Originally published by Chamber of Merchants
I’ve grown increasingly frustrated with our governments. US and Australian to mention some by name.
My criticism of them is scathing on many fronts, yet I have come to realise that democracy has a fatal flaw:
What the majority votes for, the entire country will receive. Even if that majority has no education in regard to the topic being voted for. Feelings win while facts are forgotten.
(This is not at all directed at the upcoming gay marriage postal vote, just to make that clear. Rather this is an observation of our failing economies, monetary policy and faltering future as once prosperous nations.)
The flaw is that if the majority votes based on often uneducated temporal desires, then democracy will give it to them. Like a petulant child that embarrasses you in the shopping mall screaming for that ice cream that they’re not suppose to have: the government has learned that bribing the masses with that very ice cream will keep them in power while obesity, heart failure and hyperactivity are far off consequences that do not need to be considered in the here and now.
Rather, in the here and now, let’s have tubs of sugary lard and fall asleep while watching the Wiggles. Ice cream hand prints on the walls, music blaring “Do the propeller!” and tomorrow…. the exact same thing.
Healthy lifestyle for kids, no?
No.
Likewise, the masses are not educated to the point where they can make informed decisions with regard to who they place in power and what the future economic consequences will be.
In addition, we have the perverse practice by politicians, who are often not qualified to run a lemonade stand, of reneging on promises in order to stay popular and stay in power. After all, once they’re out what are they qualified to do? The incentive driving our politicians is self-preservation as opposed to giving the medicine that we as a nation an economy need.
But who votes for the parent that gives bitter medicine? No one. Just like kids, we’ll most likely vote for the one promising us everything that we want… and better yet, it’s for free.
Enter the title of this Weekend Report: Paper Money Without Limits
Before going any further… let me offer this sweet forecast:
Gold is going up. In fact it is going up big time. I’m not referring to the impending “uncertainty” of the hurricanes that are unfortunately heading into the US.
(Attributed to God by many, which reminds me of Zeus or Poseidon or both. Apparently it’s also karma. Hey, let me offer a reason: The earth started spinning a few billion years ago, setting in motion movements in tectonic plates which continue to this day. Combine that with the sun’s solar flares that occur in 11-22 year cycles, and movement through this great dark universe, it produces weather and fluctuations thereof.
At some stage in the next billion years a hurricane/earthquake/volcanic eruption etc will hit every part of the earth. We just happen to settle our cities and populations where these events have, are and will occur for time immemorial. No revengeful or benevolent deity required. Just billions of years of physics. I personally reserve God for inner workings of the heart and mind, not weather phenomenon.)
Got that out of my system… let’s go gold
Gold is inevitably on the rise
North Korea is a temporary issue. Buying gold because of that is a very small probability trade. Hurricane Irma and the one after are far more viable reasons to buy gold, now.
But as I said above, not because of uncertainty or fear.
Rather, the aftermath of these hurricanes is what is going to require a lot of money, very quickly, for a very long time.
So where will the money come from to rebuild parts of the state of Florida as well as parts of Texas? Well, the debt ceiling was coming up in the next few months. This is where the US government would agree on how much more money the government is allowed to raise through bonds and borrowings.
No big deal prior to these disasters… Government shutdown was unlikely and the drama of it all would be soon forgotten. The raising of the debt level is what would also indicate what value the US dollar would have in time to come as well as the ability for the USA to ever repay that debt.
Therefore gold was always going to rise.
However, the current situation is that there is a possibility of removing the debt ceiling altogether. This means that the USA is like a credit card addict that keeps getting new credit cards every time they max out. Except in this scenario, they have unlimited credit cards to pay back. Except the only money they can pay back in us US dollars. Imagine how many lenders there are and will be, and how many dollars will get created with each new credit card. While this is happening there are other lenders that are not dealing in US dollars, or storing their wealth in gold. With the rate of dollars being produced, the other currencies and commodities are priced higher and higher.
Once they remove the debt ceiling, thereby admitting that they never intend on closing the debt bubble, who will lend to the USA? Who will lend to the USA knowing that their investment is going to be eroded at the speed of a printer?
Not many. Maybe Japan, as Japan appears to be a colonised extension of the USA.
As Peter Schiff recently pointed out, the only buyer who will be able to buy US debt to finance the disaster recovery is the Federal Reserve. And where do they get the money? They print it of course.
Hundreds of billions of dollars is going to flow into the economy and it’s all paper, limitless and increasingly worthless.
In the meantime, commodities, precious metals and other currencies are going to appreciate in comparison.
But Merchant, gold in US dollars is so high, yet here we are in Australia and we’re barely cracking $1700. As the US dollar is falling the AUD/USD is getting stronger, so we’re not benefiting much!
That is true, for now. However, as the realisation sets in, gold will appreciate well in excess of the ratio between the AUD and USD.
Check the graph out below. It shows the supply of paper money in comparison to the value of gold. I’ve wanted to post about this for a while now…
As you can see above, the supply of paper money is accelerating shown by the blue line. The black line shows the value of gold, which is due for a major correction, upward.
Now throw into that, about 500 billion dollars worth of damage from floods and storms and that blue line becomes even more vertical. Mix into that the possible removal of the debt ceiling and you have a major elastic band effect on the price of gold and other commodities. This is referred to as currency debasement and has occurred in civilizations continually that over reach their economic ability.
Example? Ok.
The Roman Empire used silver and gold coins. As they lost supply of gold and silver, they started mixing copper and tin into the mix. So the coins kept on coming but people valued them less and less.
Paper money is even worse as it has no economic value except for the heat it produces when set alight.
Talking about heat, can we all vote for a government that will allow us to use our abundant natural resources to power our economy? Businesses are going bankrupt while the government plays around with wind farms and solar panels. We have the best advantage economically perhaps in the world, yet our politicians are hell-bent on uneconomically interfering with the free market to get political outcomes instead of sounds economic outcomes.
Vote for the Merchant. Yay!
;p
On with the show:
At the very least, gold will preserve value while dollars will lose value. And Australian dollars?
The RBA will soon be forced to cut interest rates. They may also encourage currency debasement in order balance the exchange between the nations to keep Australian industry and exporters in business.
Not a great outlook…unless you have gold or silver.
What a ramping article right? Not really. Serious facts actually.
Other commodities will also rise: oil, metals etc…
But precious metals will have the attraction of being a store or even saviour of value as inflation is about to ramp up.
It was good while it lasted, but recent moves by countries such as China, Venezuela, Iran, Russia etc to abandon the US dollar is going to upset markets and more importantly upset valuations as a new measuring standard will need to be introduced.
What will that new standard be?
Maybe gold. The Chinese oil futures contract is now backed not by the US dollar or the yuan…but rather by gold…
Maybe that’s why the USA’s gold reserves are almost gone while China’s gold reserve’s are at an all time high:
What a turn around in 16 years…
Maybe China knows something that we don’t?
That’s it for now fellow travellers.
Loving you but leaving you till next time.
P.S
While my portfolio is flailing about like a rabid salmon on a sidewalk, it is rewarding to see the purchase of Saracen Mineral Holdings Ltd (AX:SAR) at 99c paying off… now $1.45
In time the rest will follow… Patience..
Think Better.