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This article anticipates the end of the fiat currency regime and argues why its replacement can only be gold and silver, most likely in the form of fiat money turned into gold substitutes.

It explains why the current fashion for cryptocurrencies, led by bitcoin, are unsuited as future mediums of exchange, and why unsuppressed bitcoin has responded more immediately to the current situation than gold. Furthermore, the US authorities are likely to suppress the bitcoin movement because it is a threat to the dollar and monetary policy.

This article explains why growth in GDP represents growth in the quantity of money and is not representative of activity in the underlying economy. The authorities’ monetary response to the current economic situation is ill-informed, based on a misunderstanding of what GDP represents.

The common belief in the fund management community that rising interest rates are bad for gold exposes a lack of understanding about the consequences of monetary inflation on relative time preferences. Rising interest rates will be with us shortly, and they will burst the bond bubble with negative consequences for all financial assets and the currencies that have inflated them.

In short, we are sitting on a monetary powder-keg, the danger of which is barely understood by policy makers and which could explode at any time.

Introduction

We have entered a period the likes of which we have never seen before. The collapse of the dollar and dollar assets is growing increasingly certain by the day. The money-printing of the dollar designed to inflate assets will end up destroying the dollar. We know this thanks to the John Law precedent three hundred years ago. I last wrote about this two weeks ago, here. In 1720, it was just France and Law’s livre…

…click on the above link to read the rest of the article…

The Foundation for Potential Price Hyperinflation is Being Laid

February 13, 2021

The Foundation for Potential Price Hyperinflation is Being Laid

The Federal Reserve sure seems to have a tough time finding and reporting signs of rising inflation — especially when it’s hidden in other sectors like a lack of demand for energy.

A recent example of the Fed’s “inflation blindness” comes from a speech Chairman Jerome Powell gave to the Economic Club of New York. According to a MarketWatch piece that reported on that speech:

Powell said he doesn’t expect “a large nor sustained” increase in inflation right now. Price rises from the “burst of spending” as the economy reopens are not likely to be sustained.

It’s odd that Powell would say he doesn’t expect a sustained increase in inflation, because food price inflation has consistently run 3.5 to 4.5 percent since April last year. That sure seems like a sustained increase in food prices.

What Powell seems to have “forgotten” is that some of the overall inflation includes negative energy price inflation (as low as negative 9 percent at one point). But now that the demand for fuel is returning, the official gasoline index rose 7.4 percent in January.

It will be much more challenging for Powell to keep downplaying the risk of hyperinflation once energy price inflation rises back to “pre-pandemic” levels.

In fact, Robert Wenzel thinks the main inflation event is “just about to hit.” If it does, and inflation does rise past Powell’s two percent target, it isn’t likely to stop there. Jim Rickards thinks that’s when hyperinflation can gain momentum:

If inflation does hit 3%, it is more likely to go to 6% or higher, rather than back down to 2%. The process will feed on itself and be difficult to stop. Sadly, there are no Volckers or Reagans on the horizon today. There are only weak political leaders and misguided central bankers.

…click on the above link to read the rest of the article…

Rabobank: You Only See How Stable A System Really Is By Pushing It To Its Limits

February 12, 2021

Rabobank: You Only See How Stable A System Really Is By Pushing It To Its Limits

“Stonks” and “Burneds”

We are, it is now being widely decried, in the middle of a “stonk” bubble. The Financial Times(!) is carrying an article calling on the Federal Reserve to stop its easy money; and Bloomberg(!) has strategy advice that: “…your best bet has been to buy the biggest pile of steaming rubbish you can find on an income statement,” which overlaps with the pattern of behavior 18 months before the bursting of the 1999 tech bubble…before then concluding this is nonetheless the only thing fund managers can ‘rationally’ do.

Against that backdrop, regulators in D.C. are looking at the ‘Reddolution’ of earlier this month, where “stonks” of firms were being manipulated by the public to try to teach hedgefunds a lesson. They will no doubt harrumph on cue with all due seriousness –like those surrounding Governor Lepetomane in ‘Blazing Saddles’– without asking awkward questions about the roots of our stonking great problem that end up being redirected towards the Fed. This only underlines that they are far behind whatever remains of a curve.

There is recognition even in financial media that central banks are institutional “stonk”-bubble blowers. There is matching recognition that the solution for reflation lies with fiscal, not monetary policy (though many of the recent converts to this view apparently couldn’t see it as true until it was already happening – “Harrumph for the governor!”). Yes, we *are* likely to see a *major* short-term fiscal boost –in the US alone– with suggestions the White House’s stimulus package could be worth many thousands of dollars for the average US family – for a year. Then the old crunch comes back again unless US labor has magically gained power over global capital. How, exactly?

…click on the above link to read the rest of the article…

Fed’s Near-Zero Rates Might Sound Good (Until This Happens)

February 12, 2021

Fed’s Near-Zero Rates Might Sound Good (Until This Happens)

Fed's Near-Zero Rates Might Sound Good, But...

In some cases, the idea of a “near-zero interest rate” is a good thing. For example, if you qualify for 0% interest when you buy a car, you save money.

But it’s much different when your retirement savings depends on getting a return on investment (ROI). In that case, near-zero interest rates can put pensions and other retirement accounts in serious jeopardy.

The Fed dropped interest rates to 0-0.25% starting last September. And according to the Wharton School of the University of Pennsylvania, those near-zero rates could stick around for a while:

Expects to hold interest rates near zero at least until 2023 because of the pandemic. That spells lower returns for retirement accounts, and it adds to the underfunding of pensions that has worried retirees for many years now.

“Low returns from the market are essentially a tax on retirees,” said Olivia Mitchell, Wharton professor of business economics and public policy.

Then there are real interest rates, which are measured by the difference between 10-year treasuries and Fed inflation expectations. We figure this out by comparing the yields on Treasury inflation protected securities (TIPS) to 10-year Treasury yields. Here’s a comparison of real interest rates (2000-present) from the official Cleveland Fed chart:

Ten-year TIPS yields vs real yields

You can see that since 2012, the real rate has struggled to get to 1%, and recently dipped into the negative.

Low rates mean low returns

According to an op-ed on MarketWatch, the drop in real interest rates isn’t a good thing:

This persistently low-rate environment means workers will have to contribute significantly more to their 401(k), or invest in riskier assets, than they did at the turn of the century.

Many of the assets retirement savers have relied on for decades, including Treasury bonds, CDs, annuities, money market accounts, even the humble savings account, cannot preserve your purchasing power any more.

…click on the above link to read the rest of the article…

interest rates, fed, us federal reserve, central banks, birch gold group, inflation

Rabobank: The Everything Bubble Has Become More Everything And More Bubble

February 10, 2021

Rabobank: The Everything Bubble Has Become More Everything And More Bubble

Oh-No-Bi-Wan Kenobi

For those who haven’t seen it –and I accept there are now probably many readers who haven’t– there is a classic scene in the first Star Wars film (Episode IV) in which Jedi Master Obi-Wan Kenobi tells his villainous duelling opponent, his former apprentice, Darth Vader: “You can’t win, Darth. If you strike me down, I will become more powerful than you can possible imagine.” Darth being Darth of course strikes him down: and Kenobi disappears entirely, leaving only his outer garment (but no shoes or underpants, etc.). So it looks like Darth has won the fight. Except Kenobi goes on to become an immortal ‘Force ghost’, who like a happier Banquo, helps guide Darth’s son to blow up the mega battle-station he has until then been prowling up and down menacingly.

We are less than a month into the Biden administration, and despite a slight down-day for stocks on Tuesday, it is quite clear, according to a slew of commentators, that the Everything Bubble has become more Everything and more Bubble. The Federal Reserve and other global central banks are still pouring their fully operational firepower into the economy, fully aware that little of this flows to productive assets or wages, and most of it to speculation: but when financial/asset speculation IS most of the ‘economy’, that looks like victory to them. Indeed, doesn’t it feel like victory to those who speak Bloombergian? There is more money than ever; a major global airline has decided you don’t have to wear masks in business or first class on long-haul flights; and the luxury Maldives is seeing record hotel occupancy!

…click on the above link to read the rest of the article…

The U.S. Dollar Could Be Nearing Its “End Game”

February 6, 2021

The U.S. Dollar Could Be Nearing Its “End Game”

From foreign countries trying to dethrone the dollar’s hegemony as global reserve currency, all the way to rising inflation weakening it… the U.S. dollar is in trouble.

Pundits like Jim Rickards said (back in 2016): “The dollar won’t lose its reserve currency status overnight” — and he was right. But a new and disturbing signal could finally be revealing the end game.

You can see the dollar’s loss of about 10% value against other currencies and its persistent downward trend since March 2020 reflected in the dollar index chart below:

dollar index chart from March 2020-February 2021

To get an even better idea of that persistent downward trend, we need to look all the way back to 2002, when the dollar index (DXY) peaked around 117. Not only is today’s dollar worth 10% less than last year’s – it’s 25% weaker than in 2002.

In fact, one forecast reported on Bloomberg in June 2020 called for a 35% decline in value by the end of 2021, which would leave the dollar index at 65. If that plays out, the index would be reporting its lowest value in at least 35 years.

In addition, a new Bloomberg report gave three reasons why the “dollar is now trading at the lowest level against its peers since 2018”:

1) Sharp widening in the U.S. current-account [trade] deficit.
2) Rise of the euro.
3) A Federal Reserve that would do little in response to any weakness in the greenback.

There is no doubt the trade deficit is a problem. According to the Bureau of Economic Analysis, the gap between imports and exports is at its widest since 2006. That won’t help the dollar recover.

The Fed’s inflation policy isn’t likely to help the dollar much because it “printed” itself into a corner with its loose monetary policy. The same Bloomberg piece further clarifies the Fed’s inflation strategy:

…click on the above link to read the rest of the article…

Federal Reserve & Conspiracy Theories

February 4, 2021

Federal Reserve & Conspiracy Theories

COMMENT: Hi AE….just an observation for you. Altho’ you have mentioned your disagreement with the points of view of such people as Ed Griffin (The Creature From J Island), Ron Paul (End The Fed), & Jeff Berwick (current best seller is Controlled Demo of The US), all of you are in agreement about the total & utter corruption of the US, & other, gov’ts. I would say further that it seems it took you longer to get there than the others, in realizing the depth of the problem, not wanting to use the conspiracy word. So…big picture, you’re all in agreement, but the details cause disagreement. I think your “defense” of the existence of the Fed doesn’t really matter, as there’s not gonna be any Fed, or anything like it, after the civil war has run its course. Just my thoughts, not a personal attack. Absolutely LOVE your blog….am hooked, like an addict.

REPLY: Where I disagree with these ideas that the central banks are the enemy is that they are the scapegoats for the real problem has been the fiscal side — politics. These scenarios have focused on the fact that the Fed was originally set up as a bailout structure for banks to replicate what J.P. Morgan did to save the banking system in 1907. I pointed out that the “elastic money” the Fed was allowed to create from the outset was to allow them to buy-in corporate short-term paper when banks would not lend.

Then came World War I. In order to fight the war, Congress needed to create debt. They instructed the Federal Reserve to STOP buying corporate debt, being the lender of last resort, and buy government debt. Following the war, they never returned the Fed to its original purpose.

…click on the above link to read the rest of the article…

“The Fed’s Monetary Punchbowl Is Fueling Rampant Home Price Appreciation”: AEI

February 3, 2021

“The Fed’s Monetary Punchbowl Is Fueling Rampant Home Price Appreciation”: AEI

“There is no justification” for continuing the purchases of mortgage-backed securities. The Fed is “misdiagnosing its impact on the housing market.” Pressure rises on the Fed to back off, in face of market craziness.

During the press conference following the FOMC meeting last week, Fed Chair Jerome Powell was asked by different reporters about the craziness going on in the stock market, the chaotic thingy with GameStop, corporate debt, and the housing market.

The fact that he was asked several times about the exuberant nuttiness in asset prices shows that by now everyone has picked up on it. And people are increasingly incredulous that the Fed would continue with its monetary policies in face of these markets.

Powell brushed off the GameStop thingy and gave his usual it’s-not-our-fault and it’s-never-ever-our-fault justifications for the exuberant nuttiness in the markets. The near-0% interest rates and $3 trillion in QE in just a few months had nothing to do with anything, but the drivers of the nuttiness have been the “expectations about vaccines” and “fiscal policy,” he said (transcript). “Those are the news items that have been driving asset values in recent months.”

Upon hearing this, people globally were just rolling up their eyes. And a reporter challenged him softly about the housing market – the 9% surge in prices from already lofty levels. “Are you concerned about a bubble forming there yet? And is there a price increase that you’re looking at where it might change the level of mortgage-backed securities the Fed is buying?”

…click on the above link to read the rest of the article…

The Stock Market, Fatally Wounded by the Truth, Will Stumble and Crash

January 31, 2021

The Stock Market, Fatally Wounded by the Truth, Will Stumble and Crash

It didn’t have to be this way, but this is the reality we must now face: truth is fatal to fraud, and our entire financial-political system is a fraud.

The stock market has just been punctured by the thin blades of truth. It is fatally wounded but nobody dares notice. The wounds are barely visible, but the internal damage is mortal. The stock market is already stumbling and will soon crash.

The banquet’s participants ignore the faltering market because the rules are we never reveal the truth, or acknowledge it, or discuss it, no matter how obvious, because truth is fatal to fraud. So the stock market’s vital signs are in freefall but the conversation remains upbeat and light: stimulus, rapid growth in the second half, etc., all the patter of a carefully constructed illusion that fraud is forever as long as the truth never comes out.

Alas, the truth has emerged from the shadows, despite the silence of the insiders and the financial media. Here are the truths that have emerged like karmic genies:

1. The stock market is nothing but one giant fraud. The entire market is corrupt and rigged from the ground up. The fraud is systemic, designed into every tendril of the market. It was a useful deception to blame it all on “bad players,” but now the truth has been revealed: the market is nothing but a rigged game enriching insiders.

2. The Fed is a fraud. All the Federal Reserve has accomplished in 13 years of goosing the stock market is unprecedented wealth and income inequality as the fraud of the Fed has boosted the fraud of the market, which has fatally undermined America’s social and economic orders. Please read this short paragraph and let it sink in. Monopoly Versus Democracy (Foreign Affairs):

…click on the above link to read the rest of the article…

Update on Fed’s QE: The Crybabies on Wall Street, which Clamored for More, Are Disappointed

January 31, 2021

Update on Fed’s QE: The Crybabies on Wall Street, which Clamored for More, Are Disappointed

And five SPVs expired, including the one that bought corporate bonds and bond ETFs.

The Fed has now put on ice five of its SPVs (Special Purpose Vehicles) which had been designed back in March to bail out the bond market. It unwound its repo positions last June. Its foreign central bank liquidity swaps are now down to near-nothing except with the Swiss National Bank, which seems to have a need for dollars. The Fed has been adding to its pile of Treasury securities at the rate spelled out in its FOMC statements, thereby monetizing part of the US government debt. And it has been adding to its pile of Mortgage Backed Securities (MBS).

The result is that total assets on its weekly balance sheet through Wednesday, at $7.4 trillion, are roughly flat with the level in mid-December and are up by $200 billion from early June, with an average growth rate over the six-plus months of $30 billion a month.

And the crybabies on Wall Street that have for months been clamoring for more QE have been disappointed. It’s still a huge amount of QE, but for the crybabies on Wall Street, it’s never enough:

But the long-term chart shows just how hog-wild the Fed had gone, furiously trying to bail out and enrich the asset holders, which are concentrated at the very top, thereby creating in the shortest amount of time the largest wealth disparity the US has ever seen. From crisis to crisis, from bailout to bailout, and even when there is no crisis:

Repurchase Agreements (Repos) remained at near-zero:

…click on the above link to read the rest of the article…

This Potentially Catastrophic Inflation Surge Slipped Under the Radar (Until Now)

January 30, 2021

This Potentially Catastrophic Inflation Surge Slipped Under the Radar (Until Now)

FAO Food Price Index hits a three-year high in 2020, following additional gains in December

The FAO Food Price Index (FFPI) averaged 107.5 points in December 2020, up 2.3 points (2.2 percent) from November, marking the seventh month of consecutive increase.

You’ve read about housing market bubbles, stock bubbles, and even credit bubbles. But the next bubble you’re about to discover could be even more dangerous, and may have even more far-reaching consequences.

It’s called a food price bubble, and it’s been inflating under our noses since March 2020. You can also see the dangerous trajectory it’s on compared to three previous years in the FAO chart.

The official January 7, 2021 release from the Food and Agriculture Organization explains the chart above in more detail.

And according to a Business Insider piece, grain has risen in price 50% over the last six months while other commodities like industrial metals are starting to drop in price.

In fact, according to an official source, food price inflation has risen each month by at least 3.5% (year over year) since April 2020 both at home and away from home.

And December didn’t show any signs of that trend letting up, with a price increase of 3.9% over December 2019. Keep in mind, we’re talking about food here. Technically this price surge isn’t a bubble ‑ it’s inflation.

This is exactly what we expect to see when the Fed’s loose-money policies support bubbles in the housing, stock and credit markets. An excess of currency chasing a fixed supply of paper assets inflates prices, which isn’t a big problem as long as the feeding frenzy stays contained in the paper asset markets. So long as amateur day-traders stick to playing stock-market roulette with the likes of Tesla and GameStop, the day-to-day world can go about business as usual.

…click on the above link to read the rest of the article…

Deflation: Friend or Foe?

January 29, 2021

DEFLATION: FRIEND OR FOE?

Deflation is the most feared economic phenomenon of our time. The reason behind this a priori irrational fear (why should we be afraid of prices going down?) is the Great Depression. The most severe economic crisis of the 20th century was accompanied by a massive deflationary spiral that pushed prices down by 25% between 1929 and 1932 (this is equivalent to an annualized inflation rate of minus 7% over that period). Given the impact that the Great Depression had on the social imaginary of the American and European societies, it isn’t surprising that people tend to associate deflation with crises and economic hardship.

Fears of deflation have even led monetary authorities all over the world to set positive inflation targets. The ECB, for instance, defines price stability as an annual inflation rate of “below, but close to, 2%” even though, strictly speaking, price stability should imply that an annual increase in the price level of 0%. Similarly, the Federal Reserve aims at an inflation rate of 2% over the long run, whereas the Reserve Bank of Australia has an inflation target of between 2 and 3%.

Despite the bad press deflations gets, the historical evidence suggests that deflation isn’t as bad as people may think. Using a sample of 38 countries over the period 1870-2013, four economists from the Bank for International Settlements find that, on average, countries experienced economic growth during deflation years. In fact, if we look only at the postwar era, data reveals that per capita growth has been higher during deflation years as opposed to inflation years.

This isn’t the only piece of evidence that supports the idea that deflation isn’t necessarily detrimental to economic growth. A 2004 paper covering 17 countries show that the Great Depression is the only period in the 19th and 20th centuries in which there is a strong link between deflation and depression…

…click on the above link to read the rest of the article…

Ray Dalio: “We Are On The Brink Of A Terrible Civil War”

January 25, 2021

Ray Dalio: “We Are On The Brink Of A Terrible Civil War”

It was over a decade ago that we first warned the Fed’s unconstrained monetary lunacy will eventually result in civil war, a prediction for which Time magazine, which back then was still somewhat relevant, mocked us. This is what Time’s Stephen Gendel said in October 2010:

What is the most likely cause of civil unrest today? Immigration. Gay marriage. Abortion. The results of Election Day. The mosque at Ground Zero. Nope.

Try the Federal Reserve. Nov. 3 is when the Federal Reserve’s next policy committee meeting ends, and if you thought this was just another boring money meeting you would be wrong. It could be the most important meeting in the Fed’s history, maybe. The U.S. central bank is expected to announce its next move to boost the faltering economic recovery. To say there has been considerable debate and anxiety among Fed watchers about what the central bank should do would be an understatement. Chairman Ben Bernanke has indicated in recent speeches that the central bank plans to try to drive down already low interest rates by buying up long-term bonds. A number of people both inside the Fed and out believe this is the wrong move. But one website seems to indicate that Ben’s plan might actually lead to armed conflict. Last week, a post on the blog Zero Hedge said … that the Fed’s plan is not only moronic, but “positions US society one step closer to civil war if not worse.”

* * * * *

The problem is that the Fed directly sets only short-term interest rates. And they are already about as close to zero as you can go. That’s why Bernanke has been talking about something called “quantitative easing.” …

…click on the above link to read the rest of the article…

Building A false Economy On Hope And Printing Money

January 24, 2021

Building A false Economy On Hope And Printing Money

False Economy’s End In Decay And Failure

This article is in response to a piece about how it looks like massive stimulus is finally upon us and the only question is how big it will be. It would be wise to remember this is all an experiment and could result in a false economy so rooted in unsustainable stimulus that it cannot survive yet alone flourish. A modern example of this is the implosion of the USSR in 1991. The impact of such a collapse is not limited to the economy but extends deep into the lives of a county’s citizens.When we look back over the wreckage brought upon certain sectors of our economy during the last year and the policies governments are now embracing we should feel a sense of dread and apprehension for the long-term health of our culture. Government overreach is in full swing and ripping away the strength and social power from all other institutions of social life. Not only are we seeing our civil liberties under attack, but the lock-downs have also been an economic disaster that has devastated most small and medium-sized businesses.

The December job numbers show America lost 140,000 jobs last month. The big issue here is that as small businesses close their doors forever, many of these jobs won’t be coming back. We need to couple this with the idea the minimum wage is likely to soon increase driving the forces of automation into overdrive which will further reduce job opportunities in the future. This translates into far higher government deficits going forward as many more Americans exit the workforce. It is difficult to argue that the government stepping into the role of our primary supporter does not reduce our incentive to work. This is especially true considering the level of support many Americans seek.

…click on the above link to read the rest of the article…

Dear Governments, Spend as Much as You Can

January 18, 2021

Dear Governments, Spend as Much as You Can

This week we heard further details about more trillions in upcoming spending and even changing monetary issuance laws (for CBDCs) worldwide.

The International Monetary Fund (IMF), what critics might call a supranational leveraged buyout bank, was out this week making calls for governments worldwide to spend as much as they can.

The IMF also noted that monetary issuance laws would need to be changed in 104 nations to directly issue fiat Central Bank Digital Currency or CBDC for fuller global fruition.

Sounder money advocates yet to banned off of Twitter are predicably pissed off.

Global Government Bonds

—

SDBullion Market Update

Federal Reserve Chairman Jerome Powell had the following statement this week worth highlighting in our market update video.

There is nothing in any definition about how fiscal dominance, which considers our still having the dominant fiat currency of the world, utilizes yield curve control, with suppressed real interest rate yield, rigging inflation and unemployment data, while still dominating the world in most price discovery powers.

Yet on the cusp of losing economic output dominance to over 2.5 billion Chinese and Indian residents, they tend to stack physical gold and silver as they get wealthier increasingly.

Another week of up then down spot price action for silver and gold. As we head into this Monday’s thinly traded Martin Luther King holiday, note that the spot gold price sits just below its 200-day moving average.

During gold bull markets outside of the global financial crisis, that is typically an excellent time to add to bullish and betting long positions.

…click on the above link to read the rest of the article…

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