Tuesday, June 14, 2011

The Risk of Conflict and Debt

As you can see by the graph below, from the Reserve Bank of New Zealand, our corporate debt since the Global Financial Crisis in September 2008, has decreased from 126% of GDP to 110% The Government debt has increased from 10% of GDP to nearly 17%.

It appears the New Zealand Government has taken on the role of 'keeping the ship' afloat. The increase in deleveraging by the corporate sector could be an indication of the nervousness to borrow to create and expand business opportunities.

New Zealand has large assets to back its increasing debt load. We can sell things (like land). These assets are called collateral. Recently, the Government signaled sales of some of these assets (but not controlling interests) to fund debt repayment. Having collateral is what creditors look for. This never changes.

So what would it look like if the debt situation deteriorates to a point where 'da boyz' start wanting their money back; their collateral. How would we feel if 'da boyz' had a newish looking aircraft carrier, with a red flag and a yellow star on it, and parked it off our coast for 'exercises'. Oh, don't worry, you say, NZ is in an alliance with the USA, China wouldn't dare.

Maybe, but maybe the US will have already consolidated its military resources to protect its main interests. More likely, the stomach for a confrontation in a South Pacific backwater would not make great political capital on Capitol Hill.

And what about the USA?

The USA has huge assets in order to back its current debt. It also has a huge military to protect those assets. However, the USA would not want to get into a position where it's currency becomes so devalued that it constricts its ability to pay for it's military.

Therefore, the rest of the world hopes that the US doesn't get into a position of having to 'pull out the military card' to protect its interests from creditors who demand payment. Another term for this is war.

What excuse is made to a start this said war is moot. Maybe Iran or a skirmish in the South China Sea? Who knows.

War is a bad option, but politicians usually fall back on bad options after exhausting the least bad ones in order to remain in power. Why we listen to these self-serving masters of their own universe, is beyond belief.

The alternative? A sound monetary system devoid of political manipulation based on sound monetary assets. A unit of account of univesal recognition with the best wealth preserving qualities. This has always been gold.

It is now not acceptable enough to say 'a gold standard won't work'. Anyway, the people that say this are usually the ones with the most to lose. The consequences of 'living beyond our means' are too dire to contemplate.

Politicians may well be taking us to an inevitable conflict for resources. We have all borrowed those resources with 'paper promises' and soon the Piper will come-a-calling.

We can stand and fight or do the right thing and pay them back.

Gold in New Zealand dollars: $1857.25 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $42.70 per oz
Previous all time high: $48.58
per oz

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001

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