The Silver Chair

|

John Exter a well known past economist and central banker, who apposed Keynesian economics believed that debt based money would end in collapse. He Illustrated the process of collapse and flight to safety with the below inverted pyramid now called the “Exter’s pyramid”:

Exter’s pyramid
Note: bank and municipal bonds in the centre above.

In an interview back in 1991 when asked about the problem with Keynesian economics reliance on debt, Mr. Exter said: “That’s what my upside-down debt pyramid is all about. The debt burden at some point becomes unsustainable because too many debtors borrow short term & lend long term, or, worse yet, borrow short term & put the money into bricks & mortar.”

The way I see it, borrowing short and lending long is actually the hallmarks of an unsustainable debt burden, like the inverted pyramid it is unstable. What need arose that created a market for all those finance companies? Money was obviously not available from sources that knew the borrower, but instead of getting the message and not lending to those not worth of lending too, many finance companies were created to fill that market gap.

I wonder how many Grandma’s & Granddad’s have crossed the street to avoid walking on the same side with certain people they have actually lent money to through finance companies!

Derivatives go into the same boat I think, a market was created for them when lending became unsustainable or was for purely non productive reasons. Derivatives cross insure many banks, against lending for reasons and for people they would normally not associate with based on their liabilities or sustainability’s.

Derivatives are so big now they are worth more than the total GDP of the world! At $1.14 Quadrillion! (A quadrillion is 1,000 trillion or 1 million billion), that’s 17 times more than global GDP!

To put this in scale, if a stack of $1,000 dollar bills worth 1 million was
100mm high then:
1 billion would be 100m high (220ft)
1 trillion would be 100 Km high (60 miles)
1 Quadrillion would be 100,000 Km high! (60,000 miles)

Linked here is a great visualization from Jim Sinclair on what 1 Trillion in $100 USD bills what look like (Must see).


Compare this to gold –
All the gold ever mined in history is mostly still around and would approximately all fit in a 20m cube valued at 4.6 Trillion at today’s price of $930 per oz.

Derivatives are worth 247 times more than all the gold ever mined, now we can see where derivative sit on the Exter pyramid.

When the masses rush to the bottom of the pyramid buying gold or silver may end like a game of musical chairs were there is 247 kids and one chair, (when the music stops there will be many tantrums). My thought is not to wait for the music to stop, grab your precious metals now.

If there were two chairs left, one labeled gold the other silver, which one should you take? Well I would take the silver chair for the following reasons:

Although the gold chair I’m sure will be fine the silver chair will be better for a time, incredibly the ratio of all above ground silver to gold is on 4:1, yet the price differential is more then 60:1. But the situation becomes even more incredible when we find out the tradable silver to gold ratio is estimated to be 1:10! That means there is ten times more tradable gold than silver yet the gold price is 60 times higher!
The historic valve is 10 or 15:1 as that’s about the ratio it comes of the ground, even if it returns to 15:1 we are looking a significant advantage. But really we are looking a possible 4:1 ratio! As that is the above ground ratio, but incredibly maybe only 2% of that silver is actually tradable as silver. Silver is so cheap it would certainly not be worth melting down a fancy candle stick as the craftsmanship is worth more. Silver would need to be $100 or more per ounce before that would start happing. There is very little silver left for industrial uses, it is literally running out because it has been too cheap for too long.

Below I have tried to bring theses number off the page and to something visual. Imagine all the gold in the world that has ever been mind in the history of man, in one place. Likewise all the Silver above ground remaining. Most of the gold is still around and most of it is in a tradable form, ether Bullion or rings / bangles etc.. While Silver has been used up in electrical contacts, burnt up never to be seen again. So although it was at a 15:1 ratio only 4:1 remains, and only a small amount of that silver is available to buy as bullion.

Below can be see the situation layout on the grass with a 10m (22ft) grid, These cubes have been adjusted for specific gravity, so silver will appear bigger as it is lighter, but still you see the incredible situation we have:

(Click image to enlarge)
World Gold silver stock
So how long will the silver price remain at 70:1? I’m not sure but I’ll have the Silver chair thanks.


Notes:

If a place is created for money to be invested that does nothing productive. Then this will cause inflation. This is because the compounding money supply must be used productively otherwise it’s own usury payment will catch up to and overtake the usefulness of that expansion to pay for itself, once that happens assets sales must commence, the change is quick. This is what causes the boom bust cycle in our debt money systems. See “Fiat debt money how it drive countries and lives”


Link for world GDP
https://www.cia.gov/library/publications/the-world-factbook/print/xx.html

Link for total derivatives:
http://blog.goldassets.co.uk/2008/06/24/global-derivatives-market-now-valued-at-114-quadrillion/
"the truth can set you free"
I hope I have shared some useful truths here.
There are more important things than gold and silver, but our current method of trade & exchange, our store of excess work is important but flawed. Our money is not an honest weight or measure or a good store of saved effort. It causes many to be slaves to it, as it requires interest payments. Gold and silver are what they are, they can't be created by man and do not require interest payments because they are payment, not a promise to pay.
Yours faithfully
Andrew


 

©2009 Gold Measures | Template Blue by TNB