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The Bullion Buzz eNewsletter – February 23, 2010

The Bullion Buzz eNewsletter – February 23, 2010
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“I deny the power of the general government to making paper money,
or anything else a legal tender.”

--Thomas Jefferson

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GOLD

Hedging Non-Gold Investments with Gold
Antal Fekete

The cliché that the present credit collapse is “the greatest financial crisis since 1929” is the understatement of the century. One measure of the problem is the ratio of gross private debt to nominal GDP. This ratio captures the idea of how many years of current output it would take to retire the outstanding debt. In these terms, the disaster is truly unprecedented. The world plunged into the present crisis with far greater debt on its hands than the debt outstanding at the beginning of the Great Depression in 1929; as well, there is a qualitative change in the structure of debt. The most exotic of the Roaring Twenties era debt was brokers’ margin lending on the stock purchases of clients. Today, in addition, we have: derivative instruments valued up to one quadrillion dollars; adjustable-rate mortgages; the unquantifiable off-balance-sheet activities of financial institutions; and the junk-bond activities of private equity firms. The unwinding of this financial mess will greatly increase the underlying debt. The momentum of change in the debt-tower will ensure that debt and bankruptcies will continue to rise even as the economy contracts. Fekete discusses falling interest rates (the greatest amplifier of the debt burden); Alan Greenspan’s credit tsunami; gold as the ultimate extinguisher of debt; gold as the only form of capital that cannot be destroyed; trading insurance (gold) makes no sense; tips for hedging; the shape of things to come; and the revaluation of gold.

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Read these article’s synopsis and more in this week’s BullionBuzz visit: www.bmgbullion.com/document/676