The Gold Bull Is Alive and Kicking

Maecenas was a well known benefactor in Rome for Horace and others. His name has come to mean benefactor, in many languages called a mecenate.

The loss of a benefactor can be very serious for anyone on the receiving end of his alimonies. For a century, the world has had the most generous group of benefactors ever. These benefactors have created immense wealth in the world. Even better, they did it without any major effort. All that was required was a printing machine combined with some book keeping wizardry.

The problem is now that these wizards will very soon be revealed as the biggest swindlers in history. With money printing and debt expansion they have created a $2 quadrillion Ponzi scheme of debt, derivatives and unfunded liabilities.


Not difficult to understand that I am talking about Governments and Central Banks which have created a world of illusory wealth. A system that grows primarily by expansion of debt rather than hard work and return on investments made from savings has no sound foundation. When the debt implodes, so will most of the assets financed by the debt. Because assets generated by printed money or debt can by definition not be worth anything since the money that created them was free money with ZERO intrinsic value. Money only has a real intrinsic value when it is the result of a service or produced goods. But it has zero value if it is printed or just generated by a book entry. Thus worthless IN and worthless OUT! Gift Card i... Buy New $10.00 (as of 08:25 UTC - Details)

And this is what the world will soon experience. The 2006-9 rescue package of around $25 trillion followed by the doubling of global debt from $125 trillion in 2006 to over $250 trillion today, will be the last time for decades or maybe longer that it will be possible to create worthless money out of thin air and con the world into believing that this is real wealth.


The next round of stimulus in the form of money printing, interest rate manipulation or free money, debt expansion and deficit spending will definitely not work. The world economy is now at the end of the road and any debt added today, even if free or with negative interest will have zero effect. The $100s of trillions of debt likely to be printed in the next few years will trigger the collapse of the debt mountain by its sheer weight. And the current historical super bubble in bond prices will implode with bonds collapsing and interest rates going to the teens initially like in the 1970s to early 80s. Eventually a major part of the bond market will default and rates reach infinity. But before that we might have a couple of years of zero or negative rates as central banks fight to keep the financial system afloat.

When that happens, the money printing will already have created hyperinflation and the collapse of the currencies which I discussed in last week’s article.

In the medium term, the current $15 trillion of debt with negative interest is likely to get much bigger. The implications are both crazy and mind boggling. In Switzerland for example, insurance companies now offer 10 year mortgages at 0.64%. And just look at the 100 year Austrian bond yielding 0.8% It must prove to be one of the worst investments ever as bond prices and currencies collapse.


So the $100s of trillions of wealth that has been created in the world, since the birth of the Fed in 1913, have led investors to believe that buy and hold is the most fantastic method of investment since markets always go up. Well, they have been right of course since virtually everyone who has tried to time the market will have made less money.

But the benefactors (governments and central banks) of the investment markets will after 100 years of success, become totally ineffective by applying the same old methods. And sadly without Deus ex Machina, which is unlikely, there is no other solution. Deus ex Machina was when god was lowered down on the stage in the ancient Greek plays, to solve all the problems.

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