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Two millennia ago, according to the Bible, three wise men came to offer
Jesus the gifts of gold, frankincense and myrrh. The peak of the Roman Empire
is considered to be at the time Jesus was born although it took until 476 AD
until the Western Empire finally fell.
Today, just over 2000 years later, we might be standing at another
historical peak in the global economy. There are certainly many similarities
like deficits, debts and decadence. Just like the Roman Emperors, current
leaders have illusions of grandeur of a magnitude that the world has never
seen before.
So let’s look at the modern version of the three wise men. What gifts are
they bringing the world? As in the illustration below I have picked three
central individuals in the world today; Draghi – head of the ECB, Li Keqiang
– Premier of China and Abe – Prime minister of Japan. In themselves they are
not that important but the country or region they represent is.
Italy – the next nail in the EU coffin
Let’s first look at Draghi the President of the ECB, obviously with the
required Goldman Sachs connections. What gifts is he bringing to the world
and especially to Europe. Very little as a matter of fact and certainly not
gold or solid finances. Although Draghi can’t be blamed for all the problems
of Europe, he certainly personifies them. The European Union is in the
process of braking up. Brexit was just the first step but will be followed by
many countries who will want to exit until the EU is no more. The Italian
election on December 4th could be the next nail in the EU coffin. Initially
the EU and its predecessor EFTA was created for free trade between the member
countries. But soon the power hungry elite decided that the EU should be a
power centre what would control Europe, politically, economically and
militarily. But most 500 million EU Europeans have no desire to be controlled
by an unelected and unaccountable elite in Brussels. The history, culture and
roots of individual European countries is much too strong to lose your
identity in some anonymous super structure. Britain, free from the shackles
of the EU bureaucracy is likely to now prosper relative to its EU brothers.
There are now so many problems in the EU but the biggest and the most
urgent one is clearly the financial system. Most European banks would be
bankrupt if they valued their toxic assets at market rather than maturity
value. Currently many European banks are on the verge of failure whether it
is German, Greek, Italian, Spanish, Portuguese or French banks. Share prices
of many major European banks are down 80-95% which clearly indicates that the
markets consider their chances of survival to be very small. Deutsche Bank is
one example which some of us identified a few years ago as a bank that is
unlikely to survive. Its market value is now less than 1% of its balance
sheet. With $60 trillion in virtually worthless derivatives, the German
government will need to print a lot of money to postpone the inevitable demise
of Deutsche. I don’t think that the German government will let DB fail before
Germany does. Thus they are likely to fall together at some future point. The
situation is the same for many other European banks so Draghi will have to
use all his wisdom to save the European financial system. This means he will
print unlimited amounts of money in coming years. But that will not have any
effect. You can solve a debt problem by adding more debt. Thus “wise man”
Draghi will sadly fail in his attempt to save Europe.
China’s credit expansion – a time bomb?
What about China’s Li, does he stand a chance? He has an impossible task.
China’s spectacular growth has been accompanied by an even more spectacular
increase in debt. China’s debt has exploded from $2 trillion to $35T this
century. A lot of that is in the shadow banking system and total bad debts
are 10X higher than officially admitted. The slowdown in world trade this
year is also going to affect China badly. The collapse of one Hanjin
Shipping, one of the largest shipping companies in the world, is clear
evidence of the downturn in global trade. Shipping rates for a container from
Asia to Europe are now down to $760. Breakeven is $1,400 per container. The
largest shipping companies are projected to lose up to $20 billion this year.
The main reason for this is what is happening in China. Sadly, China fell
into the Western pattern of expanding credit irresponsibly and spending a
major part of the money on speculative investments that will fail. The bad
debt in China will lead to major defaults, money printing and a fall of the
yuan. Yes, the Chinese are wise and they do realise the importance of gold.
That is why they will probably emerge from the coming economic debacle better
than many countries, barring major political upheaval. Li and his successors
will need all their Chinese wisdom to survive the coming ears.
Japan – a basket case?
Turning to Japan, there is absolutely no wisdom in Abenomics. As a matter
of fact, it is a Kamikaze strategy that is guaranteed to lead to the Japanese
economy falling into the Pacific. A country that since the 1990s has used up
all its savings, had zero or negative interest rates and then printed more
money than any major nation and still can’t grow, is doomed to fail. The Bank
of Japan is holding 50% of all Japanese debt and is buying all the debt they
issue which is Yen 80 trillion ($0.8T) a year. This is of course the ultimate
Ponzi scheme to issue debt at negative rates and then to buy it all yourself.
Abe clearly gets no prize for his wisdom.
Finally, we have Janet Yellen. With three not so wise men around the
world, does she add some wisdom to save the world financial system?
Let’s just look back and see how the US got to where they are now. The US
was a super power until the 1960s but then wars, deficits and debts starting
to take their toll. But by having the world’s reserve currency, the US could
ignore the decline in the economy and just issue more of its currency. To be
linked to gold at $35 per ounce was of course a major inconvenience. This
made it difficult to print unlimited amounts, especially since astute leaders
like de Gaulle asked the US to pay their debts to France in gold. But Nixon
was desperate to borrow and print money so he decided to get rid of the
inconvenient tie to gold. That was the beginning of the final phase of the
destruction of all paper money and with it the world economy.
Gold up 38x since 1971
One of the reasons why Western governments don’t like gold is that the
price of gold reveals their deceitful actions in destroying the value of the
currency. And this is exactly what happened to the dollar after 15 August
1971 when it was no longer backed by gold. It took 9 years for gold to go up
24X to $850 in January 1980. After a long correction that lasted until 1999,
gold has resumed its uptrend and is now up 38X in dollars. This means that
the dollar has lost 97% of its value in real terms, which is gold, in the
last 45 years. With gold no longer backing any currency, it is a free for all
for irresponsible governments and central banks to borrow and print any
amount of money. Since Reagan became president in 1981, US debt has gone from
$0.9 trillion to $19.6T. Before Obama hands over to Trump/Clinton in January,
he will have set the all-time record of increasing US debt a staggering
$10 trillion from $10T to $20T. But that is chicken feed compared to what
Trump/Clinton will need to do to try to save the US economy and the financial
system.
The US is still hanging on to the super power position by its nails
although it requires ever increasing amounts of debt. With the help of its
reserve currency status, the US empire has dominated the world financial
system not just with the dollar but also by creating powerful banking
empires. This is a plan that was established in connection with the
foundation of the Fed in 1913. Through international regulations like FATCA
and Automatic Exchange of Bank Information, US authorities are tightening the
grip on the financial system.
So Yellen has inherited a hopeless situation and her Fedspeak makes it
totally clear that she hasn’t got a clue what to do. Since the December Fed
meeting, she has indicated consistently that rates will be raised and nine
months later, this has not happened. The Fed speaks with a forked tongue.
They want to be all things to all men and therefore they say one thing to
please some people and then they do something different because they know
that the US economy cannot take an interest rise currently. With $14 trillion
of Sovereign debt carrying negative rates, the US is not in a situation to
raise rates. Not only would it cause the stock market to fall before the
election but it would also cause major stress for the global financial
system.
So Yellen’s situation is hopeless. She is central bank head of the most
indebted country in the world with absolutely no chance of ever repaying
these debts. With derivatives and unfunded liabilities approaching $2
quadrillion she would require a wisdom that she does not possess. Not that
anyone else could solve it either. The only solution would be Deus ex Machina
but even this is not likely.
Thus the four “wise” individuals with the power and position to save the
world from the biggest collapse in history neither have the understanding of
the problem, nor the tools to prevent the inevitable fall of the financial
system. But that won’t stop them from trying. They will do the only thing
they know which is to print money of a magnitude that the world has never
seen before leading to“the final and total catastrophe of the currency system
involved.” I doubt it will take 476 years this time!
Physical gold and silver will continue to reflect the destruction of paper
money and also act as the best wealth protection available. At today’s price
gold is a gift. We are likely to see levels that are unimaginable in future
years.
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