The Coming Melt Up

Government policies are driving a melt-up in asset prices mostly due to the meltdown in fiat currency. Expect that trend to continue over the longer-term.

The Coming Melt Up
Photo by Denise Chan / Unsplash

It's time to turn everything you thought you knew on its head.

That's no only because we have been lied to so many times but because the world has never been in such a fragile state in recent human history.

Sure, we've been through wars and plagues, we've suffered through idiotic politicians and foolish policies, but I can't recall when the scale of the global threats we face has been so grand.

It all comes back to the Western financial system.

It's basically stuffed and governments are desperately trying to plug growing leaks with a finite number of fingers. It's only a matter of time before the entire debt dam collapses around them.

Think about this for a moment.

Debt destroys nations and currencies and that means the world's largest economy, and the driver of mindless global consumptions, is being destroyed.

The United States national debt is over USD 34.5 trillion and they add a further USD 1 trillion every few months. The only thing keeping them afloat is the diminishing global appetite for US dollars.

But as they print more currency, every new dollar makes all of them worth slightly less.

Right now, the USD is the best looking entrant in the global ugly contest but, in this pageant, every entrant looks like winning a major prize.

Notwithstanding some imminent global liquidity issues, eventually all governments will be forced to turn on the pmagic money machine to try and print their way out of deep trouble

That's why, after some rocky times, eventually we're going to see a global melt up of physical assets.

It's not that these things will actually be worth more, it's just that the dollars, pounds and yen they are denominated in will be debased.

It explains why Gold has rallied over $500 since I explained to Confidential readers why I was buying some as a hedge (from AUD $2975 t0 $3535)

The same rationale was explained for purchasing Bitcoin and that has done even better.

Again, the principle driver is not simply supply and demand for the respective commodity but because the currencies used to value them are imploding.

In this respect, history is a great guide.

No fiat currency survives for very long and those that do, have a tiny fraction of the purchasing power they once had.

You can trace that phenomenon back to ancient Rome and the message is that no government can be trusted with money.

Throw in some global conflict, a few supplly chain disruptions and maybe an agricultural food issue and we can expect some real problems in the years ahead.

This means that I expect a resurgence in inflation, which means everything will cost more in terms of government issued paper.

It's why I see having physical assets is the key to surviving and prospering in the years ahead.

I include Bitcoin as a very important part of that mix.

Some, like real estate, are more vulnerable to government interference (and credit cycles) than Gold or Bitcoin but having your wealth parked outside of cash seems like the smart call.

Of course, prudence is required here.

Some reserves of cash will always be needed for convenience and optionality, but if you are hoarding the paper for the proverbial rainy day, on current trajectories, it won't buy you much of an umbrella in years to come.

Thought for the Day

"The global financial crisis - missed by most analysts - shows that most forecasters are poor at pricing in economic/financial risks, let alone geopolitical ones."
Nouriel Roubini

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