What do many U.S. municipalities and the various bankrupt Sovereigns in Europe have in common? Quite a bit actually. Both rode the crest of several credit induced bubbles and ended up with fixed “costs” stuck at all time highs while revenues have peaked and are now shrinking. While times were good, both of these government enterprises hired freely and “promised the moon” with pension and benefit plans that now, will either have to be rolled back or the entity becomes insolvent. I really should not say “becomes insolvent” because as these “promises” are already in place, they are insolvent unless some sort of re neg, court protection or bankruptcy is pursued.
Businesses and individuals are earning less now than the in the go go years so sales tax receipts are down. Many properties have been foreclosed on and values from the real estate tax bases are down significantly, this revenue stream has shrunk and shows no signs of turning around. In short, “velocity” of money is down as is the total size of business in general which leads to less “tax” cash flow. On the other side of the coin, these municipalities and sovereigns have promised pensions and benefits in the future which now cannot be mathematically funded but are “fixed” in place. This scenario mirrors exactly their respective debt markets. When times were good they borrowed freely, now that times have changed they cannot afford the payments and many are not “welcome” coming to market..
Another, more important similarity is that neither municipalities or Euro sovereigns can PRINT their own currency. Here lies the problem that has and will expose their states of insolvency. Don’t get me wrong, the Federal U.S. balance sheet and income statement are no better but they do have the Federal Reserve to step up and buy Treasury debt which is the only thing postponing the final day of reckoning. The bottom line is that Greece is Illinois, New York is Spain and France is California, they are all broke with no ability to print. Does Greece, Spain, Italy and France get bailed out from the ECB? Does Illinois, New York and California etc. get bailed out by the Treasury? Well, maybe yes and no.
The ECB doesn’t have the legal right to hand out money any more than does the U.S. Treasury so in backdoor fashion, money will come from the Central Banks with the ink still wet. My guess is that when the smoke clears, we will find out that “our” U.S. Federal Reserve will be the one behind all of the “new money” passed around to kick the can. I wanted to comment on this whole ordeal because the muni market was something talked about by Meredith Whitney nearly 2 years ago. A year went by and no big muni debacle occurred so she was bad mouthed unmercifully. She was 100% correct, correct for the right reasons but , pardon me, maybe a year early but spot on.
I know that the Gold “situation” has become very frustrating to say the least. The current pullback has dragged on to the point where consensus is now more negative than nearly anytime since the year 2000. It has become boring, tedious, irritating or whatever you’d like to call it. We have been correct for 11 years running and correct for the right reasons just as Ms. Whitney has. We have forecast many upcoming events only to be “poo pooed” when it turned out we were early. “Early” can appear “wrong” for a long time. Better to be years early than even 1 nanosecond too late because being “too late” in today’s world means being SHUT OUT. I have heard many say “I should have sold (Gold) out at the high and got back in when it comes down”. In a “normal world” yes, have at it. In today’s world, when you “sell out” you are doing what? Presumably parking your funds in Dollars, the EXACT thing that you WERE protecting yourself against collapse from in the first place, that’s what! In the “old days”, 2000-2006 or 07, “trading” to me meant trying to trade up and accumulate more ounces whether they be physical or through mining shares. Since then, anyone “trading” all in or all out, is in my opinion, out of their minds because NO ONE knows the “when” in the equation. I’m 100% certain that the math and logic spell the end to the Dollar, as to the “when”, you are maybe 1 day early, or a month…or 6 months. It doesn’t matter as being 1 nanosecond too late in a system that has closed will mean that without your position that “bothers you” now, you will have no capital to start in the next system.
Sit back and relax, you know how this will end, just not when. “When” won’t matter “when” a new currency system is rolled out.