Two Roads & The Invisible Crash?

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth.

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same.

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I--
I took the one less traveled by,
And that has made all the difference. - Robert Frost

As sure as the sun does rise and set every day, we are witnessing the decline of the US dollar as the world's reserve currency, the end of the United States reign as the world's largest economy (the European Union has already passed the US) and the beginning of the end to empire building from America. After World War II the United States was the last industrialized nation standing with its infrastructure intact and a choke hold on more than three quarters of the world's gold.

More than 60 years later, the industry has rotted from the inside out, the education rates have fallen to the point that less than half of all teenagers in major cities graduate high school and now the gap between rich and poor is the largest of any industrialized nation in the world.

The leaders of the United States are facing this inevitable reality and confronted with a very difficult decision regarding our economic fork in the road: take the road less traveled and correct our economic problems today or take the temporary and well traveled route away from our economic day or reckoning.

The only true cure to our present economic condition is to accept that consumption on personal and governmental levels must at the least match production and that all debts need to be defaulted on or repaid. This can only be done, however, when a country produces goods and services which in turn creates capital - not just currency or derivatives. This in effect necessitates a re-industrializing of the United States and an ultimately embracing a lower standard of living for the average American citizen. Not everybody can go to college and business/law school (didn't you know the JD is the new MBA?), live in a million dollar house and go to Europe every summer for vacation. There needs to be a middle class between the wealthy and poor.

From a political perspective, this scenario will be passed like a hot potato from one administration to the other. Irrespective of whether or not restructuring may be better for the United States, an administration will put this off as long as possible so as not to be known as the Romulus Augustulus of the United States. What they need to recognize is that this is not a 3-6 month or even year problem - it's a 30-60 year, multi geneartional challenge to completely rebuild the United States economy and the longer it is delayed, the more difficult the process will be.

Ben Bernanke, as a student of the great depression, has made it known time and again that he will do everything in his power to avoid deflation. With the absence of meaningful alternatives in borrowing money, he will continue to crank up and crank out monetized dollars and notes even if it means The Fed Buy's Last Week's Treasury Notes. The view that the current stock market rally is not sustainable is known by many, including Bernanke. Facing the reality that another crash may be imminent, the printing presses and zeroes on the keyboards are likely being maxed out to prevent this. Although the markets may crash, it may be invisible to the untrained eye (at first) and more likely that it is done through vastly diminished buying power when measuring the S&P 500 and DJIA in gold. It's a lot harder for the average American to put a finger on how their standard of living is going down and who is giving them the screw job when they see their bank accounts and iras going up (Monopoly board game effect). Mike Whitney, in Fed Laundering Money Through Big Banks Into The Stock Market supports the idea that the Federal Reserve is doing just this.

Civil unrest in town hall meetings, organized protests and public confidence on egg shells are are more than enough to scare the current administration and the Federal Reserve into delaying the inevitable through inflation which will in turn lead to hyperinflation and or a currency devaluation. Unfortunately, they are not looking for long term solutions but means to get through the day without the entire system collapsing. Faber's forecasts have emphasized the delay of the collapse but the increased magnitude of the economic fallout.

As scary as the future may be, think about it this way - it's all been done before throughout history and in your blood you carry the strength to endure passed on from your battle tested ancestors. It's time to embrace the change, save capital and recognize that there will be tremendous opportunities as the United States goes through its re birthing process. The mantra "cash is king" will be replaced with "capital is king!"

Just because the United States government may take the path that has been well traveled over time (inflation leading to hyperinflation) does not mean you have to follow. Take the less traveled, "yellow brick" road of gold and while you're at it, bring your "silver slippers" (the ruby slippers were silver in the original Wizard of Oz).