The 2012 New Great Depression

The Great Depression resulted from government mismanagement rather than instability in the private economy. M. Friedman

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The original idea of a central bank was to secure stability by ensuring politicians kept their hands out of the Treasury's pockets. The reality is different. Over the past decades, politicians have tried to avoid recession at all costs by increasing the money supply through debt creation, which in turn serves as a reserve for (central) banks. Now that the debt has become a bubble, the economy can no longer honor it, and a natural process of debt destruction has begun. Greece and Lehman Bros are two excellent examples.

It is the end; accumulated interest payments will bring the system down, because the only way to reduce interest payments is to redeem the debt. Other popular measures, like cutting spending, raising taxes, or saving on energy, only further reduce economic activity, which in turn reduces tax revenues and makes it even harder for authorities to pay interest on their debt.

As a result of the economic decline, unemployment is on the rise and people start to riot...Bankers and Politicians must, at a certain point, fear for their lives (Argentina).

Destroying debt destroys money, and less money chasing the same amount of goods results in lower nominal prices for Investment instruments. Most dangerous, however, are Treasuries (which will end worthless) and ANY investment instrument which is guaranteed by Treasuries: life insurance, pension funds, bank deposits, savings accounts, bank shares, structured products, derivatives, e.o.

Add $ 1.4 quadrillion in derivatives (uncontrolled, bank-manufactured, and bank-controlled investment instruments), and we have a financial atomic bomb. Most people don't even realize they hold these kinds of investment instruments directly or indirectly, since they are usually sold as ZERO-risk paper. Remember, derivatives brought down Greece in the 1st place.

This poisonous cocktail will cause a lot of harm, and when it all blows up, some will lose it all, and others will lose part. Important is to be OUT of anything which appears to be safe, like: Treasuries, bank deposits, zero-risk bond and stock funds, money market funds, TAK-instruments, life insurances, financial stocks, ....and to hold Real Money as well as certain well-defined Real Assets (Real Estate is a HOCG and won't do unless you buy it cheap at the bottom of the market).

The dramatic part is that authorities, because of their actions, are punishing the very people who have worked and saved their whole lives: pensioners and savers.

Europe has a serious additional problem: society has for decades been poisoned and brainwashed by socialism. Society is over-regulated, and for this reason any natural adjustment becomes extremely difficult. If the mentality of the people doesn't change, we may well end up with a remake of the Dark Ages of Europe when India became the Financial Capital of the world.

Last but not least, it becomes imperative to store your savings in NON-BANK VAULTS OUT of POLITICAL reach, as the Authorities will increasingly vote new legislation in place in order to TAX away as much as possible. This exercise is as important as investing properly.

Note: Money is a natural derivative of Treasury Bonds, and the 1st paper money was interest-bearing.

October 6, 2011 Francis D. Schutte

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