What We Can Learn From Zimbabwe

Today, we welcome ZiG…

He’s golden. And I mean that literally.

Let me introduce you to ZiG…

ZiG’s is Zimbabwe Gold, the world’s newest currency.

ZiG is a currency backed entirely by 2.1 tons of gold held in Zimbabwe’s central bank, as well as other hard assets such as diamonds.

ZiG launched in the southern African nation this month—the country’s effort at finally addressing years of inflation insanity. Annual inflation in recent years has been running in the multi-hundreds of percent, and at one point earlier this millennium, inflation exceeded 500 billion percent, assuming International Monetary Fund calculations are correct.

That means that what cost $1 at the beginning of the year would have cost $5 billion at year’s end.

Or, said another way, one Zimbabwean dollar had magically morphed into 5 billion sheets of toilet paper.

Now, to be clear, today’s story is not really about Zimbabwe, or ZiG, for that matter.

They’re both just useful points in a larger story about un-useful idiots in D.C., who are leading Uncle Sam in the same direction that Zimbabwean strongman Robert Mugabe led his country over three decades. Three decades of financial ideas rooted largely in retardation, stupidity, and the financial street-smarts of a four-year-old.

Honestly, that’s a bogus assessment.

The reality is that Mugabe used Zimbabwean coffers as a means of growing his own wealth and to maintain power through public largesse.

Which, when you think about it, is precisely what Congress does.

Go look at how net worth has changed for so many members of Congress who come into government solidly in the middle class, and leave government solidly in the 1%.

They’re clearly using their position to plump up personal bank accounts in ways that are immoral, unethical, or downright illegal.

And we also know our politicians are regularly doling out Uncle Sam’s funds to their favored constituencies…

So what American politicians do is fundamentally no different than what Mugabe did in Zimbabwe…

Congress is just fortunate that the US dollar is in demand all over the world, which helps the country borrow more and more and more dollars to protect the house of cards from even the slightest ripple of wind.

But that global demand is also America’s Achilles’ Heel.

As demand slows—that has already begun—the US has no place to turn for the money it needs to borrow…

Right now, US debt is approaching $35 trillion and it will likely pass $40 trillion by the end of the decade.

This year, Uncle Sam will beg the world’s investors to loan him $10 trillion to keep America’s lights on.

That equals about 10% of the world economy.

US debt is growing at a rate of about 4.7% per year.

The global economy is growing at about 3.1% per year.

Thisimplies that at some point, the world would have to lend its entire, annual productive capacity to America just to keep the US afloat.

Of course, we will never reach that point.

The world’s bond buyers won’t allow it.

Bond jockeys are the smartest monkeys in the zoo. They’re going to force America’s hand at some point because they’re not going to take on the accelerating risk of owning US debt.

They’re going to force America to look in the mirror and confront its financial sins.

Which brings us back to ZiG.

It took six currency regimes over 15 or so years for Zimbabwe to come around to the reality that a hard-asset currency is the country’s last, best hope of financial survival.

My bet is that the US comes around to that thinking too.

Honestly, I think that’s a revelation much of the Western world comes around to, but that’s for another dispatch…

The US has crossed the Rubicon. It has crossed the event horizon.

There is no more an “if.”

We’re well into the “when” of the “If and when XYZ happens…”

All we’re waiting on now is what the government will do to remedy the debt crisis and the currency collapse to come.

My bet: America launches its own version of ZiG.

We’ll call it SiG: Sam’s Gold.

As I’ve written many times over the years, all you need do to see that something big is coming is watch the gold market.

For more than 20 years, gold has been climbing ever higher, and there’s no end in sight to that climb.

Gold has hit 14 record highs this year, according to MarketWatch.

We’ve recently passed record highs near $2,300 per ounce. $2,500 is next… then $3,000… then $5,000… then higher and higher.

We will get to a final high at some point, but that’s going to come because the US, amid a dollar freefall, decides to once again back the buck with gold as a hard asset.

At what price?

Hard to say.

Probably somewhere in the range of $10,000 to $13,500 per ounce.

Here’s some math…

The US government—according to itself—owns 8,134 tons of gold. Spread that across $35 trillion in debt, and you’d need to have gold priced at $134,466 per ounce in order for America’s gold horde to back her debt horde. But America loves fractional reserves, so I can see a situation in which gold backs, say, 10% of America’s debt. That’s roughly $13,500 per ounce.

We might never get to that level.

Or we might shoot past that level in a crisis sparked by Congressional infighting and ineptitude.

Either way, ZiG has arrived. SiG is coming…