THE UNKNOWN FACTOR: How The Global Financial System Will Collapse

One day out of the blue, the Global Financial System will collapse plunging the world’s economies into a depression for which there is no recovery.  The reason for this sudden collapse will be due to a factor that most analysts fail to recognize or understand.

While the mainstream media and alternative analyst community focus on the typical economic indicators, monetary system, derivatives and debt markets… the real problem for the world financial system will be the rapid change in the “PERCEPTIONS” of assets by investors and the public.  This event will likely occur rather quickly — virtually overnight.

Over the past year, I published articles on this site warning investors of this fundamental factor that continues to go unnoticed by the majority of analysts in the precious metal community.  Then last week, I came across this short presentation that explains it brilliantly and simply in a way that everyone can understand.

http://vimeo.com/99913495

Roger Boyd discusses the negative implications of the Self-Reinforcing Feedback Loops of Energy and the Financial System.  Basically, Boyd shows how the world moved into a new economic system over the past century where the Global Financial System and Energy are now dependent on each other to survive.

According to Boyd, the fractional reserve monetary system was designed to fund future investment in the energy sector, thus enabling the global energy supply to grow.  And, as the global energy supply continued grow, so did the size of the global economic and financial system.

Up until the middle of the 1800’s, the world’s energy supply was mostly based on human-animal labor along with the burning of wood for fuel.  To account for this simple LABOR-WOOD BASED energy economy, gold and silver were used as money for trade.  Which meant, the world powers acquired and colonized countries with large gold and silver deposits.

It’s no secret that the British Empire sought to control South Africa after discovering the huge Witwatersrand gold fields in 1886.  Not only did South Africa produce the lion’s share of global gold production up until the 1980’s, it produced more gold in one year than the total of the top three countries combined in 2013.

 South African Long Term Gold Production

South Africa produced a staggering 1,000 metric tons (mt) of gold at its peak in 1970.  This translates to an amazing 32.1 million oz of gold in one year.  Here are the top three gold producers in 2013 (according to GFMS 2014 Gold Survey):

China = 438 mt

Australia = 266 mt

Russia = 249 mt

Total = 953 mt

So, as the world’s economies were powered by energy supplied from wood, humans and animals, the precious metals were the most vital and sought after commodities by the leading empires.  However, when oil came on the scene, a transition to acquire world oil sources became the NUMBER ONE PRIORITY.

Which is why we are witnessing several geopolitical events taking place throughout the world in the bid to obtain and control the rights to these dwindling oil reserves.

In the short presentation above, Boyd explains why the Global Financial System is on life support.  Furthermore, he provides some excellent charts revealing how these ENERGY-FINANCIAL self-reinforcing feedback loops are creating a very fragile global financial system… that continues to weaken each and every day.

ENERGY is the unknown factor that most analysts fail to comprehend which will take down the entire Global Financial System…. and BIG CRACKS are already beginning to appear.

I will get into more details on these ENERGY CRACKS in article published later this week.  However, the important take-away here is that the ramifications of PEAK OIL will destroy investors’ PERCEPTIONS of the paper assets they own.

Boyd discusses this at the end of his presentation.  We must remember, stock and bond prices are based on future earnings from corporations in a growing economy.  And a growing economy is only possible by a growing energy supply.

What happens when the world finally realizes that it cannot continue to grow its global oil supply?  The realization that economic growth is no longer possible will destroy investors PERCEPTIONS in the supposed paper assets they hold.  Thus, the dumping of these assets will instigate a “Chain Reaction” collapse of these paper assets, which will destroy enormous amounts of capital responsible for funding investment in future energy supply growth.

GLobal Financial System PIC 1

This is the Self-Reinforcing Feedback Loop that Boyd warns about in his presentation which will destroy the already weak Global Financial System.  This is by far the biggest threat to the world and as I have stated several times, most of the analyst community is totally unaware.

The one thing that Boyd failed to mention is how to protect one’s wealth as the world’s financial system collapses.

GOLD & SILVER:  Protection Against The Collapse Of The Global Financial System

While it is impossible to forecast how this collapse will unfold, it’s much easier to understand which assets are fundamentally better investments.  As Mike Maloney stated in several of his presentations, “Gold & Silver are stores of wealth because they are stores of Economic Energy.”

On the other hand, Stocks, Bonds, Retirement Accounts, and etc are not stores of Economic Energy, but rather FUTURE ENERGY IOU’s.  When the market finally realizes the global energy supply is contracting, the PERCEPTIONS of the future value of those supposed assets listed above will change quite abruptly…. in a very negative way.

The coming abrupt change in market perceptions in paper assets will force investors to move into physical assets such as gold and silver to protect wealth as best they can.

Again, I recommend everyone watch Boyd’s presentation above.  Also, please consider forwarding, tweeting and emailing this article to others who would be interested.  I believe Boyd does a great job simplifying the relationship of ENERGY & GLOBAL FINANCIAL SYSTEM in a way that is easy to understand.

I want to thank Ron over at the PeakOilBarrel.com for posting this video, bringing it to my attention.

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27 Comments on "THE UNKNOWN FACTOR: How The Global Financial System Will Collapse"

  1. Steve, that is an excellent video that wraps everything up nicely. I have been following your site for quite a while and appreciate how you incorporate energy and the economy.

    • Fred,

      Thanks for the comment and I am glad that you found the presentation interesting. Again, most precious metal investors-analysts do no understand the ENERGY FACTOR. Once we start to see the Global Financial System collapse, it will create Self-Reinforcing Feedback Loops that will destroy the ability to fund future energy supplies.

      This will be experienced by what is known as the SHARK-FIN decline of Global Oil Production.

      steve

  2. This is pure nonsense. There is no peak oil. That’s just a conspiracy by the elite to control the stupid masses. I know many people in the oil industry that can tell you oil wells are capped al over the country so we can continue exploiting oil from overseas. The Russians are tapping into abiotic oil from ultra deep wells and this stuff if really cheap.

    We will not run of oil for centuries.

    • “I know many people in the oil industry that can tell you oil wells are capped al over the country so we can continue exploiting oil from overseas.”

      I have a degree in Geology. Name one of your contacts.

      Peking oil is a reality; if you think it isn’t you have been misled or fooled.

    • Abiotic oil is a decades old theory. It is not a theory that contributes to the world oil supply. It has absolutely no economic impact. The fact that I see people on this website spreading what is clearly disinformation is encouraging. Someone is worried about a rush to real assets. That let’s me know I must be on the right track. 🙂

    • David-Goldguy-Petedivine,

      I agree with all of you. I don’t know where Brady is getting these rumors, but it’s funny… I hear them all the time when I speak to the typical JOE-BAG-OF-DONUTS on the street about peak oil. Its almost like a KNEE-JERK reaction. For some reason, it’s like one of those URBAN LEGENDS…LOL.

      Abiotic oil is such a NON ISSUE, I am surprised anyone still brings it up. Which is why I am quite frustrated to hear George Noory on CoasttoCoast AM continues to bring on guests such as Jerome Corsi who believe in Abiotic Oil. George Noory doesn’t believe in PEAK OIL… and they guy has 1-2 million listeners every night.

      steve

      • Frackiing will be on the scrap heap along with ethanol in ten years because the energy required far exceeds the energy gained. You can argue with mathematics, but only if you’re ignorant, unquestioning, or have a financial stake in maintaining the PERCEPTIONS of the status quo. Nicole Foss does a great job of speaking on this issue as well.

        • Edwards,

          I couldn’t agree more with your comment and yes, I do read a lot of Nicole’s work. I think your 10 year forecast that Fracking will be in the scrap heap is a pretty good one. I believe the Bakken and Eagle Ford will more than likely peak 2015-2016, and by 2020-2023 overall production will be 70-80% less of where it is presently.

          steve

    • ManAboutDallas | August 12, 2014 at 9:00 pm | Reply

      We live on a finite planet. That means there is finite amount of oil, therefore “peak oil” is not a question of “if” but only a question of “when”. Ever heard of the Asteroid Belt? One theory is that it was once a planet that experienced a cataclysmic event that caused the disintegration of said planet. Maybe they were frac’ing for the last few drops of oil and tried one frac too many?

      • ManAboutDallas,

        LOL… good one. Yeah, it seems as if mankind just doesn’t know what to say ENOUGH IS ENOUGH. That just must be our addictive nature.

        The point of this article was to inform the readers that ENERGY & FINANCE will both suffer self-reinforcing feedback loops which will lead to a collapse of the system much faster than most realize or are prepared.

        In oil terms… its called the SHARK FIN DECLINE.

        Its coming. Just a matter of time. Which is why it is wise to be in the precious metals before it occurs.

        steve

    • Man, where do I begin!? First, every commoditiy is peaks and declines, and oil is no different. Early predictions did not take into account our discovering viable fracking technology to unlock tight reserves. So instead of peaking at 85mbpd, we are now peaking at 90mbpd. However, a better way of describing it: as supplies are increasing prices are held down by those increasing supplies. However, as you go past peak, declining supplies causes prices to increase. So Peak Oil is really the end of cheap oil. That’s where we are now, and that’s why oil has goin from $25/bbl to $100/bbl in about 10 years.
      Our reserves are probably an accumulation of both biological and abiotic oil. The both are due to organic or geologic methane being converted to oil via catalytic reactions with various minerals. They both accumulate extremely slowly, so it won’t affect our energy prospects either way. There are doubtless deep oil reserves we can still tap into, we just aren’t going to find another Ghawar.
      As for fracking, we have been doing it for well over 100 years, and we will be doing it in ever more complex ways for another 100. They are making money fracking natrual gas at $4/Giga Joule, so it’s a no-brainer fracking oil at $25 / Giga Joule. They’re now doing Zipper Fracks, which will lead to fracking the whole 3 dimensional deposit.

  3. Easy energy is just crazy talk. Look at reality, We are digging miles into the ocean for oil. Deep Water Horizon was over 4 miles deep within the Gulf of Mexico. We are fracking for oil. Fracking technology originated in the mid 1800s. It was never widely used because it destroys the ecosystem and was not considered financially feasible until now. Chemicals in Fracking destroyed water ways in Colorado, and West Virginia. Our world is at war in the Ukraine, Iraq, Syria, Lybia, Gaza, and tensions are escalating within the China sea for cheap energy. What part of this is hard to understand. The world is changing and we need to change with it or suffer the consequences.

  4. Economics 101 says as long as the price of oil (or anything else) is free to rise and fall there will always be oil (or whatever we’re talking about). Soon as the govt starts “managing” the market with artificial prices, quotas and finally mandates then you’ll see shortages and lines that form when it does become available while the black market flourishes.
    You may be right about gold but I wonder what happens when this group of govt desperados outlaws the possession (much less the use) of the precious metals?? And of course that will be right after they tell everyone to turn in their guns, I’m betting…

    • Silverado,

      Normally the theory of Economics 101 is correct as it pertains to the price rise and fall due to supply and demand. While it is true that THERE WILL ALWAYS BE OIL, it may not be at the rate we are currently producing-consuming or commercially viable in the future.

      10 of the last 11 recessions were in part to oil price spikes. Basically, the public cannot afford high-priced oil. So if the price of oil shoots higher, then economic activity drops dramatically. If the price of oil falls considerably, then the new unconventional supplies such as Deep Water, Shale Oil and Tar sands become uneconomic. Which means, supply is constrained.

      In all likelihood, the price of oil will not rise towards $150-$200 as the market cannot afford it. We could see a short-term price spike, but not sustainable high prices. Which also means, the Major Oil companies cannot increase production as the market won’t pay for it.

      steve

      • Rusty Brown in Canada | August 12, 2014 at 9:24 pm | Reply

        Just to clarify for the record: the oil sands in Alberta and Saskatchewan contain bitumen. There is actually no “tar” there at all.

        • Rusty Brown in Canada,

          Thanks for clarifying that up for us. Yes, while it is true that oil sands are actually bitumen, it’s still a hell of a lot closer to the ranking of TAR than it is to LIGHT SWEET CRUDE…LOL.

          Either way, the EROI- Energy Returned On Invested of Oil Sands and Shale oil are quite low at a 2-5/1 EROI. Both fall below the minimum EROI of 9-10/1 for sustaining a modern civilization… according to expert EROI researcher, Charles Hall.

          steve

  5. Peak cheap oil is here and gone.

  6. USA wont get its dirty paws on Russian oil,thats for sure.after having fomented war in the countries mentioned,including Libya,USA finds out the bear will not be prodded by the Nulanstick,and is quite happy to STICK it to the aggressors,EUUSANATOZION and the poodle UK..the world wont find the same invasiveness in the next phase.It is commerce not military bullying that will win the day.
    thanks Steve,right again.
    Oh,and Hunter B,you can eat **it as well.Nepotistic twats.
    RIPRobin.good guy.

  7. It is interesting that many world class junior E&P companies have been abandoned. This opportunity may be a once in a lifetime to buy companies that have world class oil and gas plays at pennies on the dollar.

    • If one wants to speculate or gamble with their money.

    • I prefer physical silver. There is so much rampant fraud how do you really know what is real and what is fiction? Paper claims on a company that may or may not be real, and that may or may not have access to real energy deposits.

  8. Hi!, Patrons Of The SRSrocco Report Et Al:

    Over 2,000 years ago a man appeared on this planed proclaiming that all things are possible to those who believe but nobody listened to Him did hey? We came as far as erecting physical accomplishments in nominal form for Earth use for have distracted ourselves with wars and revolutions etc. instead of visiting the stars of which there are how many representing what unbounded resources just for the taking if only we would have believed Him but that takes faith doesn’t it and obviously faith we don’t have or don’t want to exercise for whatever our excuses. Remember the Wright Brothers when the faithless told them their iron contraption wouldn’t fly but their implicit faith in themselves and their knowledge of flight moved them into the new world od today’s aviation and see how far that has come from the bear beginnings founded by the Wright Brothers. As Thomas Edison once quipped, when he was challenged at a meeting one day on why it took him so many experiments to produce just one single light bulb, explained to his questioner: “not one man on this planet knows even 1 millionth of one percent about anything”. If Mr. Edison is correct then there is no upper limits to what mankind can eventually know and express when it comes to the universal but as long as our motives are going to remain Earth bound, those ideas can NEVER get off the ground. The idea of the airplane devised by the Right Brothers did get off the ground didn’t it and now passengers enjoy the ride. There is so many resources available within our universe that nobody knows even 1 millionth of 1% about what’s out there until we lift off but when will that day dawn? Did Jesus and His disciples remain earthbound or did they lift off? Jesus asked the question: “When the son of man returns, will He find faith on Earth?” It appears to me that when He does return, unless there are radical positive changes, He will find us with our feet in the mud hunkered down and immobilized far afield from His infinite space. We must do the choosing and create thereby the positive or unintended consequences as we move forward into the vast, unexplored future in my personal opinion anyway.

    RUSS SMITH, CA. (One Of Our Broke, Fiat Money States)
    resmith1942@gmail.com ;

    • ManAboutDallas | August 12, 2014 at 9:03 pm | Reply

      DO something about this G/d spammer “RUSS SMITH” who does NOTHING but SPAM every site such as this with its INANE DRIVEL !

  9. Nice demonstration of the link between finance and energy.

    I’m not too sure of how Maloney actually feels about PMs. I am of the impression that he is using them as an investment vehicle to unload at an opportune time and not as a monetary unit to replace the FRN in a dollar collapse scenario.

    Fine by me…but I think he is held up by a lot of people as a “PMs as money” type of person.

    Oh, about 6 years ago, he was in a documentary about the coming collapse of the dollar…the name escapes me (I’m sure most here have seen it), but his statement about PMs I do remember. He said “It is when stocks and real estate are bottoming that I intend to sell my gold and silver and buy up as much true wealth as I can.”

    I actually agree with him on this. I don’t believe PMs will be of much use after a collapse of the financial and energy sectors…at least in the USA. He may be right to sell PMs when they spike and grab up arable, defendable real estate with the profits before everything goes completely to hell.

    Timing could be a bitch…lol.

  10. not for me – oil is controlled by the Fed Cabal – now russia is in the crosshairs so they take Russia’s main income (oil) and knock it down. Before it was yankee companies and the Bush cabal keeping prices unnaturally high for their profit.

    Hey tahnks for he Silver Chinese warehousing update. In one week I have been creamed from using the tout.

  11. If we do hit peak oil, we will have a lot more to worry about than how much gold or silver you own. What will you buy with it? The economy could collapse, and with it civilization could move backwards 50 years. More optimistically I am hoping for a more gradual reduction in oil consumption so there is time to adjust to new ways of living.

    Another worrisome fact is all the nuclear reactors sitting around with years of spent fuel in basically a swimming pool. Who is going to take responsibility for maintaining these things if the economy collapses? It’s like a ticking time bomb.

    Myself I have decided to just keep living, put my kids in sports just like all the other parents and pretend nothing is going to happen. The main reason is that I don’t think anyone can prepare for it in a meaningful way, so why burden your family about it now?

    And anyway if things keep escalating in the Ukraine we may not have to worry about it for long.

    • nonpulsed,

      This is the same reply as what I stated to Pintada. YES… if the world heads into MAD MAX and people are being killed, tortured, raped and etc, YOU WOULD HAVE A MUCH BETTER BARGINING CHIP with GOLD AND SILVER than worthless paper money.

      Secondly, let’s just say things don’t go MAD MAX, wouldn’t you’d rather own precious metals than realize you have totally nothing after the collapse of PAPER ASSETS???.

      People don’t get it anymore. There are no guarantees, but GOLD AND SILVER will allow an individual a lot more choices in a collapse scenario, then the supposed $250K of a retirement fund that is totally worthless.

      WHY CAN”T PEOPLE UNDERSTAND THAT????

      One more thing, if the NUKE PLANTS melt down around the world… than even barter is worthless.

      steve

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