No one ever said life was easy – and certainly not pursuit of the “American Dream,” which a record amount of citizens view as unobtainable. As for “goldbugs,” the battle for sound money against bankers and politicians has been an uphill climb for centuries; which fortunately, the “good guys” always win, no matter how difficult the quest. And never has such adversity been more prevalent than today, calling to mind Indiana Jones’ quote from The Last Crusade; i.e., “Since I’ve met you, I’ve nearly been incinerated, drowned, shot at, and chopped into fish bait. We’re caught in the middle of something sinister here.”
And sinister it certainly is, although it shouldn’t surprise anyone that gold (and silver) prices are being suppressed, given that scarcely a day has passed in the past 800 years when fiat currency supporting governments haven’t attempted the exact same thing. This time around, said suppression is covert, although you’d have to be blind not to see it. And more importantly, Western “suppressers” must now contend with insatiable Eastern buying – which will inevitably swamp their best illicit efforts. Never in history has a scheme to create money out of thin air succeeded, and never has such a scheme been more tenuous than today.
The direct inflationary response of unfettered money printing is obvious to all, as the global cost of living has never been higher. And every day the dollar “strengthens” against non-reserve currencies said inflation is exported in ever greater quantities. Just in the past three years, as the “dollar index” barely budged around the 80 level it has been anchored to since 2005, accelerated Fed money printing has caused a dramatic increase in global inflation – as evidenced by a nearly 20% decline in the average currency, and nearly 40% in the “Fragile Five” nations where 62% of the world’s population reside. The direct social impact started in nations where citizens spend the greatest percentage of their income on life’s necessities like food. And thus, it shouldn’t surprise anyone that “Arab spring” nations like Egypt were the first to experiences mass unrest. However, the “inflation contagion” is now spreading like Ebola catalyzing wars, revolutions and social unrest the world round.
Of course, the indirect impact has been far more sinister – and equally pervasive. Which is an increasing hatred of America for abusing its reserve currency privilege (among other things); yielding “blowback” of all kinds from the Sino-Russian led “de-dollarization” trend, to the emergence of ISIS, to the unrelenting flow of gold from West to East. And of course, the irreversible rapidly expanding economic collapse stemming from decades of capital misallocation, care of the most virulent all-encompassing fiat currency bubble in global history.
Sure some regions are being effected more than others – like the U.S., which exported the majority of its high-paying jobs in the past two decades. However, the parabolic debt growth stemming from unfettered currency creation has paralyzed the entire world; and sadly, the only “fix” it is for all this unpayable debt to default – either directly, or via inflation. Only after said “debt jubilee” can the system be reset; and when it does, we assure you it will be based in some way, shape, or manner on real money. Frankly, we could care less if a new “gold standard” develops – as irrespective, the one thing we are sure of is precious metals’ time-honored ability to protect wealth amidst cataclysmic events, be they political, economic or social.
The past two days, in advance of tomorrow’s fateful ECB meeting, we have written of how the European economy is in freefall – the victim of a doomed-to-fail currency integration that has put the entire continent on the precipice of depression, if it’s not there already. As for Japan, nary a day goes by when we haven’t reported incremental bad news as the “Land of the Setting Sun” embarks on a long journey from leading economic power to second-world basket case with the Damocles Sword of hyperinflation perilously following the Bank of Japan’s every move. As for the U.S., “island of lies” economic reporting and the annual government spending frenzy ahead of September’s fiscal year end are temporarily masking the worst economic conditions in generations; but fear not, such whitewashing can’t work forever, and certainly won’t after the upcoming mid-term elections. As we noted yesterday, no matter how much the government manipulates economic data, it cannot reverse real cash shortages. Which is why, for example, the propagandized “reduced deficit” is easily refuted by the fact that the September 2013 fiscal year ended with a U.S. national debt of $16.7 trillion; while today, with another month left in the September 2014 fiscal year, the U.S. national debt just surpassed $17.7 trillion.
That said, today’s principal topic shifts the focus of global economic collapse to the Far East. To wit, we have spent the last year writing of the ongoing collapse of history’s largest real estate, construction and “shadow banking” credit bubble; which, by the way, is a description we do not use flippantly. Chinese corporations have added more than $15 trillion of highly speculative debt since the 2008 financial crisis, fostered by none other than extremely loose regulatory policy. Much of it went into building “ghost cities” and unnecessary apartment complexes; and now that it’s coming due, the PBOC has been forced to increase its “social financing” – i.e., money printing – activities to levels putting the Fed and Bank of Japan to shame as exemplified by last month’s “backdoor QE” announcement – of the creation of a “’Pledged Supplementary Lending” vehicle which by our estimation will grow to utterly monstrous proportions.
The sad fact remains that no matter what the PBOC prints – or reports regarding economic “growth,” the Chinese economy is collapsing faster than Japan and Europe combined. The nation’s four largest lenders now have $63 billion of (admitted) bad loans on their books, up a whopping 13% in the past six months; whilst industrial commodity demand and prices are in utter freefall, per the below table.
Given the massive size of this bubble, there is simply no way the “world’s growth engine” has a prayer of recovery in the foreseeable future. Frankly, the only real way to “save” China’s economy appears to be the evitable government announcement of its true gold reserves; followed by a massive revaluation, enabling it to back its exponential money printing requirements with something real. Of course, even at $10,000 gold, a (presumed) 10,000 tonne PBOC gold holding would still be worth just $3 trillion, giving you an idea just how much gold prices have been suppressed – and how high they must rise to “cover” the exponentially growing debts accumulated in the absence of a gold standard for the past 43 years.
Do the math yourself and realize that with each passing day, the “West to East, Global Economic Collapse” will broaden further; until inevitably the “bad money” underlying it is destroyed. That day is likely much closer than most can imagine; and when it does, the term “pushing a golf ball through a garden hose” – describing the resultant explosion in physical gold and silver demand – won’t properly describe the ensuing financial chaos.