BreakPoint

BreakPoint

Wikipedia defines a breakpoint as “an intentional stopping or pausing place in a program…for debugging purposes”.

The purpose “is to find out whether a program is functioning as expected”.

Mechanical programs can be stopped, however, in human nature nothing is ever done until a problem becomes visible. No one changes their behavior until hitting the brick wall of reality. The same is true for financial standards of solvency, cost control and debt. 

Solvency Analogy

Living within ones means is a tried and true concept that everyone needs to import and adopt. Simple logic, third grade math and an empty piggy bank would clarify the problem for most people. However, the representatives in charge of this task just don’t understand basic accounting principles. This math is quite simple and knows no political affiliation.

"We can't solve problems by using the same kind of thinking we used when we created them." - Albert Einstein 

Cost Control Analogy 

Let us suppose a debt alcoholic promises to drink 2 less bottles of debt alcohol in the next 10 years if you give him 2 more bottles right now. What kind of problem control is that?

This precisely describes our current financial debate and potential resolution. The problem still exists, the costs continue and no resolution has occurred.

 “If you find yourself in a hole, the first thing to do is stop digging.”  - Will Rogers

Debt Analogy

A train is going uphill to a construction site loaded with heavy steel. At numerous points, the train stops to load additional steel from different suppliers. About halfway up the mountain, the train engine is unable to pull the load any further and begins to spin its wheels. Unless some unnecessary supplies are unloaded, the train will not make it to the top of the hill. This simple procedure is not done.

Eventually, the train begins its slide back down the mountain. Brakes fail as it rounds a curve, the train derails and falls into a deep gorge. Now you have the added cost of the disaster, repairs and lost supplies.

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance." 

- Cicero - 55 BC (with internet additions)

  

Reality Check, Resolution and Redemption

A point will come in time where the well of wealth runs dry, accounting shenanigans end and sources of new income are exhausted. At that very moment in time, an economic bankruptcy begins, reality occurs and debt creation ceases. 

How long this confidence game can go on is subject to debate. In my “Fiscal Falls” article of September 2012, I identified 14 possible delaying tactics to avoid the inevitable. As outlined in “One Forgotten Fact”, most gold and silver investors have lost sight of one critical fundamental fact. The government still has a lot maneuvering room.

My overall research suggests a reality check, resolution and financial redemption may not begin until about 2015 to 2016. A convergence of unknown financial variables in the interim, the negative effects of debt acceleration and black swan events could alter that forecast.

This opinion is based on the referenced delaying tactics together with my subjective formula of exhaustion where:  

• Ponzi schemes no longer work
• Delaying tactics reach their limit 
• A crisis of confidence in the system passes the point of no return 

To my knowledge, there is no real clear answer until a crisis of confidence occurs and the bond and dollar markets are in a defined bear trend. Until then, we wait for the breakpoint to occur. 

BreakPoint vs Gold 

Before an economic breakpoint is fully recognized, I would anticipate the start of a Stage 3 Gold advance, the acceleration phase, with a potential lead time of at least 6 months. 

Currently, there is no evidence for this trend change. In fact, all higher primary trend forces are very bearish and still suggesting a distinct possibility of new lows.

Regrettably, we are in a classic bear market in gold until proven otherwise and the beginning of any Stage 3 advance is still a considerable distance away. 

Gold as an Insurance Premium 

In the meantime, it would be wise to consider gold first as an insurance premium just like you would for your car, home or health insurance. 

The benefit of any further waterfall declines in gold prices provides a great opportunity to obtain substantial discounts on those “insurance premiums”. Make sure you are not too late insuring your own financial future since no one cannot predict exactly when that claim may appear.

In Conclusion - The Empire of Debt Ends

With solvency, cost control and debt issues clearly apparent, there may be a long lead time before a breakpoint occurs but with early warning signs and a progressive mathematical certainty.

To avoid the inevitable, there will be alternatives proposed, laws adopted and delaying tactics implemented. This will result in:

• Change we cannot believe in
• Solutions we cannot trust
• Transparency we cannot see

The math does not lie and a breakpoint will indeed come. On a dark night a few years hence, the empire of debt will end with a probability bordering on certainty. 

"Today we see constitutional freedoms being eroded, fiscal sanity forgotten and common sense ignored. Let us return to the freedoms the constitution guaranteed us, the history of gold which financially guide us and the genius of common sense". ~TG

Invest wisely.

Trader Garrett 

8/8/13

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Caveat

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