The Coming Collapse of U.S. & World Conventional Paper Assets

Global Conventional Assets 2012The world is invested in the largest Ponzi scheme in history.  
In 2012, world gold investment was $234 billion and silver was $7.9 billion for grand total of $242 billion.  In contrast, total investment in global conventional assets under management grew to $7.5 trillion the same year (2011 – $79.7 trillion to 2012 $87.2 trillion).  Thus, total gold & silver investment in 2012 was only 3.2% of these global conventional assets.
The real problem for these conventional assets in the future will be the peaking of global oil production.  These assets derive their value from a growing economy which occurs due to a growing energy supply.  Once the energy supply peaks and declines, it will put severe stress on the $trillions of conventional paper assets.
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From the SRSRocco Report:

According to the CityUK Fund most recent report, the total U.S. and world conventional assets under management are forecasted to reach $94.1 trillion in 2013

This is up from $87.2 trillion in 2012.  These global conventional assets are broken down into the following investment classes shown in the chart below:

Global Conventional Assets 2012

Here we can see that the world has $26.5 trillion invested in mutual funds, $26.8 trillion in insurance funds and $33.9 trillion in pension funds.  Total global conventional assets under management grew 9.5% in 2012 compared to 2011 and are forecasted to grow an additional 8% in 2013.

Of course the majority of the gains in these global assets are due to the massive amount of monetary printing by the Fed & Central Banks.  The world believes it’s a lot richer only because the digits in these accounts have increased.  However, as I have mentioned before these assets are really not assets at all, but rather liabilities I label as “Energy IOU’s.”

Furthermore, if we take a look at the asset allocation of the larger group, the Pension Plans, we can see why the central banks have resorted to the largest coordinated monetary printing scheme in history:

Global Pension Study 2013

According to the Towers Watson 2013 Global Pension Plan study, the majority of the world’s pension funds were invested in equities & bonds.  A good portion of the other category (in grey) was invested in the real estate market.

So, the majority of global pension funds are allocated in equities, bonds and real estate.  Isn’t that amazing that these three investment classes have shown some of the highest rates of returns in the past several years?

Furthermore, the majority of global mutual funds are invested in equities & bonds and the overwhelming percentage of the largest insurance companies in the world have their assets allocated in real estate.

In a recent article by Brighton House Associates:

Real estate, an asset class that has traditional been a mainstay of insurance company portfolios due to its relatively steady, predictable returns and tangible nature, represents 60% of the asset allocation mix of large insurers.

It’s no wonder that the central bank’s monetary inflation has been siphoned into these assets rather than the precious metals.  I have republished the two charts below from one of my previous articles to show just how little currency is flowing into the precious metals than the typical conventional assets.

Global Gold Investment

Global Silver Investment 2007-2012

In 2012, world gold investment was $234 billion and silver was $7.9 billion for grand total of $242 billion.  In contrast, total investment in global conventional assets under management grew to $7.5 trillion the same year (2011 – $79.7 trillion to 2012 $87.2 trillion).  Thus, total gold & silver investment in 2012 was only 3.2% of these global conventional assets.

Why Global Conventional Assets are a Ponzi Scheme

The reason why these global conventional assets are the largest Ponzi scheme in history is due to the ability to liquidate these assets in a short period of time.  If everyone in the world who was invested in these assets wanted to cash them in for currency today, there would not be enough equity value or currency for the massive claims.

Furthermore, the redemption or massive liquidation of these conventional assets would certainly drive their asset values to a fraction of where they stand today.  Of course this would not occur, because these assets are set up to be liquidated by a small amount on an annual basis for the investors-retirees.

The real problem for these conventional assets in the future will be the peaking of global oil production.  These assets derive their value from a growing economy which occurs due to a growing energy supply.  Once the energy supply peaks and declines, it will put severe stress on the $trillions of conventional paper assets.

The reason why gold and silver are much safer assets to own than pension plans, insurance funds or mutual funds is due to the “Economic Energy” store of value they contain.  Once an individual purchases an ounce of gold or silver, held in one’s possession, the individual contains the highest quality of this stored “Economic Energy” that can be readily traded for economic energy in the form of goods and services.

Unfortunately, conventional assets do not contain economic energy, rather they are paper versions of “Energy IOU’s” that need to be liquidated, exchanged for fiat currency (another debt based Energy IOU) than traded for goods or services.

Sunshine_Mint_BarsThe peak and decline of world oil production (forecasted to occur soon by some in the oil industry) will put a huge strain on the already weak global economy.  As the global economy disintegrates, we will see a collapse in the values of these conventional assets.  Investors wise enough to see this coming will transition out of pension plans, insurance-mutual funds and into physical assets such as the precious metal to protect their wealth.

Because the world only invested 3.2% of its currency in gold & silver in 2012 compared to conventional assets, any significant move into the precious metals will push their values up to levels never imagined.

There are many important aspects of the energy supply equation that will be addressed at the SRSrocco Report in the future.  The more investors understand these energy details, the more they will understand why it’s wise to switch out of paper assets and into physical ones such as the precious metals.

Comments

  1. People are in for a rude awakening when funds to drill and frack the shale reserves dries up and that oil source evaporates. As oil has dropped in price the closer we have came to the break even point(guesstimate around $75-80bbl) for shale oil the more these drillers and going to second guess and quit drilling. Add in the poor performance past 2 years of most of the Bakken wells and it gets  even worse.

  2. One can’t just cash out their pension fund.  Can they?  You pay into it monthly for the duration of your tenure and then you are payed back monthly.  If you die after your first pension check then that’s on you.  Insurance claims are based upon an event occurring so you can’t just walk up to the window and cash out for all types of insurance policies.  He may have a case there for cashing out mutual funds.  I don’t see a stampede out of these types of investment vehicles nor some grand awakening to the value of PM’s here in the land of the free. That doesn’t change anything. When the price of metal explodes it’s not me who is going to be standing there looking stupid. 

  3. I wonder how much of in total dollars of these other investments would have to roll into metals to get a really large 500% bounce.  Not much, Id’ wager. but how much is a reasonable question

  4. “If everyone in the world who was invested in these assets wanted to cash them in for currency today, there would not be enough equity value or currency for the massive claims.”
     
    If everyone on a cruise ship runs to one side of the ship, they will capsize it.  If everyone tries to withdraw their money from their bank, it will bankrupt the bank.  If everyone tries to buy food at the same time, it will clear off the store shelves.  Fact is, humans do act like herd animals sometimes but it is unusual behavior that is only brought on by extremely serious and rare events.  Many people talk about “the baby boomers” as if we are all of one mind, one purpose, and one need.  We’re not, of course, and are not going to withdraw ALL of our assets from the market at one time, as is often feared by those who see this as a possible market-collapsing event.
     
    So… WILL paper assets collapse?  Perhaps.  But no one knows when.  It could be years or even decades before it happens, if it happens at all.  IMO, the biggest problem in the paper markets today is the giant size of the derivatives market. Now, that’s a world financial killer, if ever there was one.  The only good thing about it is that each time it appears to be about to blow up on us, people with the power to do so seem to fall all over themselves redefining the situation such that whatever is happening is not a derivatives payment triggering event.  It is possible that, along the same lines as a debt reset, there will be an unwinding of the derivatives bomb before it explodes and destroys every economy out there that is leveraged by derivatives.  Whether or not this happens is also unknown but it seems our best hope for avoiding financial tragedy of epic proportions.
     

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