Sunday, September 4, 2011

This Time It Really Is Different

Why would people shun the returns of gold- 35% so far this year- for a guaranteed losing investment in a CD or a US Treasury? The answer is simple.

People really are stupid and fearful. Please forgive me, there is simply no other way to describe the condition. If real inflation is actually 4-5% (which it is) then any investment yielding less than that is a guaranteed loser. Any investment that includes taxes- is a double loser.

The world has experienced gold bull markets- but nothing like the one it's in now. Therein lies the key- and I can summarize it for you in just a few sentences. The world's banks and fiat money systems are all the same. One giant squid. They took what money actually existed and leveraged it geometrically. The money they leveraged, which now represents debt, does not exist nor will it ever exist. The world's banks are broke. Were they forced to use mark to market accounting methods like every one else- their assets would not simply be reduced- their outstanding leveraged debt would simply be exposed and bankrupt them. Therefore, all that is left for the world's central bankers to do is to print money and try to inflate all that accumulated debt away. The problem is- is that all that debt is vast. Far greater than you would imagine. The other problem is that inflating it all away will take many years. Decades.

So as the world's central bankers counterfeit and swell the fiat currency supply- the value of gold increases. Holders of currency get their asses kicked. Holders of gold preserve their wealth.

If governments and central bankers chose not to try and inflate debt away by printing money- we would have a deflationary scenario and most likely a full blown, worldwide, depression. The value of gold would go down just as the fiat money supply went down. However, savers would be rewarded with good buys and smart rates of return. The debtors would get their asses kicked as too few dollars are chasing large debt piles. Call that justice if you will- but the FED doesn't give two shits about justice. That isn't part of their "dual" mandate.

So if the world cannot solve the debt bubble, which it clearly it hasn't been able to for least the last four years, then gold and precious metals can only go higher. In the past, we could grow our way out of recessions and depressions. This time we can't. The debt quite honestly- far exceeds anybody's futuristic capacity to pay it off. The debt is too enormous and the bankers refuse to fully disclose it. It is that simple. That scenario has never existed until now. The banks screwed the pooch.

I snipped this comment and link from another site since, It is very appropriate this time.

Nassim Taleb: The American Economy Will Transfer $5 Trillion To Banker Pay And Bonuses Over The Next 10 Years
That $5 trillion dollars is not money invested in building roads, schools, and other long-term projects, but is directly transferred from the American economy to the personal accounts of bank executives and employees. Such transfers represent as cunning a tax on everyone else as one can imagine. It feels quite iniquitous that bankers, having helped cause today’s financial and economic troubles, are the only class that is not suffering from them – and in many cases are actually benefiting.
Read more:
This time, there is simply no escape for the world's bankers except default. At that time, the world will have to reset. You will want to own precious metals when that happens. When they issue the new currency- precious metals will most likely back the supply of currency. You are going to find yourself in an excellent position when that happens. The people without precious metals? Well, they are just going to have to take what they can get. They really won't have much to barter with. That's been the history of precious metals for about as long as man has been walking rare earth. Currencies have been collapsing since the dawn of time. Just because you haven't seen one collapse, doesn't mean you can't or won't. If you have ten years worth of life left in you, I think the chances that you will see a currency collapse or even two- are excellent. Because this time it really is different.  

1 comment:

davecydell said...

For those of us who live in this town we tend to price, or value, gold and silver in USD. That can be confusing.
For those who haven't seen this it may be interesting. From Kitco, a Gold Index: