Best of the Week
Most Popular
1.Trump Delirium Triggers Stock Market Brexit Upwards Crash Towards Dow 20,000! - Nadeem_Walayat
2.The Future Price Of Gold Will Drop Below $1000 In 2017 -InvestingHaven
3.May Never Get Another Opportunity to Buy Gold at this Level Again - Chris_Vermeulen
4.Delirium - The Real Reason Why Donald Trump Won the US Presidential Election - Nadeem_Walayat
5.Why Nate Silver / Fivethirtyeight is one of the Most Reliable Election Forecasting Indicator? - Nadeem_Walayat
6.Gold Price Forecast: Nasty Naughty November Gold Price Trend - I_M_Vronsky
7.Gold Mining Stocks Screaming Buy! Q3’16 Fundamentals - Zeal_LLC
8.Delirium of Trump Mania Win's Mr BrExit US Presidential Election 2016 - Nadeem_Walayat
9.The War On Cash Goes Nuclear In India, Australia and Across The World - Jeff_Berwick
10.Hidden Signs for Gold and Silver - P_Radomski_CFA
Last 7 days
Macroeconomic Cycles & Demographics - A Fuse, An Explosive and The Igniting Catalyst - 2nd Dec 16
How Moving Averages Can Identify a Trade - 1st Dec 16
Silver Prices and Interest Rates - 1st Dec 16
America, is it Finally time for us to say Goodbye? - 1st Dec 16
Blockchain Technology – What Is It and How Will It Change Your Life? - 1st Dec 16
Burn the Flags, Can Trump Salvage The Sinking US Economic Ship? - 1st Dec 16
Will US Housing Real Estate Market Tank in 2017? - 1st Dec 16
Referendum Puts Italy's Government to the Test - 30th Nov 16
Why We Haven’t Seen Gold Price Rally after Trump Victory - 30th Nov 16
Breakdown and Slide in Crude Oil Price - 30th Nov 16
A 'Wicked Rally' in Gold Price Predicted - 30th Nov 16
Silver Market Sentiment Looks Golden - 30th Nov 16
Indian Demonetization Denotes Severe Stress in the Global Gold Market - 30th Nov 16
Owning Gold and Silver in Troubling Times - 29th Nov 16
Trump's Presidency - Stock Market Crash or Start of New Mega-Trends - 29th Nov 16
Prime Minister Modi's War Against Corruption, Black Money and Fake Currency Notes in India - 29th Nov 16
Can President Trump Really Drain the Swamp? - 29th Nov 16
President Trump’s Economic Plan Isn’t Going to Work - 29th Nov 16
The US Bond Bear Market Has Begun! - 29th Nov 16
Simple Yet Powerful Technical Trading Tools - 28th Nov 16
Public Infrastructure – Welcome to the World of Waste, Fraud, and Abuse - 28th Nov 16
Fifty Years Later, Moore's Computing Law Holds - 28th Nov 16
An Elusive Stock Market Top - 28th Nov 16
This Past Week in Gold - 27th Nov 16
Italian Bank Collapse European Sovereign Bond Carnage, Criss-Crossed Fuses & Lit Bonfire - 27th Nov 16
How to Beat UK Savings Crisis with Child Junior Cash ISA, Pension's and Life-time ISA - 27th Nov 16
Castro Was Not Who You Thought He Was - 27th Nov 16
Understanding the Trump Presidency , Beyond Merkel - 26th Nov 16
US Stocks Bull Market New All Time Highs - 26th Nov 16
Silver Mining Stocks Q3 2016 Fundamentals - 26th Nov 16
MSM's Stock Market Druck'n Suck-In Continues - 26th Nov 16
Gold Price Down 13.5% In 13 Days - Opportunity For Geometric Price Cost Averaging - 26th Nov 16
Tips for Trading Options with Elliott Waves - 26th Nov 16
Germany Pulls the Plug on Market Oracle site for 24 hours, German Election BrExit GerExit Warning Shot? - 26th Nov 16
New NS&I 2.2% Savings Bond Ahead of 2017 Stealth Inflation Theft of Purchasing Power - 24th Nov 16
Establishment Controlled Mainstream Media Launches War on Alternative 'Fake' News - 24th Nov 16
Black Friday Cheap Christmas Lights, How Long do they Last ? B&M Stores Review Video - 24th Nov 16
War On Cash Goes Global – India and Citibank In Australia - 24th Nov 16
Stocks, the Politically-Driven S.O.D. to Lose Again - 24th Nov 16
One of the best buying opportunities in history? - 24th Nov 16
Gold and Monetary Populism: The Oligarchs’ Mortal Enemies – The Peoples’ Salvation - 23rd Nov 16
The Winners and Losers of a Global Trade War - 23rd Nov 16
Why Mexico’s Oil Reform Is A Huge Opportunity For Investors - 23rd Nov 16
Silver and Gold - We Can’t Understand It for Them - 23rd Nov 16
A Review of Nedbank Private Wealth - 23rd Nov 16
Trump’s Financial Revolution! - 22nd Nov 16
Stock Market New All Tiime Highs & the Election Buried This HUGE Story - 22nd Nov 16
Will Crude Oil Price Rally to $50? - 22nd Nov 16
The Spreading Bondfire And The Rising Price Of Gold - 22nd Nov 16
Did The 'Trump Tantrum' Just Trigger The Next US Recession? - 22nd Nov 16
Cheap Money to Continue Flowing & Helicopter Money to Start after 2017 Market Crash - 22nd Nov 16
Gold Price Forecast: Nasty Naughty November Gold Price Trend - 22nd Nov 16
Stocks and Deby - Will Trump Bring Morning or Mourning in America? - 22nd Nov 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

$10000 Gold

Gold, Paper, and a Train Wreck

Commodities / Gold and Silver 2012 Nov 15, 2012 - 09:50 AM GMT

By: DeviantInvestor

Commodities

Best Financial Markets Analysis ArticleBegin with a few facts and assumptions and follow the logic:

Gold has been a store of wealth for more than 3,000 years. Silver has been used as money in most countries of the world. Both are still valuable.


  • All unbacked paper money eventually reverts to its intrinsic value of zero. Throughout history, there have been no exceptions to this statement. The world's current experiment with unbacked paper money is only 41 years old and looking rather strained.

  • A person, business, or government cannot increase their indebtedness forever by spending in excess of revenues. This seems self-evident. Eventually, the person, business, or government will become unable to find anyone willing to lend under those circumstances. "Deficits don't matter" is nonsense.

  • "If something cannot go on forever, it will stop." This is Stein's Law and seems obvious, but we often act as if we don't believe it.

  • Politicians and governments will do everything possible to retain current power, even if it is destructive in the long term.

My belief is that most people will agree with these simple and straight-forward statements.

We know that the United States (and the rest of the world) uses an unbacked paper currency which has lost perhaps 90% of its value in the last 40 years. We know that the official US government debt exceeds $16 Trillion and is growing rapidly - approximately 12% per year for the past five years. We also know that the present value of unfunded obligations of the US government for Social Security, Medicare, Medicaid, military pensions, and other commitments is $100 Trillion to $220 Trillion depending upon who is counting. It does not matter which calculation is correct since it is impossible for the US government to fund and pay either present value estimate.

The current debt exceeds $16 Trillion and will increase at current growth rates to about $25 Trillion in another four years. Interest rates on the national debt are historically low because the Federal Reserve continues to "print money" and then makes huge purchases of government bonds. Assume a modest 5% interest rate on $25 Trillion of national debt in 2016. Do you believe that our economy can generate $1.25 Trillion in annual taxes just to pay the interest on the debt? How about funding a 6% interest rate on $35 - $45 Trillion in national debt by the year 2020? The interest payments would be about $2.4 Trillion - approximately the entire revenue for the government in 2012. "If something cannot go on forever, it will stop."

Our politicians will probably address the budgetary problem, as created by them, by taking the easiest way out, by angering the least number of voters, stalling, blaming others, appointing committees, and by concealing the problems and consequences as best they can. Possibilities include: printing $Trillions and blaming the resulting inflation on a convenient scapegoat, defaulting on all debt owed to foreigners, means-testing Social Security, Medicare, and other programs, forcing pension funds and IRA's to buy T-Bonds, higher taxes, higher inflation, and reduced military spending. Many more creative suggestions will be set forth, but they probably will not include balanced budgets, fiscal sanity, or debt repudiation.

If paper money eventually declines in value to nearly zero, the national debt is never repaid, government will continue to borrow and spend in excess of revenues, and this process can be extended for only a few more years, what should we expect?

  • Assume the dollar will decline in value against all commodities. Food, energy, metals, and practically everything you need for survival will substantially increase in price. Jim Sinclair calls this "currency induced cost-push inflation."

  • Assume that government guarantees, programs, and promises will be changed, reduced, eliminated, or devalued. How much good is receiving Social Security income if your monthly benefit purchases only seven loaves of bread, a few fishes, and a tank of gasoline?

  • Assume that taxes will increase and our standard of living will decrease.

  • Assume that most paper wealth in the form of debt instruments, T-Bonds, T-Notes, state government bonds, and corporate debt will substantially decline in value and purchasing power.

  • Assume that gold re-enters the global monetary system in some form, not because politicians and central bankers want it, but because they are forced to include gold in order to create a credible monetary system that will inspire confidence in the new currency.

This begs the question, how do you prepare? Perhaps we should cash out all paper investments, buy gold, and hunker down on rural farmland. This will not work for most people. Further, while most people know much is wrong in our economy, they are not ready to abandon their current lifestyle. The problem is that by the time it becomes clear that economic disaster is upon us, it will be too late for most people to protect themselves. A partial solution is simply to buy physical gold and silver - NOW!

People riding a runaway train can party and remain oblivious to the fact that the train is about to crash into a huge obstacle. Our runaway financial train is about to destroy the status quo as it crashes into the obstacle of mathematical consequences - the inevitable financial train wreck. "If something cannot go on forever, it will stop."

When will the collision/collapse occur in the United States? Jim Sinclair, one of the premier financial intellects of our time, thinks we may have until perhaps 2015 - 2017 before the collision. He recommends physical gold bullion - in your possession or perhaps stored in a secure private storage facility. I think silver coins and bullion stored in a secure and private facility are also a wise investment.

But because we don't know when the crash will occur, it makes far better sense to prepare now, even if early, than to wait and hope. If all of these potential disasters miraculously disappear and our financial world continues as it has, preparation will be, at worst, inexpensive insurance. "Buy that insurance" while you still can.

Read $4,000 Gold! Yes, But When?

Read We Have Been Warned!

Are you prepared? Do you have enough financial insurance - physical gold and silver?

GE Christenson
aka Deviant Investor

If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail

© 2012 Copyright Deviant Investor - 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