As the editor of the Silver Bear Cafe, I spend most of my time researching current events. I explore the markets, the economic war that is being waged on the middle class, precious metals, the Federal Reserve and energy. In this weekly column I will attempt to condense the week's events and examine how the news might affect your pocketbook. JSB

Financial Markets

The Fiscal Cliff is not only a distraction. The "fiscal cliff" is a myth.

Instead, what we are facing is a descent into lawlessness.

Wikipedia notes:

In many situations, austerity programs are imposed on countries that were previously under dictatorial regimes, leading to criticism that populations are forced to repay the debts of their oppressors.

Indeed, the IMF has already performed a complete audit of the whole US financial system, something which they have only previously done to broke third world nations.

Economist Marc Faber calls the U.S. a "failed state". Indeed, we no longer have a free market economy … we have fascism, communist style socialism, kleptocracy, oligarchy or banana republic style corruption.

Yes, it is an excuse to milk the middle class for more taxes, but it fails to address the bigger problem. The global economic system is broken, almost beyond repair. That is the conclusion being pedaled by the eminent Boston Consulting Group in a new paper headed 'Ending the Era of Ponzi Finance'.

Boston Consulting Group comes to Armageddon conclusion about a coming global economic reset.

These are hardly flat-earth, conspiracy theorists. BCG has most of the world's top companies on its client list. It says:

- The global debts are now insoluble and unworkable. Therefore you have to acknowledge that the debtors will never be repaid and countries and companies will default.

- The state should be downsized and immigration encouraged. The retirement age must go up and benefits be slashed.

- Where governments should act is in spending on infrastructure, not consumption. Energy efficiency should also be promoted.

It's tempting to say run out and buy as much as you can on credit and then default. Yet what works for nations may not work for individuals who might just find themselves bankrupt, as they would not keep the assets bought on credit in a crash.

Actually you want to be debt-free in case interest rates sky rocket. How do we become debt free? What do you have that you don't really need? What do you have that you don't even use? All assets will plunge in value relative to gold and silver – if past precedents of previous resets is followed – so that is what you need to own to come out on top.

Otherwise it is hard to see much good coming out of this reset for most people. Anybody living in a credit bubble with a lifestyle sustained on cheap money will suddenly be subjected to a very painful wake up call.

On the Economic War Front

We all have a responsibility to insist on the vigilant protection of our Liberties. This, given the present state of affairs, means that we must protect them ourselves. Consequently, protecting our rights and Liberties also means protecting the rights and Liberties of our neighbors, even if they remain, metaphorically, asleep. My attempts to wake you up to the tyrannies and misgivings of the criminal cartel that is calling the shots is not selfless, but rather tempered with selfishness. I need lots of help!

From Tom Chatham:

With all of the discontent with the establishment in Washington, this should be a time to reflect on the type of government we have and why it works the way it does. We should also reflect on the reasons our government is set up the way it is. Far too many people have abdicated their power and let the government run free of the constraints initially placed on it and we are now paying the price for that lapse of judgment. A young child may not understand or care about the repercussions of health and tooth decay and when allowed to run free in a candy store can do a great deal of damage to himself if it is allowed to continue every day for years. These repercussions will be felt by the child over time but will also exact a price from the parent in medical costs and disrespect to authority over time. We as a country have let the public servants run free for so long that they now consider it their right to do as they please and we will have to pay the price for it.

Our nation was set up with checks and balances to insure no one branch would get out of control. Each branch, Executive, Judicial and Legislative, acts as a regulator on the other branches and stops any blatant abuses of power before they cause irreparable harm to the nation. At least that is how it is supposed to work. But, what happens when the three established branches of government are all corrupted and act in unison to usurp power and take actions that will ultimately cause great harm to the nation and its people?

Precious Metals

The metals markets have been generally disappointing of late, trading sideways. With the giant bullion banks (JP Morgan Chase and Goldman Sachs) breaking security laws with impunity, due to lack of regulation, those of us who are silver stackers are being blessed with bargain basement prices. Russia and China are accumulating as much as they can without tipping their hands. A Comex default is in the wind, and such an event will trigger a unprecedented event.

From Matt Insley:

Gold dropped $30 yesterday, $60 in the past three days, $110 in the past month, and $130 in the past three months…

Before you ask "Hey! What the heck is happening!?"

Let's take a step back and take a look at the big picture…

It seems like just last week we were discussing the future direction for gold.

Wait a second. It WAS last week when we were discussing the future direction to gold! Luckily with that "best time to buy gold" discussion in our back pocket we can frame this week's downward pressure on gold.

If you recall, last week we discussed two scenarios where gold would be a solid buy. First was on the upside: if gold broke above $1,745. With the price of the metal falling precipitously below $1,650 we're much further away from that upside price target.

"If gold breaks from its recent consolidation to the downside we could see a quick $100 shaved off the price per ounce. If you're a long-term buyer of gold, don't even pay attention to this trading fluctuation. But, if you're looking to buy some bullion, this is your opportunity."

"Looking at the chart we could see a solid opportunity around $1,575. This price target takes in to account gold's past consolidation point. With strong support at $1,550 I'd be a buyer at slightly above that, at $1,575."

"After a quick stint at lower prices gold's fundamentals could kick in, just like we saw in 2008. Over the past 5-years that was the best buying point for gold. It also led to a 150% gain, just in the price of bullion."

Getting back to this week's drop in prices, don't get all worked up. The long-term trend for gold is higher. The medium-term trend for gold is also higher. That's why buying at a technically-sound price point is our best advantage to playing this market.

Better still, light holiday trade could make these moves easier to take advantage of. Looking over the past five years, December trading – including the holiday week – has hosted some substantial price moves.

With this week's pullback in mind, I'd be a gold buyer at $1,575. Don't shut your computer down for 2012 yet, my friend. Instead, keep an eye on these lower ranges and if we see prices dip into bargain territory pick up some bullion.

Energy

The use of corn ethanol for fuel is a very bad joke. Not only is it a horrendous waste of food when people all over the world are starving, it is also horrible for your car's engine.

From Hugh Pickins:

About 80 percent of the gasoline consumed in the U.S. is blended with ethanol, primarily with a 10 percent mix of ethanol, generally derived from corn.

Now Kate Sheppard writes that the Environmental Protection Agency has approved a new policy that will allow states to raise the blend to up to 15 percent ethanol (also known as E15), approved for use for cars and light trucks from the model year 2001 and later.

A few weeks ago, AAA issued a statement saying that the EPA's new policy creates the 'strong likelihood of consumer confusion and the potential for voided warranties and vehicle damage.'

AAA surveyed vehicle manufacturers, and found that only about 12 million of the 240 million vehicles on the roads today are built to use E15 gasoline.

The EPA will require that gas pumps with E15 bear a warning sign noting the blend and that it is not recommended for cars older than the 2001 model year. But what happens if you accidentally use it?

'Nobody really knows what negative effects [E15 is] going to have on the vehicle,' says Brian Lyons, Toyota's safety and quality communications manager.

'We think that there needs to be a lot more study conducted to make sure there are no longer term effects on the vehicle. So far everything we've seen says there will be.

' The concern is that repeated, long-term exposure could cause the higher-alcohol-content fuel to degrade engine parts like valves and cylinder heads — which could potentially cost thousands of dollars to replace.

Gas station owners don't like it very much either, because they'd likely have to upgrade their equipment to use it. Nor are environmental groups big fans of the EPA's decision, arguing that increasing the use of ethanol can drive up food prices, and isn't the best means of reducing our reliance on foreign fuels. The ethanol lobby is the only group that really seems to like the new rule.

'We've force fed a fuel into every American's car that benefits a few thousand corn farmers and ethanol refiners at the expense of virtually every other American,' says Scott Faber."

The Fed

The Fed has painted itself into a corner. "Bubbles" Bernanke knows that he cannot continue to keep the bubbles inflated, if bond prices continue to tank as the buyers wise up to his shenanigans. The bond market is huge compared to the stock market. In fact, it is way too big to be controlled by any one entity. It is controlled by speculators, which include countries like Japan, China, India, and Russia, among many others.
 
No one, who has a clue, should be interested in acquiring depreciating assets. Falling bond prices are deterring domestic demand, and much more importantly foreign investment capital. In order to attract that investment capital, the FED must raise interest rates. When they raise the rates, bond prices will fall, presenting a real "Catch 22". The only way to keep this from happening all at once, (key words; at once), is to allow the stock market fall as they raise interest rates. That will be easy as they have been artificially holding it up, through the use of the quasi-legal repo-pool, for the last five years. As investors panic and dump their equities, they will seek 'safe haven' in the bond market, and in gold and silver. That will keep the bond market artificially propped up for a little while. Of course the sheeple still holding stocks will be big losers.

Get out of equities.

After the stock market falls. the bond market will follow, and when the bond market implodes the decimation of the dollar is going to blow the economy to bits. This is not a matter of if, it is just a matter of when.
 
Because the Fed has failed to responsibly raise rates before now, I can only assume that they will not raise rates until they are forced to. This will, IMO, bring on the worst case scenario, hyperinflation.

Financial Survival

Buy anything, buy gold, buy silver, buy land, buy silver, buy commodity stocks, buy silver, buy diamonds, buy silver, buy a '56 Chevy. Buy any damn thing but get out of dollars!

If you can't think of anything else, you might consider buying some more silver...

Live within your income, or below it, if possible. The only way that this economy will recover is by increasing our rate of savings. Today’s rate of household savings has dropped to .4% from 7.7% in 1992. We need to resurrect the virtue of thrift.

EverBank’s FDIC-insured World Currency Deposit Accounts and CDs – denominated in any of the world major currencies, including the euro, Swiss franc and New Zealand dollar – offer you an incredibly simple and efficient way to invest in to many attractively priced currencies.

Simply exchange your dollars for the currency or currency basket of your choice, and receive interest rates several times as high as those offered on dollar deposits.

Or for more information call 1.888.882.EVER (3837) and remember to mention the "Silver Bear Cafe" when applying!

Eliminate as much debt as possible, especially “variable rate” debt, such as credit cards and lines of credit. Interest rates will be rising, so the elimination of debt offers a “real return” of escaping rising rates by creditors.

Get some control over some fresh water.

If you are depending on Social Security, stop.

Follow the course opposite to custom and you will almost always do well...

Its not what you don't know that will screw you up, it's what you know that is wrong. The spin you hear from the mainstream media is intended to mislead you. Open your eyes and face the future. If you leave your head in the sand and ignore it, you are only leaving your butt exposed for the world to kick. This all may sound like gloom and doom, but when you get a handle on what is going to happen, you will have a future filled with opportunity. Fortune favors the Informed.

More next week...

May the Great Spirit be with you always,

Johnny Silver Bear
Chief cook and bottle washer, The Silver Bear Cafe

Disclaimer

All statements and expressions are the sole opinions of the editor and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. The staff of Silver Bear Cafe are not registered investment advisors and do not purport to offer personalized investment related advice. The publisher, editor, staff, or anyone associated with, or associated to the Silver Bear Cafe may own securities mentioned in this newsletter and may buy or sell securities without notice.