Conclusion
Let’s begin with what I feel is most important. This article is really about debt and how it is affecting every facet of American life. There are times when debt is acceptable but it is never acceptable to carry too much because suddenly we discover we are on the defensive instead of the offensive; and this affects every aspect of our existence; individually to nationally. Put another way, too much debt traps you. Currently, on an individual, local, state and federal level we have debt that exceeds $50 trillion. Some would argue that the federal government alone has a debt load of over $50 trillion. That’s a lot of money any way you cut it!
There is also a form of debt called derivatives. Derivatives are insidious vehicles with counter party risk that exceed $500 trillion. That’s correct, $50 trillion in debt plus $500 trillion in derivatives which even the professionals cannot get a handle on. The derivatives fiasco is absolutely a black hole. We’ll just forget about the $500 trillion in derivatives for now. But lest we forget, banks, hedge funds, and other financial institutions are tied to these derivatives; if not drowning in them. Erudite investors like Jim Sinclair and Warren Buffett have described them as garbage.
I certainly don’t believe that neither this generation nor any subsequent generation will be able to repay some $50 trillion of debt. If the derivative instruments begin to fall like a stack of dominos, nothing on God’s Green Earth is going to save us. Most people don’t even understand what they are? In essence, they are “futures contracts” on steroids and they are totally out of control. We can talk about nominal values and mark to market mechanisms but there is no reason to understand the mechanics–just the fact that they exist and are a huge threat to our global financial system. Consider if you will, that the official number released by the US government, states that our national debt is somewhere around the $10 trillion mark. However, when one considers the off budget items, the compounding interest on the existing debt, the debt for the Iraq war, and all of the other unfunded liabilities, we end up with a figure far in excess of $10 trillion. Remember that old expression, “it’s the economy stupid”? Well, now the new saying should be, “it’s the debt stupid!”
Common sense dictates that these levels of debt will ultimately do us in. The government cannot create dollars forever without eventually suffering negative consequences. As a result of these enormous levels of debt and the insane ways that the government has tried to address the unwinding of generations of mismanagement, there are only one or two vehicles which will safeguard your assets. They are gold and silver, and perhaps the house or the property in which you reside provided you have a manageable mortgage or own it outright. If you truly want to be safe, consider owning the physical metals. Of course, most of us don’t have the means to go out and purchase a few 4.5 kilo gold bars; but there are one ounce gold coins and even smaller denominations. I don’t believe in owning exchange traded funds (or ETFs) because they are too ripe and too big a temptation for the politicos to “borrow”.
I’d rather own a quality junior mining company that is well managed. I view them as long term options on gold without the time decay. And hence , we have the conclusion of this article.
Introduction/Preface
My real job is to point out / suggest, some exceptional junior mining opportunities invariably related to the precious metals complex. To that end, I am going to suggest Oromin Explorations (OLE.CA or OLEPF.OTC), Golden Phoenix Minerals (GPXM.OTC) , Geocom Resources (GOCM.OTC) , Newport Gold (NWPG.OTC), Lund Gold (LGD.CA), Madison Minerals (MMRSF.OTC), Journey Resources (JNY.CA), and Buffalo Gold (BYBUF). These are but a few of the many quality juniors which are now available for giveaway prices. They have been beaten down for any number of different reasons.I have my own ideas for suggesting the above companies, not the least of which is the fact that I speak with the management of these companies on a very regular basis. I feel I have good working relationships with all of them and that puts me at an advantage. I am able to pick up on facts, programs, relationships, developments, and directives that are available to each and every one of us.
However, the opportunity of speaking with these people on a regular basis helps me to zero in on the company and its objectives along with the particular focus the management is endeavoring to emphasize. More often than not, relationships with people are what give you the edge.
I’ll give you one example. Golden Phoenix Minerals is now selling at around $.17 a share. I would like you to go back and review my past articles on this company. Nothing but nothing has changed. Well, that’s not really true. What I should say is that nothing on the negative side has changed and there have been many positive developments. If I didn’t talk with Rob Martin, the President, on a regular basis, and if I didn’t have the long term relationship I have with him, I’d be concerned. But I do and I don’t.
The market is punishing these juniors for several reasons not the least of which is that many assume that every company has a liquidity crisis. Such is not the case.
Another company which I have been recommending for a very long time is Oromin Explorations. Given what I know about the company and its management, and given the fact that it’s selling for about $2.70 per share, it is my opinion that it is a “steal”. I know one of the principals of the company who is a stickler for proper protocol. I would have to use truth serum or some such method to acquire any information not contained in a press release. But I know the man, and I trust him.
It gives me the confidence I need to keep getting the story and the idea out to you. Simply go to the website and review the recent press releases on these companies. Yes, “Juniors” are high risk-high reward, but quite honestly anything having to do with gold and silver in the months and years to come is going to be an excellent opportunity for financial advancement if the company is well managed. The most difficult part of investing in any of these juniors is the patience required.
However, when you amortize the possible increases or appreciation of these companies you will find that they stack up quite nicely against some of the major components of the Dow and the S&P. Part of the problem today is that people are pulling in their horns; adopting defensive measures, and feeling that they don’t want to take risks. I don’t really believe there are any more risks in some of these juniors –dollar for dollar– as there are in some of the major companies. All you need to do is look at Bear Stearns and the fiasco that emanated from that particular situation to understand what I’m saying. But the financial community, (read Wall Street) sometimes makes sacrifices at the altar and they sometimes eat their young. Bear Stearns is indeed part of that process whereby a smaller company was sacrificed at the altar of greed in order to protect a larger brother–whether they liked it or not. Of course the real losers were the shareholders but who gives a darn about them?
In today’s world, it is difficult to find a level playing field in the financial arena. All of the rules and regulations from the SEC are to protect the larger interests and not the “small fry”. To that extent, I believe we’ve been inundated with so much negative financial news that most of us simply do not know where to turn. After all, most of us are not economists and when you throw all of that sophisticated financial data at an unsophisticated investor, you are left with “puzzles of the mind”. Good title for a movie, don’t you think? Speaking of minds, some of the very best are grappling with all of these issues being thrown at a disillusioned public. I’m going to list a few of them down below. But for now I want you to focus on three things: Debt, the Precious Metals, and the relationship between the two. For now,” it’s the debt, stupid!” That particular statement is meant for Mr. Green scam” and Mr. “Helicopter Ben”.
How did we get here?
First of all, why the question? We ask it because if we don’t know where we are or how we got here, we are going to have a difficult time figuring out where we are going! It’s an off shoot of the old adage–if you don’t know where you’re going, how are you going to get there!?It would take literally volumes to explain the historical implications of where we find ourselves today.
Much of it has to do with greed, power, and government mismanagement in a population that is endeavoring to maintain a lifestyle which they refuse to relinquish. My own feeling is that some of the key benchmarks that have brought us to this point are the creation of the Federal Reserve in 1913, going off the gold standard under Nixon in the 1970s, and the idea that a recession, any recession is a bad thing. That, along with the idea that the US has felt compelled to meddle in the affairs of other nations under the guise of protecting our own national interests.
One final thought is that no nation can continually debase its currency without consequences. We are now suffering from the consequences of mismanagement for the last 30-70 years. It always amazes me that governments can be so shortsighted; not just ours but many of the governments of major nations. Unfortunately, it’s always about getting reelected, about making the big power deal, and about treating the citizens for whom you work as collateral damage. When these politicians want to get elected we are their very best friend but within months, they are swept up in the throes of power and we are soon to be forgotten.
Our financial system is Constipated
Please excuse the term, but it fits in this context. Our financial system is constipated because it has not been allowed to cleanse itself via the traditional means of a recession. Recessions are traditionally counterprocuctive for those up for re-election and so rather than let the financial/economic system periodically cleanse itself, we have these brilliant politicians posing as economists who have not allowed a recession to occur. They feel they can manipulate the economy to such a degree that recessions will be a thing of the past. It hasn’t worked because when you have so many moving parts in so many different areas of the world, you simply cannot control all of them. Additionally, the dollar is a fiat currency which has had its international underlying confidence eroded through policies that have been counterproductive to its strength.
Once again if we break this down to its lowest common denominator; it is clearly a question of creating too many dollars out of thin air for the real purpose of monetizing our huge debt. Think of it like this. We’ve increased our money supply by 33% over the last eight years. Given our 232 year history, that is an absolutely enormous increase given the fact that the other 67% of debt took over 200 years to accumulate. Currently there are no alternatives, because there is no going back, and there are poor opportunities going forward. How do we jumpstart and economy that has exported most of its manufacturing capacity? The Fed has usually tried to “inflate” out of these situations; but when a nation’s currency is undesirable, who wants it? What do you use to inflate with?
The Federal Reserve has tried to re-inflate its way out of the current predicament. Unfortunately, it has basically tried the same gambit once too often. That is to say that every time there has been a global crisis over the past 50 years, the Federal Reserve, along with their counterparts in the (international) Central Banking System, have thrown dollars at it. This time it isn’t working because the rest of the world is looking at the greenback askew. Paper is really only paper unless there is an underlying value. I believe we have squandered a good deal of that value in futile pursuits.
It goes back to that idea of inflation versus deflation. When you create so much money out of thin air, the air goes out of whatever you’re creating. Any time you have more widgets than demand, those widgets are going to decrease in value. Consequently that is exactly what’s happening with the US dollar, the common stock of the United States. Too many widgets (dollars) chasing too few goods is the classic definition of inflation.
For many years the world has wanted what the US has–the “high life”. Now the pendulum swings and we want what other parts of the world possess: commodities such as oil, steel, precious metals, base metals, and most of all “cheap labor”. We had a very good thing going. Other nations gave us their goods, and we give them paper with pretty ink on them. Then those same parties would reinvest that paper in our stock market giving us a two-way win. Then guess who got really greedy? Lo and behold, when governments, institutions, and even indiviudals get caught up in that greed, they simply get caught!
I have to add that one more thing here; something which really breaks my heart. The US has always been seen as having the moral high ground; whether this is a reality will be left to historians. However, the perception was that the US was a place of truth, justice, and fairness. The sleaze element has crept into our way of life and we need to assist it in creeping right back out.
Somewhere along the line over these past 10 years we’ve lost that moral high ground. And it seems like the news just kept getting worse and worse and worse. If it wasn’t the way the government reacted to 9/11, it was the way the US reacted to Katrina or the way the Immigration issue has been handled. It would appear that most everything in America is for sale; including the presidency and the Congress. Why do you suppose they place such stock on who has the most money in their campaign coffers?
The moral high ground gives you the bully pulpit and room to navigate–even to negotiate in good faith. When you don’t have it you ain’t got nothing. We had empathy from other nations after 9/11; we had good will from other parts of the world which at that particular point in time did not condone what happened on that horrible day. It always goes back to consequences; intended or otherwise. Consequences of past and historical US policies led those people to do what they did. Of course they were out of their minds evil religious fanatics, but they felt there was no dialog to be had. Remember, that nothing occurs in a vacuum. Remember too, that after those religious fanatics carried out that deed, we played right into their hand.
Perhaps a little restraint and some focused reprisals would have served the purpose. Wholesale killing begets more killing. Have we not learned anything? A measured response would have created the impression of a level headed, intelligent Nation. “Bring it On”, arrogance, and killing women and children via bombs creates hatred of unmeasurable depths. Did we not learn anything from the Russian invasion of Afganistan? Evidently not.
The Value of the Dollar
What good is Plain ole Paper?The US dollar is losing its role as a viable currency because too much of it is being created backed by too little economic growth. Remember that our dollar, as all fiat currencies, has to be backed by something of power and substance or it stops being valuable. For the last 30 years or so, our dollar has been backed by a strong military, and the perception that it was the world’s reserve currency. The common stock of the US was part and parcel of that moral high ground to which we just referred. and the world believed in it. Is the dollar still the world’s reserve currency? Is the military strong, used for defense, or have we become offensively oriented with a military that is being ground to dust in Iraq.
If oil was not there, would we be?We also have to add to the mix the concept that our national production of physical goods has been decimated and consequently there is little value underpinning the dollar. This makes the dollar basically a piece of “paper with ink” and backed by nothing more than an I owe you (nothing). It’s not a pretty picture. We are at a point where there could be a systemic meltdown in the global financial system because many of the fiat currencies are in the same boat: big debt, low production, governments out of touch with the desires of their citizens.
Economic Microcosms
Finally, we must realize that economic systems are microcosms; much as a living organism. They need to acquire sustenance and they need to eliminate in order to cleanse the entity. They require the room and the proper environment in which to grow. Sometimes they simply need to be left alone as in, “I need my space, man”! When the organism is not allowed to cleanse itself, because clever people think they know better, the system gets back logged. Financial systems must be allowed to expand and contract which means that sometimes recessions are an absolute necessity in order to clean up the mess so new fertile ground is available for expansion. The recent generation of American politicians have decided they can prevent recessions, which means they prevent a little pain so now. But as the little pain increases over time, we are left with the possibility of a great deal of pain.
That is what we currently find ourselves: facing a great deal of pain because some self-indulgent politicians just couldn’t keep their fingers out of the pie. Regardless of what we are being told, there is no real out to this mess that we are in. I desperately want to believe that some bright minds will prevail but unfortunately those bright minds are too busy protecting their own assets and the assets of their clients. I would suggest that many of them truly understand the dire situation in which we find ourselves.It was announced today that the IMF will sell 400 tons of gold. It will never see the light of day. What is the reason for the sale? It is to once again attempt to keep gold under wraps; to break the thermometer so no one realizes how hot it is getting in the financial community.
If you have any amount of wealth that you wish to protect the best way to do it is to own physical gold and silver, other tangibles of value, certain real estate (location- location-location) diamonds, and other physical assets.
In terms of silver, Jason Hommel has written an excellent article on how to buy silver.http://www.silverstockreport.com/2008/hyperinflation.html I agree with 90% of what he is saying.
Introduction
Because of the enormous amounts of debt that have been incurred over many generations, and politicians who have refused to manage the country in a sensible way, we are close to a breaking point. Soon it will be every person for themselves. Tread Carefully. Buy gold and silver and keep it in a safe place.
Stay away from ETF (Exchange traded Funds). That is simply another form of an IOU.Let’s list a few of the topics we’ve covered either directly or indirectly: just for fun:
The Sub-prime Mortgage Mess has caused a liquidity crisis;
the liquidity crisis has spilled over into the Housing Sector
A Decrease in housing Prices which have been the ATMs of the middle class means spending by consumers will slow. The entire structure of the mortgage companies along with people who make their living from packaging loans to the appraisers is at risk.
Banks have the money but are fearful of lending it out. They appear not to trust one another. Question: How can we trust them if they don’t trust each other. The Fractional Reserve Monetary (FRMS) system is just that—fractured! The FRMS is allowed to lend out 90% of every dollar they hold on account. Is it any wonder they get in trouble?
The Federal Reserve has reduced Interest rates and added One Trillion Dollars in an effort to prop up the economy; ease liquidity issues. Remember-the Fed is neither a part of the US government or a Reserve—Please do not lose sight of that fact!
So much “paper”, so little credit Where is the confidence? In the Dollar? In the Economy? Jobless Numbers are increasing—less jobs; fewer jobs means less tax revenuesLess tax revenues means more debt in a downward spiral
The DJIA has had five Months of Downward trend –will it now be definitively confirmed by the Transports?
Our Economy is consumer based meaning that if consumers don’t spend; we end up with an economy in a downward spiral.
Consumers are not in a spending mode. Bonds are becoming less valuable with decreasing yields and many being downgraded
Gasoline Prices are now a de facto tax on our entire economy. Even the talking heads of CNBC are talking about it!Like the ever ready bunny, it just keeps on going.
The precious metals are in a roaring bull market and this is key. Your friendly governments, along with their friendly central banks, don’t want you to know this. As a matter of fact, they have gone to great lengths to conceal this from us. No one has made the case for this manipulation better than Bill Murphy, Chris Powell, and GATA (The Gold Anti Trust Action committee). www.lemetropolecafe.com is the place to pick up on the pulse of gold.
And yet I wonder how many people truly understand what it is that the country is up against. In a word, we are up against debt.
Until next time,
D. Stewart Armstrong
Consultant to the Junior Mining Community
Posted by D.Stewart Armstrong in Articles