Mauldin: Greek defaults will not be contained.

In a recent video interview, John Mauldin stumbles through an explanation of the obvious and actually says things I wrote to him about years ago.  All talk of "muddle through" from him has evaporated.  The bottom line is simple: the sovereign debt crisis is global.  Nothing about it has been "fixed" by all of the bail outs.  They are just buying time.  They are old men adrift in a sea of debt with a tin can bailing out a sinking boat and getting very weary from the effort at this point.  Mauldin points out a few things that I think are important:

• Greece is headed for default, period.  The con men are trying to create new terms such as "re-profiling" to avoid using the "D" word in order to avoid triggering credit default swaps but nobody is going to be fooled by that at this point.  Many people are actually lined up waiting for their CDS to pay off.  When the defaults occur they will be screaming to get paid.  A name change is not going to affect that!  It is in their best interest for a collapse to occur.  They are mushrooms waiting for the dead tree to fall over.  CDS are supposed to be a way to spread risk, kind of like insurance.  But with so much excess credit based money sloshing around in the economy people had to come up with creative ways to "put it to work".  Many CDS are now bought as investments, not as insurance.  In other words, its like "investing" in insurance on an old person that you hope will die soon so you can get the payout.
• Any sovereign default is likely to result in a complete default.  The whole point of the "we haven't defaulted yet" charade is to enable further borrowing.  Once the defaults occur nobody will loan them money so they might as well default on anything and everything they can.  Make a real jubilee of it. 
• The big lie is that CDS' will balance each other out.  The story goes that financial speculator A bets this way, financial speculator B bets that way.  Sometimes A wins and sometimes B wins but in aggregate its a wash.  But this neat little explanation ignores the elephant in the living room which is counterparty risk.  When A or B "wins", what guarantees that the person who lost will pay up?  If A and B win some and lose some but they don't get paid by counterparties when they win then they themselves will have to default on payment of the CDS' they lost on.  In other words, its one big financial circle jerk waiting for the first deadbeat to default in a big way.
• To underscore this point, note what Mauldin says about the European Central Bank (ECB) only having 10 billion Euros in capital.  Ten stinking billion.  That is chump change in this world of credit based money.  The ECB is hardly a central bank at all.  If it starts printing Euros like crazy the inflation in Euroland will skyrocket.
• There is no game plan because there can be no game plan.  No Ponzi ever lasted forever and it's not different this time.  The con men are simply keeping the Ponzi plate spinning as long as they can because they get paid a lot of money each week that goes by for doing nothing of any economic value.  Could you imagine the bankers actually having to do real work like cleaning toilets or competing with sun-hardened laborers?  They would literally die.  In fact, some of them appear to believe they are better off dead than to step down from the Ponzi and get a real job.  It looks like throwing oneself off a tall roof is going to be in fashion for the next couple years if you are con man banker.  Some of them appear to be going about it in a very calm, organized way, almost as if completing a pact. 

If your wealth is measured in how much money a deadbeat owes you then you are broke without knowing it.  You are as a Madoff client.  You have an account statement but you will never see any money from it.  That's the value of owning gold and silver no matter what the price.  Of course its always more fun to buy the dips and sell the peaks but market timing is a form of gambling.  You might sell just before the bottom drops out of the global economy and then you might be stuck with worthless paper instead of metals which have age old value.

One more thing to think about:  Utah did finally pass a law stating that gold and silver are now recognized as money in the state.  The passage of the law, in many ways, raises more questions than it answers but one aspect of it is very clear: there will be no more state level taxation on fake inflation gains from gold and silver.  The implications of this are huge.  First off, it represents a big % increase in retained earnings relative to other forms of investment.  It enables (state) tax free speculation in gold and silver.  Do you think that will increase investment demand for the money metals?  (In my best Clint Eastwood impression): Well, do ya?

The recent law has to make Utah residents wonder why they should report fake paper gains on gold and silver sales to the IRS (and so they won't).  Utah has basically said it is immoral to tax gold and silver based transactions in and out of the dollar.  How big a leap is it really to say that this exempts people from paying sales tax if the item is priced in gold?  What are they going to do, demand tax be paid in gold?  Hmm.  Maybe that's the whole point.  Maybe its how they go from today where the state collects taxes in the form of worthless paper to a point where it collects taxes (sales tax, property tax, income tax, etc.) paid in gold and silver coins.  Remember, the LDS are an educated lot in aggregate and they are known to be wise in the ways of money too.  That's not a stereotype, its a compliment.

Finally, Utah is not alone.  Many other states are in the mid to later stage of enacting similar laws.  Advantage: gold and silver, the untaxable investments.  Owning anything else is starting to feel like a punishment.