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larssnowpharter
7th Aug 2011, 10:53
I felt this might be worth a new thread.

Let's start off with Slasher's analysis. Why? Ços I like it and it seems to hold pretty true as regards the available facts. So, forgive me please if I quote it in its entirety:

The economies of Europe and the United States have arrived at the moment when they no longer have any conceivable hope of being able to pay for the huge public commitments they've amassed the past 40 years, and its been a long time coming.

There are two sides to the European debt crisis coin - first there are the banks. In the 17-member euro zone there are 7,856 regulated financial institutions. For an obvious variety of reasons its critical these institutions not fail. Unfortunately in many cases the value of their assets has been seriously impaired by the US real estate crisis and the subsequent European debt crisis. Even more troubling (unlike the biggest US banks) many of the biggest European banks rely almost exclusively on very very short-term financing.

Looking at the 90 biggest banks in Europe (those covered under the latest stress test) - we find they collectively face 5.4 trillion Euros (yes trillion) in principal loans coming due in the next 24 months. That equals 45% of Europe's entire GDP. These amounts are bloody large and are concentrated in the biggest banks. In Italy for example the two largest banks have debt maturities amounting to 9% of Italy's GDP in the next 24 months.

The only way these debts can be refinanced (aka "rolled over") is if private creditors believe the ECB will fully stand behind these bonds. If any one of these banks is allowed to fail (like Lehman Brothers) it will be a complete fcuking catastrophe. None of the major European banks will be able to refinance. They will all fail - ALL of them.

The other side of the coin is the sovereign debt loads of the Eurozone member States. Here again there are large near-term maturities. For example - through July 2012 Italy faces sovereign maturity amounts equal to more than 20% of GDP - not including the 5%-10% of GDP annual deficit it's also expected to run. There's no doubt that without the Euro and without the ECB, Italy's government would be unable to refinance these debts at an interest rate it could afford to pay. Even with the currently explicit backing of the ECB, Italian CDS markets are pricing in a 25% chance of sovereign default within the next five years. Spain, France, Portugal, and Greece also have large near-term maturities over the next 12 months. If any one of these countries is allowed to default, they will all default - ALL of them!

So why the fcuk would these countries organise their financial affairs in this reckless way? It doesn't make any sense - until you begin to understand how the Euro zone banking system actually works. It's a paper system that has no accountability attached - its taken me a long time to not only learn how this clown act works but to accept it as a fact!

In the current system, countries are rewarded for taking on debt because there's never a clearing of the relative accounts! Here's the core problem - the ECB operates a cross-border payment system that never settles accounts – EVER! As a result there was never any real limit to credit creation in the various Eurozone countries. Instead, debts were allowed to build between central banks without any limit. In such a system he who borrows the most wins – at least until the entire system collapses. In 2010, depositors in Ireland worried their banks would fail because of all the bad real estate loans they held. Depositors took money from Irish banks and moved the capital into German banks. They withdrew roughly 50 billion Euros from Ireland (52% of Ireland's GDP). That's one big shitload of capital! In a standalone country (like Mexico for example) this amount of capital flight would have exhausted the country's foreign reserves, leading to bank failures and a sovereign default. But that didn't happen in Ireland because the ECB continued to provide fresh capital to Ireland's national bank at the same discount rate that was available to all national banks in Europe.

Rather than demanding gold or valuable securities in exchange for the euros that were deposited, all the Bundesbank got was a stupid IOU from the Central Bank of Ireland! As a result the Bundesbank is now the largest creditor to the system. It's currently owed 336 billion Euros which is a larger amount of money than all of the bailout packages combined. In this way it's virtually impossible for any bank in the Eurozone to default – as long as the Bundesbank is willing to accept those IOUs.

This fundamental lack of accountability or restraint led to enormous increases in total debt, both on the public and private sides of the debt coin in Europe. Why make the hard decisions about who will get a loan if you can get access to more funding, no matter what happens? Rarely does the "free money" tap stay open for long - some of Europe's central banks are now facing huge losses. And the taxpayers of Germany – the ultimate owners of the Bundesbank – are refusing to continue with the system. They're not fools - Germany is now demanding both sovereign creditors and bank creditors accept some of the losses. That's why credit default swaps are now beginning to soar - because the market doesn't know how to price the risk of default. The bigger problem is if credit was priced with the possibility of default, few banks and few European countries would be left solvent.

Here's a fact about the European crisis - most of the problems could be avoided if there were real and meaningful cuts made to public sector employees' wages and benefits. Take Greece for example - everyone mistakingly believes Greeks don't pay taxes. The solution (according to the IMF) is to collect more taxes. But the truth is entirely different - Greeks were already paying more taxes as a percentage of GDP than either the US or Japan.

Even after the IMF package, the Greek deficit is projected to be 17 billion Euros, or 7.6% of GDP. And that's the question - can one allow most of Europe to operate at a huge deficit, which ends up as losses at the Bundesbank, or does one demand discipline in the system and cause a catastrophic series of defaults?

Everyone believes the ECB must eventually paper over these bad debts with an enormous bond-buying program that would dwarf the quantitative easing we've seen so far in the US. And I think the US Fed will ultimately back-stop the program to ensure it doesn't destroy the euro. But still - how long will everyone accept the paper currencies of obviously bankrupt governments and their puppet banks? I dunno but I'm far from being optimistic.

Italy's public debt totals 1.7 trillion Euros – seven times the size of Greece. Italy is the world's third largest sovereign borrower. It can't be bailed out – its simply too big. Meanwhile it can't possibly hope to pay back its debts as long as it remains in the Euro. In fact Italy has been in recession almost since the day it adopted the Euro - its economy has grown by a total of 0.54% over the last decade. The total public debt to GDP will soon surpass 120%. At that point it'll become progressively more difficult for Italy to extend its foreign debts because all of the foreign creditors will know these debts will never be repaid. A default and devaluation will be the only way to restart Italy's economy.

The truth is, the world's financial system is about to completely break down because it's based on nothing. The US$ is an IOU nothing. The Euro is a "who owes you nothing". What should one do about all these risks? Hold plenty of gold and silver bullion! Short financial stocks and hold cash in sound currencies. Buy energy during the corrections. Don't believe a word anyone from the banks or what the fcuking government says. Oh....and as I keep saying over on the US Hamster thread - don't listen to any CNBC "advice" - it will make you poorer!

PS - For info I'm part of a group of private run-of-the-mill
man-on-the-street investors who primarily safeguard our
wealth against the falling USD (and in some cases slightly
profit from it), but in the last 3 months we've had to do our
homework on the PIGS because all this Euro shit is having
an increasing impact on the USD, gold and silver.

Now, and getting to the point, this is Slasher's method of protecting himself and his:


As I've often mentioned these past six months over at the US Hamster thread, owning physical gold and scrap silver is the only real method to protect the value of one's wealth. Its quite possible soon you might not be able to pass Go and collect your 200 quid without it.

So, what are we poor plebs to do?

For a number of years, starting first on the UK House Prices thread, I have been advocating keeping a certain amount of your capital in gold. As I recall, gold was back at around $750 at the time.

Now, it is true that I am no George Soros. It is true that I don't understand the nature of money and it is also true that I don't really trust anyone to look after my money in terms of investing it. This latter point is because I prefer to be responsible for my own cock ups (or is it cocks up?) rather than feeling the cold comfort of being able to blame some financial adviser, banker or wealth management expert.

However, you did not need to be an expert to be able to tell that things were heading down sh1t creek. The first sign was when I got begging letters from the bank asking me to borrow money at some outrageous rate or, worse, invest in some scheme whilst paying 3% pa to the management gurus running the scam. The last straw was when mortgage lenders were offering 125% mortgages. Ponzi scheme or what? Unsustainable in any case. Or at least, so I thought.

The writing, I felt was on the wall. So, what to do?

1. I had never owed money so, at least that was not a problem.
2. 10 - 15% of all savings were invested in gold. We still do this.
3. Got out of the UK property market.
4. Bought 2 properties in - then - unpopular parts of Italy.
5. Worked in ME with decent tax free salary and lived in SE Asia.
6. This year and last year re-invested in UK property market at what I hope was the lower end of the market. Current RIO is around 7-8% so am satisfied.
7. We have a farm on Basilan but this is a project not an investment.

We still have some capital left but, to be honest, it ain't doing anything useful. I am strongly tempted to buy gold with half of it and split the rest between Philippine pesos and Danish kronks.

Or should I buy a float plane and just enjoy it?

So, lads and lassies, assuming Slasher's analysis is half right at least, what should we - as individuals - do so as to survive the predicted onslaught?

cavortingcheetah
7th Aug 2011, 10:59
That's the easiest decision I've had to make all morning. I'll share it with you.
Légion étrangère Recrutement (http://www.legion-recrute.com/)

Metro man
7th Aug 2011, 11:26
Blame the welfare system and the public sector, in western countries these are an enormous drain on the ever shrinking productive sector. Why bother working when you can just go on the dole and live better than those with jobs. If you really must work then get a secure civil service job with a final salary pension, sit in an office and shuffle papers all day with no key performance indicators to worry about.

Unfortunately these two sectors have grown too big to do anything about. Who's going to vote for the strong medecine needed when it affects them directly ? Why bother striving for succcess in the private sector just to pay higher and higher taxes to keep the spongers going ? If you can't beat them join them and let someone else pay for it all.

Shack37
7th Aug 2011, 11:36
If one was to invest a substantial part of one's savings buying gold where do you physically store it? Too big to go under the mattress, might even go through the bedroom floor and cause injury to someone watching telly below.

I guess it would have to be in a bank vault or some strong box arrangement. In the event then of financial armageddon how safe is a private gold hoard from being ravaged by the failed bank looking after it or even by your own friendly government?

After all, armageddon is armageddon!

Fliegenmong
7th Aug 2011, 11:45
Faark Lars......Don't worry mate, you are clearly well ahead of the game...most all of everyone I know simply cannot 'Re Invest in the UK Property market....they cannot even get to a position to buy a house for the family to live in!!!!....let alone reinvest in property......

larssnowpharter
7th Aug 2011, 11:56
Metro Man:

Blame the welfare system and the public sector, in western countries these are an enormous drain on the ever shrinking productive sector.

With respect, Sir, I was not seeking to allocate blame for this situation. That would be the subject of a separate discussion. What I thought might be useful would be some genuine discussion on how to survive wat many perceive as a genuine crisis that will effect us all.

Shack 37:

If one was to invest a substantial part of one's savings buying gold where do you physically store it?


Well, naturally, it is stored in a safe in the wardrobe. At least a little is there. The rest is in the 3rd, 4th and 5th flower pots on the balcony of my study!

Now, you and I have had broad agreement in the past on this topic or similar. I can assure you that I have nver held gold in terms of piceces of paper nor has it been held in a bank vault or in the freezer compartment of the refrigerator.

However, if you are worried that:

might even go through the bedroom floor and cause injury to someone watching telly below.

I can recommend a good builder (at 10% commission:E) to you.

Now, do the sums. $100,000 at $1600/oz. Fly LHR - MNL via DBX. Buy yer gold at the airport. It will not have a huge effect on yer carry on.:D

larssnowpharter
7th Aug 2011, 12:52
Faark Lars......Don't worry mate, you are clearly well ahead of the game...most all of everyone I know simply cannot 'Re Invest in the UK Property market....they cannot even get to a position to buy a house for the family to live in!!!!....let alone reinvest in property......

Please PM me for details of my new e-book 'How to Stay Ahead of the Game; Financial Planning for Iconoclasts and a Rough Guide to Pole Dancing in SE Asia'.

Metro man
7th Aug 2011, 12:58
With respect, Sir, I was not seeking to allocate blame for this situation. That would be the subject of a separate discussion. What I thought might be useful would be some genuine discussion on how to survive wat many perceive as a genuine crisis that will effect us all.


Buy a farm in New Zealand then. You can live on it while producing your own food and you're far away enough from the rest of the world.:ok:

HKPAX
7th Aug 2011, 13:06
Shack 37 makes a very good point. Hard-pressed government would require all good citizens to deliver up their holdings of gold, maybe excluding wedding rings (but maybe not) on pain of an 'orrible end.

tony draper
7th Aug 2011, 13:08
I'm going to get rich training and selling Gold Sniffer Dogs to Burglers.:rolleyes:

larssnowpharter
7th Aug 2011, 13:11
Shack 37 makes a very good point. Hard-pressed government would require all good citizens to deliver up their holdings of gold, maybe excluding wedding rings (but maybe not) on pain of an 'orrible end.

He does indeed.

Which is why it would be very foolish to rely on the good intentions of a 'hard pressed government' or, indeed, any government given Slasher's excellent outline of the current situation.

racedo
7th Aug 2011, 13:45
I don't think gold is going to make much of a difference when the system crashes, you have it someone wants it so you gotta protect it.

Must admit in last 3 months have gone from a belief in society to a one where when it goes wrong full on its time to get in car and drive to as remote an area as possible and sit it out with family.

If everything fails via EMP / Solar flares when nothing works then time to get on bikes and get the hell out of everywhere as anarchy will ensue.

One site I read talks about Zombies then explains they are the druggies and others on perscription drugs who no longer able to get their fix go cold turkey and the mayhem as well as the hunger that will drive the human condition.

SASless
7th Aug 2011, 14:55
Brass, Copper, Lead, and Gunpowder along with a set of reloading dies....all much cheaper than Gold......and gives one ability to own lots of other people's Gold!

Put me on the list for one of yer Gold sniffing K-9's!

samusi01
7th Aug 2011, 19:36
http://i448.photobucket.com/albums/qq206/BarnacleofDoom/8341b39057.gif

Here's to disaster preparedness...