February 27 2012Charts That CountDemographics - Bad News for Sovereign Solvency, Good News For Long-term Hard Asset Investors?The amount of unfunded government liabilities are estimated to range anywhere from $150 trillion to ashigh as $250 trillion in the developed world (what is a few tens of trillions anyway these days). Given thatthe number of taxpayers to foot this bill is dropping at the same time as the number of claimants is risingand that this liability represents several multiples of global economic output, what realistic options do ourgovernments have other than de jure (outright debt repudiation via sovereign defaults) or de facto(printing press/debasement/inflation) defaults? If we take a look at central Central Bank behaviour in theform of their balance sheet activities when faced with the current and much smaller banking crisis I wouldargue the answer becomes more clear.The Race to the Bottom - Is a Global, Co-ordinated Currency Debasement Underway?It appears the answer is yes, all key Central Banks are engaging in currency debasement via balancesheet expansion.
Combined with an environment of strongly negative real interest rates - whats your preference sovereigndebt or hard assets?Remember the quip that fiat currencies do not appreciate - they merely fall at different rates? We arewitnessing the first, global, synchronized debasement in history. Even the traditionally "sound money"Swiss are working overtime to devalue their currency (see SNB line above).Central Banks - Good for the FIRE Economy, Not so Good for Purchasing Power
Since inception of the US and Canadian Central Banks the purchasing power of the US and Canadiandollars has fallen approximately 97% and 95% respectively - with a large portion of that devaluationoccurring after the US went of the gold standard in 1971 and Central Bankers of all stripes were given theall clear to began to unleash increasingly rapid money supply creation on the world.Surely such a complete loss of purchasing power is an odd outcome given both of these institutions haveprice stability as core mandates. At the same time our purchasing power was being methodicallydestroyed artificially low interest rates inflated the value of assets in the Finance, Insurance and RealEstate ("FIRE") sectors beyond all ties to reality or more accurately to cash-flow. Perhaps we shouldremind our Central Bankers that nominal asset values are not in their purview.RegardsAgcapita