Thursday, August 4, 2011

The Eye of Sauron

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With the way the recent debt ceiling debacle played out in the US over the last few weeks, you would forgiven if you thought there was nothing else significant happening.

In the "Lord of the Rings: The Return of the King", the leaders hatch a plan whereby they conspire to create a distraction to enable Frodo and Sam to escape the searching eye of Sauron in Mordor. This will enable Frodo and Sam to get to Mt Doom unhindered and destroy the one ring.

The plan works, Sauron and his army are distracted and the ring destroyed.

It is never easy to prove conspiracy theories. The media has long been the subject of 'big brother' manipulative stories on the internet. Whether media even has the power to control stories enough to distract the hoards of the rest of us is moot.

But forgive me for not wondering.

The last two weeks may have been one of the largest distractions in history. The US debt debate was a farce. The US was never going to default. They always had the power to pay their interest and maturing bonds. The President could have stepped in at any time and invoked a section of the constitution to fix the impass. The Federal Reserve could just print the necessary money with a computer keyboard.

So what was the real story? This revolves around the meta-narrative of debt. Debt has been growing exponentially since the world monetary system went off the the Bretton Woods gold standard. The other side of this equation is that resources do not grow exponentially, they are scarce. We are in a debt bubble. Much of this scarcity revolves around energy and peek oil. Oil and energy, the life-blood of our global financial system, is not keeping up with the growth narrative of debt. You see, debt is piling up and resources, including the capacity of our labour, are shrinking, making it seemingly impossible to pay back the debt mountain with the resources of the future.

Then there was the lesser narrative last week revolving around Italy and Spain; plus the lack of confidence engendered by eurozone leaders in the Greek situation. What would cause the Spanish Prime Minister to cut short his holiday (and Europeans sure love their holidays!) and the Italian leadership to be in closed door meetings with the ECB and their Central Bank? Dire winds are coming.

Global stock markest are signalling a change in sentiment. The Dow Jones index has gone down 9 days in a row. The largest continual decline since the 1970s. Gold is at record highs (closing in on the record in NZ dollars also). The FTSE in London have lost $100 Billion in four days. Fears of recession are being felt.

The lastest eurozone bailout plan created a facility of €440 billion, while most commentators suggest €2.5 trillion was the minimum required. But even this may not be to cover Italy and Spain's banks from collapsing as funds are depleted rapidly by fleeing depositors. A good ol' fashion bank run.

The eurozone is the big news, not debt ceilings or phone hackings. The market has not gained confidence from the new eurozone measures. People are voting with their euros and going to gold. Banks are seizing up again, just like before the Lehman collapse.

Soon the eye of Sauron will be fixed once again on Europe, if it isn't already. Then we may see a collapse of the euro dream very quickly.

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The Anglo-Far East Company
The Original Private Bullion Custodian
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