Things don’t always need to be complex, they simply need to be clear. From that point of view, we really like the simplicity which Egon Von Greyerz uses to describe the dynamics of the debt crisis. It all starts with excessive money printing and the absence of a currency backed by any hard asset. That’s the trigger for a distorted economic system in which the value of money decreases, real rates become negative, the currency devalues and price inflation increases (possibly ending up in hyperinflation).
Some traditional thinkers will probably argue that “economic growth” can be the result of money printing. Some even believe that the more money is printed, the higher the growth. That’s hard to believe. If you are a little bit open-minded and think about it, you will admit that the logic presented below, really makes so much sense. It doesn’t matter if you call it Austrian Economics or something else, it’s just plain and simple logic that everyone is able to understand. In our opinion, that’s what makes the difference.
Of course physical gold is the answer to the debt problem … but that’s stating the obvious. Egon Von Greyerz underlines the importance of owning allocated and physical gold as the only real protection. He mentioned several times in the past examples from investors who believe they are investing in gold as they buy gold from one of the bullion banks. In reality, if you do so, you are simply buying unallocated gold in a paper form. In addition, you get the counterparty risk from the bank for free. That’s not the reason you are buying bullion, is it?
- Worldwide money printing continues unabated
- Just In 10 years $120 trillion have been printed making global debt $200 trillion
- World GDP has gone from $32 trillion to $70 trillion 2001-2011
- Thus $120 trillion debt is required to produce a $38 trillion annual increase in GDP
- The marginal return on printed money is negative in real terms
- Thus the world is living on an illusion of paper that people believe is money
- This illusionary paper wealth will implode in the next few years
- The initial trigger will be the collapse of the world’s reserve currency – the US dollar
- The dollar is backed by $120 trillion of US government debt and probably NO gold
- All currencies will continue their race to the bottom and lose 100% in real terms against gold
- This will create a worldwide hyperinflationary depression
- All assets financed by the credit bubble will go down in real terms
- This includes stocks, bonds, property and paper money of course
- The financial system is unlikely to survive in its present form
- The banking system including derivatives has total liabilities of around $1.2 quadrillion
- With world GDP of $70 trillion, the world is too small to save a financial system which is 17x greater
- This is why there will be unlimited money printing and hyperinflation
- The only asset that will maintain its purchasing power is gold. Click here for the chart.
- Gold has been money for 5,000 years and will continue to be the only currency with integrity
- Western countries’ 23,000 tons of gold is probably gone. See recent article by Eric Sprott.
- The consequence is that most of the gold in the banking system is likely to be encumbered
- This means that Central Banks one day will claim it back against worthless paper gold IOUs
- Thus gold and all other assets within the banking system involve an unacceptable counterparty risk
- Gold should be held in physical form and stored outside the banking system