Not the time to be an arm chair analyst

Washington Mutual

This week it was Washington Mutual (WaMu) - the biggest savings bank to go under in US history, but perhaps not officially... JPMorgan came to the rescue! and will pay US$1.9 billion for the troubled bank. If Washington Mutual was not taken over by JP, there would have been a massive bank run on its deposits, and likely the start of substantial withdrawals from other US banks. A bank run happened earlier in this year when IndyMac Bank (California based) went under, at the time it was the 2nd largest bank failure in US history. (There are new records created every week at the moment!) WaMu with assets of $US307 billion, easily beats IndyMac ($US32 billion), and Continental Illinois National Bank ($40 billion) which went bankrupt in 1984.

With JP stepping in, the US Federal Deposit Insurance Corp (FDIC), which insures US bank deposits, was let off the hook (not a coincidence I believe). Without JP at the scene, FDIC would have been forced to cover the savings held by Washington Mutual.

Who is FDIC?

As the FDIC website states:

- (FDIC provides a) basic insurance amount is $100,000 per depositor per insured bank.
- If you and your family have $100,000 or less in all of your deposit accounts at the same insured bank, you do not need to worry about your insurance coverage -- your deposits are fully insured.
- FDIC insurance is backed by the full faith and credit of the United States government.

The irony is that FDIC was created in the midst of the last Great Depression in 1933, because of a huge amount of bank failures and loss of confidence in banks. Today, many Americans would have confidence in this corporation (if they were aware of it) to back their savings if there was a bank run. The bottom line is - this corporation is all "smoke and mirrors", and it will not be able to cover a massive bank run when the next one happens. If it did honour deposits in a large run on the banks, the US would have to print trillions of dollars to meet its obligations. The ultimate end result is hyperinflation.

In the last Great Depression more than 1 in every 5 banks failed. Between 1929 and the end of 1932, nearly 5,100 banks had failed in the United States. Money supply shrank by one third, as people were not prepared to take out new loans (liquidity problem - sound familiar?). There was no confidence in the banking system. FDIC was created to help restore confidence in the banking system, by backing deposits with the "Faith" of Government (but it didn't work...). As I have raised previously, the US Government will only be able to print money to meet future promises, liabilities, and obligations.

Arm Chair Analyst

Everyone has an opinion. Right now more people are interested in talking about whether it will be Obama or McCain as the next US President. The bottom line is - it doesn't matter anymore. Whoever gets in will only have one economic card up their sleeve, and that is to keep printing money, devalue the $US Dollar (relative to other currencies and gold/silver), and erode the purchasing power of the US economy through a double digit inflation tax. There are differences between candidates, but economics is the primary element to capitalism. People need secure assets, secure jobs and a secure monetary system. Without this, social, environmental, military progress etc is not sustainable.

Now is not the time to be an arm chair analyst.

There will be many people that will say in a few years time:
- "I knew the $US Dollar would collapse"
- "I knew gold and silver prices would go crazy"

Words are worthless if you do not back them with actions. Forget the tabloid-trivial politics. Do not rely on populism or mass-media propaganda. They will always distort the facts. Whether its climate change (how many jorno's have a degree in schience and climatology?) or the nightly finance report (who cares if Telstra goes up or down 1 cent?). You must do you own research and due dilliegance, and question everything the pollies or the mass media tells us.

Three Teirs to Action:

1) Education - Spend X hours a week studying the events happening in the US. What does WaMu. Lehman Bro's, $700 bn rescue package mean today, but more importantly what will this mean for tomorrow?
2) Have a plan that recognises the period ahead. How will your preserve and duplicate your wealth? How will your combat eroding purchasing power to double-digit inflation?
3) Accumulate holdings in precious metals.

Change your context

When you realise the seriousness of what is about to hit the world economy, a light bulb will go off in your head. You will be consumed to learn as much as you can about the current events and what you must do to preserve and transfer your wealth.

So far I have detailed many facts and figures, but this will mean nothing unless you change your context. We have to stop measuring things in terms of paper money (US$, A$, Yen etc), and instead measure things in terms of purchasing power.

Already we are around 8 years into a great precious metal bull market, but very few people are aware of it. Gold and silver will offer the greatest purchasing power, and wealth transfer for the decades ahead. Those holding gold and silver will do very well, provided they have a plan and do not flip and sell for currency "profits" along the way.

There is a lot to take in - but the more knowledge you have, the better equipped you will be to take action early - but only if your context has changed and your inner instinct forces your to take action...

To finish today, I suggest wetting your appetite with some of the video clips below.




Cheers,
Scott