There are growing signs that the global economic slowdown is for real. As was the case in 1929, the combination of the peak of the credit cycle coupled with trade protectionism in the Smoot-Hawley Tariff Act are similar conditions to those of today and potentially pose a serious economic challenge to the post-Bretton Woods fiat currency system. Therefore, we must consider the consequences if monetary policy fails to contain the developing recession and it turns into a full-blown slump. Complacency over broken markets is no longer an option, with rising prices for gold and bitcoin signalling the prospect of a new round of currency debasement to avoid market distortions unwinding. This article shows why this outcome could undermine fiat currencies entirely and looks at the alternatives of bitcoin and gold in this context.
Gold’s incredible strength this summer is very unusual, as early summers are the weakest times of the year seasonally for gold, silver, and their miners’ stocks. With traders’ attention diverted to vacations and summer fun, interest in and demand for precious metals normally wane. So this entire sector tends to suffer a seasonal lull, along with the general markets. This June’s bull-market breakout is a momentous anomaly.
This doldrums term is very apt for gold’s usual summer predicament. It describes a zone in the world’s oceans surrounding the equator. There hot air is constantly rising, creating long-lived low-pressure areas. They are often calm, with little or no prevailing winds. History is full of accounts of sailing ships getting trapped in this zone for days or weeks, unable to make headway. The doldrums were murder on ships’ morale.
Market participants are also concerned about the G-20 summit this weekend where it is hoped that President Donald Trump and China’s Premier Xi Jinping will meet to discuss the deepening trade war.
Gold has closed above $1400 for first time since 2013 as investors diversify into safe haven gold to hedge the growing global risks including the risk of much looser monetary policies again and of zero percent and negative interest rates.
Several recent articles have highlighted a surge of silver imports to India, prompting me to take a closer look. India has always been a big buyer of silver and gold, befitting the traditions and culture of the country with the world’s second largest population. The population of India, more than 1.3 billion citizens, is now only about 50 million less than that of China. Combined, both countries make up 35% of the total world population (7.7 billion) and have always been large buyers and holders of gold and silver. Together, India and China absorb close to 50% of total world gold and silver mine production.
One big difference between India and China is that the gold and silver buying in India is largely a grassroots phenomenon, emanating from the general population due to deep-rooted customs and traditions; where the buying from China is predominantly from official sources (similar to the gold buying by Russia). To me, this makes the gold and silver buying from India more “free market” and price-sensitive in nature because the more participants in any market, the freer the market is by definition. The many tens and even hundreds of millions of gold and silver buyers from India make the markets there the freest of all.
We can face reality by swallowing the “red pill” (from the movie “The Matrix). This choice is uncomfortable because it opposes the propaganda from mainstream media, government statisticians, and Wall Street cheerleaders.
The “red pill” road is difficult and sometimes lonely. Gold is a “red pill” choice.
The “blue pill” path is easier and reassuring. Other “blue pill” advocates will applaud your choices. The herd approves this delusional path. Think debt-based fiat currencies.
The “blue pill” is best swallowed with a healthy slug of whisky, anti-depressant drugs, a few hits from now-legal “weed,” and platitudes from the evening news.
Christopher Whalen wrote “Trump is Right to Blow Up the Fed.” He stated:
“Anybody who cares to read the 1978 Humphrey Hawkins law will know that the Fed is directed by Congress to seek full employment and then zero inflation. Not 2 percent, but zero. Yet going back a decade or more, the Fed, led by luminaries such as Janet Yellen and Ben Bernanke, has advanced a policy of actively embracing inflation.”
From the Federal Reserve’s web site:
“The Congress established the statutory objectives for monetary policy—maximum employment, stable prices, and moderate long-term interest rates—in the Federal Reserve Act.”
Most Americans take food abundance for granted. Grocery store shelves are always stocked, and America’s agricultural sector always grows more than enough corn, wheat, and soybean crops to keep the food production system humming along smoothly.
That all could change as abruptly as the weather. In fact, historically wet conditions throughout the Midwest have put this year’s spring planting in jeopardy.
As reported by Minnesota Public Radio, “Corn is being planted at the slowest pace ever, while soybean seeding is the slowest since 1996. And with the start of June looming, many farmers are facing a tough choice — do they even try to get crops in the ground at all?”
For farmers and ranchers across the heartland, it’s a financial crisis akin to a Great Depression. U.S. farm income is down 45% since 2013.