Archive for May, 2010

Visual presentation of Fiat Currency cyclical ending

What does a world without paper money look like to you?

Now take whatever that vision is and describe the change-over period from what we have now to your view of the ‘next’ money system.

For me, the ideal is a gold based or gold backed system, where your digital account literally tracks how many atoms of gold you are holding, then pays for the stick of gum with 1 of them. Digitally we can do this since hauling around infinitesimal amounts of gold is impossible as is constantly carrying such physical gold with us all the time is impractical.

Whatever the end is like there is still a transition period, this graphic is the best I have seen to explain this.

The vicious cycle of Fiat Currency.

Fiat Currency endgame cycle

Thanks to Philip Davis and his “Fuggedaboutit” posting for showing this description.

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WEB of DEBT

The New York Times recently posted an interesting graphic, seen below, that depicts the intricate web of debt owed by and to the so called PIIGS, nations of Portugal, Italy, Ireland, Greece and Spain.

New York Times graphic showing the debt loads to the PIIGS

Trillions in debt in a web of transactions ~ visualized.

In examining this situation I am reminded of the notion of the ‘sugar cup’ in a small neighborhood. Where whenever someone runs short of sugar for baking they have always been able to ‘borrow’ a cup (or two or three) from a kindly neighbor, who has in turn borrowed back. This was the so-called concept of the open market power supply that got California, Nevada & Oregon into so much trouble back about a decade ago. The idea that there would be surplus power provided by the other regions that they could then ‘borrow’ it and rates would somehow remain stable. What happens when everyone runs out of sugar at the same time?

What happens when the states all decide to ‘borrow’ and not build power generation capacity, causing an extreme shortage for all of them at the same time?

What happens when the cost of borrowing money, like it appears to have begun, goes up and you have loads of outstanding debt to your neighbors and none of them have ‘spare’ cash to loan you?

Rates go out of control, that is what happens.

The good will of the sugar cup neighborhood gets trashed, the power rates rise exponentially and brown-outs or rolling black-outs start being ordered.

When the time comes, and it will, the lenders will all demand great HUGE concessions from these ‘sovereign’ governments, then we shall truly see how ‘sovereign’ they really are…

What does all this mean to your investment strategies? Include GOLD and SILVER or be prepared to watch all your ‘holdings’ value vanish as the debt bomb explodes. Perhaps better said, implodes, and like a black hole it will drag in many other asset classes.

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