The world has added approximately $60 Trillion in debt since 2007, much of it sovereign debt created from deficit spending on social programs, wars, and much more. In that time the world has mined perhaps 30,000 tons of gold, or about 950 million ounces, worth at September 2015 prices a little more than a $Trillion. It is easy to create debt – central banks “print” currencies by BORROWING those currencies into existence. Debt increases, currency in circulation increases, and until it crashes, life is good for the financial and political elite. But debt increasing 60 times more rapidly than gold indicates that debt is growing too rapidly and due for a reset.
It is a tangled web of debt, counter-party risk, obligations, and unintended consequences. From an interview with David Stockman:
Stockman goes on to paint a grim picture and says, “What happens when the financial breakdown comes is there is a great margin call. Everybody says ‘I want my money back and I’ll take your collateral if I don’t get it back. If I do take your collateral, I will sell it for whatever price I can get and cut my losses.’ So, this is truly a house of cards. The whole pyramid of debt and what we call hypothecation and rehypothecation of financial assets, that is the real bubble. That’s what people don’t focus on enough. Sure, you can think of stocks that are a bubble, like Tesla and its current price of around $250, or the biotech index which is trading at hundreds of times earnings is crazy. What’s really crazy is all of this debt that has been created has been turned into collateral and borrowed against at a very high rate. The whole thing is very unstable and tottering as we speak.. . . Much of this collateralized credit that has been created is a confidence game. It is a daisy chain, and when the confidence breaks and they start to unwind the chain, the amount of debt outstanding will shrink. That will create tremendous broken furniture in the financial system.”
How do you protect yourself? Stockman says, “The place to go in my view is cash. Stay short and liquid because we are going into deflationary collapse. We are going into a great reset in the financial markets where inflated asset values are going to be marked down tremendously, bond prices and stock prices. As a result of, that there will be great opportunity after the dislocation runs its course to buy things much cheaper than they are priced today.”
Stockman thinks the whole system unwinds sometime before the 2016 Presidential race is finished. (emphasis mine)
From Adrian Ash (Bullion Vault):
“But if the Fed is scared, investors and savers should be doubly so. Central bankers have led us deep into a forest where money does grow on trees, but not [economic] growth or stability, and now they can’t find the way out.”
“When night falls, there’s a very clear risk of panic as investors realize that central bankers, like the markets, are lost in the dark.”
I repeat: Gold is Good. Sovereign Debt is Bad.
Courtesy: Gary Christenson | The Deviant Investor
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