The ‘Inflation Reduction Act’ Will Do Anything But

          Last week, I pointed out that using the long-accepted definition of recession, the United States finds itself smack in the middle of one despite the fact that there are politicians and policymakers who would like to change the way a recession is defined.

          This past week, the Washington politicians collectively passed a bill that will do exactly the opposite of its name.  It seems that the “Inflation Reduction Act” will now become law.

          While an “Inflation Reduction Act” sounds like a good idea, the act will add to the inflation problem we are now facing in my view.

          Before I get into some of what this law will do, let’s revisit some simple math. 

          When the government or any other entity spends more than it takes in, we say that expenditures exceed income and the result is a deficit.  Deficit spending needs to be covered by borrowing money to make up for the shortfall.

          Repeated, chronic deficit spending will eventually see the pool of lenders willing to cover deficit spending shrink ultimately reaching a point where there are no lenders left to cover the operating deficit.

          That is essentially where the US has been with the Federal Reserve becoming the lender of last resort creating currency to (at least indirectly) cover the operating deficit.  As we all know that massive level of currency creation has led to inflation despite attempts to spin the inflation story more favorably.

          Bottom line is this:  the math is undeniable.  When deficit spending can only be covered by currency creation, a point of no return has been reached.  The math dictates that expenditures must not exceed income if currency creation is to cease.

          That math is a reality every place on the planet except in Washington DC.

          Only in Washington DC could a group of politicians pass a massive spending bill that will likely require more currency creation to fund (despite the narrative to the contrary) and call it an “Inflation Reduction Act”.

          It’s laughable if the ultimate economic consequences of this recklessness weren’t so serious.

          Former guest on my radio program and past Presidential candidate and congressman, Ron Paul commented this past week on this topic.  (Emphasis mine) (Source:  http://ronpaulinstitute.org/archives/featured-articles/2022/august/01/inflation-reduction-act-another-dc-lie/)

The Affordable Care Act, No Child Left Behind, and the USA PATRIOT Act received new competition for the title of Most Inappropriately Named Bill when Senate Democrats unveiled the Inflation Reduction Act. This bill will not only increase inflation, it will also increase government spending and taxes.

Inflation is the act of money creation by the Federal Reserve. High prices are one adverse effect of inflation, along with bubbles and the bursting of bubbles. One reason the Federal Reserve increases the money supply is to keep interest rates low, thus enabling the federal government to run large deficits without incurring unmanageable interest payments.
The so-called Inflation Reduction Act increases government spending. For example, the bill authorizes spending hundreds of billions of dollars on energy and fighting climate change. Much of this is subsidies for renewable energy — in other words green corporate welfare. Government programs subsidizing certain industries take resources out of the hands of investors and entrepreneurs, who allocate resources in accordance with the wants and needs of consumers, and give the resources to the government, where resources are allocated according to the agendas of politicians and bureaucrats. When government takes resources out of the market, it also disrupts the price system through which entrepreneurs, investors, workers, and consumers discover the true value of goods and services. Thus, “green energy” programs will lead to increased cronyism and waste.

The bill also extends the “temporary” increase in Obamacare subsidies passed as part of covid relief. This will further increase health care prices. Increasing prices is a strange way to eliminate price inflation. The only way to decrease healthcare
costs without diminishing healthcare quality is by putting patients back in charge of the healthcare dollar.

The bill’s authors claim the legislation fights inflation by reducing the deficit via tax increases on the rich and a new 15 percent minimum corporate tax. Tax increases won’t reduce the deficit if, as is going to be the case, Congress continues increasing spending. Increasing taxes on “the rich” and corporations also reduces investments, slowing the economy and thus increasing demand for government programs. This leads to increased government spending and debt. While there is never a good time to raise taxes, the absolute worst time for tax increases is when, as is the case today, the economy is both suffering from price inflation and, despite the gaslighting coming from the Biden administration and its apologists, is in a recession.

The bill also spends 80 billion dollars on the IRS. Supposedly this will help collect more revenue from “rich tax cheats.” While supporters of increasing the IRS’s ability to harass taxpayers claim their target is the rich, these new powers will actually be used against middle-class taxpayers and small businesses that cannot afford legions of tax accountants and attorneys and thus are likely to simply pay the agency whatever it demands.

Increasing spending and taxes will increase the pressure on the Federal Reserve to keep interest rates low, thus increasing inflation. If Congress was serious about ending inflation, it would cut spending — starting with overseas militarism and corporate welfare. A Congress that took inflation seriously would also take the first step toward restoring a free-market monetary system by passing Audit the Fed and legalizing competition in currency.

          I believe Dr. Paul has this absolutely correct.  The math doesn’t lie and no matter what this bill is called, more inflation will be the result.

          A less-reported aspect of the bill is that the IRS would double in size as a result.  Stephen Moore (Source:  https://marketsanity.com/the-so-called-inflation-reduction-act-will-add-87000-irs-agents/) reports that another $80 billion for the IRS will mean the workforce of the IRS will more than double and the end result will be 1.2 million new audits and 800,000 new tax liens.

          The IRS will become one of the largest agencies in government as a result of this bill.  This from a piece written by Jazz Shaw (Source:  https://hotair.com/jazz-shaw/2022/08/06/inflation-reduction-act-would-make-irs-among-the-largest-agencies-in-government-n487847):

Tucked away in the hilariously-named “Inflation Reduction Act” that Joe Manchin has been working on with Chuck Schumer is one significant bit of spending that has been mostly flying under the radar. The measure would fund a massive expansion of the Internal Revenue Service to the tune of eighty billion dollars. And we’re not using the word “massive” in a hyperbolic fashion here. This money would go toward hiring an additional 87,000 employees for the detested agency, more than doubling the size of its workforce. As the Free Beacon points out this week, that would make the IRS larger (in terms of manpower) than the Pentagon, the State Department, the FBI, and the Border Patrol combined. And what do they plan to do with that many people? Do you really need us to tell you?

          The “Free Beacon” piece referenced by Shaw suggested that the additional IRS funding is integral to the Democrat’s reconciliation package.  A Congressional Budget Office analysis found the hiring of new IRS agents would result in more than $200 billion in additional revenue for the federal government over the next decade.  More than half of that funding is specifically earmarked for enforcement, meaning tax audits and other responsibilities such as ‘digital asset monitoring’.

          While I don’t know precisely what ‘digital asset monitoring’ means, it seems that the politicians are hoping to use the IRS to control the use of crypto-currencies and maintain their monopoly in currencies.

            Bottom line is this in my view.  This bill will ultimately mean more inflation not less inflation.

          If you don’t yet have precious metals in your portfolio, now is a good time to consider them in my view.

          Metals prices are comparatively low at this point and it may be a good time to add this asset class to your portfolio.

          History teaches us that as fiat currencies evolve and are replaced, tangible assets like precious metals are where one should keep assets.

          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.

Are Precious Metals Markets Manipulated?

            This week I’m going to discuss a topic that I am often asked about; that is the manipulation of the precious metals markets.  More specifically, are the prices of precious metals manipulated?

            While I can’t speak to the frequency of the manipulation of precious metals prices, there is indisputable evidence that this market has been rigged some of the time in the past.  This from Ronan Manly of “Bullion Star” (Source:  https://www.zerohedge.com/markets/despite-manipulating-precious-metals-prices-jp-morgan-still-heart-lbma-sbma-and-comex):

With a group of former JP Morgan precious metals traders currently on criminal trial in front of a federal jury in Chicago, accused of engaging in a racketeering conspiracy involving precious metals price manipulation, commodities fraud and trade spoofing, while another group of their colleagues have already pleaded guilty, now is a good time to ask how the bank JP Morgan is still considered fit and proper to not only continue to trade in the precious metals markets, but to continue to literally dominate the entire precious metals industry in London, Singapore and New York, with the support of the London Bullion Market Association (LBMA), the Singapore Bullion Market Association (SBMA) and the CME Group (operator of the COMEX and NYMEX).

While JP Morgan made a deferred prosecution deal with the US Department of Justice (DoJ) and Commodity Futures Trade Commission (CFTC) in 2020 and admitted wrongdoing for the criminal conduct of numerous JP Morgan traders and sales personnel on the bank’s precious metals desk located in London, Singapore, and New York, while paying US$ 920 million in the form of a criminal monetary penalty, criminal disgorgement, and victim compensation in relation to this criminal precious metals scheme, the LBMA and SBMA and CME Group (owner of COMEX), as you will see below, continue to not only welcome the proven criminal bank JP Morgan with open arms, but to allow JP Morgan to operate at the highest levels of each organization.

The current criminal trial, which kicked off on Friday 8 July 2022, with the US DoJ and CFTC as prosecution, accuses Michael Nowak (former head of JP Morgan’s precious metals trading desk), Gregg Smith (former JP Morgan precious metals trader) and Jeffery Ruffo (former JP Morgan precious metals salesman) of being involved in a criminal enterprise that entered and cancelled thousands of fake precious metals futures orders (deceptive orders) for gold, silver, platinum and palladium futures contracts traded on COMEX and NYMEX between March 2008 and August 2016 in order to manipulate precious metals prices as well as manipulate barrier options based on the futures prices.     

A fourth former JP Morgan precious metals trader, Christopher Jordan, who left JP Morgan in December 2009, is also accused of similar crimes by the DOJ and will be tried separately.  

The Nowak – Smith – Ruffo trial is being presided over by Edmond E. Chang, United States District Judge. Unbelievably  (or maybe not), Nowak’s defense lawyer in the trial is none other than David Meister, who from 2010 – 2013 was the CFTC’s Director of Enforcement, and who was at the CFTC during the chairmanship of Gary Gensler during which time the CFTC did a 5 year investigation into precious metals price manipulation, and then shut down the investigation claiming it had found no evidence of manipulation. That could explain why Meister is called “the Gensler Whisperer” by lawyer profile experts Chambers.

At the time the indictment of Nowak, Smith, and Jordan was unsealed in September 2019, US Assistant Attorney General Brian A. Benczkowski at the DOJ said: 

“The defendants and others allegedly engaged in a massive, multiyear scheme to manipulate the market for precious metals futures contracts and defraud market participants.

In the current trial of Nowak, Smith, and Ruffo, the US Government is calling two other former JP Morgan precious metals traders as witnesses for the prosecution, namely John Edmonds, Christian Trunz, and one colleague of Gregg Smith’s who worked with him at Bear Stearns, namely Corey Flaum.

Edmonds and Trunz have already pleaded guilty to their roles in the JP Morgan criminal scheme, and Flaum has already pleaded guilty to manipulating precious metals prices via COMEX futures between 2007 and 2016.

As of the time of writing, John Edmonds, Corey Flaum, and Christian Trunz have all just testified to the federal jury in the Nowak – Smith – Ruffo trial. 

On 9 October 2018, John Edmonds pleaded guilty to “commodities fraud and a spoofing conspiracy in connection with his participation in fraudulent and deceptive trading activity in the precious metals futures contracts markets”.

Edmonds admitted that:

“from approximately 2009 through 2015, he conspired with other precious metals traders at the Bank to manipulate the markets for gold, silver, platinum and palladium futures contracts traded on the COMEX and NYMEX.”

Notably, Edmonds also:

“admitted that he learned this deceptive trading strategy from more senior traders at the Bank, and he personally deployed this strategy hundreds of times with the knowledge and consent of his immediate supervisors.”

On 25 July 2019, Corey Flaum (who worked with Gregg Smith at Bear Sterns before Smith moved to JP Morgan) pleaded guilty to attempted commodities price manipulation and admitted that:

“between approximately June 2007 and July 2016, [he] placed thousands of orders to manipulate the prices of gold, silver, platinum and palladium futures contracts traded on COMEX and NYMEX.”

Corey Flaum worked at Bear Stearns from 2006 until 2008, and then worked at Scotia Capital from 2010 until 2016.

On 20 August 2019, Christian Trunz, “a former precious metals trader at the London, Singapore, and New York offices of JP Morgan” pleaded guilty to conspiracy and spoofing charges. Trunz also admitted that:

“between approximately July 2007 and August 2016, [he] placed thousands of orders that he did not intend to execute for gold, silver, platinum and palladium futures contracts traded on the NYMEX and COMEX).”

Notably, the DoJ says that Trunz admitted that he:

“learned to spoof from more senior traders, and spoofed with the knowledge and consent of his supervisors.”

Trunz is interesting in that he worked at various times in all three locations that JP Morgan’s global trading desk spans, i.e. London, Singapore, and New York. 

The guilty please of Edmonds, Flaum, and Trunz over 2018 – 2019 then allowed the US Department of Justice to move forward with its indictment of Michael Nowak, Gregg Smith, and Christopher Jordan, an indictment which was filed on 22 August 2019, and then unsealed on 16 September 2019. In fact, the Nowak – Smith – Jordan indictment was filed only 2 days after Trunz had pleaded guilty.

            I would encourage you to read the entire article at the link posted above. 

            Here are my points.

            One, despite admitted price manipulation, gold and silver prices have moved steadily upward since 2007 when the price manipulation allegedly began.  This demonstrates that as currency is created, it is ultimately difficult, perhaps impossible to keep metals prices down.

            Two, as noted here previously, JP Morgan paid nearly $1 billion in criminal and civil penalties in 2020 as part of a deferred prosecution agreement.  The current trial of those accused of price manipulation in the precious metals markets is a result of the continuation of that original investigation.

            Finally, three, despite these events, JP Morgan remains a prominent player in precious metals markets.  Despite the fines and the deferred prosecution agreement, JP Morgan has three entities that are part of the London Bullion Market Association.  The author of this article, Mr. Ronan Manly comments:

Why have the LBMA and the LPPM not kicked JP Morgan out of their associations? Has the LBMA no moral compass or ethics? Additionally, why does the Bank of England observer on the LBMA Board, Andrew Grice, not call for JP Morgan to be immediately ejected from the London Bullion Market Association (LBMA) and the London Platinum and Palladium Market (LPPM) and permanently banned from trading, clearing and vaulting gold, silver, platinum and palladium in London?

Perhaps it has something to do with the fact that, through Morgan Guaranty Trust Company of New York, JP Morgan was one of the 6 founding members of the London Bullion Market Association (LBMA) in November 1987.

            I believe that, moving ahead, should the Fed reverse course on tightening (which I believe they will), it will be next to impossible to keep precious metals prices down.

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.