The Western World is running a gigantic Ponzi scheme. The unwelcome, but undeniable truth is this: The higher the leverage in the system, the lower the real economy impact of new debt.
More and more new debt is issued only in order to keep up the illusion that the existing debt is still valuable. The debt capacity of the world is reaching its limit.
China, the country which saved us from a global depression by starting a historic debt-financed boom in 2009 now faces its own debt crisis.
All over the world, bad investments, overcapacities and bad debts depress global growth, increase deflationary pressure and lead to what people call “secular stagnation.” There are plenty of “zombies” around – both financial institutions and real economy debtors, which only stay alive thanks to zero or soon negative interest rates.
Debt is not just a problem of Europe. It is a global problem. Japan leads the pack and is facing a direct monetization of debt via the balance sheet of the central bank.
The United States, Canada, Australia, big parts of South America, emerging Asia and notably China all have to deal with significant indebtedness of some or all of the sectors of their economies.
Wherever we look: The world needs a reset. As with a computer that freezes, we need a reboot of the global economic engine. Ideally, we do it in one step for the entire world.
As the rumor goes, the G20 agreed at its last meeting to refrain from competitive devaluations. This is good news. A global currency war would only amplify our problems and increase the likelihood of a major depression.
It would be even better if the G 20 decided to deal with the debt problem in a concerted way. That is possible, but requires bold thinking.
Central banks are free in the evaluation of the assets on their balance sheet. Remember, they can buy anything they like for any price – and they can do so with money they produce themselves.
Ideally, they would buy a good which would not lose its value over time. For example, they could buy and store oil.
However, given the world supply and reserves as well as the costs to store oil, this would not be an efficient approach. Much easier would be a homogeneous good with limited supply and easy storage: gold.
Adding all of the gold that exists all over of the world in one place would fit into a cube measuring 21 meters in every direction.
The additional advantage: The central banks would not need to buy gold as they are, in spite of selling gold over the past decades, still the biggest owners of gold. Gold is an asset on their balance sheets.
Central banks could declare overnight to buy all gold in the world for a given price, say $10,000 dollars or euros per ounce.
The existing holdings of gold could be immediately re-evaluated and the resulting profits paid out to the governments to pay back government debt. Problem solved.
If we assume a revaluation of gold to a level of $10,000 dollars per ounce, central banks would generate sizeable profits (numbers based on March 2016 gold holdings of states and rounded):
US: $2,615 billion
Germany: $1,087 billion
Italy: $788 billion
France: $783 billion
Greece: $36 billion
The shocking news: A revaluation by $10,000 dollars would not be enough! To get rid of all U.S. government debt would require a revaluation to a level of $70,000 dollars per ounce. For Italy and France, a level of $25,000 dollars would do. For Germany, $18,000.
For Greece, $80,000 and for Japan, which commands not so much gold, it would need to be around $410,000 dollars to get rid of all government debt in one stroke.
This would be much more efficient than the currently discussed concept of helicopter money, i.e., the direct funding of public or private spending by the central banks. Helicopter money would add to the debt stock. A gold revaluation would reduce the debt level
Read more: Time for a Global Restart, But How? - The Globa
More and more new debt is issued only in order to keep up the illusion that the existing debt is still valuable. The debt capacity of the world is reaching its limit.
China, the country which saved us from a global depression by starting a historic debt-financed boom in 2009 now faces its own debt crisis.
All over the world, bad investments, overcapacities and bad debts depress global growth, increase deflationary pressure and lead to what people call “secular stagnation.” There are plenty of “zombies” around – both financial institutions and real economy debtors, which only stay alive thanks to zero or soon negative interest rates.
Debt is not just a problem of Europe. It is a global problem. Japan leads the pack and is facing a direct monetization of debt via the balance sheet of the central bank.
The United States, Canada, Australia, big parts of South America, emerging Asia and notably China all have to deal with significant indebtedness of some or all of the sectors of their economies.
Wherever we look: The world needs a reset. As with a computer that freezes, we need a reboot of the global economic engine. Ideally, we do it in one step for the entire world.
As the rumor goes, the G20 agreed at its last meeting to refrain from competitive devaluations. This is good news. A global currency war would only amplify our problems and increase the likelihood of a major depression.
It would be even better if the G 20 decided to deal with the debt problem in a concerted way. That is possible, but requires bold thinking.
Central banks are free in the evaluation of the assets on their balance sheet. Remember, they can buy anything they like for any price – and they can do so with money they produce themselves.
Ideally, they would buy a good which would not lose its value over time. For example, they could buy and store oil.
However, given the world supply and reserves as well as the costs to store oil, this would not be an efficient approach. Much easier would be a homogeneous good with limited supply and easy storage: gold.
Adding all of the gold that exists all over of the world in one place would fit into a cube measuring 21 meters in every direction.
The additional advantage: The central banks would not need to buy gold as they are, in spite of selling gold over the past decades, still the biggest owners of gold. Gold is an asset on their balance sheets.
Central banks could declare overnight to buy all gold in the world for a given price, say $10,000 dollars or euros per ounce.
The existing holdings of gold could be immediately re-evaluated and the resulting profits paid out to the governments to pay back government debt. Problem solved.
If we assume a revaluation of gold to a level of $10,000 dollars per ounce, central banks would generate sizeable profits (numbers based on March 2016 gold holdings of states and rounded):
US: $2,615 billion
Germany: $1,087 billion
Italy: $788 billion
France: $783 billion
Greece: $36 billion
The shocking news: A revaluation by $10,000 dollars would not be enough! To get rid of all U.S. government debt would require a revaluation to a level of $70,000 dollars per ounce. For Italy and France, a level of $25,000 dollars would do. For Germany, $18,000.
For Greece, $80,000 and for Japan, which commands not so much gold, it would need to be around $410,000 dollars to get rid of all government debt in one stroke.
This would be much more efficient than the currently discussed concept of helicopter money, i.e., the direct funding of public or private spending by the central banks. Helicopter money would add to the debt stock. A gold revaluation would reduce the debt level
Read more: Time for a Global Restart, But How? - The Globa
