NEW YORK (TheStreet) -- In Part I, readers were presented with a list of the three trends that overwhelm all other factors and fundamentals in the gold and silver markets. The first and most dominant trend -- the grossly excessive printing of (worthless) paper currencies --was explained to readers in detail.
Through elementary logic, we established that no rational investor would choose to hold these worthless paper currencies, rather than opt for humanity's
5,000-year old safe havens
: gold and silver. Specifically, with all our governments explicitly engaged in the monetary policy known as "competitive devaluation," only an idiot would hold an asset where the producers of that asset are trying to drive its value to zero as rapidly as possible.
As I discussed in the first installment, the other two dominant trends are directly or indirectly derived from the first trend: the gross misallocation of capital, and the long-term destruction of the supply chain. I will focus on the second of these trends in Part II.
Here it is important that readers are aware that we are discussing two separate and opposite dimensions regarding this misallocation of capital. On the one hand, Western investors currently hold only roughly a tenth the amount of gold and silver that they have normally held on an historical basis. In other words, at a time when Western investors should be choosing to hold
gold and silver than at any time in history they are instead holding
On the other hand, these zombie investors are not only loaded up with trillions of dollars of our (
) paper currencies, they are also holding tens of trillions of dollars in bonds, issued by hopelessly insolvent Western debtors -- and denominated in those same, dying fiat currencies.
Our bankers are telling us that both their paper bonds and paper currencies are "safe havens." Meanwhile, 1,000-plus years of our own history tells us that both forms of paper are certain to end up totally worthless. Obviously treating tens of trillions in worthless (Western) banker-paper as a "safe haven" represents a misallocation of capital on a scale at least an order of magnitude greater than anything else in our history.
For those deluded paper-holders who scoff at the idea of their precious paper becoming worthless "during their lifetime": open your eyes. In little more than 40 years since the gold standard was abolished and our currencies fully became "fiat currencies," they have already lost more than 75% of their value. With "competitive devaluation" now our official monetary policy, that rate of dilution/destruction is increasing exponentially.
As for these equally worthless Western bonds, what do readers think just happened in Greece? One minute there was a stack of paper with a (nominal) value of $400 billion. The next minute the stack of paper was worthless. What happened in between? Debt jubilee. Debt jubilees are consistent historical events, bond-burning parties where one or more governments collectively or unilaterally decree their bond debts no longer exist.
Understand that debt jubilee is now a mathematical certainty in the West. Nearly three years of Europe's "austerity" has shown that none of these debtors is
even capable of reducing the size of their deficits
- let alone ever approaching a balanced budget. In another article, I give absolute, empirical evidence that all of these Deadbeat Debtors are
past the point of no return
Across the Atlantic, it is common knowledge that the U.S. is
than Europe's debtors. Meanwhile Canada's new Conservative government has now made this nation even less solvent than we were when the last Conservative government mismanaged the economy into an official "debt crisis."
Indeed, Canada is the perfect Illustration of both the level of Western insolvency and the degree of denial concerning that insolvency. As Canada again plummets toward insolvency, instead of being castigated for being in another debt-crisis, it is hailed by the duplicitous Western media as a paragon of fiscal prudence.
The day after our governments and media finally acknowledge that the entire Western bloc is effectively bankrupt, we will have debt jubilee. By then it will be much, much too late for investors to rid themselves of all their trillions of dollars in officially worthless bonds.
If paper currencies haven't already been rendered worthless when Debt Jubilee occurs, the destruction of the bond market will complete that process. At that point, deluded paper-holders will finally realize the intrinsic value of ink on paper.
Just as the Dutch came to the painful realization that the tulip was merely a flower at the end of
over 400 years ago, today
we are all "Dutch"
The financial stampede out of the bankers' two equally worthless paper instruments will mark an exodus of capital totally unprecedented in our history, assuming that our governments don't simply decree all that paper to be worthless before the stampede even begins. Just as the money-printing of the bankers dwarfs all economic fundamentals today, the flight out of paper will dwarf all other fundamentals tomorrow.
Rats Jumping Ship
The financial lifeboats of gold and silver are grossly under employed, representing only about 1% of the average portfolio. What happens on the day when even the lowly lemming realizes that their precious paper is worthless - and only gold and silver remain as "safe havens"? Picture a million elephants trying to squeeze through the eye of a needle, simultaneously.
The creators of all this worthless paper (our central banks) aren't waiting for that stampede to begin. They are already dumping their worthless paper for gold at
the fastest rate in 50 years
, and by the end of this year that will likely have escalated to the fastest rate in history, as the gold-buying by central banks continues to accelerate.
We have our governments, the official owners of these paper currencies openly stating that they are trying to drive their value to zero as quickly as possible. We have the creators of that paper, the central banks, swapping paper for gold as fast as they can (without spooking the herd into a premature stampede).
Then we have the corporate media duping the hordes of lemmings into continuing to hold this worthless, obsolete paper -- so that the bankers can buy their gold first (and cheaper).
Indeed, the malevolent media propaganda machine has gone much further. It has fraudulently referred to gold and silver trends as
, despite never being so under-owned by Western investors in all of history.
The only evidence offered by the media to justify this lie are the (nominal) prices of gold and silver -- priced in relation to worthless paper. If I was under the delusion that sand was a "currency," and I tried to buy some gold or silver with a truckload of sand then using the media's logic I would have even more "evidence" of a gold bubble.
Apart from shattering the lies of the media about a gold bubble with simple and obvious logic, the behavior of our central banks is an irrefutable rebuttal to the media's propaganda. It is this same media that hails these central bankers as the ultimate sages of our financial system, and their message is clear: dump your paper and buy gold (or silver).
In Part III, we will explore the third dominant trend, and the reason why there is so little gold and silver available to global investors: the long-term destruction of the supply chain.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.