Global QE Is Coming: Let the Gold Mania Begin!
by Chris Puplava
by Chris Puplava: Panic
Like Itís March 2009
In my last
article I commented on Japan's coming debt time bomb (Massive
Japanese Debt Monetization is Coming, Yen to be Devalued), in
which I made the case that Japan had a tremendous amount of their
debt maturing over the next three years and that the Bank of Japan
was likely to monetize much of it and weaken the Yen as a result.
Since then I've dug a bit deeper and taken a look at the top 10
debtor nations of the world to see if they too had a large portion
of their total outstanding debt maturing in the near future. What
I found startled me: Nearly 50% of the total outstanding
debt of the world's top 10 debtor nations needs to be rolled over
by the end of 2015.
over a European contagion and a hard landing in China have driven
investors into sovereign debt like the U.S. and Japan, how long
can this continue and will investor demand for sovereign debt be
able to soak up the total supply over the next few years? It is
my belief that global central banks will be the buyers of last resort
and will be monetizing the debt in massive quantities over the next
two and half years. This may perhaps be the catalyst leading to
the mania phase for gold as investors all over the world attempt
to protect themselves from global quantitative easing and global
Top 10 Debtor Nations
While the world
is currently focused on Spain and Italy as seen by 5-year credit
default swap insurance north of 500 basis points (costs $500K annually
to protect $10M worth of debt from default), the picture for the
other countries that make up the top 10 debtor nations in the world
is not much brighter. For example, while Italy has a debt-to-GDP
ratio of 120%, Japan takes the top spot with 208%; and while Italy
currently has a budget deficit relative to GDP of -3.9%, the US
is far worse with a -8.10%. In fact, of the top 10 debtor nations
half of them have budget deficits of more than 5% relative to GDP
and 7 of the 10 have debt-to-GDP ratios at or exceeding 80%. As
the table below highlights, the sovereign debt crisis is not a Euro
phenomenon but a GLOBAL issue.
The table below
breaks out the total outstanding debt for the world's top 10 debtor
nations and looks at how much comes due by year.
the total amount of debt tells only a part of the picture because
it doesn't tell you how soon the sovereign debt mountain will become
a problem. For that we need to see how much of it is coming due
and how quickly that debt will be rolling over. What precipitated
the US housing crisis was when adjustable-rate mortgages reset at
higher rates beginning in 2005 and into 2008 as homeowners couldn't
afford the higher payments. What I believe will precipitate the
global sovereign debt crisis is not necessarily the debt resetting
at higher interest rates, but debt maturing with not enough buyers
to soak up the supply. This brings about two consequences: either
higher interest rates and thus higher debt servicing costs or there
is another option, which is central banks stepping in and monetizing
the debt. The latter option has been going on now since 2008 and
I believe it will be kicked into overdrive between now and 2015.
I believe global
central banks will be monetizing debt in massive quantities between
now and 2015 because large portions of debt will be maturing in
just the next two and a half years. For example, both the
US and Japan will see one fifth of their entire debt outstanding
mature just between now and the end of the year, with Canada seeing
26% of their total outstanding debt mature! The other members
of the top 10 are only in a slightly better position with all but
the UK to see double-digit debt rollovers of their total outstanding
debt between now and 2015.
The table below
helps provide some idea of the magnitude of global sovereign debt
maturing over the next few years by comparing the cumulative debt
maturing relative to 2011 GDP. By the end of 2016, nearly 50% of
the cumulative debt maturing for the top 10 debtor nations combined
relative to their combined 2011 GDP will have to be rolled over.
the outstanding debt for the top 10 combined shows that just between
now and the end of the year more than $5 trillion in debt will mature,
or 17% of their total outstanding debt, and by 2015 nearly 50% of
the top 10 debtor nations total outstanding debt will come due.
That is more than $15 trillion in debt coming due in the
next two and half years!
are going to see trillions and trillions of sovereign debt come
due over the next two and a half years I believe gold may be entering
the mania phase of its secular bull market that began in 2001. There
is just too much debt maturing over the next couple of years for
capital markets to absorb and it is highly likely we will see global
quantitative easing occur as central banks step in to be buyers
of last resort to help suppress interest rates and keep debt servicing
costs low. Over the next two years we will likely see the big 4
central banks combined reserves exceed $10 trillion dollars.
debasement has been one of the main drivers for gold's appreciation
and massive jumps in central bank balance sheets are also associated
with kicking off big moves in gold. With the massive amount of debt
to roll over just ahead and the likely increase in central bank
balance sheets, we may just see gold head to new all-time highs
as global investors move to protect their capital from the tidal
wave of cheap money.
with permission from Financial
Puplava [send him mail]
is portfolio manager and fundamental analyst at PFS Group. Visit
© 2012 Financial