Too much money, not enough safe places to hide...

Zerohedge continues to report on the attempts by the Chinese to find other ways to store the value that it currently has stored in trillions of dollars worth of US treasuries.  Here's the bottom line: there are not enough traditional places to store all that debt based money and so eventually a lot of it will end up pouring into gold. 

Here's how it is: credit based money is by far the biggest component of the global money supply.  Another word for that kind of money is debt.  To any thinking person this should strike them like a cold slap in the face!   After all, money is supposed to be a store of value.  But debt is not current value.  Debt is a Wimpy Promise©, a promise to create new value in the future and then transfer it to the creditor.  Debt is a claim on future labor without any guarantee that said labor will ever occur.  Today, debt notes are traded around the world as if they had the same value as cash in hand.  Wimpy Promises are foolishly held in the same high regard as the daily labor of honest men.  This is the curse of fractional reserve banking.  At some point it will become very apparent that promises are not the same thing as work done - not even close.  Promises are easy to make; talk is cheap.  Real work, not so much.

Today there are all these debt notes running around the world.  People who hold these debt instruments believe that they are wealthy in the same way as Madoff clients thought themselves wealthy 2 days before he admitted that his whole operation was a massive con game.  The holders of all this debt are getting nervous.  As civil unrest and recessions continue to pop up around the world, the debt is being chased to and fro because debt has a way of evaporating into nothingness in bad economic times and at times of civil unrest.  All it takes to go from billionarie to broke is for the debtor to say "I'm not repaying the debt, sucker". Each time this debt based money invades a market, that market bubbles up rapidly because there is just too much debt money looking to get converted into stuff of real value like houses and commodities.  The serial bubbles we have seen happening around the world are the result of this fractional reserve con game.

The problem at this point for these debt holders is that each time they move from one market to the next its because the current market they are in has collapsed and they have fled out of fear.  Its not much different than tuna attacking a bait ball.  An attack occurs, some of the bait gets swallowed, the bait ball scatters and then regroups looking for safety.  In short order the next attack occurs and then another and then another until all that is left is the scales.  The elite hold most of this debt.  Their strategy has been to make a nice living by doing no work; the interest on their debt provides them a perpetual source of prosperity.  Or so they thought.  The only problem with their plan is that it is not a function of money to make new money and so, in aggregate, it cannot do so.  It can appear to do so for long periods of time but at some point there must come the great rebalancing.  That time is now.  Those who are quick to recognize this will abandon debt instruments as sources of income and seek instead tangible assets of enduring value.  Those who are slow to figure it out will get mauled.

Debt holders could, today, freely convert some of their value into gold.  In fact, the rising price of gold for the past decade shows that this has been happening.  But now they consider gold expensive and so they hesitate going there.  Instead, the debt runs to and fro looking for a safe haven and for that that all important Wimpy Promise of return on investment.  At some point the debt holders will figure out that -between inflation and default- their real rate of return is, in aggregate, zero or even negative.  In fact, it has to be so because money does not make money in aggregate.  What cannot be will not be.  Some people will get richer and some people will get poorer in this process but in aggregate no new wealth will be created.

When the hot money flows into commodities, massive numbers of people can't afford food and they either take up arms and fight for survival or they die in their tracks.  Governments don't like to see their livestock fall over dead like because dead livestock cannot be milked and fleeced anymore.  Thus, governments intervene to drive commodity prices down.  This forces the debt money to flee - the creditors know that rule changes by governments can be very costly.   At the end of the day, the final resting place for any value left in the bait ball that hasn't gotten cut to pieces by the razor sharp teeth of the financial tuna will have but one place to go: gold.  As I have written in the past, rising gold prices don't hurt the economy.  Yeah, rising gold prices whack the crap out of the dying credibility of the con men residing in government and in the offices of the central banks but nobody ever did without food or shelter because the price of gold went up.  Gold is not a commodity, it is money.  At some point the ravaged debt holders will realize that they should have just gotten into gold early on and forgotten about trying to make their money work for them.