Last night Zero Hedge put an article out regarding China’s stockpiles of steel, or rather the lack of.
This piece is an absolute MUST READ and displays another country which has been a part of “rehypothecation nation” all along even though we didn’t know it. It is very important to understand the grand concept of the piece, EVERYTHING…EVERYWHERE has been hypothecated and rehypothecated. Put in simple terms, everything has been borrowed against at least once, in some cases twice and in other cases MANY MANY TIMES OVER!
The key concept is that there is no collateral left to borrow against. This is the reason that zero percent interest rates has not nor cannot work, there is nothing left on the planet to use as collateral to borrow against. The plan was always to “reflate” out of any and all recessions, the problem is that for the last at least 20+ years, every recession was either denied or aborted too soon. Recessions, until the 2007-08 recession were reflated too soon, too fast and with too much force. Debt, was never allowed to default and thus malinvestment never allowed to be cleansed from the system.
So here we are with $ hundreds of trillions of debt and derivatives with only $ 10′s of trillions of assets, the ONLY thing that can be done is to make the currencies cheaper. Add a couple of zeroes to all of the global currencies and poof, back into balance. What this means is that your $100,000 bank account will have the purchasing power of $10,000…or even as little as $1,000 (assuming your bank doesn’t become insolvent and your balance gets “zeroed out”).
But what does this mean to your 1 ounce of Gold? It is real, it’s in your hand and it’s not borrowed against. This is where the story of the young German bellboy who saved his 1 Gold ounce tip from several years earlier comes in. The story goes, after the hyperinflation and new currency was introduced, the owner of the hotel he worked at was so desperate for “money” that he accepted 1 Gold ounce for the hotel that occupied an entire city block.
THIS is what happens AFTER a fiat currency collapse. Money, real monies, Gold and Silver SPEND and their values explode even further! (This is why Gold does better in a deflation, not inflation) It may take a few weeks for reality to set in but ALL asset values get “repriced” in the new money. It is at this point, early in the introduction of a new (asset backed) currency, that there is VERY LITTLE “money on the streets”. Asset values deflate ferociously versus the new currency and especially versus Gold and Silver!
Please remember that Gold and Silver have been rehypothecated umpteen times over in an effort to “keep their prices down”. There is FAR less physical Gold and Silver truly owned than is believed because they have been sold 100+ times over and much of what is believed to be owned does not even exist. As for the metals, as the title implies, “what will their values be?…a lot!”, it is as I have maintained all along, impossible to make any educated guess much less an actual price projection. Time and price cannot be projected because we don’t know how much “fake Gold” is out there. We really don’t know how much money supply, debt and future obligations are out there, nor do we truly have a handle on the true size of derivatives and “side deals” that exist. Another very timely question would be after this past Thursday, “How long is eternity and how big does $40 billion per month become?” You see, we have absolutely no idea how much money supply and debt will be created in the future. All we know is that the amount of money supplies outstanding is “a lot.” We know that the global outstanding debt is already more than “a lot.”
So how much will an ounce of Gold or Silver become in the future? You guessed it,”A lot.” We don’t know exactly how much “a lot” is but you can trust that it will be multiples upon multiples of what it is now. That is in nominal terms. If history is any guide or the past 12 years any predictor, Gold and Silver will not only go up “a lot” in nominal terms but also in real terms versus other real assets. Forget about nominal or Dollar terms, what is in store in my opinion is the point in time when Gold and Silver reclaim their monetary thrones. At this point, “money” will be very scarce. “Stuff”, like buildings, cars, stocks, bonds, currencies and I-Pods will be plentiful as they were all over created with the help of too much credit. It will take “a lot” LESS metal to purchase these things in the future. This is where the deflation part comes in and the Robert Prechters of the world will finally be correct, maybe broke, maybe dead, but finally correct!