As I write this commentary, the dow has fallen nearly 250 points, the NASDAQ has dropped 80 points and gold is down 11 dollars. All of this is occurring amidst fears that the economic crisis in Greece could spread, and spread rapidly. Those fears are well founded. The gyrations that are occurring throughout the global economic landscape cannot be looked at as independent events. They are all interconnected events closely aligned with one another, separated only by time, and whatever paper currency in which they are denominated.
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When the housing crisis began it was fashionable financial propaganda to blame those pesky sub-prime borrowers for the ills sweeping through the economy. Then lo and behold, the housing crisis spread into prime loans and jumbo loans until people from every economic class were being swept up in the credit collapse. Funny how prolonged unemployment and being a geographic prisoner to a house that cannot be sold, can turn you into an economic prisoner of the banks and credit card companies.
When this crisis began, the banks and the government (the true causes of the crisis), blamed the sub prime borrowers. The banks and government successfully played the class warfare card by blaming the poor until they could no longer blame the poor. There was (and is) so much talk about banks giving loans to people who couldn't afford them. Don't forget, it was the government who urged, and in some ways, forced the banks to give endless loans. After 911 it was George Bush who urged everyone to spend, and Alan Greenspan who urged everyone to finance their homes with short term adjustable rate mortgages. Now those mortgages are blowing up. Just like government debt and deficits.
Now sovereign debt is beginning to blow up. The marketing ploy of banks and governments is to initially blame and dehumanize the PIIGS nations. Portugal, Italy, Ireland, Greece and Spain. Calling these nations pigs is the psychological equivalent of blaming sub prime borrowers for the housing crisis. But just as the housing crisis spread to people of every economic class, the sovereign debt implosion will spread to every country and fiat currency on the planet. When the UK and ultimately the U.S., and many of its states are affected by the implosion of sovereign debt, do you think we'll be calling ourselves PIIGS or some other derogatory term? Of course not. By then the financial collapse will be legitimized and we'll have some fancy name like "financial realignment".
As currencies collapse, you will continue to see a mass exodus into the US dollar. This means the dollar can rise as things worsen because the dollar is the least worst of the paper currencies, at least for now. Eventually there will be a faceoff between the dollar and gold. When that happens either gold will win, and whatever new currency is introduced will be backed by gold, or else during the eventual faceoff between gold and the dollar, the two will be merged into a new and improved gold backed dollar. Regardless of which scenario plays out, gold is the only place to be.
