December 2011

Is it Euro-Geddon?
The debt crisis in Europe dominates the financial headlines. Greece is in ruins, Italy and now France are struggling even mighty Germany is showing some signs of financial stress. When more bad Euro news comes out the US stock market plunges, and when hopeful news surfaces, the stock markets soar. What in the world is going on? How did they (and we) get to this crisis? Andhow might it impact us here in America? The fiscal and monetary policies of the US and other major nations have taken over the global center stage. The Creation of Money and Debt have taken precedence over every other factor, and are shaping and driving the direction of global politics and the economy.

A Train Wreck in Slow Motion

To best understand the Europe Crisis, we need to revisit the monetary history of the US during our lifetimes. There is a train wreck in slow motion happening right in front of us the better we understand how and why it is happening, the better we can try to prepare for the possible consequences

1971 US Leaves Gold Standard and all Financial Accountability!

President Nixon took the US off the gold standard in 1971. In other words the US Government was no longer limited as to how much money they could print. Under a gold standard there was accountability the US could only print as much money as there was gold to back those dollars in the vaults at Fort Knox. When we departed from a gold backing for the USD, the government no longer had any limits as to how much they could print. And print we have! As you can see from the graph below the growth of money in our country grew very rapidly after 1971 and has skyrocketed in recent years. Quipped Nixon, We are all Keynesians now in reference to the spendthrift English economist Maynard Keynes.

Is it Euro-Geddon? December 2011 Gevers Wealth Management, LLC Page 2

When the US left the gold standard the major countries of Europe followed our lead and also embarked on their own wild printing spree of money the real inception of the European debt crisis.

Government Debt Balloons out of Control

Why is it significant that the US (and other governments) can print money at will? Because hand in hand with the ability to print money at will is the penchant and proclivity to borrow unlimited amounts. If you or I borrow more money then we earn, we will eventually and rather quickly get in trouble. The consequences of borrowing too much lights shut off, cancelled credit cards, losing your car, perhaps even losing your home. Creditors will take harsh legal action like foreclosure on folks that borrow irresponsibly and recklessly and cant repay what they have borrowed. In fact, borrowing too much money surely leads to financial ruin just like leaping off a tall building results in a painful fall to the pavement. The US government is not subject to these immutable laws of finance. Our country has suspended the normal laws of money (at least for a while) and has been able to borrow huge and then even huger amounts of money for years on end without suffering any ill effects.

Is it Euro-Geddon? December 2011 Gevers Wealth Management, LLC Page 3

Governments are Printing Money: Is that a Solution or Making the Problem Worse?
Why isnt the US subject to the same rules of money that you and I are? The difference the government has a printing press and can print unlimited amounts of money where by contrast you and I and everyone else must obey the bedrock principles of money just like we must respect other immutable laws of the universe like the law of gravity. So here is the connection between debt and money printing once the US was free to print unlimited amounts of money (after they abandoned the gold standard) they were also free to borrow gigantic amounts of money because now they had the means to pay back all they borrowed simply by printing more money to pay back their creditors. Notice on the chart below how US national debt starts to increase much more rapidly after 1971. US National Debt since 1940

(heritagefoundation.org)

The US has borrowed immense, unthinkable amounts of money in the last decades. How long can this keep going on? Can we keep living in this way in utter disregard of the laws of money? Must this necessarily end someday possibly in a horrible manner? Perhaps our country can keep going on in this way for years with no adverse effects or perhaps this charade will crash down around our ears in the near future.

Is it Euro-Geddon? December 2011 Gevers Wealth Management, LLC Page 4

Europes money charade is falling down around their ears right now. Why is Europe collapsing and the US is not? Part of the answer lies in the fact that there is an almost unlimited worldwide demand for US dollars which allows the US to print far more money than the United Kingdom can issue Pounds or the European Central Bank can print Euros. In the Eurozone the weaker and more reckless borrowers like Greece and now also Italy, Spain, Portugal, and Ireland are suffering from the weight of their enormous debts collapsing and causing massive damage to their economies and societies.

(Reuters.com)

We Have Made Promises We cant Keep Governments Need to Break them or Go Broke
If politicians have no restriction on how much money they can print, and can also borrow endlessly it increases the likelihood that they will create entitlements to please their voters. In much of Europe the entitlement systems of these socialistic countries are a major contributing factor to their financial collapse. Simply put governments have made promises that they cant afford to keep. These promises include overly generous pensions with lifelong inflation protection and cradle to grave complete

Is it Euro-Geddon? December 2011 Gevers Wealth Management, LLC Page 5 medical care. As attractive as these plans sound none of these governments have any hope of continuing them. As the promises of pensions and health care are reneged on or done away with, citizens have rioted causing considerable civil unrest and strife. Despite all the wailing and rioting, the unforgiving laws of mathematics have caught up with the Europeans. It is literally impossible to keep the promises made to their citizens.

We all know what to do, but we dont know how to get re-elected once weve done it.
Jean-Claude Juncker, Prime Minister of Luxembourg

Here in the US, our promises are under suspicion too. Can we keep them? The unfunded Social Security liability is estimated at $15 Trillion, The unfunded Medicare liability is estimated at $20 Trillion. The unfunded Prescription drug program is estimated at $81 Trillion. Those three programs alone total about $116 Trillion, and dwarf the enormous US debt which is only $15 Trillion. (Source: Federal Reserve, usdebtclock.org) The projected cost per taxpayer for the promises of Medicare, SS and prescription drugs is over a million dollars per person. However the total of all corporate, business and personal assets is only a quarter million per US citizen. These are all admirable programs in that they provide for many people who have little or no other support. Unfortunately the laws of mathematics are harsh and unforgiving. If the cost for just these three programs are four times greater than all of the business and personal assets in the entire country will the US will be able to continue keeping these three promises of SS, Medicare and Prescription Drugs?

2011 Annual Spending on Entitlements and other Government Programs

Is it Euro-Geddon? December 2011 Gevers Wealth Management, LLC Page 6

So How Might the Europe Crisis Affect Us?

First and most immediately are the possible aftershocks of how Europe responds to this crisis. As we discussed in our last client letter, Europe either faces a default by Greece (and perhaps by Italy and even others) OR a massive bailout. A default is what has been called the Euro-Geddon worst case scenario. Defaults would most likely be accompanied by major European bank failures, major business and spending slowdowns, recession on the Continent, and probably falling stock prices overseas and most likely here in the US markets also. A bailout always includes massive new money printing. More money might save the banks (for now), could send stock prices soaring, and also send gold prices skyrocketing, and increases the likelihood of inflation and further currency problems down the road.

(History is being made as I finish writing this letter. This morning the Central Banks of the US, China, England, European Union, Canada, Japan and Switzerland together announced a joint action to provide more liquidity (money) to Europe. Nothing like this has ever happened before. The stock markets were up sharply in response to the news.)
Second it is possible that Europes crisis is a foreshadowing of the kinds of problems we could suffer here if we dont change our course. Just like many of the European countries, the US has racked up massive debts and continues to spiral deeper into debt. Just like many of the European countries, the US has made promises they very likely will not be able to keep. Just like many of the European countries, the US is printing money wildly as an attempt to solve its problems.

Only a fool learns from his own mistakes. The wise man learns from the mistakes of others. Otto Von Bismarck
Hopefully US political leaders and citizens will come to their senses and unite to fix the terrible financial mess we are in.

In Conclusion
A review of history reveals the twisted beginnings of the European crisis. Unrestrained money printing, catastrophic debt loads, accompanied by unkeepable promises inevitably and inexorably led to the turmoil Europe is in today.

Is it Euro-Geddon? December 2011 Gevers Wealth Management, LLC Page 7

For us as investors our advice remains the same; be cautious and watchful in your exposure to stocks, maintain some cash and income for near term needs, diversify widely and well, especially to assets like gold, energy and food/commodities that might be protective in the case of further currency/inflation problems. We will continue to watch the Europe crisis closely and also hope that our country will take the lessons of their mistakes to heart. Warm Regards, William R. Gevers Financial Advisor PS: We have been repeatedly asked by clients if they could share these e-mail notes with their friends or neighbors. Please feel free to forward this with the stipulation that it may only be forwarded if done so in its entirety with no portions omitted. We would be delighted to share our comments and opinions with your friends, and welcome your comments and feedback. If you received this and would like to be included on our newsletter list, please email us at wgevers@geverswealth.com

Copyright 2011 William R. Gevers. All rights reserved.

Gevers Wealth Management, LLC I-90 LakePlace Center 1605 NW Sammamish Road, Suite 250 Issaquah, WA 98027 Office: 425.657.2238 Fax: 425.657.2138 E-mail: wgevers@geverswealth.com
The views are those of William Gevers, Gevers Wealth Management, LLC, and should not be construed as individual investment advice. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Investors can not invest directly in an index. Please consult your financial advisor for more information.

Securities and advisory services offered through Financial Network Investment Corporation, Member SIPC. Gevers Wealth Management and Financial Network are not affiliated.