We are now in the crosshairs of a mega debt deflationary bankruptcy phase.
Some of our forefathers helped us understand how this cycle operates, they lived through the last one.
Described as the last honest Federal Reserve governor, John Exter (1910 - 2006) believed by the early 1960s that the Federal Reserve was locking itself into currency expansionism it could not stop without disastrous outcomes and blowback.
He reportedly would say that the Fed was becoming a prisoner of its own currency stock and debt based growth (effectively painting itself into a corner). Then a trend that risked a credit expansion reaching total US debt levels far in excess of the country's GDP (quaint times).
His was an envisionment of a major debt crisis ahead of his life, and he believed the crisis would then turn the economy down, to levels not seen since the Great Depression.
Exter warned the Fed would one day find itself unable to prevent a wide-scale deflationary depression.
Perhaps the man could never envision our current viral scapegoat or how this global economic shutdown would quicken into existence some of his worst economic predictions.
But by the late 1950's and early 1960's, our financial system was effectively already devolving into a debt based, debt driven economy. To illuminate its growing unstable structure, Exter devised an upside down debt pyramid as this original illustration shows.
Within it, the former central banker presented the US debt pyramid and drew attention to the fact that all foreign economies also had debt pyramids too. The structures are always perched in an unstable manner which Exter believed was also true for the financial system generally.
His original inverted pyramid reads from the top riskiest to the bottom safest-haven asset classes.
The categories with the greatest risk of flat out default occupied the broadest parts of the pyramid. Lower levels of the upside down pyramid were less risky debt categories and the risk
declined until Treasury Bills and cash (our full fiat Federal Reserve Notes) were reached at the very tip of the pyramid.
Exter's original, upside-down debt pyramid balanced on the world's existing known quantity of gold, which at that time was a block representing about 140,000 metric tons. Today that number is now near 200,000 tonnes.
In the illustration, John segregated physical gold outside the pyramid with a dark thick bifurcated line. Because bullion represented the only real money in the world; it had no liability against it and it was the only asset refuge that could not default to worthless ness nor be arbitrarily devalued in a crisis.
In the Exter scenario, at some point the financial world at large would lose faith in the financial system and move down the Financial pyramid to cash and then outside the pyramid entirely, into gold bullion and perhaps other perceived safe havens.
So he envisioned the price of gold would be rising against all competing currencies as the value of debt and other securities declined as the deflationary depression began bankrupting more than the Federal Reserve could ever attempt to save.
On this channel we've partially and recently covered how this process is already underway globally in all fiat currencies.
Today we're gonna remind you, that perhaps the sharpest investor and asset class holders in the world are signaling the deflationary beatdown is going to worsen dead ahead.
There goes the juice losing another sponsor, https://t.co/PDK38ud67X pic.twitter.com/Bo0WfYZvnM— James Henry Anderson (@jameshenryand) May 22, 2020