With investors around the world now watching in fear after as government theft has become a reality, today Kevin Wides out of Switzerland reports on the ongoing nightmare of the ‘Cyprus Solution’ and what investors must do to protect themselves. Below is what Wides had to say:
“The reason why there has not been excessive inflation or a hyperinflationary environment, despite all the money printing, is due to the subdued levels of the velocity of money. In the US the velocity of money is at its lowest in over 50 years....
“As a gold bull I would like to say that with Cyprus Bank depositors now losing a large percentage of their cash on deposit, that this will cause an immediate move by other European depositors into the physical gold and silver markets in order to get their wealth outside of the banking system.
I believe that this will be the case, but it is likely a delayed event. With the superb manner that the gold and silver markets have been managed to date by Western governments, the average citizen in Europe is still not looking at or noticing gold and silver as an investment or store of wealth.
What we should see now is cash withdrawals from European banks in other troubled countries – Italy, Portugal, Spain, Greece, etc. That cash should then be used by those individuals to start transacting in goods and hard assets. That is in “stuff” which cannot be taxed easily. This may be the catalyst for inflation as it will impact heavily on the velocity of money.
The fear of inflation creates inflation and becomes self-fulfilling. This self-fulfilling dynamic (also a herding mentality) is part of Soros’s theory of ‘Reflexivity,’ and what he has used as a speculator to make his fortune. This self-fulfilling fuel for inflation is a major reason for the official re-weighting of the inflation baskets, and the use of tricks such as hedonic adjustment in calculating official inflation.
By doing these rebalances, the increase in inflation is managed by authorities so as not to cause alarm. It’s the frog in boiling water, where the average tax payer/citizen is the frog, and the water is the cost of living. Western central banks and governments want inflation but they want it their way -- inflation that is relatively unnoticed by the average voter.
Moving to gold and silver, Eric Sprott and James Turk have mentioned many times on KWN that the rate of increase in the gold price has been managed by the central banks, namely the Fed and the US Treasury, so as not to cause alarm. There is nothing like exponentially rising prices to get people’s attention, but a slow drift upward in prices generally goes unnoticed.
Thus I am inclined to believe that the general purchase of hard assets and tradable goods will begin to pick up in Europe very soon as a result of the Cyprus debacle. This will accelerate the velocity of money and feed inflation. Ultimately, gold and silver prices should rally dramatically.
Due to the information age we live in, and the alternative news sources outside of mainstream media such as KWN, this inflationary outcome could take only months to really accelerate and spread globally. Ironically, it’s ultimately what the Fed wishes for, and they wish for it so the debt can be monetized away.
But investors need to be careful here of the Fed’s supposedly good intentions. The desire of the Fed to create a controlled level of inflation is a dangerous game that may end in a disaster that is much worse than Cyprus. If we see a major spike in money velocity because of central planner action, investors must protect themselves with hard assets such as physical gold and silver in order to survive what could turn into an inflationary holocaust.”
