Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
Kaminak Yukon Gold - 30th Jan 15
U.S. Asset Price Deflation Coming Up? Food Prices Drop? CPI Negative? Credit Deflation? - 30th Jan 15
An Often Overlooked Predator: State Governments and Income Taxes - 30th Jan 15
Bullard Says Rates at Zero Interest Rates Not Right for U.S. Economy - 30th Jan 15
Why the European Central Bank's Massive Economic Experiment Will Fail - 30th Jan 15
Gold Price Short-Term Bottom Due, Higher into February - 30th Jan 15
Silver and Other Precious Metals To Manipulate - 30th Jan 15
Socialism Is Like a Nude Beach - Sounds Like a Great Idea Until You Get There - 30th Jan 15
To Create Unlimited Market Liquidity or Not; That Is the Question - 30th Jan 15
Seen the Energy Downturn Movie Before, and Not Worried - 30th Jan 15
It’s Not Time to Sell Everything – Yet - 30th Jan 15
13 Investment Themes for 2015 - 29th Jan 15
The Raging Currency Wars Across Europe - 29th Jan 15
The End of Currency 'Safe-Havens' - 29th Jan 15
Ron Paul on U.S. Fed, Central Bankers Monetary Psychopaths - 29th Jan 15
Why Microsoft Stock Will Provide Major Investing Returns - 29th Jan 15
Exploring the Clash Within Civilizations - Mind the Gap - 29th Jan 15
Saudi Arabia Changes Kings, But Not its Oil Policy - 29th Jan 15
Crude Oil Price Bulls vs. Resistance Zone - 28th Jan 15
Acceleration Of Events With Rising Chaos – US Dollar Death Foretold - 28th Jan 15
The Fed and ECB Take the West back to when the Rich Owned Everything - 28th Jan 15
Washington's War on Russia - 28th Jan 15
Cyber War Poses Risks To Banks and Deposits - 28th Jan 15
Lies And Deception In Ukraine's Energy Sector - 28th Jan 15
EUR, AUD, GBP USD – Invalidation of Breakdown - 28th Jan 15
“Backup-Camera Envy” Is Driving This Unstoppaple Investment Trend - 28th Jan 15
The Great "inflated" Expectations for Gold, Oil, Commodities -- and Now Stocks - 28th Jan 15
How to Find the Best Offshore Banks - 28th Jan 15
There’s More to the Gold Price Rally Than European Market Fears - 28th Jan 15
Bitcoin Price Tense Days Ahead - 27th Jan 15
The Most Overlooked “Buy” Signal in the Stock Market - 27th Jan 15
Gold's Time Has Come - 27th Jan 15
France America And Religious Terror War - 27th Jan 15
The New Drivers of Europe's Geopolitics - 27th Jan 15
Gold And Silver - Around The FX World In Charts - 27th Jan 15
It’s Not The Greeks Who Failed, It’s The EU - 27th Jan 15
Gold and Silver Stocks Investing Basics - 27th Jan 15
Stock Market Test of Strength - 26th Jan 15
Is the Gold Price Rally Over? - 26th Jan 15
ECB QE Action - Canary’s Alive & Well - 26th Jan 15
Possible Stock Market Pop-n-drop in Store For SPX - 26th Jan 15
Risk of New Debt Crisis After Syriza Victory In Greece - 26th Jan 15
How Eurozone QE Works: A Guide to Draghi's News - 26th Jan 15
Comprehensive Silver Price Chart Analysis - 26th Jan 15
Stock Market More Retracement Expected - 26th Jan 15
Decoding the Gold COTs: Myth vs Reality - 26th Jan 15
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15
Draghi's "No-growth" QE Money for Stocks, Zilch for the Economy - 25th Jan 15
Unjust and Undeclared Wars - 25th Jan 15
The European Central Bank Commits Monetary Suicide - 25th Jan 15
Stock Market ECB EQE week - 25th Jan 15
Gold And Silver Timing Is Most Important Element - 25th Jan 15
The Best Way to Invest in the Next Alibaba Internet Stock IPO - 25th Jan 15
The Outpatient Surgery Business Rains Cash into Healthcare Stocks - 25th Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Learn to Trade

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