The recent catastrophic drops in equity markets, worldwide, are the coup de grace of the whole financial debacle. Now we know: no bailout, no stimulus, nor rescue plan will save the American, nor the global economy. We have to take stock and look at what's coming to us. What does it mean for the United States of America? It means that we are a hair's width from a State of Emergency being declared. When this occurs, all banks will close for a time. When they re-open they will be practically unified under a government umbrella, with all deposits in all accounts collateralizing the whole system. There may be a new currency.
The rest of the world is through trying to save themselves by saving our butts. Now foreigners need to save themselves by isolating America. There will be no more foreign capital coming to the USA. Global market contagion has made it imperative that foreign nations protect themselves from the now toxic, sub-prime currency.
Paradoxically, one of the few things that has not plummeted in value in the past two weeks is, oddly enough, the US dollar. Unfortunately, this is not a sign of strength. The dollar has risen because all over the world people have been selling anything denominated in US dollars.
From stocks, to bonds, to real estate, everything is being sold. Selling a treasury bill (denominated in dollars) means buying dollars. And next, whoever used to have a t-bill, and now has dollars, wants to exchange the dollars for something else.. they just don't yet know what to exchange it for. But they will figure it out. Leaders of european nations and asian nations are meeting every day, trying to figure out what sort of common medium of exchange, or mediums, will replace the US dollar. It probably won't be another fiat currency. It will be some sort of gold backed currency. Russia, Germany and some Persian Gulf states have been accumulating state gold reserves in the past years. They may float their own currencies. Hopefully there is still some American gold hoarded in the vaults of Fort Knox. We will need it.
It is not just foreigners who are selling. Americans are also selling their own assets, and hoping to acquire dollars. Its called liquidation. For myself, I'm trying to sell my Mazda 3 (I'm getting no interest whatsoever). I'd rather have the dollars than the Mazda. If I do sell it, I'll try to buy some silver or gold coins with the cash.
Some commentators note that at least oil has come down in price. Actually, this is not a good sign. Do they really think that exporting nations will sell us oil for $85 a barrel? No way. They will sell it to other nations, such as asian nations, or Germany. They will sell it to the nations that have good credit. For America, cheap oil simply foretells shortages.
We will have shortages in almost every commodity soon. Gold is being priced at $850. Can you buy gold at that price? No. Can you buy gold at any price? Probably not - maybe a few ounces, and you will pay a fat premium. This is called a shortage. We will soon have shortages in the commodities we produce, not just the ones we import. I just heard from my stepmother that the fishing boats in Maine have almost all been hauled out of the water and put in storage. The fishermen can't make any money because the price of lobster is so low. A shortage of lobster is the probable result. In hard times, low prices create shortages.
A shortage in gold coins is not going to cripple the US economy - but shortages of food and fuel will. These will occur for much the same reason that shortages in precious metal have developed: the government will try to maintain current prices instead of allowing hyperinflation to occur. This will be the main reason for a state of emergency being declared. Army and national guard units will take over distribution.
Capital will be strictly controlled, and it will be almost impossible to take anything of value out of the country, and certainly not things like precious metals. Naturally there will be a black market. Speculation of all kinds will be outlawed and vilified, but will be essential. Great depression II, here we come.