This weekend, financial and
government officials are furiously seeking a solution to the bankruptcy
of Lehman Brothers, and, I would suspect, Washington Mutual.
The financial crisis is now
officially at the dangerous stage, where any slight miscalculation or
misstatement could send the markets into crash mode. This deserves
your very highest attention.
SAN FRANCISCO (MarketWatch) -- As U.S. Treasury officials made it clear the government will not bail out Lehman Bros., the Federal Reserve Bank of New York met Friday night with Wall Street executives in an effort to forestall the collapse of the investment firm and shore up rapidly weakening financial markets.
The New York Fed called the emergency meeting Friday evening with the heads of major financial institutions and the group reportedly plans to continue meeting throughout the weekend if necessary to come up with a plan to save the ailing Lehman Bros. and prevent further damage among financial companies.
The meeting appeared similar to one held a decade ago when the New York Fed pulled top Wall Street executives together to prevent the collapse of hedge fund Long-Term Capital Management, the Journal report noted.
I love the line in the last paragraph that “the meeting appeared similar to” the one held after the collapse of LTCM. Yeah, it’s similar because all the big banks are there at the table with the Fed, but it’s dissimilar in that this time the banks are insolvent.
In that way I suppose it's not similar.
At any rate, this financial crisis is getting worse, not better, and we are not yet near bottom. I fully expect a major, systemic banking failure at some point before the end of the year. If this happens, expect the entire banking system to freeze up, the stock market to get shut down for a period, and for an enormous chunk of wealth to get evaporated. This is the “deflation” route.
The only way to forestall (and possibly prevent) this outcome will be for the Federal Reserve to open up its magic checkbook and start monetizing debt in earnest. This will be the “inflation” route.
Protecting one's assets in this environment is going to prove to be especially challenging.
Thanks again for your excellent summary and analysis, Chris. I’ve been reading many different sites to keep up on what’s going on, and yours is the best I’ve seen. How do we protect our assets in this environment? Is the best approach to keep half gold and half cash since we could have inflation or deflation? Gold seems to have been failing as a safe haven recently.
I agree, although 1/2 gold & 1/2 cash seems risky to me. Gold/commodities are falling and if you get your timing wrong! Best to buy into gold gradually over a period of time so averaging out your per oz cost - especially in such volatile market.
In all monetary history, every country that inflated (debauched) its currency destroyed its currency. It’s a lethal combination of mathematical inevitability, delusion and hubris. As to the mentality of the federales, if there was any chance they would come to their senses and stop inflating it was lost with the bailouts of Fannie and Freddie. They’re not going to stop until they destroy what is left of the dollar.
I don’t see this as an either-or question about inflation and deflation. The forces of inflation and deflation are destroying wealth from both ends at varying degrees at varying times. I maintain that one should get out financial assets and out of debt while he can, and buy as much gold and silver as he can afford.
If you are convinced that the dollar is a dead man walking, there is no stronger reason to own gold and silver. When you take physical possession, falling prices like this represent an opportunity to accumulate more. A couple of months worth of cash is a good idea in case your bank shuts down. I don’t keep more money in my bank than I need for regular expenses. As a hedge, I took a loan out from the same bank. If they shut down, they’re not getting paid.
If you are starting to accumulate now, there isn’t much time left. Retail supplies are drying up. These prices are too good to turn down. At this late stage, ownership of gold and silver is becoming more of a matter of survival. The risk is in not owning any.
Precious metals come with their own set of risks. If we experience a total monetary collapse, the functional aspects of PE trading and exchange would not necessarily be equatable nor even feasible (your gold is in the form of a bar in a vault, you say?).
Going forward asset hording is essential, and food is the one and only commodity which can not only sustain you, but also can be as valuable as PE in terms of trade-value in times of want.
Think, “freeze-dried”.