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Here's the long answer to your question:Originally Posted by ximmy
Tuesday, 1 October 2013
Gold will rebalance the sum of all Fiat expansion
Gold will rebalance the sum of all Fiat expansion
Once you have read this post and watched the Greg Mannarino-Debt Bubble video at the end, I encourage you to re-read the post.
I have no doubt whatsoever, that Governments around the world will need to deflate currencies against Gold Reserves, thus deflating all currency denominated assets such as Treasuries, Bank Assets/Liabilities, Private/Public Debt, Real Estate…almost everything.
The reason this is inevitable is quite simple; From Central Banks to Mum & Dad savers, from Corporations to Students, Balance Sheets EVERYWHERE have been expanded to their limit. Take the Banking Sector for instance, the spread between Bank Reserves and Bank Assets/Liabilities is around US$80 Trillion, around US$7Trillion just in the United States. This ‘Peak Debt Saturation’ has Gummed-Up the global financial engine and it needs a complete overhaul. No matter how much fuel (QE/Stimulus) you throw into the engine it will merely overheat and gumm-up more. It needs to be stripped and rebuilt.
There is one other option, and it’s radical; a Jim Rickards style Kumbaya united and coordinated currency deflation against the one asset which poses no threat to the global economy, Gold!
Expressed in greater detail here: http://twoshortplanksunplugged.blogs...w-to-gold.html
What really needs to happen is somewhat difficult to get one’s head around but I’ll touch upon it now.
The global economy needs to drive the wealth and standard of living which was artificially created by way of Balance Sheet expansion, into the Vaulted Gold Reserves. In this way, a Central Bank can offset (neutralise) the expanded Balance Sheet against its vaulted Gold Reserves. For the US Fed this means it owns both the Mortgage back Securities and the Gold which underpins them (double for nothing).
Since the Fed - like most Central Banks – are owned by the largest banks for that given country/territory/Commonwealth, then those Banks stand to gain by way of clearing their spread between reserves to assets/liabilities…overnight! This allows them to leverage back up all over again.
There’s no such thing as a free lunch, and this is no different. The short straw will be held by those who use currencies, have wealth pinned to currency values, and/or must suffer the ensuing inflation as balance is restored and the leverage continues up again (watch from 15min http://goldsilver.com/video/james-ri...ept-26th-2013/).
So, there will be two forces acting upon future assets, Devaluation (or series of) followed up by Inflation.
But what if you own physical Gold? When you consider the real value of Gold in a devaluation against Gold you must look at two factors; the amount of Gold held in Reserves and the amount of Balance Sheet expansion which has taken place. Take this as a warning: they will not simply devalue a fraction of the total expansion, they will devalue against all of it. This may or may not be done in stages or over many years, but I assure you, when they are forced to do it (and they will), they will pull the total spread back down to zero. Then they will look at critical sectors of the Derivative Markets, the Insurance Markets and so-on down the line, until eventually Gold will underpin the global economy, or at least those countries who chose to invest in Gold rather than divest.
This is the wealth transfer. If you do not own Physical Gold you will suffer the fate of the masses, who unfortunately, are completely oblivious to both the situation’s cause and the remedy; all they will ever feel, understand and come to terms with, are the symptoms.
Those who own physical will experience an uplift in their wealth as they ride on the Coat Tails of inevitability. My figures point to a ratio of 50:1, meaning, for every $1,000,000 of Assets/Debt you will need around $20,000 of physical Gold (in today’s currency terms and at $1,400/oz Gold). This means that 14oz of Gold will capture any loss of wealth in, say, Real Estate, when a global Gold deflation occurs. That being said, if you own 28oz of Gold you’ll double your wealth.
NOTE: It is not the value of your Gold which is appreciating; it is merely a small fraction of the total Global Balance Sheet expansion which will be moving into your Gold. Once this occurs Gold will be of no value to you, but the next rising asset (Real Estate, Productive Agricultural Land, Next Gen Manufacturing) may be.
I wrote a post almost 1.5 years ago which describes the corner in which we have painted ourselves into, and been painted into. TSP post on ZH Fri, 07/06/2012: http://www.zerohedge.com/news/guest-...omment-2593721
“the past 20-30 years (especially the 15 years pre-GFC) the western world and some sectors of the emerging economies, have lived beyond our means, and (temporarily) brought forward a standard of living we were meant to enjoy 30-50 years into the future. The natural advancement of standards of living and wealth creation are (should be) as physically real an event as the purification of physical metal from the earth ie. it takes time, manpower, energy and intelligence to extract and purify something in the ground into something we can use, or store as assumed value. There is no magic in that, there is no circumventing time, energy and knowledge (fact and natural law). Take Gold for example; it's not money at all, nor is it a store of value. To me, Gold is merely a store of, a representation of, time, energy and knowledge/Ingenuity...it's value is only derived from a commonly agreed upon (general) acknowledgement of that notional value (an agreement to the terms), the price tag of which must be assigned - as with all things - through price discovery. Fiat paper money too must be commonly agreed upon as representing manpower and energy elsewhere. So, the real issue here is that paper money can act like a Time Machine, actually, more like a Virtual Particle where, time and energy can be circumvented for a brief period, and the fruits of labour and energy can be artificially and magically emulated, but then the natural balance of things must be restored. This is true for the economy as well as the physical universe in which it resides. During the 20 or so years before the GFC we effectively brought forward a future lifestyle and wealth epoch into the present day, but now that balance must be restored. I come from an aerospace engineering background, so for me math and physics are real. The magic and slippery trickery of the markets and economies are mere temporary manipulations which eventually become UNDONE. The only reason people do not subscribe to this notion is because they have not lived long enough to have witnessed it in action. Those who have treat money very differently from our modern-day irreverent mentality. So my outlook on the future of money is nothing like what an economist's or trader's would be today. I am trying to learn how money was viewed in the 1920's and adopt that mentality (save first then spend, no credit at all...and it's hard).
Why is there no recovery? Because there will be no recovery, can people not see that already? The data and physical reality just outside the window are staring everyone in the face, but still we look for it. Like Japan's lost decade (double decade actually), we will all need to pay the piper (perhaps even the Ferryman) over the coming decades, and it's a huge bill that has been placed on the table in front of us. The western world will pass it around the table and keep buying drinks in the meantime, hoping that our kids will pay it for us or be industrious enough to kick the can further, but soon enough we will all be in the back of the restaurant washing dishes to pay for the feast as our funny money (Virtual Money) will not be accepted.
And it is this belief which leads me to the most radical of views; that we will not just return to a Gold Standard to support Bonds and Cash, because that won't be enough, not by a long shot. I believe that Gold will need to support ALL that has been brought forward from the future since 1971, that includes Derivatives, Real Estate, Credit Card debt, everything! What's that, about 1 Quadrillion?”
http://twoshortplanksunplugged.blogs...-all-fiat.html
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