CENTRAL BANKS GOLD ACCUMULATION FIRST STEP TO GLOBAL DEBT JUBILEE?

You are wrong! No you are a leftist socialist! Capitalism is broken! Shut up you COMMUNIST!
I’m not communist! MARXISM? Huh? You are a rent seeker right wing bigot!

Enough of the name calling already, there is a global economic crisis coming that will make the last one look like a pimple on the face of a 450 pound Sumo wrestler. CONCENTRATE and understand that as a global economy we need to set our political persuasions aside and stop wasting energy on verbal attacks that are largely speculative and definitely unwarranted.



I write this blog pondering, as I constantly do, how the world will get out of this huge debt epidemic. I say epidemic because that is exactly what it is, the world has an ever expanding economic debt induced illness on its hands.
I would go so far as to say it’s an addiction. It would be nice if we could just send the major offending nations to counselling…perhaps even “debt-aholics anonymous”…HA . Imagine, the G-20 summit rebranded a debt-aholics anonymous meeting! One cannot deny, admitting the problem would be a first step to recovery.


So that gets me thinking back to the problem at hand, how to solve the global debt bubble about to burst. The extremely painful way is through a depression. This will be long and deep as deleveraging this excessive GLOBAL private sector debt burden will not be easy given the incestuous nature of the international economy. A depression would also see some sovereign nations declare bankruptcy, a likely dismantling of the Euro (which I support) and a ripple effect of losses from these bankruptcies would likely make “contagion” the new economic buzzword.



With all of the above in mind I believe this is not a viable option as governments around the world recognise that this will likely trigger a global revolution driven by revolt and violence. It goes without saying that when people lose everything and have nothing left to lose, they lose their minds. One must only look at the riots and protests in Greece, Spain, the UK, Cyprus, Italy, Ireland and the USA.


I have always been hopeful that there is a master plan hidden amongst the disastrous and destructive monetary policy that is being implemented around the world. In analysing all of the policies in play, questioning the sanity of QE and Zero Interest Rate Policy I often challenged my obsessive compulsive mind to try and find some method in what appeared to be madness. The study of economics is complex, one giant jigsaw puzzle where making sense of the nonsensical can take your mind to the edge.


Taking a look at all of the things in play, I have concluded that the easy monetary policies in place globally are an attempt to buy time until a more sustainable plan can be put in place. I believe that plan has been hatched, evolving and gaining momentum. It seems to try and find the hidden agenda involves a process of examining the debt equation then applying a process of deduction given the fact that global governments will want this as painless as possible. History has been riddled with poor responses to these kinds of financial crisis, from them have produced wars, dictators, fascist leaders, mass murders and bloody revolutions.


The world could ill afford tension amongst nuclear powers and the idea of a world war would be truly catastrophic, that kind of devastation would be immeasurable and would far outweigh any debt forgiveness that may occur in a post war economic reset.


This does raise a key point though, imagine a debt forgiveness program without the WAR. Can it be achieved, if so, how? Following those questions is who would win or lose in a debt forgiveness policy implementation? How would it be implemented and managed? What would be the impacts on the global economy and how would they be addressed as the program was implemented?


The aforementioned questions and the ASSUMPTION that global leaders want a peaceful resolution initially had me looking at the idea that Professor Steve Keen suggested. Keen is a supporter of a Modern Debt Jubilee. For those of my readers that do not know what a debt jubilee is simply a “debt forgiveness” program. The idea is not a new one in fact historical evidence of debt jubilees date back to the bible!


 Delving into the idea of a debt jubilee was a counterintuitive process for me, after all I thought “one person’s asset is another person’s liability”. Would it be fair if those that were irresponsible with their money be helped via forgiveness whilst the savers are penalised for being responsible?


Addressing the asset liability question is simple. Keen says, a Modern Debt Jubilee should be fashioned in a manner which is almost a version of QE, but for the general public and private sector directly. The idea is to in essence, monetize the debt of the private sector. Give that money to the private sector citizens on the basis that debt must be paid off first with whatever is left over going to savings.


It follows that this monetary amount is also given to savers with no debt (answers fairness question from earlier) and this can be added to their savings or used to stimulate consumption.
In a recent twitter debate with my former professor I raised the issue of the immeasurable inflationary effects that may be thrust into the pipeline. I say immeasurable because human beings can be irrational creatures and there is no proven accurate method of truly modelling a response from a debt jubilee or any other proposed fix especially if applied to a global economy.


The complexity of the problem at hand should not deter a search for a solution because ignoring the private sector debt bubble will see the world in a slow deleveraging recession/depression that could last as long as 20 years by some estimates. The deleveraging process is a massive noose around the neck of the global economy and is strangling growth and recovery. The private sector debt also adds to the already mammoth systemic risk that exists across the world and so a reduction may provide a confidence safety net and a psychological boost to the ailing belief and trust that has been eroded over the last 25 years.


My conclusion is that Professor Keens proposal has some undeniable benefits worth analysing. Debt relief through a Jubilee would almost certainly create a buffer or psychological safety net to support the financial system by adding liquidity directly to the private sector at the same time as reducing the debt burden.


The financial system is facing a debt induced meltdown. If one casts their eye over the current state of affairs, they will see asset classes across the world all rising at the same time at unsustainable levels/speeds. History tells us this will end badly. Never before have asset classes such as global Equities markets, gold (even with the correction), oil, property markets, emerging market growth all moving sharply upwards at the same time… It’s an illusion, an economic fantasy.


It goes without saying that a modern debt jubilee may insulate the global economy from the next financial crisis where private sector liquidity will be needed to support a system on the edge of collapse. I believe the IMF along with the members of the G20 members are working on a recalibrated system which will be implemented when the next crisis strikes (explained later).


It is true that trying to pick what triggers the next collapse is difficult and perhaps one should be more concerned with analysing the inherent systemic risk than trying to guess the timing or trigger. I also am a firm believer that major global economic leaders know that the world needs a new system for this current one has run its course. I find it funny that many people fear a new global monetary system and are fighting it. In my humble opinion I feel it should not be feared nor fought but embraced, it is not the first time a global monetary system has changed nor will it be the last!


History is littered with changes, tweeks and overhauls to the global monetary system. For my elderly readers I would point out the gold standard and Bretton Woods monetary systems. For my younger millennial readers we have had the IMF, World Bank, $US as reserve currency and more recently the creation of the $EURO.


With all of this in mind I have turned my focus on to the major economy leaders, the IMF and the Central banks for direction. It is easy to assume that Central Bank policies such as the Fed’s QE program are hatched, born and implemented on a whim or hit and hope basis. I have for the longest time been critical of central bank easy monetary policy, questioned the method and condemned the practice… But is there a hidden plan? Let me explain.


I tend to think the Central Banks with all of their gold accumulation over the last few years are hedging for the inflation that is coming. I agree right now that many leading economic commentators like Peter Schiff have been wrong in their inflation and hyperinflation calls. It seems that they are wrong because of the timing and I understand what it is like to be called a “broken clock”.


The question is could the inflationists or hyperinflationists be wrong? I think they have the timing wrong but not the final outcome. Could Professor Keens Modern Debt Jubilee be the insurance policy to protect against the global debt bomb detonation? I think yes but with a twist.


My conclusion is combining history, with the collective thoughts of the great minds of Professor Keen, Jim Rickards and the likes of Peter Schiff and co. They are all right in their own respects but when combined they produce the solution that I believe is being explored behind closed doors, our new world monetary system!


Professor Keen is right in the need to reduce private sector debt to minimise the drastic effects of a long term deleveraging process. I believe even if this Debt Jubilee takes place in a staged or stepped process that Peter Schiff and Jim Rickards will be right on the inflationary effects. I guess from there I feel a number of questions need answering. These questions are:


Could the answer be that the Central banks around the world are accumulating physical gold in preparation for the implementation of a global monetary debt jubilee? YES


Could this also explain why the almost obvious Gold manipulation has been largely ignored as the race to accumulate and rebalance for Central banks takes place before the Debt Jubilee is enacted? YES


The final question is could a new system involving a gold standard be implemented post the debt jubilee with a recalibrated price to control the runaway inflation going forward?
History says that a gold peg could be deflationary, depending on the re pegged price but am still frustrated by those that assert a gold standard would be massively deflationary. When confronted with a deflationary argument from someone I would always pose the question.. What kind of “deflationary”?


The term “deflationary” is so open ended by definition that it sits closely alongside the term “liquidity” in meaning everything but at the same time nothing at all! Deflation is in the eye of the beholder and is purely dependent on what data, asset class etc one looks at.


I know many of my readers are more than likely picking holes in my plan. The idea of an agreed debt jubilee first to rid the global economy of the private sector debt scourge sounds fictional rather than fact. I am also guessing that many are saying it cannot and will not be done.


I would argue strongly however that with international cooperation and the use of the IMF and its Special Drawing Rights (SDR’s) a recalibration and debt jubilee could be achieved using the “liquidity” and clean balance sheet of the IMF.


The debt jubilee and new SDR liquidity will more than likely force a refashioned foreign exchange market in which all currencies will be priced not only in cross rates amongst themselves, but also in SDR’s. Structures have been in place to debate the way forward into a new monetary system for the world. Economic summits such as the G8, G20 etc brings collaboration and discussion and with the financial crisis of 2008 firmly in the minds of those in charge it would be naieve to assume a plan is not in motion.


The new system will succeed the current system with a focus on factors such as income inequality, currency stability and taming the growth in the financial sector. These factors have been repeated ad nauseam by the head of the International monetary Fund (IMF) head Christine Lagarde.


In taking the IMF’s Christine Lagarde at her word I would make the case that a return to some form of gold standard perhaps, 30% backing of currency to gold would bring back currency stability. It would also be a great policy framework to control the rampant financial sector and bank backed speculative bubbles creation that has so clearly driven the great wealth disparity/inequality.


 It follows that a gold standard also restricts the banks from explosive credit creation and can be used as a way of restricting loose bank lending policies, the very lending practices that have got the world into the huge mess. If the answer is a return to stability, growth, and a workable and sustainable system debt relief must come first (jubilee) then a form of gold standard to control BANKS!
Appreciate any thoughts, commentary and suggestions on this piece for it is open discussion and debate that brings about better outcomes!


For those that like this piece you can follow me on twitter @carneycapital