Commentary from GATA's Bill Holter at http://lemetropolecafe.com
Telling it like it is...
"Filling the hole"
To all; Jim Sinclair posted this on his site yesterday. It is brilliant because it is so simple! In the most simple nutshell in history, he is 100% CORRECT!
"Gold goes as high as the debt hole goes low."
This concept is so easy to understand by anyone no matter how their mind works, whether they are mathematically, artistic, musically, medically, capitalistic, socialistic or WHATEVER inclined or oriented. If you understand that all currencies on the planet are "debt based" and backed by the full faith and "credit" of whomever the issuer is, Gold, pure and simple will "grow" in value equal to however much debt is issued by each currency divided by how much (collectively) Gold that central bank has (or says they have). When all is said and done, Gold does not "grow", it does not "go up", the only thing it does (and has to do in a fiat system) is "fill the hole!".
Think of it this way, if you "owe", someday you must "pay". You must pay with something real, it can be Gold, or oil, or wheat or Cracker Jacks or whatever. This is in a real world, the world we live in today is simply not "real". I say this because in today's global fiat system, "debts" are paid by issuing more of the same currency (created by issuing more debt). "Settlement", never occurs! When this episode is over, Gold will "fill these holes" that are being created (and applauded) on a daily basis. QE this or LTRO that, debt, and more debt, is being created every day. Nevermind that no economy can grow fast enough to pay existing debts, more debt gets created every single day and digs "the hole" deeper and deeper. Said simply, each and every day, the world's paper currencies are "worth" less and less because they are being created faster and faster (surely faster than their economies are or even CAN grow). Simple math or logic then tells you that each day, the "worth" or "value" of Gold priced in these currencies goes higher and higher. The reality is, because even the existing debt cannot be paid back (without creating more debt through monetizing), the debt will ultimately (because it intrinsically already is) be valued at "zero", ...and the opposite of "zero" is?
Recently Ben Bernanke and other "really smart people" have been on a Gold bashing campaign which they are terming "transparency". Why now? Well, because they have to. They have to because as "the debt hole" gets deeper and deeper, more and more people understand that it can never be paid back and their minds begin to "wander". The central banks of the world just don't want these "wandering minds" to end up coming to the conclusion that their "money" really isn't money at all. So Gold gets bashed with untruths and a smear campaign (not to mention the millions of fake paper contracts) so as to divert the wandering minds (as many as possible) from the truth.
We have heard forever (at least my entire lifetime) that there isn't enough Gold in the world to sustain economies much less grow them. THIS is total bullshit! Let us assume that over 5,000 years that only one single ounce had been mined and only 1/2,500th of an ounce is mined per year (2% increase), if this ounce was priced at whatever number (maybe $500 Gazillion Bazillion), there would be enough. The truth is, they are correct, there is not enough Gold in the world to support a banking and currency system ...AT THESE PRICES! At some price (I do not profess to know), the current Gold in existence (and purported to be held by central banks), the entire system could be 100% backed, this is a fact.
"Filling the hole" is exactly what Gold WILL eventually do. "Filling the hole" is exactly the same concept that I have probably bored you to death with over the years, it is "revaluation" in simpler terms. After what we have been through since 2007, you should probably now understand "why" ..."they" don't want Gold in the system. Gold, takes actual effort, machinery, (real capital) to produce, it is rare. Politiciians and central bankers would be precluded from handing out "free money" to friends, cronies etc. at a whim. Bankruptcies would...well...be bankruptcies and "bailouts" wouldn't exist. They couldn't! Think about it, who would be stupid enough to give away something that is real, rare and valuable to save someone else? Surely not any of the greedy scum who run the show now, no, failures should simply fail and capital would be "cared for" and risk actually avoided. In this manner, capital would "efficiently" find it's way to investment and the AIG's, Fannies and Freddies, Solyndra's, GM's, and "bridges to nowhere" would not exist, be built or even contemplated.
Please, if you do not understand this concept that Gold must fill the global debt hole, spend some quiet time and think about it until it makes some sense to you. This is the most important concept in finance, and I might add, it has ALWAYS been the most important concept. Commerce, and thus society...requires real "settlement", without "real" settlement, everything is false and fraud becomes the new norm. How can anyone think that a banking system that is based on fraud could breed anything other than...fraud? Yes folks, we have certainly arrived and already entered frauds front door! Regards, Bill H.