BLACK HOLE: Survive Debt Reset – READ This!

We’ve been here before. In the years leading up to 1971, the U.S. government was spending more than it could collect in taxes, but it lacked the ability to issue currency at will, which it enjoys today.

Instead, it had to make sure other countries did not turn suspicious as to how it could afford to embark on costly wars, such as South Korea in 1956 and the disastrous Vietnam War.

By 1968, though, foreign governments were beginning to question the accounting of the 35:1 ratio between the USD and gold.

Gold covered only a small part of the currency supply.

Take a look:

Courtesy: Incrementum AG

Notice the M0, M1, M2, and M3 coverage ratio to gold from 1971 is eerily similar to today’s situation.

Gold did then what it has always done – internal accounting.

As you can see, at one point in 1980, gold more than covered the entire currency supply – had the U.S. government returned to a gold standard, a price of $850 per ounce would have been the newly fixed ratio, subject to no increases in the money supply or selling of gold ounces.

It is next to impossible to always keep a balanced relationship between gold and currency, since the money supply continually ebbs and flows, according to growth in the economy, and of course, more gold is discovered every year as well.

Therefore, it is true that a gold standard, in which 100% of the currency is redeemable for gold or silver ounces at all times is quite a challenge, but what we do know is that when it only covers a fraction of the total supply, the situation corrects itself with high likelihood.

For the U.S. to return to this magical period in 1980, when it could have pegged the USD to gold again, its price would not be $850 per ounce, but $14,772, as of today.

In other words, the most bullish case for gold is a 1,136% move – that’s a big move, but it is quite possible, if a decade, such as the 1970s returns.

Russia doesn’t want to be caught off-guard, in case this occurs.

Courtesy: Incrementum AG

Canada’s government has pushed the envelope in terms of trusting fiat currencies – it has zero gold reserves. Russia is taking the other side of that bet.

Think about where you stand when it comes to this equation as well.

The best way to do this is to figure out how much cash you have, not assets denominated in dollars, but fiat cash only, by combining all your bank accounts, duffle bags or otherwise, then tallying-up how many ounces you own of gold and silver and coming up with your personal coverage ratio.

Personally, I like to keep it around 7% of total net worth (cash + assets), or 30% of total cash.

Obviously, an individual doesn’t need to back all of his cash with precious metals, but governments should.

The problem is that people don’t hoard precious metals; in fact, they don’t hoard any cash either.

Check this out:

Courtesy: Incrementum AG

As you can see, whether the savings rate is higher or lower, recessions happen regardless, so when people have less money set aside, the recession, which comes every 5-7 years is sure to create havoc.

The next one is approaching, so you need to cash-up.

I’m not talking about liquid funds ready to be deployed for the purpose of buying cheap shares, but to have options.

You see, not only are the majority of Americans not saving more than $2 for every $100 they earn (I save about $70 for every $100), but they are actually deeply indebted.

This is a black hole:

Courtesy: Incrementum AG

Look over your own finances when it comes to these two things:

  1. Debt load: If you have outstanding debts, as most Americans do, immediately research how to close down debt levels fast. There are various ways to pay-off a 30-yr mortgage in less than seven years and to renegotiate interest rates down.
  2. Lifestyle: If you’re not saving at least 25% of your income, you must bring more value to the marketplace, so that your income will rise, while your expenses remain the same. Then you’ll be able to set more aside.

Your second option is to hunker down, minimize outgoing payments to a bare minimum, in anticipation of the upcoming recession.

As this stock market cycle wraps up, 2018 is one of the last opportunities to lock serious profits with short-term trades.


Best Regards,

Tom Beck
Research Partner,

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