The sovereign debt crisis has crossed a threshold. It’s no longer about economics. It’s about math and a complex system whose dynamics tell us there is little time to avoid catastrophe and almost no exit. Going forward, elections and policies will matter less as the debt plague takes hold and dictates hard outcomes.
It is the case that real debt cannot be repaid through any feasible combination of growth and taxes. We will soon arrive at the point where it cannot be rolled over. Debt includes contingent liabilities as well as bonds. In the U.S., this means social security, healthcare and housing obligations estimated at over $60 trillion. That does not include unfunded pension obligations of the states whose plans use fanciful 8% growth assumptions to limit contributions. Pension debt grows exponentially; a toxic brew of increased benefits, contribution shortfalls and anemic performance
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In markets, the array of individual thresholds is immensely complex. The scale, interdependence and adaptability of market participants today are greater than ever. It would take very little to trigger a wholesale revulsion with sovereign debt.
What about gold? The view is that systems on a gold standard system cannot increase money supply as needed; of course, that’s the whole idea. Increasing money beyond the modest levels at which gold supply grows is the Keynesian remedy. But empirical evidence shows the so-called Keynesian multiplier is fractional and therefore a wealth destroyer. Another attack on gold is that there’s not enough of it to support money supply; but of course there’s always enough gold; it’s just a question of price.
The U.S. has never truly gone off the gold standard. The U.S. gold hoard today has a dollar value equal to about 20% of U.S. M1 money supply – a respectable ratio even in the heyday of the fractional gold standard. A gold price of $5,500 per ounce would comfortably support a broader U.S. money supply on a one-to-one ratio and maintain confidence in the dollar and U.S. sovereign debt.
Is there an exit? One path involves hyperinflation to destroy the real value of debt followed by redenomination and a new paper money game. The other path involves a gold backed currency at a non-deflationary price. This is a choice between denial and frank talk. Sound money leads to sound growth and the creation of real, not illusory, wealth.
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I see Gold going much higher than $5,500 in the next four years. There are multitudes of reasons for this, most of which have been covered very nicely on this blog.
ReplyDeletefdr
ReplyDeletei noticed someone always coming here and saying we are crazy always first post
i think they are funny
because we usa will default
when where is of no real intrest to me
fact is i will be prepared
mentally finacely physicaly
thanks for this website
when people tell you your wrong when the facts are so overwhelming
also i seen it in 2001 collapse
its 2010
took 9 years
i give it 3 to 4
before collapse or sooner
got gold food the bible
Get a grip, EA!!!!!
ReplyDeleteThings are improving so fast you're gonna get left behind.
You need to read this and get with the program bud!
http://www.msnbc.msn.com/id/36322393/ns/business-businessweekcom/
8:25 you're not that out of it are you? The "msn" part gave it immediately..any fool that believes that trash needs to be destitute along with being the top stupid poster on this board.. CONGRATS!. All lies to keep the sheeple in debt and a slave to the government run banks..
ReplyDeleteI think they're going to try to replace the entire money system with a worlwide fiat currency digitally linked to a central bank account computer system with a record for each person on earth.
ReplyDeleteIt'll be so COOL!
You'll get an rfid implant and then all your transactions (and you're identity) will be linked to your RFID #.
You'll be number 666.
Gold to $5000?
ReplyDeleteLOL, who cares? It don't mean JACK to the average J6P or even those that store pm's and think they have some kind of immunity from the hard times ahead of us.
What are you going to do with $5k gold? Try to buy bread from the uber elite? They will laugh at you, and then take your gold anyway.
All this talk about high $$$ pm's is laughable at best, why not just take a trip to Fantasy Island?
"Da plane boss, da plane"
“Anonymous said...
ReplyDeleteIf your not sure what to do here is my advice. Buy some silver and gold jewerly that you like like just gold and silver rings. And if prices go one way or the other you'll still have something you can enjoy or use. Nothing really lost than."
Right on!
You will still have your bling to eat if all else fails.
And you sure will be looking good!
Sound precious metal money would indeed be a start in rebuilding America . As the value of printed paper backing the dollar hegemony in world finance and trade implodes. Supporters of the Usury banking system know that fractional reserve banking system will work just as well with gold and silver. As it did before the current reserve bank money system was created. Some place their hopes on that. But capitalism makes its profits from investments loaning to make money “grow”from gaining a title to the wealth created in future production. Sound money only facilitates that process it does not change it
ReplyDeleteWealth is created in productive industry that adds value by working up the raw materials into commodities for sale and the value ,including any newly created added value by labour in the production process is realised as cash at their sale. Some is profit.But ,the costs of production , recirculating and replacing the raw materials ,wear and tear on the machinery , of labor and of interest, and rents must be recirculated to allow the process to continue again .Distribution of any profit shares in the whole economy goes out according to the amount of the different capitals invested , whether in the form of gold or paper that has a socially recognised value form.Capital that is “employed” in the whole total economic process facilitating production and distribution , Including to the owners of the factory ,the malls, insurance providers, the credit suppliers and the rest.
But new value is not added by price rises to the commodities in the distribution or exchange part of the circulation of capital process . Despite what the retailers , security guards and the shop assistants selling the commodities may think. Money and things exchange at their value.
No profits can now be created in high waged, subsidised, (and now bailed out )US industry .Industry and jobs were therefore exported to the cheap labour third. Profits were great. But no matter how much the rich spent on services , luxuries and wars, ALL the accumulated profits could not not be profitably re- invested. The money supply markets shut down in 2008.
Foreign credit supply began to dry up for Treasuries and bond paper. The Fed attempted a bailout by printing even more money to socialise past losses and to stimulate the circulation of the mountains of already existing money ,creating even bigger bubbles of debt driven ,overvalued , unaffordable, fictionally valued assets .
As the extra printed Fed paper now competes in the markets with the old capital fighting for a share of the profits in a shrinking market, this extra money will drive up the dollar prices of things valued in dollars.
But , The current economic crises was not created by “mismanagement’ by the fed ,Bush or Obama ,but by the fact that America was running for years on military Keynesianism deficits and foreign credit . Overproduction of commodities occurred, both in the third world and in America and profits could not be realised at their sale ,with a profit share going to ALL the accumulated invested paper including in Dud bankster bonds . The falling rate of profits on the mountains of accumulated past money profits, has caught up with America .. The US is now insolvent.
The unemployed and those whose incomes are shrinking cannot stimulate the sales of the commodities , Housing etc. in the markets on more credit ,to solve the problem of both overproduction of invested paper and overproduced commodities that cannot be sold at a profit ,even a devaluing paper profit.