first majestic silver

The Great Write-Off And Other Solutions

August 29, 2010

"Now a man can work a whole year and earn $40,000 (£25,000) and work hard for that. And now the government can in a millisecond print the same amount of money and that's what they do. So clearly paper money has now lost its function as a store of value."

- Egon von Greyerz

The intellectually bankrupt Tokyo Roses of the gold world would have us believe that some form of gold (and silver) standard is not possible because there is supposedly not enough to go around. So why hasn't the unlimited supply of paper money solved our problems? Why was mankind able to function for centuries with such "limited" quantities of precious metals? Maybe because the less debt there is and the less asset inflation there is, the less need for money there is.

As Egon von Greyerz says, they can print in a millisecond what takes others a year to earn. The reality is that they can print the whole GDP of the world in a millisecond. Once people fully comprehend this reality the fat lady will have well and truly sung. Unfortunately the paid mercenaries of the fiat machine are outdone by us greater fools who are willing to part with our goods and services in return for their counterfeit paper.

Bernanke is no latter day Messiah on a mission to feed the bankrupt masses. He is simply just another delusional reincarnated counterfeiter who is faced with the impossibility of papering over decades of dovetailing miscalculations. In fairness it must be said that he was just an oarsman when previous governments and the Federal Reserve lost their way. But since being given the helm he has gone full throttle.

The basic miscalculation by governments and individuals has been that continually spending more than you earn does not pose longer term risks or costs. On the other hand, the basic miscalculation by the elite and their bankers is that increasingly higher levels of debt foisted on nations and individuals, is some sort of perpetual wealth machine.

Whilst Einstein described compounding as the eighth wonder of the world, human history has clearly shown that neither wealth nor debt can compound forever.

The current build-up of severe imbalances between nations as well as between the wealthy and the not so wealthy is nearing a collision which then requires resolution. As many writers have pointed out, collision is inevitable....the only issue is what will follow?

At the present time, a great deal of illusory wealth has been destroyed. The picture will be complete when the debt attaching to this illusory wealth is also destroyed. It's simple accounting. To do otherwise is just a fruitless exercise in fudging reality. If you were a farmer you would be laughed at by your bank manager if you included your dead horse on your balance sheet and yet this is what is going on in the financial world.

The expectations of the masses however, are still alive and until they are dramatically culled, we will continue to believe that a return to the years of "plenty" is possible. Those that accrue even greater wealth through the clever use of debt and government largesse and bailouts somehow have deluded themselves into thinking that wealth is akin to immortality. The only immortality we can achieve is by leaving this world to our children in a better state than what we found it in. That is the higher challenge of this life.

The use of quantitative easing and stimulus are simply the wager of a gambler who desperately attempts with his remaining dollars to double what he has only to find that he is soon left with nothing. The world knows that the present sum of all expectations exceeds the present sum of all means. Someone and perhaps everyone has to lose something and this is where things get sticky. The question is who and by how much and more importantly in what way. If we are to pull back from the abyss there must be a great write-off of uncollectable and unserviceable debt and a dramatic culling of current expectations.

Whether we like it or not the following must take place in some shape of form before we hit the bottom of the abyss.

  • The U.S. will default on its debt to China, Japan and others as a matter of mathematical reality.
  • China will better secure its long term future by writing off the debt of a bankrupt USA as this will force her to pursue more sustainable strategies.
  • Many other nations will default as well.
  • The world will need to balance its trade and capital imbalances in recognition of the fact that these lead to long term structural problems as well as conflicts. Any trade imbalances must be met with the payment of gold or silver. Gold and silver are to be substantially revalued so as to restore some sense of proportion.
  • All future borrowings by any nation or corporation must be repayable on an interest and capital basis over 10 years at the most. For individuals no more than 20 years should be allowed. If corporations need more money it will have to be in the form of equity. If governments need more money for deficit spending they must become unpopular by raising taxes. This is in recognition of the fact that interest only borrowings at all levels removed the repayment time line and by enhancing cash flow they simply engendered unsustainable levels of borrowings and fairy tale valuations. The bottom line is that it is better to be crucified upon a cross of gold than a cross of debt.
  • In addition to the above, all foreign borrowings must be secured by "mortgages" or long term leases over real assets and not just the full faith and trust of the current government. Such borrowings must only be for infrastructure. In this way politicians will be loathe to shackle their nations for fear of being hung and quartered.
  • No deficit spending by governments unless there is a catastrophe, in which case salaries of politicians will be halved until such times as the deficit is reigned in.
  • No further social security contributions by taxpayers and no payments by governments. This is to apply to all new entrants into the system. Pro-rata benefits to those who are already in the system. If government can't look after its own finances do you expect them to look after your finances?
  • Massive reductions in the provision of free healthcare.

The U.S.A. must soon decide if it is to have a controlled demolition of the current unsustainable financial structure or whether it will risk total chaos and the uncertainty of what follows. Will it make one last attempt to be master of her fate? My own thought is that nations are already making contingency plans while those that berate gold and silver are accumulating it hand over fist at every opportunity.

An economy without gold and silver money and an economy without new and real jobs is a disaster in the making. Which way America? Which way?

Sydney Australia

[email protected]


The first use of gold as money occurred around 700 B.C., when Lydian merchants (western Turkey) produced the first coins
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