The New Year is leading off with a level of drama that speaks to what may prove to be a rather extraordinary year. First and second developing dramatic events are as follows:
Iran is rattling its sabre in response to U.S/West pressure on their Bank of Iran, threatening to turn the country’s finances into a rope of sand. This latest financial assault goes far beyond any other to date. It is in act, if not in fact, an attempt at regime change, or coup d’eta.
This puts the current ruling government of Iran is in the position where all bets are off and anything goes because this involves that government’s survival. One of the keys to watch for is if Iran starts moving centrifuges to more secure sites, which could set off an Israeli air strike. Even more likely would be some kind of war in order to rally the country when the seams of the economy threaten to break, because this is where it is all going.
Underneath this is the growing disaster in the euro. Speculative short interest in the euro has gone stratospheric, which is generally a sure-fired way to get cleaned out in a fat finger HFT move on all the suckers caught short. But the pros are starting to jump on because it is becoming all too obvious.
Between Portugal, Ireland, Italy, Greece, & Spain (PIIGS), when one goes, they all start to cascade, and it is clear that Greece is done by March. Within this reality, the rats will be jumping ship much sooner in anticipation and the dismemberment of the euro could occur very, very quickly, like a broken string of pearls. This is exactly what happened in Europe in 1932 when the wheels came off the pound/sterling phony gold standard and each country jumped ship, cumulating in England abandoning its own standard.
It’s 80 years later and the Europe is again looking at another monetary arrangement falling apart. It’s like déjà vu all over again. But this time, its unwinding generations of layered government, which has ingrained a sense of entitlement that has almost destroyed the people’s incentive to excel. Add on how hard it is to create new businesses against a drained pool of capital increasingly diverted to servicing debt, and entrepreneurship has become an unrewarding experience, (yet this very European system is what our current administration and Congress have in mind for the America).
Contrary to the United States where the Federal Reserve Bank hands out billions like gumdrops, the money lent to the PIIGS has been from the northern European banks. They have been the beneficiaries of that debt service that has been increasingly draining said capital.
And now they are going to be the recipients of their greed; unless they can figure out a way to have a group of central banks step in and ply it off on the people of northern Europe (as they currently are), and the citizens of the United States (ala’ 2008/09/10/11 via the QE series, and yes, we currently are too,… again, but covertly, by dollar/euro swaps).
Throw in the austerity budget programs the IMF is saddling the PIIGS with so that they can keep paying their debt service, leads to, 1) cutting revenues leading to, 2) the demand of the IMF for more taxes and austerity, which 3) becomes a vicious circle. It’s a metaphorically flushing toilet.
If that’s not enough to make you cry, now throw in the U.S. elections, a recessionary (or depressionary) Europe starting to drag down the rest of the world, China choking on its shrinking growth built on a bubble of corruption that they are starting to re-inflate, a Japan so far past financial go the sun no longer rises, and an India hobbled by pandemic corruption.
And now everyone is looking to the United States as the economic engine of the world.
Let’s just say 2012 is off to an interesting start.
GOLD & SILVER: The gold chart has 3 weeks to go before it gets to the end of a massive symmetrical triangle with the lower trend line going back to 2008, and the converging down trend line from September 2011. The measurement to the topside is $2050, if it breaks to the downside, the read is $1450. The breakout point on the upside is $1700. The breakdown point is about $1575. All the lower indicators are oversold and technicals indicate a break out to the topside. The fundamentals, with the QE being practiced by Europe, China, and covertly the United States are in sync with the technicals.
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