Each passing day, the world gets closer to a total collapse of the global fiat monetary system. After the United States unilaterally terminated the convertibility of the U.S. Dollar to gold in 1971, the world has been settling trade on borrowed time. It was full faith in the dollar and U.S. Treasury market that allowed global trade to continue for 4 decades.
However, faith in the dollar is waning as debts, derivatives and dishonesty plague the financial system. Most analysts (including many in the precious metal camp) are wasting time debating over the mere symptoms and not the disease itself.
We must remember, debts are nothing more than “Energy IOU’s.” To pay back a debt, energy has to be burned so the market can generate goods and services. Thus, this allows for growth to continue which provides a surplus of wealth enabling the repayment of debts.
The problem the world is facing, is not the huge amount of derivatives or debts, but the availability and affordability of its future energy supply. Actually, the world has not been able to afford the energy that it has been consuming for quite some time now. Basically, the world (especially the U.S.) cannot not afford its way of life, so it has created a system of debts and derivatives to cover up and mask the problems.
Most of the Retirement Markets are Liabilities Masqueraded as Assets
Very few realize that their retirement accounts are in fact future liabilities rather than present marketable assets. This is the typical example of a Ponzi scheme. Why? Because there isn’t the available physical assets to satisfy these retirement accounts — only a fraction. Again, retirement accounts are also “Energy IOU’s.”
If everyone wanted to cash in their retirement accounts today, there just isn’t the available physical assets to satisfy all the requests. Of course, money printing and the buying of U.S. Treasuries & Mortgage Backed Securities by the Fed is an attempt to do this without having to burn energy or exchange physical assets.
Here we can see that as of Q3 2012, the total U.S. Retirement Market stood at $19.3 trillion (this chart has been updated). In their most recent update, the Investment Company Institute shows the U.S. Retirement market has grown to $19.5 trillion in the final quarter of 2012. The retirees can thank the Fed for the $200 billion in growth in this market from Q3 to Q4 2012.
The figures in this graph as it pertains to GLD & SLV we calculated during the beginning of 2013… so the actual total amount would be lower than $81 billion. However, we can plainly see just how much money has been siphoned into one of the largest Ponzi schemes in history — the U.S. Retirement Market.
That 1% ownership of gold is just a conservative calculation based on the total retirement assets in Q3 2012. I have seen estimates that gold ownership today in the U.S. is more like a half of a percent. Regardless, there is a great disconnect by the public as to what are true assets and stores of value — more about this in future articles.
The Collapse of the Dollar due to Energy Constraints
Just like the U.S. Retirement Market, the dollar is backed by a huge amount of future liabilities ($16.7 trillion and growing), which are again… Energy IOU’s. There is no way these debts will ever be repaid, because there will not be the available energy supply in the future to do so. As I mentioned before, the energy situation has already impacted the debt laden global markets — it only gets worse from here on out.
Even though the United States is bragging about its new Shale Oil Bonanza, this will turn out to be a mere blip in the whole scheme of things. World conventional oil production already peaked and the only thing saving the day is… shale oil. While shale oil has helped to bridge the gap from the loss of conventional oil supplies, it is doing so on the heels of very high annual decline rates — averaging 40% per year. This is not sustainable.
Then of course we have the next SHOE TO DROP, and that is the decline of net oil imports. If we take a look at the next chart we can see this taking place in the Middle East:
In 1980, the Middle East was producing about 19 mbd (million barrels a day) of oil while consuming a little more than 2 mbd. Thus, their net oil exports where approximately 17 mbd that year. Today you can see, the Middle East now consumes over 8 mbd while the total production has grown to 27 mbd. Thus, their net oil exports have grown only 2 mbd at 19 mbd in the past 3 decades.
Furthermore, Saudi Arabia has increased its domestic consumption 370% in 30 years, the most in the group. According to the BP Statistical Review, Saudi Arabia produced 10.3 mbd of oil in 1980 while consuming 600,000 barrels a day — showing net exports of 9.7 mbd. However, in 2011 Saudi Arabia increased their oil consumption to 2.8 mbd while producing 11.1 mbd. Even though the Saudi’s have increased their oil production in 2011, their net oil exports actually declined to only 8.3 mbd — this trend will only get worse.
In their April, 2013 Oil Market Report, the IEA forecasts the Saudi’s to increase their oil consumption to average 3.1 mbd in 2013. While Saudi Aramco plans on adding more oil production in 2013, their increased consumption is taking up a large percentage of this new supply. At some point in time (near future), the Saudi’s will peak in oil production while their domestic consumption steadily increases — a double-edged sword.
The decline of net oil exports is a phenomenon that is occurring in most of the oil exporting countries in the world. Unfortunately, the largest energy organizations such as the IEA – International Energy Agency and the EIA, the U.S. Energy Information Agency, don’t seem to pay much attention at all the subject of net oil exports. And why should they? It’s just more bad news that would upset the already volatile oil markets.
ENERGY = MONEY
I have stated this before, and will state it again, Energy = Money. Energy drives the world, and money is supposed to be the accountants. The present Fiat Monetary System no longer works as it is saddled with $trillions worth of energy IOU’s… liabilities we cannot afford.
Gold and Silver are money because they are in fact stores of what I call “Trade-able Energy Value”. Each ounce of gold or silver is bought and paid for energy value that can be traded for goods or service of like energy value. While, I realize this theory will stir up much debate, I believe it to be true and I plan on spending a great deal of time explaining the concept in future posts and articles.
The collapse of the dollar is already taking place. It has more to do with energy… than most realize.