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“Panicking” Central Banks to Power Gold Higher

Panicking Central Banks to Power Gold Higher

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Institutions will be the drivers of gold demand, Ray Dalio issues warning about the greenback, and silver believers could soon be rewarded.

Institutional demand will power gold prices as central banks panic

As Egon von Greyerz notes via ZeroHedge, uncertainty has been the theme across the board this year, and it is unlikely to dissipate any time soon. von Greyerz believes that the uncertainty is tied to the end of a cycle, and while the full timeline of the cycle isn’t entirely clear, its social and economic aspects are directly tied to the abolishment of the gold standard in 1971.

This accelerated the precarious path that the Federal Reserve set for the U.S. when it was created in 1913, one of perpetually expanding debt and an economy based on faith. That there is no solution to the debt issue has been painfully demonstrated by various administrations. The Clinton administration from 1998-2001 and the current Trump administration have been among the most vocal regarding the issue, yet neither has been able to prevent the U.S. national debt from roughly doubling every 8 years.

von Greyerz sees central banks as being on exceptionally shaky grounds, as the aforementioned untethering started the fall of fiat currencies. Most of them have lost around 85% against gold since 2000, and all of them have lost upwards of 97% of their value since 1971. While the U.S. dollar stands out as exceptionally long-lasting, von Greyerz sees economic factors that are beginning to threaten it.

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

“Inflation” and America’s Accelerating Class War

“Inflation” and America’s Accelerating Class War

Those who don’t see the fragmentation, the scarcities and the battlelines being drawn will be surprised by the acceleration of the unraveling.

I recently came across the idea that inflation is a two-factor optimization problem: inflation is necessary for the macro-economy (or so we’re told) and so the trick for policy makers (and their statisticians who measure the economy) is to maximize inflation in the economy but only to the point that it doesn’t snuff out businesses and starve workers to death.

From this perspective, households have to grin and bear the negative consequences of inflation for the good of the whole economy.

This narrative, so typical of economics, ignores the core reality of “inflation” in America: it’s a battleground for the class war that’s accelerating. Allow me to explain.

“Inflation” affects different classes very differently. I put “inflation” in italics because it’s not one phenomenon, it’s numerous phenomena crammed into one deceptively simple word.

When “inflation” boosts the value of homes, stocks, bonds, diamonds, quatloos etc. to the moon, those who own these assets are cheering. When “inflation” reduces the purchasing power of wages, those whose only income is earned from their labor suffer a decline in their lifestyles as their wages buy fewer goods and services.

They are suffering while the wealthy owners of soaring assets are cheering.

The Federal Reserve and federal authorities are not neutral observers in this war. The Fed only cares about two things: enriching the banking sector and further enriching the already-rich.

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

Collapse Is A Process, Not An Event

Look, I’m a systems guy.  I think in systems terms.  You should as well.

Why?

Because we’re entering a period of time when the major systems that have supported humanity are going to fail.

Or, put more accurately: they are already failing.

As just one example, our monetary system delivers outsized gains to the already stupendously-wealthy while piling up massive debts on the backs of we citizens, both born and yet-to-be-born.  The US Federal Reserve is the unelected and unaccountable body that is most responsible for have made America’s billionaires nearly $1 trillion ‘richer’ since the pandemic hit.

These next three Fed-related data points are, in a word, obscene.

The first shows that the US Federal Reserve now “owns” more US federal debt than all foreign central banks. The second shows how billionaires are getting grotesquely wealthier from the Fed’s “rescue’” efforts. And the last shows how the Fed’s record-low interest policy has resulted in an explosion in federal debt:

(Source)

(Source)

This is obscene (and infuriating!) to anyone who cares about the future.  Leaving aside the morality issues for a moment, we can at least conclude that the behaviors and values on display are thoroughly unsustainable.

Eventually spending more money than you have ends in ruin.

Speaking of spending what you don’t have, a similar story can be told about ecological overshoot and humanity’s extractive practices —  it’s akin to spending both the entirety of the interest income as well as some principal each year from our environmental trust fund.

There aren’t many resources that one can point to which aren’t in some serious form of either concerning decline or depletion, or both.  Already thousands, if not millions, of people in the American West are considering relocating because of the ever-present danger of disruptive if not life-threatening fires:

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

Institutional Demand Will Drive Gold Ever Higher

INSTITUTIONAL DEMAND WILL DRIVE GOLD EVER HIGHER

Embrace uncertainty has long been one of my personal mottos. Because from this moment on, everything is uncertain whether it is your personal health, the stock market or the economy. Sure, we work with probabilities and the most likely is that the sun will rise tomorrow again and that I won’t die today. But we are now at a point in history when trend extrapolation is going to be not only precarious but also both foolish and impossible.

END OF A MAJOR CYCLE

That we are at the end of a major economic and social cycle is totally clear in my mind. But cycles don’t end overnight, if the world isn’t hit by a massive meteorite or nuclear bomb. Whether we are at the end of a 300 year cycle or a 2,000 year cycle, only future historians can tell the world. What is clear, at least to me, is that the end of this cycle started in 1971 when Nixon closed the gold window. Since then global debt has gone up exponentially and now we are in the very final stage of the cycle. This end of the end, that we are now in, was first evidenced by gold turning up at the beginning of this century.

This significant trend change in gold that started 20 years ago was a clear indicator that we are now seeing the end of the fiat money system. Even though manipulated through a corrupt paper market, gold still reveals the deceitful actions of governments and central banks. There is no better evidence than the fall of fiat in this century.

CENTRAL BANKS ARE PANICKING

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

What’s to Be Done Now with All These Zombie Companies?

What’s to Be Done Now with All These Zombie Companies?

Saving the Zombies in Europe.

Europe’s zombie firms are multiplying like never before. In Germany, one of the few European economies that has weathered the virus crisis reasonably well, an estimated 550,000 firms — roughly one-sixth of the total — could already be classified as “zombies”, according to research by the credit agency Creditreform. It’s a similar story in Switzerland.

Zombie firms are over-leveraged, high-risk companies with a business model that is not remotely self-sustaining, since they need to constantly raise fresh money from new creditors to pay off existing creditors. According to the Bank for International Settlements’ definition, they are unable to cover debt servicing costs with their EBIT (earnings before interest and taxes) over an extended period.

The number of zombie companies has been rising across Europe and the Anglosphere — due to of two main factors:

  • Central banks’ easy money forever policies, which brought interest rates down to such low levels that even firms with a reasonable chance of default have been able to continue issuing debt at serviceable rates. Many large zombie firms have also been bailed out, in some cases more than once. Spanish green energy giant Abengoa has been bailed out three times in five years.
  • The tendency of poorly capitalized banks to continually roll over or restructure bad loans. This is particularly prevalent in parts of the Eurozone where banks are especially weak, such as Italy.

A Bank of America report from July posits that the UK accounts for a staggering one third of all zombie companies in Europe. They represent 20% of all companies in the U.K, up four percentage points since March, according to a new paper by the conservative think tank Onward. In the two hardest-hit sectors — accommodation and food services, and arts, entertainment and recreation — the proportion of zombie firms has soared by 9 and 11 percentage points respectively, to 23% and 26%.

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

Negative Interest Rates Have Arrived

We are often warned that negative interest rates are an approaching menace — not an immediate menace.

Yet are negative rates already reality in the United States? Has the unholy day already arrived?

Today we don the sleuth’s cap, step into our gumshoes… and unearth evidence that negative interest rates are not the future menace… but the present menace.

What is the evidence? Answer anon.

Under negative interest rates…

Your bank does not compensate you for stabling your money with it. You instead compensate the bank for stabling your money.

A man sinks a dollar into his bank. Under standard rules he hauls out a dollar and change on some distant date — perhaps $1.05.

These days he is of course fortunate to bring out $1.01.

Yet under negative interest rates he endures a rooking of sorts. He pulls out not a dollar and change — but change alone. The bill itself has vanished.

His dollar may be worth 97 cents for example. Thus his dollar — rotting down in his bank — is a sawdust asset, a wasting asset, a minus asset.

Would you willingly hand a bank a dollar today to take back 97 cents next year? You are a strange specimen if you would.

Yet that is precisely as the Federal Reserve would have it…

The Federal Reserve wants your money eternally up and doing, searching, hunting, grasping… adventuring…

It must be forever acquiring, forever chasing rainbows, forever upon the jump.

That is, the Federal Reserve would not allow your money one contemplative moment to sit idle upon its hands… and doze.

For a dollar in motion is a dollar in service — in service to the economy.

The dollar in motion runs down goods and services. It invests in worthwhile and productive enterprises.

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

$65 Oil And $5000 Gold: Traders Expect Volatility In Key Commodities

$65 Oil And $5000 Gold: Traders Expect Volatility In Key Commodities

The year of the pandemic put two commodities under the spotlight, but for different reasons. Gold prices hit an all-time high in August, while crude oil slipped into negative for a day in April, when demand crashed and inventories soared.

Both oil and gold have seen much volatility this year. Oil prices started 2020 at over $60 a barrel, dipped to the low teens in April – with front-month WTI Crude futures settling one day at a negative price – and rose to $40 in the summer, staying rangebound since then. The crash in demand pushed oil lower, while increased uncertainty over the economic and oil demand recovery, as well as the fears of a second COVID-19 wave, pushed investors to seek safe havens such as gold, driving the precious metal’s price to an all-time high of $2,075 an ounce last month.

The wild rides in the two commodities could represent buying opportunities, analysts argue, expecting oil and gold to rise in the medium term.

For oil, the uptrend may not come as soon as it could in gold, because of the heightened concern about the stalled demand recovery. Still, investment banks and analysts expect prices to increase from current levels over the next one to two years, especially if an effective vaccine hits the markets in 2021.

For gold, low or negative interest rates, continued economic stimulus, and the perception that gold is a hedge against uncertainty about the economy and the upcoming U.S. presidential election are expected to drive prices higher.

Alissa Corcoran, Director of Research at Kopernik Global Investors, told MarketWatch’s Myra P. Saefong that the short-term volatility in commodities could be an opportunity instead of risk.

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

Economic War with China is the Final Step Before the “Great Reset”

Economic War with China is the Final Step Before the "Great Reset"

With the pandemic dominating the news cycle, the general public has been completely distracted from a much more important crisis; namely, the economic crisis. To be sure, economic decay is not as swift or exciting, but I doubt that’s why the mainstream media mostly ignores the issue. From my experience, the media tends to omit coverage of the things they don’t want the population to notice or think about.

Right now, the only word spoken on the economy is “recovery”. Of course, if you’ve been reading my recent articles, you know that the recovery narrative is nonsense. With the small business sector on the verge of collapse, the U.S. economy has no means to recover unless we see a sudden resurgence in industrial production and domestic factories built, and with corporate debt at historic highs, there’s simply no money for that right now. Good luck trying to bankroll a manufacturing renaissance in the middle of a stagflationary environment.

That’s not to say that the rest of the world is much better off, but the U.S. suffers from the added weight of its past financial and monetary “success”. Let me explain…

Recent generations have grown up conditioned to believe that, through the power of central bank fiat currency, all problems can be solved. There has even been a concerted effort within the media to support this lie. Remember when propaganda rags like The Atlantic claimed that central bankers like Ben Bernanke were “the real heroes” saving the economy?

That’s the narrative young adults and investors today have grown up with. Now, whether they believe it is another matter, but as we can see in the world of Robinhood stock trading, there has been little concern for the concept of “bubble markets”.

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

The U.S. Dollar Collapse Is Greatly Exaggerated

The U.S. Dollar Collapse Is Greatly Exaggerated

The US Dollar Index has lost 10% from its March highs and many press comments have started to speculate about the likely collapse of the US Dollar as world reserve currency due to this weakness.

These wild speculations need to be debunked.

The US Dollar year-to-date (August 2020) has strengthened relative to 96 out of 146 currencies in the Bloomberg universe. In fact, the U.S. Fed Trade-Weighted Broad Dollar Index has strengthened by 2.3% in the same period, according to data compiled by Bloomberg.

The speculation about countries abandoning the U.S. Dollar as reserve currency is easily denied. The Bank Of International Settlements reports in its June 2020 report that global US-dollar denominated debt is at a decade-high. In fact, US-dollar denominated debt issuances year-to-date from emerging markets have reached a new record.

China’s dollar-denominated debt has risen as well in 2020. Since 2015, it has increased 35% while foreign exchange reserves fell 10%.

The US Dollar Index (DXY) shows that the United States currency has only really weakened relative to the yen and the euro, and this is based on optimistic expectations of European and Japanese economic recovery. The Federal Reserve’s dovish announcements may be seen as a cause of the dollar decline, but the evidence shows that the European Central Bank (BOJ) and the Bank Of Japan (BOJ) conduct much more aggressive policies than the U.S. while economic recovery stalls. Recent purchasing manager index (PMI) declines have shown that hopes of a rapid recovery in Europe and Japan are widely exaggerated, and the Daily Activity Index published by Bloomberg confirms it. Furthermore, the balance sheet of the ECB is at the end of August more than 54% of the eurozone GDP and the BOJ´s is 123% versus the Federal Reserve’s 33%.

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

This Analyst Says Gold’s Pullback is Proof that Higher Prices Are to Come

Precious Metals Soaring

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold has more room to run, why central banks have been buying gold for over a decade, and two massive gold nuggets worth $250,000 found in Australia.

Standard Chartered: Gold has more to show this year despite hitting a new all-time high

For a steady asset such as gold, a rapid breach of its decade-old all-time high is quite a showing. Yet, according to multiple analysts, the metal could stagger market watchers some more by the end of the year. Since blazing past $2,000, gold has pulled back as some expected, yet seems unwilling to go below the $1,940 level if the previous two weeks are any indicator.

Standard Chartered Private Bank’s Manpreet Gill attributes gold’s correction to a slight recovery in the 10-year Treasury yield amid an increase in risk sentiment. If this is indeed the reason for the pullback, the development is actually positive for gold, as the general consensus is that sovereign bond yields are on a firm downwards spiral, with no central bank showing any inclination towards elevating its benchmark rate.

“We have quite a bit of one-sided positioning in gold and I think, you know, that’s actually unwound quite quickly. A lot of our proprietary indicators are telling us exactly that,” said Gill, while acknowledging that central bankers are favoring a cap on their bond yields.

In a recent note, Fitch Solutions’ analysts likewise said that gold should keep moving up for the rest of the year and pass its August high in doing so in the absence of any notable headwinds. “We expect gold prices to remain supported in the coming months with rising geopolitical tensions and an uneven and slow global economic recovery,” said the team in the note.

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

What Are You Going To Do As Our Money Dies?

What Are You Going To Do As Our Money Dies?

Central banks are killing our currency to protect the already-rich

In our recent article It’s Time To Position For The Endgame, Chris Martenson explained how the US Federal Reserve and its sister central banks around the world have been engaged in the largest and most egregious wealth transfer in all of history — one that has been drastically exacerbated by the covid-19 pandemic.

The official response, tremendous monetary stimulus by the central banks paired with massive fiscal stimulus from national legislatures, has been pitched as “saving the system”.

Yet, in reality, it has merely served to accelerate the transfer of capital from the public into the pockets of the already-rich.

Anyone with eyes can see how the central banks have abandoned all pretense of monetary fiduciary responsibility and have simply cranked their printing presses up to “maximum”:

In concert with this surge of liquidity, national legislatures have added their own emergency measures. In the US alone, the CARES Act pushed nearly $3 trillion in fiscal stimulus into the system, and will highly likely soon be followed by another $1-3 trillion depending on which party’s bill gets passed.

Despite these staggering sums, the amount of money trickling into the average US household has been meager and is drying up.

Instead, these $trillions are mostly finding their way into the coffers and share prices of corporations. We have seen the fastest and most extreme V-shaped recovery in the history of the financial markets since the March swoon. The major indices are now back to record all-time-highs, despite the major carnage covid-19 has wreaked on the global economy.

So who benefits from that? Oh yeah, the people who own those companies. The already-rich.

Remember: 84% of all stocks are owned by the top 10% of households.

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

Is High Inflation Now A Bigger Danger Than A Deflationary Crash?

Is High Inflation Now A Bigger Danger Than A Deflationary Crash?

What’s the more likely event at this point: a deflationary crash or runaway inflation?

For a long time, Peak Prosperity co-founder Adam Taggart and I have hewed to the “Ka-POOM!” theory, which states that a major deflation will scare the central banks so badly that they overreact and pour too much liquidity into the system, thereby destroying it.

To visualize how this will play out, think of what happened in Beirut this week. Customs officials there stored thousands of tons of ammonium nitrate fertilizer at their seaport, for years.  The pile just sat there doing absolutely nothing.

After years of inaction, the port authorities became lulled into the erroneous conclusion that nothing would ever happen.

But then one day a spark came to life, starting a fire, and then all at once — POOM! — the entire thing blew up with devastating effect.

This analogy works pretty well here as we approach the Keynesian endgame facing the global economy.  The pile of $trillions in bad debts issued over the past decades has been the fertilizer.  Covid-19 was the spark. And now we’re simply waiting for the entire economic and financial system to explode.

The same process began in the US and has been unfolding across the world ever since after the gold standard was abandoned in 1971.  Untethered from any restraint, all that was left to staunch the flow of red ink was self-restraint and a concern for the future, both of which were in short supply.

Not only has debt been growing far faster than income (GDP) at the national level, but debts have been growing exponentially (i.e., ‘compounding’) ever since 1971:

That debt growth is a nearly perfect exponential curve upon which the entire systems of politics, banking and the economy have come to rely.

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

The anatomy of a financial crisis

In this blog, we present the anatomy of a financial crisis. A characteristic feature of a banking crisis is that it tends to follow, more-or-less, the same path regardless of the ‘shock’ or ‘trigger’ that initiates it.

The next phase of the crisis is likely to be a global financial crisis, as we have been anticipating for quite some time (see, e.g., Q-Review 4/2017). However, few understand what a financial crisis is, though it is probably among the most feared economic phenomena of mankind.

So, let’s dive in.

The initiation

If a banking system is sound and robust, it can usually withstand financial and economic shocks.

But a banking system may be fragile. Usually this is due to high leverage levels, where banks have either lent aggressively or carry risky financial investments on their balance sheets—usually both. Banks can also have a weak financial position, with chronically low profitability and insufficient reserves. As we have explained earlier, this is exactly the state the European banking sector finds itself in.

The onset of a financial crisis requires a trigger. The most common is a recession or the expectation of recession among consumers and investors.

Recession leads to diminished income and defaults by both corporations and households. This increases the share of non-performing loans in bank loan portfolios, reducing the value of loan collateral and increasing bank risks and capital needs. As write-downs and losses increase, mistrust among other banks and depositors and investors does as well. The bank’s share price will usually start to reflect this.

A ‘bank run’

If suspicion spreads, banks will be apprehensive about counterparty risk and will be unwilling to lend to one another even on an overnight basis.  If allowed to continue, this will have a calamitous impact on liquidity in money markets.

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

Central Planners At Work

Consumption without Production

“Every man is a consumer, and ought to be a producer”, observed 19th century philosopher Ralph Waldo Emerson.  “He is by constitution expensive, and needs to be rich.”

Ralph Waldo Emerson (May 25, 1803 – April 27, 1882), who inter alia opined on consumers and the need to not only consume, but also produce. The latter activity has recently become even more severely hampered than it already was. And yet, government is spending like a drunken sailor. [PT]

These days Emerson’s critical insight is being taken to its extreme.  Consumers, many whom lost their jobs due to government lockdown orders, no longer produce.  Yet they still consume.  They are expensive.  Not rich.

What’s more, this consumption is not funded through personal savings.  Nor is it funded through government transfer payments.  Rather, it is funded via the printing press.

Emerson, no doubt, was lacking in the unique perspective we are presently granted.  He did not have the special opportunity to watch his government destroy the economy in short order.  Perhaps if he had, he would have penned a neat axiom to distill the essence of what happened.

The world today looks nothing like Emerson’s day.  The 19th  century was an age of honest money.  Central bankers did not roam the land.

Printing money to buy bonds and stocks, and to sprinkle on people, would have been quickly dismissed.  The experience of the Continental Congress during the American Revolution, and their over-issuance of paper “continentals”, had shown that resorting to the printing press was an act of suicide.

 

Promises, promises… “not worth a continental” became a saying after this early experience with paper money. [PT]

 

Currently, printing press money is considered enlightened central banking policy.  Inflation targets, zero interest rate policy (ZIRP), direct bond purchases, twisting the yield curve, unlimited credit.  This is merely a partial list of the trouble central bankers are up to.

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

 

On Inflation (& How It’s Not What Happens Next)

Everyone is convinced the dollar is going to inflate because more dollars are entering the system.

But are they really?

That is the question that sparked a succinct Twitter thread by Travis K (@ColoradoTravis) explaining why inflation is not what happens next (emphasis ours):

Let’s take a look at how dollars are born and how they die.

A dollar is ‘born’ when a loan is made against collateral on a bank’s balance sheet. Banks can issue multiples of dollars for every dollar of collateral they have.

It’s this multiplication effect that expands the amount of total dollars.

Generally, banks are limited in how much they can lend – let’s say it’s 10x their collateral. So for every dollar of collateral they have, they can lend 10 dollars.

By so lending, they ‘birth’ new dollars into the system.

As banks lend more, more dollars are created and the money supply increases. This multiplicative lending is the chief driver of total dollars in the system.

Banks lending a lot → more total dollars and inflation.

When do dollars die?

Dollars ‘die’ when debts are paid back. This reverses the multiplication effect of lending, leading to less total dollars in the system and a contraction of total dollars in circulation.

So what is the Fed ‘printer’ doing – creating dollars, right? Actually no, not really.

The printer only increases the collateral banks have to lend against. It does not directly ‘birth’ dollars, only *potential* dollars.

Banks are still the midwives, and the only ones who birth dollars into the system by lending.

The Fed can increase collateral by 1000x but unless the banks lend against that collateral, dollars will not enter circulation for you and I to interact with.

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

Olduvai IV: Courage
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Olduvai II: Exodus
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