Ceasar was supposed to be a god. Julias Caesar
was killed on the Ides of March. (March 15th)
Today, we don't make men gods. Instead society
has made our financial system into a false god.
On March 15th, 2005, (the ides of March) we
may have just witnessed the beginning of the death of our
financial system as General Motors stock took a nosedive
from $34/share down to $30. http://finance.yahoo.com/q/bc?s=GM&t=5d&l=on&z=m&q=l&c=
It does not seem like much (GM down just over
10% in one day), but as of March 17th, the stock is down
to $28.35, and the market cap is down to $16 billion. (GM
is down nearly 18% for the week.) It's the type of volatility
that we usually only see in silver stocks!
What does this mean?
GM's stock price decline is like a dagger
right into the heart of the U.S. financial system, and the
Why did it happen?
Apparently, someone in power did the equivalent
of shouting "the emperor has no clothes" and people
woke up, and are beginning to see more clearly! The media
decided it was time to expose the truth that GM is nearly
insolvent, and will expect to lose $1.50/share in the first
But the story is worse than that! GM has $300
billion in debt http://finance.yahoo.com/q/ks?s=GM
...and has a market cap, now, of $16 billion.
See the problem there? The bondholders could buy the company
nearly 20 times over if they used their money to buy stock
instead of loan it to the company. The implication is clear--that
GM is headed towards bankruptcy, and will default on the
bondholders, who will then own a company worth less than
$16 billion dollars!
For every one point that interest rates rise,
refinancing GM's debt will cost an additional $3 billion
in annual interest payments -- money that they clearly do
not have! Where is GM going to get another $3 to $6 to $9
billion as interest rates rise by 1%, 2%, and 3% more? Selling
cars? Nope. Selling stock? Unlikely in this market! Borrowing
more? From who? The U.S. government itself is propping up
this bond market, and there are no buyers even for U.S.
bonds, and there haven't been for months now!
So, therefore, GM will soon be a $300 billion
How big is that? It's bigger than Enron, Global
Crossing, LTCM, K-Mart, and the IRAQ war all put together!
$300 billion going belly up is a big enough
event to topple the U.S. government! How so? It will shake
the confidence in the entire financial system. Companies
as big as GM are not supposed to go bankrupt in our "normal"
world. They are "supposed" to be "too big
The value of the "official" U.S.
gold hoard of 261 million oz., at $440/oz. is only a mere
See what this $300 billion blow-up will mean?
Imagine the financial chaos as a pile of wealth almost three
times larger than the current value of the U.S. "official"
gold hoard evaporates!
The annual deficit is around $700 billion.
How will the U.S. government sell bonds to finance the deficit
if bondholders are getting wiped out?
If the government can't sell bonds while running
a deficit, then the government must simply be printing money
to fund the deficit--and they are, as can be seen in the
rate of growth of the money supply, M3! Therefore, inflation
is raging, and interest rates must keep pace, which is why
GM is doomed!
Interest rates must head up, as confidence
in the U.S. dollar bond market will be shaken like a tree
in a hurricane!
Foreign nations are all sounding the alarm
already that they will be selling U.S. bonds to diversify
the holdings of their central banks: Russia, India, China,
South Korea, Japan... what major foreign nation is left
to buy them?
A tsunami of dollar selling is about to begin,
and will make the recent dollar decline seem like a small
bump in the road.
It may take a few months for this to play
out. You may have time to buy silver at under $10/oz. for
a few more weeks or months. But after GM declares bankruptcy,
which may take between 3 months to a year, get ready for
the dollar to crash by more than 90% in the following 6-12
Germany's hyperinflation in the 1930's took
about a year and a half. Recently, Argentina's took place
nearly overnight. Who knows which way the dollar will die,
whether a quick death, or a more slow and painful one?
Either way, the dollar is dead. Long live
gold and silver!