I wrote yesterday regarding the divide between those who refuse to see the obvious manipulation of gold and silver and those who see the manipulation as obvious. Today I’ll put in perspective just how small the gold and silver markets have become in relation to the overall system.
Gold production (including Russia and China’s which never get sold on the open markets) is roughly 2,700 tons. Subtracting Russia and China leaves about 2,200 tons which valued at today’s level of $1,300 per ounce amounts to $90 billion. The entire world at today’s price works 24 hours a day, 7 days a week and only produces less than $100 billion worth of product. Silver production in terms of dollars is even smaller. Global production is 24,000 tons. At today’s prices the total value produced is about $16 billion. For the sake of simplicity I will round the total of gold and silver production down to $100 billion.
The Federal Reserve is “producing” $85 billion per month of new dollars and injecting these funds into the bond markets. Again for simplicity let’s call this $1 trillion per year or 10 times what the world produces in precious metals. This is a sort of apples to oranges comparison because we are comparing “global” production of metal with the “printing” production of just one country and find a 10 to one ratio. We can then add in the printing of Japan. Or add in Europe and Britain and the disparity is even bigger. This exercise is looking at “current” production or “flow” so to speak, but what about “stock” or in other words “reserves held vs. totals?”
Here we can use 32,000 tons of “official reserves” (this number is a joke as many countries have admitted to already leasing out substantial portions of claimed reserves). At 32,000 tons held we come up with a number of something less than $1.5 trillion. To put this in perspective, the capitalization of the U.S. stock market alone is now $16 trillion. We in the U.S. have $17 trillion of “funded debt” which does not include guarantees and future promises where the number grows to over $200 trillion. For global numbers we find that stocks amount to well over $60 trillion and global funded debt of $223 trillion.
Shifting to a higher and more “leveraged gear” we have derivatives. These amounted to (before the BIS changed the way they calculate because a number with a “q” in front of it was just too awful to speak of) $1.4 quadrillion. This works out to $1,400 trillion dollars. An example of concentration in this field is JP Morgan; they are party to some $70 trillion worth of derivatives. I think that it’s safe to say that when added together we have a “tower of value” between money supplies, market caps of equities, real estate, total debt and derivatives approaching $2 quadrillion…without adding in “future guarantees” which would probably add another “quadrillion” or more.
But let’s be generous and say that total financial assets only add up to 1 single quadrillion dollars and compare that to what was once considered the foundation to all of finance. No, let’s be really generous and cut the number in half again and say $500 trillion. Some will say “there goes Holter again” being dramatic because surely there is more than 32,000 tons of gold. Well yes there is. 170,000 tons of gold has been produced since before the days of the pyramids. Historically 70% of production has become jewelry which would mean that roughly 50,000 tons total (officially and privately held bullion) would be held as reserves, investment or “money,” these amounts to about $2 trillion.
I have been generous in both directions, the amount of gold held is assumed to be $2 trillion even though I have serious qualms with the 32,000 tons “reserves held” number and I cut the “financial asset” number in half…and then in half again to come up with $500 trillion. We can do a little math and see that the foundation of $2 trillion is holding up $500 trillion…on a ratio of 250 to one! Too dramatic? OK, let’s use ALL gold ever mined in history and assume that your wedding ring, your earrings, the gold in your electronic devices and even the flakes in your Goldschlager could be mobilized and used as part of the financial foundation. Doing this we come up with maybe $7 trillion but again let’s be generous and round up to $10 trillion…we are still “50 to 1!”
Do you see what I am getting at here? Something is not right. “There just isn’t enough gold” that will be the retort, or better yet “it doesn’t matter” because we live in a digital world that doesn’t need a foundation. Well, you can believe what you’d like to believe. There IS enough gold but NOT at current prices which is why I believe a “re set” is the only possibility. As for debt, there IS too much to service at current economic levels. The burden of debt must also be “re set” or marked down to make it payable. I could have compared gold or debt or GDP to the Fed’s balance sheet (but then I would have had to use a calculator), the ratios are still foolish no matter how you look at it. Please remember that I used “gold held” numbers which I don’t believe are credible in any way which would make each of these ratios skewed even further.
This whole piece is about simple common sense ratios that currently make no sense at all…say what you wish but sooner or later Mother Nature will realign these ratios from the current anomalies to more historically normal levels. This event will be seen as the greatest wealth transfer in the history of history.