You most likely live under a dark slimy rock if you haven’t heard what is happening in Greece.

The country is in serious financial danger and bond yields on the country are rising fast and furious regardless of the underlying expectation that the European Union and/or the IMF will bail them out. Per the following article:

Greece’s finance minister recently told traders they would ‘lose their shirts’ betting against Greece.

The country is also reportedly very close to finalizing negotiations with the IMF in regards to a 45 billion euro financial lifeline to help with an upcoming chunky 8.5 billion euro May 19th bond maturity date.

So then why are Greek bond yields absolutely exploding right now? The ten-year bond is yielding 9.32% right now according to Bloomberg data, which is far higher than it was trading last week even. The two-year has exploded to… get this… 12.55%. Just to lend Greece money for two years.

Please note that Greece cannot sustain the debt load that the rising interest rates administer on the country given they are already deep in the hole. In this way, Greece can be compared to many of the troubled US states such as California, Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin. The common thread between both is that a central bank holds the key to their survival. Here in the US it is of course the Federal Reserve and in Europe it is the European Union. Each central bank holds the key to creating more money out of thin air and temporarily solving the problem. In Europe however, there is much sensitivity to this solution given Germany’s history of hyperinflation prior to World War II and the rise of Hitler. If no bailout is provided, Greece will be forced to bow out of the EU, reinstate its own currency, and inflate accordingly. What is scary is that they may not be the only one as investors awaken to countries in similar circumstances.

The kicker to this is that compared to Greece and some of the other troubled countries, the US is actually in worse financial condition. Listen as the famous economist Nouriel Roubini describes this in excellent detail in the following two minute clip:

Given a system where governments are creating paper and debt at ever increasing paces, is it no wonder that they would have a direct interest in managing the price of gold?

Meet Andrew Maguire:

On March 23, 2010, GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Maguire is a metals trader in London. He has been told first-hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets, and they have bragged to how they make money doing so.

In November 2009 Maguire contacted the CFTC enforcement division to report this criminal activity. He described in detail the way JPMorgan Chase signals to the market its intention to take down the precious metals. Traders recognize these signals and make money shorting the metals alongside JPM. Maguire explained how there are routine market manipulations at the time of option expiry, non-farm payroll data releases, and COMEX contract rollover, as well as ad-hoc events.

On February 3 Maguire gave two days’ warning by e-mail to Eliud Ramirez, a senior investigator for the CFTC’s Enforcement Division, that the precious metals would be attacked upon the release of the non-farm payroll data on February 5. On February 5, as market events played out exactly as predicted, further e-mails were sent to Ramirez while the manipulation was in progress.

Shortly after a recent CFTC hearing where his claims publicy surfaced, Andrew was hit by a car:

Andrew Maguire, a metals trader at the London Bullion Market Association, and his wife were traveling in their car when a second car coming out of a side street struck their vehicle. That car then hit two more vehicles before fleeing.

Maguire and his wife were released from the hospital yesterday. London police would not comment on the accident investigation.

The hit and run occurred after Maguire’s name came to light Thursday during a US Commodities Futures Trading Commission hearing on limiting gold and silver positions held by large market participants in order to prevent manipulation.

During the hearing, Maguire was identified as having sent e-mails to Bart Chilton, a CFTC commissioner, and Eliud Ramirez, head of the commission’s enforcement division, alleging that JPMorgan had used its massive metals positions to manipulate the commodities markets.

There is talk as recent as today that suggest the Justice Department is looking into this claim and JP Morgan specifically. The Financial Panner will report more on this as more information becomes available.

There are many different outcomes that can happen in the years to come. Regardless of the outcome, one thing is guaranteed – paper money, its creation by central banks, its value as a long term store of purchasing power, and the system as a whole will be questioned. Mainstream articles are already hinting at this:

Gold certainly has the strength and incentive to do what’s expected. Futures prices for the metal have gained around 5% in a month, and they’ve been making a gradual climb since early February toward the record front-month price of more than $1,226 an ounce seen in early December 2009.

“It’s obvious from recent events that gold has hit the big time, and is now considered equal, if not superior, to these and other major currencies,” Lundin said.

It’s “regained global recognition as a currency,” he said. And “given the problems facing Greece, Portugal and Spain, and the entire European Union, gold may have even supplanted the euro in trustworthiness.”

And with the euro losing its reputation, “gold is in the process of decoupling from currencies in general in fits and starts,” said Julian Phillips, an editor at GoldForecaster.com.

“Eventually, gold will be measured in local currencies by local investors with little reference to the U.S. dollar,” he said. “Currencies will then be measured against gold, reflecting falling confidence in the currency system itself.”

That would be quite a feat.

This is why it is so imperative to own gold and silver – the former as insurance and the ultimate protection and the latter as a leverage and risk play with plenty of upside opportunity.

• America and the world face a financial conflagration of immense proportions. The world of fiat money and massive credit is buckling under the pressure of unpayable debt. Each day the safe haven of gold and silver related assets become more attractive. We ask where else do you go for safety? A conflagration is a fire out of control and that is exactly the conditions the world faces today. The inflationary depression has smoldered for 14 months and it will soon accelerate.
• For the last 15 years the world has lived far beyond its means especially the US, UK and Europe and as we all know that cannot continue indefinitely. The federal government continues to hire when it should be firing. Having lost 80% of our industrial base we struggle in a service economy that cannot service 300 million plus people, never mind supply exports to offset the cost of imports that we no longer manufacture. We now supply indefinite unemployment benefits, which in reality cannot go on forever. The fiscal debt spirals ever higher and the Fed creates money and credit with no end in sight, which devalues the dollar. Taxation on individuals and businesses continues relentlessly higher. This is the way of corporatist fascism. This is now the way of America.
• In Europe we see the manifestations of years of reckless spending in Greece., a nation that will have to be bailed out by the IMF and other European countries, especially by Germany that holds much of the worthless bonds issued by Greece. Greek bonds are now yielding 17%. Such a premium will not save the economy. The debt service is unpayable. Greece should leave the euro zone; reissue the drachma and default, now. Their position is untenable. We said this on Athens International, French International, BBC worldwide and Deutsch Welle radio a few weeks ago. The Greeks certainly are not blameless, but 80% of the blame lies with the bankers. The outcome is Inevitable, whether it’s now or 1-1/2 years from now. These problems affect all euro zone nations and all will suffer accordingly. For the time being most of the damage to the euro is over, but in time the euro will break up, probably in the next two years. As a result official EU unemployment will hit 14%.
• The euro zone is in jeopardy as Greek contagion affects Portugal and Spain. Sovereign debt is the new subprime paper. We could perhaps see a domino effect as bond yields use in the weaker countries and eventually spread to the stronger European countries, and to the UK and US. The problem will eventually affect the entire world if it rolls out that way. Such a situation could cause a crisis of confidence, which would most certainly drive gold and silver prices higher. Bond markets would already have been affected and world stock markets would be falling. We are perhaps seeing that already with a topping in the US and European equities suffering their largest losses this year. In Europe, Greek bond losses are onerous. A bailout of Greece will probably come and their debt rescheduled. If the bailout doesn’t come watch out. The fallout of a Greek default, the exit from the euro, and the reintroduction of the drachma could force the other 18 nations in trouble to the edge if not into insolvency. These ideas are what we expressed this week in an interview with Greece’s largest newspaper. In addition we could see the dumping of PIIGS bonds and stocks. This could cause major losses and freeze markets. It could also lead to the demise of the euro zone and deeply damage the EU. Another unexpected outcome could be the withdrawal of Britain from the EU followed by the imposition of tariffs on goods and services by the UK, which would be followed by the US.
• Another aspect to the Greek problem is that rating cuts are going to force Greek banks to post more collateral, which would force them into a liquidity trap and that could spread the contagion through the global financial system. If more collateral is not forthcoming the banks’ bonds would be downgraded. This also could cause Greek banks to sell assets, putting more pressure on an already weak system. Is it no wonder that gold and silver prices are rising?
• In spite of all this the euro zone has the fiscal capacity to backstop banks within the region and to support the PIIGS. The question is will they? Germany seems to be in no hurry to do so. Greece needs loans or to float bonds in the amount of $350 billion over the next five years, which is a tall order. The present approach is to solve this year’s problems of some $80 billion, but bondholders are looking out five years. They are saying to themselves what is going to happen next year and up to five years from now. One good thing is if the Greeks stay in the euro zone they cannot monetize debt away and ruin bond values. Seventy percent of Greeks oppose dealing with the IMF, or accepting loans from the EU. We ask then what do they propose? This is why many investors are throwing their hands in the air and opting to buy gold throughout Europe. No matter which way Greece takes gold is really the only good hedge against a devaluing euro. Gold is not only a hedge against the euro, but also against commodity inflation. A recovery, if it did take place in Europe, would cause higher inflation as well. Causing conflict on the inflation issue is the ECB’s opinion that there is no inflation, when even officially there is. Germany had best not press Greece too hard, because if Greece leaves the euro it would rock global markets. We believe a deal will be done and that will temporarily solve the problem, perhaps for 1 or 1-1/2 years. That is when all the financial derelicts will be taken down together.
• The problems in Europe, the UK and US are going to be with us for a long time to come. In time the government’s suppression of the gold price will become common knowledge. The LBMA, Comex, GLD and SLV will eventually collapse under the leverage they have used and prices will be allowed to reach free market levels. This is the last inexpensive opportunity to protect your assets by owning gold and silver related assets. Do so now to stay out of harms way.