By Jeff Clark | BIG GOLD

While we’re convinced that our gold and silver investments will pay off, they don’t come without risk. What do you suppose is the biggest risk we face? Another 2008-style selloff? Gold stocks never breaking out of their funk? Maybe a depression that slams our standard of living?

Though those things are possible, we at Casey Research don’t see that as your greatest threat:

“Your biggest risk is not that gold or silver may fall in price. Nor is it that gold stocks could take longer to catch fire than we think. Not even the prospect of the Greater Depression. No, your biggest risk is political. As bankrupt governments get increasingly desperate for revenue, any monetary asset held domestically could be a target. It is absolutely essential that every investor diversify themselves politically. In fact, at this point, it is the one action that should be taken before anything else.” - Doug Casey, September 2011

I know many reading this are prudent investors. You own gold and silver as solid protection against currency debasement, inflation, and faltering economies. You set aside cash for emergencies. You have strong exposure to gold stocks, both producers and juniors, positioned ahead of what is likely the next-favored asset class. You feel protected and poised to profit.

Yet, despite all this preparation, you remain exposed to one of the biggest risks.

Similar to holding a diversified portfolio at a bank without checking the institution‘s solvency, many investors keep their entire stash of precious metals inside one political system without considering the potential trap they‘ve set for themselves. While storing some of your gold outside your home country is not a panacea, it does offer one important thing: another layer of protection.

Consider the exposure of the typical US investor:

1. systemic risk, because both the bank and broker are US domiciled
2. currency risk, as virtually every transaction is made in US dollars
3. political risk, because they are left totally exposed to the whims of a single government
4. economic risk, by being vulnerable to the breakdown of a single economy

Viewed in this context, the average US investor has minimal diversification.

The remedy is to internationalize the storage of some of your precious metals. This act reduces four primary risks:

Confiscation: We don‘t know the likelihood of another gold confiscation. But we do know that things are working against us - particularly for US citizens. With $14.7 trillion of debt and $115 trillion of unfunded liabilities, the US government will likely pursue heavy-handed solutions. Under the 1933 FDR “gold confiscation” in the US (the executive order was actually a forced delivery of citizens‘gold in exchange for cash), foreign-held gold was exempted.

Capital Controls: Many Casey editors think some form of capital controls lie ahead, limiting or eliminating a citizen‘s ability to carry or send money abroad. If enacted, all your capital would be trapped inside the US and at the mercy of whatever taxing and regulating schemes the government might concoct. Although you might be able to leave the country, your assets could not travel with you.

Administrative Action: There are plenty of horror stories of asset seizure by a government agency without any notice or due process, possibly leaving the victim without the means to mount a legal defense. Having some gold or silver stored elsewhere provides what could be your only available source of funds in such a scenario.

Lack of Personal Control: Having gold and silver stored elsewhere adds to your options. You will have a source of funds available for business, entrepreneurial pursuits, investment, or pleasure.

Foreign-held assets also require greater awareness and planning:Notice above we said these risks can be reduced, not eliminated. There is no perfect solution; US persons could, for example, be compelled to pay a “wealth tax” on assets held worldwide, or even repatriate them in a worst-case scenario. Absent a crystal ball, the political diversity of asset location is an essential strategy against an uncertain future.

1. Access to your metal or sale proceeds may not be quick. Therefore, this option is for those with some gold and silver stored at or near home. We do not recommend storing all your precious metals overseas; that defeats one of its purposes, to have it handy for an emergency.
2. While we think the US poses the greatest threat, a foreign government could move to control certain assets as well. The risk varies by country and is generally greater within the banking system than with private vaulting facilities.
3. Understanding and complying with reporting requirements is essential.

The bottom line, though, is that foreign-held precious metals can mitigate risk and give you more options. And as your metal holdings grows, diversification becomes more crucial.

Given our current rapacious climate, it‘s likely that simply buying gold won‘t be enough. We strongly suggest every investor diversify one‘s bullion storage outside their current political regime. The option may not be available someday, leaving you vulnerable without a secondary source of bullion.

We advise taking advantage of the opportunity before it is gone.

[One way to internationalize your bullion is to use a safe deposit box in a second country; however, this requires traveling to the institution to handle the paperwork and organizing the transport of your bullion... and the contents of a safe deposit box aren't insured. Other programs will store gold; but the metal is often held in the form of fractional ownership in a 400-oz. bar and not specific coins and bars held in your name. A better solution is to store your bullion in a non-bank depository, outside your home country, without shared ownership, and do it for a reasonable fee. We found a program that provides all those things; and it offers BIG GOLD readers six months' free gold and silver storage in a Canadian vault. A risk-free, three-month trial subscription to BIG GOLD will qualify you for that deal... plus all the expert analysis and actionable investment advice packed into each issue.]

Related Articles:

• Buying & Storage Options
• Storing gold & silver at GoldMoney, BullionVault, AFE

 

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Towards the end of Chris Powell’s speech at the 18th CLSA Investors’ Forum in Hong Kong, he addressed the all important question Why hasn’t gold kept up with inflation?

It’s because Western governments found ways of vastly increasing the supply of gold without having to go through the trouble of mining it — to dishoard and lease it from central bank reserves and to issue certificates of deposit against gold that never existed in the first place.

“Why” is supposed to be a basic question of journalism. But it has fallen out of financial journalism when it comes to gold, he lamented.

In recent years, and especially in recent months, I have spent much time explaining the gold price suppression scheme to leading financial journalists in the West. I have given them the documentation. Some of these journalists seemed interested. But none has ever reported anything about the issue. One writer who works for a major news agency in the United States was intrigued enough to call the Federal Reserve and ask about its gold swaps. She got a very telling “no comment.” But unfortunately she could not get her editor’s permission to write a gold story.

Frustrating as all this is, it is not too surprising. After all, who are the major advertisers in the Western financial news media and the major sources of financial news? The market manipulators and governments themselves. And journalists seem to take for granted that central banks operate in secret, particularly in regard to gold, so there’s no point in questioning them — even though central banking now determines the value of all capital, labor, goods, and services in the world, and does so in secret.

So here I am in Asia, which is a major victim of the gold price suppression scheme. Maybe there will be more curiosity and indignation about it here.

But Asia is not the only victim of this scheme. My own country may be the biggest victim. For this scheme has helped to corrupt the United States, destroying our once-free markets and the accountability of our government.

We in GATA do what we can, even though, from our beginning, we have wondered whether we could really presume to speak for gold. And not just for gold, of course — we are not idolaters — but for the economic and political liberty of individuals and the national sovereignty that gold serves and stands for. With gold always under attack precisely for what it represents, and with no others coming forward to defend it for what it represents, with even the gold mining industry’s main trade association refusing to acknowledge the attack, we have hoped that any presumption on our part might be forgiven.

We remain largely amateurs. At the outset we did not half understand what was going on and what we were setting about to do. Our name preserves that imperfect understanding. We thought we had discovered just another anti-trust violation. It was a while before we perceived that we were up against government policy and that most of what we were discovering had been discovered long ago, at least in principle, just not well taught, publicized, preserved, and made timely again.

Because it can work only through surreptitiousness and deceit, this government policy will be defeated when it is more widely understood — and every day it is being better understood, because it is getting so brazen. It was more brazen than ever the other day when Switzerland devalued its franc, the world’s leading “safe haven” currency, apparently leaving the “safe haven” field exclusively to gold. But just a few minutes before the Swiss franc’s devaluation was announced, unidentified sellers dumped thousands of gold futures contracts on markets around the world, causing the gold price to plunge along with the Swiss franc. These sellers plainly did not aim to make a profit from their gold holdings; if they had intended to make a profit, they would have sold gradually into the market. No, they meant to knock the price down hard, and they did.

These sellers almost surely were central banks. But as far as I could tell, no Western journalist has yet put a question to any central banker about that strange and counterintuitive action in the gold market.

I ask for your help in forcing an end to the gold price suppression scheme. I ask in the cause of giving individuals, nations, and all humanity a chance at democracy, liberty, and limited government with a neutral, fair, and impartial international currency that serves not just one government or another or one class or another but rather the whole brotherhood of man.

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> Read the full speech here

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Chris Powell, is the treasurer/secretary of Gold Anti Trust Committee and a newspaper editor in Connecticut.

By Jack Ewing | NYT

FRANKFURT — Europe appeared to be lurching toward a moment of decision in its sovereign debt crisis Sunday, as Greece struggled to meet conditions for additional  aid amid rising German impatience with the cost.

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Here’s the initial market reaction in early Asian trading over the weekend’s development

By Chris Powell | GATA

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Republished with permission of Charles Hugh Smith | oftwominds

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We hold this to be self-evident: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy.

Today I present an important guest essay by long-time contributor Zeus Yiamouyiannis, who suggests that when debt is essentially fraudulent, then debt forgiveness is both the logical and the only remedy. In case you missed his previous analyses on oftwominds.com, I list some of Zeus’s previous essays at the end of the entry.

Endgame: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy
by Zeus Yiamouyiannis, Ph.D., copyright 2011.

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Introduction

Finally serious economists are considering a position I have been maintaining and writing about since the 2008 financial meltdown. Whatever its name— erasure, repudiation, abolishment, cancellation, jubilee—debt forgiveness, will have to eventually emerge forefront in global efforts to solve an ongoing systemic financial crisis.

On a grand scale the only way to erase counterfeit money and (counterfeit) assets of hundreds of trillions of dollars is to erase the debts associated with those fake assets. (Let me underscore again, these are not “toxic” assets, they are fake assets.)… Forgiveness in general, and forgiveness of debt in particular, stand as virtues if they free us up to acknowledge, address, and learn from our culpability, start anew, and create forward.” (The Big Squeeze, Part 3: The Quiet Rebellion: Civil Disobedience, Local Markets, and Debt Erasure - January 29, 2011)

Debt forgiveness, therefore, accomplishes two important things. It eliminates the increasing and outsized portion of productive enterprise to pay off unproductive obligations, and it clears the ground for new opportunities, new thinking, invention, and entrepreneurialism. This is why the ability to declare bankruptcy is so essential in the pursuit of both happiness and innovation.

Currently we are mired in a “new normal” and calls for “austerity” which are nothing more than the delusional efforts of a status quo to avoid the consequences of its own error and fraud and to profit evermore. So bedazzled by the false wealth created by debt multiplication and its concomitant fantasy of ever-higher returns, this status quo continues to be stupidly amazed that people are not spending and that the economy is not picking up. But how could it be otherwise?

Productive wealth has been trapped in a web of parasitic theft, counterfeiting, liability evasion, non-regulation, and prosecutorial non-accountability. All the fundamental attributes of a functioning exchange economy have been warped to reward creative criminals. I spoke extensively about this in my posts from 2008. (Imaginary Worth, Empire of Debt: How Modern Finance Created Its Own Downfall - October 15, 2008)

The unsustainable nature of debt

Two observations: 1) Fabricated/parasitic so-called “wealth” destroys value by diluting the value of productive wealth. 2) Debt/credit that cannot be paid back is never an asset and is always a hot-potato liability (needing to be foisted to a greater fool to garner “profit” and transaction fees):

The models [modern debt are] based upon had no contact with reality. They assumed unlimited growth and ability to pay. When matched against the reality of people paying ten times their salary for mortgages that actually added more money owed to their principal (i.e. with negative amortization), required no money down, and set up “balloon payments,” large step-ups in payments after a few years) there is no possible way they could NOT default in a predictable span of time. (Part II: How the Credit Default Swap Scam Works - October 13, 2008)

Systemically, all debt that charges a percentage (“usury”) originates in delusion. Debt grows exponentially indefinitely, growth (income and otherwise) cannot. This leads to a widening condition where the fruits of productive “growth” devoted to interest payments increase until those fruits are entirely consumed. (The Elephant In The Room: Debt Grows Exponentially, While Economies Only Grow In An S-Curve - Washington’s Blog)

Once this happens, stores of wealth (hard assets) begin to be cannibalized to make up for the difference. You see this in Greece with its sale of public assets to private companies, and in middle-class America where people are liquidating retirement accounts to pay for their cost of living.

This problem is compounded by a private Federal Reserve that lends money into circulation at interest, and then allows the multiplication of this consumer debt-money liability through fractional reserve banking. The money in circulation today could pay only a small fraction of the total private and public debt. That fact alone is evidence of a kind of systemic fraud. “If you just work hard enough, save, and make sensible decisions, you can get out of debt” could only physically work for a bare fraction of the population, given the money-to-debt ratio. The rest would have to simply default to clear the boards.

This is why debt forgiveness makes not only moral but rational, mathematical sense. Finances require balancing to be coherent. There must be some way to redress systemic imbalance. One has to be able to “zero the scales” to get an accurate weight of value and to re-establish healthy value creation.

Voices in the debate

Some analysts are beginning to see the forest through the trees in terms of debt forgiveness. Steve Keen, Australian economist and current deflationist, and Michael Hudson, American economic contrarian and prescient essayist, are both using clear-sighted reality-based financial analysis to debunk accounting games that obscure the untenable debt situation and to call for debt forgiveness.

How can selling sovereign assets and imposing austerity on Greek citizens (taking money out of their hands through higher taxes and lower benefits) do anything other than hollow out value and contract the Greek economy in the face of a deep global recession? Michael Hudson: It can’t. Greece’s debt needs to be written off.

It seems unreasonable and unrealistic to expect that large sectors of the New European population can be made subject to salary garnishment throughout their lives, reducing them to a lifetime of debt peonage… (T)he only way to resolve it is to negotiate a debt write-off…” (The Coming European Debt Wars: EU Countries sinking into Depression - Michael Hudson, Global Research, April 9, 2010)

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([We’ll Have] a Never-Ending Depression Unless We Repudiate the Debt, Which Never Should Have Been Extended In The First Place - Washington’s Blog)

Why isn’t “quantitative easing” and flooding the U.S. economy with debt-money working to prime borrowing and lending? Steve Keen: Because the money is going into deleveraging in a time of overextension:

“Bernanke is throwing (a) trillion dollars into the system. Rather than that leading to ten trillion dollars of additional credit money, creating the inflation people are expecting, that trillion dollars is all that goes in, and people deleveraging actually reduce their level of spending by more than a trillion dollars by trying to pay their debt down, and it cancels out what the government is trying to do… We need a 21st century jubilee.” (On the Edge with . . . Steve Keen (Max Keiser, video)

Other well-known commentators are not seeing the debt forest at all. In their contentious debates over deflation and inflation, neither Rick Ackerman nor Gonzalo Lira seem to be aware of the overwhelmingly fraudulent nature of present global debt- including the 600 to 1,000 trillion dollars of fabricated notional wealth represented by the derivatives markets, fraudclosure, and a host of other sources.

Rick Ackerman: “’Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender.’ Inflationists and deflationists implicitly agree on this point… and we differ only on the question of who, borrower or lender, will take the hit.” (Let’s Think This Through Together….)

I posted a pithy response in the comment section:

Both Rick and Gonzalo left out the obvious third way-debt forgiveness. No… debt does not have to be paid by someone; it can be absolved, especially debt created upon fraudulent and/or counterfeit-ridden practice… (D)erivatives are not real wealth, and neither was the ostensible climb in the values of housing resting in large part on those phony-wealth derivatives.
The only “real wealth” here revolves around ability to produce real and needed goods (to allow us to survive), and the ability to create something that increases one’s quality of life (to promote our thriving). Precious little of the present global economy involves either one of these. Yeah, if we use FASB standards and Goldman Sachs accounting, we can pretend our worthless junk is all really simply very rare, “unique condition” collectibles worth trillions of dollars.

I’ve got a better idea. Take our financial junk out of the global attic in boxes, put them out on the front lawn, and see if anyone wants to pay a few bucks for the various items, give away the leftovers to anyone interested passing on the sidewalk, and recycle, donate, or dispose of the rest. It’s a moving sale, and if our economy is going to get moving, maybe we ought to have one.” (Zeus Yiamouyiannis - April 6, 2011 at 4:11 pm)

How it might play out

This subtle debt extortion creates a system of never-ending debt-slavery for a vast majority of the population. When this “manageable” slavery is aggravated by a desire to use hardship to extort ever greater assets from the overburdened at ever cheaper prices (what Naomi Klein calls “disaster capitalism”), by open and unapologetic widespread fraud, and by the unjust offloading of risk and liability to taxpayers who had nothing to do with poor decisions of private banks, then the systemic abuse is revealed in the daily lives of citizens.

Debt creates scarcity, which stimulates fear, which drives manic competition, which favors opportunism, collusion, and concentrations of power, which translates to abuse, which results in a collapse of legitimacy for the economic system. Overreach causes a breaking point, and we are getting close to it. Will the response be warfare, taxpayer revolt, political upheaval, mass default, debt forgiveness, something other, some combination? I have predicted pockets of violence would be mixed with some softer combination of taxpayer revolt, mass default, political upheaval, and debt forgiveness, along with a return to community exchange to meet basic needs. (The Big Squeeze, Part 3: The Quiet Rebellion: Civil Disobedience, Local Markets, and Debt Erasure - January 29, 2011)

This possibility of epic reprisal may very well compel banks to come to the table around debt forgiveness to avoid violent backlash and criminal prosecution, even over preserving their gravy train companies. The bitter irony of these companies and their galloping greed is that they ended up victimizing each other by selling junk to each other and extracting all the real value in salary and bonuses. Their assets rest on notional values, that when unmasked would drive each into immediate insolvency. They have simply been scam artists, producing little value and extracting mountains of money.

What might this look like? Looking at present trends and using the very useful framework of Kubler-Ross’s stages of grief, it might go something like this…

Average debtor:

1. Denial: Liquidate savings to pay for over-priced house and cost of living.
2. Anger and fear: Exhaust resources, experience want, compounded by austerity measures.
3. Bargaining: Attempt to negotiate with bank through HAMP and other mechanisms to lower payments. Banks don ‘t bite and even have incentives to foreclose.
4. Depression: Lose/default on the house and move in with family or cheap rental.
5. Find out life is better without being a debt slave and spend more time with community and the ones you love.

Bankers:

1. Denial: Collect 144 billion in bonuses after financial collapse and laugh as not a single trading day loss arises for zombie TBTF banks completely subsidized by governments.
2. Anger: Express false righteousness, indignation, and hubris over even modest/toothless demands/regulations attempted to be placed on them by governments. Exhibit sadistic zeal at being able to simply claim you own and liquidate properties they have no clear title to.
3. Bargaining: Experience dawning awareness that may have just cooked your own gooses as strategic defaults skyrocket, populist demands to prosecute fraudclosure gain traction, and quantitative easing ad infinitum dwindles and fails to keep stock prices artificially aloft. Improvise panicked attempts to “be reasonable” and actually negotiate, once the asset and money flow well runs dry.
4. Depression: Contemplate and realize possible bankruptcy by big banks. Retreat to the Hamptons to hire criminal defense lawyers, contemplate empty life, and shoulder the abuse of media and contempt of a global citizenry.
5. Acceptance: Trying to regain “good guy” status and avoid criminal prosecution by agreeing to be part of debt forgiveness.

Once defaults happen in increasing numbers and certain asset prices plunge (i.e. real estate), what will initially look like a bonanza for capitalist parasites could easily get out of hand, with people either unable or unwilling to buy inventory even at greatly reduced prices. Profits would tank at banks, liabilities would skyrocket even with most of it transferred to government guarantee. Because no one plays the game anymore, banks could go under as well, as people rise to vote out bank-friendly politicians and simply refuse to pay. This unraveling could easily force exposure of the notional value of derivatives in banks as worthless, meaning they are as bankrupt as the people they exploited. At this point, there will be a common desire and need to simply “forgive” the debts and try to find some way to distribute these empty homes.

Conclusion

Debt forgiveness simply calls out either the inherent systemic inability to make good on debts or the recognition that debt was produced through fraudulent means. In the present situation, both conditions obtain. There has likely been no point in world history where debt forgiveness has been so comprehensively merited. The only speculation from my point (barring world-wide global feudalism and eternal debt slavery) is whether we will initiate such forgiveness or be forced into it.

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Thank you, Zeus, for this prescient and insightful analysis of debt and debt renunciation. The Kondratieff Cycle can only turn to Spring after debt renunciation completes the Winter cycle. Let’s stop pretending we’re still in Summer, and that the Fed’s puny “quantitative easing” and monetary cargo-cult machinations can reverse the seasons.

(all essays by Zeus Yiamouyiannis, Ph.D.)

Part I: A 70 Trillion Dollar Counterfeiting Ring
(September 23, 2008)

According to several sources the market for so-called “credit default swaps” last year alone was nearly equal to the total global GDP, around 70 trillion dollars by some estimates. Yet these derivatives have no discernible “origin” or value.

Part II: How the Credit Default Swap Scam Works
(October 13, 2008)

Instead of asking the obvious, complex, and obscuring question, “What value DO they have?”, one should ask the elegant and simple question, “What value COULD they have?” Even a cursory examination would seem to indicate that the answer is either zero or less-than-zero.

Part III: Credit Default Swaps Create Less-Than-Zero Value
(October 13, 2008)

Now, how can a supposed “asset” like credit default swaps have a “less-than-zero” (negative) value. First, credit default swaps were insuring debt. Debt is not an asset as I explained in previous essays, but a liability. Mistake number one was to confuse asset and liability.

Part IV: There Is Ultimately No Gaming the System: When the Micro Crash Reflects the Macro Crash
(September 29, 2008)

The proposed 700 billion dollar bailout cannot really “work” from a system level. I know it’s real intention is to cover the butts of Wall Street investors, but you have the same problem in macro that homeowners have in micro. Nobody knows what homes are worth right now, so buyers are sitting it out. It isn’t about restricted credit (even though that is a factor). It isn’t about being too cash strapped to make a down payment (though that too is a factor). It’s about not wanting to be suckered into buying something that may still be overpriced.