Here at Wealth Daily, we've been pounding the table about U.S. government debt ($16.2 trillion; 102% of GDP) and money printing for years.
We maintain the view that most of the first world economies are mired in debt and must default.
And remember, any failure to fulfill monetary promises is, by definition, a default.
There are three ways to default:
- Default outright/bankruptcy
Raise taxes and cut benefits/austerity, a default of future promises to past payers
- Create inflation, which devalues debt as well as savings and purchasing power
Local governments can chose to go bankrupt because they can't print money... the political will isn't there for the second and most logical choice... so we'll go with door number three.
It has been clear for about fifteen years that the government and the quasi-government (aka the Fed) will print more money.
As Greg McCoach said in his article yesterday:
The Federal Reserve’s decision last month announcing “infinite” quantitative easing has now put the United States on the path of infinite money creation.
With up to $85 billion in monthly money creation — including $40 billion a month in purchases of mortgage-backed securities — the Fed is now wholly committed to the creation of money out of thin air to cover old debts.
Here is what money printing looks like in chart form:
The Fed has said it will print some $85 billion a month until something changes. Bernanke hopes that change will be growth.
But it will be something else entirely...
Liberté, Égalité, Fraternité
Nothing will bring down a civil society faster than destroying savings, reneging on entitlements, or eviscerating the currency...
Unless it's the concurrent drive of food price inflation.
Remember that in 1789, it was women who marched on Versailles over the price of bread and started the French Revolution.
Today we have reports that riots flared up in Iran, where civilians burning tires and smashed shop windows. Riot police tried to shut down the black market money-changers using heavy-handed methods after the Iranian currency, the rial, dropped 40% in value last week.
President Ahmadinejad came on television asking Iranian citizens not to sell their rials for other currencies — a clear sell signal.
Countries are aflame. Cars are burning in Spain, Greece, Italy, Argentina, India, Kyrgyzstan, and China... and of course half of North Africa was on a rampage last month over a YouTube video.
But that was just the spark; the real reason is hunger caused by food price inflation.
The New England Complex Systems Institute has recently plotted riots to food prices.
When food prices reach above 210 on the FAO index, there are riots.
Food riots crisscrossed the globe in 2007-2008. The Arab Spring in 2011 toppled governments. And in 2012 we are drifting just above the line.
High food prices are caused by drought, ethanol, and loss of purchasing power due to currency destruction.
Bucking the Trend
Obviously, you want to put your money in hard assets in countries that show fiscal discipline.
Last week I told you how Mexico, after seven decades of poor fiscal management, has reversed its fortune.
Mexico is now on sound footing — and much better off than the U.S., Europe, and Japan...
Mexico ran a budget deficit of 2.5% in 2011 compared with the U.S. figure of 8.7%. Its national debt is small at 27% of GDP; the U.S. debt-to-GDP ratio is now 102% — and rising fast.
Right after the announcement of QE3, the greenback fell 2.2% against the euro, 1.6% against the Australian dollar, and 1.1% against the Canadian dollar... A week after the Fed's move, it was down 2.7% against the Mexican peso.
Currency destruction leads to unrest, riots, and eventually the rise of nationalist warmongers.
We know from history that hard assets like commodities, precious metals, and oil hold their value in times of trouble. So you want to own physical gold as well as the more leveraged gold miners...
Today I give you the top ten gold miners in the world.Top 10 Gold Mining Companies by Output
Gold Production (tonnes)
If you pull out the companies that have labor strife in South Africa, or that are in high-cost locations filled with political uncertainty, execution problems, or management turnover, you are left with those that produce primarily in Mexico or in the United States.
According to the Wall Street Journal, miners like Mexico:
Companies say they are drawn to Mexico by its mining laws, which allow foreign firms to reap much of the profits from their investments. Under federal law, companies must apply for a mineral-rights concession through the Mexican government and operate there through a Mexican company. But the local company may be fully owned by foreigners.
Goldcorp (NYSE: GG) has the largest mine in Mexico, called the Penasquito mine in Zacatecas State.
It is expected to produce 500,000 ounces of gold this year, which makes it Goldcorp's most prolific.
New Gold (NYSE: NGD) is a $5 billion company that has projects at the Cerro San Pedro gold-silver mine in Mexico as well as others in Australia and the U.S.
All the best,
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.
Ten Largest Gold Miners originally appeared in Wealth Daily. Wealth Daily, a free daily newsletter, offers practical investment analysis and contrarian stock market advice.