Sinclair says we are at the end of the road
The idea that an increase in the debt ceiling is a solution to anything is nonsense. The event would be simply a can kick forward for a very short period of time. Increasing debt is not a solution to a debt problem. It actually makes the problem worse It is an act of extending your Federal credit card borrowing line so you can use it to pay your mortgage.
Calling increasing the debt ceiling a solution to a debt problem is too stupid to be stupid. The unwind is deeply entrenched since the failure of OTC derivatives in 2008. There has been no meaningful intervention in this economic downward spiral at the level of the cause. The downward spiral therefore continues unabated.
All downward spirals go to zero unless an intervention takes place at the level of the cause of the problem in the first place. OTC derivatives are what turned a four year correction into the greatest economic accident in human history.
OTC derivatives only go one way in size and that is up. Changing the way nominal value is determined does not solve the problem. All that does is add camouflage to the problem. It does not solve it.
$1600 in gold is simply another round number which will create drama, but no opposition to the increasing price.
Nothing additional is required for a higher price of gold. The damage is done. The debt of the entire Western world is beyond out of hand. The so called solution, just like raising the debt ceiling, will be acts of kicking the can down the road.
We have come to the end of the road. The result of no financial discipline anywhere in the Western world is unfolding.
Gold will challenge $1764 where a hyperbolic price appreciation will start."
Sinclair only sees one possible outcome, a wasteland where gold is money and the populace of the western world eats sand because they have no gold. He is an extremist. This explains why he built a bunker with an underground shooting range. If you follow him, you are following his world view. Those who have followed Sinclair into gold instead of Hommel into silver for the past 8 years, are 50% poorer (than those who bought silver). This will continue and those who follow Sinclair instead of buying silver and being productive, will end up 95% poorer.
Whereas, I see a developing world that is growing fantastically and integrating with the western world via trade and travel. The offsetting asset to the derivatives bubble is the 7 billion people in the developing world and their rising capital (knowledge, infrastructure, savings, etc).
This is why I buy silver instead of gold.
If I instead owned a bunker, there would be no way I would buy silver, I would want only gold. And I would want lots of guns to kill off all the desperate millions of westerners who will be dying of hunger and trying to steal from me.
So in my world view (which is more balanced and mainstream), I see there has to be a resolution that gives the westerners a pathway back from the abyss. Every time in history, except for the Dark Ages, this was true. There was no developing world in the Dark Ages. We are not going to repeat the middle centuries.
So at some point the debt and the derivatives have to be defaulted on (losses charged to someone). And the world will move on based on fair value. The developing world will be much higher valued and the western world much lower. But neither at the 0 level that Sinclair expects in his "monetary event" Apocalypse.
The significance of this potential $4 trillion in deficit reduction, in spite of the fact that deficits will continue to increase, is that it is the start of the process of the westerners lowering their standard-of-living to come into alignment with the ultimate resolution of the crisis. Yes this kicks the can, which allows the developing world to continue to mature and become more resistant to a dropoff in west, which is very bullish for silver (the developing world uses 1/10 or less per capita silver than the western world but has 7 times more population, so 70 times increase in silver demand awaits us).
See the world is going to survive. And hyperinflation and the entire world eating sand, is not possible. Not even close. Hyperinflation can only occur in small pockets of the world, where capital flees to the rest of the world. It can never happen on an global basis because it is mathematically impossible. NEVER! HAS NEVER HAPPENED AND NEVER WILL HAPPEN.
The only question now is who is going to pay for the defaults. How is the adjustment going to be charged and effected? This is why this deficit reduction moment is so important. If Americans start moving maturely towards fair adjustment, then the future looks a lot less chaotic. Stealing causes negative chaos. If Americans willingly accept the pain of fair value, we will see renewal and growth instead.
From my limited readings, my interpretation is Sinclair doesn't care about people, he is an elitist, a former Treasury official, who boasts about his wealth. There are billions of people on this earth.
It is not meant to be a personal attack on Sinclair, but rather a balancing POV. Gold can't outperform silver unless we get that impossible global hyperinflation (or deflation) Apocalypse. We will get neither. We have inflation in the east and deflation in the west. It is a rebalancing-- albeit a painful and arduous one.
I sent the above to Mish Shedlock, with following comment:
Can you refute the 70x increase factoid about silver (it is simple demographics)? (see below)
I agree with you that credit is overheating in the developing world, but this always happens when there are periods of incredible growth. It happened in the 1800s too.
You are missing the techtonic shift in global capital. The credit bubble in the east is just a symptom and will not stop that shift, because it exists because of it.
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