Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
Ruble Takedown Exposes Cracks in Putin’s Defense - 20th Dec 14
Oil Drilling Our Way Into Oblivion - 20th Dec 14
Stocks Bull Market Resumes - 20th Dec 14
Gold And Silver Nothing Is Ever As It Seems And No Respite For PMs - 20th Dec 14
What Are Technical Indicators Saying About the Stock Market? - 20th Dec 14
Here’s How You Can Still Make 27% With Apple Even if You Buy Now - 20th Dec 14
Gold Stocks to Shine in 2015 - 19th Dec 14
Why Alibaba Stock Shares Are a Screaming Buy - 19th Dec 14
China, Dollar, Japan, Europe Burning Questions for 2015 - 19th Dec 14
U.S. Economy is in a Sweet Spot! - 19th Dec 14
US Dollar and the Gold Fairy Tale - 19th Dec 14
Show Me The Money (Flow)! Tracking Money-Flow Through Value Shifts In Stock Markets - 19th Dec 14
The Commodities Market Is Not Dying, It’s Just Hibernating - 19th Dec 14
The Price Of Gold And The Art Of War - 18th Dec 14
Euro Succumbs to ECB QE Expectations and FOMC - 18th Dec 14
John Williams: A Downhill Run for the U.S. Dollar in 2015 - 18th Dec 14
Outrage at Taliban Islamic Fundamentalists Massacre of 132 Pakistani School Children in the Name of God - 18th Dec 14
How Inflation Changes Retirement Benefit Choices - 17th Dec 14
The Real Reason It's Tough to Beat the Stock Market - 17th Dec 14
Russian Currency Crisis and Debt Defaults Could Create Contagion in West - 17th Dec 14
How to Profit From Russia's Stock Market Crash - 17th Dec 14
Russia Crisis - If You Put Your Money in the Bank Will You Get it Back? - 17th Dec 14
Crude Oil Price Crash, U.S. Employment and Economic Growth - 17th Dec 14
Opposing Forces At Play In Gold and Silver Precious Metals Complex - 17th Dec 14
Wall Street Will Always Find An Excuse For Not Raising U.S. Interest Rates - 17th Dec 14
Torture, Terror And Elite Schizophrenia In The UK - 16th Dec 14
Eurozone Conflict Will Bring a Major Stocks Buying Opportunity - 16th Dec 14
Viewing Russia From the Inside - 16th Dec 14
Gold and Silver Stocks Bottom - Are We There Yet? - 16th Dec 14
The Financial Industry Pigmen Win Again - 16th Dec 14
Crude Oil Price Epic Blowout - 16th Dec 14
Asian Stocks Markets: Sand In The Gears Of The Bull Market - 16th Dec 14
U.S. Dollar Trend Forecast 2015 - Video - 16th Dec 14
Silver Price Bottom? - 15th Dec 14
Gold Price Base Building Bullish Pattern - 15th Dec 14
Stock Market Probable Pop-n-Crash Today - 15th Dec 14
Stock Market Time for a Bounce - 15th Dec 14
Stock Market Euphoria: The Mother of All Ponzi Schemes - 15th Dec 14
Gold - The Weight of Time as Trend - 15th Dec 14
U.S. Dollar Collapse? USD Index Trend Forecast 2015 - 14th Dec 14
The Rushing Stocks Bear Market and How to Prepare - 14th Dec 14
Gold and Silver Dreaming of a White Christmas - 14th Dec 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Dramatic Stock Market Selloff

So How Do These Sorts of Crises End?

Interest-Rates / Global Debt Crisis Oct 28, 2011 - 01:38 AM GMT

By: Paul_Tustain

Interest-Rates

However this crisis is resolved, guess who'll be footing the bill...

The World has endured these sorts of crises before. Somehow they come to an end. What happens?


Sometimes, someone turns up who can prop up the collapsing debt mountain, and they make it grow higher, for a little bit longer. For a short while they are even called brilliant, but they leave a bigger problem than they started with. Eventually the thing comes crashing down and the creditors pay - always.

Whether the creditor pays through default or rapid inflation, or the mandated acquisition of government bonds by their pension fund, or the sequestration of their deposits, the result is the same: it's always the creditor who pays.

And so they should. They lent the money, and they receive interest for taking the risk of lending. It doesn't work well if they can take the interest without the risk - for which we need only look at the nonsense of naked CDSs! No - as some bondholders are currently finding out, the creditor always pays.

By and large the creditors in the west are the holders of about $100 trillion worth of currency denominated assets (bonds and deposits) mostly owned by savings institutions which themselves have been pumped up through tax incentives to save. Their owners are the people who are going to pay. That is good news and bad. Good for our children, who will not be saddled with this debt, and bad for us, as we will get pensions - paid in full - that buy a sandwich a month.

But until the bill finally lands on the mat, lots of earnest arguments and skilful men and women will turn up, occasionally even offering a glimmer of hope that somehow the creditors will not end up paying. Some will usher in false hopes, but the hopes will fade, until eventually - when the debt has finally become near worthless, and when even the savers realise it is so - some lucky individual will announce that the money printing and the devaluation is over. Then suddenly, as if by magic, it will be. This person will be the 20th or the 50th Treasury Secretary to make the announcement, but the announcement will stick, because everyone has accepted that the value of the old debt is finally zero. Only then will growth start over.

All currency denominated assets will by then be effectively worthless. Until then volatility in a generally downwards direction will be the norm as false dawns get debated, and implemented, and fail. It will be very difficult to spot the end of the process, because it will only happen when finally almost everyone assumes every monetary initiative will fail. That is a necessary condition for a return to sensible money.

That - at any rate - was how these things got resolved in the past. It's not very encouraging is it? Sorry.

I find my interest is shifting from the collapse, which is well underway, and which will go on in its chaotic way for a few years and will eventually consume the hugely indebted UK and USA economies, as well as the Japanese and the Europeans. Now I am wondering how to detect the nearing end of the process, when some wonderful profitable and productive opportunities will arise. We will then have the wind at our backs, with sound money and naturally re-emerging demand (albeit from a low base). In the meantime I will sit on my gold through the rises and the falls, and remind myself whenever I'm tempted to sell - which is frequently - that it's the creditors who pay, always. Until they have I must not get involved.

By the way, just in case I didn't mention it: THE CREDITORS ALWAYS PAY.

By Paul Tustain

BullionVault.com

Paul Tustain is the founder of BullionVault.com – with 13,000 customers and $600m in gold bars, now the world's largest store of privately-owned investment gold bullion.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014