History has shown how various schools of thoughts in numerous disciplines have defied common sense, such as bloodletting in medicine, the earth being held as the center of the universe in religion, or socialism as the panacea for all societies’ illnesses in politics. Economics is no exception. Many believe gold is a barbaric metal with no monetary purpose.
Our current Federal Reserve chief Bernanke believes that the outcome of the 1929 Depression can be avoided by printing more money or monetizing the debt. Bernanke, along with Milton Friedman, argue that the Great Depression was caused by the Federal Reserve's policies of decreasing the money supply through the 1920s, which worsened in the 1930s. Friedman argues that laissez-faire government policy is more desirable than government intervention in the economy.
The solution to the problem according to politicians and the infamous Central bankers of nations is to create more money out of thin air, which is debt based on the fractional reserve system. The created funds are being used to bail out banks that are too big to fail who were the initiators of the madness and greed in the first place.
The irony of such debt madness is how the interest will be paid on this debt. Anyone in banking or investment knows that as the debt of the debtor (or risk) increases, the interest rate also increases. This is normal protocol, but the world controlled by bankers operates in madness. In fact, bankrupt Greece proved this with their 10 year bond having the highest interest rate in the world of 10%,while the average is 3-4%.
With the central banks’ alchemy of creating money out of thin air and buying sovereign bonds, they are able to manipulate the interest rate to zero. Humongous debt and zero interest rate make no financial sense, but this school of thought has created the gravest sovereign debt bond market bubble in history.
The ramifications of this madness have been record unemployment, impoverishment of the citizenry, rising commodity prices, and the most important, the debasement of nations’ currencies.
With the dollar and the euro representing over 80% of nations currencies reserve (http://www.freepatentsonline.com/article/Journal-Economics-Economic-Education-Research/274409737.html), this means all nations currencies derived their value from both the dollar and the euro, which means these nations’ currencies are defacto derivative investments. When the dollar and euro collapse, the system cannot be sustained or contained and the outcome is total collapse.
Ludwig von Mises Institute said this about any bubble, craze or mania. "There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
Since gold has been true money for over 5,000 years, nations throughout history have used it. Although they at times have debased it with other metals and shaved gold coins when it was convenient for them, they have always returned to gold for it is the true storehouse of value.
The current world debt of $51 trillion is rising every second and the Economist British website said the current world debt is $49 trillion (http://www.economist.com/content/global_debt_clock).
The ludicrousness of world debt can be understood when examined in relation to gold’s price. According to the World Gold Council (gold.org) they estimate there are a total 165,000 tons of gold ever mined worldwide. Gold’s value per ounce was at $1900.00 as of September 2011 which would have the value of 165,000 ton of gold at a little over $10 trillion for all the gold ever mined (http://en.wikipedia.org/wiki/Gold_reserve).
Now for the price of gold to equal the total world national debt, this would mean the price of gold would have to increase five times the current the price of $1,900.00 or about $10,000.00 per ounce.
The irony of this gold price is that it does not include all the debt of corporations, the explosion in the derivative market, or individual consumer debt. In the US consumer debt was a record $2.7 trillion as of December 2012.
In conclusion, there is no way of reconciling or sustaining the present world financial system at the present debt level with continued monetization increasing the debt.
By the end of the decade 2020 the US budget deficit will increase 25%-35% from $16 trillion to over $20 trillion, which will be over 100% of the US GDP. President Obama will have over $10+ trillion in debt as part of his legacy, making him one the worst presidents in US history.
Even with the expansion of debt, the US could never generate enough growth in the economy to service this enormous debt.
The Feds and central bankers cannot keep the interest rate at zero forever. At some point in time the interest rates will rise to its average rate of over the last 20- 30 years, which is 4-6%.
Long before the US interest rates reach 4-6%, the possibility of the US defaulting on the debt will be foremost in the news and the dreadful derivative market should have popped by then. Or the Feds will have to create zillion of dollars, which will completely undermine the world’s confidence in paper currencies, resulting in the prices of gold, silver, and all commodities going to the moon..
There must be a forgiveness of debt and a return to some form of gold and silver standard to restore faith in the currencies of nations or else the world's major economies will face impoverishment like the PIGS nations. A third of the total sovereign national debt in the world is owned by the USA, the reserve currency of the world.
The only hope for the individual consumers no matter what country they reside is to purchase gold and silver like a mad Russian and the Asia countries are doing. No matter what, buy as much gold and silver as you can get your hands on!