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Last week was
the 41st anniversary of one of the most disastrous days in world history. The 15th
of August 1971 was a fatal day
for the world economy and is
likely to lead to more human
misery than any world war. This was the day when
Nixon closed the gold window
which led to governments worldwide creating endless amounts of worthless paper money.
The resulting credit bubble has created a world debt exposure of over US$ 1
quadrillion (including derivatives).
It has also created perceived wealth for big parts of the world‘s
population – a wealth which
is only backed by promises to pay and
by grossly inflated assets. Few people realise that this wealth
is totally illusory and will implode considerably faster than the time it took to create
it.
Gold reveals
the truth
Gold
reveals governments’
deceitful actions in destroying
the value of paper money and the wealth of nations. This is why most Western governments dislike gold. Because gold tells the truth
and the truth is that since August 1971 the US
dollar has declined 98% in real terms.
 
Real
terms means in GOLD since gold is the only money which cannot be printed
and which has survived
for 5,000 years.
As
Voltaire said in 1729; All
paper money eventually returns to its intrinsic value – ZERO.
Before
this debt cycle comes to an end in the next few
years, the dollar and most
major currencies are likely
to finish their move down against
gold and lose 100% of their
value. Since 98 % has already
been lost in the last forty-one
years, there is really not far to go. The
final fall of currencies will be as a result of the unlimited money
printing that governments
will embark upon in the next few months in order to endeavour to “save”
the world economy. But money printing does not save anything. It just exacerbates the situation. You cannot
ever become debt free by issuing more debt and you cannot create prosperity with worthless pieces of paper.
The system is
bankrupt
There
has never before been a
time in history when most sovereign nations are bankrupt and when the financial system only survives
due to false accounting. (Banks are allowed to value worthless toxic debt at
maturity value rather than market value). So sadly we are now likely to start the next phase in the
world economy which is a hyperinflationary depression. Hyperinflation arises as a result of money printing which
leads to the currency collapsing.
Whilst the price of most goods and services go up dramatically with
hyperinflation, most of the assets
that were financed by the credit bubble like stocks, bonds and property will collapse in real terms i.e. against gold.
Europe vs the USA
For
the last couple of years, all the focus has been on
the travails of the Eurozone countries. The Eurozone individual members’ dilemma is that, unlike
the USA, they cannot print money. German political pressure stops that
country from printing money for the Greeks to retire at 55 or to
support the Spanish banks
from collapsing. Germany is in a massive dilemma because if they contribute to the Eurozone’s
money printing, they will
increase their exposure and throw good money after bad. Also,
it would be unacceptable politically. But if they don’t print, the German government and banks are likely to lose in excess of €1
trillion which is their total exposure to the weaker European economies. Thus a virtual lose – lose dilemma for Germany.
The
focus on the Eurozone countries will
soon move West across the
pond. Virtually every
important economic figure in the USA is worse than
in Europe. Both US debt
to GDP and budget deficit to GDP are worse than Spain’s.
And Spain is seen as a
basket case. Real US unemployment (23%) is also much
worse than in most European countries. Also, if toxic debt and derivatives are included, US bank balance sheets are looking very sick. JP Morgan alone has a $100 trillion derivative
exposure. And we know how
quickly derivatives become worthless with JPM’s latest $6 billion write off. In
addition, the US annual federal
deficit is likely to remain in the
trillions for many, many years to come. These amounts dwarf anything happening in Europe.
Shangri-La
or Ponzi Scheme
As
the focus shifts to the USA during the autumn, there will be pressure on the US
dollar which eventually will put strong upward pressure on interest
rates. The free money bonanza with
zero interest rates will come to an end with US
rates (and others) soon starting their journey to double figures. Governments
and central bankers must have thought
that they had invented a
financial Perpetuum
Mobile. First you set interest
rates at zero and then you print
and borrow unlimited amounts of money since it is all free. This way we can
all experience Shangri-la.
But sadly, governments
have not reinvented paradise
but only been busy creating a fraudulent Ponzi scheme. And like all Ponzi schemes this one will also collapse which will create
worldwide social and economic
misery for many generations to come.
Gold and Silver
breaking out
Physical precious
metals as well as PM
stocks will continue to reflect
the destruction of paper money. As I discussed in my recent article “Why
Gold will erupt “,
gold and silver have now started a major move to the upside. This move will
be relentless with only minor corrections before we reach $4,500 to $5,000 in
gold and substantially over $100 in silver.
Investors
now have a last chance to invest in gold and silver at prices which will
never be seen again. But for wealth preservation purposes it must be physical
metals and it must be stored outside the fragile banking system.
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