silver and gold - lone options in an exponential world
DESCRIPTION
The impact of the final leg of the current decades-long experiment may be far uglier than many would like to imagine.TRANSCRIPT
Silver and Gold - Lone Options in an Exponential World
Monetary inflation, by whatever euphemism and at multiple stages in its cycle, has clear benefits to
some but major disadvantages for the majority. Sadly, the impact of the final leg of the century- long
monetary experiment may be far uglier than many would like to imagine.
Inflation and the Big Banks
Obviously, moderate to runaway inflation is horrible for the middle class and poor.
Inflation is less of an issue for large financial institutions who get first dibs on newly created credit via
primary dealer status. More dollars inflate the nominal size of their balance sheets- a positive in the eyes
of shareholders.
The Catalyst
China and various sovereign creditors hold massive amounts of US dollar denominated assets. When
they decide that they've hedged enough, the plug will be pulled on the reserve currency status of the
dollar.
Many assumed this would happen quickly, with new currency implemented overnight. A new currency
might take the form of a new world or regional currency backed by a new basket of currencies. It may
likely include some gold and special drawing rights (SDR's) on the currency of central banks.
Unfortunately, it seems the scenario will be far worse. Implementation of the switch to a new world or
regional currency would require a Herculean effort, perhaps larger than the Euro effort. Any project of
that size would be difficult to conceal, to say the least. Therefore, the very threat could ignite a paper
crisis.
Finance versus Economics
Finance obviously plays far too big a role in the functionality of modern economic systems. We are
incredibly fragile to exogenous events. Not only do few redundancies exist for basic functioning, the
vulnerability to trading errors has grown exponentially with the advent of unregulated high frequency
trading. That "financial system" fragility exerts a potentially crippling influence on underlying economies.
The damage caused by the next crisis could easily turn the world economy upside down and break it to
the point of no return. The systems underlying the flow of goods, services, and information are too
complex for any group, organization, or government to reinflate in the short to intermediate term. We
will not go back to anything resembling the present.
The recent and ongoing food stamp debatable should not be discounted. It is likely that we will see
events like this accumulate over time. We have already seen bail-ins (Cyprus), pension fund confiscation
(Poland), along with all manner of fraud and manipulation from the top down. We may not detect the
inflection point because this unfolding is non-linear.
Personal Central Banking and Aftermath
The banks want metals for the same reason individual investors accumulate. One twist for the individual
would be to view the metals as collateral, and not currency - but only after emergency insurance.
New laws and taxes will likely come down on everyone, including those holding bank deposits,
retirement accounts, mutual funds, and government as well as private pensions.
Ultimately, more and more people will simply opt out, ignoring the law and taxes when things get bad
enough. This would of course accelerate the underlying cycle toward hyperinflation as the FED steps in
to replace the lost revenue. India's treatment of gold import duties is a good example of how policy
often creates the opposite of the "desired" effect.
Sadly, the few who escape with any assets will write the history books, thereby planting the seeds for a
new season of crisis. For the soon to be forgotten middle class there are few options, outside of
emergency preparation - where at least some allocation of precious metals would be prudent.
For more articles like this, including thoughtful precious metals analysis beyond the mainstream
propaganda and basically everything you need to know about silver, short of outlandish price
predictions, check out http://www.silver-coin-investor.com