This article examines two inflationary experiences in the past in an attempt to predict the likely outcome of today’s monetary policies. The German hyperinflation of 1923 demonstrated that it took surprisingly little monetary inflation to collapse the purchasing power of the paper mark. This is relevant to the fate of the “whatever it takes” inflationary policies of today’s governments and their central banks. The management of John Law’s Mississippi bubble, when he used paper money to rig the market is precisely what central bank policy is aimed at achieving today. By binding the fate of the currency to that of financial assets, as John Law proved, it is the currency that is destroyed.
In an ephemeral world, few things survive. I am not talking about species or human beings whose existence on earth is also transitory. Instead I am referring to social and financial systems which are now coming to an end.
In July 2009 I wrote an article called The Dark Years Are Here. It was reprinted again in September 2018.
Here is an extract from my original article:
“The Dark Years will be extremely severe for most countries both financially and socially. In many countries in the Western world there will be a severe depression and it will be the end of the welfare state. Most private and state pension schemes are also likely to collapse. It will be a worldwide depression but some countries may only have a deep recession. There will be famine, homelessness and misery resulting in social as well as political unrest. Different type of government leaders and regimes are likely to result from this.
How long will the Dark Years last? There is a book called ”The Fourth Turning” written by Neil Howe.
Gold and silver investors who were hoping Wednesday’s FOMC meeting would be a catalyst for a major breakout move were largely disappointed.
The metals complex didn’t see an immediate boost from the Federal Reserve’s dovish policy meeting. Still, the central bank’s commitment to an accommodative monetary policy is set to play out not just over the course of a week, but of years to come.
On Wednesday, the Federal Reserve announced it would continue to hold its benchmark interest rate near zero. That came as no surprise.
However, the extent of the Fed’s commitment to avoid any rate hikes in the future raised the eyebrows of many veteran observers of monetary policy. Not only did members of the central banking cartel vow to keep rates down for the remainder of the year. They also signaled there would be no rate hikes in 2021.
Since posting new record highs in early August, the gold market has consolidated above $1,900/oz support.
A close below the $1,900 level would carry bearish implications for the near term.
Alternatively, a move back above $2,000/oz would likely be followed through to the upside with a rally to fresh highs. Silver, in turn, could be expected to run to new multi-year highs above $30/oz.
If you think that price inflation runs at about 1.6% you have fallen for the BLS’s CPI myth. Two independent analysts using different methods — the Chapwood Index and Shadowstats.com — prove that prices are rising at a far faster rate, more like 10% annually and have been doing so since 2010.
This article discusses the consequences of price inflation suppression, particularly in the light of Jerome Powell’s Jackson Hole speech when he downgraded the importance of price inflation in the Fed’s policy objectives in favour of targeting employment.
It concludes that the reconciliation between the BLS CPI figure and the true rate of price inflation is inevitable and will be catastrophic for the Fed’s policy of suppressing interest rates, its maximisation of the “wealth effect” of inflated financial asset prices, and for the dollar itself.
I’ve been saying the stock market will take a turn for the worst sometime between mid-August and October. Numerous market metrics now show a market that looks ready to turn over. The bear may soon be back in charge.
The futility of trying to stop the stampeding herd and the Fed fallacy
When I pointed out last January that the market was more perilously overpriced than ever and imminently ready to crash, the stock market took one of its most spectacular dives in history just a month later. (See: “Stock Market More Overpriced and Perilous Than Anytime in History.”)
Downturns in bank credit expansion always lead to systemic problems. We are on the edge of such a downturn, which thanks to everyone’s focus on the coronavirus, is unexpected.
We can now identify 23 March as the date when markets stopped worrying about deflation and realised that monetary inflation is the certain outlook. That day, the Fed promised unlimited monetary stimulus for both consumers and businesses, and the dollar began to fall.
The commercial banks everywhere are massively leveraged and their exposure to bad debts and a cyclical banking crisis is now certain to wipe many of them out. In this article we look at the global systemically important banks — the G-SIBs — as proxy for all commercial banks and identify the ones most at risk on a market-based analysis.
This article summarises why the credit cycle leads to alternate booms and slumps. It is only with this in mind that they can be properly understood as current economic conditions evolve.
The reader is taken through three monetary models: a fixed money economy, one governed by changes in bank credit, and finally the consequences of central bank intervention.
Classical economics provided the basis for an understanding of the effects of bank credit expansion. The theory, embodied in the division of labour, eluded Keynes, who was determined to justify an interventionist role in the economy for the state.
There is an increasingly good chance that the United States could end up following Europe and Japan, and that the Federal Reserve could use its vast powers of monetary creation to force a move to negative interest rates.
If that deeply unnatural event happens, it will invert and distort the very foundations of investment pricing, in ways that are little understood by most investors today.
It will also – for a time – create an unnatural source of profits that most investors have no idea about, because it has never happened before in the United States (and is still in the early stages in the United Kingdom).
[Here’s a post from a guy I read occasionally. His style (to say the least) is quite over-the-top. Believe what you choose and discard the rest. –Bob]
The entire global financial structure is in the process of faltering, breaking, and crumbling. It is better described as sabotage by the Globalist cabal in league with their fascist partners. As the entire economy fractures, as all debt faces failure, as most assets break down, as countless households struggle, the King Dollar faces a certain sunset, true safe haven will be uniformly sought. Correspondingly, the Gold price is ready to launch onward and upward. It will light the fuse on the Silver price in sequence. Demand will skyrocket, while supply has been limited. Behold the greatest fraud and hoax in the history of mankind behind the corona virus. It is named after the Queen of England, a primary funding partner. She filed a corona virus patent in December 2018, from engineered creation. The COVID-19 entity is far more a fascist project to force political change than actually a virus at all. The disease is a mirage, and exaggerated agent of deep fear and fright. Let it be known that not 5% of the population know what a virus is, how it works, the method to identify, or the best prevention. Ignorance is a great ally to the global cabal.
Look at the plethora of problems in my list of 2020 economic predictions, which are so severe and so likely to get even worse that it’s more difficult to imagine they won’t get worse than to believe they will. Some are so bad that just a few of them would plunge us into an abyss of social and financial catastrophes.
Here are my economic predictions for the remainder of 2020
This list of economic predictions is not hard to come up with. It is, however, the fact that it is so easy to predict these things this year that makes this year’s list so important.
There are lies, damned lies, and economists. Whether these economists work for the government or a bank, they spend all their time on the computer extrapolating current trends with minor adjustments.
If you want to understand the future, don’t spend your life preparing and constantly revising an Excel sheet with masses of economic data. Collective human behaviour is extremely predictable. But not by spreadsheet analysis but by studying history.
Mike Gleason: It is my privilege now to welcome back Michael Pento president and founder of Pento Portfolio Services. Michael is a well-known money manager, market commentator, and author of the book, The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market. He’s been a regular guest with us over the years, and it’s always a pleasure to have him on with us.
Well, Michael, it’s been a few months since we’ve had you on last and just a little bit has been going on in the world. COVID-19 has hit the states to say the least and caused major disruptions in the economy. Governors have instituted stay-home orders. Tens of millions of people have filed for unemployment. Now we’re seeing major rioting and social unrest in many cities throughout the country over the police killing of a black man in Minnesota last week.
And in the face of all that, the markets are seemingly doing just fine. Stocks are still rallying and it doesn’t seem like Wall Street is all that concerned about any of this. So, let’s get your take on what’s going on there, Michael, because it’s pretty hard to connect the dots between Wall Street and Main Street these days. Help us out there.
Michael Pento: Yeah. So nothing is going on that much this year at all, right? It’s been pretty boring. </sarc> The divide between the rich and the poor, which was already humongous coming into this year has grown exponentially. And you have to ask yourself the question, gee, if GDP, according to the Atlanta Fed is going to drop in the second quarter by over 52%, that is a seasonally adjusted annual rate, Mike. GDP is going to be cut in more than half during the second quarter of 2020, how in God’s name could it be possible that stocks are close to all-time record highs? And by evaluation metric at all-time record highs. There are about over 150% of GDP.
Just when it seemed as though America may be turning the corner after months of lockdown… just when it seemed as though we were on a path to reopening and gradually returning to normalcy… just when the prospects of panic-induced social unrest seemed to be behind us…
…America’s cities erupted into flames.
Antifa and BLM-organized rioting, looting, violence, and mayhem have pushed cities across the country into pandemonium. Even if the insurrections are soon quelled – as President Donald Trump promised to do in a speech in front of the White House on Monday – the consequences won’t soon go away.
I’ve missed a few predictions along the way, but usually only in part. When I missed, it was because I took the bad too far. The bad has almost always happened exactly when I said it would but hasn’t always been as bad as I said it would be. Now, it has all arrived and is turning out to be fully as bad as I said it would be.
It took the kick of a virus to set everything in place, but all the parts are now falling where I said they would once the next recession began.
It drives you absolutely mad to see a whole world living a lie. How can anyone believe that the fake world the Fed and their fellow central bankers have created has anything to do with reality. We have fake money, fake markets, fake companies, fake banks, fake interest rates, fake income, fake pensions, fake social security, fake wealth, fake bail outs, fake buildings, fake holidays, fake cars etc which create false lives for most of us especially in the West. All these fake material values have also created false moral and ethical values.
IT IS ALL AN ILLUSION
(All of that is laid out in these two recent articles: “CASHLESS SOCIETY 2020: Bill Gates Goes Viral on Digital ID and Digital Currency” and “CASHLESS SOCIETY 2020: Coronavirus Swings Society to “Touch Free” Digital ID and Digital Currency.”)
During the Great Depression, stocks lost 90 percent of their value, people lost savings and jobs. Today there are a record 33 million jobless Americans, double the 15 million jobless in the Thirties or 25 percent of the population then. And today, there are long food lines that rival those of the Great Depression. Yet looking at the stock market and its robust snapback rally, the juxtaposition between the comeback and an economy in freefall is contradictory. Of interest is that at the onset of the Great Depression, stocks actually rallied 50 percent, before losing 90 percent of their value three years later. And, looking for clues about the future from the bond market is futile given the Fed’s dominant presence. While there are similarities, they are differences.
Yet few are putting forward the consequences of the inexorable rise in debt to save the world and fewer are looking at a “never normal” future.
Mike Gleason (Money Metals Exchange): It is my privilege now to interview our good friend, Greg Weldon, CEO and President of Weldon Financial. Greg has decades of market research and trading experience specializing in the metals and commodity markets and he even authored a book back in 2006 titled Gold Trading Boot Camp where we accurately predicted the implosion of the U.S. credit market and urged people to buy gold when it was only $550 an ounce. He’s made some fantastic calls over the last few years here on our podcast and it’s great to have him back with us.
We did speak to you back at the end of February before all this madness started. At the time, COVID-19 had begun seriously impacting economic activity in global markets, maybe not so much in the U.S. Now, just two months later, more than 30 million people have filed for unemployment, GDP was deeply negative in the first quarter and figures to be even worse here in Q2. But the equity markets are acting as if the worst is behind us. We got a major correction followed by an almost relentless rally. Our take is that equity markets are completely disconnected from reality. They are hitched, instead, to the Fed’s magic money machine. What is your take on how stock markets are behaving here, Greg?
“In short, the Fed is committed to rescue businesses from the greatest economic catastrophe since the great depression and probably even greater than that, to fund the US Government’s rocketing budget deficits, fund the maintenance of domestic consumption directly or indirectly through the US Treasury, while pumping up financial markets to achieve these objectives and preserve the illusion of national wealth.
“Clearly, we stand on the threshold of an unprecedented monetary expansion.”
By Andrew Moran – Re-Blogged From Liberty Nation
In response to the Great Recession a decade ago, the international community fired off the big guns to stave off the inevitable decay of the global economy that had been manipulated and distorted through the Keynesian doctrine. Despite the massive fiscal and monetary stimulus at the time, many countries failed to recover from the financial crisis – and those that survived the market meltdown are still paying for the spending and bailouts. After pulling the trigger on the Coronavirus-targeted bazookas, the world’s pockets are empty, potentially creating a scenario for a reset in the global monetary order. On the other side of the lockdown, who will stand tall and reign supreme? If history is any indicator, it will either be the country with a lifetime supply of printing press ink or the one with a vault full of gold.
The destiny of the world is now in the hands of 6 central banks, Fed, ECB, BoE (England), PBOC (China), BoJ (Japan), SNB (Swiss). This in itself bodes extremely badly for the global financial system. This is like putting the villains in charge of the judicial system. For decades these central banks have totally abused their power and taken control of the world monetary system for the benefit of their banker friends and in some cases their private shareholders.
The central banks have totally corrupted and destroyed the financial system, by printing money and extending credit that doesn’t exist. Everyone knows that creating money out of thin air makes the money totally worthless. These bankers know, that if you stand next to the printing press and get the money first, it does have some value before it circulates. And this is exactly what they have done. Once the money reaches the people, it devalues rapidly. As Mayer Amschel Rothschild said over 200 years ago: “Permit me to issue and control the money of a nation, and I care not who makes its laws.”
This article asserts that infinite money-printing is set to destroy fiat currencies far quicker than might be generally thought. This final act of monetary destruction follows a 98% loss of purchasing power for dollars since the London gold pool failed. And now the Fed and other major central banks are committing to an accelerated, infinite monetary debasement to underwrite their entire private sectors and their governments’ spending, to prop up bond markets and therefore all financial asset prices.
It repeats the mistakes of John Law in France three hundred years ago almost to the letter, but this time on a global scale. History, economic theory and even common sense tell us governments and their central banks will rapidly destroy their currencies. So that we can see how to protect ourselves from this monetary madness, we dig into history for guidance to see who benefited from the Austrian and German hyperinflations of 1922-23, and how fortunes were made and lost.
Will the Coronavirus be the catalyst of not just a depression but also major reduction in global population? The growth in world population since the 1850s has been explosive. In the 1850s there were 1 billion people and today we are 7.8 billion. Although many “experts” have extrapolated the growth to 10 billion and more in coming decades, this has in my view not been based on sound reasoning. Instead, as I been writing about and discussed many times the spike in population that we have seen in the last 170 years will not end well.
Anyone who can read a chart knows that a spike on a major sample doesn’t continue straight up. And it doesn’t just correct sideways either. At some point, a spike up is always corrected by a major spike down. I talked about this in my article from April 2018. Below is an extract from this article:
We are all praying for the Wuhan virus to die. But there is something the virus can actually “cure” itself: deflation. I put the word cure in quotes because it’s not an actual issue in reality. Low inflation and disinflation are actually great conditions to enjoy and help an economy thrive. Increasing the purchasing power of consumers is something that should be cherished and targeted goal. Increases in productivity, along with a strong currency, raises your standard of living. In sharp contrast, Central Banks think any rate of inflation that is less than 2% is a deadly economic disease that must be vanquished faster than the Wuhan virus.
Many Austrian economists believed the money printing that occurred during the Great Recession of 2008 would engender massive inflation. That indeed turned out to be the case; but only with asset price inflation. The Fed’s balance sheet expansion left Consumer Price Inflation (CPI) far behind. This is because the Fed bailed out banks, not consumers. Mr. Bernanke printed trillions of new dollars to purchase bad assets from banks’ balance sheets. Thus, it gave banks credit in exchange for those assets; and that base money was primarily parked back at the Federal Reserve. In other words, there was a huge increase in Fed credit but not in loans that would have led to an increase in the broader monetary aggregates—the kind of money supply increase that leads to rising CPI. What money that was lent out arrived directly to Wall Street by the process of banks selling MBS, ABS and other troubles assets and then using that credit to buy more bonds and stocks. The rich got richer and the lower classes were, for the most part, left out in a big way.
Commentators routinely confuse the deflationary effects of a contraction of bank credit with the inflationary effects of central bank policies designed to offset it. Central banks always ensure their stimulus is greater, so inflation, not deflation, is always the outcome.
In order to understand bank credit, we must enter the mind of a banker and understand how it is created, why it is expanded and why expansion is always followed by a sharp contraction.
But we have now moved on from a simplistic credit cycle model, given the global economy was already facing a tendency for bank credit to contract before the coronavirus drove supply chains into the greatest global payment crisis in history. The problem is now so large that to maintain both economic stability and price levels for financial assets the central banks, led by the Fed, will have to issue so much base currency that fiat currencies will become almost worthless.
A Hyperinflationary Depression has always been the inevitable end to the biggest financial bubble in history. And this time it will be global. Hyperinflation will spread from country to country like Coronavirus. It could start anywhere but the most likely first countries are the US and the EU or ED (European Disunion) They will quickly be followed by many more like Japan and most developing countries. Like CV it will quickly jump from country to country with very few being spared.
CURRENT INTEREST RATES ARE A FALSE INDICATOR
Ever since the last interest cycle peaked in 1981, there has been a 39 year downtrend in US and global rates from almost 20% to 0%. Since in a free market interest rates are a function of the demand for credit, this long downtrend points to a severe recession in the US and the rest of the world. The simple rules of supply and demand tell us that when the price of money is zero, nobody wants it. But instead debt has grown exponentially without putting any upside pressure on rates. The reason is simple. Central and commercial banks have created limitless amounts of credit out of thin air. In a fractional banking system banks can lend the same money 10 to 50 times. And central banks can just print infinite amounts.
By CNBC- Re-Blogged From Headline Wealth
[Here comes another abomination from the FED! –Bob]
Former Federal Reserve Chair Janet Yellen thinks the central bank is not in a position where it needs to buy equities but thinks lawmakers should give it more leeway for the future.
“It would be a substantial change to give the Federal Reserve the ability to buy stock,” Yellen told CNBC’s Sara Eisen on “Squawk on the Street.” “I frankly don’t think it’s necessary at this point. I think intervention to support the credit markets is more important, but longer term it wouldn’t be a bad thing for Congress to reconsider the powers that the Fed has with respect to assets it can own.”
Normally, the Fed is only allowed to own government debt and agency debt with government backing, Yellen said.
The central bank has also received special powers during the coronavirus outbreak to buy other assets such as corporate debt through exchange-traded funds. The Fed has also cut rates to zero and launched an unlimited quantitative easing program to help stabilize markets.
The purpose of this article is purely educational. Increasingly, the wider public is turning to gold in a spontaneous reaction to financial and economic problems that have become suddenly apparent, hastened by the spread of the coronavirus. For everyone now thinking of buying gold it is a leap into the unknown, so they should know why.
It is not just the financially inexperienced, but investment managers and financial advisors are equally unaware of what is happening to money and capital markets. We are in the early stages of a radical debasement of state-issued currencies which is on course to collapse the entire financial system.
I explain the two phases of this destruction of fiat money, the one experienced so far and the one we are about to suffer. I explain why sound money has always been physical gold and silver, returned to by the people after government and banks have collectively destroyed state-originated unsound money.
Silver is real money, not a debt-based fiat currency that will eventually fail. Silver bullion production requires capital and effort to mine and refine. We use it for solar panels, iPhones, cruise missiles and thousands of other items. Silver is monetary sanity.
Prices for silver rise as currency units are devalued. Silver sold for $1.29 in the 1960s. Today’s COMEX price is around $16.00 because dollars buy less. Prices for physical silver are much higher. The continual devaluation benefits the political and financial elite who own most paper assets – stocks and bonds. The bottom 90% pay higher prices for necessities plus interest on their debts. Savings in silver coins will offset devaluation and loss of purchasing power.
The unilateral response from governments to the coronavirus is to helicopter money to people and their businesses in unlimited quantities. Their priority is to keep the debt-driven Keynesian show on the road, and policy makers are approaching the task with unseemly gusto.
There was evidence that the credit cycle was already on the turn with the global economy entering its regular period of financial and economic crisis even before the coronavirus hit. Thinking it is only a matter of dealing with the pandemic before returning to normal is therefore a common and fatal mistake. The combination of current events is leading to an infinite problem: central banks, and the Fed in particular, are trying to backstop everything and they will undoubtedly fail.
The central issue is the dawning inability of the Fed, in charge of the world’s reserve currency, to keep financial markets under control. The quantities of money required to rescue the US economy and dollar-centric supply chains abroad are potentially far greater than anyone realises and will destroy not just the dollar, but the whole fiat money system of rigged financial markets upon which debt financing depends. The EU is in a similar but more parochial fix with the addition of a banking system visibly on the verge of collapse.
The timescale for the demise of unsound fiat currencies is likely to be very short, by the end of 2020 – exactly three centuries since a similar fiat currency experiment failed in John Law’s Mississippi bubble.
“Next five years is not about winning but surviving.” This is the headline of an article I wrote in early August 2019. At that point I was primarily thinking of economic survival. But now the world is facing multiple threats and multiple failures. As I have already stated, the Coronavirus is not the cause of global market crashes but the catalyst.
But even if I have been totally certain that the world will see an economic collapse greater than any crisis for 100s of years, this is the worst catalyst that anyone could have expected. Yes, a global virus was always one of the potential risks but of all triggers, this one was certainly the most unwelcome and horrible.
Stay with me on this… the purpose will become clear soon.
Assume (without laughing or crying) that our U.S. senators are honest individuals filled with integrity. Yes, I know, but stay with me…
They voted during the impeachment trial for President Donald Trump. They swore to uphold the following oath:
“Do you solemnly swear that in all things appertaining to the trial of the impeachment of Donald John Trump, president of the United States, now pending, you will do impartial justice according to the Constitution and laws, so help you god?”
Let’s say President Trump is right about the coronavirus “miraculously” fading away as temperatures rise in the Summer. Will things then go back to the old normal of globalization, free trade and finance-driven “growth”?
Almost certainly not, because the psychological damage has already been done. Over the past couple of weeks the modern globalized economy with its multi-nation supply chains and just-in-time inventory systems has been forced to recognize that such a system only works in a nearly-perfect environment. Take the iPhone: It is designed in the US, its constituent raw materials are mined and processed in numerous other countries and the resulting components are then shipped for assembly to vast Chinese factories.
In Fed Chair Jerome Powell’s appearance before Congress on February 11th, formerly known as The Humphrey-Hawkins testimony, he asserted that the U.S. economy was, “In a very good place” and “There’s nothing about this expansion that is unstable or unsustainable.” But compare Powell’s sophomoric declaration to what Charlie Munger, Vice-Chairman of Berkshire Hathaway and Warren Buffett’s longtime right-hand-man, had to say about the market and the economy, “I think there are lots of troubles coming…there’s too much-wretched excess.”
Mr. Powell’s comments rival in ignorance with that of former Fed Chair Bernanke’s claim that the sub-prime mort crisis was contained. That is until the Great Recession wiped out 50% of stock valuations and over 30% of the real estate market. And of course, don’t forget about Fed Chairs Yellen and Powell’s contention that their Quantitative Tightening program would be like watching paint dry and run harmlessly in the background on autopilot. At least that was their belief until the junk bond market disintegrated and stocks went into freefall in the fall of 2018. Therefore, it should not be a surprise at all that the Fed doesn’t recognize the greatest financial bubble in history: the worldwide bond market mania. Perhaps this is because central banks created it in the first place and therefore didn’t want to take ownership of it.
A few days ago the market was crashing on Coronavirus fears. But recently, the market has soared back based upon the hopes of a vaccine and some better than expected economic data in the US. The ADP January employment report showed that a net 291k jobs were created, and the ISM Services Index came in at a healthy 55.5. However, a couple of good data points doesn’t change the fact that US economic growth has contracted back to 2% trend growth and will absolutely become more anemic–at least in the short-term. This is because the measures needed to contain the virus are also GDP killers. I have no clue if the virus will become a pandemic or if it will fade away like the SARS and MERS viruses–without long-term economic damage. But, for the stock market to remain at record high valuations, nearly everything has to go perfectly. That is, the Fed has to keep pumping in money, and EPS growth must rebound sharply.
This article posits that the spread of the coronavirus coincides with the downturn in the global credit cycle, with potentially catastrophic results. At the time of writing, analysts are still trying to get to grips with the virus’s economic impact and they commonly express the hope that after a month or two everything will return to normal. This seems too optimistic.
The credit crisis was already likely to be severe, given the combination of the end of a prolonged expansionary phase of the credit cycle and trade protectionism. These were the conditions that led to the Wall Street crash of 1929-32. Given similar credit cycle and trade dynamics today, the question to be resolved is how an overvaluation of bonds and equities coupled with escalating monetary inflation will play out.
With a recession become increasingly certain and the end of the expansionary phase of the credit cycle in sight, we can expect a periodic systemic crisis to be upon us soon. The question arises as to how serious it will be, given that despite the massive injections of extra base money since the Lehman crisis, signs of liquidity shortages are already re-emerging in financial markets.
We don’t know what will trigger the crisis, but a likely candidate is foreign selling of US dollars combining with a collapse in the US government’s finances. Perhaps the coronavirus will turn out to be a black swan event, but the underlying conditions for an economic and monetary crisis already exist.
This article looks at alternative outcomes. It concludes that the current situation bears a worrying resemblance to the collapse of John Law’s Mississippi scheme exactly 300 years ago. The key to understanding why this is so is because of the link forged between asset prices and fiat currencies. One fails, and they both fail, more rapidly than the most bearish bear might expect.
Mike Gleason: It is my privilege now to welcome back Michael Pento, President and founder of Pento Portfolio Strategies. Michael’s a well-known money manager, market commentator and author of the book, The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market. He’s been a regular guest with us over the years and we always love getting his fantastic insights.
Well, we’re having a hard time seeing a big move higher in metals prices until one of two things happen. We’ll start here. The first would be a pickup and safe haven demand. In our view there is too much investor complacency given the circumstances as has been the case for a while now, equity market valuations are sky high. Now we’ve got an election coming up, and there is at least some chance our next president will be an avowed socialist. This does not seem like the time for investors to be all in on risk trades, but we suppose the only thing that really matters is the Fed. They are going to do whatever it takes to keep the party in the stock markets going.
But what are your thoughts? Are we likely to see the markets get a wakeup call anytime soon or is the Fed likely to maintain complete control for the foreseeable future? Let’s start there.
Michael Pento: What a great question. Geez, you hit me over the head with a, a big anvil. That’s the $20 trillion question. I mean, can the market continue to defy gravity – and it is defying gravity, make no mistake about it. If you look at the total market cap to GDP, I look at the Wilshire 5000, that doesn’t have 5,000 stocks anymore. I think it’s like 3,500 but it’s the widest measurement of stocks, their market cap, to the underlying economy. That ratio is now 155%. Outside of March of 2000 when it was 145 or 148 around there, it’s never been near this. The average ratio is 0.8%… 80% or 0.8 in the ratio. So 155%, 1.55% above where the underlying supporting economy is. I mean it’s never been anywhere near this outside of that epic bubble in the NASDAQ debacle where the NASDAQ lost 80% of its value.
The benefits of a deflation of prices brought about by a combination of sound money and markets free from government intervention have been demonstrated to be the best economic environment, the denial of which in favour of inflationary financing has led to repeated monetary and systemic failures.
This article explains how this has come about and puts the record on deflation straight. The development of macroeconomic theory had to deny the benefits of a deflation of prices, unbelievably telling us we need higher prices to stimulate our consumption.
Deflation and investment funded by savings is a far better, natural economic environment than the false gods of easy debt and money printing. There can be no return to the stability of gentle price deflation without seismic shifts in economic thinking and government responsibilities.
It is not at all a mystery as to the cause of the wealth gap that exists between the very rich and the poor. Central bankers are the primary cause of this chasm that is eroding the foundation of the global middle class. The world’s poor are falling deeper into penury and at a faster pace, while the world’s richest are accelerating further ahead. To this point, the 500 wealthiest billionaires on Earth added $1.2 trillion to their fortunes in 2019, boosting their collective net worth by 25%, to $5.9 trillion.
In fact, Jamie Dimon, CEO of JP Morgan, made a quarter of a billion dollars in stock-based compensation in 2019. As a reminder, shares of JPM were plunging at the end of 2018; that is before the Fed stepped in with a promise to stop normalizing interest rates. And then, soon after, began cutting them and launching a bank-saving QE 4 program and REPO facility on top of it in order to make sure Mr. Dimon’s stock price would soar. Slashing interest rates hurts savers and retirees that rely on an income stream to exist, just as the Fed’s QE pushes up the prices for the things which the middle class relies on the most to exist (food, energy, clothing, shelter, medical and educational expenses).
By Chris Powell, Money Metals News Service – Re-Blogged From Headline Wealth
For most of this decade owning gold and gold-related investments has required the patience of Job, and the sector is so obscure that it is hard to be sure of anything.
But for months now the unusual developments have been piling up so much that it may be possible to regain some optimism.
There are indications of a shortage of metal not just at the New York Commodities Exchange, where for months now most contracts have been settled through a supposedly “emergency” procedure called “exchange for physicals,” but also in London, the hub of the world gold market, where the usual flow of metal to Switzerland recently reversed, with metal flowing back to London amid increasing demand.
This corresponded with announcements of gold acquisitions by central banks that had not shown any interest in gold.
It can’t come as any surprise that the stock market’s lofty balloon ride during the past couple of months fell because of a few words this week. It only rode up on sweet tweets by Trump about trade, which created a thermocline for it to ride. So, of course, the market plummeted this week in the unexpected downdraft of Trump’s out-of-the-blue statement that his trade deal may be a year away … even for phase one.
I don’t know if ignorant traders drive these vain accessions and declensions or just ignorant machines that have no ability to discern truth, so blindly they take all presidential headlines at face value.
Who could be surprised that stocks got off to their worst December start since the beginning of the Great Recession when Trump said a trade deal might best be shelved until after the 2020 elections? It was, however, apparently a fleeting horror to those who had actually believed Trump about a phase-one deal being imminent this month. One could only watch the surprised reactions with amusement, given there was no reason there should have been any surprise at all.
America’s tariffs against China are already showing signs of undermining the global economy and will create a funding crisis for the Federal Government when it leads to foreigners no longer buying US Treasury debt and selling down their existing dollar holdings. A subversive attempt by America to divert global portfolio investment from China by destabilising Hong Kong will force China into a Plan B to fund its infrastructure plans, which could involve actively selling down her dollar reserves and hastening the introduction of a new crypto-based trade settlement currency.
The US budget deficit will then be financed entirely by monetary inflation. Furthermore, the turn of the credit cycle, made more destructive by trade tariffs, is driving the global and US economy into a slump, further accelerating all indebted governments’ dependency on inflationary financing. The end result is America’s trade policies have been instrumental in hastening the end of the dollar as the world’s reserve currency, ultimately leading to its destruction.