“In fact, it is easier for governments to control the spending of people in debt than those with savings. A person with financial resources is free, while debtors are hostage to their creditors.” H.S.H. Prince Michael of Liechtenstein The rare resilience and the economic and strategic prowess of the Principality of Liechtenstein have elevated …
Sound Money Sound Society Podcast: Interview with Dr. Mark Thornton – November 2017
In a recent interview with Mark Thornton, Claudio Grass discussed a number of key issues and shared his point of view on important economic and geopolitical matters that are on many citizens’ minds, within the US and in Europe.
We currently find ourselves in a historically and economically significant transition period. The already overstretched bubble in the markets is still expanding, but we now see bold moves by the Fed to reduce its balance sheet, at the same time that the ECB plan to tapper, overall presenting us with a pretty deflationary outlook. This reversal of the expansionary policies of the last decade can be seen as the first step towards an upcoming and potentially ferocious correction.
The ECB is trapped, already holding 40% of sovereign debt, with Spain and Italy presenting major challenges, threatening to trigger a banking crisis in the not-so-distant future. Mario Draghi aims to reduce the ECB’s asset purchases from EUR60 billion to EUR40 billion, however he might soon come to the realisation that if the ECB does not buy eurobonds, then no one will. Ultimately, this will lead to a massive flight to the USD, the biggest capital market being the US, controlling 52% worldwide and Europe 9.8%. Thus, this would lead to higher stock markets, but more importantly to a stronger USD, which nobody wants. Such a development threatens the world economy, as the system would crash from the periphery, as developing countries and USD debt holders, would have a hard time repaying their debt and eventually default.
A possible game changer is the Petro-yuan, the Chinese government’s plans to start a crude oil futures contract priced in yuan and convertible into gold. This is a direct attack to the US hegemony and it would allow certain countries to by-pass us sanctions e.g. Russia, Iran etc. But it would also emboldens the remimbi’s claim as a world trade currency, which would deliver a significant blow to the USD’s strength, which in turn might postpone the crash of the system. The Chinese move is therefore quite astute, especially since they chose to back it in physical gold to strengthen trust. This just goes to prove that gold remains strategically important and it also shows that gold is still the only kind of real money. This action sharply contrasts with Central Bank words, that gold is not a monetary or a financial asset. However, in this real-life scenario, we see that central banks know exactly why they own physical gold and it is not because of “tradition”, as Bernanke responded to Ron Paul’s question as to why central banks still hold physical gold.
In this backdrop, we also see Europe’s efforts to use the Macron victory as proof of stabilization of the euro zone. However, quite the opposite is the case: If anything, it is proof the EU is going further down the drain, firmly unwilling to undertake any of the necessary, fundamental changes within the Eurozone. Therefore, it is increasingly likely that the EU will become more totalitarian and try to push further centralization and restriction of civil and individual liberties.
This all confirms that gold, today more than ever, is the most reliable store of value, especially in contrast to the paper money system. If somebody would have purchased gold back in the 70ties, with a 100K for a 1800 oz, today the investment would worth approx. 2 million. Apart from its reliability and timelessness, gold ownership is also an important hedging instrument against geopolitical disruption and turmoil, especially, when stored outside one’s one jurisdiction. In particular, it is important to store metals not in jurisdictions that have already confiscated gold in the past, such as Russia, Germany, Italy and the USA. Switzerland is still a sovereign nation were the Swiss people can limit the power of politicians, making confiscation impossible.
Today we see more and more people waking up and we can see the cracks in the system everywhere. The trend is definitely going towards decentralization and autonomy. It is becoming increasingly apparent that the best solution for what is coming is to secede from centralized government and by doing so decentralize the power and make room for the much needed competition of ideas. The establishment’s efforts to stop such initiatives are on the rise as well, however they will most likely prove to be insufficient to turn the tide. In other words, you can blow out a candle, but you can’t blow out a fire.