Do you remember back at the turn of the century when Dick Cheney coined the phrase “deficits don’t matter?” Well, he was right… at the time. Deficits didn’t matter. They didn’t matter for 10 years… until they did. They didn’t matter until the debt of the US had a teeny tiny downgrade of one notch back in Aug. of 2011. Nothing ever matters until it does. “Valuations” didn’t matter back in 1987… until they did. “Earnings” didn’t matter in 1999 until they did. Ridiculous “prices” didn’t matter in real estate back in 2006… until they did. “Nothing ever matters… until it does.”
Now, no matter what anyone wants to think or “hope” for, deficits do matter. They matter in Greece, they matter in Spain, they matter in Japan and they now matter where supposedly they would never ever matter, the U.S.. I know that again I am beating a dead horse about the deficits and accumulated debt that the U.S. has run up but this topic is more important to the financial system of the entire world than anything else.
Because the U.S. has mathematically gone over the cliff, our currency the Dollar is at risk as never before. Make no mistake, just as in every panic before, investors will look back and say, “How in the world did I miss this?” The answer is easy as above; nothing matters… until it does. When markets panic and “sell,” the capital must go “somewhere.” This last, final (of the current system) and biggest bubble of all time is concentrated in U.S. Dollars and Treasury securities, They have been seen as the “safe haven” and THE place to hide for safety. So much so that interest have gone negative several times on the shortest maturities. It has always been that during nervous times an absolute “default decision” (pun intended) to store one’s wealth went into Treasury securities. Treasury securities were viewed as THE safest and MOST liquid place to run to when all hell is breaking loose. …To the point of accepting negative interest rates to park your your capital. It has morphed into a mania for the Treasury to borrow and for investors to “hide.”
On the flip side of the coin, last week CNBC had a guest on who actually said, “Does it really matter at the end of the day whether central banks really have Gold in their vaults or not?” Let me put this in perspective. At $1,700 per ounce, every single ounce ever mined in all of history is valued at $9 trillion, central banks only own (supposedly) about 1/3rd of this. Global debt (and future obligations) are well in excess of $200 trillion and total derivatives are north of $1,000 trillion ($1 quadrillion). The point I am trying make here is that central bank Gold of let’s say $3 trillion, has been levered up not 100 to 1, 200 to 1 or even 300 to 1. Central bank Gold holdings (if you believe that Gold IS money and you should) have been levered up in excess of 400 to 1! Just as in the other examples, whether or not the central banks really and truly have the Gold that they say they “doesn’t matter” …until it does!
It won’t matter either until it does. When it does finally matter is when all nations of the world gather around some table somewhere, and make decisions of monetary policy going forward. Those sitting at the table who have actual, real, accountable Gold, will be the ones making the rules. Does the U.S. have its Gold? Germany? France? Britain? Who really knows? I would bet the farm that not only does China have the Gold that they say they do, they probably have much more. The point is this, if you really have verifiable Gold, you have a piece of the pie. Your “piece of the pie” is what will allow you to vote (yes I know, a strong military also gets to vote but that military must be funded and paid in money that “spends”). The votes will be made largely in correlation to the size of your pie slice. This is what is meant by “He who has the Gold makes the rules.” You will not have to show your ID before your vote, your slice of the pie entitles you to vote. This by the way, pertains not only to central banks, it will pertain to individuals once the new system is decided upon, implemented and the revaluation takes place.
So while some may believe (and others are too oblivious to even think about it) that central bank Gold is unimportant, like everything else before it, “It doesn’t matter until it does and once it does, it’s ALL that matters!”