February 24, 2015 ~ Bill Holter
This past week my sister flew in to see us for a few days. I had not seen her in a couple of years so it was great to catch up and spend some face time. She had not been to see us since we returned from Costa Rica and since the wildfire took our home in 2011. We drove through the burn zone to show her how large it was and how extensive. It's been nearly a year since I had driven through simply because I don't really like the memory and how depressing it is to see. This past Friday was different, there are literally MILLIONS of new pine saplings sprouting up everywhere! It took three years but Mother Nature has not failed us once again.
It is in this theme I'd like to write today. Without going into the mechanics and logic of "why" or really even how the current Ponzi schemes will fail, I will assume that you understand the current "dollar system" is untenable, unfair, unstable and will fail in very grand fashion. If you do not believe this, you might stop reading here. If you don't believe this and do continue to read, the following math will be quite scary but is correct in both numbers and logic.
After "failure", after a wildfire, forests regrow saplings and new vegetation. Is it a miracle? Yes, absolutely yes! Is it something we should come to expect? Again, yes. The very same holds true for economies and financial systems. After every popped bubble, after every deflationary default wave, hyperinflation and currency collapse, and even after every war ...as long as humans still exist there will always be a new economy and financial system that "rises from the ashes". ALWAYS!
Without trying to bore you, forests will not regrow if there is no rain nor sunshine. Financial regrowth cannot flourish unless there is "money", the equivalent of rain. But we already have money now, plenty of it if not too much of it. Globally, the world is glutted with central bank created "money". I would submit to you, there is far too much of it ...and it is "poisonous". The fire hose spigots of money were opened in 2008, more and more of it was produced ...but, it was "bad" money. It is this revelation the world is now struggling with and why the BRICS and rest of the world are looking to move away from the dollar and towards gold, "clean" or even "good" money. The important thing here is that gold is money you can trust no matter what language you speak or read, no matter what form of economy or government you have or what religion you practice. Gold is "universal money" and this is the beauty of it!
Doing just a little bit of math compared to today's gold price of $1,200, we can see at what price level "gold" can (and will eventually) extinguish debt. Let's look at Greece for example. They have just over $4 billion worth of gold in relation to $350 billion worth of debt. Gold would need to be priced at nearly $100,000 for their debt to be covered by their gold holdings. We could do the same exercise for the U.S., we supposedly have over 8,000 tons (262 million ounces), in order to cover $18 trillion worth of debt, gold would need to be priced at nearly $68,000 per ounce. If we did the math on total obligations we arrive at an unthinkable number. Covering all debt and derivatives outstanding brings us to a number with "lots of zeroes", I won't go there because too many brains will shut down from disbelief.
I know what you might be thinking, "but gold isn't money and who says the debt has to be 'covered'?". You may be right but if debt isn't covered by gold, then what is it covered with? Another way of saying this and easier to understand it that the "debt must be paid back and if it isn't ...someone is going to lose a lot of money". Do you see how this works? The "money" (debt currency) must have value in order to pay back the original loan, if it does not then there is a loser somewhere (the debt holder). If the Treasury or the central bank wants to make good on the borrowed money, then by what means do they have? The ONLY true asset that central banks hold is gold. If this is the only thing they can truly extinguish their debt with, then we can do these calculations all over the world and with all central banks.
Going another step forward and equating the financial to the natural, once the pyramid falls over, by necessity "something" will be needed to fill the black holes of default. Can the Fed, the ECB, BOJ, Bank of England and all the rest just "print" to pay off the debts? Can't they just "give" money to banks or even drop it from helicopters and enrich the population? They can try but the one thing they cannot do is "force the confidence" in this new money. As I mentioned above, gold is THE only money with universal confidence and willfully rather than forcefully (as fiat is) accepted for transactional settlement.
Fortunately, economic and financial collapse unlike a forest fire leaves production capacity and infrastructure intact...but, with new owners. A soap factory will still be capable of producing soap. The soap will still have value relative to other goods, however, after default there will be a new owner. I have written many times regarding Harry Dent's deflation/dollar is king theory and will not rehash it here except to say dollars are debt... debt is the core problem and dollars will lead, join and follow debt into this deflationary hole that he foretells of. Dollars will need to be created in the $ trillions upon $ trillions to "settle" all of the trades outstanding, over $1.5 quadrillion of derivatives on top of $100 trillion of sovereign debt.
Please remember this, we are talking about the "dollar price" of gold. I am not saying your gold ounces will all of a sudden start to puff up like an excited horse on steroids and become bigger than an ounce. What I am saying here is that the dollar is headed into oblivion. It very well could be a number like $10 million per ounce turns out to be ridiculously low! This entire saga is and has been about the dollar and its forced global use. Do not write me to say this is ridiculous as all historical fiats have gone to zero ...which means they went "no offer" in terms of gold. Simply put, gold has gone to infinity in all historical fiat currencies, the dollar will ultimately be no different.
Several countries were bombed, toppled and their rulers murdered because they tried to move off of the dollar standard and toward gold. Can this happen were Russia to move off of using dollars and ratio back the ruble? What about the Chinese? Or better yet, what about the BRICS nations ...and if they are followed by some 135 other countries? What about the Middle East's new gold dinar? Will they go along with the paper markets of West valuing gold and thus their money? Gold is being remonetized right before our eyes, not by the U.S. but by the rest of the world. Western paper markets where 100 paper ounces are sold for every one real ounce will be exposed as the frauds they are, foreigners will see to it. (After penning this piece, it looks like our regulators may try to get out in front of this but I'm not holding my breath).
As I started with, Mother Nature and human nature will together decide and price "where" and at what level "money" will be priced at. They will also decide what is "good money and bad", what to use and what not to use. We are now in my opinion well past the point in time where the U.S. can militarily force the rest of the world to use dollars. If the powers in the U.S. do not believe this then war will follow, may God help us all and all bets are off. If we somehow do avoid war, the world will because of human nature, soon demand fair money with which to settle...and no longer trade with those who refuse. Just as the millions of little pine saplings have popped up in the burnt forest need rain, gold will be a very key element to the regrowth of the world economy and financial systems! Gold is honest settlement. At the correct "price" it is plentiful enough to give the financial ground a good soaking to restart growth and commerce. It's merely Mother Nature's way. Her forest fire to cleanse the system of bad debt will be furious and complete, gold and silver will survive this intact. Holding gold now will make you a charter member of the next global central bank, this is also Mother Nature's way.
Regards, Bill Holter