Peak Deception, Peak Debt

  1. Intro
  2. Price Inflation
  3. Globalization
  4. Chart Significance
  5. Future
  6. More Deception
  7. Derivatives
  8. New World Order
  9. Footnotes

The main function of central bankers is to maintain confidence in paper money (not full employment, long-term prosperity, minimal volatility, etc). Since at least 1982, this confidence has been maintained via deceptive manipulation of "inflation expectations".

What does it mean when central banks state "inflation expectations are contained"?

The following chart contains a wealth of information, but first we must understand what price inflation (CPI) is, and that maintaining the 25 year macro trend of declining TBill yields is critical to the current debt-based paradigm of globalization.

The following is a chart which superimposes the 30 Year Treasury Bill Yield chart (chartsrus.com) on the ShadowStats.com CPI chart:

Price Inflation

The CPI portion of the chart shows the SGS calculation of CPI using a consistent weighting that had been in place since 1982, contrasted against the official CPI-U calculation which has been deceptively reweighted to show a lower price inflation. Deception consists of hedonics, geometric weighting, manipulation of indices (that drive investment thus commodity price volatility), and other methods detailed by other writers and macro-economic juncture manipulations.

Price inflation is normally (excluding calamities and short-term squeezes), a result of inflating (increasing) the supply of paper money. Human productivity is always increasing due to technological innovation (e.g. efficiency gained since Stone Age, or Industrial Revolution in USA), thus in a world without central banks and money supply inflation, prices decrease on the long trend. Note, a compelling fact is that prices did not increase during the 1800s when the USA was using gold and/or silver for money, except briefly during Civil War when there was massive inflation of paper Continental notes. Whereas, since 1913 when the USA central bank was created, prices have increased about 2,500%. Just like the Weimer Germany and Zimbabwe paper money, the Continental notes ended up worth less than toilet paper. Thus, true inflation is of the paper money supply, which results in a deflation of (decrease in) the value of the paper money-- i.e. price inflation.

However, the destruction of the value of paper money is a confidence game, since paper money has a false value which is much higher than the value of paper, thus money supply inflation does not result in an immediate loss of value. This confidence game is managing "inflation expectations". Since most people only FEAR inflation if prices are increasing at alarming rate (or their incomes are falling precipitously in deflationary, debt-implosion period that follows), it is possible to delay the destruction of the value of paper money during massive money supply inflation, if "inflation expectations" (the fear of inflation, or perception of destruction of value) is delayed. In the current globalization, this is done by funneling the excessive paper money into irrational investment bubbles for increasing the supply of goods and services, thus lowering prices of such goods and services. The bubbles are necessary, because massive, redundant capital malinvestment solely for the purpose of lowering the prices of goods and services, during a period of equally massive increases in debt-to-GDP ratios, could not be incentivized with any sane foresight. This is because all periods of extreme debt-to-GDP ratios such as the current 450% debt-to-GDP ratio, end in economic crashes such as the much smaller 140% ratio in late 1920s which peaked at 264% as GDP collapsed in the 1930s Great Depression.

One must grasp the fact that ALL paper money created is created as a debt from the government, or private sector banks, to the central bank of the nation. So massive increases in the supply of paper money, which are faster than the increase in human productivity, are always massive increases in the debt-to-GDP ratios. For example, we can see that global "real" GDP growth rates plus global CPI rates as approximate adjustment gives us global nominal GDP rates which are much lower than the massive increases [Philippines +20%] in the various national money supplies, thus by definition the excess paper money is fueling non-productive or indebted economic activity. And since capital investment has long payback duration (e.g. 15 - 30 years), then short-term nature of capital investment bubbles are irrational, but GREED incentivizes people to pile on during bubbles, as long as their is another "greater fool". Note the dipolar, extreme contrast between FEAR of the actual massive destruction of the value of money (resultant economic great depression), hidden and delayed by massive GREED. Such bubbles are thus time bombs that end with wildfire FEAR and a mad race to convert paper money into daily needs, gold, and silver.

Thus, managing "inflation expectations" is really all about transforming FEAR into GREED until debt-to-GDP ratios peak.

Globalization

Globalization is primarily the exchange of western paper money (significantly US dollars) for goods and outsourced services produced by the developing world. For example, China only provides 15.6% of US imports, whereas it is estimated nearly 100% of China's real GDP growth is due to exports (internal nominal growth is apparently nullified by accelerating price inflation) and 50% of China's economy is exports. China keeps it's Yuan pegged to a low dollar value to maintain it low price labor advantage, so China's wealthy class can invest the paper dollars primarily in paper US TBills, instead of on it's people. China's wealth is concentrating faster than any other significant nation as a result (update). As long as TBill yields are trending down (as they have since 1982), the yield spread against inflation is irrelevant as China's TBill investments earn a massive capital gain. The capital gains of the snowball (bubble) downward trend of TBill yields is critical to the current structure of globalization, for if TBill yields ever start to trend up with the resultant capital gains losses, then China's Taipans (and any other reasonably well informed investor, who understands that true inflation is much higher than Tbill yields), must sell TBills (and bonds in general) to avoid both capital gains and (yield - inflation) spread losses. Thus, the snowball will someday be in other direction (bubble will peak) with rising TBill yields accelerating.

The declining bond yields have been critical to fueling a global credit boom, as debt-to-GDP ratios must increase when there is massive money supply inflation worldwide, as already discussed in the Price Inflation section. However, when the downward bond yield trend bubble reverses, the massive increases in money supply and debt will probably not reverse immediately, because the central banks (due to political pressure and their self-interest to survive) will choose to monetize debt (and even derivative) defaults in order to fund the incremental increases in interest rate payments and debt-based asset risk repricing. Such will be known as Weimer Germany or Zimbabwe style hyperflation.

Due to the huge $49 trillion size of the bond markets, to maintain this downward yield trend in the bond markets, it has been crucial to involve the average person via their centrally managed pension, money market, college savings, and other funds. These ongoing centrally managed investments are predicated on deceiving the gullible public-at-large, that TBills are yielding higher returns than "inflation". So keeping the public's "inflation expectations" below bond yields, is a critical part of the globalization phenomenon in it's current structure. There are other critical players, such as complicit (and/or fooled) fund managers whose compensations are often based on overvaluing bond derivatives.

Given the high personal debt-to-income ratios in west, especially in the USA, low interest rates (bond yields) have also been crucial to maintaining consumer spending, given that consumers have extracted spending from house equity with long-term mortgages. And the US consumer accounts for 25% of global GDP.

Thus, globalization is the process of maximizing debt across all nations and sectors of society, ranging from the Taipans who borrow from the big Chinese banks for massive malinvestment in capital spending, to the homebuyer in the west who borrows more than 10 times income due to debt-inflated home asset bubble, to the middle-class Chinese who throw their high savings rate of debt-backed, paper money at a stock market bubble. Maximizing debt, GREED, and gambling globally insures politically that the globe has no choice but to choose the hyperinflation of the money supply forward, before the coming unfathomably, catastrophic, global deflationary debt-implosion. The global financial napalm of the end scenario is probably designed to lead to a New World Order.

Chart Significance

On the chart above, there are several key inflection points that demonstrate critical junctures where the central banks had to increase deception in order to maintain this aforementioned downward yield trend.

  1. In November of 2005, the 30 Year TBill yield fell below the official CPI-U, initiating a massive spike in the paper money price of gold and silver.

  2. By May/June 2006, the price of oil had been manipulated lower, by reweighting the Goldman Sache's commodity index, causing many retirement and other funds to lower their investment allocation to oil. This caused the CPI-U to drop, providing public deception that the TBill yield was now safely above inflation, when in fact the true SGS price inflation was still well above the TBill yield. This public deception worked temporarily, deflating gold and silver temporarily.

  3. Notice that after #2, the spread between the CPI-U liar price inflation and the SGS true price inflation, had increased from 6% to 7%, so some liar re-engineering of the CPI-U occurred (these hedonics, geometric means, and other deceptions have been discussed in detail by others). Also there was increasing awareness that USA M3, which had been hidden by the central bank in March 2006, was actually increasing north of 10% annually, due to numerous private 0.99999 accurate statistical recreations from continuing public government data.

  4. By June 2007, TBill yields began to rise again, with the likes of Pimco's Bill Gross stating that the bears were back in the market. This was probably caused by oil price rising to new highs, sending CPI-U back up, central banks worldwide increasing short-term rates due to out-of-control (hyperinflation) liquidity in the globalization financial system. This caused the subprime real-estate derivative bubble in the USA to show signs of unraveling, potentially dragging the entire global economy into a general bursting credit bubble. But the move to safe liquidity brought TBill yields down again, thus temporarily maintaining deception and defeating the change in yield trend. The deflationists such a Bill Schilling and Marc Faber were given long primetime interviews on Bloomberg (mass media is a tool of deception). The central banks appear to be using the threat of deflation to keep yields moving lower, while simultaneously hyperinflating the liquidity by monetizing derivatives via Repo contracts. August 10 US central bank bought $38 billion mortgage-backed securities, which is 1/3 of 1% of the $12 trillion M3 in one day! That is equivalent to 120% per annum M3 HYPERinflation! Repos show up in M3 which is no longer reported so I think the central bank already had planned this since March 2006 at least. Bernanke's "money from helicopters" have been mobilized. Can yields come down to 3% without sending the entire global financial system into credit implosion? I don't think so, so I conclude that we are nearing Peak Deception, or Peak Debt deception. Central banks may have succeeded in moving massive capital into TBills, but they also woke up FEAR in the process, and not sure if they can restore GREED without some serious confidence building liquidity (hyperinflation). On Friday Aug 10 afternoon, Gold and silver even rallied (Bloomberg says gold and silver bought as a safe haven) while the dollar was up, TBill yields were down, and stocks were down. What will remain is a mad hyperinflationary race to stay ahead of the accelerating yields, with plenty of volatility to keep everyone unsure of which direction (deflation or hyperinflation) the central banks have chosen. In reality, we already have and will continue to have mild deflation in some asset and prices in overvalued western economies, coupled with massive monetary inflation worldwide (stagflation in west, price inflation, credit bubble debt based development in developing countries).

  5. Lets step back to 1991, the TBill yield falls below true SGS price inflation for the first time since 1982, the central banks engineering a recession (see GDP chart at http://www.shadowstats.com/cgi-bin/sgs/data) to bring CPI down.

  6. Then as central bank hyperinflates the M3 in 1994 (see http://www.nowandfutures.com/key_stats.html#m3b) to blast out of the recession by 1996 causing the dot.com bubble, they re-engineer the CPI-U, so that it stays flat while true SGS price inflation runs up, thus increasing the spread-- between the official liar CPI-U price inflation and the true SGS price inflation-- from 2% in 1994 to 6% by 1996. These changes were made during Clinton's time. Ross Perot warned us in 1992, that we needed to get a shovel and clean out the barn, but he was apparently cleaned out by a more powerful force. This extra 4% of deception allowed the TBill yield to stay above the liar CPI-U price inflation until November 2005.

  7. In 1996, the TBill yield crossed below the true SGS price inflation, which is the year that GATA claims that central banks started dumping gold to suppress the gold price. Gold investors are not fooled by the official liar CPI-U, and it is necessary to suppress the gold price as gold is a predictor or driver of "inflation expectations". When gold goes up, investors worldwide wonder what FEAR gold is signaling. Isn't it suspect that Sept. 11, 2001 and the subsequent terrorist threat, war mania has been a often mentioned excuse given for the rising gold price? (Thanks to Jason Hommel of SilverStockReport.com for pointing out this juncture on the chart)

  8. By 1999, CPI-U began to rocket up and TBill yields were also (no additional spread deception was reengineered from true SGS price inflation). Remember Warren Buffet bought 129 million oz of silver as an inflation hedge in 1998. Remember Buffet was publicly saying dot.com valuations were irrational bubble. So the markets were already wise to the deception, so the central banks had no choice but to implode the dot.com bubble, which again can be verified in the M3 and GDP charts (see prior links). And Sept. 11, 2001, then becomes very suspect as it provided a convenient excuse to drop the short-term interest rates and blast off M3 again, with most of the public's FEAR thus conveniently focused else where while gold doubled in price, so TBill yields fell until Nov. 2005.

Future

The Price Inflation section showed that debt-to-GDP ratios are at 450% already 3 times higher than the 140% before the 1929 crash. The Globalization section showed that China is nearly 100% dependent on exports for real GDP growth, 50% of the Chinese economy is dependent on exports, USA only get 15.6% of imports from China, and globalization is dependent on the US consumer. And that developing world has massive monetary inflation that exceeds nominal GDP growth plus price inflation, thus true real GDP growth in developing world is negative, growth is thus funded by debt, and thus China could not expect real export demand to grow internally or from other sources. Remember most all developing economies are dependent on exporting goods, outsourcing, and immigration (remittances) to the west. Thus, it is clear that to keep the globalization growth of China from imploding, the US economy can not be allowed to implode. And with the debt levels at far beyond the historical extreme that preceded the 1930s Great Depression, then the only way to prevent the USA from imploding, is for the central banks to monetize the debt. This means accelerating monetary inflation is virtually guaranteed, as long as monetization does not feed into "inflation expectations" causing a run on gold and silver. When gold and silver go parabolic, to many multiples of their current prices, it will signal the end of contained "inflation expectations", greed will have shifted to fear, and the inability to monetize the debt will follow with parabolic price inflation blow off, as occurred in Weimer Germany and Zimbabwe.

In short, the accelerating monetization and expansion of debt (monetary inflation) will continue until the public-at-large is buying gold and silver.

The desire of central bankers to monetize any level of defaults was demonstrated this 2nd week of August 2007, as central banks monetized worthless/defaulted subprime mortgage-backed securities (assume at their former overvalued prices) at an annualized monetary inflation rate greater than 100%! Repos have shot up to 45% annualized growth rate! Roughly $0.6 trillion was injected into the world's $40 trillion money supply in less than a week, which is an annualized monetary inflation rate greater than 100%! This demonstrated the propensity of central bankers to monetize all or some of the $450 trillion in Derivatives. Since derivatives are over 10 times larger than all paper money in the world (and growing at 30+% per year), it shows the propensity for hyperinflation that boggles the mind.

However, we can not expect this reality of the hyperinflation acceleration in progress to feed quickly into the reality of daily finance and investments. The central bankers use volatility and public ignorance. For example, the public's fear of of subprime defaults drive massive capital to misperceived "safety" of US dollars and US TBills, thus keeping the TBill yield on downward trend. The hyperinflation is hidden in monetization directly to defaulted derivatives, using "back door" repos, beyond the comprehension of the nightly news or the public-at-large. Note repos (repurchase agreements) are no longer reported in meaningful public statistics, since they were part of M3 reporting which was discontinued in March 2006.

Volatility will increase all the way up the coming hyperinflationary acceleration, with the central banks occasionally threatening implosion or deflation. It will take strong hands, a strong stomach, and a non-emotional, well researched methodology for trading peaking commodity and precious metal investments for undervalued ones. In particular, the contrarian investor must be totally devoid of the socialistic mentality of constant marginal utility of money, in order to maximize true wealth. From the New World Order section:

"...And it is important to understand that wealth, insatiability, laziness, convenience, pride, jealousy, greed, and debt are some of the trappings of socialism. Wealth is relative because it depends on and is thus measured by society; whereas, prosperity is a personal decision, discipline, sacrifice, satisfaction, contentment, and joy. True and absolute wealth is entrusted to those who maximize the free market, liberty, and the respect for private property. Ponder the concept that greed is the seductive, addictive mirage of the constant marginal utility of money, which is also why gold and silver are not commodities. Debt and thus greed are impossible on a gold and silver money standard. Real money and paper debt money compete because fear and greed compete. Thus, the liberty seeking individual forsakes fear and greed, transcends the "real world", and has a non-constant marginal utility for money. The socialistic world has a constant marginal utility (insatiability) for money, and that is what makes paper money the money for socialism, and makes gold and silver so valuable to the libertarian. But the libertarian who has an insatiable demand for gold and silver has fallen into the trap of socialism and the "real world". This means the truely liberty seeking individual forsakes all the trappings of socialism, e.g. jealousy, pride, debt, extravagance, etc..."

Over the next 6 to 12 months or perhaps less, the monetary hyperinflation should manifest in higher commodity prices, and a mania developing. The question is when does the public-at-large become fearful and start buying gold and silver? When that happens, we want to be divested of all other commodities. This author's opinion is not until 2009 at least because the west's demand for gold is currently declining. Central banks efforts to contain "inflation expectations" have been almost too success, but this situation could change quickly, so the risk when trading out of gold and silver increases the further the hyperinflation accelerates with a declining bond yield.

Others have argued that economic prosperity will result as gold and silver increase in value. Economic prosperity results from use of gold and silver as money, but first the 450% debt-to-GDP ratio has to be deflated, which did not exist when gold and silver last peaked in price in 1980. The boom since 1980 was fueled by a debt-boom, not by use of gold and silver as money, which is proven by the main chart above.

This author is invested with 2-3 year "hold" outlook, primarily in silver bullion, quality near-term silver and gold producers, and a few "no brainer" near-term nickel, zinc, and copper producers. This author has used the recent selloff in the commodity stocks to become fully invested. A contrarian believes truth is opposite of what the mob does, so if the mob is moving to cash, this author moves away from cash. This author is not jealous if his cost basis in a stock is not the absolute lowest possible if "could have, should have". Plunge into quality investments based on a 2 - 3 contrarian outlook.

More Deception

Tangential to the main point of this editorial, Peak Oil is really Peak Cheap Oil, as we can see the central bankers are unable to allow oil to rise to it's true ShadowStats.com (SGS or SS) price inflation adjusted 1980 price of $240, as this would cause CPI-U to rise above the 30 Year TBill Yield. If oil was priced at $240, not only could sufficient oil be produced for the world (e.g. the market could decide between numerous options such as Oil Sands, coal-to-diesel conversion, high EROEI nuclear to provide input energy for the low EROEI of such source, etc.), also the deception of central banking containment of "inflation expectations" would be unmasked. So if oil rises much more, then it means deception will break. When the "inflation expectations" deception of the public-at-large breaks, then gold and silver will rise even faster than other commodities. This is what happened towards end of 1970-80 bull market in commodities, as gold and silver went parabolic from their historical low ratios to oil and overshot. This because the real problem is globalization is a monetary fraud, deceptively hidden from the public-at-large. Compare the SGS adjusted silver chart to the SGS adjusted oil chart, and ask yourself is there Peak Silver in the ground, or is silver just more price suppressed than oil!

Peak Oil is part of the deception, attempting to blame price inflation on a natural cause, thus misdirecting blame away from the true cause of monetary hyperinflation. The natural cause of Peak Oil is a fallacy caused by the below $20 price of Oil in the 1990s, which destroyed investment in the oil industry. We could go into more details about how oil is nationalized which discourages investment, government cannibalizes large portion of what would go to investment with high gas taxes, even more controversial assertions that Gull Island at Prudhoe Bay in Alaska contains enough oil to supply the USA for decades. But it isn't necessary, as common sense (e.g. Oil Sands, etc) says there is plenty of oil at a higher price.

And Peak Gold? Gold production is declining and the new big mega-deposits are more rare. As the total annual tonnes of gold production has increased, it takes even larger discoveries avoid decline. Decline is both a function of insufficient/delayed investment in both commodities and the developing world. Imagine if the world had not left the gold standard in early 1900s, then developing world would have developed along with the western nations in a more free market. And this result is affecting almost every commodity. It is not unique to Oil. It is unique to the time that we are in where the central banks have manipulated investment priorities with massive debt and greed for maximizing paper.

Oil is too cheap right now, it should be $240 at least. And silver should be at least $250. Which is more undervalued then? The historical ratio of 16 of Gold to Oil was true 83% of history. Thus Gold should be 16 x $70 = $1120. In short, Oil can't keep going higher without dragging silver and gold MUCH higher. This is also shown by the chart that rising Oil would send CPI-U up to cross TBill yield. Such a cross would spell the end of globalization. So we can see that indeed globalization will be limited by a debt implosion caused by energy rising too high in price. The only thing the central banker can do is buy some time by hyperinflating, which is exactly what they are doing.

Derivatives

Derivatives serve some very important purposes, which have nothing to do with former US central bank head Greenspan's assertion that they "disperse credit risk".
  1. Defaults in US dollar-denominated derivatives create a demand to monetize them, thus a demand for US dollars. Given $450 trillion of derivatives (growing 2 - 4x faster than paper money supply) versus roughly $40 trillion of paper money worldwide, then demand for (and thus the value of) US dollars can be stimulated to outweigh any dumping of even a few $trillion by China and others.

  2. For the wealthy brokers that package them, derivatives provide higher paper rates of return than gold and silver, thus suppressing Wallstreet's demand for non-paper money. These superior rates of return not only suppressed the gold and silver prices, but also incentivized Wallstreet to lie and overvalue derivatives, e.g. assigning triple AAA rating to derivatives backed by subprime mortgages.

  3. For the pensions, money markets, and other funds of Mainstreet (common people), triple AAA rated derivatives provided a higher rate of return than other fixed-interest rate investments, which is reinforced by declining bond yields since 1982.

  4. The prior two (2) effects cause an underpricing of risk, which causes too many lenders to chase too few borrows, thus being a feedback loop which snowballs interest rates lower. The parabolically increasing true risk becomes a compressed spring waiting to explode and drive interest rates to infinity, where someday no one will lend and there will be a credit crisis of unfathomable proportions. Essentially derivatives are effective in funneling the hyperinflation of the paper money supply back into bonds.

  5. Mispricing of true risk creates parabolically increasing malinvestment. Imagine:


    Thus, prices don't rise rationally and the paper money supply inflation is hidden.

  6. Derivatives have locked both Wallstreet and Mainstreet into the debt bubble, as both are bankrupted if the derivatives default, if further hyperinflation of debt, i.e. expansion of paper money supply, is not accelerated. Remember every paper dollar is created as a debt. Paper dollars are backed by debt, instead of gold or silver. Derivatives are financial napalm strapped to the chest of a central banker who says, "eat more debt or die". I wonder if central bankers privately smiled with satisfaction when in 2nd week of August, Wallstreet pleaded and begged for more debt to avoid bankruptcy?

  7. As the central banks monetize defaulted derivatives, they reward and thus further incentivize criminal and speculative behavior. Derivatives insure that society disintegrates into the futility of the ultimate failure of criminality, gambling, and valueless speculation. And neither Wallstreet nor Mainstreet can escape unless they accept their bankruptcy.

  8. Warren Buffet wrote that "Derivatives are financial weapons of mass destruction...time bombs, both for the parties that deal in them, and the economic system...The macro picture is dangerous and getting moreso...".

Please refer to this author's prior published essays, for explanation of how the declining yield curve since 1982 incentivized the acceleration in supply and demand for derivatives.

New World Order

The New World Order is a goal for all people of the world to be ruled by one untouchable government, one set of strict laws, one oppressive tax system, and one debt-based currency. This was articulated by former US President Bush, re-iterated by all subsequent US presidents and major US candidates from both parties, and in a warning by assassinated US President Kennedy. It is crucial to understand why such a goal is socialism, and to understand why socialism has and will always result in poverty, despair, shortages, and slavery.

Any form of control, duress, and force are absolutely (without question or caveats) the antithesis of a free market, liberty, and private property. Free markets, liberty, and private property are absolutely the only way to achieve prosperity. Socialism is any form of control over the free decisions and actions of people. This concept of freedom versus control applies to all things, especially co-dependent relationships (dependent on controlling or owning each other) between people or the people and their government. Please take time to read numerous times and fully comprehend the prior crucial sentences.

Socialism is seductively marketed with the promise of more equally distributing prosperity and the "rule of law" to protect private property, rights, and freedoms. Collectivism means the group has some control or priority over the individual. Socialism, aka collectivism, starts with such seemingly seductive and innocuous promise of protecting various issues, minorities, and majorities of the group, then it insideously results in exactly the opposite of the promise. Collective equalness is the antithesis of a free market market and prosperity, because diverse individuals are not equal, rather they are different, so equalness can only exist as a lie of force or suppression, whereas diversity can generate prosperity via trading in a free market.

The reason that control fails is precisely the reason that free markets succeed. No one perspective on reality, i.e. no one plan or decision, is truth. Nature is infinitely diverse, and thus to optimally fit to the greatest success across the greatest number of diverse entities and phenomenon in nature, the individuals must be free to adapt to their local and diverse realities. The average person today just can not seem to grasp this. How many of you readers will say, "but who will make sure every child gets an education, who will police my neighborhood, who will enforce my private property boundaries, who will build the roads, who will collect the taxes, who will protect the weak and the minorities?"? The answer is you will educate your children, you will police your neighborhood, you will protect your private property boundaries, each individual minority will protect him/herself, roads can be funded with excise taxes on gas, and thus income taxes are unnecessary. Otherwise, you entrust some centralized authority to do, who can not optimize as well as individual decisions, and power corrupts absolutely.

One will invariably find that nations with very free markets, individual freedom, and well respected private property rights, are the most successful nations over the long-term. And the converse is true, with most poor nations lacking in those areas. The eroding US Constitution contains very strong protections of free market, individual liberty, and private property, but US citizens want their government to do so many things for them. The US government's share of the economy has increased from 3% in the early 1900s to well over 50% today. Assassinated US President Kennedy said in his famous speech, "Ask not what your country can do for you, but ask what you can do for your country". Perhaps better had he said, "ask what you can do for yourself". People all over the world are chosing to have their governments control everything and thus have chosen socialism and the New World Order.

But do not despair by the current trend of the world. Actually it is a fabulous opportunity for the individual who loves liberty. By definition, the growth of socialism is it's demise. In the emerging New World Order, small seeds such as the individual will prosper by seeking liberty; whereas, the group and the government are rotting. Acorns can grow to be large oaks trees over 50 to 100 years, but oaks trees can never grow to the moon or even the edge of the universe, even in a zillion years. Thus, the New World Order will never reach a 100% socialist world. As the New World Order spreads, it will be increasingly more difficult for it to grow. For example, if one invented a machine to suck all the oxygen atoms from the earth's atmosphere and place them inside of a pressurized container, it would be increasingly more difficult to suck in atoms as the free atoms became fewer with more room to roam the vacated atmosphere.

However, an individual can not serve two masters. To simultaneously seek liberty and yield to control by others is an oxymoron, self-deceit, and desirious of failure. True liberty means an absolute break from outside control. An individual can not expect socialist elements to be peaceful towards an individual's desire to be free. The burden or cost of seeking liberty never outweighs the alternative of poverty, despair, shortages, and slavery. And it is important to understand that wealth, insatiability, laziness, convenience, pride, jealousy, greed, and debt are some of the trappings of socialism. Wealth is relative because it depends on and is thus measured by society; whereas, prosperity is a personal decision, discipline, sacrifice, satisfaction, contentment, and joy. True and absolute wealth is entrusted to those who maximize the free market, liberty, and the respect for private property. Ponder the concept that greed is the seductive, addictive mirage of the constant marginal utility of money, which is also why gold and silver are not commodities. Debt and thus greed are impossible on a gold and silver money standard. Real money and paper debt money compete because fear and greed compete. Thus, the liberty seeking individual forsakes fear and greed, transcends the "real world", and has a non-constant marginal utility for money. The socialistic world has a constant marginal utility (insatiability) for money, and that is what makes paper money the money for socialism, and makes gold and silver so valuable to the libertarian. But the libertarian who has an insatiable demand for gold and silver has fallen into the trap of socialism and the "real world". This means the truely liberty seeking individual forsakes all the trappings of socialism, e.g. jealousy, pride, debt, extravagance, etc..

As socialism spreads, debt-based paper money of socialism is growing excessively large, will peak, and rot. To compensate, gold and silver will become extremely valuable, because they are the most simultaneously rare, fungible, and relatively non-consumeable (thus stable value) things that can not be drastically increased in quantity by and thus devalued by socialism.

As discussed in other sections of this essay, the debt-to-GDP ratio is growing unfathomably, will peak, and decay. Due to counter-party risk, the speed of a debt decay is similar to any Ponzi scheme in that it implodes rapidly, analgous to tumbling dominos with numerous forking branches. Defaults ignite other defaults in an accelerating cascade. Thus the social order (trust) of socialism will be severely fractured and inoperable without a form of non-debt-based money to transact with. Thus the return to a money backed by gold and/or silver is guaranteed by the implosion of debt and socialism coming.

The return to gold and silver money could bring great prosperity to the world, but the duration of the gold and silver money period may be extremely limited by the fact that 92% of world's gold and silver is concentrated in a small percent of the population1 and it is alleged that the bulk of this power and influence is held by individuals who have accumulated it with their control over the central banks, and that they desire a New World Order. If the bulk of the world is poor in terms of gold and silver, then the bulk of the world may again succumb to the seductive promise of socialism-- to confiscate privately held gold and silver for the more equitable use of society as a group. Those now in power could simply use their power to fool the people into thinking all gold and silver had been confiscated by the government, when in fact the powerful own and control the government. Private ownership of gold and silver would be illegal and those now in power would thus obtain control of 100% of gold and silver. Again the private owner of gold should not despair, because just as no machine can suck in every free atom of oxygen, the government can never track down every stash of privately owned gold. A government which expends all it's resources to dig up the backyards of every homestead on earth, is a rotting government destined to shortages due to the malinvestment of finite resources. It is important that every individual develop an understanding of the futility of a New World Order and adopt Patrick Henry's attitude of, "give me Liberty or give me death", because it is really true. Without liberty, we die impoverished, in despair, insatible, and miserable. What is the point of living without liberty?

The emerging New World Order is a socialistic trend of human nature's desire for group control, to abrogate individual control delegated to the group, which originates in the drug of seeking insatiable perfection. Debt is a convenient method to temporarily mask the futility of group perfection. Resources are not infinite, and the disciple of the mob is no disciple at all. As discussed in the Globalization section, all central banks, nations, and sectors of global society are involved in a historically extreme expansion of debt-to-GDP levels, i.e. hyperinflation of the paper money supply. Politically this is self-reinforcing, as every person will vote for this system to continue, rather than choose a deflationary "Greatest Depression Of All Time". But eventually the hyperinflation will end, as it did in Weimer Germany and will end in Zimbabwe. Such hyperinflations end in massive catastrophe, where the population is in such dire economic hardship, that extreme political solutions emerge, e.g. Hitler after Weimer Germany and the New Deal socialistic expansion of paper money (and thus debt) after Great Depression. This time the catastrophe will be on a global scale, with all national governments and their central banks clearly implicated. Wars and global strife will probably arise as they did after the 1930s Great Depression. The 1930s Great Depression was not caused by the contraction in the money supply, rather contraction was a symptom of the debt implosion that followed the hyperinflationary boom that followed the removal of gold-backing from German and French paper money in 1909. Gold backing was removed from the US dollar domestically in 1933, worldwide in 1971, and silver was removed from US coin in 1965. The historically extreme hyperinflationary debt boom that has followed will end with an even more catastrophic debt implosion. Without gold and silver to enforce discipline, the mob has no discipline and will create paper money in accelerating quantities. Power corrupts absolutely.

Out of the ashes will come the concept of a white horse that can rescue the globe and restore the order that the nations and central banks are unable to. The paper monies will be worthless, gold and silver will extremely valuable, and there will come forward a source of great gold and silver wealth, who will offer to unite the world in a more peaceful and prosperous order. As with the current "inflation expectations", "not one man in a million is able to diagnose" that the "invisible hand" of international banking dynasties that guided the mess of globalization is the same hand that started the process of central banking with the Bank of England in 1600s, the same hand that has financed world wars, the same hand that created the failed League of Nations then the successful United Nations, the same hand that controls all political parties of all major nations (2008 US presidential candidates support dissolution of USA into NAU, except for Ron Paul's astuteness) via the Council on Foreign Relations, and the same hand that has been hoarding 92% of world's gold1 and silver for coming New World Order. Henry Kissinger who pushed for opening China, is a member of Council on Foreign Relations, David Rockefeller's Trilateral Commission, and David Rockefeller's key emissary that advises governments on behalf of the that "invisible hand", stated that "the problem of the Bush presidency will lead to an emerging New World Order". Aaron Russo, who created a film which explains the fraud of the US income tax, claims Rockefeller warned him of 9/11 about 11 months before it happened. David Rockefeller thinks we've had the correct monetary and fiscal policies since 1982. David Rockefeller said his key role at JP Morgan Chase bank was to direct it towards globalization, and he said "investment, other activities, education, and everything else, needs to be multinational" (fast forward to 7:40 in video). The "invisible hand" owns major media, and David Rockefeller purportedly admitted this. UK Prime Minister Gordon Brown states that globalization world order "is being driven forward by a seismic shift in economic power".

Some people might dismiss this section as conspiracy theory, but facts are facts. There is a video that shows at the end that the alleged cockpit voice recorder from one of the crashed 9/11 planes was manufactured by Honeywell, whereas the crashed plane should have contained one manufactured by Allied Signal. There is the apparent fact that both CNN and BBC reported that the WTC7 building had collapsed before it actually collapsed (more). There is apparent fact that insufficient wreckage was found at the Pentagon site, and numerous other improbabilities. For example, why was not even one shred of the strange steel wreckage evidence seen in photos, saved for independent testing and instead all of it shipped to China as scrap? David Rockefeller said in 1994, "We are on the verge of global transformation. All we need is the right major crisis and the nations will accept the New World Order.". Joint Chiefs of Staff of U.S. Department of Defense had in past approved use of acts of terrorism on U.S. soil.

The liberty seeking individual will nevermind such machinations of a futile socialist soceity. The liberty seeking individual will refuse the futility of serving two masters. The liberty seeking individual will always have hope and not despair. The liberty seeking individual will care less about futile paper wealth and focus on true wealth and prosperity.

Footnotes

Disclaimer & Clarifications: I am not an investment advisor, consult your own.

This essay is compilation of more than 18 months of research since the author's prior essay "Inflating Deflation".

Note this essay has used the term "paper", meant to be synonymous with electronic creation of financial instruments. For the issues discussed, there is no functional difference between a paper and electronic financial instrument, i.e. between pushing the button on a printing press or a computer.

1 If 60 million people now own the documented 92% private ownership of world gold in private ownership, then it means when debt peaks and we return to gold and silver money, then 99% of the people will own 92+% of the world, and the other 5940 million people will own only 8% of the world. So if we put the world GDP at say $40 trillion now, then it means each of the 5940 million people would have an average annual share of production: $40 trillion x 0.08 / 5490 million = $539 year income. If more realistically assume that only 1 million people now own the 92% - jewelry of several percent, then we see that the average global income under a gold & silver money standard will be about $5. The only significant widespread physical private ownership of gold, is jewelry. Average annual net increase in jewelry ownership over past years is 44% of supply & demand-- 69% on 5 year average, minus 25% on a 5 year average because recycled gold is mainly old jewelry, of the 2006 total gold demand of 3380 tonnes. In 2006 the net increase was only 29% or 980 tonnes, because the demand for jewelry dropped to 52% of demand, and recycled gold supply only declined to 23% of supply. The net annual increase in silver jewelry and silverware was 16% or 148 million ounces in 2006-- 225 million oz demand minus 77 million oz recycled scrap, declining from 19% in 2005. For both silver and gold, we can see that demand for jewelry is declining as a percentage of total supply & demand, as the price of the precious metals rise. This is understandable, as jewelry is not purchased purely for the investment value of the contained metals (as the metal value is a fraction of jewelry cost), and thus aesthetic demand is fractionally resistant to price versus monetary demand which is stimulated by price. Also we can see that the net annual increase in widespread physical ownership is only 0.6% of total world gold (980 tonnes divided by 157,000 tonnes) and 0.4% of total world silver (148 million ounces divided by 40 billion ounces), and both percentages declining, so does not significantly challenge the long-term concentration of gold and silver into fewer owners. Widespread monetary demand does not exist, and will not ever if "monetary" is properly defined as sustainable, although massive "speculative" demand will drive the price sky high temporary in future. Thus precious metals are becoming concentrated by fewer owners. And silver appears to be much less widely owned than gold, based on the 16% for silver vs. 29% for gold in 2006 (from 19% in 2005 for silver vs. 44% for gold for 5 years average) annual net increase as a percentage of annual supply & demand.