“How did you go bankrupt? Two ways. Gradually, then suddenly.”
- Hemingway, The Sun Also Rises
I wanted to work in a congratulatory note to Ernie "The Big Easy" Els for his perseverance in grinding his way to a British Open victory yesterday. And then I started thinking about his nickname - which is given for his smooth, easy golf swing - in the context of how Easy it is to understand the U.S. financial predicament. It's The Big Easy because it's easy to figure out how our systemic problems terminate, which is in one of two ways: massive default or massive money printing, both of which will lead to "hyperinflation."
I define "hyperinflation" as the parabolic price inflation which occurs once the confidence completely collapses in a paper fiat currency. Zimbabwe and Weimar Germany being the two most cited but there have been several examples in the last 100 years.
The golden truth of the matter is that despite all of the political rhetoric, our Government simply can not and will not cut deficit spending and therefore the amount of debt required to keep the Government going is increasing at an increasing rate. That is, it's going parabolic. We're well beyond the point at which we can hope or expect that we can "grow" our way out of this debt with economic policies. That's actually a ridiculously absurd notion.
So there's only two ways ultimately to solve the problem: either the Government defaults in some fashion - this could take form in several ways - or the politicians decide to hyperinflate the currency in order to pay down the debt with printed money. Either way the currency collapses and the precious metals go absolutely parabolic, as holders of dollars rush into anything available that can be considered a hard asset. Gold and silver are both a hard asset AND a currency.
With Spain and Italy both now on the verge of financial collapse, and with three large California cities having filed bankruptcy in the last month plus many more in California and other States contemplating the same, the collapse is happening "gradually" right now. The question is, what will trigger its "suddenness?"
I don't have that kind of crystal ball, but I know that if the U.S. were to outright default on its Treasury debt it would likely cause some of war with China, our second largest creditor after the Federal Reserve. Not only that, but the Fed is a private entity owned by the banks which control the Fed. Since the banks also control your Congressman, Geithner and Obama, I doubt the banks would let the Government outright default.
Thus, The Big Easy solution to the problem will be hyper-printing of the currency. It's just a matter of time and the clock is ticking: