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Steve's note: In today's essay, my friend and colleague Porter Stansberry continues his series on a huge trend he's calling the "End of America." You might not agree with everything he says... You might even think his ideas are crazy. But I guarantee you'll come away with a lot to think about... Why the Debt Situation is Worse Than You Even ImaginedBy
Wednesday, December 15, 2010
There are few things about which history is unanimous. Land wars in Asia, for example... always a bad idea.
Paper money falls into this category. Paper money always fails and wipes out the people who depend on it.
Or as our friend Rick Rule likes to say, paper money's track record is unblemished by success. The return of paper money to its intrinsic value (nothing) is guaranteed. All we need is time (though politics certainly help move things along).
We would not argue that organizing a system of sound money based on paper receipts is impossible. We would merely point out that keeping such systems sound and reliable has proven elusive to this point in human history.
Paper money is like many other types of idealized virtue humans cannot attain. It's simply beyond human nature to avoid perdition. Sin, as they say, is part of man.
Every government that has used paper money has succumbed to a fatal level of borrowing. Rather than a restructuring of these debts, paper money systems allow for the rapid expansion of the monetary base to facilitate paying off debts in devalued money.
This is no different than stealing. And yet... that is what happens every time, resulting in a massive crisis and a breakdown of social norms.
It normally happens faster in democracies, where no strong interest group votes for living within the country's means and repaying its creditors in sound money. No, people vote for more spending and more debt. And they always expect someone else to pay. Case in point... Greece.
Researching problems in the Greek economy is like reading a financial comic book. All the players are clowns.
For example, the national railroad has annual revenues of €100 million... against a wage bill of €400 million and another €300 million in expenses. The Ministry of Agriculture hired 270 people to digitize photographs of Greek public lands... with one digital camera.
In 2001, the Greek government borrowed $1 billion from Goldman Sachs to help balance the budget. The deal relinquished future receipts from the national lottery, national highway tolls, airport landing fees, and even funds promised to Greece in the future from the European Union.
The government was burning the family furniture to pay current expenses. And now, they're out of furniture. It's all been burnt.
In total, the Greek government owes €1.2 trillion. That's €250,000 for every adult.
Obviously, Greece cannot repay this money in sound currency. The only way out is for the Greeks to inflate the debt away – effectively stealing from their creditors with a printing press. That they haven't done so yet is only because they no longer have their own currency, the drachma.
Instead, they are part of Europe's common currency, the euro. And Europe is making every effort to maintain the mirage of a united economy. Unfortunately, no such thing exists. It's merely a matter of time before the Greeks default.
The exact same thing is true about the United States – except the numbers are even worse. And tomorrow, I'll show you just how bad it's gotten here...
Regards,
Porter Stansberry
Further Reading:
Our sister site The Daily Crux has also been following the "End of America" story. Last year, it posted two must-read interviews on the topic: Porter on the White House's lies about the U.S. dollar and Brian Hunt on where America went wrong. Both interviews are free to readers of The Daily Crux.
"The bad news is that the government will continue to make things worse," Brian points out. "The good news is that you can take action to make sure you're protected."
Market NotesANOTHER AMAZING COMMODITY PERFORMANCE Like its commodity cousin oil, copper is also surging due to the U.S. government's huge "E-Z-Credit" program.
Longtime DailyWealth readers know copper is one of our "must watch" assets. The metal is a vital ingredient in power lines, appliances, cars, and houses. This makes its price rise and fall with the pace of economic activity.
As you can see from today's chart, copper spent late 2009 and nearly all of 2010 drifting in a sideways pattern. But in the past few months, it has surged from $3.60 per pound to reach an all-time high near $4.20 per pound. It has eclipsed even 2008's speculation-fueled peak.
The story behind this rise is familiar to most readers: The United States government and its friends in China have goosed their economies with huge amounts of cheap credit and free money. This has stimulated the global economy so much that money is sloshing into stocks, precious metals, and vital commodities like copper and crude oil. This "goosing" will likely end in tears. But for now, the trend is up... and it is tremendous.
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End of America SeriesOur friend and colleague Porter Stansberry is at the center of a big controversy right now. It's a controversy he's nicknamed the "End of America."
So we invited him and his colleague Braden Copeland to put together a special DailyWealth series to explain the ideas behind the controversy... and how he reached them.
Part III: How America Became a Communist Nation Part IV: How to Protect Your Family and Wealth from the End of America In The Daily Crux
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