….Genius !….It is Here and It is now….looks like we were all right and all wrong at the same time….

Bill H:

End of the line for fiat.

To all; the “flash crash” of a couple weeks ago was billed as the fault of a “fat finger” which when you think about how computers and risk departments work is a total impossibility. The market cracked 10% in a day in my opinion because someone or group (very big) knew (knows) something. Was it the Euro problem or foreknowledge of war or whatever? Who knows but the fact that the markets have come down and tested or even broken the “flash crash” levels tells you that it was no fluke. We are certainly due for a bounce and should get one which will suck in some more unsophisticated money for slaughter. If we do not get a bounce from here, all control or even semblance of control will be lost and the flash crash final drop of 3%+ will look like a good day.

One very dark cloud for the stock markets and bond markets (and thus the main street economy) is the fact that M3 money supply has been contracting very hard. In fact, it is now contracting at a pace only seen during the Great Depression. You may recall that the government ceased reporting M3 several years back because “it was too costly to calculate” but John Williams has stepped up to the plate to continue tracking it. This is also the explanation for not having an audit of the U.S. Gold reserves since the mid ’50’s but this of course is another story.

M3 movement has always been a lead indicator for markets and the economy as the current system runs on credit. This contraction of credit may be because banks are raising capital levels or simply investing in Treasuries rather than making loans because they fear the risk of not being paid back. It could also be that loan demand has dropped and debtors are actually paying down balances. No matter why credit is contracting, credit contraction is very deflationary and can explain why the Fed’s balance sheet is again growing rapidly to fight this contraction.

What will be very interesting to watch is the policy response to this contraction. Do we get another stimulus bill? I would think that is a given. But what will be the response to contracting credit and thus asset prices once interest rates begin to rise based on the fear of U.S. sovereign risk. The way I see it, there can be no proper response because the “cake” of default/debasement is almost out of the oven already. “Policy” will be dictated by markets rather than be issued by politicians and bankers. Remember, it is the “policies” that got us here, they cannot get us out because they have already gone too far in efforts to suppress Mother Nature. The investing public along with Main St. will soon see this catch 22 for what it is.

I have read several “on line debates” regarding my thoughts that we will experience both inflation and deflation at the same time, some agree while others have called me an idiot. But let’s go back 2-3 years, is it cheaper to live today than it was just a few years ago? Food, clothing, taxes, insurance, medical, tuition etc., are any of these cheaper? But then look at your house, or business and particularly your portfolios (without Gold assets), are they worth more now? I highly doubt it. So we have already experienced this inflation/deflation scenario over the past few years but not yet on the scale of what is to come.

The fiat system is at the end of it’s line and when it finally fails to the point where anyone and everyone can plainly see it, I believe the recent inflation /deflation scenario will become extreme to the 10th power! This is to say that the things we “need” on an everyday basis will become extremely costly to the point where many will do without that which is today considered a given. On the other hand, all paper assets and even real assets that are borrowed against will plunge in value to the point having either no value or negative value in relation to debt.

There has always been the great debate regarding Gold, do you want to own it during inflation or deflation? The answer of course is BOTH (a stronger case is made during deflation). The way I see, what we have directly out in front of us is BOTH reasons to own Gold, inflation and deflation. This on it’s own is enough to create the biggest bubble in history. Add in the fact that so many “cautious” investors (99%?) don’t really own what they think they do and thus inventories have been sold many times over, will just add fuel to the mania. I still say that trying to put a Dollar figure as to where Gold will go is pointless, count your ounces not your Dollars! Regards, Bill H

hmmmmmmmmmmmm….some on chat boards call him an Idiot….hmmmmmmmmmmmm