Wednesday, February 29, 2012

Unsustainable Debt, War and Gold

The ECB now has a balance sheet which is 35% the size of total European GDP.


Debt is now becoming a metric that does not add up. There is too much debt being created for it to be ever paid back with more debt or with growth. We don't yet have access to the resources on new planets to up our growth and consumption. It's either go bust and see where the chips lie, or make a grab for resources by fair means or foul.

Talk this week was of the EU and the USA doing just that. Positioning themselves to grab resources. If you thought Saudi Arabia had huge oil fields, then what of the unverified (to this writer) oil fields sweeping south of Saudi Arabia and into Somalia and Ethiopia and the Sudan. These oil fields are purported to carry some 71 billion barrels of crude. Is this why piracy is now news and special forces operatives from France, England, and the US are crawling all over that area. Why Ethiopian and Kenyan forces are now crushing the Somali radical muslim militias? Hmm.

War always seems inevitable when you lose the debt game. Give your sons and daughters a hug. Heavens, is that ever gloomy!

But back to debt. Greece is being talked about a lot because Greece is a microcosm of worldwide debt problems. The maths in Greece simply do not add up. And they invented maths. This is why Greece will be cast adrift and return to the drachma. Sooner rather than later. Already the populous is getting real mad at the Germans wanting more control over them. The latest being a volunteeer group of Germans heading to Greece to show them how to budget...the German way. Oh dear, that's gonna go down well.

The good outcomes and answers are few and far between in all this mess. It has been suggested that countries get growth going by their Central Banks printing money and using it to get construction going etc. Well the days of printing and getting good results are over.

It may have been okay for Japan in the 1990s to print. But Japan didn't get inflation in the 1990s as the money printing machines were not in full operation worldwide as they are now. Japan was first off the printing block and was able to export their inflation. Much the same way the US exported theirs to China.  Another reason why New Zealand shouldn't print right now. All we would be doing is competing with the US, Japanese and European printing presses. We would lose that fight.

And just to end, here's a piece from Zerohedge this morning on debt:

"The modern, debt-based economy requires constant economic expansion if only to service all that debt. So what happens when the modern economy goes ex-growth and stops expanding? Iceland already found out. Greece is in the process of discovering. But we will all get a chance to participate in this lesson. Runaway fiscal and monetary stimulus throughout the western economies is in the process of destroying the concept of creditworthiness at the centre of the modern monetary system.  Private investors, we suspect, have little or no conception of the extent to which the state is now the predominant player in the financial markets. Central banks control the money supply and interest rates. Central banking and commercial banking interests have essentially become fused."

Gold will stay in a bull market as long as this madness continues.

Gold in New Zealand dollars: $2132.88 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $44.22 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)

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