'Real' Money & Why You Need It Now, Part 2

Tyler Durden's picture

In these volatile times, gold is more important than ever. Bonner & Partners' Bill Bonner explains in this two-part series (Part 1 here), the importance of 'real money' and why you need it now...

近年のように変化が大きい時、ゴールドはかつて無く重要性が増している。Bonner & ParnersのBill Bonnerは二編の記事で解説を行う、「リアルマネー」が如何に重要かまた今あなたが必要かを・・・

Why You Will Need Gold


What troubles my sleep is what is not in the textbooks.


Central banks are in the process of making trillions in government debt disappear. Governments borrow money that doesn’t exist. The debt is bought up by the central bank, which creates money for that purpose. The interest paid to the central bank on the debt is paid back to the U.S. Treasury (that’s the deal between the Fed and the U.S. government).


Then, when the bond matures, the “normal” thing would be for the borrower – the U.S. government – to repay the loan. This repayment money would have to come out of the economy and into the Fed’s vaults, thus reducing the amount of money in circulation and triggering an economic slump.


The federal government would have to run a surplus in order to actually be a net payer of debt rather than a net borrower. That’s not going to happen. Instead, it borrows more – to repay the old loan – and adds further fuel to hot asset markets. The debt is never settled… it goes on forever… eternally unpaid, forgotten in the bank’s vaults. It is as if it had disappeared completely.


The debt may disappear. But the credit – the money put into the economy to create the debt – lives on. It spends its days chasing asset prices. Stocks, bonds, real estate, art – all go up. Bread and automobiles remain more or less where they were. Who complains?


Keynesian economists Larry Summers of Harvard and Paul Krugman of Princeton practically drool when they think of it… a paradise where governments can redistribute wealth and undertake huge capital investment projects – roads, hospitals, bridges, harbors – at no cost. The feds get to borrow money, hire people, and spend on pet projects. Then, as if by magic, the debt vanishes. What could be better?

ケインズ派のLarry SummersやPaul Krugmanは特に待ちわびている、事あるごとに・・・・政府が冨の再配分と巨額の投資プロジェクトを実行する天国だーー道路、病院、橋、港湾ーーどれもコスト無しで建設できる。政府は借金、雇用、プロジェクト実行やりたい放題となる。そして、まるで魔法のように、負債は消滅する。これ以上に良いことがあるだろうか?

The only thing that might be better would be negative interest rates, in which the government is actually paid to borrow. That is already happening. In Europe, rates have fallen so low that currently, Switzerland can borrow for 10 years at a MINUS 0.2% rate.


This allows the government – and only the government, because it is the only institution that can positively, absolutely guarantee that you will get your money when you are supposed to – to go to heaven without dying.


Further disturbing my sleep has been a report from Japan that the central bank has intervened directly in the stock market. The significance of this is staggering. Because now, the feds have in place the means – apparently – to take control of nearly all our wealth.


The government borrows. The central bank buys its debt. Then it never asks to be repaid.


As Japan shows, it can also buy stocks with the same free money. Bidding against a buyer who gets his money for nothing will be impossible. Gradually, the feds could acquire a controlling interest in almost all the world’s publicly listed companies. And who would object? Stock prices would go through the roof.

As for the nation’s debt – public and private – who minds if the feds buy it… and disappear it? Nobody.


As the price of debt goes up, the financial industry becomes richer. And government – and recipients of government money – are happy, too; the money just keeps flowing in their direction.


Leading economists – notably Ken Rogoff of Harvard and Willem Buiter of Citigroup – also encourage the feds to outlaw cash… giving them a trifecta of financial control. They would have a grip on America’s equity, debt, and bank accounts.

著名エコノミストーーKen RogoffやWillem Buiterーー彼らは政府に現金を非合法とすることを勧めている・・政府が金融を完全制御するためだ。彼らが米国株式、債務そして銀行口座もすべて把握するようになるだろう。

Already, government-sponsored agencies Fannie Mae and Freddie Mac are backing approximately 60% of new U.S. mortgages since 2008. Meaning the feds effectively own $4.8 trillion worth of U.S. housing. The Federal Reserve owns a further $4.5 trillion in debt. And through the student loan program, 40 million young people count on the feds to not foreclose on their lives.

すでに、政府支援のあるFannie MaeやFreddie Macが2008年以来の米国住宅ローンの60%を提供している。この意味するところは、政府が実行的に米国住宅価値の$4.8Tを所有しているということだ。FEDは$4.5Tの負債を引き受けている。そして学生ローンで、40M人の学生は政府を頼りにしている。

The only significant asset that remains out of their grasp is gold. And they may grab that soon.


It wouldn’t be the first time. In 1933, Franklin Roosevelt’s Executive Order 6102 decreed that all gold should be turned in to the U.S. Treasury at $20 an ounce. Then, after the gold was in his hands, he was able to devalue the U.S. dollar by 75%, pricing gold at $35 an ounce.

これが最初のことではない。1933年に、Franklin Rooseveltは大統領令6102ですべてのゴールドは$20/オンスで米国財務省に強制供出させると宣言した。そして、ゴールドを手中にした後、彼は米ドルを75%減価した、ゴールドを$35/オンスとしたのだ。

Gold was cash back then. And Roosevelt was trying to avoid the very thing we’ve seen happen in Argentina, Cyprus, and, most recently, Greece – a dash for cash.


With free money available to them, the feds today could easily close that door, too – declaring private gold reserves illegal. They might offer to buy it for, say, $1,500 an ounce. Who would object to a 25% premium?


The feds are the lenders and buyers of last resort. As the quality of assets declines, more and more assets – debt and equity – end up in their hands. Gradually, they control more and more of the capital structure – bought with free money under cover of financial necessity. Gradually, there is less and less “free” in free enterprise. And gradually, there is less and less real wealth created.


Gradually, too, the noose tightens around your financial neck, as there are fewer and fewer doors open and fewer places that are safe to keep your wealth.


No one likes to have his wealth “nationalized” at the point of a gun. But everyone likes having it bought from him for more than it is worth.


This is what has happened already in the QE programs in Europe and America… and even more so in Japan’s QE program (with an extra helping of equity buying). How much more of it the world can take is anybody’s guess. No one knows how far this can go. But as far as I know, no economy has ever been successfully Sovietized by printing money and using it to buy assets.


Don’t Sweat the Ice Age


Many economists are foretelling a long period of sluggish growth and low price inflation. The economy may want to go into a deflationary hibernation, they say. But since the feds can print and spend with impunity, it may be a long time coming. Plus, if the government is able to force people into bank accounts – and out of cash – it will be able to tax savings and further stimulate spending.


With these new tools, the feds should be able to prevent a real correction for many years. They suggest that we prepare for an economic “Ice Age,” with little change year to year.


Asset prices won’t fall because the central bank is actively buying bonds, and maybe even stocks, adding new money to the financial economy. Consumer prices won’t rise because there is no real growth in demand. Debt will increase – but it is hidden and forgotten in central-bank vaults.


Maybe so. But I don’t think you should expect it. It could lead to a dangerous complacency. The feds might be able to hold this together and they might not. This Ice Age formula – dousing a debt-soaked economy with more debt – is not a way to build a healthy economy. It is just a way to shift real resources to the government and its cronies without causing either a frightening spell of inflation or deflation.


It might work for a while. But the falcon of asset prices becomes deaf to the falconer of the real economy. Then, in a kind of financial never-never land, he gets lost completely and flies into a tree. Asset prices fall to the ground. Investors panic. Lenders call their loans. Art investors rush to auction off their tableaux. Lines form at ATMs.


I am not going to speculate on how or when this occurs.


“If you’re in a theater and one person walks calmly to an exit, it doesn’t attract much notice,” said Vern Gowdie, an Australian colleague. “Two… three… probably not much reaction either. But if you have three people suddenly run for an exit, you’ll have a panic.”

「もしあなたが劇場にいて、誰か一人が出口に向かっても注意を引かないだろう。」とVem Gowdieは言う。「二人・・・三人・・・となってもそれほど反応がないだろう。しかしもし3人目が出口に駆け出すと、皆はパニックになるだろう。」

What then?