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"Now a man can work a whole year
and earn $40,000 (£25,000) and work hard for that. And now the
government can in a millisecond print the same amount of money and that's
what they do. So clearly paper money has now lost its function as a store of
value."
- Egon von Greyerz
The
intellectually bankrupt Tokyo Roses of the gold world would have us believe
that some form of gold (and silver) standard is not possible because there is
supposedly not enough to go around. So why hasn't the unlimited supply of
paper money solved our problems? Why was mankind able to function for
centuries with such "limited" quantities of precious metals? Maybe
because the less debt there is and the less asset inflation there is, the
less need for money there is.
As
Egon von Greyerz says, they can print in a millisecond what takes others a
year to earn. The reality is that they can print the whole GDP of the world
in a millisecond. Once people fully comprehend this reality the fat lady will
have well and truly sung. Unfortunately the paid mercenaries of the fiat
machine are outdone by us greater fools who are willing to part with our
goods and services in return for their counterfeit paper.
Bernanke
is no latter day Messiah on a mission to feed the bankrupt masses. He is
simply just another delusional reincarnated counterfeiter who is faced with
the impossibility of papering over decades of dovetailing miscalculations. In
fairness it must be said that he was just an oarsman when previous
governments and the Federal Reserve lost their way. But since being given the
helm he has gone full throttle.
The
basic miscalculation by governments and individuals has been that continually
spending more than you earn does not pose longer term risks or costs. On the
other hand, the basic miscalculation by the elite and their bankers is that
increasingly higher levels of debt foisted on nations and individuals, is
some sort of perpetual wealth machine.
Whilst
Einstein described compounding as the eighth wonder of the world, human
history has clearly shown that neither wealth nor debt can compound forever.
The
current build-up of severe imbalances between nations as well as between the
wealthy and the not so wealthy is nearing a collision which then requires
resolution. As many writers have pointed out, collision is inevitable....the
only issue is what will follow?
At
the present time, a great deal of illusory wealth has been destroyed. The
picture will be complete when the debt attaching to this illusory wealth is
also destroyed. It's simple accounting. To do otherwise is just a fruitless
exercise in fudging reality. If you were a farmer you would be laughed at by
your bank manager if you included your dead horse on your balance sheet and
yet this is what is going on in the financial world.
The
expectations of the masses however, are still alive and until they are
dramatically culled, we will continue to believe that a return to the years
of "plenty" is possible. Those that accrue even greater wealth
through the clever use of debt and government largesse and bailouts somehow
have deluded themselves into thinking that wealth is akin to immortality. The
only immortality we can achieve is by leaving this world to our children in a
better state than what we found it in. That is the higher challenge of this
life.
The
use of quantitative easing and stimulus are simply the wager of a gambler who
desperately attempts with his remaining dollars to double what he has only to
find that he is soon left with nothing. The world knows that the present sum
of all expectations exceeds the present sum of all means. Someone and perhaps
everyone has to lose something and this is where things get sticky. The
question is who and by how much and more importantly in what way. If we are
to pull back from the abyss there must be a great write-off of uncollectable
and unserviceable debt and a dramatic culling of current expectations.
Whether
we like it or not the following must take place in some shape of form before
we hit the bottom of the abyss.
- The
U.S. will default on its debt to China, Japan and others as a matter of
mathematical reality.
- China
will better secure its long term future by writing off the debt of a
bankrupt USA as this will force her to pursue more sustainable
strategies.
- Many
other nations will default as well.
- The
world will need to balance its trade and capital imbalances in
recognition of the fact that these lead to long term structural problems
as well as conflicts. Any trade imbalances must be met with the payment
of gold or silver. Gold and silver are to be substantially revalued so
as to restore some sense of proportion.
- All
future borrowings by any nation or corporation must be repayable on an
interest and capital basis over 10 years at the most. For
individuals no more than 20 years should be allowed. If corporations
need more money it will have to be in the form of equity. If governments
need more money for deficit spending they must become unpopular by
raising taxes. This is in recognition of the fact that interest only
borrowings at all levels removed the repayment time line and by
enhancing cash flow they simply engendered unsustainable levels of
borrowings and fairy tale valuations. The bottom line is that it is
better to be crucified upon a cross of gold than a cross of debt.
- In
addition to the above, all foreign borrowings must be secured by
"mortgages" or long term leases over real assets and not just
the full faith and trust of the current government. Such borrowings must
only be for infrastructure. In this way politicians will be loathe to
shackle their nations for fear of being hung and quartered.
- No
deficit spending by governments unless there is a catastrophe, in which
case salaries of politicians will be halved until such times as the
deficit is reigned in.
- No
further social security contributions by taxpayers and no payments by
governments. This is to apply to all new entrants into the system.
Pro-rata benefits to those who are already in the system. If government
can't look after its own finances do you expect them to look after your
finances?
- Massive
reductions in the provision of free healthcare.
The
U.S.A. must soon decide if it is to have a controlled demolition of the
current unsustainable financial structure or whether it will risk total chaos
and the uncertainty of what follows. Will it make one last attempt to be
master of her fate? My own thought is that nations are already making
contingency plans while those that berate gold and silver are accumulating it
hand over fist at every opportunity.
An
economy without gold and silver money and an economy without new and real
jobs is a disaster in the making. Which way America? Which way?
*
Peter Souleles
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