Author Archives: Opinion
“In Goethe’s 1831 drama Faust, the devil persuades a bankrupt emperor to print and spend vast quantities of paper money as a short-term fix for his country’s fiscal problems. As a consequence, the empire ultimately unravels and descends into chaos. Today, governments that have relied upon quantitative easing (QE) instead of undertaking necessary structural reforms have arguably entered into the grandest Faustian bargain in financial history.”
USAGOLD note: That quote is taken from a Scott Minerd essay eight years ago. “If there is too little money made available,” he says in the update linked above, “the prices of assets used as collateral backing loans will spiral downward. If there is too much, inflation will spiral out of control.” Then again, as mentioned here last week, we might get one and then the other as happened in Weimar Germany almost 100 years ago. Minerd is the highly-regard chief investment officer for Guggenheim Investments.
“Here’s the analysis. For February the unemployment rate in the U.S. was reported as 3.5%, or 5.8 million people. If you add another 3 million unemployed to that figure, then, all else equal, you have approximately a 5.3% unemployment rate. That’s a 1.8% increase in the unemployment rate one last week’s data alone.”
USAGOLD note: Long before the coronavirus came along, economists feared the United States was on the verge of falling into a recession. The unemployment claims number last week, though, took even the most pessimistic by surprise. The worry is that it may be just the tip of the iceberg.
“I’ve always viewed Bernanke as a decent man. But as a central banker – as the mastermind for the terminal phase of a runaway global monetary experiment – he’s been a disaster. His analytical framework is so flawed it’s difficult to comprehend the amount of power and discretion placed in his hands. It was Bernanke that invoked the government printing press to resolve whatever might ail the markets or economy. His crackpot theories that the Fed’s failure to print sufficient money supply after the ’29 stock market crash caused the Great Depression should have been sternly rebuked years ago. Worst of all, Dr. Bernanke specifically used the risk markets (stocks, corporate Credit, derivatives and such) as the primary mechanism for post-Bubble system reflation. The former Fed chief is the father of ‘QE,’ ‘helicopter money,’ and the ETF complex that took the world by storm.”
USAGOLD note: This is the same Ben Bernanke who once told Congress “No one really understands gold prices” while adding that he doesn’t get it either and calling it an “unusual” asset. Given the curriculum vitae Noland issues in his behalf, it is not difficult to understand why he would relegate gold to the status of financial second class citizen.
“Gold dealers in Switzerland are rushing to keep up with a surge in demand as worried investors seek out lower risk investments in precious metals with financial markets roiled by the coronavirus pandemic. Some sellers are seeing a ten-fold increase in sales of gold bars, coins and other pieces as existing buyers increase their holdings and newcomers enter the market.”
USAGOLD note: As mentioned previously, we at USAGOLD are experiencing a similar rush for the yellow metal. We recently sold out of our historic Swiss 20 franc gold coin inventory.
Repost from 3-24-2020
Image: A pile of pre-1933 Swiss 20 franc gold coins (Helvetia)
“But these deficit-financed interventions must be fully monetized. If they are financed through standard government debt, interest rates would rise sharply, and the recovery would be smothered in its cradle. Given the circumstances, interventions long proposed by leftists of the Modern Monetary Theory school, including helicopter drops, have become mainstream.”
USAGOLD note: Doctor Doom outdoes himself in this one. He warns at one point that even if the coronavirus is contained his year, it could potentially return next flu season and cause markets to crash again. The engame? …… a “persistent depression and a runaway financial-market meltdown,” he says.
Repost from 3-24-2020
“First it was Japan. Then Europe. Now investors are scanning the world for the next outbreak of stagnant inflation and tumbling yields.”
USAGOLD note: We have been beating this drum about the Japanification of the global economy – including the United States – for a long time on this page. More and more, the evidence mounts that we are in a structural rut from which there may be no escape. Japan has certainly had a rough time with it and now the government is poised to launch another round of infrastructure projects.
Repost from 12-9-2019
Financial Times/Martin Sandbu
“Some economists now call openly for explicit helicopter money in the sense that central banks should directly fund government deficits. ‘I do think the time is right for monetary finance,’ says Lord [Adair] Turner. [the former head of the UK’s Financial Services Authority]. ‘There would be a clarity of assuring people that there is no limit on the money available.'”
USAGOLD note: Not to throw cold water on the increasingly popular idea of helicopter money, but nowhere in this article are the potential consequences of its implementation addressed. Not even a passing mention …… Funny how crisis always brings out the apologists for running the money printing presses. Helicopter money is quantitative easing on amphetamines.
Repost from 3-23-2020
“Gold continued to push higher on Tuesday as a recent wave of selling dried up and Goldman Sachs told its clients the time had come to buy the “currency of last resort.”
USAGOLD note: This article goes beyond the Goldman prediction of $1800 within the next 12 months to harvest opinion from a number of top analysts in London and New York.
Repost from 3-25-2020
Streetwise Reports/Robert Moriarity (321 Gold)/3-27-2020
“The message was clear. Just moments before a bank closes the president of the bank says, ‘Your money is perfectly safe in our bank.’ And then slams the door forever. Banks are going to close. The financial system may well shut down for a period. Lots of investors will go to bed rich and wake up poor.”
USAGOLD note: One thing that has not been addressed directly with everything that’s gone on over the past few weeks is the danger of bank failures. Moriarity’s warning will provide those who read it with a back-to-earth moment ……
“The economy is a tricky thing, and it’s vulnerable to all sorts of external threats, as the recent decline of the U.S. Stock Market has proven with the outbreak of COVID-19. Looking back through history, we can prepare and survive so long as we learn the lessons of the past.”
USAGOLD note: A lot of this “to-do list” amounts to common sense, but it doesn’t hurt to be reminded about what really matters in times like these. Don’t forget to add some precious metals to your storage stockpile – the peace of mind inclusion.
“I’m fully aware that the provocation is that of, seemingly, an act of God or at least a viral mutation or something so we ought not to begrudge the Fed its humane impulses. But how do you not mobilize every single possible tool in your kit or bomb in your arsenal next time there’s a downturn in anything? I think this introduces the possibility of everything that gold bugs have been praying for. Are we going to talk about gold? I can’t wait.”
USAGOLD note: Grantian wisdom at its best ……With his sense of humor (as you can tell from the above) well in place.
“But the virus, and the global economic collapse that it’s sparking, have created such extreme price distortions that those easy-exit options disappeared on them. Which means that they suddenly faced the threat of having to deliver actual gold bars to the buyers of the contract upon maturity.”
USAGOLD note: Brother, can you spare a 100-ounce gold bar?
“Gold bullion is staying firm, close to a multiyear absolute high. This dynamic has caused bullion to register a relative all-time high compared with the CRB Index. What happened to gold bullion after it registered its previous all-time high relative to the CRB in 2008? It doubled in absolute terms to peak above $1,900 in 2011.”
USAGOLD note: Also …… Is this not a disinflation-deflation signal? If so, the demand for gold will come from investors seeking refuge from a possible systemic meltdown – ala 2008-2009.
“Over 40 years the authors have watched the bright optimism of a new, rigorous approach to economics — which they shared — dissolve into the failures of prediction, [former Bank of England governor Mervyn King and former Financial Times columnist John Kay] write, arguing that the modern community of economists and policymakers needs to accept radical uncertainty and rethink its models.”
USAGOLD note: And radical uncertainty ought to be a psychological underpinning for any rational, modern day investment portfolio. As Nicholas Taleb of black swan fame once said: It is just as important to prepare for what we cannot foresee as for what we can. One short cut to achieving that goal, in our view, is to own gold – and enough of it to make a difference.
“Having been mugged too often by reality, forecasters now express less confidence about our abilities to look beyond the immediate horizon. We will forever need to reach beyond our equations to apply economic judgment. Forecasters may never approach the fantasy success of the Oracle of Delphi or Nostradamus, but we can surely improve on the discouraging performance of the past. – Alan Greenspan, The Map and the Territory, 2013
Repost from 3-24-2020
“The new downswing results from more than the 2010 financial crisis. There has been a wave of Chinese and Asian working-class resistance to exploitation, which has eroded profits. In the West, paradoxically, the historic defeat of the unions has flatlined wages. As a result, goods can be sold (and profits maintained) only by bolstering consumption through easy personal debt. That makes the Western capitalist model unsustainable and prone to endemic bank failure. The banks and their tame accounting firms are busy covering up this chronic instability via wholesale fraud. As a result, we are nowhere near the bottom of this K-wave.”
USAGOLD note: The link above takes you to an excellent overview of the various stages of the Kondratieff Wave when applied to recent history and includes the author’s opinion as to where we are now. . . . . . The chart above provides a simplified template of the Kondratieff Wave since 1800. We allow you to draw your own conclusions and only mention that gold is not just an historically proven inflation hedge, it has performed equally as well in modern times under disinflationary, stagflationary and deflationary circumstances.
Image: Kondratieff_Wave.gif: Internaszonalderivative work: Agmen [Copyrighted free use]
Repost from 4-9-2019
“Yet while the yellow metal has done far better than other assets, it has slipped 2% over the last month. The Goldman analysts, with a 12-month price target of $1800 an ounce, said that is about to change, thanks to the Federal Reserve’s aggressive bond purchase plan unveiled on Monday, in which the U.S. central bank said it would buy as many Treasurys and mortgage-backed securities as needed to keep financial markets running smoothly.”
USAGOLD note: Yesterday’s developments in the gold market certainly buttress Goldman’s outlook. The Wall Street firm sees the announcement of unlimited quantitative easing as a turning point.
Repost from 3-24-2020
Graphic courtesy of HowMuch.net
“The specter of a global debt crisis suggests the urgency for new liquidity sources, bigger than those that central banks can provide. The logic leads quickly to one currency for the planet. The task of re-liquefying the world will fall to the IMF because the IMF will have the only clean balance sheet left among official institutions. The IMF will rise to the occasion with a towering issuance of special drawing rights (SDRs), and this monetary operation will effectively end the dollar’s role as the leading reserve currency.”
USAGOLD note: What Ricard’s assessment might mean for Americans is difficult to determine at this stage of the game. He warns of a major dollar devaluation from 50% to 80% under those circumstances and suggests “buying gold – if you can find any.” We emphasize that we offer Mr. Ricards opinion as a matter of interest but do not necessarily agree that a one-world currency is in the offing anytime soon – even with the current crisis taken into consideration. For one thing, it would require an agreement among the primary nation-states at a time when they cannot cooperate on much of anything.
“But the real answer explaining the huge price difference goes back to what you and I were discussing just a few weeks ago when I said that the London Gold Pool II is close to collapse. We are no longer ‘close to collapse.’ It is collapsing. There is no announcement from central banks like there was back in March 1968 when the first London Gold Pool collapsed. But we don’t need an announcement. The markets are telling us what is happening.”
USAGOLD note: Turk brings a great deal of historical perspective and insight to the table and this interview is a prime example. “All the markets are in turmoil,” he says, “so our number one focus should be on safety for both our health and wealth.”
“Gold hasn’t been a cross-cultural monetary standard for millennia just because it is pretty to look at. It has a job – one that it is exceedingly qualified for – and that is to be accepted as money when other financial instruments that were thought to be money are revealed to be credit. That is when gold is sold. Sacrificed.… If this general economic deterioration crosses over into an outright, interbanking liquidity panic, it should not surprise anyone that gold will be sold.”
USAGOLD note: The gold sold, as we are finding out, is paper gold, and there is a fundamental difference between gold represented on paper and gold as represented by itself. One is eminently more preferrable than the other and as we get deeper into the present crisis it is not difficult to know which is which. As Alan Greenspan famously put it: “Gold does not require any form of endorsement.”
“JN: How can people best prepare for the coming financial turmoil?
TM: Hold physical cash and physical gold. All through history, gold has been the best crisis hedge.
JN: What do you see the gold price doing going forward?
TM: We did an analysis of the historical prices of different asset classes, and it seems that gold first—when the crisis starts—goes down like the rest of the assets, but then it starts to rise very fast.”
USAGOLD note: Malinen paints a very bleak picture for the European economy saying that he at first viewed the coronavirus as a trigger and now he sees it as a driving force of its own. In one captivating section, he talks about the possibility of central banks failing – a subject few economists have addressed, although we do recall, James Grant recently raising the prospect.