By Craig R. Smith
Chairman, Swiss America
In my opinion the current financial conditions worldwide are actually worse than they were in the United States in 2008. Therefore, we may soon see the second shoe drop on a new international financial crisis.
Who can forget the years leading up to the fall of 2008. Massive over-leverage and valueless debt being traded as if it were AAA paper. After years of lending money to anyone with a pulse, the worst financial crisis since the Great Depression started to unfold.
We soon witnessed traditional financial institutions like Bear Stearns, Merrill Lynch and the now defunct Lehman Brothers brought to their financial knees as a direct result of carrying massive amounts of virtually worthless mortgages, and the overuse of leverage in pursuit of higher profits.
The Federal Reserve in cooperation with the US Treasury Department embarked on a massive bailout of financial institutions which, in every sense of the word, should have been liquidated.
Moral hazard was thrown to the wind as cries of, "end of the world, falling off the edge of the financial Earth" and other now famous, fearful exhortations filled the Internet, newspapers and televisions.
Yet over three years later nothing has changed in America. And yes, while banks are much more prudent in the standards that they maintain lending to borrowers; future obligations on corporate, government and personal levels still exceeded any reasonable sense of sustainability.
Each day we are witnessing a crippled economy struggling to hold 2% growth rates while losing the battle to reduce unemployment below 8%. Foreclosures still are prevalent in every major community in America and paychecks continue to shrink as we slowly lose the middle class in America.
Response from the government and the Federal Reserve has been more of the same. Create money out of thin air, lending it to the banking system at virtually 0% and embarking on 2 rounds of quantitative easing only to see all these efforts do nothing to correct the underlying fundamental problems that created the crisis in 2008.
In fact, discussions are now being had at the Federal Reserve to actually embrace a 3rd round of quantitative easing which has already proved to be less than effective in addressing the long-term liabilities which cripple future growth.
So why such a dismal tone as I look towards the future? Simple!
Now add to all the existing under-addressed problems the long-term structural problems of failed socialist programs that have been the norm in Europe for the last three decades and the tunnel gets much longer and darker.
Portugal, Italy, Greece, Spain and even France are now experiencing downgrades of their sovereign debt and negative growth rates. The demographics make any future recovery in Europe a joke.
The world will now witness the European Central Bank create massive amounts of money (monetization) in the hopes of addressing the crisis with a short-term fix that will merely paper over the problem rather than address the fundamentals that caused the crisis in the 1st place. Likewise in America.
Therefore, we can expect with certainty that all fiat currencies around the world will continue to lose buying power on a monthly basis and leave all citizens of the world at the mercy of ever-increasing prices; for gasoline, food, healthcare, education and the necessities of life.
The only sanctuary to be found on this economic battlefield of currencies will be the ultimate currency, gold. As it has been for thousands of years, gold will emerge as the ultimate currency, allowing its holders to maintain a lifestyle that will be destroyed for others as cost-of-living increases wipe out the buying power of every dollar, euro, yen etc. throughout the world.
Predictions of $2,000 to $5,000 per ounce gold are rapidly moving from possibility to probability. Current price levels of $1,600 will be looked back at in future years as the last opportunity to buy gold at any reasonable price.
China is amassing hundreds of tons of gold monthly, which certainly assures higher gold prices going forward. A report from the Financial Times indicates that China's gold imports via Hong Kong in November of 2011 were 20% higher from the previous month at the fastest pace in over two years. "Chinese Investors bought U.S. bullion coins at the fastest pace in more than two years," adds Bloomberg.
Every time weaker prices in gold appear the overseas demand for gold explodes. I don't expect this trend to change, as nations with huge foreign reserves look to gold versus their traditional purchases of US dollars and US debt.
I cannot stress enough the urgency to our clients to take immediate action on gold on gold purchases going forward. My biggest concern now is the potential contagion which will spread throughout the globe as a direct result of the European debt crisis. It has the potential to create a financial crisis worse than what was witnessed in September 2008.
Today's global debt crisis is very contagious and could substantially reduce the expected growth rates of GDP throughout the world. Thus prompting central banks to create massive amounts of new currency to continue payment on long-term liabilities such as Social Security, Medicaid, Medicare here in America and the hundreds of flawed social programs throughout Europe.
The current environment has paralyzed many average citizens from taking the necessary step to protect their financial freedom. I know how difficult it is to buy in any market that has seen the dramatic rise in price as we have seen in gold over the last decade. However any hesitation could prove to be disastrous. Time is rapidly running out to protect dollars against further deterioration.
Call your Swiss America broker today. You will look back at your action as one of the greatest investments you ever made. Taking a few minutes to explore your options during this lull before the storm will pay off with huge dividends of peace of mind - knowing your hard work and future cost of living is insured by the only insurance policy that has been around for sixty centuries: GOLD!