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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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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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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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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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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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Russia Stockpiles Gold, But Why?

Russia Stockpiles Gold, But Why?

The US’s overhang of debt and looming trade war is worrisome on many levels as the value of the dollar keeps decreasing and the national debt spiraling. So, what should we make of the fact that the Central Bank of Russia has been steadily amassing vast gold reserves since 2015? By the end of 2017, its total gold reserves rose to 1,828.56 tons, usurping China’s place as the country with the fifth largest gold reserves.

Russia has been aggressively increasing its gold reserves for a reason. It has seen the US dollar dominate as a global currency and is working with China to end the US/Western currency supremacy. Their strategy appears to be working. Russia and China are in the midst of rumors of introducing gold-backed futures to circumvent the U.S dollar. 

The US dollar has had no gold-backing since 1933, nor has the US increased its gold reserves for a decade. See chart below.

With speculation of Russia and China working on a gold-backed currency, a shift in monetary power from the West to the East seems to be their ambitions. The situation between East and West is exacerbated by recent tensions between Russia and the UK, since the alleged Kremlin poisoning of former spy Sergei Skripal and his daughter. British Prime Minister Theresa May has ousted 23 Russian diplomats from Great Britain. Geopolitical tension is once again, high.

It seems Russian may have tossed aside Das Kapital as its economic guidebook. Not only is creating a gold-backed currency appearing more likely month over month, but Russia has also brought inflation way downover the past decade. More importantly, Russia continues to lower their national debt, while the US has been increasing its debt to a record $21 trillion.

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The Failure of Fiat Currencies

The Failure of Fiat Currencies

We work hard for our money, as we think it has long-lasting value. That value can buy us other things that we want. It seems like a good exchange. However, few of us consider how extrinsic the value of money really is. In reality, we are dealing in valueless fiat currencies. 

At one time, our money was backed by the tangible value of gold or other precious metals, legal tender for anything of equal value.

That is not the case any longer. The value of a dollar bill these days is what the government says it is. This arbitrary value is dependent on the whim of the government. And the government can print money like a copy machine run amok. There are no limits to how much money can be put into circulation. That is because this money isn’t backed by any real value, it’s called fiat currency.

The US dollar became fiat currency when it stopped being backed by gold over 46 years ago and it has lost 97 percent of its value since the establishment of the Federal Reserve in 1913.

Apart from cryptocurrencies, all the world’s major countries are using fiat currency.

Since Roman times, fiat money has failed spectacularly throughout history due to the same pattern of rapid devaluation and then total collapse. The Romans used a 100 percent pure silver coin called the denarius at the start of the first century. By mid-century, during Nero’s rule, the denarius only contained 94% silver. By 100 A.D., the silver content had been reduced to 85%. The value of the coin was decreasing steadily. This worked well for Nero and his followers, who no longer had to pay their debt at the full, actual value while additionally increasing their own wealth. During the next century, the coin was made of less than 50% silver.

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Olduvai IV: Courage
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Olduvai II: Exodus
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