WikiCoins:World Money Supplies Explode

October 18, 2011

The global money supply, which was barely $25 trillion three years ago, has now soared to more than $50 trillion. Such huge increases in the money supply guarantee the continuing decline in currency values and paper assets like stocks and bonds and the resulting increase in gold and silver prices.

Bad news in the form of credit downgrades and announcements of reviews for possible downgrades, focused mostly in Europe, are coming so fast and furious that it is almost impossible to keep track of them all.

Late last week, Fitch Ratings placed Bank of America, Morgan Stanley, Goldman Sachs and six European banks on notice that they were being reviewed for credit downgrades. Among these banks were Banque Federative due Credit Mutuel (France), Credit Agricole (France), Danske Bank (Denmark), OP Pohjola Group (Finland) and Radobank Group (Netherlands).

Both Fitch and Standard and Poors reduced the credit rating of the Spanish government.

Standard and Poors cut the credit rating for hybrid capital instruments issued by all five of France’s largest banks.

Sky News reported that Fitch is preparing to announce credit downgrades of the entire British banking sector. This followed Fitch’s downgrades last week of three Italian and six Spanish banks.

With so much uncertainty in the financial markets, creditors are becoming more leery of the ability of debtors to repay their debts. Even the U.S. government has not been immune from this contagion.

Over the past six weeks, foreign governments and investors have unloaded $74 billion in U.S. Treasury debt. This is the largest sequential outflow ever. Although not a perfectly consistent indicator, decreases in U.S. Treasury debt held by foreign interests do have a high correlation with subsequent near term rises in gold prices.

There is still no agreement (which had been promised by the beginning of this week) on whether to extend the Greek government another bailout, or to require that government’s creditors to absorb tens of billions of dollars of bad debt write-offs. Three months ago, 91 major European banks were subjected to stress tests to judge their financial strength in weak markets. The results were generally favorable. Last week, however, an analyst for the Swiss bank Credit Suisse projected that if the stress tests were done today, 66 of these banks would flunk.

With so much turmoil in global paper finances, I just don’t see anything being proposed that would genuinely cure the problems of inflation of the money supply. Yet there are major international meetings this week through the following two weeks that are supposed to be discussing the solutions to the problems. Don’t hold your breath waiting for a miracle solution. Instead, expect problems to get much worse before they get better.


 * Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes "Liberty's Outlook," the company's monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at its Web site: Liberty Coin Service