In case you had not noticed, we live in a crazy upside down sort of world. We could go into the social aspect of this but it would only make our collective blood pressures go up. The same thing goes for politics, religion and let’s not forget an entire industry that used to pride itself on digging for the truth, the media. Nothing, and I do mean NOTHING “is” really as it seems today. Everything is spun, everything is either glossed over or not even discussed (reported on) and nothing is real anymore. Somehow, I think Goebbels is blushing in his grave and Orwell kicking himself for not being outrageous enough when he wrote 1984.
Now would be a good time to revisit something we’ve looked at many times before, namely which is the better deal? Is one ounce of gold better than 1,200 one dollar bills? Or euros, yen, pounds or what have you? The reason this has come to my mind in this fashion is because our world of fiat money now has negative interest rates for about 15% of all sovereign debt (and growing quickly). Zerohedge just released an article talking about 20 central banks already in this new year cutting their interest rates.
The obvious takeaway from this is investors are being forced to scramble for yield, any yield no matter how dangerous. Savers have been and now even more so, are being forced to do things (invest) they would never in their wildest dreams have done 10 years ago. As mentioned a few weeks back, there are now even negative interest rates on mortgages in Denmark. This means your mortgage will get paid down by your institution over time as long as you can make the monthly amortization payment. Who in their right mind would not borrow as much as they could to buy as big a property as possible? Think about it, you get to borrow in a paper currency where the central bank WANTS inflation (a debasing currency) and the issuing bank will help you pay down the principle. This is a no brainer!
On the other side of the ledger however are “savers”. Who in their right mind would “lend” currency at negative interest rates? Your prospects in the real world and in black and white are ridiculous. You are lending money where your “balance” decreases each year and then, what will you receive upon maturity? You will receive “currency” the central banks are telling you ahead of time …they wish to, plan to and will do everything they can …to devalue! Does this make any sense? Locking in a shrinking balance in a currency the issuer wishes to “shrink”? Which then is better? An ounce of gold which is unshrinkable or 1,200 one dollar bills which shrink every time you do your laundry.
So the world’s central banks are continuing to lower interest rates and “zero percent” is no longer a lower bound, why? Why are central banks pushing so hard for lower interest rates? Yes I know, they say “lower rates will help the economy” … blah blah blah. Really? Has it worked? Would you like to know the REAL reason interest rates have been pushed down? Because if they were not, sovereigns from A-Z would already be seen to be insolvent. A large and growing percentage of the world’s sovereign nations now have a debt to GDP ratio of 100% or more. Big deal right? Well, yes it really is but for “now” it isn’t “seen” as one. Historically, whenever a nation went beyond 100% debt to GDP ratio …they soon became a banana republic where their issued currency collapsed and sovereign bonds offloaded in panic fashion. This of course meant that interest rates exploded higher and more currency was needed to be issued to support the debt market …setting off a cycle of hyperinflation. Not an isolated problem, the globe is on the verge of becoming one big unhappy banana republic!
Globally, banana republic status is the crossroads the world now stands at. Yes, we currently live in a world with deflationary tendencies because the giant sized debt loads are crushing everything …including the sovereigns themselves. With little to no warning at all, this will turn on a dime because of human nature. Human’s are a funny animal. Greed is a powerful emotion, fear is even greater. In the monetary world, once “fear” becomes the predominant notion then another factor will kick in. Just as a dog with a bowl full of food wants the other dogs food, man always craves what he cannot have. When, not if, gold and silver go into hiding, “man” will want them even more. It is this emotion which will collide with a mine supply which has already peaked while Western vaults are substantially empty.
I decided to write this because I believe hyperinflation is broadly misunderstood by most. Most believe hyperinflation can only happen when a central bank creates too much “money”. The over creation of money is certainly one necessary condition but alone will not spark hyperinflation. It is a break in confidence which ignites the fire. We stand today in a world where all of the conditions exist for a massive fire which will destroy much of the accumulated paper wealth of the last 100 years or more. The only thing lacking to get this bonfire raging is a break in confidence.
Looking back to the very dark fourth quarter of 2008, you can see nearly ALL official actions aimed squarely at keeping confidence high. Bogus economic reports, the cancellation of mark to market, central banks propping up brain dead banks and financial institutions …and on down the line to rigging all markets from supporting stocks and bonds to suppressing gold and silver. Everything is and has been about perception, once this perception shifts, hyperinflation can literally begin overnight. In case you have not noticed or followed, the rest of the world has already “moved” or is “moving” away from the dollar as they have already figured this out. Hyperinflation of the dollar will not be “cost push” or the inflation we WERE used to. It will be a currency event caused by a break in confidence where dollars are massively sold and refused for acceptance,… as the “printing part” is already in place. THIS is what “policy”, ALL policy has been about since 2008 …retaining confidence in the dollar! Understand this and you understand 90%+ of the entire game.
“Rejection of fiat currency is not a technical problem but of a political problem. Politics must fully renounce the inflation policy. This is only possible if politics also renounce the ideological commitment to imperialist, militarist, protectionist, statist and especially socialist ideas.”
= Ludwig von Mises
Unfortunately Bill, the above will not voluntarily happen. The Anglo/American hedgemony being led by the US, continues to decline. Dying of greed, paranoia and social injustice. The death throes drive the corrupt leadership, to ever more dangerous feats of brinkmanship throughout the world.
When all else fails? Take the nation to war.
correct OLI.
Bill,
So very very true !!! Black is white and white is black !!! Absolutely NO creditability any more (except from Miles Franklin).
Americans are not as smart as the rest of the world because they stay in the dollar (monopoly money).
Maybe Americans don’t know how to get out of the dollar.
Getting out of the dollar is as easy as 1-2-3. Just take those dollas (aka monopoly money) and go buy gold and silver.
Then when the SHTF you will at least still have your wealth, even though life will be hell for a while.
Well I need to go as it is time for the noon news (lying session). Just kidding, I no longer listen as I’m tired of selling shit fly out of the lips of the news folks.
thanks Farrell.
Bank of England admits significant portion of gold Austria entrusted it with has gone “absent without leave”.
Links for this are now available all over sound money community blogosphere.
this was by Silver Docs, if it is confirmed as being true …HOW FUNNY! …”it doesn’t exist”?
In the immortal Monty Python words,
That gold is now ex-gold. It has ceased to be, and gone to meet ‘is maker.
In all seriousness, it must be sitting somewhere in an underground vault in Beijing. It was 22% of whatever Austria gave England to store.
if true? theft.
Another nice article Bill, thanks.
Here in Europe the lies from the media get more and more outrageous, yet are believed, even by highly educated people.
They are in for a shock when the SHTF event comes.
The world will go through turmoil and tragedy, but perhaps a better, more just world order will emerge on the other side.
hopefully!
The west began with gold, lead, and self preservation and so it may either end or be re-born.
yes.
David Stockman feels that there will be overwhelming deflationary, not inflationary forces. He feels we should be in short term instruments since assests will be cheap when the reset occurs. Maybe he feels since everyone is in so much debt, there will be no extra money.
Your thoughts?
I bet if you query him he will tell you gold and silver are better than short term paper investments and will hold their value better.
Hello Bill,
Well, there are some real things. Like the Defense Dept. that has a huge growing budget and political influence. The bullets are real the deaths are real. And the Nuclear Arsenal is REAL!
Respectfully
Bill
I guess you told me! Question, in what shape is our military today versus, say 8 or 10 years ago? Also, are we readying for a REAL war as you say or is Russia doing more in the preparations department?
There is still one thing today that is truth: the Bible.
and always has been as far as I am concerned.
One OZ of Gold versus 1200 USD? Well considering that the USD/Gold ratio has been sinking for several years, that’s a very valid question.
Look BILL, I’m not a troll or anything, it’s just that your arguments have gotten progressively weaker. Martin Armstrong is no doubt gloating that you now fall under the “Gold Bugs” in the face of anything heading.
For one thing, negative yields in TBTF banks mostly pertain to VERY large accounts. Nothing that applies to the common man.
You talk about a “break in confidence” an yet fail to acknowledge that the masses by and large are sheeple and they’ll do whatever they are led to do. Sorry to report that, but it’s just the way it is and I wouldn’t hold my breath expecting a change.
Look, if you’d just come out and state: “I recommend 5% to 25% of your savings in PMs and that depends on your comfort level and ability to sit thru years of price decline without having to bail under duress” … if you’d just state that then I wouldn’t feel compelled to write. Only you don’t follow that route.
Instead it’s the hoary ol “hyperinflation” argument (it’s been 8 years since 2008…. sure there is stag-inflation, but where is the John Williams hyper?).
More lately it appears you are putting your eggs into the “reset” basket. How many PM holders will fall under water and under the bus waiting for the long heralded reset?
Remember the famous observation: “markets can remain irrational longer than an investor can remain solvent”
my personal opinion and you are welcome to complain to Miles Franklin if you like. If you believe 5%-25% in gold and silver is “prudent” with a complete paper wipeout coming then you are a joker or worse, dangerous to others. I am all in and have been since 1997 with massive margin until I retired in 2006. The last three years have been “authorized naked sales” of paper contracts to take down price. If you believe Dent or Edelson’s “Deflation” theories, remember, dollars are a debt currency. Deflation CANNOT happen without taking everything down with it …including ALL currencies but not money (gold) as “money” always prevails. “I am not a troll”, OK, maybe so but your logic and facts are ridiculous. Tell me about the wonderful positive interest rates you as a little guy are personally enjoying? Rates are ZERO…would you rather have one ounce of gold which can never default or 1,200 one dollar bills that are not even absorbent enough to wipe your arse with? Please stop or go away, if you contend “confidence” is not holding up the system, then what exactly are dollars and bonds backed by? The “full faith and credit” (confidence?) of a bankrupt nation?
I guess the confidence is “backed” by 30 years of double digit capital gains on long term fiat government bonds.
Nobody will quit the fiat system when there are so much gains to be made with bonds (30 years belgium bonds returned more than 50% in 2014…).
I think it is too early for confidence/bonds value to break but it will happen one day. No idea when.
It could happen overnight IMO if BRICS decide so…
good luck with current yields, there is not much room left.
I agree we are quite probably closer to the end than from the beginning but even on the german bunds the 10 years is about 0,30% and it could be still much lower such as 0,05% : still plenty of fiat profits for bond speculators/bulls…
“we are quite probably closer to the end than from the beginning” …you are a comedian!
“we are quite probably closer to the end than from the beginning” : I was refering to timing not absolute levels and yes that kind of euphemism will make the odds for being right of more than 99% in using nixon gold default as the starting point.
I like gold and your editorials but as usual, I do not dismiss the fact that they will be able to kick the can down the road from another 5 or even 10 years from now.
the “FACT”? Again slapstick comedy! Please stop and go post somewhere else.
Good day Mr.Holter
Question ,if the dollar hyperinflates then the rest of the worlds currencies will hyperdeflate thus making the cash holders of say Canadians be able to buy things for pennies on the dollar no?where the US will be the opposite i think if I were Yellen I would raise interest rates to further strenghten the dollar and cause world wide hyperinflation first then announce QE and hyperinflate the us dollar then The IMF can save the whole world with their 20% gold backded
SDRs which China And Russia would be more than happy with
http://www.slate.com/articles/news_and_politics/explainer/2009/04/world_wad.html
http://www.euromoney.com/Article/2172502/SDR-vs-the-Dollar-China-and-Russia-want-SDRs.html
PS Canadian SDRs reserves is at 72 billion SDRs you can look for yourself on the canada government website yourself
http://www.tpsgc-pwgsc.gc.ca/recgen/cpc-pac/2014/vol1/s8/index-eng.html#cont
SDR’s are ridiculous, 72 billion of them is also. Canadian dollar will not hyperinflate when the U.S. dollar does? Really? What makes the Looney so special except for oil and gold in “deep storage” not yet mined or pumped yet?. Sorry SilverDick, VERY poor logic I think. Are you kidding me? …The IMF will not be able to save themselves much less the rest of the world…
well my logic is that my canadian dollars lost 20%since parity as the dollar strengthen the rest of the worlds currencies are reacting by losing strength also whos balance sheet looks cleaner Chinas or the IMF and anyways what is the difference between a partially gold backed yuan or a partially gold backed SDR I know you say that the sdr would be just another fiat currency but what would the yuan be I,m not a fan of the sdr for the record
Canadian dollar will not hyperinflate when the U.S. dollar does? well i fail to understand how the reserve currency can hyperinflate at the same time as all other currencies would ,like right now the dollar is rising and all other currencies are collapsing ie Ukraine today and vise versa when the dollar was down the world currencies were up am i missing something ??
yes, you are missing more than I can write about at one sitting.
well thank you for your fantastic writing anyways ,I believe the entire world will hyperinflate (just not at the same time all together)and their will be a new reserve currency(and no one really truly knows who it will be)
the loss of the dollar will affect everyone, everywhere.
Hey Bill thanks again. Is it not amazing that people say gold don’t pay any interest but yet still appreciates at a minimum of 6% per year? Not where can you get that kind of consistent appreciation on a yearly business today? And imagine it is done in a 100% manipulated market!
I had someone tell me today, south Florida real estate was more stable than gold and silver … can you imagine that?
I will say that non-irrigated farmland in the Panandle has matched the price of gold for the last 35 yrs while paying dividends in production all the while.
However don’t know what the future holds because of the questionable availability of fuel.
oil.
Right, and if reset comes during the planting window of the farm belt, who knows how long it might take to get tractor fuel lines flowing again, and forget imports.
If one planting window is missed, could be 18 months before supply chain refilled.
all distribution will be affected.
Thanks Bill for the excellent article. I believe you are absolutely correct concerning hyperinflation. I have through the years read many articles about this kind of disaster event. Very few people realize that it is the eventual breakdown of confidence, on top of bad monetary decisions, creating of too much fiat money/debt, and govt. manipulation of the free markets that finally breaks the back of a nation. 99.99% of Americans today don’t believe that the US Dollar will ever cease being used in not only our own nation, but globally as well. What most people do not realize yet, is it has already started, and will end badly with savings, pensions, IRA’s being mostly wiped out. Owning real money such as gold and silver will at the very least protect one’s savings and purchasing power (ie. Monetary Insurance). Keep up the great work! DW- Texas
thanks Damon.
Bill, I live in Australia, where we’re still seeing a significant property price growth in major capital cities. We still have plenty of people bullish on property – it’s been going up for the past 25 years with hardly a big correction. What’s your take on how the loss of confidence/hyperinflation will affect property prices, especially when people have borrowed at very low interest rates? In our part of the world, foreign buyers seem to be propping up the market, though now I see that business and consumer confidence seems to be falling.
a function of debasement.
Great piece Bill. I suggest that the reason it has gone so long is because there was never an alternative to the dollar system for people to flee to. The only other option before Russia’s new system was gold and silver which we all know the story about.
I have been debating with a Keynesian economist on YouTube comments about the worlds predicament. He used to teach economics and now consults about inflation etc. he seems to know a lot about the monetary system and contends that the current understanding is wrong, that debt chases money, not the other way around. Basically that banks fractionally multiply deposits, not loans. Anyways banking is my weakest point so who am I to say, but I want to learn more.
My point is that some of the things he suggests are plain frightening because he just doesn’t have a clue re pm’s, world political events etc. he suggests that us military might and trade deficit is a good thing because it has enabled such a high standard of living here. As to what happens when us hegemony ends, no comment, other than it wouldn’t make a difference to the us if Russia and China dumped treasuries because the fed can just create and destroy them at will, debt free!
The thing that really got me mad though was when he suggested that the dollar could fall, but only in a world destruction scenario. Well duh! Yes, that scenario which the west has created! The economists running the show are so completely clueless and the slap in the face will come when the collapse comes and they all say, “well we couldn’t have predicted a major war, so of course our models will fall apart”. A bunch of real life mr magoos who have no idea they are destroying the world and then will take no responsibility for it.
not to worry Mark, your logic is sound. I wrote something similar many months ago called “Something to point at” where I explained a war or some other false flag will be necessary to point at …”our policies would have worked if it were not for such and such”.