“Mundell had already played a leading role in developing the economic strategy — high interest rates combined with supply-side tax cuts — that was so central to defeating the stagflation of the 1970s and enabling the Reagan boom. Mundell would go on to advise the central bank of China, which he had foreseen would emerge as an economic power. He launched the Nobel Laureates Beijing Forum.”
USAGOLD note: I count myself among the admirers of Robert Mundell. He had many. I will always remember him as the economist who recommended gold to Europe not as something to back its currency, but as a reserve asset detached from the policies of other nation-states. In other words, he recommended gold to the European Union for the same reasons we recommend it to our clientele – as an asset which is not simultaneously someone else’s liability unlike, most notably, sovereign bonds. I had a cursory contact with Mr. Mundell through e-mail when he granted USAGOLD permission to post his Uses and Abuses of Gresham’s Law in the History of Money. One of the great economic minds of our time, as The New York Sun’s editor Seth Lipsky eulogized, is no longer with us. – MK
“With this paradox openly confessed, one of my former law professors sent me a polite yet challenging email to make a contrary case for inflation, as he had taught me (and many others) to do as part of a 3-year legal education in seeing two sides to every fact pattern. And so, in deference to a wise professor, as well as the humility of seeing more than one’s own certainty, let’s give deflation a fair look, as well as fair argument. In the end, fortunately, the net result is the same for gold: Its best days are still ahead.”
USAGOLD note: As we have said many times over a good many years, gold is indifferent to the inflation-deflation debate. It protects against either or both – no matter in which order they come. That said, Piepenberg offers a detailed discussion arguing both sides of the issue though he remains firmly on the inflation side of the fence.
“Ironically, the beggar-thy-neighbor implications of competitive devaluations will almost certainly incite a response from countries who may not originally even have needed to resort to currency debasement in the first place, raising the potential for full blown currency war. How should one position for such an endgame? As is probably evident, any nominal instrument will be devalued in real terms, so the solution is to hold an asset that maintains its real value – an asset that cannot be printed.”
Repost from 3-31-2021
“Investors are fretting over inflation. Scores of US companies are saying they are right to.”
USAGOLD note: Anecdotal, real life inflation is well ahead of what governments are reporting. Perhaps we should take note ……Details at the link. FT quotes one CEO as saying: “Costs are going up everywhere.”
Repost from 3-31-2021
“We can blame our debt debacle on many things: decades of out-of-control entitlement spending, the pandemic, costly wars in the Middle East, to name a few. However, let’s not overlook the meteoric rise of modern monetary theory (MMT).”
USAGOLD note: The MMTers say deficits don’t matter – spend and print without restriction. But, as one prescient analyst put it: If they don’t matter why tax citizens at all?
Repost from 12-10-2020
“Economics is no real science. It is mostly quackery mixed with flimflam. … [W]hile the U.S. dollar of 1913 (when the Fed was created) was just as good as the dollar of 1791 (when the dollar was created), the dollar of 2020 is worth, relatively, only about 3 cents! Why? Because in a crisis, the temptation to ‘print’ more money is always irresistible. The Fed’s balance sheet – a measure of how much printing is going on – was only 6% of U.S. GDP in 2008. By the end of 2021, it will likely be near 50%. Where’s the science behind that?”
USAGOLD note: Bonner offers an entertaining two-part read …… Part two is linked above. Here is the link to part one.
Repost from 10-16-2020
“We face what I have called a Long Ascent for the global economy: a climb that will be difficult, uneven, uncertain—and prone to setbacks. But it is a climb up. And we will have a chance to address some persistent problems — low productivity, slow growth, high inequalities, a looming climate crisis. We can do better than build back the pre-pandemic world – we can build forward to a world that is more resilient, sustainable, and inclusive. We must seize this new Bretton Woods moment.”
USAGOLD note: Georgieva summons the ghost of John Maynard Keynes as the IMF puts its blessing on the movement to replace austerity programs with full-out fiscal and monetary stimulus – in general, the progressive economic agenda including presumably full engagement of the money printing press on a global basis.
Image: John Maynard Keynes before 1913
Repost from 3-29-2021
“With respect to Gold specifically, the NSFR [Net Stable Funding Ratio] will significantly penalize Bullion Banks holding Gold in unallocated accounts relative to fully allocated accounts. Unallocated means you have a ‘share’ in a certain amount of Gold whereas allocated means that you own the rights to a specific amount of Gold. Unallocated Gold can be leveraged, loaned out, more than once, creating multiple claims on the same amount of Gold. Allocated cannot. In other words, the Banks will be penalized for unallocated Gold holdings and rewarded for holding the actual physical metal on an unlevered basis. Simply put, it makes it expensive for the Banks to engage in Gold lending or hypothecation. Gold lending is widely considered one of the principal tools used to short Gold. Eliminating or drastically reducing this activity therefore makes it more difficult to short the metal and is therefore bullish.”
USAGOLD note: This aspect of the gold market does not get a lot of attention. Judging from Brady’s description, the policy outlined in the snippet above appears to be a deliberate attempt by regulators at the Basel Committee on Banking Supervision to throttle bullion bank gold lending. The question hanging over these considerations is “Why do they feel the need?”
Thinking in big numbers
Big numbers do not register with most people. Thinking in millions is difficult. Billions are a major challenge, trillions nearly impossible. The reason for this, says Wall Street Journal columnist Jo Craven McGinty, is that big numbers are usually offered in isolation without the benefit of comparison – numbers without an appropriate anchor, so to speak. People need some sort of measuring stick to give the numbers meaning. She recently offered some interesting tactics for making big numbers meaningful. Here is one of them:
“[T]hink of it [big numbers],” she says, “in terms of time, like Richard Panek, a professor at Goddard College in Vermont and a Guggenheim fellow in science writing. There are 1 million seconds in roughly 11½ days. There are 1 billion seconds in around 31 years. And there are 1 trillion seconds in around 31,000 years.”
Now the new Secretary of the Treasury is telling us that we need to ‘act big’ and worry about the $28,081,128,042,930.95 (as of April 1, 2021) national debt later.
Repost from 3-31-2021
“I know it’s apparently common knowledge among the talking heads that ‘higher interest rates are bad for tech stocks,’ but I don’t understand that logic at all. Is anybody out there really selling their tech stocks because they want to buy Treasuries that are still only yielding 1.5%-ish. I mean, other than the people who are saying that on TV and those who are listening to them, I don’t think anybody really sits around shifting allocation strategies because Treasuries went down a little bit in the last few weeks.
USAGOLD note: Cody Willard’s argument will resonate with many of our readers who will mentally substitute the word “gold” for “tech stocks” in the quote above. Of course, it isn’t carbon-based seller that needs to be closely monitored. The silicon-based variety is much quicker on the draw and considerably more deadly. That said, Willard sees merit in the yellow metal. “It looks to me,” he says, “like gold is a relatively safe place to have some money right now.”
(USAGOLD – 4/6/2021) – Gold bumped higher in overnight trading in an attempt to establish firm footing above the $1682 double bottom. It got some help from a weaker dollar and tentative support for the bond market. The yellow metal is priced at $1737 – up $7 on the day. Silver is trading at $25.10 – up 16¢ on the day. The very identifiable double bottom on the current gold chart (See link) isn’t the only indicator that gold might be setting up for a trend reversal. Noted tech analyst Gary Wagner (Wagner Financial Corporation), who called the move from $1250 to $2200 in 2019 when others had written off the metal as having lost its safe haven appeal (See this post), points to another indicator that’s caught his eye. “While most analysts acknowledge that both gold and silver prices are in an oversold condition, up until yesterday,” he writes in a market update posted at FXEmpire, “we did not see any signs of a potential recovery. That is not the case currently. Yesterday we were able to identify not only Japanese candlestick patterns but other technical indicators as well, which are in confluence with the bullish reversal patterns….”
Chart of the Day
Chart courtesy of GoldChartsRUs • • • Click to enlarge
Chart note: You have probably seen the inflation-adjusted chart for gold in the past. This is the same chart only using Shadow Government Statistics’ rendition of the inflation rate. The SGS’ version of the inflation rate resurrects the same Bureau of Labor Statistics’ methodology used in the 1980s. Whereas the inflation-adjust price of gold in 1980 is about $3,000 on the standard chart (not shown), it is an astonishing $21,000 per ounce on this chart using SGS’ version of the inflation rate.
“Rome fell because the dictators ruined the Roman economy and the institutions that had made it prosperous. Rome was falling apart before the barbarian invasions. How did the Caesars do that? They were profligate spenders. As emperors with absolute power usually do, they thought big: infrastructure (roads, temples, palaces), a huge bureaucracy, and, as the key to maintaining their power they had a very large, loyal, and well-paid army. As a consequence, massive government spending far outstripped revenue. They had what today we call a deficit problem.”
Repost from 3-31-2021
“This morning – You could not make this up; an unimaginably complex WW3 Techno-thriller unfolding as markets stumble and global supply chains hover on the edge of anarchy. On the other hand, maybe that’s just the way it was planned. I am not one for conspiracy theories. But… this morning… If I was a writer of trashy global-techno-World War 3 pulp fiction, and proposed the following scenario where the global economy lurches into an unprecedented period of instability – nobody would believe me.”
USAGOLD note: Blain goes on to list six worries and spends several paragraphs on supply chains – something most do not think about except when forced to. He says the flow will be back to safety. Bonds top the list. Gold, he says, might be on the agenda, but not bitcoin. “The Chinese have made it quite clear,” he says, “they will digitize the yuan.”
Repost from 3-29-2021
“US Federal Reserve chair Jay Powell gives the impression of being a measured and cautious policymaker. But beneath the grey suit and mild manner is a man pursuing one of the highest-risk policy experiments in economic history.”
USAGOLD note: Parlin, founder and chief investment officer of Washington Peak Investment Advisors, is not going to win any popularity contests on Wall Street (or Main Street for that matter) with his call to action in this editorial: “It’s time to start the conversation about monetary tightening.” Powell, he points out, foresees the first rate increase as occurring in 2024 – three years from today!
Repost from 1-4-2020
“What’s holding the boot together is basically zero interest rates. As long as rates remain where they are, unless we have a real dramatic pullback in economic activity, this bubble that we’re in is probably not going to burst any time soon. We have to understand though we are investing in a bubble.” – David Rosenberg, Rosenberg Research [Emphasis added.]
USAGOLD note: The problem with bubbles is no one can know when it is going to burst, but when it does the damage can come swiftly and with a vengeance. The best way to deal with it, as we have said repeatedly, is not necessarily to vacate the market – or try to pick a top – but to build hedges.
Repost from 2-17-2021
“Central banking traditionally operated as a judicious and conservative institution, with an overarching mandate focused on promoting monetary and financial stability. Historically, recognition that missteps can impart such profound societal hardship necessitated an incremental and risk-averse approach. Stability and doing no harm took precedence. At least that’s the manner in which central banking has been approached for generations. The world is now in the throes of history’s greatest experiment in central bank doctrine and operations. It’s easy to forget that the Federal Reserve is only about 13 years into experimental QE activism. Indeed, central bankers have minimal history for a well-founded assessment of how QE operates, its various impacts and consequences, both intended and unintended. The lack of clarity beckons for circumspection.”
USAGOLD note: With that as an introduction, Doug Noland offers a lengthy review of quantitative easing – its many layers and potential consequences – calling it “ruinous inflationism.” He concludes that QE will continue until the bubble finally bursts and inflicts “terrible hardship throughout the economy.”
Repost from 3-29-2021
“Defending the Fed’s independence from the fiscal authorities in Congress, Waller rejected notions that the central bank is holding borrowing costs low to help service the debt, nor is it conducting asset purchases to finance the debt-laden federal government.”
USAGOLD note: Got it … And what is the real reason for the Fed owning almost $5 trillion in federal government paper? Because it’s such a good investment for the central bank?
Sources: St. Louis Federal Reserve, Board of Governors of the Federal Reserve System
The Exter Inverted Pyramid of Global Liquidity
“[Exter’s Inverted] Pyramid stands upon its apex of gold, which has no counter-party risk nor credit risk and is very liquid. As you work higher into the pyramid, the assets get progressively less creditworthy and less liquid. . .[In a financial crisis] this bloated structure pancakes back down upon itself in a flight to safety. The riskier, upper parts of the inverted pyramid become less liquid (harder to sell), and – if they can be sold at all – change hands at markedly lower prices as the once continuous flow of credit that had levitated those prices dries up.” – Lewis Johnson, Capital Wealth Advisor’s Lewis Johnson