Wednesday, March 2, 2011

A Trillion dollars a year...

Some people ask why I focus so much on Silver when I primarily write about Real Estate.

For years Real Estate represented a great opportunity. Some would call it the trade of the last decade.

But the sun is setting on those days. And while the City of Vancouver (and its immediate suburbs) continue to witness a frenetic pace of home sales and consequent price rises, it is end stage of our great housing bubble.

Vancouver stands in stark contrast to the real estate markets of the Fraser Valley, Chilliwack, Okanagan, Northern Interior, and everywhere else in British Columbia.

People ask, "if not Real Estate, then what to invest in?"

Hence my emphasis on Silver, which you are well aware is what I consider the 'opportunity of the decade'.

The story of the decade is going to be inflation and debt, especially the debt of the United States (which holds the world reserve currency).

PIMCO’s Bill Gross said two months ago on CNBC,

  • “We have a deficit in the $1 trillion plus arena, which means we must borrow at least a trillion dollars additional a year in order to fund the deficit. And, so, the debt ceiling currently at $14.3 trillion, which is 95% of GDP, has to go up by another trillion or so every 12 months.”

Grasp, if you can, the enormity of that statement.

Yesterday the Associated Press reported that the Republican-controlled House is on course to pass legislation cutting federal spending by $4 billion and averting a government shutdown for two weeks. And Senate Democrats say they will go along. Republicans want to slash more than $60 billion from agency budgets over the coming months as a down payment on larger reductions later in the year, but are settling for just $4 billion in especially easy cuts as the price for the two-week stopgap bill.

Let's look at that again, the politicians are having a knock down, drag-em-out fight over $60 Billion?

Does this pass as meaningful budget reform?

There is still $940 Billion in budget cuts required to prevent the deficit from growing. Then there's cuts to deal with the interest on the debt each year... and that's just to keep the debt from growing, it doesn't even begin to pay down that debt!

US Federal Reserve Chairman Bernanke responded to Senator questions yesterday by saying, “You want to make sure the debt is paid, interest is paid, and meaningful budget reform is highly desirable. I’m just concerned that there could be a significant probability that we would not raise the debt limit, and that would cause real chaos... This is money we’ve already borrowed. These are commitments we’ve already made to contractors, to senior citizens and so on...”

And it's the "and so on..." that is the real problem.

Almost all US States are insolvent, as are many US cities and municipalities.

There will only be one way the US Federal Reserve will deal with the looming problems. QE 3, 4 and 5 are a certainty.

Which means the flight into Gold and Silver is only just starting.

I can't say the same for Real Estate.

Meanwhile there was a fascinating comment made by the man many are now calling the ChairSatan (Ben Bernanke). As noted in an article in the Wall Street Journal, Bernanke was pushing back at the idea that policy makers should consider alternative proposals like the gold standard.

Bernanke said a return to the gold standard wouldn't work.

"It did deliver price stability over very long periods of time, but over shorter periods of time it caused wide swings in prices related to changes in demand or supply of gold. So I don't think it's a panacea," Bernanke said.

Additionally, Bernanke said there were a number of practical issues that would prevent the return of gold as the world standard. Namely, there's not enough gold in the world to effectively support the U.S. money supply.

The writer of the WSJ article then made the point that so many investors are already keenly of.

  • "(Bernanke's] argument is very one sided. Either gold and other PM's are grossly overpriced or substantially undervalued. It would appear from that the Ben Bernank has his philosophy wrong, as his true fiat banker mentality shows. He is thinking of Gold relative to current price with a relationship to money supply. As he sees it, there is not enough gold "at it's current price" to back the massive money supply of the US alone. In real terms he has just supplied the basis for the argument that Gold, Silver and other PM’s are grossly underpriced within this relationship. We can have a gold standard and you do not need more metal to achieve it, the metal just needs to be priced in real terms as a relationship to the money supply. This underlying fundamental would imply that the PM's need to be 10's of times higher than their current value. We may very well see this as more citizen's around the world flee their current currencies for the safety of precious metals."

10's of times higher would be an understatement.



Click 'comments' below to contribute to this post.

Please read disclaimer at bottom of blog.


  1. I am a Vancouver real estate junkie as well and I'm with you on silver - think it might go to $50 on this run before correcting back to $30-ish.

  2. This is just the beginning!!