A Trillion Dollar Band Aid
Monday, May 10, 2010 at 07:17PM
Gold Prices in Gold
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The snapshot above gives us the make up of this bailout which sent the clap happy crowd into party mode as the broader markets put on good gains across the planet. As far as we can ascertain all of these funds do have to be paid back at some stage, so here we are again giving the drunk another drink. After today's flash flood of a rise in stock prices it will be interesting to see just where we are in week or so from now when the euphoria subsides. In the mean time both silver and gold prices remain firm.

This is an excerpt from a missive sent to us this morning from Peter Schiff:

A Time for Gold

The frightening financial gyrations unleashed by the unrest in Greece, and compounded by the mysterious kinks of electronic stock markets, have quickly reintroduced naked fear into the hearts of investors. Not surprisingly, while these concerns throw into question the safety of just about every asset class, gold and silver are beckoning once again as a means to help protect purchasing power.

We are now in the early stages of what I believe will be a global sovereign debt crisis.  With Greece, Portugal and Spain, we are seeing the results in what might be considered the “subprime” nations struggling with overly burdensome debt payments.  However, just like in the mortgage crisis, many “prime” nations, like the United States and Great Britain suffer from the same disease.  It is just that for these countries it will take a bit longer before the symptoms materialize. 

The bottom line is that many nations, including the United States, have simply borrowed more than their citizens can realistically repay. For many such countries, default may be the only way out.  The only question is how to do it.  Will governments simply refuse to pay, or will they pretend to pay by printing money?  I believe either option would be very bullish for gold and silver.  If nations default, gold and silver prices should rise, if they inflate, they should soar.

This is an excerpt from the Guardian:

Bill Gross, founder of Pimco, the world's largest bond investor with $1 trillion (£675bn) under management, recently told the Guardian he wasn't paid "to feel sorry" for countries. He also sent Britain's borrowing costs higher after saying gilts – UK government bonds – were lying on a bed of nitroglycerine.

Hedge funds have been widely blamed by European politicians for creating instability in the sovereign debt markets and their activities may have worsened the crisis by betting on a potential default of the troubled countries. This measure of market sentiment may have contributed to raising borrowing costs even further.

We draw your attention to the use of the word nitroglycerine or nitroglycerin, a thick explosive oil used in making dynamite!

The battle lines have been drawn with with yet another bailout package thought to be the solution. These props will buy some time but as we have said many times in the past liquidity will not solve the problem of insolvency. None of these sovereign states can magic wealth out of thin air and so gold and silver will go to higher and higher ground.

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