GOLD IS A FINANCIAL INSTABILITY HEDGE: STABILITY VS INSTABILITY

 

For Five thousand years of global history gold was money.  Written language is only about 5000 years old so it's hard to know much beyond that.  In 1971 Richard Nixon ended that system  and replaced gold with paper backed by the force of the US Military and the faith in US Financial Stability.

Paper gave way a few years later to Electronic accounting, where it currently resides.  The electronic global money system, however is still backed by the might of US Military the faith in the stability of US Financial System.

By extension the Global Financial system is a Financial alliance between the US the European Union, Britain and Japan.  But the US is still by far the largest and deepest market   So the stability of the US Financial System is paramount.

How stable is the US Financial System?

The answer is twofold.  First you must consider the stability of the US Political System, which came close to being toppled on January 6th of this year.  Perhaps not perilously close.  But the violence, anger, hatred  the fueled that insurrection is alive and stronger today then it was a few months ago.  That same anger is also alive in Europe.  And it is fueled by the massive disparity in global wealth.  

The richest 1 percent own half of the world's wealth while the bottom 50 percent own 1 percent of the world's wealth.   

How stable is that?

The next question is how stable is balance sheet of the United States?  And How stable are the US financial markets?

That's an incredibly hard question to answer.  

The US national debt is about 29 trillion dollars and growing at about 5 trillion dollars a year.  While US GDP is about 21 trillion.  That sounds like it is moving away from stability

Meanwhle

• When state and local debt as well as unfunded liabilities are taken into account, the $27 trillion public debt rises to around $80 trillion.
• Social security is expected to run out of money in 2032 and Medicare in only six years (2025-2026).
• Total public debt (including off balance sheet) per working adult in the U.S stands around $500,000.
• There are an additional $100,000 per person in household debt and $23 trillion in corporate debt (not counting unfunded pensions).
• That brings the total debt in the system up to about 130 Trillion dollars.

But that doesn't count the 10 trillion dollars the Fed took onto its balance sheet to bailout the Covid Liquidity crisis. And it doesn't count the Over the Counter debt derivatives market which is in the QUADRILLIONS OF DOLLARS.

Our system is a system of debt.  And the those who can access debt at very low rates, say around Zero - can use that debt to buy up all the assets, simultaneously pushing up the price of those assets.  So Real Things like Houses and Food and Gas (and hard assets like art and coins and cultural heritage items) become ever more expensive for those who can only access the debt markets at very high rates or not at all.

How stable is that?

Hard to say.  It doesn't sound very stable.

But right now Faith in that system is still relatively strong.

But that is all that is holding it together.  Faith. 

And the might of the US military.

How stable is that?

How you answer that question is how you value gold.