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No Way Back: The Monetary System is Behind the Power Curve

Monetary System
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EDITOR NOTE: This piece is short, sweet, and simple. It uses the aviation metaphor of the “power curve” to explain the stage at which the US monetary system finds itself. If money is the source of an economy’s prospering, then utilizing money in ways that generate a return on investment can accelerate it. But when you abuse the source, printing money in a manner that excessively increases supply, there’s a point at which acceleration is no longer sustainable. The problem is that the economy doesn’t just stall or slow upon reaching that point. It collapses, as there’s nothing below to support it. And that’s what we’re facing now--an inevitable collapse.

Lately, it’s been hard to ignore the feeling that the monetary system could potentially collapse. To me, it’s not just a feeling. It’s a certainty.

To explain, I’d like to borrow an analogy from the world of aviation. The “backside of the power curve” means that you have overextended the ability of the airplane to fly, and no amount of power can rectify the situation.

Well, similarly, it appears that the monetary system is now on the backside of the power curve. It has reached a point where no matter how much more money is printed, no amount can help the economy to recover sustainably. Any more printing will likely only work to exasperate the problem and accelerate the failure of the monetary system as we know it.

Governments can borrow, and Bankers can print from now until kingdom come, but it won’t do anything other than destroy the system right before our very eyes. It’s just not working anymore!

Think about it like this, for example: when borrowing money, typically, you would want to borrow one unit and yield 10% on that borrowed money. But when you have to borrow five units to stimulate just one unit of economic growth, there is an obvious imbalance, and more printing is doing less and less for the real economy.

As the global financial system continues to struggle under further stress, it is clear there is a growing lack of trust and faith not only in currencies but in the governments and banks behind them. People are seeking safety, and it is virtually fueling a run to gold.

Turkey is a prime example of this. A growing percentage of the Turkish population are moving away from the country’s currency, the Turkish Lira, as it plunges to its lowest levels in history, and opting for gold to preserve their wealth instead.

What this makes perfectly clear is that a run to gold is starting. To hear more on that, watch my recent interview with Miles Franklin here.

Now, silver is finally starting to catch up to gold. This is clear due to the extreme gold-silver ratio of 125:1 that we saw earlier this year, one that we hadn’t seen before in the history of time. Since then, it has fluctuated, now near the 70 mark – a number that gives us some insight into the direction of silver. And it looks like tough times are ahead.

But silver still has a long way to go relative to gold. I discussed these ideas further in my interview earlier this week with Mike Maloney of GoldSilver.com. You can watch the full interview here.

“The coming Great Depression will make the last look like a small technical correction.” Those were the words of the late Elliot Janeway over three decades ago, and they seem to make more sense with time. I hope it never gets that bad, but what is clear is that it is coming.

There is no doubt in my mind that things will never be the same.

Originally posted on The Morgan Report

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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