This information provided by The Federal Observer, http://www.federalobserver.com
By Bill Holter
September 28, 2008 - To all; we are standing at the proverbial cross roads. The proposed Treasury bailout will be signed this week. If one does not get done, I would imagine that within 48 hours the banking system would seize up and markets could not be opened. I believe we will get some type of plan, it will be ballyhooed as the cure all end all. This will probably be worth 500-700 Dow points to the upside. However, as with all the past "plans" this too will fail. It will not get to the core problem, and it will also create another problem that already exists but has not yet become public fodder. The public seems to be avidly against a bailout by 90-95%. Once the markets turn back down I believe civil unrest will only be a matter of time. The returning 3rd Battalion is not coming home to put their feet up and relax. The Bush administration is forward looking in this respect.
The core problem obviously is a massively overleveraged system that uses pieces of paper with numbers on them as money. The problem that already exists but has not yet made the rounds yet is the fact that our Treasury is bankrupt. Yes, yes, I know, the Fed can just monetize [print all we need] but that is the legal way to default. This in fact is what I see as the last and only alternative. This alternative will strip all value from those who have amassed wealth and stored it in banks, bonds, and paper in general.
OK, so we get the "plan", then what. I think we may have firm stock and credit markets for as much as 2 weeks. We may have only a day! The timing is difficult, the ending is not. The markets will begin to turn down and test this 10,600-800 recent low. At some point it will fail and it will be off to the races downward. This will be the absolute "ultimate game of chicken". Who will chicken out first and flee both the US bond and Dollar markets? I don't know, and it doesn't matter. The bottom line is that all it will take is one, or maybe no one. Maybe all it will take is just the rumor that someone is about to or already is jumping ship. This is how panics happen. This is what is in store for us.
This is a credit seizure, it is about solvency not liquidity. The Treasury is trying to make the banking system solvent while endangering their own solvency. The realization that the system is insolvent will cause a liquidity "black hole'. When it becomes every man for himself, margin rates will sky rocket and in many cases the margin itself will be called. This will start a forced liquidation that can only be stopped by the closure of markets and banks. We had the beginnings of a systemic run this past week as $169 Billion was pulled from money markets. The Fed responded by pumping $260 Billion into the system via the discount window. There were no bank lines per say as this was done electronically, but it certainly was the beginnings of a run. I believe that this run will soon spill over into the Treasury markets giving us both failed auctions and panic selling of U.S. debt.
Many of you have read Jim Sinclair's writings and warnings. He has had great advice in that withdrawing stock certificates, having little or no margin, and physical possession of your precious metals. As to physical possession, this means IN YOUR HANDS, NOT IN A BANK SAFE DEPOSIT BOX IN THE US! I believe physical ownership will become illegal in the U.S. and the current law reads that if a bank is closed, the safe deposit boxes must be opened in the presence of an IRS agent and an authority from Homeland Security. YOU WILL NOT GET YOUR GOLD BACK, PERIOD, END OF STORY!
As good as Jim has been, his projections on Gold going to $1,200, then $1,650 are now completely laughable. The Dollar and the rest of the unbacked paper currencies are facing an outright collapse. This collapse will most certainly be more than a 50% loss of purchasing power, then add in fear of war, systemic collapse, falsified vault holdings etc. and I can't see where Gold can be purchased for less than $5,000 an ounce a couple years out. If all I thought Gold was going to do was double, I would have no interest in it. I could buy and store coffee beans or bags of cement, as currencies collapse they should certainly double in terms of paper. Even this number of $5,000 is probably so stupidly underpriced that I, and many others will be laughing at my naivety.
In the words of Mr. Sinclair, "this is it". Please use this week to make all final preparations for a different world. The music will stop suddenly, when it does "you will have what have, and that's all you will have". There will be no opportunities to change seats until after this show is over. Please feel free to bring all the food and drink you please as none will be served until after the show. Once the show begins, you will no longer have access to your credit, debit or check cards. Very early in the show, your Dollars will no longer spend. This will be a truly unbelievable show as some will enter poor and leave with fortunes while other fat cats will exit virtually penniless. No matter how well prepared you are, this show will be ugly. Enter unprepared and "disastrous" will be an understatement.
Source: Le Metropole Cafe.com
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