You Can't Eat Gold or a Debt Sandwich November 27 2015
In one hand we hold gold, which is eternal, beautiful, and valuable everywhere.
In the other hand we are stuck with a debt sandwich. That sandwich is a massive slab of debt wedged between an impressive military war machine that spends money like water flowing over Niagara, and a huge welfare system that spends money even more rapidly. Included in the welfare system are Social Security pensions, Disability Income, Medicare, Medicaid, SNAP (food stamps), many more programs, and the salaries, bureaucracy and pensions to support them.
You can’t eat gold, but you can’t eat a debt sandwich either. If you choose gold, it is recognized and valued globally and can easily be exchanged for goods and services. That is why India has, according to estimates, something like 20,000 tons of gold. That is why China has, according to estimates, something like 15,000 tons of gold. That is why Fort Knox, according to 60 year old audits, still claims to hold about 4,500 tons of gold.
If you choose the debt sandwich you accept the consequences of debt:
- Debt has counter party risk. The debt is only as good as the debtor.
- Debt has currency risk. Who wants to be repaid with one billion Zimbabwe dollars?
- Debt is good only as long as the “full faith and credit” narrative is believable. Creditors of sovereign nations will eventually realize that they can be repaid ONLY if the sovereign nation debtor can borrow even more. THIS IS A FLAWED SYSTEM. Is forever spending more than your personal income, adding to credit card debt balances, and then begging for an increase in credit limit a viable way to run personal finances? Of course not, but it has worked well (so far) for some sovereign governments. A counter example is Argentina, which has inflated and devalued their currency so much that Argentina has dropped ten zeros off their currency in the past 40 years. A variation of this inflation and devaluation story will probably come to Europe, Japan, and the US.
Question: If perpetual borrowing is so bad, why is it still working?
Answer: If you jump off the Empire State Building, and pass the 40th floor on the way down, it might seem like an enjoyable leap with no consequences. Just because you and your currency have not yet hit the concrete does not mean either of you will survive much longer.
Question: If debt based fiat currencies are so bad, why do we use them?
Answer: We use them because they are dishonest money that is easy for bankers and politicians to manipulate, steal, and counterfeit. They are also convenient.
Delusion: There is not enough gold in the world to allow global economic systems to return to a gold standard. Hence we must continue printing fraudulent paper and digital dollars.
Reality: Poppycock! A higher gold price is necessary only because global central banks have “printed” so much “funny money” (global debt exceeds $200 Trillion) that when the reckoning and revaluation occurs, either gold must be priced much higher or “funny money” must be valued much lower.
Question: Will most nations return to fiscal and monetary sanity anytime soon?
Answer: Sadly, no.
Question: Will most nations return to a gold standard anytime soon?
Answer: Sadly, no.
Question: Must all fraudulent Ponzi systems eventually crash or reset?
Question: When will the crash occur?
Answer: Maybe the crash is ongoing. The crash does not necessarily have to occur in a short time period, although that seems likely. Gold cost $20.67 per ounce 100 years ago. Today it costs, due to dollar devaluation, about $1,100 per ounce. That looks like a 98% crash, but it can become rapidly worse.
Question: What about black swans?
Answer: Yes, of course. A debt based fiat currency system is inherently unstable and will eventually correct or crash. Any number of events could push the instability into a crisis. All the King’s horses, all the King’s men, and all the PhD economists may not be able to put a fiat currency system back together again.
From Ron Paul:
“Allowing a secretive central bank to control monetary policy has resulted in an ever-expanding government, growing income inequality, a series of ever-worsening economic crises, and a steady erosion of the dollar’s purchasing power. Unless the system is changed, America, and the world, will soon experience a major economic crisis. It is time to finally audit, then end, the Fed.”
Paper Dies! Gold Thrives!
The Deviant Investor