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Wednesday, September 1, 2010

Europe joins the Financial Ground Zero events

Europe, which by many aspects is more opaque and corrupt than the USA, has decided to jump with both feet into the Financial Ground Zero list of my blog.

Europe had previously created a 500 billion dollar borrowing "slush fund" to stabilize countries that are basically insolvent, such as Greece, Ireland, and a list of countries in the EU.

Today the IMF announced, not only would the original 500 billion "emergency loan" fund be extended in duration, but doubled to 1 trillion. Further, there are discussions according to bloomberg to double the IMF debt cap every 6 months, resulting in a 4 trillion emergency fund by end of 2011.

In addition, any cap of max amount loanable to any one country based on IMF's quota is now removed.

In essence, the world central bank has said "we will print and dole out money to any country, no matter how fiscally irresponsible, to anyone we want, and raise the limit and duration by any amount we deem fit".

Congrats Europe, and IMF, this event has qualified as a "Financial Ground Zero" event on my blog. This sad march will eventually culminate into a world wide crisis that will make 2008 look like a small opening act.

There is always still time to turn things around, but here is where I differ from my friend John Chinnock. The politicians will not only kick the can, but will be quicker act and with larger sums, potentially accelerating the crisis. The world will march right into the heart of the beast, and will only recognize the crisis created after the current approach becomes unsustainable.

Unsustainable is when world government bonds and currencies are in a direct crisis, forcing the hand of the government and the banks to reform. They have shown since Reaganomics to not stop, but to continually expand fiscal insanity, and will not change until forced. So a bond and currency crisis isn't a might, it is a must, to enable change.

The question is, only when. And on this point, I fully agree with John the final crisis maybe 5 to 10 years off. (potentially). But I'd rather start positioning. Probably a better way to store wealth is to buy cheap, off-the-grid, land as a "wealth storage" vehicle. Check out http://www.landandfarm.com/.

On the IMF news, gold valuation spiked, but gold is still in a topping danger area. It needs to break above 1,265 an ounce and remain higher to establish a new base for larger gains. And was likely a catalyst for markets moving higher Tuesday. I suspect we will see stocks fall from here, possibly as low as 899 on S&P, giving Ben Bernanke the ability to announce his next round to follow up the IMF.

Will be interesting next 8 weeks. Cash is still king.

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