There is a “soft landing” scenario that actually seems to be where the central banks are going, but I don’t give it much long-term chances for success.

Basically, the central banks lowered the interest rates to the point where a large percentage of bonds are now yielding negative interest. Negative interest on bonds is technically called a default. Also, Basel III magically reassigned gold from a level 3 security (valued at 50% nominal) to a level 1 security (valued at 100% nominal). Before that, only the bonds were level 1. This means the central banks can now legally swap bonds for gold, and they are actually doing that for quite a while. If they reach more than 20% of monetary emission backed by gold, and more likely 40%, we are then technically on a gold standard, although the public might not even realize. There are, however, problems with this. According to my estimate, dumping bonds for metal will deflate the economy, in a process very similar to what’s going on in a refrigerator, when the compressor liquefies the gas, and bleeds extra energy into the environment. This will basically bleed bullshit from the economy and solidify assets into smaller volume but greater reality and reliability. As this takes place, the states will lose the ability to convert debt into monetary mass, since the market will be saturated by their unwanted, negative-yielding debt. Also, all sorts of imaginary n-th order derivatives will evaporate, they will collapse into nothing, or at least very minor percentage of their overall volume will be converted into solid assets.

Eventually, as the monetary mass is converted into real assets, monetary metal will appreciate at least by a factor of 10, but that is a conservative assessment. Silver might actually over-correct and appreciate by a factor of 100. Basically, if you don’t want some asset-class to evaporate, you will need to convert it or back it with solid assets. The central banks will buy the most of monetary metal on the market before anyone else smells the coffee, so the fiat currency might actually survive the impact with purchasing ability relatively intact, but money might be quite scarce. The rest of the asset-holders will fight for scraps and try to buy whatever monetary metal and other solid assets on the market for extremely high prices and in very small quantities.

During this process, there will be a huge social crisis due to the reduced availability of money, where the populist politicians will rally the mob against the central banks “that hoard gold while people starve”, and they will successfully pressure the governments into printing money to throw at the mobs wielding pitchforks, at which point the system will collapse and civilization will die in a hyperinflatory explosion. The alternative is for the government to figure out how to kill off a significant portion of the population that is currently in debt, creates no solid income and is reliant on government aid. Basically, either those people die, or everybody dies. My assessment based on game theory is that everybody dies.

I know I provoked interest for buying precious metals, and I also know that, for most, buying physical gold might be impractical because the premiums for small quantities are prohibitive, and buying silver comes with VAT in the EU, and the buy/sell spread is painful.

However, there is an in-between solution, buying vaulted metals online that can actually be delivered to your address if you pay a certain premium, you can liquidate them instantly if you need cash, and is a very solid protection against inflation: it’s called BullionVault. This is a good way to both have your cake and eat it: you can protect your liquid assets against inflation, and you can still use them quickly without paying a painful premium for physical metals. You’re not protected against a “lights out” situation where some big disaster would temporarily or permanently block access to everything you don’t have in your home, and therefore it’s not something I would recommend as survival-insurance. However, as something that will save money on your bank account from suddenly losing significant portions of value due to currency fluctuations, I not only recommend it, I actually use it. You can put your savings there, and when you collect enough for a 100g gold bar, you can order it to be sent to your home address. That way you have medium-strength protection at all times, and you can gradually convert it into high-strength protection as it grows.

I’ve seen lots of YouTube videos by “stackers”, basically people who have their savings in silver and gold, who talk about the incoming “reset”, the event where fiat currency will undergo hyperinflation and the value of gold will skyrocket, and the value of silver will rise to parity with gold, which will make them all rich and they will be the new financial elite.

This all sounds like something only an American could believe or take seriously. Let me explain why I think so.

Yes, in times of hyperinflation it is realistic to expect that an ounce of gold will cost a million dollars. However, it’s also realistic to expect that a loaf of bread will cost ten thousand dollars. Basically, what happens in hyperinflation is that the currency goes down in free fall, the prices of all retail products are revised upwards several times a day, there are shortages of all products in the stores because the producers are taking heavy losses due to inflation and basically doesn’t make sense to sell anything at those prices because if you negotiate the prices at the beginning of the month and you are paid at the end of the month, by the time you get the money it’s no longer worth anything. In theory, you could circumvent this by anchoring the prices to some hard currency, or precious metals if there no longer is a hard currency anywhere, but the state will not allow this because it will prevent anything other than its own currency from being accepted as legal tender. This is why black markets flourish in times of hyperinflation, because people who sell on the black market don’t care much about what the state would want, they will price things in hard currency, and the prices will be actually higher than they are today, measured in gold or silver, because they will be increased by scarcity and black market premiums. In the best possible scenario, a 1oz silver coin will buy exactly as much stuff as it would today, minus a black market premium charged by smugglers, and possibly minus a premium charged by the precious metals dealers who will exploit the situation to earn exorbitant profits. I actually made a small research here in Zagreb, and compared the purchase prices for gold bullion between a legitimate precious metals dealer (the one I currently buy from), and a chain of pawn shops that buys precious metals from the uninformed populace on the street. It’s around 20% of a difference, and the legitimate gold dealer isn’t doing it for free either, so you can imagine how bad the pawn shop is, and that is most likely what we will have access to in times of extreme crisis, and the prices will be worse than they are today. If you think I’m painting a depressing picture, just have in mind that I lived through the hyperinflation of the Yugoslav dinar, and hyperinflation of the Croatian dinar, I learned to think in German marks early on, as we all did, and I learned to manage the retail shortages and black markets, as we all did, with the little money we had. So, unlike the Americans on YouTube, I actually know what I’m talking about. It’s still difficult for me to shake the habit of spending my earnings immediately because they’ll be worthless by the end of the month, and the currency has been quite steady for the last 20 or so years.

There’s another aspect of the hyperinflation economy that’s unimaginable to the Americans, who are used to thinking in terms of investment in stocks and bonds and saving for retirement in domestic currency, who think in terms of 30 year mortgages and long-term financial planning, and that’s the fact that prices are revised upwards hourly, and your pay is revised upward monthly. All savings in domestic currency become instantly worthless. Working a steady job for a monthly pay check becomes a matter of slavery where the pay check doesn’t even cover the price of public transport to work. If you don’t change your pay check into hard currency at the beginning of the month, and then change small amounts into domestic currency daily, on demand and just in time, by the end of the month your pay check would buy you a loaf of bread or a roll of toilet paper. Every time you change from or to hard currency, you need to go through the black market people, who charge exorbitant fees, or you can go to the bank where the exchange rate is some laughable number the state would want you to believe in, and nobody in his right mind would buy or sell at those rates. The first think you lose in hyperinflation is the ability to think long term, and to plan finances strategically. You do everything on a daily or even hourly basis, you spend the money instantly because savings kill, and currency exchange robs you of a significant percentage. And I’m talking about a localized hyperinflation, where your currency is debased but everybody else’s is fine. The German mark was fine, the US dollar was fine, the Swiss frank was fine. Those were money; dinar was toilet paper, but it was the only currency accepted in the stores. On the black market, however, you paid in German marks. Also, the freelance work you did was paid in German marks, and *everybody* did freelance work if they wanted to eat and pay the bills, and they kept their “day job” only pro forma, and they put in only formal effort, which additionally contributed to the collapse of economy.

Yes, people who had hard currency because they worked abroad were the only ones well off, but that had more to do with them generating income in hard currency, not with them having savings in hard currency. Any amount of savings will eventually be spent on expenses, that’s the reality of it.

So, what happens when nobody has income in hard currency, because nobody is getting paid in gold or silver now, and I seriously doubt that will change significantly in periods that might make a difference? One projection is that everybody will be fucked, the entire global economy will have to be restructured very quickly or the breakdown will result in 6 billion people dying of hunger, violence, poor medical care and poor hygiene in a catastrophe approximating the worst-estimates of a full-exchange nuclear war. Imagine the collapse of the Soviet Union, collapse and civil war in Yugoslavia, and Iraq after its infrastructure was destroyed by America, and you’ll get a realistic assessment of what that would look like in the initial phases, from which it would get worse.

There is another possibility, and that’s the one stackers are hoping for, and that’s the reset of the global economic system, which would wipe out all derivative assets in something similar to the 2008 crisis, wipe out most of the value of USD and all national currencies backed by USD bonds or other USD derivatives, which means EUR would be hurt worse than the USD, and GBP would be hurt worse than the EUR. This ratio is already visible in the gold price per currency; USD is actually hurting the least because EUR has all the USD problems plus their own, and GBP has all the EUR problems plus their own. At a certain point, some form of gold standard will be established, with partial backing of currency with gold, which will revise the price of gold upwards to the amount necessary to back the monetary mass in circulation, and that’s the point where everybody holding physical gold might actually get rich, if the retail prices of goods and services follow the paper currency and not gold, which is a rather large “if”. There are some indications that this might be going on, because at this point the price of gold is actually rising steeper than the perceived inflation, but this might all collapse at some point because that’s what currency collapses look like: at first, due to inertia nothing seems to happen. Then the prices start going up slowly, and then they start going up like crazy, and at the point where people writing main stream news start getting it, it’s already doomsday.

There’s also the expectation that bitcoin will be the new gold and those holding the bitcoins will be the new elite. Bitcoin, as well as the entire crypto asset class, will be the first thing to be wiped out. The only thing that gives them value is perceived ability to convert them into fiat currency and other assets. This is one American decree from being blocked and then crypto will have as much value as all the other things on America’s sanctioned list. Payment industry insiders would know what that looks like. I’m what you would call a payment industry insider.

Another expectation is for silver to rise from its current 90:1 ratio relative to gold, to something closer to the historic 16:1, even 12:1 from Roman times; silver is some 17 times more naturally abundant than gold, and is a byproduct of gold mining. There are valid arguments that point to relative scarcity of silver, great potential demand, and the current price ratio that is far below historic values, however there are also the arguments for the opposite: the current demand for silver is around 60% industrial, which means that the collapse of industry and trade wars might reduce the industrial demand for silver, and the people with actual money no longer take silver seriously as a monetary metal, and their entire focus is on gold. Also, the reason why silver was historically regarded as a monetary metal is because it serves as a good material for making smaller-denomination coins, because gold is too valuable to be practical for that purpose. However, in modern times I expect the means of payment to be completely digital, which will remove the need for circulating the lesser-value monetary metals altogether. Also, I expect gold to be only a part of the currency backing, because the gold-only system would be too constrictive and ill suited for the needs of an expanding economy, which will mean that mortgages and similar forms of currency-backing with tradable economic assets will persist. Also, other metals might serve a role in currency backing, also because there simply isn’t enough gold for backing the modern economy the way it used to. However, the precious metals will serve a much more prominent role in currency backing after the inevitable demise of the USD and all derivative currencies. Even the people who currently hold gold and silver will eventually be provided a service by the banks where they will deposit their precious metals into the bank, and spend it with a debit card that will dynamically charge their gold balance. This will be more economical than exchanging gold bullion at the pawn shops or other dubious places, and most people will find it reasonable.

This, of course, assumes a scenario where the economic collapse will proceed according to the projections done by people like Jim Rickards and his colleagues. They all know the dollar is going down and the gold standard of some kind will be reintroduced after the collapse of the fiat system, but they all expect the transition to be more-less orderly. I, however, don’t see this outcome-type featuring prominently among my projections.