It is infuriating to precious metals investors to watch the community of zombie-economists continuing to make the same mistake, month after month, year after year (and once again today) with a very simple economic dynamic. As our economies slow down (and very possibly crash), it is inevitable that inflationary pressures will worsen – not ease. This is a function of extremely simple arithmetic, and thus should be understandable even to an economist.
We start with the fact that few Western economies (and none of the larger ones) are solvent. What this means is that an economic slow-down does not imply mere deflation. It implies debt default. While we could plug in virtually any Western economy to demonstrate this principle, two current examples should suffice: Greece and the UK.
Greece is obviously the most blatant example of Western insolvency. However, what has taken place in Greece directly implies that all major Western economies are hopelessly insolvent.
Greece has now (supposedly) benefitted from two official rescues, not to mention numerous minor operations to try to stabilize its fraud-sabotaged debt market. In the last, futile bail-out bond investors had a 75% haircut imposed upon them[URL: http://www.centralbanking.com/central-banking/news/2161419/imf-board-app..., with the option being to turn down the “offer” – and end up with a 100% loss. In other words, Greece has just suffered a near-total default.
Yet mere days after this latest Final Solution to the Greek debt crisis, here is what the bankers were saying:
The restructuring deal doesn’t do anything to put Greece on a sustainable path. A third bailout will become necessary.
Let me repeat this, so there can be no confusion about what this directly implies. Even after lighting a match to 75% of Greece’s national debt, the banking community isn’t remotely convinced that Greece is solvent, reflected by them maintaining their “junk” rating on Greece’s debt.
If Greece is still insolvent sitting with only 25% of its debt-load, what does that say about all of the other Western economies being crushed under the weight of 100% debt-loads? It’s very simple. Any nation which was less than four times as “solvent” as Greece prior to its default is now less solvent than Greece today. That is not an opinion. That is arithmetic.