The Coming “Goldpocalypse”
Commentary by National Gold Group’s Chris Poindexter – 05/27/2011
One of the problems with trying to predict the future is that the future has a way of making even the smartest people look stupid sometimes. Take Chicken Little for instance, mistaking that acorn falling on his head for the end of the world. It was a mistake any new analyst could make and I personally think the little guy got a raw deal in the court of public opinion. Let’s face it, on a long enough time line Chicken Little will be right. The sky will fall one day. Whether any of us are likely to be around to see it happen is a matter of some debate, but the day will dawn.
I bring up Chicken Little because I’m going to risk sounding a little like him today talking about the economic sky. There are several trends swirling around that, taken together, should give any reasonable person an uneasy feeling. Specifically, the possibility that we could see a slow-motion “perfect storm” sovereign debt crisis and the effect that could have on inflation and precious metals prices.
All week I’ve been writing about European financial ministers running out of time to restructure Greece’s debt. If Athens doesn’t get some restructuring of its bonds, it could default as early as this summer. Pushing back against that inevitability are the European Central Bank and rating agencies like Moody’s, suggesting that any restructuring will be treated like default. That puts Greece and, by extension, all of Europe between a rock and a hard place. And there’s no guarantee, even if Greece gets an extension, it will do anything but delay the inevitable.
The fear of a Greek default is that it would tilt other European nations on the financial edge over the cliff as well.
To be sure nations have gone bankrupt before and eventually gotten back on their feet. Mexico in 1982, Uruguay in 2003. The financial wizards stepped in with the Baker Plan, later the Brady Plan. Mexico restructured its debt and got more loans, even though it would end up costing them an economic decade, the effects of which can still be seen today.
Countries, like individuals, sometimes default on their loans. Rare, but it happens. But none of those countries have ever been the United States.
Preposterous? Maybe. But if Congress doesn’t make a deal with the devil and increase the government borrowing limits by August, the Treasury will be forced into a series of rolling economic blackouts. Contractor payments will be delayed, men and women in the military would experience delays getting their checks and Social Security payments might be late. It doesn’t sound bad but make no mistake, it would be a disaster. And if it goes on long enough, the unthinkable: The U.S. would be forced to delay interest payments on the national debt. A move that would send shock waves through the global economy.
The timing could not be worse. A U.S. debt crisis intersecting with an ongoing debt crisis in Europe. The perfect economic storm that would make the mortgage crisis look like a cookie theft at Girl Scout camp. Inflation would explode, precious metals would surge overnight, prices rising so fast you’d need the space shuttle to keep up. What I call the “goldpocalypse.” The markets would likely stabilize eventually, but without the economic anchor of the United States for stability who would be there to calm the waters? China? Russia? India?
Really, how likely is that scenario? Sadly, it gets more annoyingly plausible as Congress seems to have lost its collective mind. Playing chicken with economic disaster. It’s absolutely insane and yet happening right before our eyes.
While Congress dithers, China and India are accumulating gold and silver as a hedge against inflation. Together they account for 40 percent of global gold purchases. In China, where the government previously forbade private ownership of precious metals, state-run TV is now running commercials urging their citizens to buy investment quality silver. What do they know that we don’t?
Maybe nothing. It could just be the information equivalent of an acorn falling off a tree. Then again, how much of that would have to come true for us to be looking at $1,600 in the rear view mirror?
The above commentary is for informational purposes only and is not a solicitation by National Gold Group or Chris Poindexter. It is the commentator’s opinion only and not intended for investment recommendations, and does not necessarily reflect the views of National Gold Group. Any references to outside sources are believed accurate. Past performance is not a guarantee of future results. All commodities involve risk. Investors should consult their financial advisor before making any investment decisions.