|
By Bill Holter
GATA forwarded a fabulous link yesterday - http://www.plata.com.mx/Mplata/articulos/arti...iidarticulo=304 to
Hugo Salinas Price's latest writing. This is a very short
read and represents visually what Richard Russell said for years
..."Inflate or Die". Please read it carefully because if you
do not understand it, you will not understand "why" mathematically
we are about to go through financial and economic disaster.
 
Looking at this graph, you will notice the parabolic
move began in 1971. This was possible because "debt" had
previously been constrained by the amount of purported U.S. gold
holdings. De linking from gold allowed literally parabolic growth in
new debt issuance. The increase in reserves really started to
accelerate around the year 2000 and went vertical beginning around
2008. These were both years when the economy (and markets) began to seriously
falter. It has been my contention that these years also coincided with
"debt saturation" milestones where Kirk called down to the engine
room demanding "more power".
Before moving on, let's look at how Ponzi schemes work and how they
die. At first, there are few investors so adding even one more sucker
to the pile is meaningful as his capital can be parceled out into meaningful
"dividends". But as the scheme grows, say to 100 unsuspecting
souls, one more new investor only equals 1% "payouts" to the
group. Then as the pool gets even larger at 1,000 or more, one new mark
is almost meaningless. As the returns shrink, people begin to look
elsewhere and bail out spelling the beginning of the end. If you
look at the above chart again, it pretty much mirrors the birth, growth,
maturity and coming death of all Ponzi schemes...doesn't it?
Looking at the chart from a real world vantage point, the last two
plus years has been more than a minor hiccup ...the parabolic
"trend" has clearly changed and reversed. Mr. Salinas Price
wrote that Mr. Trump has communicated desires to eliminate the trade deficit
which will expedite the decline of paper reserves. I would remind you
what Mr. Trump said yesterday, "the dollar is too high"! This
is further evidence of a move away from globalism toward nationalism. A
"lower" dollar will help our exports while curbing imports.
This will truly not be good for an over levered world that relies on
product sales to the U.S. to pay their debt service. Another way to look
at it is through the eyes of "Smoot-Hawley" glasses, we already
know what happens to trade when tariffs are erected, trade volumes implode.
For the last few years, even with the U.S. trying and
struggling to "play the game", the debt structure had already begun
to slow and roll over. Now with Mr. Trump at the helm, it looks like
the U.S. will no longer play the game. Simply put, "game
over" will be rapidly seen and understood as inevitable where no amount
of hope will trump "policy" nor Mother Nature! The credit
contraction is here and now, if you know this and understand what it means,
then you know where it will all end.
As mentioned at the beginning, Richard Russell's most famous quote
was "inflate or die". With regard to the above chart, Sir Richard
was saying "inflation" (growth of debt) must either
continually go up AND at an increasing rate ...or it rolls over and
dies. This is exactly why for the last few months I have harped on
"credit" and why it is so important. Credit conditions all over
the world have been tightening. The greatest fear of the
Federal Reserve has always been a credit contraction that could not be
reversed ...their greatest fear has arrived and in spades! Please
understand that "credit" affects EVERYTHING. Production,
consumption and the "ability" to consume, and importantly
"distribution". Without credit, the economic, nor financial
world will turn ...which of course will affect the "social world"
as stomachs begin to growl in hunger.
You see, unlike past "reflations", there is now little to
no unencumbered collateral left (even including sovereign balance sheets)
anywhere in the world. The amount of existing debt (Ponzi clients) is
so large, new additional debt (new Ponzi clients) has little to no effect on
the entire pool. In other words, we have reached and past the point of
"debt saturation" where the ability to add meaningful debt does not
exist. The availability to obtain new credit is winding down.
Assets are now in the process of being sold to pay existing debt down, very
similar to Ponzi clients asking for their money back. Mr. Trump's
proposed policies of weakening the dollar and balancing the trade deficit
will only speed the process ...into complete and utter chaos. The
"utter chaos" part is easily forecast because of debt levels
compared to current production, and financial derivatives are often 10 times
or many more the underlying assets themselves. "Orderly" will
not be used to describe the coming liquidation process!
Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome, target="_blank" bholter@hotmail.com
Bill Holter writes and is partnered with Jim Sinclair at the newly
formed Holter/Sinclair collaboration.
Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a
retail stockbroker for 23 years, including 12 as a branch manager at A.G.
Edwards. He left Wall Street in late 2006 to avoid potential liabilities
related to management of paper assets. In retirement he and his family moved
to Costa Rica where he lived until 2011 when he moved back to the United
States. Bill was a well-known contributor to the Gold Anti-Trust Action
Committee (GATA) commentaries from 2007-present.
|
|
