We are Way Over the Edge Right Now

Last Friday, I wrote a piece called “Could America be Pushed over the Economic Edge?” It was about how Libya, Japan or even covert economic warfare (from America’s enemies) could push the U.S. into another financial meltdown.  I received a one sentence email from my friend Jim Sinclair that said, “We are way over the edge right now.”His message gave me a sinking feeling.  Mr. Sinclair is a world renowned gold expert, but in order to trade that market, you must be extremely knowledgeable in many aspects of economics and politics.  Almost everything affects the price of gold.  War, government, oil, debt, money creation, the Fed and many other variables can dictate how much the yellow metal costs.  Gold is probably the single most difficult market to trade, and Sinclair is the Yoda of gold traders (except much better looking.)

Last week on his website JSMineset.com, Mr. Sinclair outlined “why” we are already way over the edge right now and why gold is going much higher in price.  Here are a few of his reasons that I picked out from his bullet pointed post:  “You must realize that the economic and political damage is already done.  You must realize that the mountain of OTC derivative paper is not going away. . . . You must realize that this means the mountain of OTC derivative weapons of mass financial destruction can only grow. . . .You must realize that it is not whether or not QE will continue, it is what it already has done to the Western economies that much higher gold prices will reflect. . . .You must realize the monumental change in the Middle East is NOT positive for the West in any manner, shape or form. . . . You must realize that it is the currency that breaks, not the country.” (Click here for the entire Jim Sinclair post.)

This is not some far-fetched assessment of the U.S. economy because at least one Fed banker is also sounding alarm bells.  CNBC reported last week, “The United States is on a fiscal path towards insolvency and policymakers are at a ‘tipping point,’ a Federal Reserve official said on Tuesday.  ‘If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when,’ Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt.”  (Click here to read the entire CNBC story.) There is absolutely no way a top Federal Reserve banker says this without it being common knowledge in his circle of power–no way.  This tells me the Fed realizes the economy is much worse than what anyone would admit

For some real world confirmation of a cliff diving economy, I turn to John Williams, founder ofShadowstats.com. In his latest report, Williams says, “Both existing and new home sales moved sharply lower in February 2011, down 9.6% and 16.9% on a monthly basis . . . Foreclosure activity remained an intensifying distorting factor for home sales, with “distressed” activity accounting for an estimated 39% of existing sales in the NAR’s February reporting, the highest portion seen since Spring 2009, and up from 37% in January.” Four out of every 10 homes sold are foreclosures!  That is not a healthy housing market or sign of a recovering economy.  There was a record one million homes foreclosed upon in 2010, and experts predict another record breaking year in 2011.  Williams is predicting an “intensifying double-dip recession and a rapidly escalating inflation problem.”

To regular readers of sites like this one, the economic problems we face are not surprising.  But for every informed person, there are probably hundreds that have no idea how bad the economy really is.  As an example, one new reader wrote me last week and said, “We are indeed going through some of the craziest times I can ever remember and although things are crazy, do you really believe we will all NOT get through this as a society?  How can the entire country go under?” The answer to the first question is some will get through this a lot better than others.  Those people include folks that have little to no debt and have a well-diversified portfolio that includes physical precious metals as the ultimate form of insurance against financial calamity.  As for the second question: “How can the entire country go under?” I refer back to what Jim Sinclair said earlier, “You must realize that it is the currency that breaks, not the country.” If you can grasp the enormity of that one simple sentence, you have all the information you need to protect your wealth.