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By the SRSrocco Report,
The coming GREAT DEFLATION will impact the value of Gold and the Dollar
much differently than what most analysts are forecasting.
Unfortunately, most analysts do not understand the true underlying value of
gold or the U.S. Dollar, because they base their forecasts on information
that is inaccurate, flawed or imprecise.
This is due to two faulty theories:
monetary science
supply-demand market forces
While some aspects of monetary science and supply and demand forces do
impact the prices of goods and services (on a short-term basis), the most
important factor, ENERGY, is totally overlooked. You will never hear
Peter Schiff include energy when he talks about the Federal Reserve, Commercial
Banks, money printing or debt. Schiff, like most analysts, is stuck on
studying superficial monetary data that does not get to the ROOT OF THE
PROBLEM.
Furthermore, the majority of folks who believe in the Austrian School of
economics, also fail to incorporate ENERGY into their analysis. For
some strange reason, most analysts believe the world is run by the ENERGY
TOOTH FAIRY (term by Louis Arnoux). Without cheap and abundant
energy, monetary science and supply-demand forces are worthless.
That being said, as the debate on whether the world will experience,
inflation, hyperinflation or deflation will continue to go on and on, I
guarantee we are going to experience the MOTHER of all DEFLATIONS.
Again, this will be due to the disintegrating energy sector and its inability
to provide sufficent profitable net energy to the market.
The falling net energy and declining EROI - Energy Returned On Investment,
are totally gutting the entire market. This can be seen quite clearly
as the U.S. added $4 of debt for each $1 of GDP growth in 2016.
According to the Zerohedge article, It
Took $4 In New Debt To Create $1 In GDP:
As a reminder, according to the latest BEA revision, nominal 2016 GDP was
$18.86 trillion, an increase of $632 billion from 2015; the question is how
much credit had to be created to generate this growth. Well, according to the
Z.1, total credit rose to a new record high $66.1 trillion. This was an
increase of $2.511 trillion in the past year. It means that in 2016, it
"cost" $4 in new debt to generate just $1 in new economic growth!
As we can see, adding $4 of debt to create $1 of artificially inflated GDP
is not a long-term sustainable business model. I get a laugh hearing
"Conspiracy Theorists" explain how the ELITE have been planning
this take-over all along and have the markets totally under control.
While conspiracies do indeed take place, the ELITE have been SHOOTING FROM
THE HIP and WINGING IT just to keep the entire market from imploding.
For those who believe that the elite want to crush the market to buy
assets for pennies on the Dollar, I am here to tell you... it CHAIN'T
gonna happen. When the Ancient Roman Metropolis collapsed from a
population of one million people down to 12,000, I can assure you, the
majority of the ELITE were wiped out.... KAPUT.
Real Estate values and revenue streams in Ancient Rome evaporated into
thin air. There was no "RECOVERY" or "PLAN
B." Death had come to the once great Roman Empire... for good.
Regardless, the coming GREAT DEFLATION will destroy the value of most assets
shown in the chart below:
Of the $369 trillion in global asset values (2015), gold and silver
accounted for $3.1 trillion or 0.8%. That's correct, not even 1% of
total global assets. Savills Research, who put together the data shown
in the chart above, recently published figures on Global Real Estate
Investment:
Now, this chart does not represent total Real Estate values, but rather
shows how much money is being invested in the Global Real Estate Market
(minus China). Interestingly, global real estate investment has never
regained its previous peak set back in 2008. Furthermore, the data
shows that global real estate investment has rolled over and declined since
the first quarter of 2016. This is not a good sign.
This means, deflationary forces may already be taking place in the global
real estate market.
How The 'GREAT DEFLATION' Will Impact Gold & The Dollar
To understand how the coming GREAT DEFLATION will impact gold and
the U.S. Dollar, we must throw out the window all preconceived notions about
economics and money. Any individual who continues to believe
in the standard orthodox economic theory, you might as well also accept that
the EARTH IS FLAT and infite GROWTH on a finite planet is possible.
Unfortunately, the U.S. educational system and alternative media continue
to misinform the public about the role of MONEY. So, the blind continue
to lead the blind as Rome burns... so to speak.
The GREAT DEFLATION is coming due to the disintegration of the U.S. and
global oil industry. As I mentioned in a precious article, the top
three U.S. oil companies slashed their Q1 2017 capital expenditures (CAPEX)
by 40%, versus the same period last year. Furthermore, the world only
found 2.4 billion barrels of new oil in 2016 while it consumed 25 billion
barrels:
I hate to be a broken record, but precious metals investors better WAKE
UP. How many new barrels of oil do you think the global oil industry
will find in 2017 as they continue to slash their CAPEX spending even greater
than last year??
Regardless, the Fed and Central Banks are propping up the market with more
money printing and asset purchases than ever. This will not solve our
financial and economic problems, however it is a last ditch effort to
postpone the inevitable.
To truly understand what will happen with the value of Gold and the U.S.
Dollar, we have to grasp the data shown in the chart below:
To produce an ounce of gold in 2016 (top two gold miners - Barrick &
Newmont), it took $1,113. Thus, the top two gold miner's total
production cost was 89% of the gold market price ($1,251). This is why
gold stores wealth. Stored wealth has always been "STORED ECONOMIC
ENERGY." Gold has been the King Monetary Metal because of its
rarity in the earth's crust and its ability not to corrode or tarnish like
many other metals.
On the other hand, the U.S. Treasury Department of Engraving and Printing
produced a new $100 bill for a mere 13.4 cents. Thus, the U.S.
Treasury's $100 bill cost of production was 0.13% of its face value, versus
89% for an ounce of gold.
The production cost figures for the U.S. Federal Reserve Notes came from
the U.S. Treasury Department of Engraving and Printing, shown in the table
below:
It cost the U.S. Treasury $134.14 per thousand of $100 bill's
printed. While the U.S. Treasury spent more money to produce the lower
denomination bills versus their total face value, 71% of the $213 billion of
Federal Reserves Notes printed in 2016 were $100 bills.
If we are able to understand the information presented above and
are able to do some "CRITICAL THINKING", then it is easy to
understand that the U.S. Dollar will suffer signficantlyu during the GREAT
DEFLATION..... not gold.
We also must remember, a "NOTE", as in the "Federal Reserve
Note", means an "OBLIGATION" or "DEBT." Money
is not supposed to be an obligation or debt. Money is supposed to be a
store of value and medium of exchange.
Thus, when the GREAT DEFLATION arrives, the value of the U.S. Dollar has a
much farther way to fall versus gold. Why? Because the
value of most things, always reverts back to their COST OF PRODUCTION.
The innate value of a $100 bill is a mere 13.4 cents.... so, its value still
has room to fall 99%+.
Again... the innate value of most things are based upon their cost of
production, not supply and demand. What's the use of being in the
business of producing goods at a loss????
Here is one last example. In 2016, total global gold mine supply was
worth $103.6 billion. This figure was based on the of 3,222 metric tons
of gold mine supply (GFMS 2017 World Gold Survey), multiplied by the average
spot price of $1,251. The estimated cost to produce this gold was $92.2
billion:
Here we can see that the gold market price, was based on its cost of
production. On the other hand, the U.S. Treasury was able to print
$151.7 billion in $100 bills for the total cost of $235 million ($0.235
billion). Which means, the U.S. Treasury's production cost was only 0.13%
for the $151.7 billion of new currency (fake money) it issued last year.
People need to realize the U.S. Dollar's value is backed by U.S.
debt, which is being propped up by burning energy. Thus, ENERGY =
MONEY. The huge increase in U.S. and Global Debt means the quality of
energy that runs everything is rapidly declining. Which means,
the more debt that is added, the lower interest rates have to go. It is
a one way street.
Analysts who think interest rates need to normalize to a much higher
level, have no idea about ENERGY.... ZIP, NADDA, ZILCH. They look at
the markets as if the ENERGY TOOTH FAIRIES run everything. There are
only a small handful of analysts who understand the energy dynamics.
The rest are the blind leading the blind.
The coming GREAT DEFLATION will destroy the value of most STOCKS, BONDS,
REAL ESTATE and PAPER CURRENCIES. The reason Real Estate prices will
plummet below their cost of production is due to their 20-30 year financing
and their inability to function during the disintegrating energy
environment. The same will be for automobiles and many other assets and
items.
Investors need to understand how ENERGY and the FALLING EROI- Energy
Returned On Investment, will impact the value of most assets going
forward. Most assets will collapse in value, while a few will hold or
gain in value. Gold and silver will be two of the few that will hold or
gain in value during the GREAT DEFLATION.
Lastly, if you haven't checked out our new PRECIOUS
METALS INVESTING section or our new LOWEST COST PRECIOUS METALS STORAGE
page, I highly recommend you do.
Check back for new articles and updates at the SRSrocco Report.
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