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.
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 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.
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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