Historic Default Looms, Gold And Silver Surge & 3 Key Charts

"The charts below show the level of consumer loans for all commercial banks. The 2008-9 debacle had a much bigger impact upon consumers and the level of outstanding debt was dramatically reduced. You can also see that the charge-off rate for the banks subsequently plunged. Despite that good news, it also looks like the consumer is once again ramping up that expensive, short-term debt. If history can be our guide, the charge-off rate will soar once again.

The Federal government, however, barely skipped a beat. It looked like the strong economy of the late 1990s was going to result in a dramatic reduction of the Federal debt, perhaps even the elimination of the debt that caused so much angst for the then-chairman of the Fed, Alan Greenspan.

Not to worry, though. Starting in 2000 the federal debt went on a tear to the upside and has never looked back. The chart below shows, as a percentage of GDP, it now stands above the magic level of 100 percent of GDP, and that is not reflective of the off-book accrued liabilities in the $100 trillion range.

It is no accident that budgets have been abandoned as a concept. The consumer uses debt to continue spending at unrealistic levels, trimming when forced to do so by recessions through repayment or default. The federal government has also effectively abandoned the budgeting process, and there seems to be no serious effort to reintroduce it back into the system. We can’t say we blame the politicians and central planners. There is no solution and the problem is systemic through the world.

For the moment, the federal printing press remains the magic credit card of the ages. We say “for the moment” as history is very clear about the mortality of the reserve currencies of the past. It is not forever, even though the markets act as if it were without end. History is also very clear that crossing the 100 percent of GDP level of debt marks a line from which there is no return. Default is the only remaining conclusion. When, who knows? Will it occur? It has for every country that has walked this path without exception.

In the public markets, there remain three categories of opportunity for investors.  

The first would be companies that benefit from the largesse of government programs. 

The second are businesses that are creating new markets or solving old problems.

The last is in the resource sector, precious metals, miners, and suppliers of energy. For the first time, last week we began to hear gold being mentioned as a “safe-haven” play by the mainstream media. Up until recently cash and fixed income were the “go to” sectors for reducing risk. With current and former Fed officials warning about the coming rise in rates and encouraging investors to sell bonds, it was a little-noticed but very significant change in the media. With an extremely tight and getting tighter supply/demand situation for the metals, we could very well be on the edge of a dramatic revaluation to the upside for the precious metals as those assets are viewed for the safe-haven qualities that have persevered throughout human history..."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/7/21_Historic_Default_Looms,_Gold_And_Silver_Surge_%26_3_Key_Charts.html