Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15
Limits to Economic Growth - Challenge and Choices - 22nd Nov 15
Long Dollar Trade and Current Copper Price Below Cost of Production - 22nd Nov 15
UK Housing Market House Prices Affordability Crisis - Video - 21st Nov 15
The Fed Has Set the Stage for a Stock Market Crash - 21st Nov 15
Stock Market Primary V Wave Continues - 21st Nov 15
Gold And Silver - Value Of Knowing The Trend - 21st Nov 15
UK Footsie Bulls Set To Foot The Bill - 21st Nov 15
UK Housing Market Affordability, House Prices Momentum and Trend Forecast - 21st Nov 15
GDX Gold Miners’ Strong Q3 Results - 20th Nov 15
End of Schengen, Stock Market’s Technical Strength Grows - 20th Nov 15
Justice for All and The Curious Case of Zambia - 20th Nov 15
Paris, Sharm el-Sheikh, and the Resurrection of Old Europe - 20th Nov 15
Silver Prices and The Management of Perception - 20th Nov 15
Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - 20th Nov 15
Waiting for Goldot Again - 20th Nov 15
Michael Curran Goes Down-Market Shopping for Gold Stock Winners - 20th Nov 15
Why Isn’t This Incredibly Bearish Bond Market Development Making the News? - 19th Nov 15
SPX Appears to have Stopped its Rally - 19th Nov 15
The Great Fall Of China Started At Least 4 Years Ago - 19th Nov 15
Using Elliott Waves: As Simple As A-B-C - 19th Nov 15
Has Deflation Been Ddefeated? - 19th Nov 15
Dow Jones Stock Market Index is Not Going to Crash - 19th Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

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

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of and

    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.

© 2005-2015 - 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

Biggest Debt Bomb in History