Skip to comments.HYPERINFLATION WILL DRIVE GOLD TO UNTHINKABLE HEIGHTS
Posted on 01/01/2011 4:05:00 PM PST by DeaconBenjamin
We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments. Thus most of these assets are also worth-less.
So the world financial system is a house of cards where each instruments false value is artificially supported by another instruments false value. The fuse of the world financial market time bomb has been lit. There is no longer a question of IF it will happen but only WHEN and HOW. The world lives in blissful ignorance of this. Stockmarkets remain strong and investors worldwide have piled into government bonds in a perceived flight to safety. Due to a century of money creation (and in particular since the 1970s) by governments and by the fractal banking system, investors believe that stocks, bonds and property can only go up. Understanding risk and sound investment principles has not been necessary in these casino markets with guaranteed payouts for anyone who plays the game. Maximum leverage and derivatives have in the last 10-15 years driven markets to unfathomable risk levels, with massive rewards for the participants.
In the meantime central banks are cranking up the printing presses but as Bernanke recently said quantitative easing is an inappropriate description of what should be called securities purchases! Who is he kidding? What the Fed is buying has nothing to do with securities. There is no security whatsoever in the rubbish the Fed is purchasing. They are buying worthless pieces of paper with worthless pieces of paper. This is the Ponzi scheme of all Ponzi schemes.
Let us be very clear, this financial Shangri-La is now coming to an end. The financial system is broke, many western sovereign states are bankrupt and governments will continue to apply the only remedy they know which is issuing debt that will never ever be repaid with normal money.
So why does the world still believe that the financial system is sound?
* Firstly, because this is what totally clueless governments are telling everyone and this is what investors want to hear.
* Secondly, whether governments apply austerity like in parts of Europe or money printing as in the US, investors want to believe that any action by government is good, however inept.
* Thirdly, market participants are in a state of false security due to shortsightedness and limited understanding of history.
* Fourthly, as long as they can benefit from inflated and false asset values, the market participants will continue to manipulate markets.
* Fifthly, there has been a very skilful campaign by the US to divert the attention from their bankrupt economy and banks `to small European countries like Greece, Ireland or Portugal. These nations, albeit in real trouble, have problems which are miniscule compared to the combined difficulties of the US Federal Government, states, cities and municipalities.
Euro zone members cant print money. Many EU countries are downgraded by US rating agencies which dont dare to touch the US rating. The AAA rating of the US is an absolute sham and totally politically motivated. True to form, rating agencies will only downgrade debt once it has become worthless but never before.
The result of massive money printing is a collapsing currency, leading to escalating prices and eventually hyperinflation. This is in simple terms how every hyperinflationary period in history has happened. If in addition, there are world shortages of food, energy and other commodities, this will accelerate the process.
There are currently a number of indicators all pointing to escalating money printing and an imminent start of a hyperinflationary era. Here are some of them:
1. Fiscal Gap widening at alarming rates in many major economies.
2. Commodity prices at all-time highs.
3. Long term interest rates rising.
4. Most Currencies falling.
5. Precious Metals at all-time highs against most currencies.
Tax receipts are collapsing and government expenditure soaring in many major economies including virtually all southern European countries as well as in the UK. James Turk has produced on his fgmr.com site two excellent graphs for the USA and the UK showing the extreme severity of these two countries deficits.
The USA and the UK are the favourites to reach hyperinflation first amongst major economies. Both these countries will experience major problems in 2011. Also many other nations have unsustainable debt levels which will never be repaid with normal money.
Commodity prices have increased 26% in the last 12 months and 77% in the last 24 months based on the Continuous Commodity Index (CCI). So whilst most economies publish inflation rates of 1-3%, the real cost of food and energy is surging. The US government, which doesnt eat or use energy, recently published the adjusted 12 months Consumer Price Index (ex food and energy) of 0.8% per annum. Whilst most people are struggling with a massive increase in their cost of living, the US government is continuously adjusting and manipulating the published figures. There are lies damn lies and US government statistics. Who are they fooling!
Long Term Interest Rates
In spite of US government debt being totally worthless, investors have bought more than ever, with virtually no return, in a world drowning in sovereign debt paper. We have for some time stated that the US bond market is one of the biggest financial bubbles ever. As we forecast back then, the market turned down (rates up) in January 2009. A 14 month correction ended in August 2010. Since then both the 10 year and 30 year US Treasury bonds have moved up one full per cent. So investors are finally waking up to the enormous risks in the financial system by selling government debt. We expect both short and long interest to surge in 2011 in many countries and to reach well into double digits in the next few years.
In spite of interest rates at minimal levels, both sovereign states and individuals have major problems servicing current debt. With interest rates likely to rise to at least 12-15% and probably higher, no one will be able to service debt with normal money. Add to that the fact that government debt will surge in most countries. The US debt is currently $ 14 trillion. It is likely to rise to at least $20 trillion in the next few years and probably a lot higher. The interest cost for the US government at that stage is likely to be at least double the tax revenue. One would assume that the US government is well aware of what their ruinous actions are leading to. But in spite of this, they continue to increase the deficit by reducing fiscal revenues and increasing spending. What planet are they living on! What is absolutely self-evident is that they will not clear up their own mess, as the present government will be a one term wonder!
Since 1971, the value of the US dollar (paper money) has gone down 97.5% against real money (gold). Since Nixon abolished gold backing of the US dollar in 1971, both the dollar and most other currencies have been totally destroyed by reckless government. Nixon should not have been impeached for Watergate. Instead he should have been prosecuted and jailed for destroying the worlds currency system. Concurrently, banking developed into a fractal system whereby banks could lend massive multiples of their deposits and capital. All of this has served to drive up asset prices to totally unsustainable levels.
All currencies are declining against gold but some faster than others. The US dollar for example is down 78% against the Swiss Francs since 1972. During the same period the pound has declined a massive 85% against the Swiss Franc. Both the dollar and the pound are now at all-time lows against the Swiss currency. But the Swissy is only strong relative to weak paper currencies because against real money/gold the Swiss Franc has declined 87% since 1972.
As a consequence of accelerated money printing, all paper currencies will fall precipitously against gold in the next few years. Therefore all paper money should be avoided and especially the Dollar, the Pound and the Euro.
Precious Metals to reach unthinkable heights
Gold has gone up 40 times against the Dollar in the last 40 years and almost 6 times in the last 11 years. Very few investors have participated in this rise since the 1999 low at $ 250. Less than 1% of world financial assets are invested in gold and gold stocks. Between 1920 and 1980 circa 25% of financial assets were invested in gold and gold stocks.
The major rise in gold in the last 11 years has been a stealth move with very few investors participating. The dilemma is that there is not enough gold to satisfy the coming increase in demand. We have in previous articles forecasted the gold price to reach anywhere between $ 6,000 and $ 10,000 in the next few years see Gold entering a virtuous circle. As we explained at the time, these are totally realistic targets without the effect of hyperinflation.
Bearing in mind that we are likely to see hyperinflation in the US, the UK and many European countries, the $6-10,000 target for gold is much too low. The dilemma is that it is absolutely impossible to predict how much money will be printed by governments. In the Weimar republic gold reached DM 100 trillion. But it is really irrelevant what level gold and other precious metals will reach in hyperinflationary money.
What is much more important to understand is that physical gold (and silver) will protect investors against losing virtually 100% of the purchasing power of their money. Whatever real capital appreciation gold will have in the next few years is of less importance. But what is vital, is that physical gold (stored outside the banking system) is the ultimate form of wealth protection both against a deflationary collapse and a hyperinflationary destruction of paper money.
Throughout history gold has protected investors against various calamities but this time, holding physical gold will be absolutely critical to financial survival.
So my y2k stash will pay off big time I got ten lbs of it
Generally a good report, but you need to be mindful of comparisons like:
“”Commodity prices have increased 26% in the last 12 months and 77% in the last 24 months based on the Continuous Commodity Index (CCI).””
It is valid to say CCI went up 26% in 2010.
But the CCI was at a depressed low in 2008 so the 77% increase from that low is not all that meaningful.
Our US government is a mixed bag for the next two years with a GOP House, a 50/50 split Senate, and a Dem President. Under that scenario I do not see any leadership that would solve any of the issues described in this report.
You forgot to post your address and working hours.
thanks for the wrap, this writeup is just like the old days, nobody listened, the banks died, the Fed put them on life support, and all is well! Now the next phase is inevitable, the only question is when.
Which “old days”?
Before 2005, because Arete had already left then. Probably 2004 or 2003
Take a look at the Treasury Bond chart and the graphic “Graphic says interest rates bottomed in 2008 and rising strongly”. Of course after the crash in 2008 there was a sharp rebound but you will notice the trend line is still going downwards not strongly upwards.
I agree we risk hyperinflation in the future based on the failed liberal policies of this administration but I don’t need a gold salesman to convince me. Since the author lied about the bond chart I would be wary of putting too much credence in the rest of the report.
“Egon von Greyerz (EvG) is the Founder and Managing Partner of Matterhorn Asset Management AG. Matterhorn Asset Management AG (Matterhorn) is a Swiss asset management company specialising in wealth preservation with particular emphasis on precious metals.”
The govt is a “mixed bag?” You wish. Little has changed. He has lit the fuse to destroy America.
It is not going to get better. We live is a police state where they elected a muslim 7 years after 9/11. The drooling idiots are easily brainwashed in HD. Americans surrendered they liberty for a TV clicker and no - FOx is no better. ALL TV is for him.
(listen closely - you're about to learn a new word)
At that rate, an ounce of gold will be in the neighborhood of 500 petabucks ($500,000,000,000,000,000).
As a number, that's roughly 30,000 times the current US GDP.
For one ounce of gold.
Shelter, the means to protect it, food, and the means to produce and protect it will be absolutely critical to physical survival.
things can not improve in America without a massive increase in manufacturing jobs. This no less true today than it was in...1939. We have too many people sucking at the taxpayers teat and too few teats to go around and it’s getting worse, not better.
Silver & Gold
All you gold bugs will be in for a surprise if China or other hoarders dumps their inventory.
To anyone thinking of investing in precious metals:
PLEASE keep in mind the government still has the seizure laws on the books. And if you think they wouldn’t do it, think again. They have just announced they are regulating all health insurance companies. In other words, taking control.
“All you gold bugs will be in for a surprise if China or other hoarders dumps their inventory”
Which China might just do.
Additionally - the government still has the seizure laws from FDR’s day on the books.........
Obama is a Muslim wanabe or Wahabe
“One of the prettiest sounds on earth” is the Muslim call to prayer at sunset.
Barack Hussein Obama as quoted by Nicholas D. Kristof in the New York Times - March 6, 2007
The FIRST thing Obama did as a newly elected Illinois State Senator was to attempt to declare a Muslim holiday. Obama sponsored Bill SR0110 in the 90th General Assembly to declare November 1, 1997 to be Islamic Community Center Day. It did not pass.
His biological father was a Muslim.
Because his biological father was a Muslim the Islam world thinks he is a Muslim.
His stepfather was a Muslim.
As a child Barry was enrolled in school as a Muslim in Jakarta Indonesia. An Indonesian Madrasa.
Obama didn’t just study at a Muslim school, he was enrolled in mugaji classes (where devout Muslims learn the Koran in Arabic).
Barack Hussein Obamas first and middle names are Arabic Muslim names.
Barack was the name for Mohammads horse. Husein, enough said.
Obama recited the opening lines of the Muslim call to prayer, which includes a vow of fidelity to Islam, in flawless Arabic on a radio program. - Nikolos Kristoff, NYTs, 3-06-07 (***this one is a gottcha moment***)
On that same program he said he thinks the call to prayer is one of the prettiest sounds on earth.
Obama belonged to Rev. Wrights (a former Muslim) church for twenty years. Many congregants are Muslims.
Obamas said that the U.S. is one of the largest Muslim countries in the world.
Obama holds Muslim celebrations in the WH but canceled the National Day of Prayer.
President Obamas religious adviser, Eboo Patel, once deemed the United States the ideal place for the renewal of Islam.
Obama does not give gifts on Christmas.
Obama doesnt celebrate his birthday.
Obama falsely attributes Muslim participation in the founding of America.
Obama required that the cross be covered when he gave a speech at Notre Dame.
Christian symbol covered up during Obamas Georgetown speech
Obamas first major speech in office was a Muslim outreach speech in Cairo Egypt.
The American President told me in confidence that he is a Muslim, said Egyptian Foreign Minister Ahmed Aboul Gheit on Nile TV.
Obama gave strong support to the Cordoba House community center and mosque to be built at the Ground Zero site of Sep. 11, 2001 at a dinner celebrating the days end of the first day of Ramadan at the WH.
Obama tasked NASA with a mission of Muslim outreach.
Obama referred to his faith as my Muslim faith gaffe in an interview with George Stephanopolous.
Pushes Islamic freedom of religion but not Jewish or Christian freedoms. Several weeks ago he told Israel NOT to build settlements in East Jerusalem. But OK to build that Mosque at Ground Zero.
Be wary, wary aware ....and wary, wary afraid...get prepared for more creeping sharia...more than what is coming out of the White House today.
And, they would be “dumping” their hoarde in exchange for
You don’t get it. It is not gold and silver going up - it is the dollar becoming more and more worthless by the day. I am not a gold bug either but America is totally broke. Maybe turn off the Obama-fawning NFL for a minute.
Thank idiots who watch TV and are brainwashed in HD 24 x 7.
A nation of idiots who elected a muslim - 7 years after 9/11. Americans traded liberty for a TV clicker.
Seizure laws? Seizure laws? We don’t need no stinking seizure laws.
Why don’t the prescient folks at “goldswitzerland.com” act on their own intelligence and hoard the gold they have instead of selling it to someone else? In other words, why are they so willing to hand off their future profits to someone else?
Laws? FDR didn't need no stinking law to seize gold. It was an executive order, issued in response to a "National Emergency" (which existed because he declared it to be a "national emergency").
Additionally - the government still has the seizure laws from FDRs day on the books.........
Who was it that said, "Stroke of the pen, law of the land. Kinda cool!" That was FDR's way back in the day. He ruled by executive decree. FDR's methods led another world leader at the time to say, "I have sympathy for Mr. Roosevelt, because he marches straight toward his objectives over Congress, lobbies and bureaucracy."
If you don't have a water purifier, get one.
There is a problem. The piece does not define hyperinflation and is therefore correct in the prediction. The high, regardless of the actual value will be retro defined as hyper and therefore true.
My view is that the continuing devaluations and resulting price rises will be far less than a hyper rate. That means less than 10-12% per year for six or seven years. Rather than a steep gradient, the inflation will be strung out over a greater time.
I think in terms of the rule of 72. An investment doubles in a time that multiplied by a rate equals 72. Using this equation, at an inflation rate of 12% existing debt will be halved in 6 years. That is, the burden will gradually disappear and cease to be a problem.
The devaluation/inflation is by design and collusion between the various governments/central banks and is the only way to resolve the issue other than total collapse.
If money is properly invested in appreciable hard assets, the outcome will be favorable. If one has no money to invest and relies only on wages, there will not be much pain because wages will rise. The unions will crow about how they have forced wages to increase and folks will feel good. There will be a slight lag, but the principle holds.
Those on fixed incomes and social security will feel a lagging pain but the congress will make adjustments to relieve the pain of the induced price rises.
The problem with real estate will also gradually fade as prices rise back to former relative levels. People with mortgages under water will begin to sense the problem is declining as the inflation floats them upward.
There is however a possibility of serious difficulty to the solution. The continued accumulation of debt and near debt must be radically curtailed. The devaluation/inflation will not be a cure if the debt accumulation becomes chronic. That is why the Republican congress will take hold and put a damper on the debt increase while allowing the devaluation/inflation to continue.
.....because Arete had already left then.....
Ahhh yes. I miss him.
About halfway down the page....”China’s Increasing Importance to Gold”
He he had been on and off 4-um due to illnesses. Then his wife posted this: “Hello to all— Richard asked me to tell you that he is out of circulation for awhile— he broke his leg and is in the hospital, moved to rehab today. The leg shattered when he fell. He has a rod and a few screws in it. He’ll be in touch when he’s home and feels better I’m sure.
No posts since that one.
No kidding. I know this sounds cliche, but I have a friend who has a son that is a pretty well placed aide in the Senate. He was telling us about how these new guys were all in town since December, slopping up everything the lobby could throw in front of them.
I am not optimistic.
I should add, that post was last June 8th.
“And, they would be dumping their hoarde in exchange for
THAT is the question
When. We want to know the date!
Perhaps their business model (as is common in such businesses) is to sell at 4% over spot and buy at spot.
1) Half our debt is still a huge problem;
2) Do you think our creditors will catch on, and bail on our promises to repay (in depreciated currency)?
Don’t forget the “Jimmy Carter” character on SNL in the late 1970s said “Inflation is your friend. After an extended period of high inflation, we’ll all be millionaires!”.