Mayhem Ahead

by Addison Wiggin – January 10, 2011

  • The connection between the “Tragedy in Tucson”… and “leadership” that doesn’t listen

  • “Massive breakdown of law and order” in U.S. prophesied by a reader who’s seen it first hand… and another prophecy you should read right away

  • “Mere noise”… “Best opportunity”… Byron King, John Embry weigh in on gold’s pullback

  • France tries to break bad dollar news to the White House… while Brazil upgrades “currency war” warning

  • Chinese complete world’s longest bridge… in four years, for $8 billion

Six people dead, 14 wounded. A congresswoman left in a medical coma. Our ensuing forecast for 2011: more mayhem to come.

Not because the crazy SOB who did it was justified. Jared Loughner’s Facebook postings and YouTube videos were, to put it mildly, incoherent.

But the violence has already been turned into a political football…

Why are so many members of Congress, backed up by members of the media, holding not only Mr. Loughner responsible… but anyone who’s ever said a cross word about Congress or the government?

“They” reads a New York Times editorial this morning, “seem to have persuaded many Americans that the government is not just misguided, but the enemy of the people.”

“They,” in this case, refers to a nameless mob the writer identifies as “many on the right,” as if normal people without political affiliation or agenda couldn’t be justifiably incensed at the self-serving and irresponsible way in which members of Congress conduct themselves.

“They” — members of Congress and the media — are just not listening.

“In Congress, you don’t address the real problems,” we wrote late on Friday to Senate Majority Leader Harry Reid. “You talk around them, play politics with them and then make frantic appeals at the 11th hour to borrow more money to paper over the problems again for yet another year.”

The letter was suggested by our publisher Joe Schriefer as a response to yet another frantic appeal by Treasury Secretary Tim Geithner for Congress to raise the debt ceiling… yet again.

The response we’ve received has been overwhelming…

“The problem,” reads one response in particular, “is that the average American doesn’t know where he or she is heading. They are too busy with various sitcoms and social network sites.

“I originally came from Nigeria. Nigeria in the late ‘60s and ‘70s was one of the prosperous countries in the world. We are blessed with abundant oil and any solid mineral you can mention. Until the early ‘80s, U.S. dollars traded at 65% of naira (Nigeria currency). My father used to tell us how they enjoyed free meals in college at the expense of the government.

“After graduation from college, each graduate would be congratulated with a brand-new car and at least a job waiting. The government was totally in control of oil and almost all the resources. Nobody cared to ask questions about government expenditures because of free meals and easy life.

“However, in 1980, the then president discovered that the country was heading toward doom. He introduced austerity measures for the first time. People started shouting. The military dictators came in. Everything went downhill. In the mid-’80s, the dollar hit parity with the naira. Today, a dollar is buying 160 naira.

“Corruption became so endemic that the people were too helpless to fight. The unemployment rate is on top of the roof. We are not talking of poverty rate. There is total decay of infrastructures, which results in a high crime rate. The list goes on.

“The short story of my background is to encourage you and others that may call all sorts of names (conservatives, leftists, etc.) to fight for the future generations. It’s very painful to see that your children will grow up to learn from history that there was once upon a time a prosperous America.

“No chemotherapy today? The children will undergo the therapy. There will be massive breakdown of law and order, because they will not understand why they have to go through the pains they didn’t cause. Be courageous, bold and do everything you can. With God on your side, you will be remembered by future generations as a man that cared for them.

“God bless you.”

Ah… but the gentleman hails from Nigeria. What do they know? They’re just a poor country in Africa given to blasting e-mail scams around the world and fleecing unsuspecting retirees looking to make a quick buck. Their economic troubles can’t happen here… this is America.

Right?

The trouble facing many Americans right now is what our colleague Porter Stansberry has identified as the “normalcy bias.” We quote: “The normalcy bias actually refers to our natural reactions when facing a crisis.

“The normalcy bias causes smart people to underestimate the possibility of a disaster and its effects. In short: People believe that since something has never happened before… it never will. We are all guilty of it… it’s just human nature.

“The normalcy bias also makes people unable to deal with a disaster, once it has occurred. Basically… people have a really hard time preparing for and dealing with something they have never experienced.

“The normalcy bias often results in unnecessary deaths in disaster situations. For example, think about the Jewish populations of World War II…

“As Barton Biggs reports in his book Wealth, War and Wisdom:

“‘By the end of 1935, 100,000 Jews had left Germany, but 450,000 still [remained]. Wealthy Jewish families… kept thinking and hoping that the worst was over…

“‘Many of the German Jews, brilliant, cultured, and cosmopolitan as they were, were too complacent. They had been in Germany so long and were so well established, they simply couldn’t believe there was going to be a crisis that would endanger them. They were too comfortable. They believed the Nazi’s anti-Semitism was an episodic event and that Hitler’s bark was worse than his bite. [They] reacted sluggishly to the rise of Hitler for completely understandable but tragically erroneous reasons. Events moved much faster than they could imagine.’

“This is one of the most tragic examples of the devastating effects of the ‘normalcy bias’ the world has ever seen.”

If you haven’t yet read Porter’s apocalyptic vision of what happens next in the U.S., we recommend you do so here.

In one day, stocks are giving up most of the gains they racked up during the first week of 2011.

The Dow is about to break below 11,600 as we write. Could be that traders are jittery about renewed rumors of a bailout for Portugal… or they maybe they’re just worried the latest Verizon iPhone rumors will fizzle like all the others.

Gold is going mostly nowhere as a new week begins, sitting at $1,370. But silver’s up a bit, about to break through $29 again.

“This may be the best opportunity you’re going to get at least from a price sense to buy gold and silver in the next few days,” according to Sprott Asset Management’s John Embry. “I think when this correction, however long it will last, is over, it will probably mark the lows for the year which will then be the liftoff to the 11th consecutive year of higher gold prices.”

Embry’s outlook for 2011?

“Basically, I think we are going to see more of the same “ as we got in 2010. “I mean I don’t see how you could possibly shut off the paper spigot without causing a depression, the likes of which would make the ‘30s look like a picnic. If that’s the case, then you’ve got to continue to focus on hard assets, and when you get these violent corrections… you’ve got to be in a position to buy them.”

We’ve extended an invitation to Mr. Embry for this year’s Agora Financial Investment Symposium in Vancouver. Hard to believe the next one is barely six months away… we’ll keep you posted as speakers are confirmed. The 2011 event promises to be one of the most tumultuous in our short history.

“My view is that a 3% pullback is mere noise in the trading arena,” adds our own Byron King about gold’s fall from $1,400-plus. “For gold and silver to tumble by a large amount, the market forces will have to fight against many years of pricing strength. That means that the market will have to undo a lot of history. For example:

  • The market will have to fight against hundreds of millions of people becoming relatively prosperous, across the world, over the past decade

  • The market will have to fight against declining trends in mine output

  • The market will have to fight against rising demand from investors, jewelers and industry

  • The market will have to fight against the massive debt levels of most major governments in this world, which tend to undermine the stability and long-term security of most national currencies.

“Thus, I’m not too concerned about the weekly trading noise in precious metals markets.” For Byron’s nine favorite ways to ride the gold bull in 2011, check this out.

French President Nicolas Sarkozy heads to the White House today to suggest to President Obama that maybe, perhaps, just possibly, it’s not such a great thing for the world to rely entirely on a sickly U.S. dollar as its reserve currency.

France takes over the rotating presidency of both the G-8 and G-20 nations this year, and Sarkozy has an ambitious, if vague, desire for “overhaul of the international monetary system,” as the Financial Times puts it.

A year ago, he called for a “new Bretton Woods” system to make currencies less volatile. It appears he’s developed no more specifics since then. “This is not about presenting propositions,” one of his flunkies says about the meeting today, “and asking if they will agree or not.”

But just the fact he recognizes there’s problem puts him several steps ahead of anyone in the White House.

The Brazilian finance minister, who warned of a looming “currency war” last fall, has upgraded his warning. “This is a currency war that is turning into a trade war,” Guido Mantega said over the weekend, confirming one of our own forecasts for 2011. The Brazilian real has appreciated 39% over the U.S. dollar during the last two years, and “hot money” is flowing in from overseas.

Mantega is promising new capital controls in addition to the ones already in place. Likewise, he promises to bring up the subject of exchange-rate manipulation before the G20 and other groups, citing both the United States and China as the worst offenders.

Meanwhile, the United States and China are trying to put a smiley face on developments that could turn a trade war into a shooting war. “They clearly have potential to put some of our capabilities at risk,’’ said Defense Secretary Robert Gates before going into a meeting with the Chinese defense minister, Liang Guanglie, in Beijing.

“The efforts that we place on the research and development of weapons systems are by no means targeted at any third country,” Liang said. Left unsaid is that if the United States wants to put aircraft carriers in the South China Sea, China will see fit to develop “carrier-killer” missiles — which are being deployed now.

“The search for a viable U.S. policy with regard to China, steering between partnership and hostility, will be the dominant foreign policy theme” in 2011, according to the analysts at Washington Analysis and Assessment Service.

To be sure, when the Chinese set their minds to something, they can get it done quickly.

China just completed a bridge longer than the route of a marathon — 26.4 miles across Jiaozhou Bay, connecting the port city of Qingdao with the suburb of Huangdao. It’ll cut up to a half-hour off the existing commute.

At least 10,000 workers were on the project 24/7, using enough steel to build 65 Eiffel Towers and enough concrete to fill 3,800 Olympic-sized swimming pools.

The previous world record holder for longest bridge was American — the Lake Pontchartrain Causeway in Louisiana. The Chinese project is nearly three miles longer.

Meanwhile, the Chinese have an even longer 31-mile bridge under construction, connecting the manufacturing center in Guangdong province with the financial center in Hong Kong. The mind boggles.

“Your letter lays it on the line,” writes a reader referring to our letter to Senate Majority Leader Harry Reid over the weekend. “To continue to increase the deficit just prolongs the inevitable. We have the collision of theory and reality.

“With the debt ceiling just a few months off, can anything else be done short of shutting down government and defaulting on our debt? Since the administration and Congress could not muster the resolve to slow the increase in debt by NOT fully extending the Bush tax cuts (that solution is now out the window), do you really think they have the guts, or even the smarts, to make substantial cuts in spending?

“They don’t. Tea Party resolve notwithstanding.

“The best they can probably do is to increase the debt ceiling with spending restraints attached. And taxes. While they have painted themselves into a corner with rates, it doesn’t mean that they can’t go after deductions and other factors that diminish taxable income. The deficit reduction committee recommended such changes, even if not by a vote that required mandatory action by Congress.

“If Sen. Reid and House Speaker Boehner were to receive similar pleas from millions of Americans, they might have the intestinal fortitude to try to do the right thing. But they won’t.

“Thanks for being a voice of reason in the wilderness of Keynesian economic thought.”

“The letter is powerful and scary,” adds another. “I hope it has an effect on the debate.

“Somewhere recently (maybe even in one of the emails from your organization), I saw another analogy, which I am citing from memory plus a check of the calculation. If you deposited a million dollars each day for the entire 2010 years of the ‘Common Era,’ you would have deposited only slightly less than three-quarters of a trillion dollars.”

“Your letter to Harry Reid,” our final correspondent writes as if to justify, “is simple and rational, Addison. Good work. I know some people will understand it. Do you think, however, that these people, Mr. Reid included, could be driving the USA off a financial cliff ON PURPOSE?

“I can see no other possible explanation for their usurpation of the simplest laws of business. More importantly, why would generations of American leadership do such a thing? Before going any further on that line of thought, down the rabbit hole per se, just consider: Is it possible this unfathomable recklessness of debt and deficit gorging actually has an unstated goal?

“I am concerned, my friend, not so much with what we see on the surface now, but more so with lurks just below our dark and quiet waters.”

The 5: These letters were but a drop in the bucket. More than a few chastised us for addressing Mr. Reid by the formal title “Honorable,” suggesting he is anything but. Thanks for missing the point. And you wouldn’t believe the number of people who wanted to debate the math surrounding our metaphor of piling the debt us higher than Mount Everest… 1,767 times over.

More to come tomorrow…

Cheers,

Addison Wiggin

The 5 Min. Forecast

P.S.: Despite new technology that could make many vaccines obsolete, “there’s still a role for vaccines to play in future medical therapies,” writes Patrick Cox, keeping tabs on wealth opportunities from the latest cutting-edge medical research. Until the shooting in Arizona this weekend, positive breakthroughs in medicine had dominated our line of thinking here at The 5.

“Dendreon,” Patrick continues, “has seen its share price bloat by 1,500% since its last deep market bottom in 2009. Moreover, it has done this based on a therapy for prostate cancer that, in my estimation, has only a marginal benefit, at a cost of nearly $100,000 per patient.”

The real breakthrough will come with something called DNA vaccines. “Conventional vaccines,” Patrick explains, “work by having the body’s immune system recognize unique antigenic proteins that are part of the virus, triggering an immune response against the invader.

“The elegance of DNA vaccines is that rather than introducing into the body an actual virus, only the antigen that would be recognized as foreign is introduced.”

That’s the theory. Now comes the practice, in the form of stunning research just published in The Journal of Infectious Diseases. Tests of a DNA vaccine on primates have proven 100% effective in protecting against a nasty strain of monkeypox.

The monkeys were vaccinated once a month for three months. Then they were given a lethal dose of monkeypox virus a month later. All 10 survived… while only one of the untreated monkeys made it.

The implications are nearly boundless. There was a human outbreak of monkeypox in the United States in 2003. Further, “This DNA vaccine is actually safer than the old smallpox vaccine and could be useful in the event of a bioterrorist attack necessitating rapid vaccination of people,” says Dr. Stanley Plotkin of the University of Pennsylvania.

Once again, one of Patrick’s five predicted “wealth quakes” in 2010 is taking shape even faster than he anticipated… and the potential gains are far more than the 1,500% from Dendreon’s so-so prostate treatment. You have just over 72 hours to review Patrick’s 2011 predictions… then we’ll remove this presentation from the Internet.

rspertzel

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