When the Great Tower of Trust Comes Crashing Down

By Bill Bonner on September 3, 2013

When we left town on Friday trading was as slow as the traffic on the interstate. Labor Day is the last holiday of the summer. No one wants to miss it.

The Dow fell 30 points on Friday. Gold dropped $16 an ounce. An ounce of the yellow metal sells for $1,390 at writing.

But that was the summer. And the summer is history. Now we’re in the “R” months: September, October, November and December. We had our crabs. Now is the time for eating oysters… and having a good old-fashioned market crash.

Not that we’re predicting it. But we have our tattered “Crash Alert” flag up anyway. As a warning.

Yes, dear reader, a lot can go wrong this fall. And you should be prepared for it. If it doesn’t happen, well… be thankful. Because at some point the monetary system President Nixon gave birth to 42 years ago is going to come crashing down.

For most people, it’s not going to be much fun. Savings will be lost. Businesses will go bust. Debtors will default. Stocks and bonds will plummet. And those are the good things.

All Hail Bernanke!

If you’ve been reading these Diary entries you know why already.

A stream of income – either from a stock or a bond – is a promise. The value of it depends on how much you trust the promisor and his money.

That is the problem. As much as we like Ben Bernanke as a human being, we find grave fault with him as a god.

Only a god could know more than the sum of all the knowledge held by all people who are active in the world economy. Only a god could select an interest rate better than the one market participants, acting freely, would select. And only a god-awful economist could claim to do such a thing with a straight face.

The galling thing is Bernanke may be able to keep the whole shebang going for many years more. Instead of seeing the mighty Ben humbled and fallen, we may have to put up with this for a lot longer – seeing journalists and economists suck up to him, flatter him and act as though he knew what the hell he was doing all along.

Anything Could Happen

But heck… we’re in the R months. Anything could happen.

Congress will soon bump its head on the debt ceiling; that’s always good for a few laughs. Speculators are running fat margin accounts again – just like 2007.

Syria and Egypt are in the headlines today. Iran, Venezuela or Argentina could be tomorrow’s news.

Often, the news headlines are just an excuse for something to happen that was going to happen anyway – one way or another. Things that have to happen sooner or later still need a catalyst. But the major trend needs no reason at all. It just happens.

Trust increases… then people take advantage of it. They speculate on stocks, counting on the feds to protect them from their own bad trades. They go on disability, counting on other people to pay their living expenses. They move to Washington and become lobbyists, counting on foolish politicians to send the taxpayers’ money in their direction.

The great tower of trust is built up over many, many years – by people who worked hard, honored their commitments, paid their bills and made sure their money was solid.

But then – with so many people burrowing into it from all sides – it becomes unstable. And untrustworthy.

Then an “R” month comes along… Watch out!