Egon von Greyerz – Dennis Tubbergen

Orwell and Gold

In reading an article penned by Egon von Greyerz this past week, I was reminded of the prescient writings of George Orwell as it relates to where we now find ourselves economically and politically.

While I would encourage you to read the entire article for yourself, let me share some excerpts with you (Source: https://goldswitzerland.com/us-doublespeak-will-not-stop-golds-imminent-surge/):

Propaganda, lies and censorship are all part of desperate governments actions as the economy disintegrates.

We are today seeing both news and history being rewritten to suit the woke trends that permeate society at every level, be it covid, the number of genders, the Ukraine war or government finances.

I have in many articles covered the explosion of money printing and debt which is an obvious sign that the global financial system is approaching collapse and default . The consequences will be far reaching to every corner of the globe and all parts of society.

See my recent article“In The End The Dollar Goes To Zero And The US Defaults” which outlines the probable course of events in 2023 and afterwards.

Later on in this article, I will look at the consequences in relation to markets and what ordinary people (investors?) can do to prepare themselves.

ORWELL PREDICTED THE FALSIFICATION OF HISTORY 73 YEARS AGO

“Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.”― George Orwell, 1984

Let’s just look at government finances. As we are entering the end of an era with deficits and debts running out of control, the truth becomes an inconvenience to governments and must therefore be suppressed or rewritten.

If we just look at the US Doublespeak in regards to the 2021-2 budget deficit, we find that the US Treasury reported on Oct 21 this year:

WASHINGTON, Oct 21 (Reuters) – The U.S. government on Friday reported that its fiscal 2022 budget deficit plunged by half from a year earlier to $1.375 trillion, due to fading COVID-19 relief spending and record revenues fuelled by a hot economy, but student loan forgiveness costs limited the reduction. The U.S. Treasury said the $1.400 trillion reduction in the deficit was still the largest-ever single-year improvement in the U.S. fiscal position as receipts hit a record $4.896 trillion, up $850 billion, or 21% from fiscal 2021.

FANTASTIC!!

What an achievement by the Treasury Secretary Ms Yellen and her team to halve the deficit to only $1.4 trillion!

But let’s look a bit more closely what really happened.

If the deficit was “only” $1.4 trillion we must assume that the Federal Debt also increased by the same amount?

But ALAS, the debt increased by $2.5 trillion to $31T in the same period and not by the assumed $1.4T.

Hmmmm.

So again we can look at the 1984 Orwell quote above “Every record has been destroyed or falsified….”

The deficit wasn’t halved at all. Instead hal

f of it was stated below the line as a budget adjustment. So they can lie about the Budget Deficit but so far they are not lying about the level of the Debt. But that will certainly happen one day too. Remember that the Clinton so called surpluses in the late 1990s were produced with the same type of creative accounting. There were no real surpluses. They were just shuffled below the line since debt continued to grow.

Good old Mark Twain gave us the useful quote about lies and statistics:

So there we have it; 2022 seems more and more like 1984!

The clouds look extremely dark for 2023 and beyond.

As I have pointed out above, there is no attempt to reach a peace settlement in Ukraine. Weapons and money are pouring in to keep the war going. And the sanctions forced upon Europe by the US are having a devastating effect for the citizens of most European countries. Energy costs are up 2-3X or more for many consumers and food inflation in Germany for example jumped 21% year on year in November.

In the UK, many ordinary people cannot afford to keep their heating on or to eat properly. And this is before the cold winter sets in.

The situation in Ukraine seems to deteriorate and with Russia and the US involved, as well as China in the periphery, it could easily escalate.

But as I have spelt out numerous times, $300 trillion of global debt and $2 quadrillion of quasi debt in the form of derivatives can only end in currencies going to zero and sovereign borrowers defaulting.

A global sovereign default should be seen as an indisputable fact and it is only a question of how long it takes.

These events are normally a process. As Hemingway said, you go bankrupt “Gradually and then suddenly”.

The beginning can be a slow process and then at some point the shock comes so fast that no one will have time to react.

So no-one must believe that there will be time to get out once the early “gradual” phase starts.

Just to be clear, the gradual phase is here already although the world is in denial. The buy the dip mentality is still prevailing as evidenced by the partial recovery in stock markets.

Few realise that this is it and the next devastating fall in stocks is going to fool practically all investors. The majority will not get out but hope for a correction so they can exit at a higher level. And once the correction comes, they will be bullish again.

Once everyone is back into the market it will fall again. Most of the investors will be fooled most of the time until their portfolio is virtually worthless.

The Western world hasn’t experienced a real bear market since 1929-32. That time it took 25 years for the Dow to recover to the 1929 high.

The generosity of Central banks has made stock investments a one way game since the early 1980s. But now the game is up and few will realise it until they have lost everything.

So the “suddenly” will be like an earthquake seemingly coming out of nowhere. It can come in 2023 or it might take a few years.

What is certain is that there will be no warning. As I said, we have already had plenty of warnings but gullible investors will not believe them. This is just like the curse of Cassandra. She was given the gift of predicting disastrous events. But her curse was that no one would believe her. I wrote about Cassandra in this article five years ago. In the same article, I also made a timely gold forecast which most investors sadly ignored.

Gold has risen strongly in this century although most investors don’t actually realise how strong it has been.

Since the beginning of the 2000s gold has outperformed every major asset class including stock markets. But the move has been in two halves with the first 11 years being spectacular for gold which moved up 7X in dollar terms. Since then a strong dollar has made gold’s performance less spectacular.

But if we look at an annual chart of gold in US dollars it still looks very impressive.

Sanctions, energy prices, inflation, industrial production and many more problems in Euroland, make gold a sine qua non (necessity) in order to avoid total wealth destruction.

Both fundamentally and technically gold now looks ready for another major move. The first target is $3,000 on the way to much higher levels. But as I often point out, gold must be measured in ounces or kilos and not in what will be worthless fiat money whether paper or digital.

As I suggested last week, getting some of your wealth out of the fiat money system, given current world circumstances, is likely a good idea.

If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com. Our webinars, podcasts, and newsletters can be found there.

Long-Term Stock Forecast

While the overall stock market trend remains down, stocks did begin to show some signs of life last week, technically speaking. As the chart below, a weekly chart of an exchange-traded fund that tracks the S&P 500, illustrates, the longer-term downtrend line in place since the beginning of calendar year 2022 may have been broken to the upside last week.

From a fundamental perspective, stocks remain weak in my view, and as I wrote in my December 2022 client newsletter, I am forecasting more downside for stocks in 2023.

Short-term, we will have to wait and see.

Long-term, though, the outcome will be quite predictable in my view. We will have inflation followed by deflation. While stocks could rally in the inflation part of the cycle, when the deflation part of the cycle strikes, stocks and other financial assets will get hit.

In a recent piece, Egon von Greyerz of Matterhorn Capital comments. (Source: https://goldswitzerland.com/in-the-end-the-goes-to-zero-and-the-us-defaults/)

Although US debt has increased virtually every year since 1930, the acceleration started in the late 1960s and 1970s. With gold backing the dollar and, therefore, most currencies UNTIL 1971, the ability to borrow more money was restricted without depleting the gold reserves.

Since the gold standard prevented Nixon to print money and buy votes to stay in power, he conveniently got rid of those shackles “temporarily,” as he declared on August 15, 1971. Politicians don’t change. Powell and Lagarde recently called the increase in inflation “transitory,” but in spite of their bogus prediction, inflation has continued to rise.

Since 1971 total US debt has gone up 53X, with GDP only up 22X, as the graph below shows:

As the widening Gap between Debt and GDP in the graph above shows, it now takes ever more debt to achieve increases in GDP. So without printing worthless money, REAL GDP would show a decline.

So this is what our politicians are doing, buying votes and creating fake growth through printed money. This gives the voter the illusion of increased income and wealth. Sadly he doesn’t grasp that the illusory increase in living standard is all based on debt and devalued money.

Let’s also look at US Federal Debt:

Since Reagan became president in 1981, US federal debt has, on average, doubled every 8 years. Thus when Trump inherited the $20 trillion debt from Obama in 2017, I forecast that the debt would double by 2025 to $40t. That still looks like a valid projection, but with the economic problems I expect, a $50t debt by 2025-6 cannot be excluded.

So presidents know they can buy the love of the people by running chronic deficits and printing money to make up for the difference.

But if we look at the graph above again, it shows that debt has gone up 35X since 1981, but that tax revenue has only increased 8X from $0.6t to $4.9t.

How can any sane person believe that with debt going up 4.5X faster than tax revenue that, the debt can ever be repaid?

When debt goes unpaid, it is deflationary; currency disappears from the financial system.

Financial assets like stocks and real estate don’t react well to deflation. Ultimately, I believe stocks will have to go much lower.

As I have been suggesting, I believe that the Dow to Gold ratio will reach 1 or 2 in the end. Presently, when taking the value of the Dow and dividing it by the price of gold per ounce, one finds the Dow to Gold ratio at 19.

That’s more downside for stock and more upside for gold in my view, no matter what may happen short-term with stock rallies.

If you are not yet using the Revenue Sourcing planning strategy to plan your retirement income and allocation, I’d suggest you check it out.

An Inevitable Outcome

Last week, I discussed that stagflation was the most likely immediate economic outcome in my view.

Just in case you missed last week’s post, stagflation is defined as price inflation combined with a shrinking economy.

Ultimately though, I believe we will see a very painful deflationary environment that may rival the 1930s. This past week, Mr. Egon von Greyerz, whose work I follow and admire, analyzed the current situation. Excerpts from his piece follow: (Source: https://www.silverdoctors.com/headlines/world-news/viscous-cycle-of-self-destruction-gold-outperforming-all-asset-classes/)

The current fake monetary system will collapse under its own worthless weight…

“The first panacea of a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permeant ruin. But both are the refuge of political and economic opportunists.”

-Ernest Hemingway

As the West is standing on the edge of the precipice, there are only unpalatable outcomes.

At best, the world is facing a hyperinflationary depression later followed by a deflationary depression.

But sadly, there is today much more at stake as the West is frenetically escalating the sound of war drums against Russia’s invasion in Ukraine.

As the global economy reaches the point of collapse, countries get the leaders they deserve. There is today no leader or statesman in the West who can stand up to Putin in order to negotiate peace. Biden sadly neither has the vigor nor the ability to play any significant role in solving the conflict. Also, he has the neocons pressuring him to attack and defeat Russia. And Biden’s rhetoric against Putin is certainly not conducive to peace, with words like war criminal and genocide. Biden mustn’t forget that just like in the Vietnam war, the North Vietnamese and Viet Cong are estimated to have lost one million soldiers and two million civilians. Unprovoked wars are, of course, always senseless, whoever starts them.

President Zelensky is doing all he can to involve the rest of the world militarily by demanding more money and more weapons from the West rather than putting his efforts into peace negotiations. Ukraine can, of course, never win the war against Russia alone. And dragging in the US and NATO can only lead to a war of incalculable consequences and potentially a WWIII which could be nuclear.

And in the West, not a single leader is making a serious peace attempt. From Biden to Johnson, Macron, and Scholz, we only hear talk of more weapons and more money for Ukraine. This is terribly tragic and a sign of totally incompetent leadership in the West.

So the US and the West have no ability or desire to achieve peace. And Boris Johnson has welcomed the war as a diversion from his domestic “Partygate” political pressures and therefore has taken an aggressive position against Russia rather than finding a peaceful solution.

Macron is an opportunist who stands with one foot in each camp by being chummy with Putin and at the same time condemning him.

And Scholz, the German chancellor, is in an impossible position caused by Merkel’s poor management of Germany’s energy position. The three remaining German nuclear power stations will be closed down, and fossil fuels are politically unacceptable. Nearly 60% of German gas imports come from Russia. German industry would not survive without Russian gas. So Scholz wants to have his cake and eat it, sanctioning Russia on the one hand and simultaneously spending billions of Euros buying their energy and other natural resources, including food.

Quite a precarious position for Germany to be totally dependent economically on its war enemy. At the same time, this is good for the world as Germany has a vested interest to achieve peace.

But we must remember that only a minority of countries are backing the actions of the US and Europe. Africa, South America, and most of Asia are not taking sides and continuing to trade with Russia, and these regions represent around 85% of the world population.

So the vast majority of the world has no desire for war with Russia, but their voice is seldom heard in the Western-dominated media.

Politics and money cannot be separated, and the geopolitical situation that has now arisen will act as a perfect catalyst to the end of the monetary era since the creation of the Fed in 1913.

But what we must remember is that it is primarily the Western-controlled monetary system (including Japan) which will come to an end.

America’s and the EU’s final desperate attempt to save their broken system by sanctions on world trade will eventually fail as the Western economies gradually decay in an economic and social breakdown brought about by a quagmire of currency collapse, deficits, debts, and history’s most epic of asset bubbles.

The Phoenix emerging will clearly be the East, led by China, with Russia as an important partner. China is, population-wise, the biggest country in the world and will soon be the biggest country in GDP terms. With total US assistance in the form of know-how and technology, China has built up a strategic and advanced manufacturing base with dominance in many sectors.

For example, 18% of all US imports come from China, including 35% of all computers and electronics. Chinese sellers represent 40% of all top brands on Amazon and 75% of all new sellers.

The US and the rest of the world criticize Germany for being dependent on Russian energy, but the US folly of shifting much of its manufacturing to China certainly qualifies for joint first prize in commercial and strategic idiocy.

Since gold is the ultimate money and the only money that has survived in history, it will have a very important role in the coming years as the fiat currency system collapses.

Empires normally suffer a drawn-out and painful death. The fall of the US and the West has certainly been long, starting over half a century ago. But the fake prosperity has benefitted a small elite and lumbered the masses with colossal debts.

In 1971, US debt was $1.7 trillion, and 50 years later, it is $90 trillion, a mere 53x increase.

As the finale of the debt and currency collapse approaches, the desperation rises exponentially. Consequently, increasing amounts of money need to be created and wars initiated to justify the debt explosion, all in a vicious cycle of self-destruction.

For over half a century, the US has destroyed its currency and initiated unprovoked military actions in numerous countries – virtually all of them unsuccessful.

Yes, the US has certainly experienced a temporary false prosperity. But that could only be achieved with deficits, debt, and printing fake money.

The massive cost of the failed Vietnam war led to Nixon closing the gold window in 1971.

As Nixon said at the time, “the strength of the currency is based on the strength of the economy”!

Hmmm, half a century later, that currency has lost 98% in real terms (GOLD), and the Federal Debt has grown 75-fold from $400 billion to $30 trillion. It took 22 years, from 1971 to 1993, for the debt to expand by $15 trillion. Just in the last 2 years, the debt is up by the same amount of $15 trillion.

This debt will ultimately have to be dealt with. Simple math has one concluding that this level of debt can never be paid.

It is the massive defaults on debt that will have to come that will ultimately lead to a painful deflationary environment.

Stocks will fall, real estate prices will collapse, and unemployment will soar.

It’s ironic that the currency creation that has taken place on such a reckless scale since the financial crisis has allowed the debt to build.

Worldwide, at the time of the financial crisis, total debt was $120 trillion. Today, worldwide debt stands at $300 trillion. That’s an eye-popping increase of 250%!

This can’t possibly end well.

What is Real and Where are We Heading?

While I don’t typically publish the databox above in my blog each week, I am including it this week for reference.

The Dow to Gold ratio continued to fall last week. As currency devaluation continues, this is an indicator that becomes more meaningful in my view.

If you are not familiar with the Dow to gold ratio, it is simply the Dow Jones industrial average priced in gold. The Dow to gold ratio began the year at about 20 and it currently stands just under 16 1/2. That is a decline in stocks when measured in gold of almost 18%.

To calculate the Dow to gold ratio, one takes the value of the Dow priced in dollars and divides by the price of gold per ounce also priced in dollars. The current value of the Dow, 32,944.19 divided by the price of gold per ounce of 1999 results in a doubt to gold ratio of 16.48.

As currency is devalued, the nominal value of stocks increases. That can result in the illusion of an appreciating stock market when the reality is a depreciating currency, not a stock market that is increasing in real terms.

If we go back to the beginning of calendar year 2000, we find that the Dow Jones industrial average was at about 11,500. Presently, the Dow is nearly triple that level.

The question is, does that mean stocks have tripled in value, or does it mean that the US Dollar just buys a lot less?

By pricing the Dow in gold, we can get an idea.

In January of 2000, gold was selling for about $280 per ounce. To price the Dow Jones Industrial Average in gold, one would take the value of the Dow, 11,500 and divide by the price of gold per ounce, $280, resulting in a Dow to gold ratio of about 41.

In other words, if you were going to use gold to buy the Dow instead of US Dollars, you’d need 41 ounces of the yellow metal to own the Dow. (You can’t actually buy the Dow, but this is a good comparison.)

Today, the Dow is at about 33,000 and the price of gold per ounce is about $2,000. Taking the value of the Dow and dividing by the price of gold per ounce, one finds that the Dow to gold ratio is 16.5. In other words, 22 years later, stocks when priced in gold have fallen nearly 60% while the same stock index priced in US Dollars has nearly tripled.

While that comparison may not conclusively answer the question posed above, another example may.

According to the United States Census Bureau, the median price of a home in calendar year 2000 was $119,600. (Source: https://www.census.gov/data/tables/time-series/dec/coh-values.html)

If you were using gold to buy the new home in calendar yar 2000 rather than US Dollars, a new home would have set you back about 427 ounces of gold.

Fast forward to today and the National Association of Realtors reports that the median price of a home is $358,000. (Source: https://www.newhomesource.com/learn/cost-to-build-house-per-square-foot/) Given that gold is about $2,000 per ounce, a new home could be had for about 179 ounces of gold.

Like stocks, home values have roughly tripled in the last 22 years when priced in US Dollars. But, priced in gold, real estate values have declined just like stock values.

This brings me to my point this week, in real terms (gold) we are experiencing deflation. Measured in US Dollars we have inflation.

As I discussed on my “Headline Roundup” webinar this week, Egon von Greyerz had some great observations along these same lines last week. Here is a bit from his article (Source: https://goldswitzerland.com/global-monetary-commodity-inferno/):

Inflation leading to hyperinflation was always guaranteed in the current debt-infested era, although the Fed and other Western central banks have never understood what inflation is. Just as they didn’t understand that their fake and manipulated inflation figures couldn’t even reach the Fed target of 2%. Now with real US inflation exceeding 15% (see graph below), the Fed has a new dilemma that they are totally unprepared for.

The US government conveniently changed the calculation of inflation to suit their purpose. Had they stuck to the 1980s established method, official inflation would be over 15% today and rising.

For years, the US Fed unsuccessfully tried, with all the king’s horses and all the king’s men, to get inflation up to 2%. In spite of throwing $ trillions at the problem and keeping interest rates at zero, they never understood why they failed.

In spite of printing unlimited amounts of counterfeit money, inflation for years stayed nearer 0% than 2%.

Now with official inflation at 7% and real at 15%, the Fed can’t understand what has hit them as we know from their laughable “transitory” language.

So now a quick volte-face for the Fed to figure out how to reduce inflation by 5 percentage points and more likely by 13 to get inflation down to 2% instead of up to 2%.

Clearly, the Fed can never get it right but many of us have known that for a very long time.

If the Fed studied and understood Austrian economics rather than defunct Keynesianism, they would know that the real inflation rate depends on growth in money supply rather than the obsolete consumer price model.

So let’s take a look at the growth in Money Supply. Since 1971, M2 has grown by 7% annually. A 7% growth means that prices double every 10 years. Thus 100% total inflation over 10 years rather than the 2% per annum that is the Fed target.

But as the chart above shows, the exponential phase started in March 2020 with M2 growing by 19% annually since then. That means a doubling of prices every 3.8 years.

Since the money supply is growing at 19% annually, this means that inflation is also 19% based on our Austrian friends.

And this is what the US and the world were facing before the Ukraine crisis. But now there is a lot of explosive fuel being poured on the global inflation fire.

Russia has the biggest natural resource reserves in the world which include coal, natural gas, oil, gold, timber, rare earth metals, etc. In Rubles, these reserves will obviously appreciate substantially with the falling currency.

In total, the Russian natural resource reserves are estimated at $75 trillion. That is 66% higher than the second country USA and more than twice as much as Saudi Arabia and Canada.

Even if the total Russian supply is not lost to the world, it is clear that the West is determined to punish Russia to the furthest extent possible. Therefore, as we have already seen in the major escalation of oil and gas prices, the shortages will put insufferable pressure on the prices of natural resources.

I have for quite a few years warned about the coming inflation, leading to hyperinflation, based on unlimited money printing.

But the dynamite of a global commodity crisis and shortages thrown into the already catastrophic debt and global monetary fire will create an inferno of nuclear proportions.

If a miracle doesn’t stop this war very quickly (which is extremely unlikely), the world will soon be entering a hyperinflationary commodity explosion (think both energy, metals, and food) combined with a cataclysmic deflationary asset implosion (think debt, stocks, and property).

The world will be experiencing totally unknown consequences without the ability to solve any of them for a very long time. All the above would most likely happen even without a global war. But if the war spreads outside Russia and Ukraine, then all bets are off. At this point, I am not going to speculate about such an outcome since what is standing in front of us currently certainly is bad enough.

A Market Perspective

The potential double top in stocks theory that I put out a couple weeks ago is still holding after last week’s price action in stocks.

While it remains too early to tell, there are many signs that the stock market may be ready to decline. It is my view that most of the gain in stocks seen since the financial crisis of a dozen years ago is attributable to the artificial market environment created by the easy money policies of the Federal Reserve.

Ironically, since the financial crisis, which was caused by excessive debt, debt worldwide has increased exponentially. A piece published this week by Egon von Greyerz does a nice job of breaking down the numbers (Source: https://goldswitzerland.com/coming-market-madness-could-take-70-years-to-recover/)

The year 2022 will most likely be the culmination of risk. An epic risk moment in history that very few investors will see until it is too late as they expect to be saved yet another time by the Fed and other central banks.

And why should anyone believe that 2022 will be different from any year since 2009 when this bull market started? Few investors are superstitious and therefore won’t see that 13 spectacular years in stocks and other asset markets might signify an end to the epic super-bubble.

The Great Financial Crisis (GFC) in 2006-9 was never repaired. Central bankers and governments patched Humpty up with glue and tape in the form of printed trillions of dollars, euro, yen, etc. But poor Humpty Dumpty was fatally injured and the intensive care he received would only give him a temporary reprieve.

When the GFC started in 2006, global debt was $120 trillion. Today we are at $300t, rising to potentially $3 quadrillion when the debt and derivatives bubble finally first explodes and then implodes as I explained in my previous article.

It is amazing what fake money made of just air can achieve. Even better of course is that the central banks have manipulated interest rates to ZERO or below which means the debt is issued at zero or even negative cost.

Investors now believe they are in Shangri-La where markets can only go up and they can live in eternal bliss. Few understand that the increase in global debt since 2006 of $180t is what has fueled investment markets.

Just look at these increases in the stock indices since 2008:

Nasdaq up 16X

S&P up 7x

Dow up 6X

And there are of course even more spectacular gains in stocks like:

Tesla up 352X or Apple up 62X.

These types of gains have very little to do with skillful investment, but mainly with a herd that has more money than sense fueled by paper money printed at zero cost.

To call the end of a secular bull market is a mug’s game. And there is nothing that stops this bubble from growing bigger. But we must remember that the bigger it grows, the greater the risk is of it totally wiping out gains not just since 2009 but also since the early 1980s when the current bull market started.

The problem is also that it will be impossible for the majority of investors to get out. Initially, they will believe that it is just another correction like in 2020, 2007, 2000, 1987 etc. So greed will stop them from getting out.

But then as the fall continues and fear sets in, investors will set a limit higher up where they intend to get out. And when the market never gets there, the scared investor will continue to set limits that are never reached until the market reaches the bottom at 80-95% from the top.

And thus paper fortunes will be wiped out. We must also remember that it can take a painstakingly long time before the market recovers to the high in real terms.

As Ray Dalio shows in the chart below, the 1929 high in the Dow was not even recovered in real terms by the mid-1960s. Finally, it was surpassed in 2000.

This means that it took 70 years to recover in real terms! So investors might have to wait until 2090 to recover the current highs after the coming fall.

So looking at the chart, the market is now at a similar overvalued level it was in 1929, 1972, and 2000.

Thus the risk is as great as at some historical tops in the last 100 years.

The chart below shows that the 1929 top in the Dow was not reached in real terms until 2000.

How many investors are prepared to take the risk of a say 90% fall like in 1929-32 and not recover in real terms until by 2090!

Again, I repeat that this is not a forecast. But it is an epic warning that risk in investment markets are now at a level that investors should avoid.

I fear that sadly very few investors will heed this risk warning.

In his piece, von Greyerz explains that the causes of the financial crisis were excessive debts, huge derivative exposure, and massive unfunded liabilities. In 2009 at the time of the financial crisis, the combined total was about $120 trillion.

Today, thanks to easy money policies that $120 trillion number has risen to $300 trillion – an increase of 250%!

That’s truly remarkable when you consider it.

As von Greyerz notes in his article, this problem has been building for a very long time and maybe culminating presently. Here is another excerpt from his article:

As I have pointed out many times, the US has not had a budget surplus since 1930 with the exception of a couple of years in the 1940s and 50s. The Clinton surpluses were fake as debt still increased.

But the money and market Madness started in the 1970s after Nixon couldn’t make ends meet and closed the gold window. The US federal debt in 1971 was $400 billion. Since then, the US debt has grown by an average of 9% per year. This means that the US debt has doubled every 8 years since 1971. We can actually go back 90 years to 1931 and find that US debt since then has doubled every 8.3 years.

What a remarkable record of total mismanagement of the US economy for a century!

The US has not had to build an empire in the conventional way by conquering other countries. Instead, the combination of a reserve currency, money printing, and a strong military power has given the US global power and a global financial empire.

Even worse, since the coup by private bankers in 1913 to take control of the creation of money, the US Federal debt has gone from $1 billion to almost $30 trillion.

As Mayer Amschel Rothschild poignantly stated in 1838:

“Permit me to issue and control the money of a nation and I care not who makes its laws”.

And that is exactly what some powerful bankers and a senator decided on Jekyll Island in 1910 when they conspired to take over the US money system through the creation of the Fed which was founded in 1913.

It was this takeover of the creation of money by the private bankers that has landed us where we now find ourselves- on a path of inflation to be followed by deflation as I have been discussing.

While my crystal ball doesn’t work any better than anyone else’s does, it seems we are nearing the inevitable end of the cycle.

Are you prepared?

Will the Fed Taper?

Stocks continued their rough stretch last week. While we could see a Santa Claus rally this month as we often do as the year comes to a close, given how extended stocks are from what would be considered to be more ‘normal’ levels, we may not experience the traditional year-end rally.

Last week, I examined the math behind the colossal national debt, the gigantic federal operating deficit and concluded that since the Federal Reserve, the nation’s central bank controlled by private bankers, is now the buyer of last resort of US Government debt, the Fed would have no choice but to continue to create currency further fueling the inflation that is now here.

What that means, in a nutshell, is that the Fed is creating currency out of thin air and then using that newly created currency to fund the federal government’s operating deficit.

Despite the public talk of tapering, or slowing the rate of currency creation, unless the Federal government cuts spending, the Fed will have no choice but to continue to create currency.

This past week, I found an article written by Matthew Piepenburg of Matterhorn Asset Management that articulated this idea that I put forth last week quite articulately. Here is a bit from the article (Source: https://goldswitzerland.com/latest-treasury-fed-and-bis-reports-confirm-all-twisted-paths-lead-to-gold/)

History’s patterns confirm that the more a system implodes under the weight of its own self-inflicted extravagance (typically fatal debt piles driven by years of war, wealth disparity, currency debasement, and political/financial corruption), the powers-that-be resort to increasingly autocratic controls, distractions, and automatic lying.

The list of such examples, from ancient Rome, 18^th century France, and 20^th century Europe to 21^st century America are long and diverse, and whether it be a Commodus, Romanov, Batista, Biden, Franco, or Bourbon at the helm of a sinking ship, the end game for bloated leaders reigning over-bloated debt always ends the same: More lies, more controls, less liberty, less truth, and less free markets.

Seem familiar?

As promised above, however, rather than just rant about this, it’s critical to simply show you. As I learned in law school, facts, alas, are far more important than accusations.

Toward that end, let’s look at the facts.

Earlier this month, the Fed and Treasury Department came up with a report to discuss, well, “recent disruptions” …

The first thing worth noting is the various “authors” to this piece of fiction, which confirm the now open marriage between the so-called “independent” Fed and the U.S. Treasury Dept.

If sticking former Fed Chair, Janet Yellen, at the helm of the Treasury Department (or former ECB head, Mario Draghi, in the Prime Minister’s seat in Italy) was not proof enough of central banks’ increasingly centralized control over national policy, this latest evidence from the Treasury and Fed ought to help quash that debate.

In the report above, we are calmly told, inter alia, that the U.S. Treasury market remains “the deepest and most liquid market in the world,” despite the ignored fact that most of that liquidity comes from the Fed itself.

Over 55% of the Treasury bonds issued since last February were not bought by the “open market” but, ironically, by private banks which misname themselves as a “Federal Open Market Committee”

The ironies (and omissions) do abound.

But even the authors of this propaganda piece could not ignore the fact that this so-called “most liquid market in the world” saw a few hiccups in recent years (i.e., September of 2019, March of 2020) …The cabal’s deliberately confusing response (and solution), however, is quite telling, and confirms exactly what we’ve been forecasting all along, namely: More QE by another name.

Specifically, these foxes guarding our monetary hen house have decided to regulate “collateral markets and Money Market Funds into buying a lot more UST T-Bills” by establishing “Standing Repo Facilities for domestic and foreign investors” which are being expanded from “Primary Dealers” to now “other Depository Institutions going forward” to “finance growing US deficits” by making more loans “via these repo facilities (SRF and FIMA).”

Huh?

Folks, what all this gibberish boils down to is quite simple and of extreme importance.

In plain speak, the Fed and Treasury Department have just confessed (in language no one was ever intended to understand) that they are completely faking a Fed taper and injecting trillions more bogus liquidity into the bond market via extreme (i.e., desperate) T-Bill support.

Again, this is simply QE by another name. Period. Full stop.

The Fed is cutting down on long-term debt issuance and turning its liquidity-thirsty eyes toward supporting the T-Bill/ money markets pool for more backdoor liquidity to prop up an otherwise dying Treasury market.

Again, this proves that the Fed is no longer independent, but the near-exclusive (and rotten) wind beneath the wings of Uncle Sam’s bloated bar tab.

Or stated more simply: The “independent” Fed is subsidizing a blatantly dependent America.

Mr. Piepenburg brilliantly deciphers how the Fed is claiming to be seriously considering slowing the rate of currency creation, but in reality, it is not. It is simply changing the way that newly created currency is subsidizing the deficit operations of the US Government.

That is congruent with the deficit and debt math that we have been analyzing. It now seems that the Fed will create currency until the consequences are too severe to bear.

Mr. Piepenburg’s associate, Egon von Greyerz, had this to say on the topic last week (Source: https://goldswitzerland.com/evil-is-the-root-of-all-fiat-money/):

The US government is currently spending $7 trillion annually but the tax revenue is ONLY $4 trillion. So there is a net annual deficit of a mere $3 trillion or 43% of the US budget.

How can anyone believe that the US can repay a debt of currently $29 trillion and rising to $50 trillion with an annual deficit of $3 trillion – a deficit which is rising exponentially. The simple answer is that they never will repay it. Instead, it will increase uncontrollably.

As I said at the beginning of the article – Evil is the root of all fiat money as a 50 fold increase in the US debt since 1981 can only be achieved through corrupt means.

And don’t believe that the Fed will really taper the $120 billion a month that they are printing. They have declared a $15 billion tampering programme but that is a FAKE TAPER as my colleague Matt Piepenburg wrote about.

As expected they are cooking the books, giving with one hand and taking back with the other one – Plus ça change….. (the more it changes, the more it stays the same).

I believe that we find ourselves at the point in time, as others throughout history have found themselves, that the politicians and policymakers of the last 50 years have collectively brought us to the point that the only possible way to postpone a titanic deflationary collapse is to continue to create currency.

Notice that I used the word postpone rather than the word avoid. Debt levels dictate that they are too high to ever be paid with honest money – so they won’t be. Instead, the politicians and policymakers will continue with currency creation until they can’t. At that point, the deflationary collapse will occur.

As I stated last week, in my view, it’s never been more important to have an income plan that’s funded with some assets to help preserve assets in a deflationary environment and some assets that will help to act as an inflation hedge.

Fifty Years of Fiat

An important anniversary is approaching this week. Although it won’t be widely observed or likely even mentioned, it’s the anniversary of the event that led to current economic and investing conditions.

This coming Sunday, August 15 will mark 50 years since the US Dollar became a fiat currency. On August 15, 1971, President Richard Nixon gave a televised speech during which he announced he would be instructing Treasury Secretary Connolly to temporarily suspend the redemptions of US Dollars for gold to protect the US Dollar from speculators.

Nixon, during his speech, also stated that he wanted to address a ‘bugaboo’, namely that there were many who were concerned that the move would negatively impact the purchasing power of the US Dollar. Nixon stated that you might spend more if you wanted to buy a foreign car or take an overseas trip, but if you were among the overwhelming majority of Americans who didn’t make those purchases, your dollar would buy just as much in the future as it did presently.

50 years later, we know that the redemptions have been permanent, and the US Dollar has lost more than 95% of its purchasing power.

As I have often discussed, it was at that point in time that the US Dollar began to be loaned into existence. At that point in time, money became debt, and the money supply was expanded by expanding credit.

More debt meant more money.

The Austrian economist, Ludwig von Mises, perfectly articulated the outcome of this money transformation in my view.

He said, “There is no means of avoiding the final collapse of a boom brought on by credit expansion. The alternative is only whether the crisis should come sooner because of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

In other words, the currency creation ceases, and the crash happens, or the currency is destroyed, and the crash occurs. Neither outcome is desirable and both eventualities are painful to endure. Survival requires an understanding of this principle and preparation in your personal finances.

Egon von Greyerz, who often offers perspectives on this topic wrote another piece last week as the US Dollar’s fiat currency birthday approaches. (Source: https://kingworldnews.com/greyerz-warning-we-are-now-headed-for-a-catastrophic-global-crack-up-boom/)

The beginning of the end of the current monetary system started exactly 50 years ago. In the next few years, the world will experience the end of another failed experiment of unlimited debt creation and fake fiat money.

Economic history tells us that we need to focus on two areas to understand where the economy is going – INFLATION AND THE CURRENCY. These two areas are now indicating that the world is in for a major shock. Very few investors expect inflation to become a real problem but instead believe interest rates will be subdued. And no one expects the dollar or any major currency to collapse.

But in the last two years, money supply growth has been exponential with for example M1 in the US growing at an annual rate of 126%!

Von Mises defined inflation as an increase in the money supply. The world has seen explosive growth in credit and money supply since 1971 and now we are seeing hyperinflationary increases.

Hyperinflation is a currency event. Just since 2000 most currencies have lost 80-85% of their value. And since 1971 they have all lost 96-99%. The race to the bottom and to hyperinflation is now on.

Mr. von Greyerz published this chart that illustrates the price of gold per ounce in various currencies. Using this metric, from 1971 to the present, the US, the UK, Europe, and Canada have seen their respective currencies decline by 96% to 99%.

To say that we are on a slippery slope would not be accurate, we have already made the slide down the proverbial slippery slope, we are now just awaiting the outcome that von Mises forecast.

As many past guests on RLA Radio have stated, hyperinflationary events tend to escalate rapidly and climax relatively quickly as well.

Von Greyerz offers some terrific perspectives on this principle too. This is from his piece:

Since the Great Financial Crisis in 2006-9, there has been an exponential growth in US Money Supply.

Looking at US M1 money supply, the graph below shows how it grew from $220 billion in August 1971 to $19.3 trillion today.

From 1971 to 2011 the growth seems modest at a compound annual growth (CAGR) of 6%. If the dollar purchasing power declined by the same rate, it would lead to prices doubling every 12 years. Or put in other terms, the value of the currency on average would drop by 50% every 12 years.

Then from 2011 when the Money supply started growing in earnest, M1 has grown by 24% annually. This means that prices in theory should double every 3 years.

Finally, from August 2019 to August 2021 M1 has gone up by 126% a year. If that was translated to the purchasing power of the dollar it would lead to prices doubling every 7 months.

Von Greyerz goes on to explain that von Mises defined inflation as an expansion of the money supply rather than an increase in prices. To this point, there has not been a lot of price inflation experienced by consumers but there has been inflation in asset prices as I have discussed in previous issues of “Portfolio Watch”.

Von Mises and von Greyerz are discussing the same phenomenon that Thomas Jefferson described when he warned of inflation followed by deflation if the American people ever allow private bankers to control the issue of their currency.

Historically speaking, this cycle has repeated itself with amazing frequency. Fiat currencies have a 100% failure record.

I remain solidly in this camp even though there are many respected, highly educated analysts who have different opinions. Those who believe the US Dollar will be a safe haven moving ahead are coming to that conclusion assuming confidence in the US Dollar continues.

While confidence may continue for a period, over the longer term, confidence will have to disappear unless as von Mises said, there is a voluntary abandonment of credit creation. While that would be the preferred outcome of the two von Mises describes, it does not seem that the current crop of politicians and policymakers will pursue this ugly, yet more desirable outcome. Instead, they appear to be opting to kick the can down the road as long as possible, postponing the crash for as long as possible even though the crash will be worse as a result.

My new book “Retirement Roadmap” an updated version of last year’s “Revenue Sourcing” book will be released within the next 10 days. It offers strategies for you to consider in your own, personal financial situation to help protect you from this eventuality.

Greenspan the Gold Bug?

Markets were once again quiet last week.

Emerging market stocks continue to show weakness and the bond markets may be beginning to show signs of life.

Last week, I shared a chart of the “Buffet Indicator” a stock valuation tool that was named after Warren Buffet after he revealed in an interview it was his favorite method to use to value stocks.

Using that indicator, stock valuations are now 20% higher than at the peak of the tech stock bubble. That statistic alone validates a cautious approach to investing. Dollar-cost averaging into portfolios that have hedged stock positions or exit strategies are techniques to consider at this juncture in the markets.

This past week, I read an article that revealed that Alan Greenspan, the former Chair of the Federal Reserve is actually a gold bug. (Source: https://goldswitzerland.com/fed-heads-lose-their-head/)

The article was penned by Egon von Greyerz, whose work I often read.

It will come as no surprise that Mr. von Greyerz concludes that politicians and policymakers often speak with “forked tongues”. Here is a bit from his piece:

That politicians speak with forked tongues is a well-known axiom. The day they put the political cap on, it is impossible for them to tell the truth.
The same with the heads of the Federal Reserve. Whatever views the appointee previously had about sound money is completely blown out of the water, once he/she enters the Eccles building.

My colleague Matt Piepenburg wrote about the author of the “Everything Bubble” Alan Greenspan last week. And the “Maestro” is the epitome of someone who lost all his senses as he had to violate virtually every single principle he stood for when he became chairman of the Fed.

Egon then went on to discuss an essay that Mr. Greenspan authored in 1966 titled, “Gold and Economic Freedom”. It is important to note that Greenspan wrote this piece five years prior to the United States reneging on the Bretton Woods agreement in which the United States agreed to back the US Dollar with gold. The US agreed to exchange US Dollars for gold at a rate of $35 per ounce as part of that agreement.

Here is an excerpt from Greenspan’s 1966 essay (Source: https://www.swissamerica.com/article.php?art=06-2003/200306250118f.txt):

“Thus, under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade.”

Sure makes Greenspan sound like a gold bug, doesn’t it?

Mr. von Greyerz points out that Greenspan has taken this position regarding gold more than once. This, again, from Mr. von Greyerz’s article:

In a 1978 Congress hearing, Greenspan stated:

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”

You read that correctly. In testimony before congress, Greenspan said that without using gold as money, it is impossible to preserve wealth and protect that wealth from the ravages of inflation.

But, then in 1987, Mr. Greenspan became the Chair of the Federal Reserve and, at that point, it seems, his position changed. It was Greenspan who began the practice of money creation. While he served as Fed Chair prior to the advent of quantitative easing and helicopter money, Greenspan did manipulate the money supply by controlling interest rates.

It seems that during his tenure at the Fed, Greenspan suppressed his true feelings about gold as money. As von Greyerz notes in his article, Greenspan is the father of the everything bubble in which we now find ourselves.

Greenspan did slip once during testimony before the House of Representatives in 1998 when he said, “I am one of the rare people who still have a nostalgic view of the old gold standard, as you know, but I must tell you, I am in a very small minority among my colleagues on that issue.”

After he left his post as Fed Chair, Greenspan once again spoke openly and freely of his affinity for gold as a currency. In 2014, Greenspan said, “Gold is a currency. It is still, by all evidence, a premier currency, where no fiat currency, including the dollar can match it. Yet gold has special properties that no other currency, with the possible exception of silver, can claim. For more than two millennia, gold has had virtually unquestioned acceptance as payment. It has never required the credit guarantee of a third party. No questions are raised when gold or direct claims to gold are offered in payment of an obligation.”

Mr. von Greyerz points out that subsequent Fed Chairs have not shared Greenspan’s views on gold.

Former Fed Chair, Ben Bernanke, while being questioned by Ron Paul stated “the reason people hold gold is to protect against a tail risk, a really, really bad outcome.”

When Dr. Paul asked Bernanke if gold was money, Bernanke replied, “No, it is an asset.”

Paul then followed up by asking Bernanke why central banks hold gold. Bernanke replied by saying, “Well, it is a tradition.”

Not a great answer.

Current Fed Chair Jerome Powell seems to be clueless about gold. This from von Greyerz’s article:

The current Fed head also has, not unexpectedly, very little understanding of gold. In a recent discussion at the Bank for International Settlement (BIS) Powell described Bitcoin as an asset that is not backed by anything.

So far I will clearly agree with him. “Crypto assets are highly volatile and therefore not useful as a store of value,” he said. It is a speculative asset that is essentially a substitute for gold rather than for the dollar”.

So yet another clueless Fed head!

The obvious question to ask Powell is:

Why the hell don’t you sell your 8,000 tonnes (allegedly) of gold and buy Bitcoin instead??
That is the obvious conclusion if Crypto assets are a substitute for gold. Also, imagine the costs you would save Mr Chairman as 8,000 tonnes of gold is $4.4 trillion and would fit on a small memory stick that you could keep in your pocket.

History teaches us that the basic rules of economics and currency cannot be changed. Ultimately, it is my firm belief that gold or gold and silver will once again become money. From that standpoint, I am in agreement with Mr. Greenspan.

Meanwhile, the massive money creation in which the Fed has been engaging is creating inflation in many areas of the economy. Food and lumber are just two examples.

Massive new money creation being distributed as helicopter money to the masses is creating a banana republic look in the United States.

The Chicago PMI Index has not been at the current level since 1980, when then Fed Chair, Paul Volker raised the Fed Funds rate to 22% to combat inflation. The chart illustrates.

Yet, the Fed sees no inflation?

Last week, the Fed issued a statement that conveyed the Fed intends to keep interest rates near zero and continue ‘bond purchases’ (a.k.a. money creation) of $150 billion per month.

Mr. Powell made the following statement to reporters last week. “We want inflation to run a little bit higher than it’s been running the last quarter century. We want it at 2%, not 1.7%.”

The Fed’s policy moving ahead is clear. Print, print, and print some more. Interesting that Mr. Powell subtly changed the inflation narrative once again suggesting that the Fed is now averaging inflation over a 25-year time frame.

When you couple that fact with the truth that the Fed’s measure of inflation is severely flawed and underestimates the inflation rate by a significant margin, seems that we might all take Mr. Greenspan’s advice and make sure we’ve hedged our assets by owning gold and silver.

If you know of someone who could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com. Our webinars, podcasts, and newsletters can be found there.

Gold, the Dow and the Dollar

Except for the US Dollar Index, all markets were ugly last week. Silver led the way as far as declines went, falling a whopping 14.32%. As I have warned, when markets rise parabolically like silver did, a pullback is highly likely. We are now seeing that pullback.

I believe the current pullback is another opportunity to accumulate metals and I am holding to my long-term forecast of the Dow to Gold ratio reaching 2, or even 1. For new readers, the Dow to Gold ratio is calculated by taking the value of the Dow Jones Industrial Average and dividing by the price of gold per ounce. The present Dow to Gold ratio stands at 14.59 which is only marginally changed from last week.

I have intentionally avoided making a prediction as to what these levels will be. In an outcome that is more deflationary, a Dow to Gold ratio of 1 could have both the Dow at 5,000 and the price of gold per ounce at $5,000.

An inflationary outcome, or hyperinflationary outcome could see the numbers much higher. But I would still expect a ratio of 2 or 1.

Egon von Greyerz, of Matterhorn Asset Management, shares this perspective. He expects the Dow to Gold ratio to reach 1. However, considering current monetary policy he expects parity between the Dow and Gold to be at high levels, perhaps as high as 50,000. If the Dow were to rise to 50,000, it would represent an approximate doubling. If gold were to rise to $50,000 per ounce it would represent more than a 25-fold increase from these levels.

While those are hard numbers to swallow given current levels, in an outcome that is highly inflationary, which is the outcome that Mr. von Greyerz sees, they are possible. When reading an article he published in March and comparing it to a recent article, it seems his views have changed slightly given current Fed policy.

Mr. von Greyerz recently published a piece in March that explains his views. He begins his piece by making an extremely ominous statement.

This is it! The party is over. The world is now facing the gravest economic and social downturn in modern times (18^th century). We are now entering a period of global crisis that will change the world for a very long time to come. This should come as no surprise to the people who have studied history and also read my articles for the past few years. Many others have also warned about the same thing. But, since Main Stream Media never talks about the excesses in the world or the risks, 99.9% of people are totally unprepared for what is coming next.

Mr. von Greyerz forecast that the Dow and property, both in a bubble, decline at least 90% in real terms. This is congruent with what we wrote in last week’s issue of “Portfolio Watch”:

This dual reality is that unless Federal Reserve policies are suddenly and dramatically changed, we will have inflation in US Dollar terms but deflation in terms of gold which has historically been money.

Here’s our take: as prices in US Dollars continue to rise, prices in gold will continue to decline.

In his March article, Egon states this about the Dow to Gold ratio:

I expect the ratio to initially reach the 1980 level of 1 for 1. What the levels would be is hard to predict, but let’s say Dow 10,000 and gold $10,000.

As noted above, Mr. von Greyerz published a new piece last week which touched on the same topic.

As I have stated previously, Coronavirus which started in early 2020, is not the reason for the current economic downturn in the world economy. It was just a catalyst. For some reason, when cycles are about to accelerate hard down, the trigger seems to be the worst possible. Although I have often talked about disease as one potential catalyst, I did not expect it to come now and cause a total lockdown of parts of the economy and society in so many countries.

When you are approaching the end of a financial era or cycle, it is very difficult to predict exactly how it all will end. Very few people understand that we are now living on borrowed time. But there is absolutely no doubt that we are now at the end of a major cycle.

The risk is here now and if you don’t prepare for this, you are not just likely to lose whatever wealth you have but also your job, pension, or social security depending on your circumstances. And if you live in a city, you are also likely to be affected by social unrest and crime plus a breakdown of services like medical care, schooling, law, and order, etc.

Many people are today trying to get out of the cities as a result of Coronavirus and the shutdown of offices and shops as well as increased crime rates. For the wealthy minority, this is not a big problem but for normal people, it is not self-evident to just move out. But it is very clear that home working will become much more prevalent and many cities will become ghost towns. Tax revenue will decline dramatically and the authorities will not be able to keep up even simple services such as water, sanitation, or cleaning. Also, many retail outlets and restaurants, as well as offices in cities, will close due to lack of customers, crime, and out of town or online shopping. This trend has of course already started in many cities. In the City of London (Financial District), there are now very few people working. Only some shops or restaurants are open and the ones that are, are hemorrhaging financially.

von Greyerz estimates that at the outside it will take 8 years for the “artificial edifice” the world has created to collapse but adds it could happen a lot more quickly. von Greyerz defines “artificial edifice” as all the fake assets that have been created due to central banks’ deliberate recklessness.

I agree.

The Federal Reserve is a private entity that was given complete control of monetary policy back in 1913. Then, in 1971, when Nixon closed the gold window which turned the US Dollar into a fiat currency, this private entity was now free to create as much money as they wanted.

Think about that for a moment. These private banks can create money out of thin air, loan it out and then get it back with interest. Pretty good deal – if you’re a banker. As Egon points out in his article, there is a huge benefit to standing next to the printing press. Zimbabwe’s former President Mugabe had this figure out. By using the money from the printing press first, he could buy tangible items quickly or exchange the newly created currency for US Dollars before the value of the Zimbabwe Dollars collapsed completely.

Mr. von Greyerz makes a great point in his most recent piece – printed money does not reach the “regular folks” who could use it the most.

In the US, the Fed has since the latest crisis started in August 2019, printed $3.3 trillion, and most of it since March 2020. Very little of this money has reached ordinary people. If it had, it would have meant a contribution of $25,000 to every one of the 130 million households in the US. Although printed money is basically worthless, it might have had some short-term beneficial effect on the broad economy.

But no, money printing is not for ordinary people. It is for the bankers and the wealthy and adds more fuel or liquidity to already massively overvalued asset markets rather than reaching the people who really need it. This has caused the NASDAQ to go up by 62% since late March and the Dow by 52%.

Egon then discusses his revised view of the Dow to Gold ratio and the potential numbers that we could ultimately see.

In a recent article, I discussed that we could see a liquidity fueled melt-up in stocks making the Dow double to say 50,000. Since I expect the Dow to Gold ratio to reach 1 to 1 or below (like in 1980 Dow 850 Gold $850), gold could at the same time reach $50,000 as inflation rises. As I consider stocks overbought and overvalued today, there is no fundamental or even technical reason for this to happen. Since markets, today have nothing to do with fundamentals or sound valuation principles but are only liquidity-driven, this kind of move is not impossible.

As noted above, this outlook is consistent with my view that we will see inflation in terms of US Dollars and deflation in terms of gold. This means that US Dollars will lose purchasing power as the purchasing power of gold increases.

Mr. von Greyerz makes this point as well.

And don’t for one second believe that the assets you own whether they are stocks, bonds, or property are really worth the thousands or millions that they are valued at in fake money.

The imminent wealth destruction will soon reveal to investors that their assets are only worth a fraction of the imaginary value they have today.

Central banks will not save the world, they can’t. Because how can you solve a debt problem with more worthless debt or how can you create wealth by issuing more debt? That Ponzi scheme is now finished for a very long time.

Physical gold and silver will in the next few years reveal the total delusion that the financial system has rested on. Investors who are not protected should take heed.

While timing is difficult to predict, current central bank policies will inevitably lead to the outcome I’ve forecast.

Make sure you’re protected.

Banking Failures and Rising Prices?

As I note in this month’s “You May Not Know Report” which will be mailed to clients in about one week, there are two schools of thought as to where the economy and financial markets go from here given that debt levels are extreme and money creation is off the charts.

Those analysts who believe debt levels will dominate economic activity moving ahead are those who are in the deflation camp. Excessive debt levels are deflationary. Banks, which have debt as assets, can become insolvent when massive levels of debt go unpaid.

There are other analysts who are of the mind that excessive money creation will dominate in the future. At a certain level of money creation, inflation is the only possible outcome.

Here’s the rub. No one knows for certain what level of money creation tips the scales from deflation to inflation. And, no analyst knows for certain what the inflation rate will be once the inflation tipping point is reached, assuming we get there.

On my radio program, we interview some very bright economists and financial commentators. One thing is sure – there is not a common, widely accepted opinion. That’s why in the book “Revenue Sourcing” I advocate using a revenue sourcing map to protect yourself from either outcome.

Given the extremes at which we find ourselves currently, I am confident that the outcome will also be extreme. Once one fully understands the economic data, it’s absolutely impossible to imagine how investing the traditional way will produce the same outcome that it’s delivered historically.

The first and very real threat to your finances is the solvency of the banking system. This was the issue during the financial crisis and looking at the data, it’s likely going to be an issue again, probably soon.

Egon von Greyerz, the founder of Matterhorn Capital Management in Zurich, recently noted in a piece he published that there is a very strong historic correlation between the unemployment rate and commercial loan defaults. He published this chart to provide an illustration.

When reviewing the chart, one notes that the commercial bank loan delinquency rate has tracked the unemployment rate closely. During the financial crisis, the official unemployment rate was just under 10% and the commercial bank loan delinquency rate was between 7% and 8%.

While there is some debate about the true current unemployment rate given the calculation methodologies used, by eyeballing the chart, one might easily conclude that the commercial bank delinquency rate could exceed 12%.

Mortgage loan delinquency rates more than doubled from March to May and that’s with the extra $600 per week in federal unemployment benefits still being paid. Those benefits are set to stop at the end of this month.

I expect delinquency rates to jump significantly as a result; my best estimate would be 20%, perhaps as high as 30%.

Most of the loans that are currently delinquent have not been reported by the banks. But these bad loans will be reported over the next quarter or two.

Alasdair Macleod, an analyst who has been a past guest on my radio program had this to say about debt levels, the banking system and the response by the Federal Reserve (emphasis added):

But for now, monetary policy is to buy off all reality by printing money without limit and almost no one is thinking about the consequences.
Transmitting money into the real economy is proving difficult, with banks wanting to reduce their balance sheets, and very reluctant to expand credit. Furthermore, banks are weaker today than ahead of the last credit crisis, and payment failures on the June quarter-day just passed could trigger a systemic crisis before this month is out.
Sooner or later bank failures are inevitable and will be a wake-up call for markets. Monetary inflation will then become an obvious issue as central banks and government treasury departments become desperate to prevent an economic slump by doing the only thing they know; inflate or die.
Foreigners, who are incredibly long of dollars and dollar assets will almost certainly start a chain of events leading to significant falls in the dollar’s purchasing power. And when ordinary Americans finally begin to discard their dollars in favor of goods, the dollar will be finished along with all fiat currencies that are tied to it.

Since banks are experiencing loan delinquencies and soon loan defaults, they are not in a hurry to extend credit to customers. Since the last several economic expansions were fueled by debt accumulation, when debt accumulation stops, the economy stops with it.

Mr. Macleod published this chart to demonstrate the banks’ balance sheets have begun to contract.

Alasdair also compares the current, looming crisis to the financial crisis of 2008 (emphasis added):

Following Lehman’s failure, a similar pattern to the one unfolding today of a rapid increase in bank assets through the newly invented QE was followed by a contraction of bank credit which lasted about fifteen months. But that crisis was about financial assets in the mortgage market, which had knock-on effects in the non-financials. Difficult though it was, its resolution was relatively predictable.
This crisis started in the non-financials and is, therefore, more damaging to the economy; its severity is likely to lead to a banking crisis far larger than the Lehman failure and possibly greater than anything seen since the 1930s depression.
Commercial bankers are now waking up to this possibility. For them, the immediate danger is associated with this quarter-end just passed, when demand for credit to pay quarterly charges increases significantly. Already, businesses are in arrears as never before, with many shopping malls, office blocks, and factories unused and rents unpaid. It is this problem, shared by banks around the world, which due to the severity of current business conditions is likely to tip the banking system over the edge and into an immediate crisis. The extent of the problem is likely to be revealed any time in this month of July.

Bank failures are deflationary by nature as the money supply contracts as borrowers’ default on debt.

Mr. Macleod states that since this crisis is a far larger one than Lehman was, the bailout required will be far larger and there is only one way that such a bailout will be funded – more money printing.

This will lead to stagflation, a condition under which the economy sees low output but rising, likely rapidly rising prices.

Mr. von Greyerz, referenced above, noted that since COVID-19 hit, world governments and central banks have borrowed and printed a combined total of $18 trillion. Mind-boggling.

To help put that number in perspective, if you counted quickly and never made a mistake, it would take you 32,000 years to count to a trillion.

If you’ve not already done so, I would suggest that you consider owning some precious metals. If you’re unsure as to how to get started, give the office a call at 866-921-3613 and we’ll arrange a free, no-obligation, educational call to help you understand your options.

We’d also suggest checking out the safety rating of your banking institution. Given the high probability of bank failures moving ahead, diversification with your cash assets is also advisable.