Video: David Jensen: ZIRP Leading to Collapse, Much Higher Gold &
Silver Prices
1. Two overarching concepts:
a) Time Preference - Austrian Economics perspective:
- (1) clearing excess debt (debt burden and cause of
economic distortion);
- (2) finance only highly productive enterprise and projects
that can clear higher interest rate hurdle and generate high returns
in the near term; and
- (3) ZIRP (free money) distorts consumer time
preference in that consumption occurs today which cannot be sustained
(consumption with false wealth or 'eating the seed corn') and an
inefficient production base is built to meet today's artificial demand
- unsustainable.
- Easy credit policies such as Quantitative Easing
distort the economy further and have merely recapitalized the Too Big
To Fail (TBTF) banks and
- lending at low interest rates finances inefficient
enterprises and projects that do not generate a return quickly with
artificial consumption
- end result of artificially low interest rates is
distorted economy that cannot generate jobs reliant on free money
b) John Exter
In the context of Time Preference, the ever increasing consumption and
debt level would require continually lower interest rates which distorts the
economy. Low interest rates lead to stagnation and collapse not recovery.
John Exter's Asset Pyramid - ordered from most risky to most
stable:
Today we've had 7 years of emergency zero interest rate policy (ZIRP)
in the US and gloabally.
- An Emergency Rate but is the economy getting
better?
2. Macro US
o
Today 5.5% unemployment vs 10% in 2009
- But U6 Unemployment measure as used by the US BLS in
1980 is at 11%
- Job Participation Rate -> 93 million (M) adults not
in workforce vs 78 M in 2008
- additional 15 M adults not employed since 2008 crash
(recovery?)
- Foodstamps -> 46 million adults receiving foodstamps
in 2015 vs 27 M in 2008
- Additional 19 M receiving foodstamps compared to 2008
- Steady decline in US factory orders:
- Inventory vs sales ratio continues to build - point to
recession
3. Macro Europe
- Spain youth (< 25 yrs) unemployment a 49%
- Italy youth unemployment at 44%
- Leaked NSA cable:
4. China - slowing economy
o
Chinese container shipping rate collapsing:
- China claims 7% GDP growth rate raising questions of
false official data:
- Better measure of GDP (growth) - energy consumption
- China's electrical consumption grew 1.3% Y/Y in June
2015 - a more accurate measure of GDP
Plunging industrial commodity prices:
- Coal at $43/tonne 6 year low
- Copper at $2.30/lb 6 year low
- Oil - started to collapse in Oct 2014 now at $38/bbl -
6 year lows
- China has same problem as West: Central planning /
fiat money system
- Injection of trillions of free money has distorted
economy and time preference capital structure
5. 2008 was the Global Economic Collapse and efforts since 2008 have
focused on more cheap debt to address distortions caused by prior cheap debt
and speculation/consumption:
- Emergency ZIRP still everywhere
- Austrian school - due to time preference, false consumption,
and speculative excesses, more cheap debt cannot solve the problem;
leads to collapse
- Wall Streee Journal estimated global debt or leverage
in Nov 2013 at $223 trillion or 315% of global GDP
- vs historic sustainable level of 150% of GDP
- $120 trillion too much leverage
- US $58 trillion of credit market debt (330% of GDP)
- Canada 280% of GDP
6. Problem is central planning of interest rates and creation of fiat
money
- Migration of collapse down the inverted pyramid
- John Exter pointed to gold as the final escape as gold
(and silver)
- gold = 'power money' - an asset that is nobodies
liability; gold and silver stand as independent assets
- Why then is the gold price not responding?
- LBMA trades 200 million oz of paper gold per day and is
the defacto world gold and silver price benchmark
- Price cannot move because infinite supply of paper
gold available in London at the LBMA with the Bank of England
acting as market maker for the trading;
- Gresham's Law - bad money (paper gold instruments)
drives out good money (real gold) ; physical gold will disappear from
London / NY exchanges leaving only the paper gold (bad money) to
circulate:
- Meanwhile massive amounts of physical gold being swept
away by China and India (in excess of annual global mine supply)
7. Physical Silver Shortage
- Physical silver shortage is possible as the price is,
again, set by trading paper silver instruments in London and NY;
- Price control is effected by creating artificial paper
supply in the market
- Will lead to shortage of refined bars to market if the
price is insufficient to support mining or high enough to draw silver
from hands of silver holders to the refineries
8. Solution
- Open mints to citizen held gold/silver and mint/circulate
new sound monetary unit at much higher gold / silver prices
- Organized write-down of debt to reduce the debt-to-GDP
ratio
- Close central banks
- Liquidate overleveraged TBTF banks
- Crisis with stable currency much more palatable than
crisis with failed currency (famine)
- Stability will return much more quickly
