone. I’ve had the pleasure of interviewing several of the speakers that will be featured at this year’s WPC. If you want to listen to the archived programs, go to www.buysilvernow.com and click on the radio tab.

I have also been writing. Last year, my book “Eat the Bankers: The Case Against Usury” was published. It is available at amazon.com. The book premises that removing restrictions against usury led to the economic crisis and wasted a great economy by shifting investment capital away from productive purposes; usury stunted economic development and perpetuates poverty. The result has been the greatest redistribution of wealth in history. Usury enslaves the borrower and oppresses the poor. Today’s corporate nobility is no different than the monarchs, oligarchs, and tyrants of old; the difference is that enslavement is now accomplished with economic tools and usury is the blunt axe that chops away at our incomes, our savings, the economy, and our freedom. You can’t create fiat money without usury and I believe that limiting usury is the key to honest money, even more than a gold or silver standard. This book tends to make people angry.

My day job is as an estate planner; my office is in Los Angeles. If you would like to contact me, the best way is email: sinclair@bank-o-meter.com. Twenty years ago, I wrote a book on living trusts; long since out of date and out of print. I have almost finished writing a follow-up. The working title is “In Control: Estate Planning Keys to Put You in Charge”. I think this book will provide some great information. If you want to buy a book or get on a sign up for one of the books, see me later.

I realized that many of my clients were veterans and part of their estate and retirement planning involved their veterans’ benefits. I wrote a book entitled “Veterans’ Benefits Reference Manual: A Comprehensive Guide for Veterans, VSOs, Attorneys, Health Care Providers, and Financial Advisors”, also available at amazon.com. I must admit that this book will likely put you to sleep faster than Sominex; it is, after all, a reference manual. I tried to take several thousand pages of federal regulations and legalese, and condense it down to the important stuff but it is still pretty boring. What I learned is that veterans are not receiving the benefits they earned and deserve.

So, I have started writing a new book about veterans’ benefits. The working title is “The Price of Freedom” and this one should be an interesting read. One of the truths that quickly become apparent is that America does a poor job of honoring our commitments to those that earned our freedoms.

If you have a compelling story to share about your experiences with the VA, I’d like to hear about it. Or, if you want to contact me for any other reason, please feel free. If you are a veteran or know a veteran that needs help with getting their VA benefits, I’d be glad to talk with you.

Over the next few months you will hear in the news about the need to cut spending and control the deficit. While there are certainly inefficiencies in the VA, veterans should not be asked to bear any cuts; they deserve more – not less. If price is a measure of value, we must remember that there would be no freedom without our veterans. If we can’t afford it, we don’t deserve it. What we are paying for when we pay Veterans the benefits they earned is simple – it is the price of freedom. The day this nation can’t afford to take care of her veterans is the day this nation should quit creating them.

Now, let me give a quick recap of my previous recommendations at the Wealth Protection Conferences. In 2008, I recommended a really big short position – load up the truck – using puts – on Lehman Brothers. That resulted in a 475% gain in a few months.
(Slide 2)

In 2009, I recommended a speculative short on large cap and financials. That didn’t work out – in my defense, I warned it was speculative. I learned a valuable lesson, and I’ll share that with you a little later.

At the 2010 Wealth Protection Conference I offered two investment tips 10 a very speculative short position on large caps, with a short time frame in late June, early July. That worked out pretty good – almost a 50% gain in 3 months.
(Slide 3)

The second tip was to load up the truck with silver. One year ago, the silver/gold ratio was 60 to 1. Silver was trading around $16. Now the ratio is closer to 35 to 1. I know that last year, some of you heard the idea to load up on silver and you thought – boring; tell me something I don’t know. Well, that simple, boring idea returned almost 300%.

Now, past performance is no guarantee of anything. I don’t always get it right but I hope I’ve been lucky enough to earn your indulgence.
(Slide 4)

This year, I’m going to talk about some major long term trends. I’m just going to offer one investment idea – I’m calling it my Investment for the Next Decade – Silver.
(Slide 5)

The Case for Silver
I will stick to my estimate that gold will hit $6,000 within the next 6 years. And there is a strong chance that we could see that number sooner. Gold will likely top $2,800 within the next 24 months, and silver, at a 40 to 1 ratio would be around $70 an ounce. Silver should reach $100 an ounce within the next 36 months. Of course, I just pulled those numbers out of thin air, because the truth is that nobody really knows where prices will top and certainly not within a specific date. Still, there are several reasons for this outlook.

Silver is used almost everywhere: electronics, appliances, batteries, medical equipment, solar mirrors, solar cells, water purification, bio-cides and food treatments, photography (yes there are still pictures), and even polyester production. More silver is used than is mined. Mining produces around 600-700 million ounces annually and usage consumes 800-900 million ounces per year. That gap was filled by the sale of government stockpiles and scrap recycling. The stockpiles are running out. Recycling is almost non-existent. That means there is basically nothing left.

It’s estimated that there has been about 40 to 50 billion ounces of silver mined in the history of the world, and about 25 billion ounces are still floating about in some or other accessible form, including jewelry, silverware, and myriad industrial applications.
(Slide 6)

There are about 1 billion ounces of silver for investment purposes; the ETFs and other funds own about half; the other half is held by individual silver bugs around the world. Maybe you have a few silver coins stashed away. That means there is basically nothing left.

In late 1979 and early 1980 the price of silver jumped from $6 to $48 in a matter of 5 months.
(Slide 7)

Inflation adjusted that works out to about $150 dollars today. You may remember the Hunt brothers tried to corner the market; back then there was an estimated 2 billion ounces of investment silver. It would be easier to corner the market today. Back in 1980, China and Russia did not get into the great silver bull market. Let’s include a couple of billion people who would like to have a silver coin in their pocket. Last year, China imported just over 100 million ounces of silver; a couple of years ago, China was a net exporter of silver.
(Slide 8)

The June Dollar Index is hovering around 75 and the chart for the past couple of months is a classic downtrend. This is the third year of the presidential election cycle; this has been an extremely solid historic indicator for stock market gains because the government tends to shovel money into the economy, trying to prop up the economy before next year’s election. Additional stimulus means more and more “worth less” paper money. The Fed can’t abandon Quantitative Easing. There is no exit plan.

Fortunately, if you look at the Consumer Price Index you will see that there is almost no (official) inflation.
(Slide 9)

The trillions of dollars pumped into the economy through Quantitative Easing #I and #2 did not raise consumer prices in the slightest. Whew! And Helicopter Ben swears that inflation is not a problem. But there is a problem with inflation. We all know that is the truth. When did silver start to really break out? When Bernanke announced QE2 in the summer of 2010.
(Slide 10)

I am not as sanguine as Bernanke. If you were to use the expansion of the money supply as a proxy for inflation, today’s silver price should be a minimum of $450 with a maximum of $900 per ounce. Gold and silver are not hedges against inflation, but more specifically the metals are a hedge against debt default rather than inflation. Inflation is a symptom of a sick currency. Investors may be a tad nervous that their paper money won’t hold its value. Silver will; and it is such a small market that it doesn’t take much to start a stampede. There is much to be said for taking profits. It’s hard to go broke taking a profit. Still, if you sell your silver, you’re stuck with paper money; so I don’t see much selling pressure.
(Slide 11)

There is tremendous buying pressure: the U.S. Mint sells as many dollars worth of silver coins as gold coins. So, the same amount of paper money is flowing into silver as gold, but gold is priced 35 times higher than silver.

Silver rarely moves up in a straight line. The small global market makes easy pickings for market manipulation; this is where the bankers come in. The big banks establish short positions and then they set bids on silver; they know the sell points on technical trading programs and they set their bids below those points. The banksters bet big, sometimes shorting more than half the annual production of silver. That means they have no way to cover their short positions.

The Dodd-Frank Act includes a provision that requires the Commodities Futures Trading Commission (CFTC) to establish reasonable position limits on trading futures of silver and other commodities. The new rules have not gone into effect…, yet. When the rules do kick in, it will eliminate the mechanism for the banksters to profit from silver’s downside swings.

JPMorgan Chase is trying to circumvent this problem. They recently were approved as a licensed vault or weigh master/assayer for the NYMEX/COMEX futures exchange. They are now responsible for storing and taking delivery of gold/silver/platinum/palladium from the futures markets. Remarkably, JPM’s was approved using a “self-certification” process. Six banks now control the London based precious metals storage market. The foxes are now guarding the hen house.

In CFTC hearings last year it was revealed that these banks are storing metals in “unallocated accounts”. That means they don’t have to set aside specific bars and the holder is considered an unsecured creditor. What that means to me is that there is not enough silver to cover the trades being made.

There is one more kicker to the story. The major hedge funds hold approximately one-half of one percent (0.05%) of their portfolios in precious metals. It is hard to overlook the excellent returns of silver in the past couple of years. If these funds increase their holdings to just 1.0%, it would be a huge increase in demand. Let me give you an example: about a week ago, gold and silver hit new or recent highs; one possible reason for the little surge. The University of Texas Investment Management Co., the second-largest U.S. academic endowment, took delivery of almost $1 billion in gold bullion. There is not nearly enough physical gold to satisfy all paper gold in existence by a factor of about 100x.

What happens if some other clever hedge funds start to demand physical delivery of gold or silver? Well, let’s revisit JPMorgan Chase, which is a self-certified vault master for the COMEX … AND has naked shorts on silver, representing potential liability of more than $100 billion. What this means is that somebody is gonna get screwed – and I can only hope it is JPMorgan, but I don’t expect JPMorgan to pay off a $100 billion dollar loss. When we start to see the short squeeze applied, we will discover there is not enough real money to cover the paper, and the stampede is on.

And so I think it won’t take long for silver to top the old highs from 1980. I anticipate a minor fight to break through resistance, because this is a long standing level of resistance, but I am expecting to break through to new highs. I then expect a pullback as recycling of scrap intensifies. Everybody will be melting grandma’s silver service, but I don’t expect that to last long. You do not want to short silver. The best idea is to buy on the dips; however you could miss some huge gains if you are waiting for dips. And just in case you’re wondering, I don’t expect the gold/silver ratio to drop below 30 to 1. If we see a parabolic increase, where silver hits triple digits this year, then you might consider selling and looking for a good re-entry point.
(Slide 12)

Parabolic increases rarely have happy endings. The only instance where you would not sell a parabolic increase is when silver jumps higher because of a significant breakdown or collapse of the dollar – but then you’re looking at $150 to $200 silver – and in that scenario, you hold your silver.

Talk about a small market, let’s look at gold: Annual gold production is only around 50 million ounces a year. That means the annual global gold production could fit in my bedroom. I’ve had dreams about that.
A total of 5.3 billion ounces of gold are believed to have been mined in history (according to the World Gold Council, 2009). Assuming some gold has been lost; let’s call it 5 billion ounces. If you gathered all 5 billion ounces, it would fit in a cube about 20 meters on each side, or 80 feet per side.

There are about 6.9 billion people in the world. Not everybody can have an ounce of gold. Remember, investment silver is only about a 1 billion ounce market. Many of those people who can’t afford gold can afford a one ounce silver coin but there just aren’t enough coins to go around.

This also means that it is very difficult to imagine a gold standard, or even a gold and silver standard without a massive revaluation. It’s kind of a shame, because the metals truly represent honest money. The Federal Reserve can’t create gold like they create Federal Reserve notes. They can try to manipulate the markets but there is a finite quantity of gold and silver. The Fed and the bankers can’t change that. They can write derivatives, they can place bets but they can’t alter the basic fact that there is a cube of gold about the size of this room; no more, no less; you know it, I know it, and the entire world knows it.

Is there a bubble in gold and/or silver? No. Gold and silver have been mined from the earth on a consistent basis. The supply has increased approximately 2% on average, roughly matching the increase in population and productivity. Again, this is the very essence of why metals are honest currency. If a currency is to be an effective medium of exchange, it must represent a consistent measure of value – in other words, the money supply matches the increase in population and productivity.
This is the very reason productivity in America has been dropping like a rock. Money is no longer spent on productive purposes but rather, money seeks the greatest return, and manufacturing and entrepreneurial enterprise can’t compete with the hefty returns of speculators, gamblers and prodigals. Of course, speculation and gambling leads to bubbles and bubbles always pop – eventually.

There is no bubble in gold and silver. The price may change but they can NOT go down in value. Gold and silver always maintain their value.
Fiat currencies, on the other hand, can drop in value. You can’t change the size of that big cube of gold but you can print as many dollars as you want; and if you can create money out of thin air, you can see the value of money dissipate in thin air.

The metals have outperformed about 99% of all other possible investments over the past 10 years, so I’ll stick with the trend. I think silver is the investment for the decade. I know it’s boring but it seems to be working.

Which brings us to the next part of this presentation, where I’m going to discuss major trends. These are trends that I expect will unfold over the next few years. I won’t try to look beyond five years but be aware that these trends are not necessarily for the next six months to a year:

Trend – Inflation.
The government says inflation is less than 2%. Most others say it is really closer to 8%.
(Slide 13)

Forecasts call for real inflation around 14% by the end of the year, which is the inflation rate we experienced about 2 ½ years ago, triggered by QE1 and about $850 billion injected stimulus; which of course, was followed by QE2 and another $862 billion in stimulus. And of course, we will have QE3, officially or unofficially.

The Fed is going to print more money and inject it into the system. I say $850 billion, or $862 billion like they are real numbers, but the truth is that those are just official numbers. What we have long suspected and what we are now confirming is that the Federal Reserve has been working with two sets of books.
(Slide 14)

The unofficial set of books includes a couple of trillion in loans to Citigroup, a couple trillion more to Morgan Stanley, 800 billion to Goldman. Add in hundreds of billions in loans to hedge funds in the Cayman Islands, about $35 billion to the Arab Banking Corporation of Bahrain, which is 35% owned by the Central Bank of Libya, which is to say – Moammar Khaddafi. Khaddafi also received 70 loans directly from the Fed.
What are the terms for these Federal Reserve loans? Well, they are called TARP and TALF and these are non-recourse loans. In other words, it is the cash for trash plan. Bring the trash, get cash; if you make a profit you get to keep it; if you lose money, the Fed will cover your losses.

Just how big is the Federal Reserve’s Shadow Budget? I don’t know. Congress doesn’t know, but I think it is safe to say that an 8% inflation rate is unrealistically low.

Trend – Anti-Federal Reserve Fever
(Slide 15)

On one hand we have a policy debate about wiping out Medicare – and I work with a lot of seniors and I can guarantee you that if you eliminate Medicare, people will die; on the other hand, you have the Federal Reserve with a shadow budget that subsidizes tax evasion for Cayman Island hedge funds, or that subsidizes Middle East dictators. The Fed has its own shadow budget pumping out trillions of dollars to their banking cronies, meanwhile we have 200,000 patriots who served their nation with honor, wore the uniform, put themselves in harms’ way so we can have our freedom – and tonight there are 200,000 veterans who will go to sleep under cardboard boxes, under highway overpasses without a home.


Wouldn’t you like to see what the Fed really does? After 97 years, isn’t it about time to audit the Fed?
(SLIDE 17)

Where did the bailout money go? The Fed refuses to answer. How much bailout money was given away? The Fed refuses to answer. If you were trying to design a corrupt financial system, the Federal Reserve would be your blueprint. It is a quasi-governmental agency that is not accountable to the citizens, the politicians, or the courts – and they control ALL the money. Who does the Fed serve? Well, they can’t serve two masters, so the implication is that they serve the banking elite.

Common sense tells you that the Fed and other central bankers will flood the system with money in order to loot it one more time.

While it is true that people are half educated and misinformed, the light bulbs are starting to come on and people are realizing that the Creature from Jekyll Island has not added one ounce of value in nearly 100 years, and it is time to destroy the beast. As we approach the 100 year anniversary of the Fed, there is a chance that people will learn the truth and long for a return to the Constitutional idea of controlling our own currency.

Trend – New Journalism
(SLIDE 18)

New methods of news and information distribution will render the 20th century model of journalism obsolete. The new journalism reaches across borders and language barriers. Almost anybody can distribute that information. We don’t need media moguls. We don’t need expensive studios and makeup artists. What we need is truth.

I don’t know if Julian Assange is the new messenger of truth but the idea is new. I don‘t know whether you think Assange is a sinner or a saint. There has been a great deal of criticism but I have not yet heard that any of the information posted on Wikileaks is inaccurate.

Let’s take a moment to look at the Hegelian Dialectic and the implications of New Journalism.
(Hegelian Dialectic for Dummies)

Hegel postulated that the course of history itself – was driven by an argument (thesis), a counterargument (anti-thesis)) and finally a synthesis of the two into a more advanced argument – at which point the process restarted.
(SLIDE 19)

To move the public from point A to point B, one need only find a spokesperson for a certain argument and position him as an authority.

That person represents Goalpost A. Another spokesperson is positioned on the other side of the argument, to represent Goalpost B. The idea is not to move from point A to point B but to end up at point C
The point here is that if you change the medium, who controls the medium, and the authority posited by the monetary elite, you are able to completely alter the starting point for the tug of war and for the ultimate synthesis. You get to play by different rules.

Let me break that down with a real life example of Hegelian Dialectics in action. A few years back in California real estate prices were skyrocketing. In a neighborhood, fairly close to the beach there were quite a few houses for sale; they ranged in price from $1.1 million to a low offer of about $825 thousand, about a dozen homes priced just under $1 mil. Clearly, the offer at $825 was undercutting the offer at $1.1 mil. A couple of homeowners figured out that they needed to create a new thesis for the real estate market in that neighborhood. A couple of homes – not necessarily me – a couple of homes were listed at just over $1.4 million. There were about 3 weekends of open houses. Those homes did not sell and the listing was dropped – however, there was a flurry of sales on the lower priced homes, and very quickly there were no more homes priced under $1 million in the neighborhood. A couple of months passed those high priced homes were listed again, this time at $1,250 and they sold pretty quickly.

This is the very reason that the Daily Show with Jon Stewart is so much fun to watch, because it exposes the crazy tug of war. The importance of the Wikileaks model of journalism is that it removes the typical Hegelian Dialectic. This has the potential to have a huge impact.

Just a reminder that Assange says he has a massive dump ready for the big banks, a dump of information that he says could bring down a major bank, possibly Bank of America.
(Slide 20)

The reason I consider this a major trend is that when people start to question the arbiters of everything to fulfill their promises, the people will do more than just question authority, they will begin to defy authority.

TREND – Cyberwars
(Slide 21)

Another thing we saw when Assange was threatened with extradition to Sweden over alleged sex crimes, Assange’s sympathizers launched Operation Payback, and in December, they shut down the main websites of Visa, Mastercard, Amazon.com, PayPal, and the Swedish government. A 16 year old Dutch Boy was arrested. Seriously, I’m not making this up.

When the revolution in Egypt erupted, one of the revolutionary heroes was a young guy who worked for Facebook. One of the first things Mubarak did was to shut down the internet in Egypt. Before the revolution was televised, it was blogged, YouTubed, and Twittered.

The internet and data are ripe battlegrounds for cyber-warfare. The battle over an open internet has already started. The possibilities for disruption of services are real and they are of significant consequence. Equally disruptive will be the harsh measures by global governments to control access to the internet, identify users, and shut them down.

Trend – Housing Market continues to drag.
(Slide 22)

The most recent Census data shows that in California, Arizona, Nevada and Florida there are more than 3 million vacant homes. There are always some vacant homes, but the best info I have seen indicates that there are about 5 and one half million more vacant homes than in normal times. That means the shadow inventory of homes is about triple what we have generally been hearing in the media.

The number of homes going through the foreclosure process increased by 22% in the first quarter. Banks have totally screwed up the titles on about 40 million homes. To get a truly clean, secure, and honestly insured title is about as likely as turning applesauce into apples.

While all real estate is local, I think the broad market will continue to decline for at least two more years. Except slightly lower housing prices over the next two years. This, in turn, will serve as a brake on employment growth.

TREND – Alternative Energy
(Slide 23)

I don’t know if you’ve seen it, but the government has been sending out coupons that you can use at the gas station, and each coupon is good for one gallon of gas.
(Slide 24)

As part of the official budget, there were billions of dollars in stimulus money for various projects such as cash for clunkers, cash for dishwashers, cash for road projects and bridges and pothole repair – and you might not have seen it, but there was a boatload of cash for alternative energy.
(Slide 25)

High oil prices are a crush on the economy. I can burn dollar bills to light a cigar but for those of you that know me, you know I’m too much of a cheapskate to do something like that. Instead, I flip off the lights when I leave a room, I curse APS at least once per month when I get my utility bill, and like most Americans, I’m looking for a cheaper alternative. Alternatives are not just solar and wind but also things like natural gas and domestic oil.
Now, three years ago I told you I expected higher energy prices. The players in energy are not going to allow their market to just collapse, and they certainly won’t loosen their grip without extracting some big profits.

TREND – Food.
(Slide 26)

Food could start to be a problem.
One of the biggest bubbles of the past year has been the price of farmland.
(Slide 27)

Now good farmland always has value but the price increases have been pretty spectacular. If you want to buy a few acres in Iowa, just basic farmland, be prepared to spend $10,000 an acre or more. Farmland prices are at all time highs, even after adjusting for inflation. The past couple of years, car dealerships have been closing down. Tractor dealerships have been booming.

Here’s the problem: if food prices drop, farmers will get busted. There have been some strange things affecting food prices: hurricanes, and floods, and all sorts of strange and extreme weather. The droughts in Russia last year took that country’s wheat exports off world markets. Floods in Australia and Brazil and a new drought in China have factored in. And the 100 million tons of American corn being funneled yearly into the ethanol debacle has played its part. There was a bacteria that ravaged Florida Citrus crops. I can’t explain why these bad things happen, but they do. Then there is the cost of fuel to run the tractors and transport the food to market. Modern farming uses lots of petrol products.
(slide 28 )

World food prices are on a rocket track upward, according to the UN’s Food and Agriculture Organization (FAO), whose index measures the cost of a basket of basic food supplies –sugar, cereals, dairy, oils and fats,and meat –across the globe. That index rose by 3.4% in January and 2.2% in February –the seventh and eighth monthly increases in a row –to its highest level since recordkeeping began in 1990. Now, I’m pretty sure Jim Liles is going to give us some better numbers in the next hour here, but…

There is not a huge concern about food shortages in America but it is a global issue. The fact is, grain production worldwide has failed to meet growing consumption demand in seven of the last 11 years — in spite of steady increases in crop yields over the period. Remember the 2008 food riots? Well, in the past few months, there have been food riots in Tunisia, Algeria. Why are food prices escalating all out of proportion to supply and demand? Supply and demand are important but another big factor is central banks have been inflating money supplies the world over, at an alarming rate. It’s not just the Fed. In Egypt, for example, the money supply increased 50% between 2007 and 2010.

TREND – The really, really, really big bubble – DEBT
(Slide 29)

The World Economic Forum reports that the total amount of credit in the world increased from $57 trillion in 2000 to $109 trillion in 2009. That does not include the derivatives market – which is now estimated at more than a quadrillion dollars. Throw in U.S. government debt and don’t forget the muni bond market, which could go supernova at any time. State and local government debt is now sitting at an all time high of 23% of U.S. GDP. Swings from deficits to surpluses have tended to come along with either falling nominal
interest rates, rising real growth, or both. Today, interest rates are exceptionally low and the growth outlook for advanced economies is modest at best.

Government debt to GDP ratio for Great Britain is expect to grow to 94% by the end of this year. Greece is looking at 130% debt to GDP; Portugal will finish 2012 around 97% debt; Japan will finish 2011 with a debt ratio of more than 204% – and that might grow because of the earthquake, tsunami, nuclear contamination. Debt is growing in the U.S. at 8% to 10%, which means the debt will double in less than 8 years. We are not going to grow our way out of this mess.

In January, The New York Times reported that “policy makers are working behind the scenes to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.”

All across the country there are little towns and cities on the verge of, or already in bankruptcy: Central Falls, Rhode Island, Harrisburg Pennsylvania, Hamtramck Michigan, and Prichard Alabama. Prichard Alabama stopped paying pension checks to 150 retired city workers. The former police and fire dispatcher has filed for bankruptcy. The retired Fire Marshall died last year; when they found him, he had no electricity and no running water in his home. Prichard is trying to declare bankruptcy but so far, a federal judge has banned them from doing so.

Illinois keeps borrowing money to invest in its pension funds, gambling that the funds’ investments will earn enough to pay back the debt with interest. New Jersey simply decided not to pay the $3.1 billion that was due its pension plan this year.

This represents the biggest area for big problems – remember, parabolic increase almost never have happy endings.

Excessive debt almost never has a happy ending.
There are four possible outcomes:
1. The nation works through its problems, tightens the collective belt and pays the debt – that’s not going to happen
2. War
3. Slow default
4. Fast default

How does a nation walk away from its debt? The most common path is to debase or devalue the currency in an attempt to service or repay the debt with cheaper money. It’s a fairly common tactic; it has happened in Russia, Brazil, Argentina, the UK, and even here in the US under FDR and also under Nixon. Since the dollar is no longer tied to gold, the devaluation process now happens whenever the Federal Reserve cranks up the printing press. There is a lot of new debt required to keep the economy floating. The results are the same as devaluation. The cost of living jumps; bankruptcies happen. The dollar buys less. Economic growth sputters.

When devaluation occurs quickly, the result is known as a crack-up boom. Inflation skyrockets and a lifetime’s savings evaporates. When devaluation is dragged out over time, it is still painful. The destruction of our income, our savings, our investments, and our retirements is a personal financial crisis with profound impact. It is also the greatest theft in history.

TREND – Things will get better.
(Slide 30)

After all that we’ve covered here, you might think it strange, but my last trend is to say that things will get better …. Before they get worse.

Whether you call them the moneyed elite, the plutocrats, the corporate fascists, the illuminati – whatever you call them, and no matter how clever or bumbling you think they might be, no matter how coordinated and conspiratorial or how inchoately serendipitous; the simple fact is that they were not going to dive directly into a deflationary depression. There has been a coordinated effort to prop things up, to extend and pretend. They know that the most money is pillaged in the final stages before the collapse. This is the lesson I learned a couple of years ago when I thought I could short the large caps and the big banks. We’re going to have to wait for the plutocrats to extract their pound of flesh.

I really hope we don’t see an economic collapse this year. 2010 was pretty nasty but it went about as good as we could have realistically hoped. I’m not looking forward to an economic collapse, and I can’t tell you when it will happen; maybe this year, maybe next year, maybe five years.
(Slide 31)

There will probably be exogenous events, black swans, tipping points. I can’t predict if 19 punks with box cutters will fly planes into skyscrapers any more than I could have predicted the assassination of an Austrian Archduke in Sarajevo in 1914 would have led to a War to End All Wars. I don’t know when we will have an exogenous event but I am pretty certain we will have one – or more.

I believe we are on the path to slow default, however it could get quick fast. I think we’ve all seen the action movies where the star goes running through the scene and the guns are blasting off a thousand rounds per second, and bombs are exploding, and the bad guys are falling like flies, but the star of the movie barely gets a scratch. This aint the movies. We can’t dodge bullets forever.

Right now things are pretty good, so I’ll leave you with one final thought – Prepare. It’s going to get worse. Hold on tight, say your prayers and be prepared.

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