Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
S&P 500’s Downward Reversal or Just Profit-Taking Action? - 18th April 19
US Stock Markets Setting Up For Increased Volatility - 18th April 19
Intel Corporation (INTC) Bullish Structure Favors More Upside - 18th April 19
Low New Zealand Inflation Rate Increases Chance of a Rate Cut - 18th April 19
Online Grocery Shopping Will Go Mainstream as Soon as This Year - 17th April 19
America Dancing On The Crumbling Precipice - 17th April 19
Watch The Financial Sector For The Next Stock Market Topping Pattern - 17th April 19
How Central Bank Gold Buying is Undermining the US Dollar - 17th April 19
Income-Generating Business - 17th April 19
INSOMNIA 64 Birmingham NEC Car Parking Info - 17th April 19
Trump May Regret His Fed Takeover Attempt - 16th April 19
Downside Risk in Gold & Gold Stocks - 16th April 19
Stock Market Melt-Up or Roll Over?…A Look At Two Scenarios - 16th April 19
Is the Stock Market Making a Head and Shoulders Topping Pattern? - 16th April 19
Will Powell’s Dovish Turn Support Gold? - 15th April 19
If History Is Any Indication, Stocks Should Rally Until the Fall of 2020 - 15th April 19
Stocks Get Closer to Last Year’s Record High - 15th April 19
Oil Price May Be Setup For A Move Back to $50 - 15th April 19
Stock Market Ready For A Pause! - 15th April 19
Shopping for Bargain Souvenirs in Fethiye Tuesday Market - Turkey Holidays 2019 - 15th April 19
From US-Sino Talks to New Trade Wars, Weakening Global Economic Prospects - 14th April 19
Stock Market Indexes Race For The New All-Time High - 14th April 19
Why Gold Price Will “Just Explode… in the Blink of an Eye” - 14th April 19
Palladium, Darling of the PGEs, Shifting into High Gear - 13th April 19
MMT is a spectacularly Dem idea - 13th April 19
The 'Silver Lines' of Opportunity - 13th April 19
Gold Stocks Bull Market Breakout Potential - 13th April 19

Market Oracle FREE Newsletter

Top 10 AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

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.


© 2005-2019 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

6 Critical Money Making Rules