Penny-wise, Pound-foolish

Britain on the brink of an economic collapse

The latest headline from The Telegraph in Britain.

"The plight facing Britain is uncannily similar to the 1930s, since prices of many assets —from shares to house prices — are falling at record rates, but the value of the debt against which they are held remains unchanged.'

"This “debt deflation” is among the most painful of all economic phenomena, since it means the amount families owe increases each year even if they borrow no more."

There is a difference between the continents concerning media reporting. Many Americans despise European media for they feel it is 'liberally' biased. Yet, as the US is in the same economic maelstrom as the British, I have yet to see headlines such as these with any of the top 50 news outlets in the US.

Oh, do not think otherwise, the United States is infected to the same degree and of the same ailments as Britain. The only difference is the US is the leading economic engine for the world, and that does count for something. But in this case, that difference will make for little variation of the end result.

Plus, what ails the global financial world was packaged and sold primarily by US investment banks. In other words, those that control the big money sitting in sovereign wealth funds and foreign central banks blame the US for this crisis. We need massive foreign purchase of our Treasuries every week just to pay the interest on the bonds we have already issued. God forbid if they run out of money, or worse yet, find something as safe with higher yield.

If gold increases in value on a sustained basis, as it has over the past week, Treasury notes yielding less than 1% will begin being sold by the droves and that money will pour into gold. That will cause two things to happen;

1) The Fed will have no buyers for new Treasuries, thus forcing interest rates on Treasuries up to attract purchase.

2) Gold is currently being hoarded. As tens of billions of dollars begin purchasing what gold is remaining on the open market, gold will begin a dramatic climb in value. It will cause an immediate spike in gold prices.

Every major news outlet in the US has been consistently wrong, everyday for the last two years, about why this is happening. Even after the Bear Stearns hedge fund debacle in June 2007, not once have I heard, or read, a journalist employed by one of the major media outlets ask a CEO "How much do you expect to lose of your level3 assets?" It's at the heart of the problem, and no one asks the question.

In fact, we have had a consistent parade of CEO's go on major television and claim that they are well capitalized, often days before the company goes bankrupt or is forced to merge. Merrill Lynch anyone? Are they really that stupid and have no clue as to their companies fiscal position? Or, with the help of "journalists" did they lie to the public, as in Jim Cramer's tirade to buy Bear Stearns, at $62, the week before it went to $2?

Asset deflation is the long term trend. The spike in gold, and silver, may be short-lived.

Get it while you can, and sell before it peaks.

As a friend of mine says when pondering a bet "Pigs get fat, hogs get slaughtered."