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Exponential Explosions in Debt, the S&P 500, Crude Oil, Silver and Consumer Prices
Posted with permission of Gary Christenson aka The Deviant Investor - Sprott Money
In 1913 the US national debt was less than $3 Billion, gold was real money, and a cup of coffee cost a nickel.
By 2015 the US national debt had increased to over $18,000,000,000,000 ($18 Trillion), the gold standard was called a “barbarous relic,” most currencies had devolved into fiat paper and digital symbols backed by insolvent governments, and a Grande soy cinnamon latte, double pump, triple shot, extra hot, with sprinkles cost about five bucks.
Debt, money, coffee and prices have changed in 100 years.
What has NOT changed is the inevitable collapse of exponentially growing systems. A few extreme examples of exponential increases are:
- $0.01 (one penny) deposited at the 1st National Bank of Pontius Pilate at 6% interest in the year 15 would be worth approximately $4 Trillion Trillion Trillion Trillion dollars 2000 years later. (Yes, I double checked the numbers, and I used a web based compound interest calculator to triple check. Yes, the number has 48 zeros. Compound interest is the 8th wonder of the world.)
- Promise 1 grain of wheat on the 1st square of a chess board. Promise 2 grains of wheat on the 2nd Then 4 grains on the 3rd square and 8 grains on the 4th square and keep doubling. That promise will consume all the wheat grown in the world long before it gets to the 64th square. (Do you see the similarity between political promises and grains of wheat on chess squares?)
- The US national debt has increased at 9% per year since 1913 and slightly more rapidly since 2008. Assuming the 9% rate continues, the current $18 Trillion in national debt will grow to over $300 Trillion by the year 2065 and to about $6,000 Trillion by the year 2115.
I DOUBT IT!
Exponentially increasing systems cannot last forever. Our problem is that the global financial system is based on exponentially increasing debt, energy usage, population, and exploitation of natural resources. This appears to work nicely, especially for the financial and political elite, in the early years of the exponential increases. However, we are approaching the inevitable end of the exponential increases – perhaps not in a few months – but our systems probably will not last another decade. In the meantime, the plan seems to be “Party On!”
Examine the 30 year chart of the S&P 500 Index (monthly) on a log scale.
- Exponential increases are clearly visible.
- Peaks have occurred about every seven years.
- Rallies and crashes have become more extreme. Look out below!
Examine the 30 year chart for crude oil on a log scale.
- Exponential increases are clearly visible.
- Lows have occurred every five to six years.
- Prices appear ready to rally – maybe not this month or even this year – but I don’t believe prices will stay this low for long when viewed from a 30 year perspective.
Examine the 30 year chart for silver on a log scale.
- Exponential increases are clear and very erratic.
- Important lows have been roughly six years apart.
- Prices look like they have fallen well below the exponential trend, are currently at a cyclic bottom, and have begun a rally. In my opinion, new highs are on the horizon.
CONCLUSIONS:
- Exponentially increasing systems do NOT last forever and become increasingly unstable.
- The current global financial system depends upon “printing” massive quantities of unbacked fiat currency and exponentially increasing debt.
- The exponentially increasing trends for debt, sovereign bonds, currencies, the S&P 500 Index, consumer prices, gold, crude oil, and silver are still in effect. But for how long? What happens at their critical phase transition points?
- The S&P looks like it could roll over at any time.
- Gold and silver appear ready to rally for several more years. Crude oil appears to be finding a bottom and will eventually rally.
- Unstable systems often react violently when they near a critical phase transition or crash point. When the global financial system reaches a phase transition or crash point, would you rather own fiat paper, such as sovereign bonds paying practically nothing and fiat currencies backed by the debt of insolvent entities, or silver and gold?
Repeat: Silver and gold have been a store of value for over 5,000 years. Unbacked paper fiat currencies have always failed. Do you trust politicians and central bankers more than you trust silver and gold? If not, I encourage you to take door # 2 – the one plated with silver on the top and gold on the bottom.
Gold is still undervalued, based on my long-term empirical model, by about 16%. Silver is also undervalued. Unless the President and the US congress slash expenses, actually reduce the national debt, negotiate world peace, and make many other unlikely policy changes, expect silver and gold to rally in a strong up-cycle for several, perhaps many, years.
Posted with permission of Gary Christenson aka The Deviant Investor - Sprott Money
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I predict the exponential expansion of guillotines sometime in the future.
The banksters need to repay us.
I remember the 5 cent coffee, not a Grande latte but we also got unlimited refills and real cream, so probably quite comparable. That is 100 times, so gold should be at least $3500.
Study of rise in cost of living between 1913 - 1920
In Cincinnati bread was .048 cents per loaf in 1913. In 1920 .101 cents
Page 99
https://books.google.com/books?id=GKomAQAAIAAJ&pg=PA77&lpg=PA77&dq=ADD+c...
See on page 48 table 4. Base price set at 1913, compared to 1920!
Page 49 Summary of all price changes, In 7 years prices MORE than DOUBLED after fed interfered.
Yearly inflation looks to me to be closer to 3.8% not 9%
Good book
It's what you call 'progress'.
Diamonds - small, valuable, undetectable
"The US national debt has increased at 9% per year since 1913 and slightly more rapidly since 2008. Assuming the 9% rate continues, the current $18 Trillion in national debt will grow to over $300 Trillion by the year 2065 and to about $6,000 Trillion by the year 2115."
Not with NEGATIVE interest rates!
A good read on 2% continuous growth – exponential function is a bitch.
Link
Math is an absolute bitch
‘Unbacked paper fiat currencies have always failed.
Thinking out loud… technically, didn’t the “backed” currencies fail leading us to this current fiat currency system?
You are asking the right question. Governments will always try to cheat to get out of the obligations of backing their currency. It has been going on at least as long as the Romans reduced the purity of the Denarius. That is why money is much too important to be left in the hands of government. They should only be there to enforce contracts- if a private mint holds out a series of "coin" as having a given weight and purity then the government enforces the contract to keep it at that weight and purity. When government itself is one of the parties to the implied contract between coin issuer and coin user, who does the user turn to when they cheat on it? That and other answers about how to organize a nation to resist centralization, including central banking, here..... http://www.amazon.com/Localism-Philosophy-Government-Mark-Moore/dp/06922...
Exactly! Before they had to back up the numbers on the paper with something physical, if even just fractionally.
Now they just back them up with more numbers they can create out of thin air, don't even need to put any of it on paper anymore.
Some people will say "They cant do that forever, large numbers, logic etc." well they can and will do it forever and if you don't like looking the currently $18,000,000,000,000 national debt there is a simple solution, just express it with an exponent.
You see $18,000,000,000,000 looks scary and ominous, unfathomably immense; surely a sign of bad times ahead.
On the other hand $21.163^10 is small and almost cute, like a kitten; it is not threatening in any way.
doesn't that make you feel better now?
No they did not. We have seen failures of government which debased the currencies to extend their power.
Real money has never failed. Fiat curencies have with regularity.
No. They did not fail, they were abandoned when the politicians found them inconvenient.
Yes, there is a difference.
Correct, and even before the FRN became a truly fiat currency it was "revalued" against PMs several times before.
This is fucking insane.
Stack gold and silver NOW!
BEFORE IT'S TO FUCKIN' LATE!
https://www.youtube.com/watch?v=yloaBw80fV4
Buy silver now and a large home and land later.
At the rate they are shafting metals that home and land will have to wait until later.......much much later.
-1 for "much later"
Who was Nelson Bunker Hunt?
Who is John Galt?
Is that you John Wayne? Is this me?
One of the greatest financial minds of modern times - like a Warren Buffet with character, and integrity.