HomeOpinionCan Global Financial System Avoid Crashing Before November US Elections?

Can Global Financial System Avoid Crashing Before November US Elections?

By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com

As more people come to realize that “quantitative easing” (which is the current disguise to avoid stating “inflation of the money supply”) is simply a tax increase on everybody, support for this tactic will decline.

But this growing opposition to depreciating the value of fiat paper currencies may not happen before the global financial system fails on its own account.

What is there to prevent an outright crash before the November US elections

Not major European banks.  Almost all of them are bankrupt and insolvent.  Their so-called assets of loans made to European governments are close to worthless.  Not only do many of these governments have no ability to repay the loans, the collateral put up as security for the debt is barely worth the paper it is printed on.

Euro Falling in Value - Fiat Currency

Europeans governments ultimately can’t save the worldwide financial system.  Too many of them are operating on huge budget deficits that can only be covered by additional borrowing or by inflating the money supply (or both).  To even think about helping strengthen global finances, they must first sharply cut their own expenditures, reduce their outstanding debt, and cease quantitative easing.

The politicians in Washington, DC don’t offer any hope either.  Republicans and Democrats together are still trying to pretend that the 2011 cash-flow budget deficit was only one trillion dollars and change.  Until they can take ownership of the fact, as recently reported by USA Today, that the more accurate accrual-basis federal budget deficit for 2011 was $5 trillion, there is no hope of fiscal responsibility from the US government.  US government debt is so undesirable right now that the Federal Reserve had to purchase 69% of all US Treasury debt issues going back into 2011.

In order to return the global economy to genuine growth the distortions caused by past government actions such as manipulation of the financial markets, inflation of the money supply, and bailouts are going to have to end.  That means massive bankruptcies across the worldwide banking system and also governments.  It means that governments will no longer be able to afford to pay even a small portion of current payments such as to retirees, the unemployed, and the poor.  In the process, the value of existing retirement plan benefits will effectively be slashed on the order of 50-75% because of the loss of purchasing power.

The crash cannot be avoided.  The real questions are whether it will happen fast or slow and how bad it will get.

The reason a crash is unavoidable is that it has already started.  There are bank runs across Europe.  Even though the Greek elections last weekend supposedly point to Greece remaining within the Eurozone, a billion dollars a day are being withdrawn just from banks in that country.  There are US dollar shortages across Europe right now as the public is dumping Euros and other currencies to acquire the temporarily safer US currency.

There is also a run on physical gold and silver.  A growing number of central banks, especially in poor and developing nations, are dumping US government debt and replacing it with gold.

When you see widespread capital controls and bank holidays, the end will be near.  There have already been a few of these, so we’re already on the way to rampant forms of people control.

There will be a huge amount of financial pain felt around the world.  Assume that the average standard of living will decline at least 50%.  If you want any guidance of how bad it could get, realize that the Nikkei index that is now around 8,000 was once at 40,000.

But, once the misallocated resources are flushed out, it will be possible to re-establish a sound monetary system and respect for private property rights which have proven over the centuries to spark economic development.

In the meantime, as the values of paper assets plummet, what can you own that will preserve your wealth?  That is not an easy question to answer with a comprehensive solution.  One indicator can be derived from the experience in Indonesia in 1997 when the value of that nation’s currency was wiped out by the Far East Asia financial crisis.  Indonesians who owned paper currency were devastated and lost almost everything.  Those who owned precious metals saw their standard of living largely unaffected.  Almost certainly other tangible assets such as food and other non-perishable necessities of life would also hold their value.

I’m not saying anything new in suggestions on what to do.  However, I am saying that the problems in the global financial system may already be deteriorating so much that a crash could occur before the November US elections.  You can make better plans by taking action sooner rather than later.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed athttp://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.

Patrick A Heller
Patrick A Heller
Patrick A. Heller was honored with the American Numismatic Association’s 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com). He is also the financier and executive producer of the movie “Alongside Night”.

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  1. It would be helpful if you cited your sources. Greeks pulling $1b per day, a few bank holidays and capital controls (you can’t count Memorial Day Pat), retirement plans slasedh 50-75%, dollar shortages in Europe…

    Do you make this up???

    I’d be interested in where these figures come from…

  2. The sky is falling, the sky is falling. Pat’s just selling fear. Why, because it’s good for business. If Pat truly believed half what he says why would sell a true money, gold and silver bullion for a pseudo money ,paper dollars? And if he we have world wide monetary collapse having a stock pile of bullion ain’t gonna save ya.

    • Mike, I appreciate your concerns. However, there was a regional financial crisis in 1997 in Far East Asia that affected over 1/3 of the world’s population. Indonesia was hit worst. Its citizens who only help paper currency were virtually wiped out. Those who owned gold or silver saw their standard of living little affected. So, since some top European government officials and banking executives (not just me) are now admitting that global financial collapse is a definite near-term possibility and the fact that owning gold and silver did save the wealth of millions of people just 15 years ago, I can’t claim that what I say is original.

      By the way, I advocated the same steps back in the 1970s when I was not a coin dealer and did not make any money off of others by expressing such opinions. However, I did realize substantial profits then and since by personally doing what I recommend. Not every time, but over the long run it has easily outperformed my investments in stocks, bonds, real estate, and currencies.

      • Don’t forget Zimbabweans, and previously, Chileans, Peruvians, Brazilians, etc. Also, inter-war Germany. What is curious is that all those paper currency collapses were followed by …. wait for it …. yup, ANOTHER paper currency! There is one basic reason “hard” (strictly metals backed) currencies cannot succeed. They do not permit the latitude that modern economies need to feed their now nearly half a century old perceived “need” for a social safety net. Hard currency means the truly needy have no way to survive for very long at all. Only dynamic money supplies give governments the ability to care for the truly indigent. With hard money, you have only two options – confiscatory tax rates that taxpayers won’t pay (making today’s tax debates look like a church social), or having the poor in the streets like some 3rd world Banana Republic (if not armed and at the gates).

        The only way hard money DOESN’T lead to massive social unrest and societal breakdown is if you truly believe the poor are just lazy, and will instantly become industrious if they can be paid in metal. I just simply don’t believe that!

        This is the classic clash between unlimted wants and scarce resources. When you make money itself the scarcest of resources, societal breakdown is vastly accelerated. A growing population needs a growing money supply or economic growth gets choked off, leaving massive numbers of desperately poor and potentially violent people. Hard money political economics hastens that day.

        Be careful what you wish for, Austrian Schoolers, you just may get it.

      • Pat, the big problem I have with gold bugs is their one solution to all problems, buy bullion. You see a financial crisis in one part of the the world and out comes the rhetoric, were going down, save yourself, get your bullion. Have you ever wrote an article about dispersing bullion holdings? I haven’t seen it.

        I can’t say it won’t happen, one can’t prove a negative. I don’t believe the Mayan calendar is the end times, but I can’t prove that either. I knew Harold Camping was wrong but couldn’t prove that before his end times date passed.

        One thing I’m pretty sure is our great country has lasted over 230+ years thur many good and bad times. We survived the Great Depression and I can’t recall reading a single lament, if only I had hoarded bullion!

        In the end, I’ll start paying attention if I see the following signs- Warren Buffett selling off business’ and buying Gold and silver, and Pat Heller not taking those worthless US dollars for his precious bullion.

  3. Amen Mike! Exactly what I’ve been saying for over a year! But …. I truly believe he believes it truly may all go down the crapper, along with all the Austrian School true believers.

  4. Dear Brian,
    You ask fair questions. I had thought that the reporting of Greeks withdrawing cash from banks was so widespread that I didn’t need to cite any source. Let me name just one, the Reuters story, which you can read at http://www.reuters.com/article/2012/06/13/us-greece-banks-idUSBRE85C0E720120613.

    Bank Network Investment, which one report stated is Italy’s 4th largest bank has long been in financial trouble. On May 31, it posted at notice on the bank’s website (http://www.bancanetwork.it/content/sospensione-dei-pagamenti {it is stated in Italian])that bank customers had 7 days to withdraw any funds before it froze all acounts for one month. There have been some blogs interviewing bank customers who are upset that they cannot access their funds, but I’m surprised that I could not find any US financial media that discussed this development.

    European officials have drawn up contingency plans for capital and currency controls and bank holidays if Greece left eh Eurozone, but my column was only focusing on what has already happened.

  5. Here’s why I believe gold and silver will actually CRASH in value, rather than soar if a currency collapse occurs. 1) Virtually no one, outside of those buying or selling now, has any idea at all what an ounce of gold or silver is worth today. I asked a sample of very intelligent people at the state capitol to estimate what the present spot price of an ounce of silver or gold was. The only people who knew were collectors like me. No one else was even close. I got gold estimates from $200 to $5000. Silver was guessed by non-collectors at $1 to $15, nobody higher. You can’t create a new monetary system based on that level of ignorance.
    2) What WILL replace the dollar, if it collapses, is what everyone knows, raw pure barter, based on ad hoc negotiation at the time. There is NO reason to expect any new monetary system to be based on the second most recent one, one based on metals.
    3) JUST AS LIKELY as metals being the basis for te next money is the popular opinion that discs of metal are just another commodity to be bought or sold at barter, and nothing special at all in any way.
    4) Completely ABSENT from the bullion crowd’s paradigm is how to instnatly educate a population utterly absent any experience with gold or silver as money as to why it should be, and how to enforce it upon an unwilling and hostile population.


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