Author Archives: Opinion

There’s a fight brewing over government debt, low inflation and what to do about it

Bloomberg/Rich Miller

“‘This is an Alice in Wonderland world,’’ said former International Monetary Fund chief economist Olivier Blanchard. It’s one that Japan has long been familiar with, and Europe may be getting used to. In the U.S., it’s prompting policy makers to reconsider how public finances and interest rates should be managed. Possible results include even bigger government deficits and debt, and faster inflation — all anathema to Econ 101.”

USAGOLD note:  It is hard to imagine how the principles of the Mad Hatter Modern Monetary Theory can gain credence in the public debate without encouraging a large, consequent flight out of the dollar and into gold and silver.


Repost from 3-15-2019

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Sales of gold and silver should not be taxed

Forbes/Steve Forbes

“When you exchange a $20 bill for two $10 bills, you don’t pay sales tax on the transaction, even though, theoretically, you are “buying” the tens. The notion is utterly preposterous. Yet if you purchase a gold coin that was created by the U.S. Mint and is legally usable for commercial transactions, in some states you have to pay sales tax on that coin.”

USAGOLD note:  It probably goes without saying that we agree with Mr. Forbes assessment and welcome his prominent voice in the effort to end sales and capital gains taxes on gold and silver (money) transactions on a national basis. As it stands, 38 out of the 50 states have some version of a sales tax exemption in place on citizen purchases of gold and silver coins and bullion.  West Virginia joined the group of exempt states just last week.


Repost from 3-14-2019

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Why gold is still the best basis for money

Forbes/Nathan Lewis/3-16-2019

“Why is it that the collective intelligence (let’s be generous) of today’s central bankers, and indeed all the central bankers since 1971, cannot outperform a yellow rock? This probably strikes some as bizarre, but it has always been thus. Way back in 1928, in a book called The Intelligent Woman’s Guide to Socialism and Capitalism, George Bernard Shaw declared: “You have to choose … between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”

USAGOLD note:  Whether or not gold is the best basis for money may be a moot point.  Whether or not private investors should own it because the money is not gold-backed, on the other hand, remains a vital question.

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How to understand the Fed’s dovish turn

MarketWatch/Noriel Roubini/3-18-2019

“Richard Clarida, a well-respected economist and market expert, joined the Fed Board as vice chair in the fall of 2018, tipping the balance of the FOMC in a more dovish direction. Before then, Fed Chair Jerome Powell’s own dovish tendencies had been kept in check by a slightly less dovish staff and the third member of the Fed’s leadership troika, New York Fed President John Williams, who expected inflation to rise gradually above target as the labor market tightened.”

USAGOLD note:  Noriel Roubini on the rapidly changing climate at the Fed as alluded to briefly in yesterday’s DMR . . . Interesting stuff as the Fed meeting begins today and ends with a statement and Powell press conference tomorrow afternoon.

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The ecstasy of gold

MasterInvestor/Mark Watson-Mitchell/3-18-2019

“It is now evident that central banks have been buying-up gold at a rate not seen since World War II, driven by concerns over geopolitics, government debt, inflation and the strong dollar. And although the yellow metal has at times caused short-term pain, it can give better returns than other asset classes in the long-term.”

USAGOLD note:  An abridged, information-packed history of the gold market and a less than 10-minute read . . .


Image courtesy of © Degussa Goldhandl 2019. 

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The relevance of gold as a strategic asset

Scrap Register/3-18-2019

“Gold is a highly liquid yet scarce asset, and it is no one’s liability. It is bought as a luxury good as much as an investment. As such, gold can play four fundamental roles in a portfolio:

–a source of long-term returns
–a diversifier that can mitigate losses in times of market stress
–a liquid asset with no credit risk that has outperformed fiat currencies
–a means to enhance overall portfolio performance.”

USAGOLD note:  Why gold makes sense for private investors as a long-term, all-weather portfolio addition. . . . . . .

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Fiat currencies. Fiat news. Fiat world. Fiat lifestyle.

Epsilon Theory/Ben Hunt

“This is the cave in which inflation hides … our Fiat Lifestyle, where we simply declare into existence the manner in which we deserve to live. Declared into existence exactly like everything else in the Fiat World.  Pulled into the present from our future selves and our children. Without a second thought.”

USAGOLD note:  Quite a statement from Ben Hunt as part of a short article you really should not pass by – even if it is a bit unsettling.


Repost from 3-14-2019

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When trouble strikes, where should you hide? The case for gold

TheEconomist/Buttonwood

” There is one other destination you might consider, if only because others are starting to think the same way. And that is gold.”

USAGOLD note: Deductive logic, game theory point to gold . . . A well-written thinking man or woman’s approach to the financial markets and gold.


Repost from 2-15-2019

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Keynes is dead; this is the long run

Evergreen/Gavekal/Charles Gave/3-14-2019

“Of course, the name is something of an oxymoron; there is really nothing modern about this monetary theory. Confusing money creation with wealth creation was at the core of the debate between John Law and Richard Cantillon 300 years ago. For Law (a Scot who fled British justice, took refuge in France, and within a few years managed to drive what was then the leading economic power of the day into near bankruptcy), increases in the supply of money would lead to the employment of unused land and labor, which in turn would lead to higher productivity. Meanwhile, Cantillon explained in his Essay On Commerce that mistaking money for wealth always leads to disaster.”

USAGOLD note:  At the risk of sounding cynical, it would not be difficult to imagine the Federal Reserve – make that the world central banks –  proceeding with some version of MMT even while railing against it and saying they would never engage in such a thing.  How far from MMT was quantitative easing?  Not far, we would venture.

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Gold gets boost from euro strength

Seeking Alpha/Clif Droke/3-15-2019

“As can be seen in the April 2019 gold futures chart, the gold price managed to climb back above its 15-day and 50-day moving averages in the latest session. This is the first major sign that the bulls are on the cusp of recovering their control over both the immediate-term (1-4 week) and intermediate-term (3-9 month) gold trend. By closing above its 50-day MA on Friday, the gold price will establish its first weekly close above this widely-watched trend line since February. This would also likely result in additional short covering next week due to the popularity of the 50-day moving average as a stop-loss guide and turning point indicator for technical traders and fundamental investors alike.”

Chart courtesy of TradingView

 

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Chinese economic data shakes the global equities markets

IRIS/Chris Vermeulen/3-13-2019

“The Chinese economic data was particularly devastating. It leads our researchers to ask a very critical question, “is this going to be an orderly contraction, or is this contraction going to extend into more chaos?” Our research team believes the economic contraction in China will extend into much of Asia and nations participating in the Belt Road Initiative (BRI) over the next 3~6+ months. We believe a natural progression of ‘protectionist processes’ will begin to take place throughout many of these nations as the money spigot from China dries up. We believe this credit contraction and economic downturn will result in an extended repositioning of priorities, assets, and valuations throughout most of southeast Asia and India and could extend into certain areas in Europe and Arabic nations.”

USAGOLD note:  Vermeulen believes that the next step will be a scramble for safety.  Since much of that scramble according to this theory will originate in Asia, it is not difficult to imagince where that scramble for safety is likely to lead.

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The big central banks increase the case for gold

Degussa/Market Report/Thorsten Polleit/3-14-2019

“The critical question is: What about the current price of gold? Is it cheap enough to justify a purchase recommendation? Yes, we think so, especially for long-term-oriented investors who wish to hold onto liquid means in the years to come. If central banks keep exaggerating their money printing schemes, it is hard to imagine that gold will not become increasingly competitive in the universe of liquid assets.”

USAGOLD note:
Polleit makes the case that central banks have already reverted to the money-printing mode and it is only a matter of time until gold becomes the beneficiary.
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Trump again threatens Europe with tariffs: Expect instant global recession

Mish Talk/Mish Shedlock/3-15-2019

Trump is hopping mad the EU for at least seven reasons. Mad enough to foolishly smack them with tariffs? I Believe so.

USAGOLD note:  Up ahead, around the bend, after or even before things are settled with China, another trade war looms – this time with Europe.  Shedlock provides an introductory look at what the White House might be thinking and why. . . . . . . . . . .

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American colonists had a modern monetary theory of their own

BloombergOpinion/Stephen Mihm/3-15-2019

“But there was a serious problem: The colonial government had no money, and failed to secure a loan. It fell to a small committee of prominent citizens to figure out what to do. The head of the committee was a man named Elisha Hutchinson. . . Hutchinson and the others devised an unusual solution to the problem. They issued what is generally recognized as the first fiat currency in the Western world. The twenty-shilling notes they printed cheekily claimed that they ‘shall be in value equal to money’ — meaning that they were equivalent to silver coin.”

USAGOLD note: Though, as Mihm explains, the original paper currency Massachusetts introduced in 1690 functioned reasonably well in terms of holding its value, some of its successors did not do so well.  Years later, a paper currency inflation during and after the American Revolutionary War earned a prominent place in the Amerian lexicon for the phrase “not worth a Continental.”   Mihm’s article  makes reference to the period in Massachusetts around 1690 as a “crude forerunner” of Modern Monetary Theory and is an interesting read.


“The Congress issued six million dollars of continentals in 1775, and the issues increased each year. One hundred and forty millions were issued in 1779. As prices rose, the government found that it needed more and more dollars to finance its expenditures. More money was printed. This added supply of dollars led to further depreciation in the infamous spiral of inflation. At the outset, the continental had circulated at par with a dollar of specie. By 1780, over one hundred continental dollars were required to exchange for one specie dollar; Congress had printed continentals until they were worth almost nothing.” – Murray N. Rothbard, Faith and Freedom, (1950) as published at the Mises Institute, 12/17/2018

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No one knows how monetary policy works

Credit Bubble Bulletin/Doug Noland/3-16-2019

“One could pinpointing the start of the great Credit Bubble back with the 70’s inflation. For my purposes, I date its inception at the 1987 stock market crash. At the time, many were drawing parallels between the 1987 and 1929 market crashes – including dire warnings of deflation risk – warnings that have continued off and on for more than three decades. The Greenspan Fed made a bold post-crash pronouncement: ‘The Federal Reserve, consistent with its responsibilities as the Nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.’ In hindsight, this was the beginning of central banking losing control.”

USAGOLD note:  Another quality weekend read from Mr. Noland. . . . . . .

 

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Metals Focus says two to three year bull market for gold ‘to start in late 2019’

Bullion Vault/Adrian Ash

“‘For much of 2018, investors tended to focus on other, higher-yielding asset classes [than gold],’ says a note from specialist analysts Metals Focus, ‘but we do expect this position to gradually change, especially during the latter part of 2019…[as] a slowdown in the US economy will encourage the Fed to adopt a far more dovish stance towards its interest rate policy.’ Forecasting that ‘a bull market in gold [will] emerge from late 2019 onwards,’ Metals Focus think that uptrend will then ‘remain in place for two to three years.'”

USAGOLD note (12-19-2019):  Adrian Ash passes along another positive reading for the yellow metal for 2019, this time from London’s Metals Focus.

USAGOLD note (3-15-2019):  This prediction from Metals Focus in December appears to have been prescient and unfolding on a timeline much sooner than originally anticipated. On December 19, the date Metals Focus released their study, gold was trading in the $1240 range.  It reached $1340 February 19th, two months later, and is hovering now in the $1300 range.


Repost from 12-19-2018

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Gold still on track to hit $1,400 an ounce

Scrap Register/3-15-2019

“In her latest precious-metals report Thursday, Georgette Boele, coordinator of foreign exchange and precious metals strategy at ABN AMRO, said that the metal’s technical outlook supports higher prices. ‘Despite the recent sharp decline in prices, prices are still above the 200-day moving average at around $1,250 per ounce,’ Boele said. ‘We are confident that prices will stay above this level. It is possible that prices drop towards this level and test it, but this would be an opportunity to position for higher gold prices.'”

USAGOLD note:  Gold popped back over the $1300 mark in overnight trading . . . . Here at USAGOLD we are beginning to see a slow but sure return to a buy the dip mentality among investors.

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When the barbarous relic hit $1000

Adam Smith Institute/3-13-2019

“In modern times the lessons of Zimbabwe and Venezuela point to the catastrophic effects that can follow when a corrupt or incompetent government finances its lavish spending by printing more of its currency. The Gold Standard favors the countries that have gold deposits, but it has the advantage of making it difficult for governments to inflate prices by expanding the money supply. It engenders long-term price stability because the money supply can only grow at the rate at which gold is produced. Inflation can come, though, if a major new source of gold is developed, as happened with Spanish gold from the New World, or with various ‘gold rushes.'”

USAGOLD note: As we have said here so many times over the years, the best recourse for the average investor in the absence of a gold standard is to put one’s self on the gold standard through physical ownership of gold coins and bullion.

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Why is gold so important?

GoldSilverWorlds

“You might wonder what early uses did they have for gold when they first discovered it. Unfortunately, we don’t know either. But since 3,000 BC gold played an important role with the Egyptians. It was used to decorate their temples, weapons, ornaments, and jewelry. To the ancient Egyptians, gold was so important to them that even the capstones in the great pyramid of Giza were made out of gold.”

USAGOLD note:  An interesting short-history on the ancient uses of gold . . . .


Image by Emadshenouda [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons [Edited]


Repost from 10-22-2018

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Notes on chairman Powell’s 60-Minutes non-interview

Mises Institute/Jeff Deist/3-12-2019

“Granted, this was 60 Minutes and not Bloomberg or the Wall Street Journal. It was a puffball interview. But is it too much to ask the man who holds tremendous sway over our financial well-being to give the American people a substantive primetime interview? Go back and listen to presidential debates thirty years ago, or old Firing Line shows. We weren’t always subjected to dumbed down cartoon versions of policy issues. If Americans can’t—or won’t—understand the basics of central banking, we really do have bigger problems than unaccountable technocrats at the central bank.”

USAGOLD note:  Deist is right, of course, on the dumbing down of modern society – a subject on many people’s minds. The fault, though, is not in our stars, as the bard tells us, but in ourselves.  If we choose to be dumbed down, we will be dumbed down.  There is plenty of in-depth, well-presented information at our beck and call.  All we have to do is take the time to access it, process it, and incorporate it in our own understandings.

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‘Other’ is the largest Treasury buyer?

Gold Eagle/Mike Savage

“The only real growth that I am seeing is in asset prices (great for those that own them) and in debt (likely the real reason behind the rising asset prices). As I have said many times before each and every intervention into the markets have to be bigger than the last one to get the same effect. This is why I believe we are seeing and will likely continue to see debt growth that is truly astounding.”

USAGOLD note:  An excellent overview of the towering debt problem in the United States and what it might mean for investors and investment markets.  One aspect of the debt problem – the national debt – is approaching another milestone. It will soon go past the $22.1 trillion mark. Through the first five months of the government’s fiscal year, the federal government has added $467 billion to the national debt.  At that rate, the U.S. will add $1.12 trillion to the national debt by the September 30 end to the fiscal year – and that, before all is said and done, might be a conservative projection.


Repost from 3-1-2019

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Quantitative easing was the father of millennial socialism

Financial Times/David McWilliams

“As we mark the 10th anniversary of the bull market, it is worth considering whether the efforts of the US Federal Reserve, under Mr Bernanke’s leadership, to avoid 1930s-style debt deflation ended up spawning a new generation of socialists, such as the freshman Congresswoman Ms Ocasio-Cortez, in the home of global capitalism.”

USAGOLD note:  At the end of this very interesting editorial, McWilliams asks a compelling question: “What if a policy designed to protect the balance sheets of the wealthy has unleashed forces that may lead to the mass appropriation of those assets in the years ahead?” Long before a 70% tax rate is promulgated, though, we could face the prospect of asset appropriation in forms more subtle than asset appropriation – deflation, runaway inflation or any one of the maladies that fall in between. . . . .


Repost from 3-3-2019

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The global economy is a time bomb waiting to explode

TruthDig/Marshall Auerbach/3-11-2019

“But we did let the crisis of 2008 go to waste. Rather than reconstructing a new foundation out of the wreckage, we simply restored the status quo ante, and left the world’s elite financial engineers with a relatively free hand to create a wide range of new destructive financial instruments.”

USAGOLD note:  In this extensive review of where we are economically and how we got there, Auerbach predicts “a nasty sequel to 2008 facing us in the near future.”

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Jeffrey Gundlach says the stock market was and still is in a bear market

CNBC/Yun Li/3-12-2019

“’The stock market was and still is in a bear market,’ the founder and chief executive officer of Doubleline Capital said in an investor webcast on Tuesday. He also said stocks could go negative again in 2019.”

USAGOLD note:  CNBC gave Gundlach’s prediction headline coverage yesterday. He says stocks could go negative again in 2019.

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Support for the gold price could soon change to a rush for gold

Lombardi Letter/Alessandro Bruno

“But there’s fashion and there’s style; they’re not the same thing. Fashion is temporary and changes. Style is permanent and adapts. Investing in stocks, outside of a clear strategy based on a buy-and-hold approach, is often a fashion. Gold may be traditional now, but it’s never out of style. And it may soon become fashionable again. Indeed, the change, or the shift, has already begun.”

USAGOLD note:  The allusion to fashion reminds us of the old maxim that an ounce of gold from time immemorial would always buy a quality man’s suit.  “The price of a fine suit of men’s clothes,” wrote the U.S. Geological Survey last year, “can be used to show anyone who is not familiar with the price history of gold just how very cheap gold is today. With an ounce of gold, a man could buy a fine suit of clothes in the time of Shakespeare, in that of Beethoven and Jefferson, and in the depression of the 1930s.”  At present, a quality men’s off-the-rack suit at Brooks Brothers without the shoes and tie ranges in price from $1700 to $2500.


Repost from 11/5/2019

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Why the world is awash with $100 bills

Financial Times/Gillian Tett/3-6-2019

“In the decade since the 2008 crisis, plenty of weird things have occurred in the world of finance. But this week a new phenomenon was observed that might make even economists and financiers blink.”

USAGOLD note:  One of the points Gillian Tett makes is that $100 bills are being used around the world as a hedge against a number of different negative scenarios. . . . An interesting read about the very same mindset that leads some to gold ownership.

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Bond investors are daring to whisper about a return to Fed QE

Bloomberg/Vivien Lou Chen/3-8-2019

“Bond-fund managers are starting to whisper about the prospect of more Federal Reserve quantitative easing to fight the next U.S. downturn, underscoring just how acute concerns over flagging global growth have become less than three months after the central bank last raised interest rates.”

USAGOLD note:  The ECB quickly announced a new version of QE.  PBoC is adding stimulus far and wide.  BoJ never hung up it sword.  BoE is on-board.  The Fed, according to analysts quoted in this Bloomberg piece, is not far behind. . . . . .

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The danger lurking in the Fed’s monetary policy

MarketWatch-Barron’s/James Grant

“Clarida acknowledged no doubts. He said that radical monetary policy has worked, that it will continue to work, and that it may well become more radical.”

USAGOLD note:  Grant mentions a suggestion made by Clarida that the Fed could set a “temporary ceiling for Treasury yields at longer maturities by standing ready to purchase them at a preannounced floor price.”  We will let that one sink in without comment, though Grant has some choice thoughts on the matter at the link offered above. These ideas and more will be discussed in an upcoming conference at the Federal Reserve Bank of Chicago in June.


Image:  Fed chairman Jerome Powell swears in vice chairman Richard H. Clarida


Repost from 3-3-2019

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Bill Bonner’s third bold prediction

Bonner & Partners/Bill Bonner

“Had America stuck with real, gold-backed money… and/or had the Fed not supported Wall Street with ultra-low interest rates and $4 trillion of new money… the situation would be much different. There would be no trade deficit with China. There would be no $250 trillion in debt. An F-150 would probably cost less than it did in 1971, not more. The working class would have nothing to grumble about… And Donald Trump would not be president. The Fed would not be ‘normalizing,’ because it never would have un-normalized. The rich would not be so rich. The Dow would not be over 25,000. The government would not have $22 trillion of debt itself. And we wouldn’t be up at 6 a.m. writing this Diary.”

USAGOLD note:  Another stellar piece of writing/thinking from Bill Bonner. . . .His third bold prediction, I should add, might surprise you.  It did me.


Repost from 3-4-2019

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China adds 10 tonnes to gold reserves, but is that all?

SharpsPixley/Lawrie Williams/3-9-2019

“If we add the latest 9.95 tonne figure to its previously reported gold reserve this now stands at some 1,862 tonnes, the world’s sixth largest holding, but only equivalent in value to around 2.4% of the country’s total forex holding value. By contrast, all of the top four nations, and also the Netherlands at No.9 hold more than 60% of their forex holdings in gold.  However the Chinese central bank is not thought to be the only official government entity which holds gold on its behalf. These probably include the State Agency for Foreign Exchange, China Investment Corporation (the nation’s sovereign wealth fund) and the military, and we can probably add the commercial banks to this list as they are all state-owned.”

USAGOLD  note: We agree with Lawrie Williams that China’s true gold holdings are probably substantially larger than what is being reported.

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