With the liquidation driven collapse in the precious metals one of the most discussed events in the past two days, some are wondering: is the era of sound money over? Is the world suddenly a better place, and does infinite money dilution - the only source of nominal, not real, stability in the world - mean paper money will soon be seen as a safe haven once more? No, no and no. Obviously. And no, the sell off is not driven by the Mayan apocalypse due in a few hours. In fact, it is very amusing how quickly a snapback in paper prices of any one product can shift trader (we would say gambler, but that is an insult to gamblers everywhere) sentiment, especially when it has been reported time and again that unlike stocks, precious metals are the only commodity that is looked upon by central bankers with nothing but disdain.
So what do these central bankers propose as an alternative to sound money? The chart below shows precisely that, by projecting where the balance sheets of the final backstops of the modern financial world will be in one year. In short: far higher - driven by what? Why even more paper money dilution of course. Which is precisely the issue at hand - in a closed loop world in which relative currency devaluation does nothing to raise absolute global value, and merely shifts relative benefits from one actor to another, the only way the world can "grow" now that it has reached maximum leverage capacity is to devalue currencies but not against one another, but in a coordinated fashion against a hard asset(s). Which is precisely what will eventually happen. And that hard assets will be gold, silver and/or anything else that historically has had monetary equivalency. That daytraders seem to ignore or forget this fact is, well, expected. After all there are margin call demands to be met: everyone else should be delighted that real money is suddenly on sale.
Central Bank Balance Sheet as a % of total host GDP (via Guggenheim):
And a chart showing how much gold and silver the central banks will print in the next year:
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