The Peak & Decline Of International Reserves Warns Of Massive Asset Deflation Ahead

The world is sitting at the edge of a massive deflationary cliff.  Even though Central Banks are desperately trying to keep the world’s financial assets from plunging down into the great depression below, signs suggest they are losing the battle.

One critical sign is the peak and decline of International Reserves.  Hugo Salinas Price has been keeping an eye on International Reserves for quite some time.  In his recent article, A Reversal In The Trend Of International Reserves, he stated the following:

International Reserves peaked on August 1, 2014, at $12.032 Trillion dollars, and as of October 28, 2016 they stood at $11.066 Trillion dollars.

International Reserves stood at about $10 Trillion in 2011, but the rate of growth slacked off; the weekly increases in Reserves (which Bloomberg used to publish every Friday) stalled and became smaller, week by week. As mid-2014 came around, the increases were quite small. It was clear that the trend was for ever-smaller increases, and that could only mean that finally there would be no increase, which would be immediately followed by decreases in the total of International Reserves held by Central Banks. That is exactly what took place.

Here is a chart of International Reserves from Hugo Salinas Price’s article:

international-reserves-hugo-salnas-price

Hugo Salinas Price explains in the article, “that the increases of International Reserves take place when the Reserve Currency issuing countries effect payments to the rest of the world.”  Basically, countries such as the United States that run trade deficits, exchange fiat money or Treasuries for goods from other countries.  This shows up as an increase in International Reserves.

Now, what is important to understand about the chart above is the timing of the PEAK & DECLINE of International Reserves.  I had an email exchange with Mr. Salinas on what I believe was the leading factor in why the International Reserves peaked and declined.

When I went back and looked at a five-year price chart of a barrel of oil (West Texas), I found a very interesting coincidence:

west-texas-crude-aug-2014

The price of a barrel of West Texas Crude fell below $100 starting at the beginning of August, 2014…. TO THE DATE.  Even though the oil price had traded between $85-$100 over the past three years, it averaged over $95.  However, by the end of 2014, it had fallen by more than half.

This had a profound impact on International Reserves as the low oil price gutted the energy-commodity-goods producing countries.  These are the countries that hold the majority of International Reserves.  So, as the price of oil continued to stay below $50 a barrel, these countries had to sell Bonds and acquire cash to fund their own domestic account deficits.

Thus, the peak and decline of International Reserves occurred right at the same time, the peak and decline of high oil prices.  THIS IS NO COINCIDENCE.

As Hugo Salinas Price’s chart above shows, the world has experienced massive asset inflation ever since President Nixon dropped the Gold-Dollar peg in 1971.  Furthermore, it isn’t a coincidence that the U.S. Debt went up in a similar exponential trend the same as International Reserves since 1971:

U.S.-Public-Debt-vs-U.S.-OIl-Gas-EROI

The reason for the massive increase in U.S. debt shown in the chart above was due to the falling EROI – Energy Returned On Investment of U.S. Oil & Gas.  When the United States enjoyed an EROI of 30+/1 (prior to 1971), its debt remained low… relatively speaking.  However, as the U.S. Oil & Gas EROI continued to decline, its public debt skyrocketed.  Part of this U.S. debt is included as International Reserves.

Basically, the United States (and other countries) could no longer afford to sustain their domestic economies with their own energy sources, so they had to import energy (commodities-goods) to continue business as usual.  These trade or account deficits resulted in the exponential increase of International Reserves.

Unfortunately, the peak and decline of International Reserves represents the POPPING OF THE MASSIVE INFLATIONARY ASSET BUBBLE.  This is due to the falling oil price as well as the rapidly declining net energy in a barrel of oil.

Hugo Salinas Price is one of the few spokesmen in the precious metals community that understands the dire implications of the declining global oil industry.  He translated my Big Trouble At ExxonMobil article in Spanish on his website: Toca a su fin la época de la gran industria petrolera americana. ExxonMobil tiene enormes problemas.

While the Mainstream media is completely clueless to the disaster currently taking place in the Global Oil Industry, most in the precious community are oblivious as well.  This is due to the fact that most analysts in the precious metals community have BLINDERS on.  They just rather focus on the direct impact of gold and silver, and nothing else.  This is quite a shame as ENERGY is the KEY.

Lastly, there seems to be a lot of discontent in the precious metals community since the price of gold and silver declined after the Trump Presidential election.  Not only was the election of Trump as the U.S. President a surprise to most, the negative market reaction on the precious metals prices was the opposite of what most anticipated.

That being said, I am not surprised to see that the many people have become disillusioned or distraught on falling gold and silver prices.  This is the FICKLE NATURE of the general public or the typical investor.  Few have the mental or intestinal fortitude to withstand going against the grain (mob).

A perfect example of this was shown in the movie, THE BIG SHORT.  The original investor (played by Christian Bale in the movie) had severe threats against him from his investors when it seemed as if the MBS Short trade was going against him.  Ultimately, the Big Short trade against Mortgage Back Securities paid handsomely.

On the other hand, the falling gold and silver price has not impacted me at all.  The reason for  that is my understanding of the Oil and Energy Industries.  Again, most people in the precious metals community still don’t understand the dire ramifications of the collapsing global oil industry, so they continue to focus on the GOLD & SILVER PRICE.  This can be quite frustrating.

So, if you are a gold and silver investor and want to continue to be frustrated by the paper price of the metals, please continue what you are doing.  However, if you want to understand why the precious metals will be one of the only safe havens in the future, please learn more about the energy situation which I will provide in future articles.

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54 Comments on "The Peak & Decline Of International Reserves Warns Of Massive Asset Deflation Ahead"

  1. Everything is energy!

    • save_america1st | November 16, 2016 at 5:30 pm | Reply

      Steve, do you have any analysis yet about this new Texas oil discovery that’s supposed to be as big as the Saudi Arabia’s?

      • From peakoilbarrel:

        I am a petroleum Geologist drilling wells in the Wolfcamp, the USGS report means nothing. They periodically review basins to assess how much petroleum is there, we have been drilling Horizontal wells in the Wolfcamp for almost a decade, and vertical wells for many decades. Right now there are as many rigs running drilling this rock formation as there are in the rest of the country combined, so it is already baked in to the US production data. This is not like a Saudi Arabia field with a low drill and complete and development cost, it will take many billions of drilling capital to get a small percentage of the oil in place. The big deal is that the area is fairly resilient to low oil prices and will cushion the drop in US production due to lack of investment in other basins.

        • houtskool,
          Are there areas in the US that have low drill and development costs, and are currently off limits due to Gov regulations?

    • It is the recent way of thinking : dividing all subjects into always big number of categories.
      Energy is linked to all other questions (like urbanism, or transportation) related to human actions (production mode) and nature, both linked and dependant for ever.

  2. “The reason for the massive increase in U.S. debt shown in the chart above was due to …”

    … the fact that the federal reserve dollar is a fiat debt pyramid scheme. really, that’s all it is. a consortium of private banks, fronted by the so-called federal reserve, owns the u.s. dollar and uses it as a tool to steal from, first the united states, then the entire world when the u.s. dollar became the world reserve currency.

    any monetary/market/financial/economic theory or idea that does not start with this fact is wrong.

    • Decoupling “money” from reality always ends bad. This time will be the last gasp.

    • I agree, great comment, thanks

    • gman,

      Unfortunately, you made a seriously incorrect assumption:

      “the fact that the federal reserve dollar is a fiat debt pyramid scheme. really, that’s all it is. a consortium of private banks, fronted by the so-called federal reserve, owns the u.s. dollar and uses it as a tool to steal from, first the united states, then the entire world when the u.s. dollar became the world reserve currency.

      any monetary/market/financial/economic theory or idea that does not start with this fact is wrong.

      The ENERGY is the driver, not fiat currencies, banks, debts or whatever. When you finally understand that “THERMODYNAMICS is the KEY DRIVER”, than you will realize everything else is just WINDOW DRESSING.

      • energy, or the lack of it, does not drive debt. the graph you posted is a result of fiat debt currency, not eroi. posting a debt graph and an eroi graph together does not demonstrate causation.

        • Over consumption, is the result of mispricing of debt. Debt has been underpriced for probably 30 years plus. Getting cheaper and cheaper, So all commerce has been carried out on the cheap and peak oil is the result of this expansion, not the reason for it. Consumers want stuff suppliers fulfill those requirements. Oil is used in supplying those needs.
          Zero or near zero borrowing, means that currency is as near to being free, as it can be so why wait for the future. the future is now. this means peak debt. peak oil peak everything. Peak over production followed by GLUT.

  3. Fantastic article. As usual you provided insight many analysts miss great work http://actualrealmoney.com/

  4. The car is on empty, coughing and spluttering, and the US has a blind baboon at the wheel. This will end well.

    • for those who hate the nations, that was always the plan.

      • DisappearingCulture | November 17, 2016 at 8:35 am | Reply

        Oh I think you are right…at least in the minds of the most psychopathic of the elite. Early on perhaps not a conscious plan; just the path they were on.
        Now much more conscious…with little to no conscience about how others are hurt.

        • The state is just the state like 200+ others – specific organization of the society in order o deprive individual from his labor’s fruits (in reality) in the name of the public good (in theory). I think no one hates specific nation, but the state (establishment) imaginary representing specific nation. Otherwise we have to assume that every nation is evil by nature, which, I hope, is not true.

  5. Steve,

    QED – “quod erat demonstrandum” or in english – Quite Eloquently Done.

    The most important aspect of this excellent article is that it is a proof of the;
    1. Coming financial collapse due to the decreasing ERO(E)I,
    2. That the markets have been subsidizing the ERO(E)I with massive additional debt,
    3. That there will be no recovery because when the financial systems collapses there will no longer a source of debt to support the diminished ERO(E)I, and
    without readily affordable energy ALL of the worlds non local delivery systems will come to an abrupt halt.

    For all of those out there bemoaning the recent decline in PM prices, sure it is not $14 but $17 is still a steal and you will look back and laugh.

    Tom Cloud is and honest and fair dealer but if you don’t actually hold, it you don’t own it.

    Keep buying for cash and stash.

    SteveW

    • QED = “thus it has been demonstrated.”

      • Jeremy,

        Yes, Of Course, the Latin is quite clear.. You are obviously not a math person who has been struggling to make a proof. If you had you would understand “QED to be Quite Eloquently Done. Sorry if I misled anyone.

        SteveW

  6. Hi Steve, not sure if you know him, but Cliff High of halfpasthuman.com agrees with you. Interesting enough, he arrives(d) at this same conclusion using his computer model software. He recently did two interviews on Greg Hunter’s youtube site. The software is an algo designed to listen to internet chatter and interpret data that predicts possible future events all based on linguistics. It would be nice to see you two do a video on this subject matter.

    • Brian Hines,

      Yes, I know Cliff High’s work very well. Actually, my associate Vic Patane has spoken to Cliff on the phone on several occasions. Cliff’s software is picking up the “INTERNET PSYCHE” so to speak. So, yes… a lot of what he is picking up will likely unfold in the future.

      steve

      • Diogenes Shrugged | November 18, 2016 at 11:46 am | Reply

        Cliff High is erroneously predicting hyperinflation. SRSrocco is predicting catastrophic deflation. Some suggest they’re the same thing, but I don’t think so. If you think the dollar is strong now, you ain’t seen nuthin’ yet.

        Stronger dollars mean lower prices for precious metals, but the purchasing power of precious metals will remain unaffected. Unfortunately, financial collapse will force the sale of precious metals hedges, further depressing prices.

        The moral of the story is not that precious metals will save you. It is that a falling EROI ensures that debt will kill you.

        • The current environment is build on debt. Massive loads of debt, worldwide above 300% to gdp, gov, business and households total. Debt won’t kill you. Just make sure you don’t have a front seat when the debt train drives into the canyon.

          Precious metals won’t save you, but they have the potential for you being able to trade in a post currency world. Holding on to promises, as are fiat currencies, is a fools game.

          • Diogenes Shrugged | November 18, 2016 at 2:26 pm |

            “Holding on to promises, as are fiat currencies, is a fools game.”

            True, but only if:

            1. Your government successfully bans your currency. (India’s experience is already demonstrating how stupid that is.)

            2. Your fiat is anything other than U.S. dollars. (See the Ellen Brown excerpt posted by GrahamB further down in the comments.)

            3. Your fiat is deposited in an FDIC-insured bank. (That could default on your “loan” to them.)

            Otherwise, you’d best hold on to every scrap of your fiat, but just like precious metals, best to keep it as cash and treasury certificates in your possession. Most people don’t have the slightest clue as to how to conduct commerce with precious metals, nor will they learn when they can no longer afford them.

            Inflation’s over. Your dollars are getting stronger, not weaker. Don’t light your cigars with them just yet.

            “Debt won’t kill you.”

            It’s already killed a hell of a lot of people in India.

  7. PS
    As a futures trader I am a big advocate of the “dumb money” theory. That is when there are a lot of people in one camp. For example there were record shorts in the DOW recently so I went long. Bingo!
    Just about everyone has joined the deflation camp. Even prior advocates of inflation have now switched. If you apply the “dumb money” theory one could deduce that inflation could be a possibility.
    Deflation hurts the rich so they will do everything in their power to create inflation. Maybe they will succeed.
    I am not saying there will be inflation but, hell, there are a lot of people advocating it.

    • what we will see is neither inflation nor deflation. what we will see is wealth transfer. everything you have will be worth less, everything you need will cost more. the “global elite” “international financiers” “deep state”‘ will have the money, we won’t. they will have the wealth, we won’t. they will have the deeds, we won’t. they won’t work, we will.

  8. With falling EROI, will hard to access mining be economically feasible – will these far northern/southern miners be able to overcome the loss of cheap energy?

    • leverett Jess,

      No… most metal mining production will hit a SENECA CLIFF within the next 5-10 years. Probably starting within the next 2-3 years and picking up considerably by 2025.

      steve

  9. Digits.

    The global banking cartel want all currency to be in digital form. Therefore cash must be banned.

    A case in point is what is occurring in India at the moment. Pandemonium.
    Also, CITI Australia has announced that they will no longer transact in cash, nor will they accept cash deposits. The war on cash is spreading globally at an ever increasing pace, with more and more countries set to ban high denomination currency notes.

    How long before this war on privately held wealth spreads to gold and silver?
    Confiscation is now a definite possibility.

    • “How long before this war on privately held wealth spreads to gold and silver?”

      heh. they won’t need the g/s. they’ll own you yourself. if you can’t buy gasoline, or pay your waterbill, or pay your mortgage, or pay a bridge toll, or get a phone, or get a gallon of milk, or surf the net, except with digital fiat – when every watt is tracked, when every gallon is monitored, when every driven mile is mapped, then how useful is g/s?

      • Underground.

        The underground economy, or black market will always exist.
        This market will not deal in digits. Tangibles only.
        Barter will be price discovery. Gold and silver have been money forever and more.
        An edict from some “authority” will not void that.

        • Stunning Scenes Of Panic As Gold Price Skyrockets to $2800/oz In India After Currency Ban
          Posted on November 16, 2016 by The Doc

        • “Tangibles only.”

          sorry but that’s normalcy bias. all the “tangibles” will be tracked. drones flying overhead will use spectrum analysis to identify all food crops in backyard gardens. purchase tracking will reveal the amount of calories you are consuming. gasoline and vehicle mileage tracking will show if you are driving all over the city after your normal working day routine. how often you purchase shoes will reveal how much you are walking. etc. all available at the touch of a button to society’s overseers to peruse and discuss and act upon, should you attract their attention.

          • gman , what are you smokin ?

          • gman,

            When global oil production collapses, you can kiss HIGH TECH TECHNOLOGY goodbye. You seem to be making a lot of incorrect assumptions based on an INCORRECT UNDERSTANDING of what is going on.

            steve

          • “When global oil production collapses, you can kiss HIGH TECH TECHNOLOGY goodbye.”

            eventually. for us, soon. for the “global elite” “international financiers” “deep state” with their set-aside reserves, not for a long long time.

          • Like Gman, I’ve recently started to think we might experience a future similar to the one portrayed in “Hunger Games”

            Energy for all he government and everyone else needs to,pull the wagon by hand

  10. The following extract is from:
    “The Web of Debt”, Ellen Hodgson Brown, J.D.
    Page 210

    Setting the Debt Trap:
    “Emerging Markets” for Petrodollar Loans

    When the price of oil quadrupled in the 1970s, OPEC countries were suddenly flooded with U.S. currency; and these “petrodollars” were usually deposited in London and New York banks. They were an enormous windfall for the banks, which recycled them as low-interest loans to Third World countries that were desperate to borrow dollars to finance their oil imports. Like other loans made by commercial banks, these loans did not actually consist of money deposited by their clients. The deposits merely served as “reserves” for loans created by the “multiplier effect” out of thin air.’8 Through the magic of fractional-reserve lending, dollars belonging to Arab sheiks were multiplied through the banking system as accounting-entry loans. The “emerging nations” were discovered as “emerging markets” for this new international financial capital. Hundreds of billions of dollars in loan money were generated in this way.

    Before 1973, Third World debt was manageable and contained. It was financed mainly through public agencies including the World Bank, which invested in projects promising solid economic success.’9 But things changed when private commercial banks got into the game. The banks were not in the business of “development.” They were in the business of loan brokering. Some called it “loan sharking.” The banks preferred “stable” governments for clients. Generally, that meant governments controlled by dictators. How these dictators had come to power, and what they did with the money, were not of immediate concern to the banks. The Philippines, Chile, Brazil, Argentina, and Uruguay were all prime loan targets. In many cases, the dictators used the money for their own ends, without significantly bettering the condition of the people; but the people were saddled with the bill.

    The screws were tightened in 1979, when the U.S. Federal Reserve under Chairman Paul Volcker unilaterally hiked interest rates to crippling levels. Engdahl notes that this was done after foreign dollar-holders began dumping their dollars in protest over the foreign policies of the Carter administration. Within weeks, Volcker allowed U.S. interest rates to triple. They rose to over 20 percent, forcing global interest rates through the roof, triggering a global recession and mass unemployment .20 By 1982, the dollar’s status as global reserve currency had been saved, but the entire Third World was on the brink of bankruptcy, choking from usurious interest charges on their petrodollar loans.

    That was when the IMF got in the game, brought in by the London and New York banks to enforce debt repayment and act as “debt policeman.” Public spending for health, education and welfare in debtor countries was slashed, following IMF orders to ensure that the banks got timely debt service on their petrodollars. The banks also brought pressure on the U.S. government to bail them out from the consequences of their imprudent loans, using taxpayer money and U.S. assets to do it. The results were austerity measures for Third World countries and taxation for American workers to provide welfare for the banks. The banks were emboldened to keep aggressively lending, confident that they would again be bailed out if the debtors’ loans went into default.

    Worse for American citizens, the United States itself ended up a major debtor nation. Because oil is an essential commodity for every country, the petrodollar system requires other countries to build up huge trade surpluses in order to accumulate the dollar surpluses they need to buy oil. These countries have to sell more goods in dollars than they buy, to give them a positive dollar balance. That is true for every country except the United States, which controls the dollar and issues it at will. More accurately, the Federal Reserve and the private commercial banking system it represents control the dollar and issue it at will. Since U.S. economic dominance depends on the dollar recycling process, the United States has acquiesced in becoming “importer of last resort.” The result has been to saddle it with a growing negative trade balance or “current account deficit.” By 2000, U.S. trade deficits and net liabilities to foreign accounts were well over 22 percent of gross domestic product. In 2001, the U.S. stock market collapsed; and tax cuts and increased federal spending turned the federal budget surplus into massive budget deficits. In the three years after 2000, the net U.S. debt position almost doubled.

    The United States had to bring in $1.4 billion in foreign capital daily, just to fund this debt and keep the dollar recycling game going. By 2006, the figure was up to $2.5 billion daily. The people of the United States, like those of the Third World, have become hopelessly mired in debt to support the banking system of a private international cartel.

  11. Thanks Steve, good material for learning appreciated.

  12. DisappearingCulture | November 17, 2016 at 8:46 am | Reply

    “……after the Trump Presidential election. Not only was the election of Trump as the U.S. President a surprise to most, the negative market reaction on the precious metals prices was the opposite of what most anticipated.”

    But it wasn’t a negative reaction as a whole, it was the commercial shorts flexing their short positions on the Comex. Market manipulation as usual.

  13. If what you say is true i.e. ” pms will be the safe haven asset,” then your scenario of a collapse in
    currency means the USA government will confiscate all gold and silver. They confiscated gold
    a number of years ago and since doom and gloom is our future, they’ll darn well do it again. In
    the meantime, what do millions of people “barter” with to stay alive? And by the way, I see you
    have no answer for silver heading south even though you hyped it these past 7 years. So you wisely
    push it out to 2025 for the price increase in silver.

    • Joe,

      When the French Revolution spread throughout France… HOW MUCH CONTROL DID THE ELITE GOVERNMENT have at that time?

      Correct…. ZERO.

      Joe, you need to start broadening your mind and wisdom a bit. Your thinking is decades old and well past its use. So, consider looking at life with a little more wisdom and understanding.

      steve

  14. So we have a few years to grab metal – make the best of it

  15. Johny Comelately | November 17, 2016 at 8:31 pm | Reply

    The Saudi’s are getting ready to reveal their oil reserves in order to privatize Aramco. The IPO cold fetch $100 Billion. http://www.zerohedge.com/news/2016-11-17/are-saudis-about-reveal-best-kept-secret-oil

    I wonder how this will affect oil price and if it will bid up the Aramco IPO with it? If so, will it last? Will the “analysts” focus on reserves in the ground and overlook the rapid diminishing EROI? Are the Saudi’s putting lipstick on Aramco to fetch a ridiculous high IPO to cash out of what they see as a dying oil industry? Why would the Saudi’s want to privatize if their EROI were not in decline? They must know something we don’t. I also find it interesting that OPEC lowered their long term oil price forecast.

    Steve, I’m still digesting the “thermodynamics price equilibrium theory”–if I can give a name to this new theory you and the Hills Group are describing. If it’s true, it will turn economic theory on it’s head! Thanks for bringing this information to our attention!

  16. Why u call him Mr. Price?

    Salinas is his lastname. Price is a second lastname, calling him Mr. Price is utterly awkward. Price is his mother’s lastname. Latinamericans and spanish people have two lastnames, first the father’s one and then the mother’s one. Either you call him by his complete name or you use his first (father’s) lastname, you don’t use his mother’s.

    In Portugal they place the mother’s lastname first, but this dude is Mexican, so it’s not the case.

  17. According to Harry Dent research gold will go down to $700-750 per ounce and all other assets when this massive asset deflation starts. So many analysis out there and not many talk about the EROI.

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