Best of the Week
Most Popular
1.The Trump Reset, US Empire's Coming Economic, Cyber and Military War With China (2/2) - Nadeem_Walayat
2.Now Is the Time to Buy Gold - 5th Jan 17 - John Grandits
3.CIA Planning Rogue President Donald Trump Assassination? Elites "Manchurian Candidate" Plan B - Nadeem_Walayat
4.The Trump Reset - Regime Change, Russia the Over Hyped Fake News SuperPower (Part1) - Nadeem_Walayat
5.Most Popular Financial Markets Analysis of 2016 - Stock Market Crash Postponed Again - Nadeem_Walayat
6.No UK House Prices Brexit Crash 2016 Despite London Weakness, Forecast 2017 - Nadeem_Walayat
7.President Trump Understands the NSA, CIA... LIE, America's Intelligence Agencies Crime Syndicate! -Nadeem_Walayat
8.President Donald Trump's 2017 New Year Message, BBC Fake News, Was 2016 a Dream? - Nadeem_Walayat
9.Major Stocks Bear Market Still Looms - Zeal_LLC
10.Biased 2017 Forecasts - Debt, Housing and Stock Market (1/2) - James_Quinn
Last 7 days
United States Common Sense - 2017 - 23rd Jan 17
Is Dow 20,000 a Bridge Too Far? - 23rd Jan 17
The New Gold Rush Of 2017! - 23rd Jan 17
HBO HOMELAND Bet on HIllary Clinton Winning US Election and LOST - 23rd Jan 17
Stock Market New Highs For 2017? Yes, But When Do I Enter? - 22nd Jan 17
Active vs Passive Investing: And the Winner Is ... - 22nd Jan 17
The Epidemic of Bad Ideas - 22nd Jan 17
Gold Futures Prices Looking Bullish - 22nd Jan 17
Time for Crude Oil Price Drop below $50? - 21st Jan 17
AI and Robotics - We Are All Low-Skilled Workers Now - 21st Jan 17
The Trump RESET Starts on US Presidential Inauguration Day 2017 - What to Expect - 20th Jan 17
Will the CIA Assassinate Rogue President Donald Trump Like JFK? - 19th Jan 17
Bonds, Dollar, Stocks, Gold, Silver Major Markets at Turning Points - 19th Jan 17
Populism; the Danger? What About Debt? - 19th Jan 17
Gold Price 50-DMA Breakout - 19th Jan 17
Turkey, 'Axis of Gold' and End of US Dollar Hegemony - 19th Jan 17
The Most Important Market Chart on the Planet - 19th Jan 17
Trump Deficits Will Be Huge - 19th Jan 17
Stock Market Trading Patience Pays Off with CHK Using Momentum Reversals - 19th Jan 17
Gold - How to "Buy Low and Sell High" Like a Pro - 19th Jan 17
State of the Global Stock, Financial and Commodity Markets Report 2017 - 19th Jan 17
The Hunt for Russia's Next Enemy - 18th Jan 17
Returning Gold Bulls - 18th Jan 17
Biotech Breakthrough Could Create A $11.4 Trillion Opportunity - 18th Jan 17
Bitcoin and Gold - Outlook, Volatility and Safe Haven Diversification - 17th Jan 17
Stock Market Uptrend on Borrowed Time - 17th Jan 17
The One Stock to Retire On - 17th Jan 17
Trump anti-Communist Counter Revolution - 17th Jan 17
US Stock Market Update as the Trump Inauguration Approaches - 17th Jan 17
The American Crisis - Common Sense 2017 - 17th Jan 17
Obama Leaves, Hope Arrives, Will Stupid Stay? - 17th Jan 17
Damage Inflicted by Precious Metals Manipulation Is in the “Multi Billions” - Keith Neumeyer - 17th Jan 17
Gold Price Forecast 2017 Update - Video - 17th Jan 17
The Story of the U.S. Regime Change Plan in the Philippines - 16th Jan 17
Gold Price 2017 Trending Towards $1375 as Forecast - 16th Jan 17
'Deep State' CIA Director States We are Not NAZI's, Warns Trump Does Not Understand Russian Threat - 15th Jan 17
UK House Prices Forecast 2017 - Crash or Bull Market? - Video - 15th Jan 17

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

A Silver Lining For When Currency Dies

Commodities / Gold and Silver 2012 Oct 29, 2012 - 01:18 PM GMT

By: Dr_Jeff_Lewis

Commodities The global economy seems to be on a one way path to eventual destruction as interest continues to accumulate on the massive word-wide debt.

Budget and trade deficits keep growing, but unfortunately without an engine for real and sustainable growth.


Furthermore, the amount of interest keeps rising, while raising interest rates is not an option like it was to fight the notable inflation of the late 70's after the Dollar was taken off the gold standard by Nixon earlier in that decade.
 
Not only is a meaningful reduction in deficit spending just not politically feasible, but no real pain is felt from perpetual borrowing given such historically low borrowing rates.
 
Debt Monetization

The Fed is not yet directly buying equities or corporate bonds to prop them up like Japan is doing. Nevertheless, the Fed is buying almost 100% of all long-dated (10 year +) bond issuance, and has been since the first Operation Twist program began.

Since Treasury debt with a tenor of three years or less is basically equivalent to currency (Zero Interest-Rate Policy or ZIRP through 2015), the Fed is effectively monetizing all of the inflation-risk Treasury debt.

Nevertheless, this policy is also shooting itself in the foot since the Fed wants some inflation, yet its policy is muting increases in the primary inflation signal, i.e. the long bond rate, since deficit funding is really all that matters for policymakers like Bernanke.

Once the country’s economic system is unable to naturally expand at an exponential rate, the liabilities will basically become unfunded.  The only real choice at that point will be how many of the unfunded liabilities will have to go into default and how assets are liquidated to pay creditors. 

It's all a Balance Sheet

Another possibility is that the monetary authorities could print currency like crazy to make up the differences and officially attempt to reduce the debt burden.  Of course, this would lead to further devaluation of their currency.

History has shown that humans are no further down the evolutionary path in this regard. This paper currency system will eventually collapse since interest is attached to the medium of exchange. Basically, building a monetary system based on "interest" or debt will eventually fail, just like all previous debt based monetary systems have collapsed.

What will be left when the dust clears after this monetary collapse, will be the few hard assets that have not already been re-hypothecated by banks and brokers. Gold and silver happen to be the only hard currencies available to most investors, and silver even more so than gold. 

But not for long. As Voltaire once observed back in 1729, “Paper money eventually returns to its intrinsic value — zero.”

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2012 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 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

Catching a Falling Financial Knife