By Bill Holter:
The Bank of Japan announced over the weekend that they are considering buying derivatives to jump start their economy. Oh yes, that will do it! Print money (currency) lots and lots of it, purchase derivatives that are worthless and have zero chance of performing and book them on your balance sheet.
Yes I know, taking dead derivatives off of bank balance sheets and replacing them with Yen, Dollars or what have you will “strengthen” the selling banks balance sheet by removing the Albatross but….what about the central bank’s balance sheet?
This cannot work because all they are doing is destroying themselves!
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Does this make any sense at all? Do the central banks believe that they are immune from the stench of derivatives? Do they believe that if THEY hold the derivatives, these “magical pieces of crap” will no longer smell bad? As I wrote months ago, “broke is broke” and hiding non performing assets “in the corner” doesn’t change anything, only “who” is holding the bag. The problem with this (and it’s already beeg done by purchasing non performing real estate loans) is that the central banks are the ISSUERS of the currencies themselves. These currencies (Dollars, Euros, Yen, Pounds etc.) live and breath ONLY by the good graces of confidence and nothing more. The “nothing more” part being the fact that there is nothing real behind them.
By going into the derivatives market they are “betting” that the leverage of 100-1 will be enable them to “pump” air into their economic balloon faster than it’s already leaving (deflating). This cannot work because all they are doing is destroying themselves. This is like an anorexic being told that they have to eat otherwise they will die…so they start gnawing on their own arm or leg. The central banks have obviously forgotten what their “product” is in their efforts to save their banking systems. Make no mistake, this is NOT about the economy it is about the banking systems. But what good is a “pristine” (no such thing in today’s world) bank or banking system if the issuer of the currency (the central bank) itself is a brain dead insolvent? What good is a healthy banking system if they “trade” in insolvent units?
This latest central bank lunacy is merely an example of how far down the rabbit hole we have gone. We are headed into a currency crisis of historical proportions that will be set off in an “over night” fashion. This will not be so much a “currency crisis” where one nation’s currency collapses or one zone’s versus another. This will be a currency crisis where “the money doesn’t spend” anymore. If I had to guess, I would say that the teeny tiny Silver market (or lack of) will be the catalyst. As you know, I am convinced that Silver is already in shortage. Once a “delivery” is not made the jig will be up. Follow this through, if you can’t buy an item with your “money” then confidence in that “money” will be broken. You’ll try to “spend” your currency on something else that is available provided the seller is willing to accept your currency. This way maybe you CAN trade your newly acquired item for what you were trying to buy in the first place. It doesn’t matter whether there is a huge surge of currency “owners” dumping their currency to buy or whether “holders” of Silver refuse to sell, it is the same result either way. Once a currency “doesn’t spend” for something…anything at all, once this starts it will grow and spread until it WON’T spend…period! This is the natural progression of hyperinflation and how it starts and moves. And this is where we are headed in my opinion as sure as the Sun will come up tomorrow.
I know that I’ve covered two different subjects here but they are not separate, they are mutually inclusive. Central banks acting to bankrupt and make themselves “insolvent” is the same thing (result) as owners of an asset (in this case and in my opinion Silver…and then Gold) not accepting currency in exchange for money. Think of what is happening now as two of the largest freight trains in history running full bore at each other on a collision course. The central banks are destroying themselves and thus their “product” at a quicker and quicker pace at the same time “available” Silver (and then Gold) is getting more and more scarce. The music will completely stop once one single delivery of Silver fails. ALL confidence will break and within 1 to 2 weeks (especially in today’s computerized instant information world) “the money won’t spend” …for ANYTHING!
You may say that this is overly dramatic, I don’t think so. You may say that Gold and Silver are not used anymore so whether any is available or not, it doesn’t matter. I would say that if the government passed a law that said it is midnight when the Sun is straight up in the sky without a cloud to be seen, it is high noon no matter what is legislated. In other words, Gold and Silver are money, “natural money” that no matter how “demonetized” central banks want them to be they will ALWAYS “spend”. …Even and ESPECIALLY when fiat no longer has the power to purchase them! This is exactly where we are headed and have been for years, only now are central banks speeding up the arrival. Regards, Bill H.