I believe we are much closer to a collapse of the U.S. economy than most are led to believe. To understand just how fragile the situation has become, presented below are the 5 stages of collapse from a slide by Dmitry Orlov:
The U.S. financial system died in 2008 when Bear Stearns, Lehman Brothers and AIG went bankrupt. As Jim Willie stated in one of his articles, “Pumping blood into dead corpses will not revive the system.” That is not an exact quote…but you get the point. The big banks are basically dead. This is the full description of a STAGE 1: per Orlov:
Stage 1: Financial collapse. Faith in "business as usual" is lost. The future is no longer assumed resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.
If we read the whole description we find that just about everything listed above has occurred except the part where savings are wiped out. The FDIC moving the insured $100,000 amount up to unlimited postponed the inevitable. Risk cannot be assessed correctly anymore as the FASB has allowed the banks to MARK TO MODEL their assets. Thus, if the banks did MARK TO MARKET their assets, they would indeed be insolvent. And lastly, banks are not lending which proves the point that access to capital is for the most part…lost.
This brings us to the next stage which it looks like we are getting ready to enter in very soon. Stage 2 per Orlov:
Stage 2: Commercial collapse. Faith that "the market shall provide" is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.
With the recent S&P downgrade of U.S. debt, the move into stage 2 has been set. Watching the markets in the past few days, there is a sense that “ALL IS NOT RIGHT”. If we look around the world there is this almost frantic effort to pump up banks, stock & bond markets. This is causing extreme volatility as markets act schizophrenically down one day, then up the next.
How close are we into entering stage 2? That’s a good question, but if you just take a good whiff of the air around you…it seems very close. Good barometers of the event are the actions of gold and silver. The charts below tell the story:
Both gold and silver are heading into an exponential rise. Some traders may say this is for sure a parabolic move…and a BLOWOFF is almost guaranteed. I gather these traders have not read the 5 stages of collapse. Regardless, the two monetary metals are revealing to the world that ALL IS NOT WELL.
It is said that parabolic moves do not end well. I totally agree. In this case, it is the Fiat Currency-Compound Interest-Fractional Reserve System that will get the brunt of the pain and not gold and silver. This is why it is a gamble to have ones assets in paper instruments at this time. Gold and silver stocks are the next best bet over owning physical metal.
Very few if any analysts saw the huge commodity take down in 2008. Today, it seems as if they are mostly confident that it will occur again. I believe this time will be different. Entering into a full blown stage 2 of the commercial collapse will make 2008 look like a picnic. Back then, the big worry was watching paper wealth disappear. At some point in time….it will be witnessing goods and foods disappear. The former is not a necessity…the latter most definitely is. You can read more about the 5 stages of collapse Click here ...
It may be time to buy some real insurance…and not wait until the firestorm has arrived.