Tuesday, October 14, 2014

Do these ‘long wave’ economic patterns explain today’s bear market for gold?

“Well, they didn’t predict this – but they can help explain why it’s happening. Over the course of one entire ‘long wave’ economic cycle, covering a full expansion and subsequent contraction, you have what I call four ‘seasons.’ Winter is the period where debt is wiped out of the economy. It happened after 1929, which caused the US banking system to collapse. During the 1920’s, there had been a big build-up in consumer and corporate debt, as well as sovereign debt.

“During the Great Depression and the previous depression of 1873, we were on a gold standard system, so the ability to create money was limited. This time around, we are in a pure credit-based system, so the ability to create money withstands the ravages of the winter. Effectively, governments have been creating more debt. This will ultimately cause a more horrendous economic decline than in either 1929 or 1873, as debt levels are far greater today – and because the world is much more inter-connected financially.”

- Eric Sprott via Proactive Investors