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Global Food Supply Chains Beginning to Erode, Crisis Looms?

Global Food Supply Chains Beginning to Erode, Crisis Looms?

As the coronavirus continues to infect more and more people, food supply chains have started to become more strained in recent days. It was announced yesterday; the world’s biggest pork producer is closing a primary U.S plant indefinitely after a coronavirus outbreak amongst employees.

Smithfield Foods Inc. will halt its pork-processing facility in South Dakota, which accounts for 4% to 5% of U.S pork production. The company also warned that closures across the country are taking American meat supplies “perilously close to the edge” of shortfalls. This is just one of the latest examples of the coronavirus beginning to disrupt food chains at a more significant scale rapidly.

We anticipated this, as we reported on April 1 that food supply chains were in the early stages of being strained. Many countries were preparing many weeks ago by cutting back on exports to begin stockpiling. Surprisingly, dairy farmers in the United States are starting to dump milk because there was no place for them to go as the marketplace for dairy products has been affected by the closures of restaurants, schools, hotels, and food service businesses. 

One would begin to believe history might not be repeating itself, but it is undoubtedly starting to rhyme. During the great depression of the 1930s, the hardest-hit industry was farming. Farm incomes dropped by nearly two-thirds at the beginning of the 1930s. Dairy farmers dumped countless gallons of milk into the street instead of accepting a penny a quart.

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The Federal Reserve’s One Last Hail Mary

The Federal Reserve’s One Last Hail Mary

Over the last few weeks, the Federal Reserve has been in utter desperation mode to try to revive and keep the American economy on life support. What many in the mainstream media have failed to include in this recent coronavirus economic narrative is that the virus was just the pin of one the biggest bubbles ever created, which we call the central bank bubble revolving around U.S sovereign bonds.

Before we dive deep into this, let’s start with what the Fed has been doing to combat against the coronavirus and to keep markets alive for the time being. To begin, welcome back to the era of the printing press, but this time they have made it clear they will conduct “QE infinity” if this is a prolonged depression, which it will be. 

For some prospective, previous QE programs were: 

  • QE1: $1.7 Trillion 
  • QE2: $600 Billion 
  • QE3: $1.6 Trillion 

With this latest being: 

  •    QE4:$1.6 Trillion 

An overwhelming number in such a short period, making previous QE programs look like peanuts in comparison. In fact, the Fed printed roughly $970,000 every second last week to keep the market afloat. To validate that the Fed is artificially keeping the market alive, just look at this next chart: 

This chart showcases that while the Fed balance sheet has shot up ($5.2 Trillion), corporate earnings have plummeted. The market is clearly on life support with the Federal Reserve as its temporary backstop. Presently, the aviation, hotel, and automotive industries, to name a few, are in a major crisis. This applies to all businesses, but since 2008 companies have taken advantage of prolonged zero interest rates and have gone on a total debt binge, with the majority of this debt going strictly to share buybacks and dividends to shareholders.

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Could The U.S Be Gearing Up To a Return to the Gold Standard?

Could The U.S Be Gearing Up To a Return to the Gold Standard?

There may be readers who weren’t even born when the U.S. still had a gold-backed dollar. Since the gold standard was abolished in 1971, the value of the dollar has decreased annually by 3.96 percent. You would need over $600 today to purchase the same goods you purchased for $100 in 1973. Still, a dollar is a dollar, right? No, it is not. It is just a piece of paper.

Is there a chance the U.S. could return to the gold standard and provide real value to the U.S. currency? Judy Shelton and Christopher Waller are President Trump’s pick for Federal Reserve governors. As it happens, Ms. Shelton is a believer in the gold standard and a critic of current Federal Reserve policies. She believes that the Fed has become unnecessarily involved in trade policies instead of adhering to its function of regulating the monetary system. Returning to the gold standard is not a popular idea these days when economists support the limitless printing for currency, high debt, and inflation. 

Ms. Shelton would have been considered mainstream 35 years ago. Today, she is thought of as unorthodox. In 2018, she wrote in an article published by the conservative thinktank, Cato Institute, “If the appeal of cryptocurrencies is their capacity to provide a common currency, and to maintain a uniform value for every issued unit, we need only consult historical experience to ascertain that these same qualities were achieved through the classical international gold standard.”  

She also authored a book, Fixing the Dollar Now. In it, she advocates for linking the dollar to a benchmark of value, preferably gold. More than four decades ago, the currency of all major countries, such a Britain, Japan, France, Russia, and others were linked to gold. In 1933, the dollar was linked to $35 worth of gold. In 2019, the value of the dollar is less than one-thirtieth of that. 

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Hyperinflation is Becoming Common in The 21st Century

Hyperinflation is Becoming Common in The 21st Century

How destructive is hyperinflation? To quote economist Thomas Sowell, “Hyperinflation can take virtually your entire life’s savings, without the government having to bother raising the official tax rate at all.”

A number of countries are currently experiencing the destructive effects of hyperinflation.

With the Venezuelan Bolivar at above 2,000,000 percent inflation, buying anything, even if something should be available, is virtually impossible. At towns along the Columbian border, food and medicine are bought with dollars or pesos. The Bolivar has simply lost any kind of value.

Foreign currency has become a critical means of survival in Venezuela. More than 40,000 Venezuelans, desperate for work and food, cross the border to Columbia each day. If they find work, they are paid in pesos. Should food be available, that, too, is purchased with pesos. Bolivars have become almost irrelevant to many Venezuelans. Most other currencies are eagerly accepted.

During the recent blackout that left Venezuela in the dark, food and medicine could only be bought with cash, as the electronic payment systems were non-functional. In Venezuela, cash means any foreign currency. In Maracaibo, the country’s second largest city, only U.S. currency greater than the dollar bill was accepted.

Foreign currency becomes available through friends and family who have permanently escaped the country and can send back cash. Those without such connections suffer. Some stores won’t accept the bolivar, and those that do charge a price Venezuelans cannot afford. Anyone lucky enough to have a job finds that the minimum wage of 18,000 bolivars, or $6.00, does not buy much.

With Venezuela in a state of turmoil as Maduro is fighting for his life, even the scarce goods that used to occupy the shelves are becoming rarer. This, of course, makes them more expensive, even when paid for with U.S. dollars. Even the dollar is becoming a victim of Venezuelan inflation.

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Are We Running Out of Gold?

Are We Running Out of Gold?

Gold has been used for jewelry and currency for thousands of years. It has always served as a source of status and wealth. The reason for its popularity is its rarity. Gold is a finite commodity. There is only so much of the golden metal available, and it can’t be manufactured.

Some experts, including Goldcorp’s chairman, Ian Telfer, are predicting that the amount of future gold to be mined is already on the decline. The fact that gold mining is on the decline is nothing new. That has happened before. What is worrying some investors is that the world may be running out of physical gold.

Should investors be worried?

The discovery of new gold deposits has been declining while mining companies are spending more money on exploration for new sites. Most of the newly-found deposits have been small and expensive to extract. No high-grade deposits with at least 5 million ounces of gold, or “world-class” deposits, have been found in a long time. These world-class deposits have yielded more than 50 percent of today’s available gold.

What little is being extracted is becoming costly to obtain. Many deposits are producing 1.4 grams of gold per ton, as compared to 10 grams in the 1970s.

Mining companies are struggling. Many have merged to offset decreasing profits and declining gold supply. The gold industry has been witnessing a wave of mergers over the past few months as producers battle poor returns and diminishing reserves.

In March of this year, Barrick Gold, the world’s second-largest gold producer, and Newmont Mining agreed on a joint venture in Nevada instead of Barrick Gold buying Newmont Mining outright. Newmont Mining acquired Goldcorp earlier this year in an effort at developing greater and more economical resources.

Barrick Gold believes that Nevada still has plenty of gold, perhaps 76 million ounces.

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Gold is money, everything else is credit

Gold is money, everything else is credit

People have been obsessed with gold since the beginning of civilization. Both the Egyptians and ancient Greeks valued the precious metal as a status symbol. The more gold you had, the higher you ranked in the natural order of things. In more recent times, gold rushes in Alaska and South Africa have caused major frenzies while changing lives.

People have a natural affinity for shiny things, which makes them desire gold and silver for its beauty. Especially gold, which is a simple, fairly boring metal that can be melted and formed into any desirable form. In many struggling countries, such as India, even the poorest citizens crave gold jewelry.

Prior to paper currency, the actual precious metal was used in trade. A certain amount of gold was assigned a certain value and used in exchange for some other commodity. Since gold and silver were easy to carry, the system worked well, involving the trade of equal commodities.

When governments began to mint currencies, gold and silver became natural choices. Their very rarity, especially gold, gave them an inherent value. People could trust the value of gold and silver. Slowly, however, beginning in the 1930s, world governments were no longer linking their currency to gold. The US dollar stopped being backed by gold in the 1970s. Instead of being backed by true value, word currencies became pieces of paper.

The role of gold changed from a trusted trading currency to a safe investment haven. Investors rely on the fact that while the value of paper currency will fluctuate, gold and silver will hold their value. Precious metals require no guarantees. As currencies lost their gold-backing, global central banks began purchasing and hoarding gold as a reserve currency whose value has been recognized throughout history.

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Is U.S Dollar on the verge of a major currency crisis?

Is U.S Dollar on the verge of a major currency crisis?

Dalio warned recently in an interview through Bloomberg that the US might have to go through a similar type of inflationary debt crisis which is currently being suffered by emerging market economies like Argentina and Turkey.

Triple-digit inflation has taken countries around the world by storm in 2018. Argentina, Iran, Turkey, Sudan, Yemen, and Zimbabwe currently have annualized inflation at the hundred and 111%, 187%, 38%, 127%, 27% and 170% and that’s not even mentioning the total destruction of the Bolivar in Venezuela.

The United States currently has unprecedented debt levels which have been exacerbated thanks to the Federal Reserve artificially propping up the economy through a zero interest rate environment over the past decade. The access to easy credit has allowed consumers to blow up asset bubbles since the financial crisis of 2008.

Ray Dalio’s ideas about the US dollar has come from his recent book “A Template for Understanding Big Debt Crisis” in which he analyzes 48 historical debt crisis in order to show how they took place.

He states that most debt crises are very similar although Dalio distinguishes between those that are “inflationary” and “deflationary”.

“When it is denominated in a foreign currency, like these countries, which have a lot of Dollar-denominated debt, then they can have a problem servicing that debt. When the Dollar goes up they don’t have enough cash and they get into that spiral of printing money which devalues their currency and makes it even harder to meet their debt obligations,” Dalio says.

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Zimbabwe spirals into economic chaos as fears of another round of hyperinflation begin to spark

Zimbabwe spirals into economic chaos as fears of another round of hyperinflation begin to spark

Zimbabwe has a history of economic chaos and misery. In 2008, Zimbabwe had the second-highest incidence of hyperinflation in recorded history. The estimated inflation rate from November 2008 was 79,600,000,000%.

Currently, citizens of Zimbabwe are stocking up on essentials such as bread, beef, cooking oil and other necessities in anticipation of a looming economic disaster. It has reached a point where certain items are beginning to be rationed such as bottled water and beer.

In addition to the panic buying when it comes to food, the country has been running out of essential medical supplies as the country’s health system seems to be on the verge of a complete collapse.

Since 2008 the country has relied on US dollars to conduct daily transactions. However, today the country faces foreign-currency shortages and a mountain of debt which many fear could spark the type of collapse that took place a decade ago when hyperinflation left the country devastated.

With a lack of supply of foreign currency, the citizens of Zimbabwe have been forced to use a currency called bond notes, bank cards and mobile money which are all beginning to deteriorate against the US dollar on the black market.

With soaring US dollar rates on the black market, businesses in Zimbabwe are having a hard time restocking inventory, which is even forcing some businesses to close.

“The parallel market is unsustainably high and has decimated confidence. Prices have been going up while margins are eroded,” Denford Mutashu, president of the Retailers Association of Zimbabwe, said.

On Wednesday, finance and economic development Minister Prof Mthuli Ncube attempted to reassure the public that their money would be safe in the banks, saying a legal instrument would be put in place to ensure that the government does not raid their accounts like it did in 2008.

Let’s hope history does not repeat itself for the sake of Zimbabwe.

Zimbabweans protesting the hyper-inflation that turned them into “starving billionaires”

 

The Committee to Destroy the World: The Federal Reserve

The general belief among average citizens is that the purpose of central banks is to help the economy by fighting inflation and mitigating financial crisis. It’s a fairy tale that politicians like to encourage. If there were any truth to it, however, where was the Federal Reserve during the crisis of 2007? Rather than helping, it was widening the crisis with its easy money policies.

While central banks are not a government entity, their primary purpose is to create money for the benefit of the government. By mindlessly printing fiat currency, central banks create a shaky illusion of financial stability. In reality, each central bank is a monopoly that controls the production of distribution of currency and interest rates. Most importantly, it also controls gold reserves. While paper currency allegedly has the backing of the government, it is the central bank that controls the value of the currency at any specific time.

The first central bank, the Central Bank of England, was created in the 17th century as a scheme to enable the king to pay off his debts. As each country established its own central bank, it has been used by its government as a personal bank account.

With the government’s permission, central banks print money for the use of commercial banks to lend out at a specified rate of interest. Together, they work at inflating the money supply through a system called fractional-reserve banking. Commercial banks are required to keep a fraction of their money in reserve. For example, if someone deposits $1,000, the bank has to keep 10 percent in its vaults. That $100 cannot be lent out. It can only lend out $900, thereby creating two separate claims on those funds: the original deposit of $1,000 and the subsequent borrower of the $900. The supply of money in circulation has been artificially increased to $1,900. That is only one of the ways central banks manipulate the fiat money supply.

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Paper money eventually returns to its intrinsic value – zero

Paper money eventually returns to its intrinsic value – zero


Venezuela 🇻🇪

Before hyperinflation vs NOW!


At one time, Venezuela had the largest oil reserves in the world, which provided steady revenues for the country and a good living for its citizens. Oil accounted for most of Venezuela’s exports. Life in Venezuela was excellent. Then, in 1998, came President Hugo Chavez. Chavez used the abundant income stream to go on a spending spree as he instituted a large number of entitlement programs using the oil revenues. A strike in 2003 interrupted Chavez’s plans and caused the GDP to crash by 27 percent in just four months. Chavez began nationalizing industries and instituting price controls, which was the beginning on Venezuela’s inflationary spiral as Venezuelans developed a reliance on their government for products and services.

The price of crude oil plummeted in 2014, and the economy shrank by 30 percent. Oil revenues, in the form of U.S. dollars, were dwindling, and Venezuela was unable to continue importing necessary goods. These days, in 2018, stores are empty as people attempt to survive on dealing through the black market.

Venezuela is printing currency at the speed of a copy machine. The more money that is injected into circulation, the more it becomes devalued.

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Hyperinflation Has Destroyed Venezuela

Hyperinflation Has Destroyed Venezuela

Venezuela is in crisis mode. Ninety percent of citizens live in poverty conditions. Most of them have lost up to 25 pounds due to lack of food. Call it the Maduro Quick Weight-Loss Plan. President Maduro, who has blamed everything but his own socialist policies for the economic disaster, points out that he has raised the minimum wage to 3 million bolivars. For Venezuelans, this is utterly meaningless when prices are doubling every 18 days. Economists predict that hyperinflation will hit an unprecedented 1,000,000 percent by the end of the year. The Bolivar can be officially considered without value.

It is easy to forget that just a few decades ago, Venezuela was one of the richest countries in South America. It had the world’s largest oil reserves and plenty of gold. Along came President Chavez and his populist policies and schemes to retribute the wealth. Following years of overspending and inflation, his successor, President Maduro, has continued those policies, except there is no more wealth left to distribute. In a recent election many consider rife with fraud, Maduro’s win has ensured six more years of hellish disaster for Venezuela. He has announced that he intends to fight hyperinflation by removing five zeroes from the bolivar. His announcement did not include an explanation of how devaluating the valueless Bolivar, even more, will help the country.

Venezuela has gone beyond an economic disaster and is now in a humanitarian crisis. Without food or medicine, the country won’t be able to survive. At this time, it is being propped up by Russian and Chinese aid.

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Everyone is Hoarding Gold

Everyone is Hoarding Gold

Tolkunbek Abdygulov of the Kyrgyz Central Bank has stated that any currency, whether dollars, rubles, or yuan, has become too vulnerable. The small mountain nation, with a population of 6 million, relies heavily on Russian and Chinese imports. With the possibility of global trades war on the horizon, Kyrgyzstan prefers to protect its financial stability by amassing gold. It suffered during the ruble devaluation in 2015, and it is turning to gold as a hedge against any renewed economic upheaval.

Kyrgyzstan is merely following in the steps of other, larger nations, such as Russian, India, and Turkey, who are also increasing their gold reserves. The U.S. and Germany both have reserves that are 70 percent of its central bank holdings. If there is a trade war, countries are prepared.

Gold has traded steadily and unspectacularly for the past decade, but looming tariffs and trade sanctions have pushed gold out of the doldrums and into the stoplight.

Kyrgyzstan, one of the few post-Soviet republics with its currency, has been buying gold since 2014. Abdygulov has kept the nation’s currency, the som, relatively steady and recognizes that stockpiling gold will serve as a hedge against inflation.

Kyrgyzstan is smart to worry. Following President Trump’s promise to institute tariffs on imports, Russian has sold off half of its U.S. Treasury bonds, more than $47 billion, in retaliation. At the same time, Russia’s central bank has increased its gold reserves to 62 million ounces, at a value of $80.5 billion, in an effort to diversify its reserves in view of possible geopolitical unrest. Russian is less interested in increasing return on its investments.

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The Dark Cloud of Global Debt… The Perfect Storm Looms

The Dark Cloud of Global Debt… The Perfect Storm Looms

While everyone is debating the effects of possible trade sanctions on the global economy, few are paying attention to a far more serious issue. Enormous global debt, combined with low-interest rates, have set the stage for a global recession that has the potential for economic chaos.

The combination of enormous debt and artificially low-interest rates were at the center of the 2008 credit bubble. One would expect central banks to be aware of this and show more concern. However, the overall silence has been astonishing.

An exception to this is the Bank for International Settlements (BIS), which has been making loud noises about the toxic level of global debt and the anticipated bubble. It recently reported that the global debt of 2008 was $60 trillion, small when compared to the current debt of $170 trillion. To make matters worse, today’s global debt is 40 percent higher in relation to GDP than it was in 2008, just prior to the Lehman Bros. downfall. To add to the current headache are the rising debt levels of emerging markets and corporate debts. According to McKinsey & Company, a global consulting firm, two-thirds of U.S. corporate debt are from corporations that pose a high default risk.

Countries such as Brazil, India, and China have been busy issuing questionable credit. This dubious credit being issued in many emerging markets has come with extremely low-interest rates. If the borrowers’ default, the lenders won’t be looking at enough compensation to recoup their loses. Low-interest rates have become an overall global problem, including the rates in the U.S. high-yield bond market. Central banks around the world have been keeping interest rates artificially low while printing money with abandon. The current global debt is the direct result of this policy.

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Deutsche Bank could spell economic and financial chaos. Could this be why Germany has repatriated 583 tons of Gold?

Deutsche Bank could spell economic and financial chaos. Could this be why Germany has repatriated 583 tons of Gold?

Before declaring bankruptcy, Lehman Bros. had $639 billion in assets. It was thought to be too big to fail. Currently, Deutsche Bank has almost triple those assets, $1.7 trillion, but its future is in question. The bank’s net income plummeted by 80 percent from its 2017 level. The Federal Reserve has labeled Deutsche Bank’s US operation as troubled. And that might be an understatement.

The growing problems at Deutsche Bank, combined with unprecedented global debts, could spell economic and financial chaos. Deutsche Bank is only one of the major banks in trouble. Others are nipping at its heels.

Mismanagement has plagued Deutsche Bank’s U.S. operations for years. The Federal Reserves criticized it in 2014 for inaccurate reporting and regulatory violations. In 2015, 2016, and 2017, the Federal Reserve demanded corrections, but Deutsche Bank did not comply.

When Deutsche Bank’s stocks crashed, S&P downgraded the bank from A- to BBB+, a rating not far from junk. One of the problems cited by S&P was unstable and shifting leadership and generally poor performance.

Deutsche Bank is far from acknowledging any problems. Its new CEO Sewing spoke to his staff after the rating downgrade and reassured them of the bank’s inherent strength and future strategies. Following this speech, Deutsche Bank was forced to report a drop in revenues of 5 percent, and a decrease in income of 79 percent. Could Sewing have been a tad optimistic?

Its losses for 2017 were reported at 497 million euros, compared to the 290 million euros predicted by Reuters analysts. If Deutsche Bank is to survive, significant changes will have to be implemented. And so far, it’s not even acknowledging it has a problem.

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Gold Production On The Cusp of Peaking

Gold Production On The Cusp of Peaking

Gold is valuable because it is a finite resource. What happens when all available gold is mined and processed? There is still abundant gold deep within the earth, but it has not yet been found. Mining companies are unable, to dig deep enough. It is difficult for them to know where to locate this deep gold. All known locations have been depleting for years.

That is the reason mining gold has become more difficult and output is expected to begin decreasing steadily. The precious metal is becoming harder to find.

Most of the world’s gold was mined before the 1848 Gold Rush era. Since 1950, 125,000 tons of gold has been processed, which is approximately two-thirds of all gold ever mined. All of the gold that could be accessed easily has been mined.

Gold cannot be manufactured or created. It can only be mined from the earth’s crust. If we want more gold, companies, and investors will need to begin allocating more capital to exploration companies.

According Eugene King of Goldman Sachs, known mineable gold reserve may be gone in 20 years. The definitive word here is “known.” Gold mining companies are gearing up for a new era of exploration deeper below the surface than ever before. This means these companies will be incurring new costs at the same time their profits are decreasing. That is the reason why so few new mines are being excavated and few new projects are being started.

The earth’s easy-to-find gold has already been found and mined. There will not be another California Gold Rush. The search for new gold becomes increasingly challenging and expensive each year. Outdated equipment and technology need to be replaced.

To add to the problem, the lead time between discovery and production of a new gold deposit is 20 years. Much of this is due to jurisdictional, local policies. Global reforms could remove many of the current obstructions.

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Olduvai IV: Courage
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Olduvai II: Exodus
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