Gold and Silver • Turk – Lehman II in Progress as Financial System Implodes
Turk – Lehman II in Progress as Financial System Implodes
With growing fears about the European banking system, today King World News interviewed James Turk out of Spain to get his take on the situation. When asked about the ongoing crisis, Turk responded, “For a few months now I have been worrying that there would be another Lehman moment and have been expecting it before year-end. I said the failure of Dexia was not the event, and initially I thought MF Global was not big enough to cause it either. But, Eric, it is now becoming clear that the ramifications of MF Global are earth shaking, and consequently, I think we are already in another Lehman moment.”
“The big difference from 2008 is that this time around, it is taking a longer time for the crisis reach its full force. I think Jim Sinclair explained it very well in his wonderful interview with you the other day. He made two important points. Own physical precious metals to become your own central bank, which is something I have been emphasizing for years here in Europe.
Faith in the outstanding record of the Bundesbank is so high, Europeans simply believed that the ECB would make sure the euro was as good as the DMark. But in reality, the ECB and the Bundesbank are as different as night and day because the ECB is under political control, whereas the Bundesbank has always zealously guarded its independence.
So while the Bundesbank rigorously followed the rules needed to preserve a currency’s purchasing power, the ECB, in contrast, is opting for the soft political choice, like buying sovereign debt.
Jim’s second point was also critically important in my view. It was that MF Global has dealt a serious blow to the market structure itself. Eric, I think this development means the situation today will get worse than what happened in 2008. When Lehman blew up back then, people scrambled for liquidity, but the market itself continued to function.
Notwithstanding the enormous fallout from Lehman’s collapse and the disruption and distortions occurring in markets from all of the government i
“You can’t trust any counterparty anymore. Not your broker, not your bank, not the regulators, not the exchange and not even the clearinghouse. In one short stroke, MF Global has knocked out all the props holding up the one essential ingredient needed for any market to function – namely, confidence.
Frankly, Eric, what is happening right now is something few people alive today have ever experienced. But it is something we can learn about from history books. The loss of confidence in the market structure means a drop in economic activity.
There will also be a decline in living standards caused by the destruction of financial assets. In other words, your paper assets one day appear valuable and then the next day are worthless or nearly so because the counterparty failed. That is the message from the MF Global collapse that the market is now assessing.
Everyone should be carefully paying attention to what is happening on the CME, the biggest futures market in the world. The drop in volumes and open interest are a reflection of the decline in confidence in the various counterparties. The same thinking applies to the world’s stock exchanges, so watch those too.
The erosion of confidence goes hand-in-hand with a decline in trading volumes until the hyperinflationary tipping point is reached. This is when volumes in shares of commodity producers or companies producing life’s essentials soar as people buy these shares as one way of exiting from paper currency.
The aftermath of the Lehman collapse was a liquidity scramble. So precious metals prices were hit back then as people needing liquidity threw out the baby with the bath water. They sold what they could sell, not necessarily what they wanted to sell. It was a great buying opportunity, and largely irrelevant to all long-term holders and accumulators of the precious metals.
This time I have been expecting a ‘fear event,’ with money rushing into the precious metals for safety, to avoid counterparty risk. Therefore, higher metal prices will be the result. We’ll see how it plays out, but I still think a ‘fear event’ is the logical outcome we should expect. I believe that even though, like occurred in 2008, liquidity seems to be drying up again.”
When asked about the implications for gold and silver, Turk stated, “I see the outcome of this mess as inflationary because central banks have only one answer to everything, and that is print, print and then print some more. But even if I am wrong and some central bank keeps its currency from inflating and actually deflates, you will still be better off owning gold and silver.
Their price may go down, but the price of everything else would go down even more, so you would still be better off owning the precious metals. And even more importantly, physical gold and silver do not have a counterparty risk, so you never need to worry about the precious metals defaulting on some promise.
As I see it, if you don’t own some physical gold and silver, you are going to be in a bad way as the impact of the MF Global collapse continues to ripple through the markets. All of us are facing some difficult times in the weeks and months ahead as this global financial bust plays itself out, but trying to contend with this fallout without owning physical gold and silver is like going into a war without any bullets.”
Interventions with their so-called ‘bazookas,’ the market structure itself was not questioned. Today is very different….
Statistics: Posted by DIGGER DAN — Thu Dec 15, 2011 1:58 am
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