Monday, August 13, 2007

Long fall to darkness

The recent bridge collapse in Minneapolis was seen by many as a simple accident or a one off example of poor management but in reality it was a symptom of a profound event that most of the public are blind to, the fall of the American Empire. For many years the U.S. has been burning the candle at both ends, with its endless cycles of spending and debt without ever maintaining the necessities of modern life. The recent collapse is not a one off item or an accident it is a symbol of the systemic rot taking place in U.S. There are estimates claiming that in the U.S. an astounding 73,000 or 12% of all bridges are structurally deficient.
Further 80,000 are functionally obsolete meaning they are not designed for the amount of traffic they currently carry. For years, be it slack highway maintenance or failing to fully fund the corps of engineers, the U.S. government has not been doing its job in maintaining the essential infrastructure of the nation, Minneapolis and New Orleans were just two of the many disasters that the U.S. is destined to suffer for the lack of money and planning.

There are the additional infrastructure problems regarding the power grid, city water supplies, sewage, refinery capacity, poorly maintained or insufficient rail lines and public transit.

Added to this infrastructure mismanagement is U.S. spending on the Iraq war and the normally huge military spending, which continues despite the apparent victory in the cold war. To date, the Iraq war is estimated by the congressional budget office is about 450 Billion That of course is the accounted costs, hidden costs for procurements, mercenaries like Black Water and long term costs of supporting military widows and cripples will add significantly to this stated cost. For decades The U.S. has been spending on its military as if they were on a war time footing and yet they never caught on to the concept of guns or butter but rather thought guns and butter with plasma screens and SUVs thrown in was a long term sustainable proposition; Morons the lot of them.

Peak oil and the dependency on foreign energy is a huge threat and there is no real plan to conserve, innovate, or diversify a means to self sufficiency..3

Another interesting item (as shown on the side bar with the debt clock) is the growing U.S. debt which as you read this sentence will climb by 100,000 dollars. The total debt at the time of my writing is $8.951 Trillion U.S. dollars, the total unfunded liabilities which include expected payouts of Medicare, government pensions etc is estimated by the GAO to be in the neighbourhood of $53 trillion, a staggering figure. For years the U.S. governments have been raiding various trust funds like those for pensions and health coverage, spending the money, not replacing it, and giving the funds IOUs in place of the interest baring vehicles that would make these funds at least partially self funding over time.
The U.S. has a hard choice ahead, renege on promised benefits, or devalue the dollar to the point that they will honour their commitments in word if not in value.

The U.S. has been selling U.S. debt to mostly foreign investors at a rate of over a billion dollars a day for many years. A new twist on this need for daily influxes of cash has been the U.S.’s recent trend of issuing and borrowing money through the Federal Reserve since fewer and fewer foreign suckers in the open market are taking part in treasuries auctions; this is simply printing money and devaluing all existing dollars. This monetization of debt is a sure fire sign of the coming collapse of the U.S. dollar and the ability of the U.S. to maintain it’s pretension of empire for much longer. Recent reports from China hint that they may be willing to use the threat or action of dumping of U.S. debt on the market as an economic weapon against the U.S. Even such threats could panic bond holders and crash the U.S. dollar in a flash of computer controlled trading.

There is also the spreading contagion from the sub prime mess which has reached French, German, and Canadian banks as well as hedge funds as far away as Australia. Estimates I've seen have priced the funds specializing in sub prime debt from about %50 down to virtually nothing like the case of the Bear Stearn's funds. The total losses are not foreseeable at this point since only a tiny number of the holders of these sub primes have announced warnings, there is however going to be a huge out cry in coming weeks as people begin to request redemption of invested funds only to find them frozen by the hedge funds trying to maintain solvency.

The distress has forced the selling of other assets to provide liquidity; the fear a stock crash has prompted Central banks around the world to provide billions in loans to banks so they will not crash the markets with panicked selling. In the last week the EBC, the Fed, the Japanese and Australian Central Banks have injected over 350 Billion dollars into the market in the form of loans to banks. This week South Korea and Malaysia have stated they will do the same to support the market if needed. Of course this is not old money they were hiding under their beds for hard times this is all freshly created money pulled out of their asses and thrown into the market to keep the bubble alive. This is just another inflationary practice which should support the prices of our lovely piles of silver and gold but you should also expect volatility as some organizations sell their holdings to make ends meet in the short term.

If you've watched the markets recently you've seen some hard falls followed by amazing end of days runs which attempt to erase the worst part of the loses, some analysts are claiming this is the work of the Plunge Protection Team a group reportedly put together by the U.S. administration to manipulate the market with the goal to moderate crashes.
How deep their recent interventions are is unknown but it is know that they don't have any real money but they do have the ability to create new money on a whim, more inflation, more bubbles and one more step from fiscal reality

The U.S. is heading for a long fall, which will likely include bankruptcy, a dollar crisis and certainly a diminishment of the roll of America in world affairs. Not unlike Rome did, the U.S. is fighting wars it cannot win with money it does not have and with citizens who no longer have the zeal, belief in righteousness or simple bloodlust required to be big dog on the street, for the most part they are only concerned with bread and Circuses. Rome collapsed by inches as measured by loss of influence, debasement of its money , military setbacks, social decadence, sound like anyone you know? Unfortunately today the markets are intertwined and risk is spread out to the entire world, if the U.S. goes the way it looks to be going everyone will get hurt.

What can you do?

Dump financials, go to cash, minimize debt, try to build up your metal holdings to 10% of your portfolio and hold on. There are still many questions, will banks go under? Will the U.S. Gov manufacture a bailout? Will they allow an orderly deflation or print their way to hyper inflation? Is Canada too dependant on the U.S. to survive their crash? Be defensive, be smart and be attentive, things will move quickly when it starts falling apart.