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1/ Global debt has ballooned post 1971 (USD was unpegged from gold). Its impact on all currencies since then has been akin to an equity dilution. Even at rates as low as 1% this compounds at an enormous rate. A thread on my thoughts and its impact on portfolios
2/ for eg. $250 tn at 1% (illustrative) adds the equivalent of India's GDP to global debt annually. This is only interest. Govts can print money (history is witness) adding to the debt pool. My view this leads to 4 scenarios (I am no economist so feel free to debate)
3/ One, currencies continue to devalue. This is a bit of uncharted territory. Depends on how slow / fast this happens. I reckon if it happens slowly no one would care. Also, how these flows move and what impact it has on investing are not known (at least to me)
4/ Two, someone somewhere takes a hit on this debt. This is unlikely as part of the reason for the pileup today is QE which was because someone somewhere did not want to take a hit on debt which was worthless.
5/ Three, current fiat currencies are disrupted by alternatives. I dont know or understand crypto and I am not sure if the timing (of an alternate fx) is right today. But I wouldn't rule out an alternative in the future
6/ Four, people store value in precious metals and real assets. If the system does become unsustainable far into the future a return to the gold standard could be on the table. That could create havoc. Many may not agree. But never say never in the markets!
7/ My attitude to gold as an asset class has always been "return" oriented. But of late I have been thinking of it as a hedge and a store of value. Not today, next yr or maybe not even this decade. But its something to keep at the back of your mind
8/ Gold has after all through millenia outlived govts and currencies. Financial assets (which are basically claims) are a relatively very recent phenomena and depend on trust. Our ancestors probably knew a lot more when they advised us to buy gold
9/ Not advocating a doomsday scenario or that one should buy gold tmrw, but that one should keep an eye on unsustainable trends (ie global debt in this case). Investing according to me is more about understanding risk and pricing it than hitting the ball out of the park on return
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