By Porter Stansberry in the S&A Digest:

Here's the next big global problem: Italy. Credit default swaps on Italian sovereign debt are now at record levels and moving higher. Currently, it costs €250,000 per year to insure €10 million worth of Italian bonds. I expect these prices to continue to increase, making it much harder for Italy to get the estimated €250 billion it needs to finance its annual deficit and roll over the €170 billion in principal that will come due in the second half of this year.

And... none of these debt estimates includes the growing likelihood of a major bailout for UniCredit, Italy's largest bank. UniCredit is Europe's largest lender to Eastern Europe, where JPMorgan estimates credit losses will total €40 billion this year. When you see in the news that Hungary's currency is plummeting (as it did today), you can bet UniCredit's losses are growing. Ironically, UniCredit is the successor bank of Kredit-Anstalt, whose failure in 1931 overwhelmed European governments, forcing Austria, Germany, and England off of the gold standard. As I told my subscribers in March, I think history is about to repeat itself:

[R]oughly 75 years after its collapse set off the banking crisis that ended the gold standard and destroyed the world's financial system, Kredit-Anstalt (now known as UniCredit) is once again the largest bank in Eastern Europe. I be lieve it will soon fail again, setting off another global banking crisis. – Stansberry's Investment Advisory, March 2010

One secret about European sovereign debt most investors around the world fail to understand: Europe's banking regulators have allowed the banks to own European sovereign debt with zero reserves because the banks argued these were "risk-free" assets. The easiest way for European banks to "lever up" and increase their returns on equity was to borrow large amounts of slightly higher-yielding sovereign debt, from places like Greece, Spain, Portugal, and Italy. The policy accomplished two things: It allowed nations privileged access to credit, and it allowed banks to take on much more leverage than they could have otherwise afforded. Now, with credit default swap prices rising on these sovereign credits, the truth of these credit risks is coming out.

What does this mean for investors? You should expect the euro to continue to weaken, as the European Central Bank cannot allow Italy or any large commercial bank to fail. And that means more and bigger bailouts. As the size of these bailouts continues to escalate, investors around the world will turn to gold and silver as the only truly reliable currencies.

I also believe these serial financial crises and the huge increases in money supply they foreshadow will hold down investment, employment, and economic growth. Entrepreneurs will be afraid to take on risk in the face of sharply rising interest rates and taxes. At some point, perhaps after a final global crisis, the world's economies will have to reorganize on the basis of something other than paper money. My bet is the world will once again return to the stability and the honesty of gold. When? That's impossible to say, but the most experienced people I talk to say within this decade.

What should you do? The worst part of paper money systems is they force everyone to become a speculator. You have no choice. Low-risk assets, like bank deposits or Treasury bills, aren't going to pay you anything. Meanwhile, inflation will destroy your purchasing power if you can't make at least 10% a year.

Whether you like it or not, to survive with your wealth intact over the next decade you're going to have to suffer the volatility of owning precious metals (gold, silver). You're going to have to take smart risks when a crisis presents good opportunities. That's what we did in late 2008 and early 2009 by selling puts on high-quality stocks at the market bottom. We averaged about 50% returns on the puts we sold, typically holding each position for only two or three months. Finally, in addition to owning high-quality equities (like Dan's World Dominators), you should keep some of your portfolio hedged via short-selling obsolete or highly indebted firms likely to fail.

Now... you might be saying, "I can't do all that stuff..." But, really, you don't have a choice. You'll have to do these things over the next decade, if only to preserve your wealth.

Crux Note: One of the best ways to start preserving your wealth is with a risk-free subscription to Stansberry & Associate's flagship service, Stansberry's Investment Advisory. To learn more, click here.

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