It seems apparent to me that, taken in total, the financial news points to a heightened risk of a near term major meltdown in the developed economies.
Without going into details, let me just remind you of some of the issues that may be on the brink of exploding:
- European sovereign debt crises in Greece, Hungary, Spain, Portugal, Italy, and Ireland
- The continuing run on COMEX silver inventories
- The accounting games being played by US banks over their bad debts so that they can report better results than are actually the case
- Soaring US budget deficit
- Rising unemployment, despite efforts at distorting official statistics to hide the increase
- Continuing declines in the residential and commercial real estate market values
- Record numbers of US bank failures, which would be even higher if the Federal Deposit Insurance Corporation had sufficient staff to get around to all of them
- US interest rates are so low that central banks have almost no maneuvering room
- The huge increases in outstanding US money, created by monetizing the growing debt
- Banks unwilling to lend to the private sector so that they can make “safe” income financing central bank bonds
- Imminent tax increases for all taxpayers in the US
- The financial burden in the US from the new laws related to health care
- The admission that the London Bullion Market Association has no more than 1% of physical gold required to cover outstanding contracts for delivery
- The developing slowdown in delivering physical silver to fulfill maturing commodity contracts
- Continuing statements by other central banks looking for ways to diminish or eliminate the use of the US dollar as a reserve currency
- Rising demand for gold from central banks and sovereign wealth funds and their cessation of gold sales
- Skittish world stock markets
It would only take the breakdown of one or two of these developments to send the global economies into a tailspin. Actually, if one or two of these problems erupts, it is likely to put more pressure on the others to also break down soon thereafter.
While this would be a disaster for developed countries, it would not necessarily be a catastrophe for a large number of developing nations. That is because many of these countries are not that dependent on the same artificial financial machinations practiced in the developed nations.
One thing that is virtually certain is that when (I don’t think it is any longer a question of “if”) some of these issues become a nightmare, the values of currencies in general will decline and precious metals prices are bound to take off.
Think about it. If you were right now offered a choice of US dollars equal to the value of an ounce of gold or the ounce of gold itself, which would you chose? There are a lot of people in enough financial trouble that would be compelled to choose the US dollars. Those who are financially comfortable enough to not need immediate cash are more inclined to choose the gold.
Since the price of gold (and, to a lesser extent, silver) represents a report card on the US government, the US economy, and the value of the US dollar, the US government has every incentive to try to suppress precious metals prices. The older US government documents that have been released reveal that the US has manipulated the gold market since right after the end of World War I in 1918. The manipulation of the gold market as recently as the 1970s has been confirmed by some of the recently released documents. There is much circumstantial evidence that the US government has been continuing this manipulation right up to today. This circumstantial data is more credible when you consider the huge incentives that the feds have to engage in such activities.
But, as major calamities unfold, it will become pretty much impossible to keep gold and silver from skyrocketing in price. The relative bargain prices of gold and silver in the past week may not last long.
However, as the developed world comes closer to the financial precipice, I expect even more extreme efforts to hold down gold and silver prices. There may still be a few opportunities to acquire gold and silver at the bottom of the current market. Just don’t count on it.
My July 13 column discussed the specter of a soaring increase in identity theft that is almost certain to occur. This will happen as millions of American businesses have to start collecting confidential tax information from massive numbers of people, starting in 2012, in order to send more 1099 Forms to the Internal Revenue Service. This column has generated a tidal wave of reaction.
On July 20, I was interviewed by a reporter for ABC News on this subject. His story was posted on ABCNews.com on July 21 under the title of “Gold Coin Sellers Angered by New Tax Law.” This story created a storm of response, resulting in my appearance on the “Money Rocks” program on Fox Business News television on July 23 (Eric Bolling is the host). In both instances, I tried to make it clear to the media that a major concern I had was the impending huge increase in identity theft that is virtually certain to occur, but that issue did not end up in the finished product either time. This catastrophe-to-happen of Section 9006 of the new Obamacare legislation is so important that I will continue to try spreading the message on this issue. At least readers of this column can appreciate that you heard this kind of news a week earlier and that you got more of the story than what was covered by the mainstream media.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes "Liberty's Outlook," a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles". His periodic radio interviews can be heard on WILS 1320 AM in Lansing, www.talkLansing.net, and on www.yourcontrarian.com.
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Things may not be quite as bleak as Mr. Heller explains re: the world economy and the new tax law. As far as the economy, in my view there is a very high risk of a catastrophic meltdown at some point in the future, but probably not in the short-term. The factors he lists are ongoing issues, not immediate crises. Regarding the new law, remember that there is a bill from Rep. Lundgren to repeal the new 1099 law, and perhaps more importantly, the IRS’ own ombudsman has stated that the new provisions present major administrative obstacles for taxpayers and the IRS. Finally, and I would really stress this point, there are still ways to protect yourself from id theft. There is no foolproof method other than totally shutting down your credit, which you can do in many states by contacting the credit bureaus and putting a freeze on your credit. In addition, always check out the reputation of a coin dealer before selling to them. Look for companies that are members of the ANA and the PNG and look for companies that have been in business for decades. Avoid new start-up companies and stick to those you have done business with in the past that was satisfactory. The same dealer who treats you the best as a customer will give you the highest offers for your coins and will be more likely to protect your personal information. Over the course of the coming months there will be lots more discussion on this, and I would be surprised if the provision does not evolve in major ways. Why, for example, is the threshold so low ($600)? If one sells items on Ebay and one’s total sales are under $20,000 per year, the IRS considers that similar to selling items at a garage sale and allows individuals to earn up to that amount without owing any federal tax. But sell over 20K total and they consider you a business. This information was reported in the Washington Post newspaper earlier this year. So why would the threshold be so much lower when selling to a dealer on a wholesale basis?
So, who is to say that these 1099 forms will always be filled out for every transaction exceeding $600? Will Obama’s spies be looking in on every single transaction? I find that very hard to believe. Where does this end?
Another thing worth noting is that most people, especially numismatic collectors purchase these precious metals coins with post-tax money. Why should we be taxed again on our money that has already been taxed? Isn’t this double taxation? I thought we had laws protecting us from double taxation!
-Richard Stinchcomb
Louis, this struck me as a key point which needs more clarification:
“The factors he lists are ongoing issues, not immediate crises.”
This is true, but WHY is it true? It’s because the immediate crises are always papered over with more emergency measures, more debt, more deception, more fraud. By government decree, the Day Of Reckoning cannot arrive – the can is always kicked down the road. Another layer of fraud and theft is added, and the game continues.
That’s why the author says, if any of these fall, they all do. It’s all held together with scotch tape and lies. You can say it all looks good….until the day it doesn’t. And then it’s too late to protect yourself. It’s better to prepare a year too early than a day too late.
@Louis:”As far as the economy, in my view there is a very high risk of a catastrophic meltdown at some point in the future, but probably not in the short-term.”
You could be correct about the timing of the meltdown. However, the meltdown of 2008 (and the attempt on May 6, 2010) may be telling us otherwise.