Monday, June 18, 2012

What is £140,000,000,000?

Shares of British banking interests were euphorically higher Friday on news that the privately owned Bank of England would mint a fresh £140 billion in an effort to further delay their dealing with reality.  
These days, an objective take on reality seems to be a useless commodity in the investment world.  What matters most is what will happen in the next 5-10 seconds.  Long term investors will ponder what the Greeks will do over the weekend and those with a super long term focus will look to Wednesday's federal reserve meeting. 
We felt it could be useful to apply some of our out-of-date and caveman-esque logic to this situation.  This is perhaps a vain attempt to illustrate what the investment landscape could look like in the far away distant time knows as next year.


As of this morning:
£140,000,000,000 = $219,408,000,000
As reported by the World Gold Council, the 5yr average annual worldwide gold mine production is:
2,377 metric tonnes
This translates to:
76,422,324.67 troy ounces
At $1,621.60 per ounce, annual mine production is worth:
$123,926,441,684.87
So, as far as we can tell, the Bank of England just magically created from thin air a new batch of paper worth:
177.05% 
of the market value of the gold mined in an entire year!

Printing paper is certainly much less stressful than risking capital as a gold miner.  We can only wonder how long these privately owned central banks will be able to maintain public confidence in their worthless paper?


1 comment:

Kay Bea said...

Good perspective right there. Do you think June 28, the day Jim Sinclair says trading with Iran is excluded from the SWIFT system and that this date will mark the beginning of the end for dollar supremacy. Event, or non event?

By the way, I just recently got turned on to your blog. You do fine work.