Socio-Economics History Blog

Socio-Economics History Blog

Paul Brodsky: Gold Monetization, Revaluation of Gold 8x-10x Higher And The Big Reset

by mosesman
  • You cannot solve a debt problem with more debts. The current €100B bailout of insolvent Spanish banks is a case in point. Another €100B of debt has been piled on top of existing debts. How does this help the situation? The problem becomes even bigger!
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  • In the end, central banksters will return to gold. For eg: If a bank is insolvent to the tune of US$1B but has US$1B worth of physical gold at current prices. By simply raising the price of gold 10x, their US$1B worth of gold is worth US$10B and the bank is solvent! Revaluation of gold price is inflationary, it will cause other asset price to rise also. This in effect will put an end to asset price deflation. Gold is the ultimate debt extinguisher! Central banksters fear deflation more than inflation. Deflation kills bank, it collapses the banking system. This is an excellent piece by Paul Brodsky, excerpts:
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    Brodsky On “Gold Monetization And The Big Reset”! 
    by Tyler Durden , http://www.zerohedge.com/ 
    Macroeconomic Problems
    1) The global banking system is functionally insolvent and will fail without exogenous policy action*

    • There is one, interconnected global banking system linked by global financial markets and coordination among currency boards and central banks
    • In the current banking system model, debts due tomorrow are serviced by newly-incurred debts today (which create deposits)
    • Stagnant or declining nominal global asset prices since 2008 have stressed bank balance sheetsCentral bank easing and asset purchases to date have only tempered the rate of asset price declines
      • Loan book marks remain at substantial premiums to:
        • The present value of their cash flows in real terms
        • Liquidation prices at current or higher interest rates
    • Current adversity among European banks directly impacts global commerce and finance

    *Bank balance sheets can deleverage either via nominal write-downs of assets, (leading to outright failure/insolvency as tangible equity is extinguished), or through nominal increases in system reserves via base money inflation (provided by central banks as they expand their own balance sheets)

    2) Governments and private parties are heavily-indebted and this indebtedness is growing exponentially
    …..
    Conclusion
    Asset monetization (and in, particular, gold monetization) would solve many more problems than it would create. The negatives would merely recognize the balance sheet damage already done and beginning to be manifest (first, in the private sector and now, increasingly in the public sector).

    Mechanically, policy-administered asset monetization would be quite simple. Using the US as an example, the Fed would purchase Treasury’s gold at a large and specified premium to its current spot valuation. The higher the price, the more base money would be created and the more public debt would be extinguished. An eight-to-tenfold increase in the gold price via this mechanism would fully-reserve all existing US dollar-denominated bank deposits (a full deleveraging of the banking system). An appropriate multiple of today’s spot price could fully-extinguish the public debt if desired.

    In terms of the relative price spectrum, a speculative 50% increase in the US median home price would be most-welcomed to the US banking system (and certainly to mortgage holders). Clearly, such an operation would be a subsidy to leveraged asset holders and banks. Would this be another form of perpetuating moral hazard? Superficially, it would be easy to conclude so; however, we think this conclusion would be incomplete. Such a “subsidy” is already embedded and institutionalized in the system. The key distinction would be that the system will have been reset to promote fairness and efficiency going forward. Given today’s circumstances, that should be a universal, non-partisan goal.

    Rolling unfunded debts and debating in the political sphere over the merits and risks of unfunded growth or policy-administered national austerity programs is a futile endeavor. The math suggests strongly neither can work. We are convinced policy-administered asset monetization would stop the global financial system from seizing, restore sorely needed economic balance, and reset commercial incentives so that real growth can once again gain traction.

    Lee Quaintance & Paul Brodsky QB Asset Management Company, LLC pbrodsky@qbamco.com

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