Day of the Dead State

The most surprising thing about the recent downgrading of nine Eurozone countries by S&P is that anyone is surprised to hear that the government debt of any of these countries is risky!

From the Financial Times:

The eurozone debt crisis returned with a vengeance on Friday as Standard & Poor’s, the credit rating agency, downgraded France and Austria – two of the currency zone’s six triple A rated countries – as well as seven nations not in that top tier, among them Italy and Spain.

S&P, under political fire since it announced a review or eurozone debt in December, gave 14 of 16 countries – including France, Italy and Spain – a negative outlook, which it said meant a one-in-three chance for each country of a further downgrade this year or next.

It seems as though it is only a matter of time before they each fall to bankruptcy, no matter how many bailouts they can muster.  It’s almost enough to make us change our logo.  But, we’ve always said the euro would fall before the US dollar.  The dollar will be the last in what will be a crescendo of currency collapse.

What the students of the Austrian School (aka real economics) have understood since the turn of the 20^th century was that this was the inevitable result of the pursuit of the socialist utopia where humans would not have a worry in the world, cared for from cradle to grave by the all knowing state.

The modern Welfare/Warfare state was born in the in late nineteenth-century Imperial Germany under Chancellor Otto von Bismarck – his intention was clear from the outset:

“My idea was to bribe the working classes, or shall I say, to win them over, to regard the state as a social institution existing for their sake and interested in their welfare”

Bet you never saw that quote in your government run schoolbooks.  Frideric Howe wrote that under the German system, “The individual exists for the state, not the state for the individual.” 

We are now witnessing the end result of the institutions of bribery and theft that swept the rest of the world in thefirst half of the 20^th century.

The most extreme version of socialism implemented under the murderous Soviets collapsed under its own corrupt weight over 20 years ago. Now the “Social Democratic” states of the west that thought they could find a third way with their middle of the road policies are finding that the corruption of socialism has eaten away at their foundations as well.

The social engineers wished to control life, tame the markets and create a predictable, ordered society, directed by enlightened bureaucrats. They wanted to put in place of what Marx called the “anarchy of production” the exclusive monopoly of the state.

The chickens are coming home to roost. And what unrest we have seen is only a taste of the real turmoil to come when the pampered children of the nanny state realize they will have to put food on their plates.

Of course the ratings agencies aren’t telling the whole story. They suffer from the same fatal conceit that Central Bankers do – namely that a central planning agency can steer the actions of hundreds of millions of individuals to a predetermined goal. These are the same agencies that had rated subprime paper as triple AAA right up to the moment they weren’t, and they do the same now for sovereign debt.  It shouldn’t be AAA or AA… it should be an F for all the PIIGS, France, the UK, Japan and the US…. just to name a few.

THE RATINGS AGENCY CARTEL

The US Government has created a cartel of rating agencies. It officially recognizes S&P, along with Moody’s and Fitch, as Nationally Recognized Statistical Rating Organizations (NRSRO’s) and, moreover, requires financial institutions to constrain the riskiness of their portfolios in line with the assessments of those agencies. They have created an oligopoly controlling the financial future of entire countries. So it is not unthinkable that the US Government would use the S&P as a weapon to destabilize an economic region.  In fact, the “shock and awe” approach of downgrading nine countries at once has the US Government’s fingerprints all over it. The US Military has been “war gaming” financial scenarios under its “Unified Quest 2011” codename and it would be no surprise that the recent attack on the Euro nations came out of this unit.

War has now gone financial and the US is trying to protect its dollar imperialism that supports the Federal Reserve Note at the expense of the world.

A rare hero does sometimes emerge from the financial megamonstrosity that calls itself “capitalism”. Devan Sharma, former head of S&P stood up to the beast this summer and downgraded the US Government’s credit rating.  He was axed days later amongst little fanfare.

Not without irony, coinciding with this latest European downgrade, the US has AGAIN bumped up against its debt ceiling. The constant drumbeat of the Eurozone crisis acts as a nice diversion from the true state of US finances.

The US Government, when accounted for by GAAP accounting, has a deficit of $4-5 trillion per year. The US has a deficit nearly equivalent to the value of all the gold in the world ($8 trillion) every single year. That fact alone should tell you that the future value of gold will be far higher than it is today as the worth-less US dollar floods the global marketplace.  A GAAP deficit of $4-5 trillion/year makes for about $13 billion per day more than the state can squeeze from its helpless victims. Ignoring for the moment that the gold in Ft. Knox has not been audited in more than fifty years and that the U.S. government has again changed the way it describes its gold from “gold reserves” to “gold and gold-swaps” with NO break-down on how much gold has been “swapped” (i.e. lent to a 3^rd party), and how much gold the U.S. government actually “possesses”. If we were trust the government’s numbers the total amount of gold in Ft Knox is worth $235 billion (147 million ounces x $1600).  At current rate of expenditures, the US Government would be spending the total amount of gold held in Ft. Knox every 18 days, in DEFICIT spending (not even total spending) alone!

DAY OF THE LIVING DEAD

We now inhabit not a land of zombie banks, but zombie states. This is the financial system of the walking dead.  Governments, in their current form, will not exist in the very near future… and neither will their currencies… not in this form (it will all-out collapse or massive devaluation and at least a gold backing) very soon. That’s why we pay little attention to these sideshows – the US Government and its witches coven of Ratings Agencies playing chicken with the Eurozone, upping the ante to push the Euro over the edge and squeeze a few more years into the US dollar as the world reserve currency.

It’s all a game of emperor has no clothes at this point… and the emperor might as well be Ron Jeremy. If you allow yourself to get caught up in the parade and circuses of it all you might get fooled into believing this system is sustainable. 

In dangerous times such as these, you don’t want to own any paper assets: government bonds or fiat currencies. If you are holding stocks, be sure your stock certificates are registered in your name (you can do this by following the process denoted at TDV’s BulletProof Shares) and geopolitically diversify your assets and your life, as much as possible.

The emperor truly has no clothes and western banks and nation-states are walking dead.  While the rest of the chattering classes go on about his fine, silk garments and don’t notice he’s been dead for years, rearrange your affairs behind the scenes. Because once they all realize he has no clothes, that’s when things will really get interesting.

Learn how to protect yourself from the coming collapse.  Subscribe to TDV today!  Just this week we found and reviewed the world’s only bank that allows you to keep your funds in gold and withdraw your cash from ATM machines worldwide.  Of course, this is available to everyone but Americans, which is why we insist Americans rush to get a second foreign passport before it is too late… something we also cover regularly at TDV.

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