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Hyperinflation Will Drive Gold To $10,000!
We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments. Thus most of these assets are also worth-less and the world financial system is a house of cards where each instrument’s false value is artificially supported by another instrument’s false value. The fuse of the world financial market time bomb has been lit. There is no longer a question of IF it will happen but only WHEN and HOW. Words: 1650
So says Egon von Greyerz (www.goldswitzerland.com) in an article* reformatted and edited […] below by Lorimer Wilson, editor of www.munKNEE.com, for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. von Greyerz goes on to say:
The World Lives In Blissful Ignorance
Stock markets remain strong and investors worldwide have piled into government bonds in a perceived flight to safety. Due to a century of money creation (and in particular since the 1970s) by governments and by the fractal banking system, investors believe that stocks, bonds and property can only go up. Understanding risk and sound investment principles has not been necessary in these casino markets with guaranteed payouts for anyone who plays the game. Maximum leverage and derivatives have in the last 10-15 years driven markets to unfathomable risk levels, with massive rewards for the participants. This is the Ponzi scheme of all Ponzi schemes.
Our Financial Shangri-La Is Now Coming To An End
The financial system is broke, many western sovereign states are bankrupt and governments will continue to apply the only remedy they know which is issuing debt that will never ever be repaid with normal money. So why does the world still believe that the financial system is sound?
1. Because this is what totally clueless governments are telling everyone and this is what investors want to hear.
2. Because investors want to believe that any action by government, whether applying austerity like in parts of Europe or money printing as in the US, is good regardless of how inept it actually
3. Because market participants are in a state of false security due to shortsightedness and limited understanding of history.
4. Market participants will continue to manipulate markets as long as they can benefit from inflated and false asset values.
5. Because there has been a very skilful campaign by the U.S. to divert the attention from their bankrupt economy and banks `to small European countries like Greece, Ireland or Portugal. These nations, albeit in real trouble, have problems which are miniscule compared to the combined difficulties of the U.S. Federal Government, states, cities and municipalities.
Euro zone members can’t print money. Many EU countries are being downgraded by U.S. rating agencies which don’t dare touch the U.S. rating. The AAA rating of the U.S. is an absolute sham and totally politically motivated. True to form, rating agencies will only downgrade debt once it has become worthless but never before.
We Are Facing An Imminent Start To An Era Of Hyperinflation
The result of massive money printing is a collapsing currency, leading to escalating prices and eventually hyperinflation. This is in simple terms how every hyperinflationary period in history has happened. If, in addition, there are world shortages of food, energy and other commodities, this will accelerate the process.
There are currently a number of indicators all pointing to escalating money printing and an imminent start of a hyperinflationary era. Here are some of them:
1.Fiscal Gap widening at alarming rates in many major economies.
2.Commodity prices at all-time highs.
3.Long term interest rates rising.
4.Most Currencies falling.
5.Precious Metals at all-time highs against most currencies.
1. The Fiscal Gap Is Widening
Tax receipts are collapsing and government expenditure soaring in many major economies including virtually all southern European countries as well as in the UK. James Turk has produced on his fgmr.com site two excellent graphs for the USA and the UK showing the extreme severity of these two countries’ deficits.
The USA and the UK are the favourites to reach hyperinflation first amongst major economies. Both these countries will experience major problems in 2011. Also many other nations have unsustainable debt levels which will never be repaid with normal money.
2. Commodity Prices Are Increasing
Commodity prices have increased 26% in the last 12 months and 77% in the last 24 months based on the Continuous Commodity Index (CCI). So whilst most economies publish inflation rates of 1-3%, the real cost of food and energy is surging. The U.S. government, which doesn’t eat or use energy, recently published the adjusted 12 months’ Consumer Price Index (ex food and energy) of 0.8% per annum. Whilst most people are struggling with a massive increase in their cost of living, the U.S. government is continuously adjusting and manipulating the published figures. There are lies damn lies and US government statistics. Who are they fooling!
3. Interest Rates Are Rising
In spite of U.S. government debt being totally worthless, investors have bought more than ever, with virtually no return, in a world drowning in sovereign debt paper. The U.S. bond market is one of the biggest financial bubbles ever. A 14 month correction ended in August 2010 and since then both the 10 year and 30 year US Treasury bonds have moved up one full per cent so investors are now finally waking up to the enormous risks in the financial system by selling government debt. We expect both short and long interest to surge in 2011 in many countries and to reach well into double digits in the next few years.
In spite of interest rates at minimal levels, both sovereign states and individuals have major problems servicing current debt. With interest rates likely to rise to at least 12-15% and probably higher, no one will be able to service debt with “normal money”. The U.S. debt is currently $ 14 trillion and is likely to rise to at least $20 trillion in the next few years and probably a lot higher. The interest cost for the U.S. government at that stage is likely to be at least double the tax revenue. One would assume that the U.S. government is well aware of what their ruinous actions are leading to but, in spite of this, they continue to increase the deficit by reducing fiscal revenues and increasing spending. What planet are they living on! What is absolutely self-evident is that they will not clear up their own mess, as the present government will be a one term wonder!
4. Currencies Relative To Gold Are Declining
Since 1971, the value of the U.S. dollar (paper money) has gone down 97.5% against real money (gold). Since Nixon abolished gold backing of the U.S. dollar in 1971, both the dollar and most other currencies have been totally destroyed by reckless government. Nixon should not have been impeached for Watergate. Instead he should have been prosecuted and jailed for destroying the world’s currency system. Concurrently, banking developed into a fractal system whereby banks could lend massive multiples of their deposits and capital. All of this has served to drive up asset prices to totally unsustainable levels.
All currencies are declining against gold but some faster than others. The U.S. dollar is down 78% against the Swiss Franc since 1972 and the pound has declined a massive 85% during the same period and both are now at all-time lows against the Swiss currency. [That being said,] the Swissy is only strong relative to weak paper currencies because against real money/gold the Swiss Franc has declined 87% since 1972.
As a consequence of accelerated money printing, all paper currencies will fall precipitously against gold in the next few years. [As such,] all paper money should be avoided and especially the Dollar, the Pound and the Euro.
5. Precious Metals to Reach Unthinkable Heights
Gold has gone up 40 times against the Dollar in the last 40 years and almost 6 times in the last 11 years. Very few investors have participated in this rise since the 1999 low at $ 250. Less than 1% of world financial assets are invested in gold and gold stocks compared to circa 25% between 1920 and 1980.
The dilemma is that there is not enough gold to satisfy the coming increase in demand. We have in previous articles forecasted the gold price to reach anywhere between $ 6,000 and $ 10,000 in the next few years. As we explained at the time, these are totally realistic targets without the effect of hyperinflation.
My $6,000 – $10,000 Target For Gold Is Too Low!
Bearing in mind that we are likely to see hyperinflation in the U.S., the UK and many European countries, the $6-10,000 target for gold is [actually] much too low. The dilemma is that it is absolutely impossible to predict how much money will be printed by governments [as] it is really irrelevant what level gold and other precious metals will reach in hyperinflationary money. What is much more important to understand is that physical gold (and silver) will protect investors against losing virtually 100% of the purchasing power of their money. Whatever real capital appreciation gold will have in the next few years is of less importance.
Physical gold, stored outside the banking system, is the ultimate form of wealth protection both against a deflationary collapse and a hyperinflationary destruction of paper money. [As such,]
Holding Physical Gold Is Absolutely Critical To Your Financial Survival !