If you’re looking at alternatives for present state-backed mediums of exchange, cryptocurrencies are sexier but gold has quite a track record. From Egon von Greyerz at goldswitzerland.com:
2021 is likely to be a year of awakening. This is when the world will start to realise that the $280 trillion global debt has no value and will never be paid back.
But even worse than that, of the $280t a staggering $200t has been created in the last 20 years.
Let’s say that it took 2,000 years to go from zero to $80t in 2000. It doesn’t really matter where we start counting since most of the $80t debt was created after Nixon closed the gold window in 1971.
AS DEBT IMPLODES SO WILL ASSET PRICES
Looking at the other side of the balance sheet, there will be an even bigger shock for investors and property owners as debt implodes. Because asset valuations are a function of the debt. And if debt implodes, which is inevitable, so will asset prices.
This is why prices of stocks, bonds and property will implode by more than 95% in real terms (gold) as I outlined in my article last week.
So it took just under 2000 years for global debt to grow from zero to around $5 trillion in 1971. Thereafter it took 29 years to year 2000 to grow by $75t to $80t. That was the exponential phase.
And now we are in the explosive phase with debt growing by over $200t in 20 years.
Anyone who can’t see what is happening is either blind or hasn’t studied history.
+$5t – 1,971 years – Year 0 to 1971 +$75t – 29 years – Year 1971 to 2000 +$200t – 20 years – Year 2000 – 2020
We saw exponential debt expansion 1971 to 2000. Since then the growth has been explosive.
You can tell something is dramatically wrong just by looking at Alasdair Macleod’s charts. From Macleod at goldmoney.com:
It is not for no reason that cryptos are roaring, and precious metals are playing catch-up. In the last month there have been developments that point to a new phase of accelerating monetary inflation for the dollar, and fiat money is only just beginning to be exchanged for these inflation hedges at an increasing pace.
Hyper-inflation of the dollar is now becoming obvious to a growing cohort of investors. It is driven by factors on both sides of bank balance sheets, with evidence that large depositors are reducing their term deposits and increasing their instant access checking accounts. This appears to be behind the increase in M1 money supply fuelled out of a shift from the M2 statistic, which includes savings deposits.
It amounts to a hidden run against bank balance sheets. Meanwhile, increasing supply chain problems against a background of covid lockdowns are leading to the withdrawal of bank credit from non-financial businesses, potentially imploding bank balance sheets as a bank credit contracts.
Foreign support for both the dollar and dollar-denominated fixed interest assets are being withdrawn, which is sure to lead to rising bond yields and dollar interest rates in the New Year, undermining the equity market bubble.
The Fed is now faced with not only financing ballooning federal budget deficits, but underwriting US supply chains in their entirety, which is corroborated by ongoing global logistical problems, tying up an annualised $34 trillion of intra-business payments in America alone. The Fed’s unwavering commitment to Keynesian monetary policies will lead the Fed to attempt to offset these supply chain problems, to rescue banks that fail to survive the inevitable contraction in bank credit, and to defray the bad debts that will arise.
It is a momentous task encompassing the whole US economy, requiring even faster money-printing, and is impossible without destroying the unbacked dollar.
In a Twitter-thread, the chief executive [of Coinbase Brian Armstrong] said that his firm “heard rumors” about the US Treasury Secretary Steven Mnuchin’s plans to introduce fresh rules for “self-custody wallets” by the end of his term.
The open nature of cryptocurrencies allows anyone to create a private wallet by downloading third-party software on their computers/smartphones or through hardware devices that store digital assets. These types of self-custodial solutions come cheaper than traditional financial services — and they ensure privacy.
Those rumors are apparently valid since Mnuchin received a letter from four Congressmen imploring him not to do such a monumentally stupid thing.
If a country is clearly bent on depreciating its own currency, why hold either the currency or assets denominated in that currency. From Alasdair Macleod at goldmoney.com:
In the wake of the Fed’s promise of 23 March to print money without limit in order to rescue the covid-stricken US economy, China changed its policy of importing industrial materials to a more aggressive stance. In examining the rationale behind this move, this article concludes that while there are sound geopolitical reasons behind it the monetary effect will be to drive down the dollar’s purchasing power, and that this is already happening. More recently, a veiled threat has emerged that China could dump all her US Treasury and agency bonds if the relationship with America deteriorates further. This appears to be a cover for China to reduce her dollar exposure more aggressively. The consequences are a primal threat to the Fed’s policy of escalating monetary policy while maintaining the dollar’s status in the foreign exchanges.
On 3 September, China’s state-owned Global Times, which acts as the government’s mouthpiece, ran a front-page article warning that
“China will gradually decrease its holdings of US debt to about $800billion under normal circumstances. But of course, China might sell all of its US bonds in an extreme case, like a military conflict,” Xi Junyang, a professor at the Shanghai University of Finance and Economics told the Global Times on Thursday”[i].
Do not be misled by the attribution to a seemingly independent Chinese professor: it would not have been the frontpage article unless it was sanctioned by the Chinese government. While China has already taken the top off its US Treasury holdings, the announcement (for that is what it amounts to) that China is prepared to escalate the financial war against America is very serious. The message should be clear: China is prepared to collapse the US Treasury market. In the past, apologists for the US Government have said that China has no one to buy its entire holding. The most recent suggestion is that China’s Treasury holdings will be put in trust for covid victims — a suggestion if enacted would undermine foreign trust in the dollar and could bring its reserve role to a swift conclusion.[ii] For the moment these are peacetime musings. At a time of financial war, if China put her entire holding on the market Treasury yields would be driven up dramatically, unless someone like the Fed steps in to buy the lot.
If that happened China would then have almost a trillion dollars to sell, driving the dollar down against whatever the Chinese buy. And don’t think for a moment that if China was to dump its holding of US Treasuries other foreign holders would stand idly by. This action would probably end the dollar’s role as the world’s reserve currency with serious consequences for the US and global economies.
There is another possibility: China intends to sell all her US Treasuries anyway and is making American monetary policy her cover for doing so. It is this possibility we will now explore.
How do you maintain an empire when the world loses faith in your fiat-debt currency (aka scrip)? From Steve Brown at lewrockwell.com:
Ian Fleming wrote Goldfinger for good reason. The most important market in the world is gold. Not US stocks. Not shares in Amazon. Not bitcoin. Not Facebook. Sovereigns use gold – real gold – as the foundation for their most important deals.
Now consider that 40% of the world’s physical gold trade passes through bin Zayed’s United Arab Emirates. The same United Arab Emirates that blundered Bush into the Dubai Ports World scandal. The same UAE that hosts one of the largest US airbases in the Middle East… and the very same al Nahayan plutocracy that touts Israel as its closest friend and ally, beside the former United States.
The ‘battleship’ has been turning for fifty years since the disaster of the Nixon Shock, when the United States ‘temporarily’ abandoned the international gold standard thus heralding the ‘permanent’ era of central bank by-decree currency. Fifty years hence, a new perfect storm of events may prove that the consequence of August 15th, 1971 must now be confronted.
For our purposes, Fed bugs are people with a faith-based belief in the power of central banks (and central bankers) to engineer economic growth using “monetary policy,”despite decades of history and current evidence to the contrary. They believe tinkering with inputs and rates and velocity and flows somehow makes us richer in terms of productivity, goods, and services. They believe in financial alchemy, as economist Nomi Prins puts it, rather than precious metals. They believe paper has value so long as government issues it and legislates its use. Most of all, they believe in technocratic control over money in the economy.
Central bankers almost by definition are Fed bugs, but so are most monetary economists, financial journalists, and politicians. And they all hate gold with a passion. The reasons why are multifarious, but ultimately flow from their fundamental resentment of any money they do not control and cannot design. Central planning requires central money, and gold stands apart by its very decentralized nature. It is indifferent to human conceptions, and can be discovered and summoned from the earth only with tremendous risk and effort. It cannot easily be manipulated or destroyed, and its value cannot be decreed (though they try mightily). It is unchanging, unyielding, and stubbornly at odds with the political visions of Fed bugs.
And so they hate it.
They hate gold because it never goes away and never goes to zero. It holds monetary value intrinsically, without the imprimatur of a sovereign or government. Gold does not need the state or its bankers to operate as money, because individuals choose it as money on the market century after century.
Anytime the mainstream media joins together in a Hallelujah chorus, they’re trying to pull one over on you. From Tom Luongo at tomluongo.me:
Dyin’ ain’t much of a livin’, boy
– The Outlaw Josey Wales
The Davos Crowd is desperate. That much has been clear to me for months.
From the moment they tied COVID-19 to the breaking of the oil markets back in March they have worked like no other time in history to convince us the world we knew was gone.
The latest iteration of this big lie is the all-out assault on the U.S. dollar. Now for months a few analysts like me have been steadfast in reminding everyone that no matter how much money the U.S. prints in the short run, it is only doing so because of the extreme levels of latent and active dollar demand in the world.
So, there is narrative and there is reality. And reality is that today there is huge demand for the U.S. dollar regardless of what the headlines tell you.
That said, that doesn’t mean that demand doesn’t ebb and flow. And now that we’re on the other side of the first wave of this crisis period, marginal dollar hoarding has slacked off.
This is most evident in the dramatic rise in the euro back above $1.17 and the British pound breaking back to challenge $1.30. But in the grand scheme of things these are just relief rallies within primary bear markets.
But in the past couple of weeks, coinciding nicely with a massive rally in the precious metals, there’s been a deluge of talk about the end of the dollar.
Editor’s note: Regular readers know we see gold as the ultimate safe-haven asset. And during a crisis like today, it’s critical that you own some gold in your portfolio.
If you haven’t yet, you’ll want to pay close attention to today’s classic essay from our founder, Doug Casey. Below, Doug lays out why paper currencies are “essentially worthless”… and why gold is the only dependable form of money.
By Doug Casey, founder, Casey Research
It’s an unfortunate historical anomaly that people think about the paper in their wallets as money. The dollar is, technically, a currency. A currency is a government substitute for money. But gold is money.
Now, why do I say that?
Historically, many things have been used as money. Cattle have been used as money in many societies, including Roman society. That’s where we get the word “pecuniary” from: the Latin word for a single head of cattle is pecus. Salt has been used as money, also in ancient Rome, and that’s where the word “salary” comes from; the Latin for salt is sal (or salis). The North American Indians used seashells. Cigarettes were used during WWII. So, money is simply a medium of exchange and a store of value.
By that definition, almost anything could be used as money, but obviously, some things work better than others; it’s hard to exchange things people don’t want, and some things don’t store value well. Over thousands of years, the precious metals have emerged as the best form of money. Gold and silver both, though primarily gold.
There’s nothing magical about gold. It’s just uniquely well-suited among the 92 naturally occurring elements for use as money… in the same way aluminum is good for airplanes or uranium is good for nuclear power.
The best monetary economist on the internet analyzes the gold and gold derivative markets. From Alasdair Macleod at goldmoney.com:
The powerful forces of bank credit contraction are at the heart of a rapidly evolving financial crisis in global derivatives, whose gross value is over $600 trillion; an unimaginable sum. Central banks are on course to destroy their currencies through unlimited monetary expansion, lethal for bullion banks with fractionally reserved unallocated gold accounts, while being dramatically short of Comex futures.
This article explains the dynamics behind the current crisis in precious metal derivatives, and why it is the observable part of a wider derivative catastrophe that is caught in the tension between contracting bank credit and infinite monetary inflation.
One of the scares at the time of the Lehman crisis was that insolvent counterparties risked collapsing the whole over-the-counter derivative complex. It was for this reason that AIG, a non-bank originator of many derivative contracts, had to be bailed out by the Fed. By a mixture of good judgement and fortune a derivative crisis was averted, and by consolidating some of the outstanding positions, the gross value of OTC derivatives was subsequently reduced.
According to the Bank for International Settlements, in mid-June last year all global OTC contracts outstanding were still unimaginably large at $640 trillion, a massive sum in anyone’s book. It is unlikely to have changed much by today. But in bank balance sheets only a net figure is usually shown, and you have to search the notes to financial statements to find evidence of gross exposure. It is the gross that matters, because each contract bears counterparty risk, sometimes involving several parties, and derivative payment failures could make the payment failures now evident in disrupted industrial supply chains look like small beer.
People who buy gold often distrust pieces of paper called currencies. If you buy gold, by the actual yellow shiny stuff, not pieces of paper called ETFs. From Tyler Durden at zerohedge.com:
The internal mechanics of the gold market are again showing strains under this rally. The gap between New York futures and spot prices in London is still elevated, a sign of lingering concern over future supply of the physical form of the metal.
While investors continue to seek gold as a haven, it’s still difficult to ship bullion around the world due to coronavirus-related restrictions, sending futures prices even higher.
As Bloomberg reports, until recently, that was unheard of in a metal that’s so utterly fungible, so easy to transport and where trade channels are so deeply established. But with planes grounded and refining capacity severely restricted, don’t expect the arbitrage to break down immediately.
“People are paying the premiums over in the physical market and I think it’s rolling into the futures,” said Peter Thomas, a senior vice president at Chicago-based broker Zaner Group.
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