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Robert Fitzwilson continues:

“The Italian government faced such a choice this week as it appeared that modern Sicily was on the verge of bankruptcy.  Presenting the real risk of a financial Charybdis for Italy as a whole, the Italian government quickly announced a transfer of 400 million Euros to smooth over the current crisis.  The announcement said that the transfer had ‘already been planned.’ 

Emphasizing the systemic and metastatic status of the global financial system, Sicily’s problems date back to ill-fated uses of derivatives by governments who were unequipped to understand the risks of such financial instruments.  Whether or not Italy actually has the Euros is another issue, but the announcement has calmed the waters for the moment. 

While the Greek characters above were mythological, modern governments at all levels, in most countries around the world, are battling very real adversaries in the form of deleveraging and decades of unfunded promises....

Continue reading the Robert Fitzwilson piece below...  


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“The global financial system is failing. The stop gap measures are becoming less and less believable as the curtains are being pulled back all over the world and revealing that our emperors have no clothes. The solutions, such as quantitative easing, are becoming less and less effective.   The recent LIBOR revelations and the developing scandal are recent examples of how markets and the all important function of price discovery have been neutered.

Recent analysis on KWN has shown that up to a whopping $15 trillion of new stimulus is possible in the near future.  Then what?  Even $15 trillion is a proverbial drop in the bucket compared to the unfunded liabilities the world is facing.   Asset prices will most likely adjust, but the fundamental problems remain.

In the end we will have a new monetary system.  What emerges will probably be very unlike the system currently in place.  Instead of a global reserve currency and a single, powerful central bank, it will most likely devolve back to the country or trading bloc levels.  The recent currency swaps involving China with Australia and Brazil are examples.  The importing and then re-exporting of gold from Turkey to Iran is another example of new forms of financial transfer mechanisms.

The wealth harvesters we described earlier in the week will have a rough go of it.  Now that more people understand their scheme and how extraordinarily profitable it can be, each country or bloc will likely want to run their own version for their own benefit.  This could be why central banks continue to scramble for gold.  If you are going to run your own fractional banking system, you need to start out by seeding it with something of unquestionable value such as gold, as they did centuries ago.

We do not wish to underestimate the wealth harvesters.  They have lasted kings, governments and countries for centuries.  However, in the Internet age, we wonder whether or not the old way of doing business can be maintained.  We will see.  It should be an epic struggle.

In our view, it is important to keep in mind that expanding commerce relies on the perception of sound money.  Sound money enables the division of labor and competitive advantage concepts that are a prerequisite for sustainable prosperity. 

The world has long since left the ancestral world of direct exchange of goods.  Returning to it will result in a dramatically lower standard of living for everyone.  We need some sort of system that encourages and does not impede commerce.  Paper and electronic money are not inherently evil, just the abuse of it.

History tells us that the current status of corruption, greed, unrealistic expectations and monetary abuse is coming to an end.  What kind of resolution lies ahead is impossible to handicap.  We do not know whether we will see a secular move up in inflation, hyper-inflation or even deflation.  It depends upon the choices that our leaders and our societies make.  What we do know is that real assets will survive and that paper and electrons will not.

As investors, the only path to safety is the transition to something that cannot be inflated away, such as solid companies, energy, collectibles and precious metals.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with MEP Nigel Farage, Peter Schiff, John Embry, Egon von Greyerz and Bill Fleckenstein are available now.  Also, be sure to listen to this week’s line-up of other KWN interviews which include Jean-Marie Eveillard (oversees $50 billion), Michael Pento, Gerald Celente by CLICKING HERE.

Eric King

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