Combine Kyle Bass's fatalistic outlook on Japan with some simple geology and you get the following thought experiment from Hinde Capital: "Imagine that there was a full-scale exit out of JGBs. There is 900 trillion yen worth of JGBs outstanding that is 10.588 trillion US dollars at 85 yen, today’s rate. At $1,300 per troy ounce gold this is equivalent to 8.14billion ounces or 253,000 tonnes (8.14bn /31250) of gold. Now we are not for one moment saying that this is realistic, as if there was a rush from JGBs they will not be valued at par and not all JGBS will be exited. However it just goes to show how much gold could rise to reduce the amount needed to convert savings. Let’s say gold went to $13,000 then only 25,000 tonnes would need to be found for Japan. Now if you add inflation of the currency and a few noughts you can see how gold can be valued at almost unlimited numbers. Anyone still think $1,300 is too rich?"
Many more fascinating insights from Hinde into the stealthy, creeping rehabilitation of the gold standard in China, to follow up on Antal Fekete's earlier thoughts on why a return to a gold standard is critical, although likely far too late to save the current doomed economic system.
How times have changed, in the photo above the advent of the Communist control in the late 1940s saw Chinese citizens flock to grab gold. These very same people were summarily executed in the days that followed. Now China wants its people to purchase gold and silver. It makes it easier to move to a gold standard if everyone owns the gold!
First, at least one preoccupation of the 1944 delegates remains: how to manage exchange rates and deal with persistent trade deficits and surpluses. The problem blamed for the great depression of the 1930s – ‘beggar-thy-neighbour’ policies and competitive currency devaluations – may be rearing its head again today. The par value exchange rate system created in 1944 served the world fairly well until 1971, when it was abandoned unilaterally by the US. We believe that the persistent trade surpluses in Asia and corresponding deficits in the West laid the groundwork for the current crisis. The creation of an international currency, international clearing union, or system of globally managed exchange rates should be on the agenda. As the hegemony of the US wanes, there is a practical limit to how long the anachronistic system of a single country’s currency serving as the vehicle for all global reserve holdings can be maintained.
Experience shows that neither a state nor a bank ever has had the unrestricted power of issuing paper money without abusing that power; in all states, therefore, the issue of paper money ought to be under some check and control; and none seems so proper for that purpose as subjecting the issuers of paper money to the obligation of paying their notes either in gold coin or bullion.
Full Hinde Capital report: The World Monetary Earthquake - The Dash From Cash (pdf)