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Demographics - Bad News for Sovereign Solvency, Good News For Long-term Hard Asset Investors?

The amount of unfunded government liabilities are estimated to range anywhere from $150 trillion to as high as $250 trillion in the developed world (what is a few tens of trillions anyway these days). Given that the number of taxpayers to foot this bill is dropping at the same time as the number of claimants is rising and that this liability represents several multiples of global economic output, what realistic options do our governments have other than de jure (outright debt repudiation via sovereign defaults) or de facto (printing press/debasement/inflation) defaults? If we take a look at central Central Bank behaviour in the form of their balance sheet activities when faced with the current and much smaller banking crisis I would argue the answer becomes more clear.

40-65 Pop

The Race to the Bottom - Is a Global, Co-ordinated Currency Debasement Underway?

It appears the answer is yes, all key Central Banks are engaging in currency debasement via balance sheet expansion.

Debt M3

Combined with an environment of strongly negative real interest rates - what's your preference sovereign debt or hard assets?

CB Assets v gold

Remember the quip that fiat currencies do not appreciate - they merely fall at different rates? We are witnessing the first, global, synchronized debasement in history. Even the traditionally "sound money" Swiss are working overtime to devalue their currency (see SNB line above).

Central Banks - Good for the FIRE Economy, Not so Good for Purchasing Power

Since inception of the the US and Canadian Central Banks the purchasing power of the US and Canadian dollars has fallen approximately 97% and 95% respectively - with a large portion of that devaluation occurring after the US went of the gold standard in 1971 and Central Bankers of all stripes were given the all clear to began to unleash increasingly rapid money supply creation on the world.

Purchasing Power

Surely such a complete loss of purchasing power is an odd outcome given both of these institutions have price stability as core mandates. At the same time our purchasing power was being methodically destroyed artificially low interest rates inflated the value of assets in the Finance, Insurance and Real Estate ("FIRE") sectors beyond all ties to reality or more accurately to cash-flow. Perhaps we should remind our Central Bankers that nominal asset values are not in their purview.



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