About the Author

author photo

Jeff Nielson is the writer/editor of Bullion Bulls Canada. He came to the precious metals sector as an investor in the middle of last decade, and quickly decided this was where he wanted to focus his career. Jeff's background includes four years of Economics at the University of British Columbia, before he went on to earn his law degree from that same institution.

See All Posts by This Author

Deadbeats ‘Bailing Out’ Deadbeats

feature photo
Originally appeared as http://www.bullionbullscanada.com/intl-commentary/24013-deadbeats-bailing-out-deadbeats

A few weeks ago I wrote a piece noting that Western regimes had mismanaged their economies to the point of structural insolvency, and were thus now only able to forestall their own debt-defaults by resorting to “cheque-kiting”. That is, it has been many decades since most of these nations have actually been paying their bills.

Instead, Western economies have been financed by these Western governments simply writing new cheques (with nothing backing them) to cover the old cheques they wrote (which also had nothing backing them). This is cheque-kiting, pure and simple. And the only reason that these sovereign deadbeats haven’t (yet) suffered the inevitable fate of all deadbeats – having their credit refused and thus being forced into bankruptcy – is because somehow their propaganda machine has been able to prevent that realization from sinking in with the masses.

This apathy and/or lack of comprehension by the citizenry is disturbing (but no longer surprising). However, where we move past “disturbing” and into the realm of the totally absurd is when the media propagandists write about these economies being “bailed out”.

Once again, to truly illustrate this insanity we need to define our terms. A “bail out” (in the financial context) implies some entity which possesses financial assets bestowing those assets (either via gift or loan) on some entity lacking financial assets. Immediately upon engaging in this simple exercise we can state a definitive conclusion: none of these deadbeat-debtors have been “bailed out”. Indeed we can go farther than that: it is not even theoretically possible to bail out any of these deadbeats.

Why? Surely the answer speaks for itself: all Western entities are net-debtors – their “national account balance” is less than zero. Surely even the media drones and market “experts” can understand the concept that one deadbeat with no money cannot (financially) bail out another deadbeat with no money?

Apparently not. This begs the question: how is it possible that people whose profession it is to understand such concepts are totally incapable of comprehending the simplest possible proposition of logic and arithmetic: you can’t “bail out” someone else with nothing?

In this case, the answer is crystal-clear. These people, these “experts”, are incapable of grasping such elementary premises because they are brainwashing victims. Specifically, they (like virtually our entire populations) have been deluded into thinking that the banker-paper being conjured-up on the bankers’ printing presses (at zero cost, and in near-infinite quantities) has value.

The truth, of course, is entirely opposite. Even from a purely monetary standpoint we can see this has to be the case. Once the last vestige of our gold standard was assassinated by Richard Nixon in 1971, our money became mere “fiat currency”. It became mere paper, with no intrinsic value (unlike actual “money”), and doomed to suffer the fate of all fiat-currencies which came before it: collapsing into worthlessness.

However, that element of “worthlessness” on a fundamental level has been replaced by a much more immediate and concrete demonstration of the worthlessness of all this banker-paper: it is being created in (near-)infinite quantities, and at (essentially) zero cost. Any item which is produced in infinite quantities and at zero cost is by definition worthless. If this were not the case, the possessor of this infinite quantity/zero cost good could simply conjure-up as much of that good as was necessary – and then exchange it for all items of (real) value which exist in the entire world.

Indeed, this describes our modern monetary system perfectly: a cabal of crooked bankers trying to hide the fact that they are conjuring-up infinite quantities of their worthless paper (at zero cost), and using that worthless paper to buy-up any/all assets of value which they come across. There is only one difference between an ordinary person seeking to use a massive stack of “Monopoly money” he had accumulated to buy assets or retire debts versus what our bankers are doing with their mountains of fiat currency: our governments have decreed that the banker-paper must be accepted as payment. There is absolutely no difference between the two stacks of paper themselves: neither has the tiniest element of intrinsic value.

This concept is absolutely crucial in understanding how close we are to Financial Armageddon, for once we understand that our currencies only retain a slight vestige of value by virtue of decree, then we understand that as soon as that “decree” loses its status, the paper instantly becomes worthless. In turn, this is a concept which few readers can (yet) grasp: how could the decree of a sovereign entity lose its status?

In the specific case of a decree which turns (worthless) paper into currency, the decree loses its power the moment the sovereign entity is perceived as being insolvent by the majority. Thus if (insolvent) Greece were forced out of the Euro zone and began issuing its own currency, it faces a significant obstacle: having anyone inside or outside of Greece accept this new currency as payment for goods. Without broad acceptance, the new currency would quickly plummet into worthlessness (because of lack of confidence in its value). Clearly, any new Greek currency would/could only be stable if it were “backed” – i.e. by reintroducing a gold standard (of some sort) for Greece’s currency.

The situation is no different for all the rest of the Western deadbeat-debtors. All that separates our monetary systems from total and immediate collapse (i.e. hyperinflation) is the (erroneous) belief of the masses that the worthless paper in our wallets has paper. The moment that this increasingly fragile myth is shattered, no more “bail-outs” will be possible – and all of these cheque-kiting economies will go under. Because when that day occurs I will no longer be the only one laughing the next time a headline appears about some deadbeat-debtor being “bailed out” via printing (another) stack of worthless paper.

It must also be explicitly noted what is implied when the masses finally open their eyes and realize the massive sham of the bankers’ fiat currencies. The day that the paper confetti in our wallets loses its status is also the day that the $10’s of trillions of “value” in all these Ponzi-scheme “bonds” also instantly vanishes. Anything denominated in a worthless currency is by definition worthless. Indeed, it is an open secret that the U.S. government has been deliberately undermining the value of the U.S. dollar – because in doing so it reduces the real value of its mountain of (unrepayable) debts.

The reason why it’s so important for readers/investors to identify these bond-bubbles today (and flee any/all of these unstable Ponzi-schemes) is because when the bond-holders (suddenly) all attempt to unload their $trillions in worthless paper this raises yet another question: where will all those investors take their dwindling wealth?

Note that currencies plunging to zero also implies (at least) temporary chaos in equity markets, meaning that in any crisis scenario that investors will only be willing to park some of their capital in those markets. As has been the case for thousands of years, there is only one asset class which provides a true “safe haven” for ordinary people in times of financial calamity: precious metals.

Apart from all the fundamentals-based arguments made by myself and others explaining how and why gold and silver are grossly undervalued today, there is an equally formidable argument to be made on the basis of supply and demand: that soon a tidal wave of frightened investors will all seek to gain entry into this safe haven – and only those near the front of the line stand any real chance at gaining protection. Those near the back of the line will find that their paper has already lost too much value: that the “price” for gold and silver is now prohibitive.

Like many other communal animals, our species exhibits a distinct “herd complex”: the illusory belief that there is always “safety” implied by being part of the herd. Sadly, as is all too well illustrated within the animal kingdom, the safety of the herd is non-existent once a pack of predators is turned loose within their midst.

The complete unshackling of the West’s banker-predators has brought this horrible “law of the jungle” principle to our own species. Any/all investors foolish enough to be part of any “financial herd” today are destined to be slaughtered (like cattle) tomorrow.

In yet more absurdity, the propagandists attempt to portray the precious metals sector as representing some herd-induced “bubble”. The facts demonstrate the exact opposite. Historically, precious metals have been an asset class which represented between 5% – 10% of the average portfolio (if not more). Today, with most of the herd having shunned precious metals that average is little more than 1% – making gold and silver (and the miners of those metals) the most under-owned assets on the planet.

The financial storm is raging. The good-ship “Deadbeat” is about to crash on the rocks. The sanctuary of gold and silver still beckon. It is not yet too late for financial salvation – for any/all willing to flee these Western paper Ponzi-schemes.

There Are 5 Responses So Far. »

  1. Here, here. Great article, but what about solutions? I have contended that those who are creditworthy should be allowed to borrow at the same rate as the banks plus a point to set a new base that can be attractive to investors and as riskier borrowers get in line they are charged by risk. Who gets hurt?, the bankers but so what they have had it good enough and it is time to let them suffer some. Peace

  2. I’m interested in your opinion on whether holding gold/silver in investment accounts is sufficiently viable or if you believe you need to “physically” own the metals. As a small business owner, it’s hard to imagine paying my people (especially remote workers) in gold/silver coins. I think transitioning to a gold/silver coin economy would be so hugely disruptive, that simply putting our currency back on the gold standard would be far easier and make way more sense and avoid most of the armegeddon scenarios floated around. Would you agree with that assessment?

  3. Sherwood, I know you didn’t ask me, but your comment contains many good points and questions so I thought I’d weigh in.

    One thing you could do is make it *optional* to receive a portion of pay in coin forms of US legal tender. Then subtract the acquisition costs of the coinage from the payout. That way the recipient pays, not the business.

    For example, say you have to pay a $2000 (Federal Reserve Notes) paycheck, but the worker opts to be paid in silver eagles. Say the all-in costs of acquiring each silver eagle is $40; so you can order 50 of them and pay the employee $50 face value in silver. Your business would list the difference of $1950 as an expense.

    There shouldn’t be too much disruption since you could just have the coins shipped to the worker. I would imagine most would not want every single paycheck in this fashion… just the portion they plan on keeping for savings.

    As far as the bigger picture, I agree a federal gold standard is logistically easier, for a variety of reasons. But it isn’t required. It can all be done privately, especially now that we have a digital banking system. For example, one entrepreneur is starting a gold-backed debit service (essentially, a checking-only bank) with accounts 100%-backed by gold, in the wake of Utah’s recent law expanding the monetary scope of gold and silver:


    So, one can “put their own gold” in a banking system “compatible” account which recognizes the gold’s value at 100% backing, and still be able to make FRN dollar-denominated purchases, integrated with the current electronic banking system.

    Really, not much more is needed than this, when one distinguishes between the very different uses of money as (electronic) currency and a store of value.

    In theory, it would be easy to even transact in bitcoins, and save balances in gold, provided trustworthy gold depositories such as this one (there are others as well, such as BullionVault or GoldMoney, but they are less integrated with the current payments system).

  4. “Great article, but what about solutions?”

    Dixiebrick, there ARE no good solutions. This is the WORST mess that has ever been made of a nation’s housing market – by a factor of ten.

    Lowering borrowing costs at this point is nothing but an irrelevant bandaid. It’s NOT going to rescue MILLIONS of mortgage VICTIMS who are 20% underwater, 30%, or even more.

    The ONLY measure which would help to fix this market (other than simply FORECLOSING on 10-15 MILLION American families) is to pay-down mortgage principals (across the board) by approximately 20%. It would likely cost somewhere between $1.5 TRILLION and $2 TRILLION to do so.

    It’s that, or just watch this market BURN (for another 20 years or so)…

  5. Sherwood, you’re into two TOTALLY separate issues here – so let me separate them.

    When it comes to HOLDING precious metals, I firmly believe that physical bullion is the ONLY way to go – for a multitude of reasons. Perhaps moving to the top of the list of reasons is “confiscation”. If (when) bullion confiscation takes place it will START with every ounce of bullion held in an “account” or “ETF”.

    As for the separate issue of going BACK to some sort of precious metals-backed economy, that is simply MUCH too complex a subject to BEGIN to address in a comment.

    Suffice it to say that there are NO valid arguments against returning to an economy which uses REAL “money” – instead of fraudulent paper currencies.

Post a Response