I just read a mind blowing article.

This is one of the most intense rants I have ever seen. Yet the sad part is the author is not exaggerating.

Hat tip to Stewart Dougherty, this piece is an eye opener.

I have excerpted the best part:

There is accumulating evidence that the Washington – Wall Street moral hazard experiment has gone disastrously wrong, and that just like any other accidental discharge of a deadly virus, the moral hazard virus is now loose and swiftly propagating throughout society. By so blatantly colluding with Wall Street, Washington has lost all moral authority, and the people now have only one place to turn: themselves. An ethic of, “If they can do it, so can I,” is spreading, as people realize that fabric of American society has been shredded and replaced by a free-for-all mentality whereby everyone must fend for oneself in order to survive.

If this is so, it is a serious game changer for America.

Evidence of the spread of moral hazard is noticeable everywhere. Despite government reports that the economy contracted only 1% last quarter and is now stabilizing, 13% of all home mortgages were either delinquent or in foreclosure in the second quarter, 2009, an all-time record. Credit card write-offs hover near 10%, also a record. Automobile, home equity and personal loan defaults are at or near record levels. Fiscal year 2009 federal personal tax receipts have declined 22% and corporate receipts have plunged by 57%, even though the economy has supposedly declined by only a fraction of that amount. Compared with January through April, 2008, state personal income tax receipts have plummeted by 26% in 2009, with eight states seeing declines ranging from 30% to 54.9%. Prime and Alt-A mortgage delinquencies and foreclosures are climbing rapidly, and are the true canaries in the banking industry mineshaft. Homeowners evicted by foreclosure trash their homes in rage on the way out the door, with an estimated 50% of such dwellings damaged. Looters and squatters destroy many of the rest, stealing copper pipes, wiring, granite counter tops and anything else of value. Dozens of Internet sites such as “youwalkaway.com” provide calculators to help homeowners decide whether or not to “strategically” default on their mortgages. Shoplifting costs retail businesses $35+ million per day, as 27 million shoplifters go on the hunt. Drug addicts who have become shoplifters say that the activity is equally as addicting as drugs, leading to a continuing cycle of theft. [3] Insurance fraud is a systemic financial risk, with 25% of fires caused by arson or suspected arson, making this the greatest cause of property damage in the United States. Even before this financial crisis, which has bankrupted millions, 10% of respondents said it was acceptable to submit a false insurance claims. [4] Medicare fraud exceeds $60 billion per year. Phony automobile and other bodily injury claims cost billions annually, and are difficult to control since it is impossible for a court to tell someone they are not in pain. Despite a massive consumer education campaign designed to thwart it, Identity Theft rose 22% in 2008, to 10 million cases, a record. It takes the average victim 330 hours to repair the damage to their personal reputation. [5] Identity Theft is estimated to cost individuals and businesses $221 billion per year. [6] Each day, 175,000 phony checks are presented as payment. The cost of check fraud is estimated to exceed $50 billion annually. And on and on it goes. The stress tests never envisioned this.

The people, whose predictive instincts have been uncannily accurate throughout this crisis, sense that trouble is coming: 80% of them say they expect crime to increase due to the deteriorating economy. [7]

As average American citizens lose their jobs by the millions, become mired in financial distress and are crushed by the largest debt increase in the history of civilization to pay for government bailouts and fiscal stimulus programs, several Wall Street firms, in actions so arrogant they beggar and defy belief, have announced that they will pay record bonuses in 2009. These bonuses commonly amount to 20 – 200+ times the median American wage, in other words, 20 – 200+ times the earnings of the citizens whose taxes were spent only a few months ago to keep the Wall Street firms from imploding.

Nurses, police officers, school teachers, store clerks, truck drivers, gas station attendants, firemen, flight attendants, ambulance drivers and everyday workers of every other description, many of them struggling to provide only a humble, basic lifestyle for themselves and their families, were asked to reach deep into their pockets to help Wall Street survive. Now that Wall Street has taken their money, it will use it to lavish huge bonuses upon itself, in a callous Roman orgy of excess.

The American psychological landscape has been parched by the searing winds of financial desperation, surging inequality and dying hopes. And the tinder of the desiccated American Dream, once the great calling and aspiration of a nation, is now piled so high that a spark igniting it would unleash raging flames reaching up to and scorching an astonished Sun. Yet politicians and the press are so divorced from reality that when the people express at town meetings and other venues their deep, legitimate frustration over the loss of their hopes and nation, they are viewed as whiners, or paid political activists. As noted earlier, denial is very dangerous drug.

Civilized society requires a foundation of morality, decency and justice to survive. The spread of moral hazard, should it happen, will have a disastrous effect on America’s institutions. Few investment classes will be safe in an environment of elevated moral hazard, because both legal and illegal counterparty risk will surge. Legal counterparty risk occurs when, for instance, a corporate executive at a public company is awarded excessive, unwarranted pay at shareholder expense. (Abercrombie and Fitch recently reported that its CEO was paid $70 million this year, as the company’s performance deteriorated and the stock price plunged by 70%. This is an example of legal counterparty risk. It is a disgrace.) Illegal counterparty risk occurs when there is fraud. (Enron and Madoff are just two of many possible examples.)

In the emerging social climate, common stocks will face powerful headwinds from a suffering economy made worse by the corrosive costs of theft, fraud, false executive enrichment, phony insurance claims and frivolous lawsuits. Bank deposits, yielding near-zero percent interest rates, are basically no better than cash in mattresses. Corporate bonds carry serious interest payment and default risks. State, county and municipal bonds will become increasingly stressed as deficits grow and proposed tax increases stoke voter anger, making it difficult to close funding gaps. The real estate sector faces a spike in taxation risk, due to deteriorating local and county government finances. It is also subject to interest rate risk, as surging government debt becomes difficult to sell, resulting in higher coupons. The reputations of hedge and private equity funds have been compromised by large losses, the imposition of redemption restrictions, and high fee structures. Algorithmic, black box trading has been largely discredited. Annuities carry heavy fees and important counterparty exposure, as seen by the industry’s bailout by government. Commodities prices are volatile, and price manipulations by large traders are legion. CFTC oversight is lax to non-existent, so small investors are without protection. While there are many good commodities funds, they carry counterparty risk. Derivatives markets are opaque and out of control, in addition to being nuclear waste sites of counterparty risk, and are certainly no place for individual investors. Art, diamonds, numismatics, collectibles and other highly specialized asset classes have large transaction costs and are best suited to experts. As we can see, investment safety is hard to find even in normal times, which these are not.

In the recent crisis, virtually every investment “truism” has been discredited as a myth. Buy and hold; Stocks for the long term; Efficient market theory; Housing prices only go up; Buy land, they’re not making any more of it; Municipal bonds offer safe, tax advantaged returns; Treasurys are guaranteed by the full faith and credit of the United States; the dollar will remain strong because it is the world’s reserve currency; A diversified portfolio offers protection; Demand for serious art works is unquenchable; and on and on. The current markets have laid waste to every one of those theories, and many others.

Gold is the antithesis of the investment classes described above. Physical gold represents pure wealth of a very finite quantity with absolutely zero counterparty risk. Because of this distinguishing fact, it is immune to the costly effects of moral hazard. Gold does not have expensive skyscrapers named to stroke its ego, nor does it have offices or branches dotting the land. Gold has no CEO who demands a multi-million dollar compensation package just for showing up. It has no employees desiring pay raises, health insurance or vacations. Gold does not take three hour lunches, play golf, drink martinis, do drugs, get sick, or demand a lavish expense account. Gold is not dependent upon protection from regulators who discover frauds only after every innocent investor has been wiped out. Gold is not represented by a Congress that spends it into bankruptcy. Gold is unaffected by the Devil’s songs of greed and graft sung by lobbyists and other self-serving parasites. Gold does not charge an endless procession of monthly or annual fees. Gold cannot be manufactured out of thin air by politicians or Central Bank monetary witch doctors.

As money, gold has not one legitimate competitor, though it is surrounded by fiat fakes. In time, those frauds always die of their chronic, congenital disease: immorality. Gold is the free and honest money of the people, not the controlled, monopoly money of bankers intent upon destroying it for private gain by debasement and inflation. Having been born at the beginning of civilization, it possesses the wisdom of time. It is liberty. When border crossings have been closed by soldiers with machine guns and paper money has been a useless persuader, gold has opened the gates for refugees fleeing tyranny and oppression, providing them safe passage. With beauty commensurate to what it represents, gold makes tangible the wondrous, invisible force of freedom. In Latin, the word for gold is aurum, meaning “shining dawn.” Gold is more than honest money; more, even, than liberty. It represents the endlessly renewing fountain of the future, and the shining dawn of life.

As the existing system destroys itself, the question becomes, “how will wealth and financial freedom be defined in the future?” Today, we say that dollar millionaires and billionaires are wealthy. They used to say that about those who possessed millions or billions of Zimbabwean dollars. But that fiat currency is now dead and its possessors are penniless. History is absolutely categorical: fiat currencies are immoral, and because of that, they fail, without exception. Repeat: without exception, as documented throughout all of time. The new wealth will be measured in something different, most likely gold. There are only 5 billion ounces of it on earth, or roughly 0.75 ounces per capita. The supply grows at less than 2% per year, a fraction of world fiat money growth. Much of it is not and will not be for sale; the amount available to the market is less than 0.25 ounces per person. As gold takes its rightful place of honor as the people’s reserve currency, demand for its limited supply will continue to grow. Tomorrow’s billionaires will be those who prepare today for the coming, inevitable monetary paradigm shift. Those who acquire gold now, while it is still available and inexpensive, will create for themselves a future that is secure, free and rich with opportunity.

Original Article

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