It was said that Nero played the lyre while Rome burned. Well our leaders are doing the same thing; we should have emergency meetings every single day about the debt crisis, but we’re not. It’s the same old BS, and you can be sure that no change will occur unless it is forced upon us.

Does anyone out there really believe Obama, if reelected, is going to do a 180 and start being fiscally responsible? Does anyone actually believe that Romney is going to cut spending?  Like it or not, Ron Paul is our best shot at getting out of this crisis alive. If you don’t support him because you “heard” he was a racist, or you “think” eliminating the income tax wouldn’t work, or you “think” his support of gold is a little loony because Warren Buffett said so, then quite honestly, you’re a moron.

This is just one of those things you either believe or don’t believe. News that our debt-to-GDP ratio rose from 94% to 100% isn’t going to convince nonbelievers that a massive crisis is coming. No alarm bells will be rung when short-term rates rise to historically “normal” levels, even though this will bring annual interest payments on our debt closer to $1 trillion.  Most people will look for something like a stock market collapse to augur that a crisis is coming, but this is truly foolish.

The stock market collapse is behind us; in all likelihood Helicopter Ben will make sure equity markets are elevated. I am still waiting for the 90% decline in stocks that “has to” occur because that’s what happened during the Great Depression. But anyway, the bond market collapse is inevitable; there will come a day when there is no bid on our debt. This is going to send a lot of assets flying, including stocks.

In bull markets, the only question is: “what stocks should I buy”? However, this is a dangerous game, as people found out in 2008 when pretty much every stock fell. When the recession came, all the experts said you should get out of financials and into consumer staples. My whole thinking was, “why”? Yea you may have avoided the worst of the crash, but are you really going to pound your chest over losing less money than the next guy? I thought investing was about making money?

The somewhat more sophisticated investors split their options between stocks and bonds. This is an OK approach, but not the best approach for the years ahead. What you need to do is diversify, not within an asset class, but across asset classes.

Here’s a basic example of what I’m talking about, taken from the Financial Times wealth index for October. Behind the scenes, there is a major bull market developing in tangible assets. Does this mean that people are suddenly a lot richer than they were 3 years ago? No. It means the wealthy see what’s coming, and they are hedging accordingly. Top-shelf artwork serves more or less the same purpose as gold with less risk of confiscation. It is a very wise move as far as I’m concerned.

Diversify as much as humanly possible in preparation for the fireworks that are coming. It is not a matter of if, but when.

There seems to be some problem with the email list, so I’ll post today’s update here. Sorry, I’ll try to get the problem resolved.

Today gold finally broke out of its range and breached $1700, which I’ve noted is a critical level. The rally came on the heels of the announcement that the Fed will continue its accomodative monetary policy until at least 2015. Of course this was obvious to all of us, but sometimes the market needs reminders of the situation we’re in.

I would like to see a weekly and monthly close above $1700 before I am confident that the lows are in. If this occurs, we are setting up for a rally into the summer that will probably give us new highs.

Amidst all the media coverage that is undoubtedly coming gold’s way soon, silver will actually be the metal to watch. Since hitting a low of $26 a month ago, silver has rallied over 25%. Keep in mind that silver has yet to make new all-time highs. I believe silver can easily trade at $150-$200 in the years ahead as smaller investors rush to the metal to protect themselves from inflation.

I can’t express enough how the most critical times in recent world history are approaching. For those of use who have seen the writing on the wall, these will be exciting times. Everyone else will be shocked. Things like $3000 gold seemed ludicrous years ago; a couple of years from now it will be fact.

The people who were so vocal in claiming that the gold bubble popped in the last correction have already been silenced. Gold is in a powerful consolidation pattern that will bring with it a rally that will surprise everyone. I’ve said many times that the bearishness I saw in gold at $1530 was just about the worst I’ve ever seen, which is saying a lot. If gold can hold $1700, look for a dramatic rally that will catch most people off guard.

I remember when I started to get really bearish on the economy in 2007 that it was something I felt in my gut. Sure the data suggested something was wrong, but you could always use the powers of rationalization to ignore it. Well, this is the same sort of feeling I’m getting now; we are headed straight towards the worst crisis of the past century, including the Great Depression, and it is far too late to do anything about it.

The big money in the years ahead will be made in Asia, no doubt about it. The advice for years was “head West young man.” Well now it’s the opposite; if you’re young and talented, you better get the hell out of the U.S. Our government is passing laws in plain sight that are NO DIFFERENT from those passed by oppressive regimes. This isn’t theory, it is fact. If you make money in the U.S., expect to be harassed by a government desperate for revenue.

There is this sense that our institutions are fundamentally different. There’s the “American spirit” or the “American concept of freedom.” Well the same things were said of the Greeks and the Romans. In a matter of years, not generations, Rome went from the glory years to outright dictatorship where all private property rights were destroyed. In fact, in many ways Romans were freer than us. It was documented in the New Testament that the Apostle Paul’s Roman citizenship conferred to him considerable respect. But if you’re a citizen of the United States? Congratulations, you can now be detained indefinitely without trial because Obama said so! Congratulations, any income you earn is the government’s- even if it’s earned fishing in Iceland. Congratulations, you can be monitored if you are suspected of being a terrorist, which apparently a large swath of the American population is.

Freedom?

The smart money (aka the big money) is taking their capital out of the U.S., and this partially explains why the economy is not expanding even with low interest rates. Why would people borrow money and take on risk when the government is so aggressive with their taxation? Why would people expand their business when a massive debt crisis so obviously looms in our future? Why would people take risks when people like Jon Corzine get away with such heinous crimes? Without the rule of law, you have no risk-taking, and hence no economy.

Today the 10-year bond auctioned at below 2% for the first time in history, and I am convinced this is the bubble move that historically always leads to crashes. Everyone is shortening their maturities on our debt, which means when there is no bid, we will have to roll over an obscene amount of debt at higher and higher rates. This is a recipe for disaster for the government in the same way it was for banks. Liquidity crisis, debt crisis, insolvency crisis- whatever you want to call it, that’s where we’re headed.

I personally am redoubling my efforts to prepare for the crisis that is fast approaching. 2012 will be nuts, I am quite sure about that. Volatility will rise and we should see some serious inflation start to percolate. I will go over alternative methods of protecting yourself in my newsletter.

For a long time I said things are not that bad. I thought stocks would generally rise as the economy deteriorated, which they did, and I was in the minority of gold bugs that didn’t think hyperinflation was likely. Well now I’m getting more and more bearish by the day. The MF Global fiasco has me very concerned: why Jon Corzine isn’t being prosecuted for essentially stealing $1 billion is beyond me. Is it perhaps because he is a major campaign contributor to President Obama? This is the kind of corruption I have trouble putting my head around.

We need structural reform to our system. Our education model is dead; we should hire and fire teachers based on merit and we should have incorporated technology long ago. Career politicians are corrupt and braindead. Our monetary system is outdated. The countless wars abroad have done nothing to further our national prosperity. We have become too accustomed to the status quo, and this is why only a major crisis will bring change.

Think about it: if a leader actually behaved sensibly 20 years ago to prevent the current debt crisis, he would have been voted out of office (unless his name is Ron Paul). He could have told his constituents that he prevented a huge crisis, but they would have given him a blank stare. If people now don’t see the coming crisis even though it’s so obvious, think about how ignorant people were 20 years ago. The political system just isn’t structured in a way to prevent these major crises from happening.

Our leaders live in a fish bowl, and their lack of common sense is amazing. Nothing happens in a vacuum. You cannot increase taxation without an attendant rise in production. You can’t just wave a wand and say “revenue rise!” without putting in the legislation that makes it happen. The economy is a dynamic beast and if you change one input it dramatically shifts outputs in unexpected ways. An increase in taxation will result in capital flight.

Our models are outdated and this is why the economic expansion economists were expecting has not materialized. We lowered interest rates and the textbooks told us this would increase demand from consumers. Well did these geniuses ever consider the possibility that consumers wouldn’t have the appetite to borrow because they are dead broke? Did they ever consider the amount of damage done to household balance sheets because of the housing crisis? Or were they too enamored with their mathematical models to think from a common sense perspective. Monetary policy does not work in all conditions, period.

The stock market was supposed to be a leading indicator, but that theory is out the window now. If the government supports failed banks at the expense of the public balance sheet, and if a large portion of the stock market is composed of financial stocks, then of course stocks will rise. But taken as a whole, our economy suffers because of the added debt. Corporate earnings can continue to be at record levels and the stock market can continue to rise, but our economy will not benefit as long as the interest payments on our debt rise in lockstep.

My greatest fear is that our economy is run by academics since they are among the most hardheaded people on the planet. If you trade real money, you have to be flexible and accept truths the market is telling you or you’ll find yourself broke. If you’re an academic, you can ignore reality and twist data to fit you preconceived conclusions. And if your brainded economic views jive with those of the government, you will probably get a position on Obama’s staff as an adviser. We are going to trigger a currency crisis worldwide with our actions, and this is going to be very painful. It appears that 2012 will be the year when volatility rises in anticipation of worldwide debt defaults.

Rip Van Winkle awakened from a multi-decade slumber to see a country he didn’t recognize. While the people he met upon awakening may have been a little scruffy, they had newfound freedom and the hope that the future would be better. Now the situation is reversed. We are putting an excessive burden of debt on our children and grandchildren. There are no jobs, and we are losing our civil liberties. This is not a great time for people who believe in things like civil liberty, freedom, and common sense.

I’m very concerned that troops are coming back from Iraq at the same time we are passing legislation that allows for indefinite detention of U.S. citizens without habeas corpus. The troops coming home right now are the most disconnected from society in our country’s history. There’s a reason for this: our country previously made sacrifices to fund wars; now we just turn on the money spigots. This not only creates debt problems down the road, but it creates the illusion that no war is going on. This isn’t a good thing. Massive civil unrest is coming, and I wouldn’t be surprised if you saw troops roaming the streets on U.S. soil.

There’s a reason why the government always goes after the educated and independent thinkers; they are the ones who can cut through all the crap and recognize what’s happening. People are way too caught up in useless things while our country is going down the drain. This is the kind of downward spiral I’ve read about in history books, and it’s playing out more or less exactly as it should. As things get worse economically, are we printing more money or less? Do we have more freedom or less? Are our leaders keeping their promises or breaking them? As King Solomon would say, there is nothing new under the sun.

Predicting this mess in America is not hard at all, but getting the timing right is. People who predicted the housing crash knew when it would arrive based on when interest rates on ARMs reset. We don’t know exactly when Treasuries will “reset” higher, but it will happen. That’s when the fundamentals take over. For housing, the fundamentals that “took over” once interest rates reset higher were things like median home prices being way out of line with median income. You can only mask a problem for so long before a catalyst or two exposes all your faults.

2012 is going to be a year of great volatility. Can gold correct to $1200? Sure. Can gold also rocket launch to $2500? Of course. It will not be easy to navigate through this mess, and I am quite sure a lot of investors will be wiped out. Bond collapses are always the worst, and Baby Boomers need to get the hell out of managed accounts and do their own investing. Think an MF Global fiasco can’t happen again? Think again. I expect bank runs as early as next year in America.