A "Saturated World"

Posted at 10:59 AM (CST) by & filed under Bill Holter.

Dear CIGAs,

For many years I have written about “debt saturation” being the ultimate problem and the end game to the current system. Back in 2007 I wrote how we were facing a solvency problem rather than a liquidity problem. When the Treasury and Fed treated the 2008 debacle with more liquidity, I was adamant they were treating the wrong disease with the wrong cure. Fast forward to present day, we should soon see what the “disease” actually was, how incurable it now is and how devastating to our way of life it will be.

The following charts do not in any way say “this is it”, meaning the saturation level is here and now. They do however show you what the problem is and how we have gotten to this point in time.


What does tell you the problem is here and now are your own eyes. If you are willing to look, you will see various European nations without the ability to issue more debt while Japan’s debt to GDP ratio has long ago passed the banana republic threshold. Look around the United States and you will see various cities and states where revenue can no longer support even debt service, never mind pay down any principal. If you look at the federal government debt, you will see foreigners are now sellers. The big buyer is the Fed itself. This is THE definition of monetization. There is no other alternative.

The problem with “debt saturation” is this, all fiat systems (Ponzi schemes) must have new investors in order to “grow”. This is what is meant when you hear the word “reflate”. The reflation process is always funded by new waves of borrowing. For years we would see various economic sectors passing the baton of reflation until there were few left with the ability to borrow more. Then we saw the real estate markets get to a point where more debt could not be added. Finally, various sovereign governments and their central banks picked up the baton in a final reflation. We have particularly seen this since 2008 with the various fiscal spending plans and quantitative easings.

One other area to mention is oil. Oil price and usage has been very important to the U.S. Federal Reserve Note. Since all oil has been priced and settled in dollars, this was “abnormal” demand but still huge “petro dollar” demand nonetheless! We now have two things happening in the oil market, slightly lower usage because of weak economic activity and MUCH lower prices. This will act to lower demand and velocity for the dollar.

None of the above should be anything new for readers. If you think past where we are now then you understand Richard Russell’s term “inflate or die” is where we are headed. The ability to reflate is now gone nearly all over the planet! Everything has already been levered, re levered and levered again to the point where no un hypothecated collateral is left …and even with zero percent interest rates debt service is becoming overwhelming. So what is left?

What comes last as a final solution is a REFLATION of central bank balance sheet values. Ask yourself this, how “rich” or how much wealth would central banks have if they valued their gold at $10,000 per ounce or higher? Or MUCH HIGHER!? The rest of the world can already see the Western financial system is at the end of their ropes. Bretton Woods which started out as a gold standard and morphed into a con game has failed. Should the world go back to gold (at vastly higher prices), central banks and treasuries who do actually hold gold will be able to avoid “bankruptcy”. Some, with enough gold will even be able to reflate!

I guess the best way to finish this piece is by asking a few questions that drive home the answer. If as central banks have recently said is true, “central banks can no longer save the world”, then who or what will? If the central banks are actually in trouble (they are), who will save the central banks? I submit to you, the central banks really and only have one way out with a caveat. This one way out is to reflate the only thing you have left that has not been inflated, the GOLD! By revaluing gold to levels far above where individuals can buy it, the banks will elevate themselves above their peon citizens grasp. They “fill” the black holes in their balance sheets AND allow themselves a way to continue the game of reflation!

I did mention there was one caveat. This is all dependent on whether or not the treasury or central bank ACTUALLY HAS GOLD to reflate! This I believe is going to create huge problems in the West as gold has been flowing from West to East. It seems to me, the East is beginning to do as they please and make their own rules in spite of U.S. wishes. Is this because “they have the gold?”

Standing watch,

Bill Holter
Holter-Sinclair collaboration
Comments welcome bholter@hotmail.com