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Friday, December 16, 2011

Why a monetary collapse is certain

A new paper making the rounds of hedge funds originated by a partner at Easton Point Capital that makes the most brilliant, concise argument as to why the advanced economies are on the verge of collapse; why the collapse is inevitable; and why only gold will protect your wealth during this collapse.

I will summarize in a simplistic way the thrust of this argument:

1) Money is an attribute, not a thing.  The major attributes of Money are as follows:
 First, it is Liquid.  Second, it has a constant store of value.  Third it is portable and divisible so that it can be used by all for all types and quantities of transactions.  This idea is not different from the attributes of money as devised by Aristotle.

2) Gold has always been used as money as it is the only thing that has all these attributes.

3) Paper is portable and divisible.  But it does not have a constant store of value.  And it is only liquid insofar as it is readily convertible into gold - or by Government Decree at the point of a gun (and this is tough to enforce once psychology dictates paper is worthless.)

4) When the US Central Bank was created, 70 percent of its assets were in gold, 30 percent in short term commercial paper, used to purchase commodities that were readily convertible into gold.

5) These assets, called reserves, were mandated.

6)  Now the US Central Bank has its assets at .3 (Yes three tenths of one percent) in Gold and 99 percent in a combination of long term government obligations and complex Mortgage instruments that are convertible into Nothing.  In other words they are completely ILLIQUID - thus they lack the major attribute of MONEY.

7) In other words the US CENTRAL BANK'S balance sheet if filled up with crap that is not Money.  If and When they must convert it, it will be revealed that they are entirely BANKRUPT.

8) Entirely?  No not entirely.  The .3 percent of gold they carry as reserves will comprise the extent of their wealth.  This gold will be revalued and a new Currency will be issued in proportion to the gold.

9) The value of gold will then be somehwere between $10,000 and $30,000 an ounce, (depending on how much real wealth is destroyed in the collapse.)

10) Why then is the dollar rising right now and gold falling?

11) Because of the extraordinary amount of dollar denominated debt that must be serviced (temporarily until it is defaulted upon) by selling everything to buy more dollars.

Think about this.

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