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First a quick background check on William White so we know
whether or not to grant his opinions more weight and status than the average
analyst, this from an older, but still functional, Economist article titled The curious case of
Willliam White (September, 2012):
“Most recently, we have William White, a brilliant Canadian
economist who used to do research at the Bank of England and the BIS before
taking over the Economic Development and Review Committee at the OECD. He is
not, in other words, a nut who hides in the woods with gold bricks and canned
food. Moreover, he (along with his colleague Claudio Borio), presented one of
the earliest and most thoughtful warnings of the financial crisis back in
2003. Anyone with a brain ought to take him seriously, especially when he bucks
the conventional wisdom.”
Overlooking the out-of-place “gold bricks and canned food”
comment, it pretty much tells us that William White’s opinions should be
taken seriously. It is not often that an economist of his stature goes off
the reservation.
White, as hinted in the Economist
profile, has consistently warned that the global economy stands at a precipice
– that essentially the 2007 crisis was not an end but a beginning. If that
stance sounds familiar, it should. It falls in line with the fourth
turning analysis covered here in previous posts. Neil Howe, the author
of The Fourth Turning,
calls the 2007 crisis the catalyst
for the protracted fourth turning now in progress and scheduled to end, by
his estimate, sometime in the 2030s. (Please see “Historical
inevitability and gold and silver ownership“)
White renews that warning in a Bloomberg
interview on Monday (fittingly September 11) under the banner OECD warns “More dangers now than in
2007.” In that six minute interview, White keenly and
concisely outlines the bind in which central bank find themselves and the
depth of the problem that we need to guard against in our own investment
plans. We recommend you take the time to watch it.
He concludes with a warning –
“We have to be cautious. We are in a very tough place . . .Be
careful of what you do and be very cautious of the side effects because you
might not like it.”
In Ambrose Evans–Pritchard’s column, World faces wave of epic debt defaults,
(January,
2016), he provides more detail on White’s analysis for those who would
like to dig a little deeper.
Snips:
• The global financial system has become dangerously unstable
and faces an avalanche of bankruptcies that will test social and political
stability. .
• “It will become obvious in the next recession that many of
these debts will never be serviced or repaid, and this will be uncomfortable
for a lot of people who think they own assets that are worth something.”
• The European banking system may have to be recapitalized on
a scale yet unimagined, and new “bail-in” rules mean that any deposit holder
above the guarantee of €100,000 will have to help pay for it.
• “In retrospect, central banks should
have let the benign deflation of this (temporary) phase of globalisation run
its course. By stoking debt bubbles, they have instead incubated what may
prove to be a more malign variant, a classic 1930s-style ‘Fisherite’
debt-deflation.”
On the whole, I consider White’s argument one of the
strongest I have seen for gold and silver ownership as long-term safe
haven hedges. The catalyst for that debt-deflation could be the realization
in global financial markets that the central banks, as White describes it,
have backed themselves into a corner over the past ten years with nowhere to
go. In other words, the next time around – the next time the black swan
lands – we will be on our own, walking the high wire without a central bank
safety net.
As displayed in the aftermath of the 2007-2008 go-around (see
chart below), gold has proven itself to be an excellent hedge for the kind of
disinflationary-deflationary breakdown William White fears. It rose by nearly
three times over the period. (Silver’s performance was even better. It rose
over three and a half times.)
The foregoing was a summary overview. Please follow the links
throughout this post for the full story. . . . .
Goldman Sachs chief commodity analyst, Jeff Currie –
“If buying gold, don’t
buy futures or ETFs. Buy the real thing. . .The lesson
learned was that if gold liquidity dries up along with the broader market, so
does your hedge, unless it’s physical gold in a vault, the true hedge of last
resort.”
Note: Better yet, gold (and silver) in your hands. . . .
––MK
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