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so You'll Thrive and Profit, In Spite of It... "

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Perfect Storm!

One of the (many) fascinating things about this latest global financial crisis is that there’s no single catalyst. Unlike 2008 when the carnage could be traced back to US subprime housing, or 2000 when tech stocks crashed and pulled down everything else, this time around a whole bunch of seemingly-unrelated things are unraveling all at once.

China’s malinvestment binge is crashing global commodities, an overvalued dollar is crushing emerging markets (most recently forcing China to devalue), the pan-Islamic war has suddenly gone from simmer to boil, grossly-overvalued equities pretty much everywhere are getting a long-overdue correction, and developed-world political systems are being upended as voters lose faith in mainstream parties to deal with inequality, corporate power, entitlements, immigration, really pretty much everything. For one amusing/amazing example of the latter problem, consider Germany’s response to the mobs of men that suddenly materialized and began molesting women: Cologne mayor slammed after telling German women to keep would-be rapists at arm’s length.

Why do causes matter at times like this? Because where previous crises were “solved” with a relatively simple dose of hyper-easy money, it’s not clear that today’s diverse mix of emerging threats can be addressed in the same way. Interest rates, for instance, were high by current standards at the beginning of past crises, which gave central banks plenty of leeway to comfort the afflicted with big rate cut announcements. Today rates are near zero in most places and negative in many. Cutting from here would be an experiment to put it mildly, with myriad possible unintended consequences including a flight to cash that empties banks of deposits and a destabilizing spike in wealth inequality as negative interest rates support asset prices for the already-rich while driving down incomes for savers and retirees.

And with debt now $57 trillion higher worldwide than in 2008, it’s not at all clear that another borrowing binge will be greeted with enthusiasm by the world’s bond markets, currency traders or entrepreneurs. Here’s that now-famous chart from McKinsey:

Global debt McKinsey

Easier money will have no effect on the supply/demand imbalance in the oil market, which is still growing. The likely result: Sharply lower prices in the year ahead, leading to a wave of defaults for trillions of dollars of energy-related junk bonds and derivatives.

As for stock prices, in the previous two crises equities plunged almost overnight to levels that made buying reasonable for the remaining smart money. Today, virtually every major equity index remains high by historical standards, so the necessary crash is still to come — and will add to global turmoil as it unfolds.

The upshot? It really is different this time, in a very bad way. And this fact is just now dawning on millions of leveraged speculators, mutual fund and pension fund managers, individual investors and central bank managers. Right this minute virtually all of them are staring at screens, scrolling over to the sell button, hesitating, pulling up Bloomberg screens showing how much they’ve lost in the past few days, calling analysts who last year convinced them to load up on Apple and Facebook, getting no answer, going back to Bloomberg and then fondling the sell button some more. Think of it as financial collapse OCD.

What happens next? At some point — today or next week or next month, but probably pretty soon — the dam will break. Everyone will hit “sell” at the same time and find out that those liquid markets they’d come to see as normal have disappeared and yesterday’s prices are meaningless fantasy. The exits will slam shut and — as in China last night where the markets closed a quarter-hour into the trading session — the whole world will be stuck with the positions they created back when markets were liquid and central banks were omnipotent and government bonds were risk-free and Amazon was going to $2,000.

And one thought will appear in all those minds: Why didn’t I load up on gold when I had the chance?

39 thoughts on "Perfect Storm!"

  1. John you mentioned a flight to cash. This is something I began in earnest last summer and advise everyone I know to do the same . I went to one of my Banks and asked for a large amount and paralyzed the Bank because they didn’t have that much physical cash on hand. They were going from cash drawer to cash drawer to try finding enough. I visited my Bank again today and had cars lined up behind me , same reason just no cash. I have consistently had to reduce my requests in order to get around this I just hope I can complete my transition before the death spiral.
    My advice is take this seriously from here on, if you value your money remove it from the Banks, Investment firms etc. it is not safe ! The FDIC will go belly up as soon as a few of the large Banks implode and believe me they’re going to do just that.
    Get your cash please don’t wait for the floodgates to open then it will be too late.
    I’ve made this statement on other websites but I repeat, soon we will be locked in as the death spiral begins in earnest and we will be prohibited from making a flight to cash.
    Only a fool trusts the Banksters.

    1. Same thing here. The amount I was withdrawing was not a staggering sum by any means, but they had to get two different drawers open to scrape it up. They really don’t have much on hand these days, so get it while you can.

    2. I suspect, but admittedly not sure, that those pieces of paper will be worth their intrinsic value within a month of the real crash. Good to have some, but I would not want everything in any kind of paper, including paper gold.

      1. The point is we’re in a ” bail in” era. That’s to say when Banks implode the depositors money becomes the Banks assets. In such case we’re not promised a return of our money on a Dollar par value but our deposits can be converted to Bank shares of an unknown value and I refuse to believe the unknown value would exceed my original deposits. It’s most likely to be far less in the final analysis. When the Banks go under they will do so without my money.
        Bank’s are required to keep very little cash on hand the rest is loaned out . In my Banks case it would take only a handful of people demanding their money to close it down completely. Reserves for Checking accounts is set at 3% but is 0 for savings accounts but on a daily basis these amounts are unknown and your Bank probably will not tell you the truth.
        As I always advise continue getting your hard earned money while you can.
        Do not believe you can trust the Banksters.

        1. Good points, but paper is still paper. Maybe after the crash, some folks will still want paper…who knows though? I’ll have a bit of paper, but mostly gold.

          1. Yes I agree with that point on paper that’s all it has been since 1971. This being said though I would point out that the Central Banks will never allow the citizenry to resurrect gold and silver coinage as a currency replacement for the paper Dollar. When this implosion finally happens I believe the Gold and Silver trading business and private ownership of large quantities of precious metals will be illegal for that reason. There will be transitory phase in which the globe will be migrated to a digital currency and no transactions will be lawful outside it’s system so the use of coins, gold bars, paper money is unthinkable only the approved methods shall be acceptable. If commerce were allowed by exchanging say for instance Silver Coinage outside this digital framework the integrity of it is instantly compromised therefore the law must and will strictly forbid it’s very existence.
            So what am I doing? I’m really just preparing in a material sense for survival during this transition to chaos, from chaos and finally to the new global Government and economy which is being nailed together as we speak .
            From the chaos that’s coming American’s will beg for this tyranny as will the entire world believing that finally we have a way of controlling our global economy and thus each other.
            I understand the difficulty many have in believing the way of life we’ve known is about to change radically but it’s happening and the pieces of this grand mosaic are coming into view now slowly one by one.
            “Who controls the issuance of money controls the Government ! ”
            Nathan Mayer Rothschild

          2. I have no desire to return to a gold standard or gold as currency in any way…the history of failure is unbroken. Also, I have no problem with fiat money as a medium of exchange (MoE) and Unit of account (UoA). It is when one tries to save in fiat money that problems arise and nations/governments get exorbitant privilege.

            Gold is the store of value (SoV) par excellence, as will be shown when the paper gold market burns. At that point, the reserve asset will be gold and governments will have no real choice but to embrace gold as a SoV and settlement medium between nations. It will also be to their advantage for the people to have gold in their possession when this new paradigm arises.

            When gold finally is set free from the paper market, I will be surprised if the going price, in current purchasing value, does not settle at about 50 times current value. See FOFOA blogspot for detailed analysis.

          3. That implies a return to some semblance of a Gold standard of sorts. There will never be a return to any metallic basis for currency or trade between nations . In the final analysis the Central Bankers of the Globe will never allow it to happen. It’s not that I don’t agree with Gold as a excellent store of value. When these times arrive in reality private ownership of Gold or Silver for such purposes will be illegal. When it’s declared illegal to possess, trade or exchange precious metals or face prison and confiscation of everything you own most people will surrender rather than fight the same way they will surrender their firearms . The individual is now powerless against what’s being prepared.
            You stated Gold is a “store of value”. It is, but a new day is coming where storing value will not be allowed . There will be limits placed on how much an individual is allowed to accumulate. The new digital currency will be programmable which means money paid to you today shrinks automatically within the prescribed period and there after . Translated that means use it or lose it working pretty much like an expiration date does. The new thinking among global Central Bankers is that savings represents unrealized capacity in the economy hence the negative interest rates now in place in Europe. One might think of it as removing the slack between the issuance of currency and it’s exchange.
            No, Gold merely offers an illusion of security for the time being and that’s about it. It has been disconnected from the Global Banking system never to return. Richard M Nixon pulled the plug on Gold on August 15, 1971 .

          4. Did you even read my last post? There is nothing gold standard about it. If storing value will not be allowed, what is the purpose of it all? If it turns out that bitcoin is the only way to beat the bastards, I’ll use that.

            I’m not selling anything and the info is free at FOFOA’s blogspot, but it will take you at least a few months of open-minded reading to absorb it all. Gaday.

          5. Great question? Since Gold could not be used for any commercial activity at this point what would anyone want with it.

            Again I repeat private ownership of Gold & Silver will be outlawed.

            Central Banks presently have Bitcoin in their scope and are studying it intently.

            As for your post you did state Gold would become the medium of exchange for Governments that in itself is a metallic standard for exchange. That is merely wishful thinking for the proponents of Gold.

            Gold will be vanquished, it’s remaining value only realized in the production of Jewelry.

            If you’d bothered to read my post then you’d understand that Global Collectivism is coming and we both will have to forget any foolishness about storing value . The Keynesian/ Socialists have won the debate. Storing value in a collectivist society is preposterous because it no longer serves the aims of the state to do so.

            “Capital is reckless of the health or length of life of the laborer, unless under compulsion from society “.

            Karl Marx

          6. I agree, that’s the plan. However, it is possible the people will not agree nor cooperate with this plan. Sheeple or People, that is the question….

          7. who is going to outlaw PMs? a handful of bankers? politicians? how can a ban in PMs be enforced. The US tried to ban alcohol and FAILED. the fiat system is a unnecessary middle man in the natural order of trade for goods and services.digital currency offers no privacy and would meet the same resistance as prohibition.

  2. Eric Janszen will be proven right. We’re in the “wind up” phase of collapse now. When it all blows, the nedd to “do something, ANYTHING!” will unleash a wave of inflation that will make the 70’s look like an inflationary hiccup.

    1. Has Eric been writing articles with his forecasts during the last two years? He stopped publishing free articles in January, 2014. Thanks.

  3. When you consider the magnitude of the coming true collapse, I don’t think PMs will do much good. 10s if not 100s of millions of jobs worldwide depend on fiat debt based monetary structures. Will PMs shore up these jobs when fiat fails?

    1. No, there will be no jobs left to shore up, just massive destitution, poverty and a population die off. Unless of course you are employed in the police state. PM is just one facet of retaining some measure of personal wealth. I hope the current fiat system lives on and on. After I die then it can all go to hell.

    2. I think PMs should be considered one component (perhaps even minor) of any preparation for an economic realignment. What might be more investment worthy are ’emergency/disaster-style’ goods, such as a well-stocked pantry and organic/heirloom seeds and associated gardening supplies to help supplement/sustain one’s food supply, along with time ‘investments’ in one’s local community to help prepare for the approaching transition.

      http://olduvai.ca

  4. I’ve been waiting on the sidelines, watching the oil glut, wondering when is the right time to get into USO. It’s down to ~$10 now; I’m sorely tempted. Perhaps I should wait a bit longer?

    1. War will come to cover up the financial mess…… I bought USO calls all week. USO hit 9.65 today. Doubled down…… I think this is all a set up to enrich the bankers.

        1. “Anyone that has invested in PM with US dollars feels anxiety.” Not me, but then I never thought of it as an investment. I still have every ounce plus some additions since the USD price top…I will continue to add ounces, at least until revaluation.

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