It are the flows of economic & financial capital that say who is poor or rich (prosperous) at any given moment. Capital, travels around the world in search for profits and always comes back home. Let us focus on one particular aspect of this economic & financial capital in the financial globalization. There is too much capital for too little physical economy. This disproportion rises systemically just like the growing mismatches of global debt (and stock markets capitalization) versus GDP. These masses (XX trillions) of debt capital (hot money) are systemically backed by less economy and more finance. High Net Worth Individuals have to manage a fast rising volume of already +/- $ 50 trillion.
Today, there is a massive flight to liquidity, driven by the fears of capital safety. For the time being, the dollar capital flows are not yet showing any signs of loss of confidence, when leaving fertile grounds and coming back home. The $ bonds are not yet declining! Forward guidance is still in control of dangerous volatility and debasement risks (expectations). The world’s gigantic capitals can still move (refuge) into the ever expanding $ debt paper. $-bonds can keep up the appearances of quality.
Economic capital is still increasingly flowing into the giant pool of financial capital! Evidence that there’s something rotten in the global debt-driven economy. We are heading for a depression if this has to continue. All the exuberant monetary expansions never fully reached the physical economies.
Confidence in the pool of finance capital has to remain in high spirits, because there is no alternative. A very uncomfortable and depressive catch-22 situation. The more so as the volume of finance capital is growing (inflating) disproportionally versus tangible real assets. Where will the next capital flows go to !?
At present goldprices, the physical goldmarket is much too small to receive any inflow from the enormous volume of finance capital. How can finance capital possibly buy significant amounts of physical gold if China is accumulating the scarce available metal. Finance capital is forced to stay in finance (financial industry) and remain confident that this market stays liquid and safe.
The exact name for the present situation is SYSTEMIC DEBT CRISIS. How long can the present liquidity-confidence and safety beliefs in economy & finance, possibly be maintained? The enormous mismatches are not declining…
No escape route
The relentless rising mismatches and disproportions will non-stop erode and undermine the much needed confidence in the system. All capital will increasingly feel unsafe and experience it the hard way, without any possible escape route.
What if the goldprice rises significantly ($ xx.xxx/oz) and the physical goldmarket becomes an alternative for 1% of financial capital inflow… Then a GOLD VALUE STANDARD is born and maturing.
Will the gold paper market soon become too small for financial capital to flow through…
Written by: 24 carat
Global money supply (Source: Dollardaze)