UNPRECEDENTED GLOBAL RISK – NO ONE CARES

“Risk involves the chance an investment’s actual return will differ from the expected return. Risk includes the possibility of losing some or all of the original investment.” (Investopedia)

So there we have it. Risk means that you can lose part or all of the investment. Normally, valuations take risk into account. But is the world really valuing the following risks accurately?

Wars

• North Korea – South Korea – USA – Japan – China – Russia incl. nuclear war
• Ukraine – USA – Russia
• Syria – Israel – USA – ISIS – Al-Qaeda – Saudi Arabia, Yemen – Iran, Iraq, etc.
• China – India – Pakistan – Afghanistan – USA
• Plus many more

Civil war and terrorism

• In most countries, including the USA and Europe

Economic risk

• Global debt $230 trillion – can never be repaid, nor financed when rates normalised
• Unfunded global liabilities $250 trillion – will never be honoured
• Central banks’ balance sheets are $20 trillion – all insolvent
• USA insolvent – only supported by an overvalued dollar and military
• China’s debt has exploded from $2 trillion to $40 trillion since 2000 – a massive bubble
• Most industrialised and emerging countries only survive with QE – untenable
• Interest rates at zero or below in 20 countries – unsustainable
• Paper money system – currencies going to zero.

Financial risk

• Global derivatives of $1.5 quadrillion will all implode as counterparties fail
• Bankrupt European banking system – unlikely to survive
• Over-leveraged global banking system 20x to 50x leverage
• Bubbles in most asset classes – Stocks, bonds, property

Political risk

• The USA has a lame duck president – risk of irrational or no actions
• EU elite – unelected and unaccountable – destroying Europe
• Trend of globalisation and socialism – very dangerous for global stability

The above list of risks is certainly not conclusive.

To summarise in one sentence: The world is facing a risk of major (nuclear) wars, economic and financial collapse, as well as political and social upheaval. The realisation of just one of these risks would be enough to change the world for a very long time. We live in a totally interconnected world, and the danger is that the domino effect will trigger one event after the next until all the risks become reality.

But the world has become totally immune to risk. No market has priced in these risks. If they did, we would not have stock, bond and property markets at historical highs and overvaluations. Central banks have succeeded in alchemy for such a long time that markets totally ignore risk. It seems that unlimited money printing, credit expansion, interest rate manipulation and currency debasement are the permanent solutions for a world living above its means. But to totally fool the people, news must also be manipulated, and this is where fake news comes in. Financial and economic figures must be massaged, and the basis of the calculations constantly changed.

A new paradigm or the biggest crisis in history?

So here we stand in front of the biggest crisis that the world has ever encountered and no one is the slightest bit concerned. If market participants understood risk, they would already have taken cover in some deep (Swiss) bunkers. Instead the world is continuing to buy massively overvalued tech stocks, properties, crypto currencies and other assets. They will soon have the shock of their lifetime.

But this speculative mania is usually the norm at the end of a bubble era. Before the 1929 crash and the 1930s depression, optimism was at a peak, and both market participants and politicians were certain that this was a new paradigm which would continue forever.

Currency markets reveal the truth

Whilst most financial markets are not worried about risk currently, the currency market is quietly reflecting the world’s view of the US economy and markets as well as the US political situation.

The Forex market is very difficult to manipulate. With the daily global volume of over $5 trillion, no single central bank can move this market. Concerted central bank forex manipulation has worked in the past. But the days of cooperation are gone. Today, every country wants to debase its currency. This is why we are seeing constant competitive devaluations in a race to the bottom. In the last 100 years, all currencies have lost 97-99% of their purchasing power. The final move to zero will probably take place in the next 5-8 years. And that involves another 100% loss from here.

Most Americans don’t worry about the value of their currency. Therefore, they are not aware, for example, that if they had visited Switzerland in 1971, they would have received 4.30 Swiss Francs for 1 dollar. Today, they receive 0.95 Swiss cents. This is a loss of 80% in purchasing power against the Swiss Franc since Nixon stopped the gold backing of the dollar. Currency moves reveal the economic (mis-) management of a country. The constant loss of value of the dollar against most other countries in the last few decades clearly depicts that the US is on the road to ruin. The dollar tells the truth, and it tells an ugly truth. The remaining days of the dollar as the reserve currency of the world are very limited. The world doesn’t need a reserve currency and certainly not one which is in a chronic decline due to economic mismanagement. The days of the petrodollar are coming to an end. China and Russia will see to that.

There is very little respect in Europe or in Asia for the current US political situation. There is even less respect for the economic situation in the US and its currency. Just after Trump was elected the dollar reacted in the opposite direction of US markets. The dollar peaked in December 2016 and is now down against all currencies. The dollar index for example is down 12% in 2017.

The EU and the Euro – a failed political experiment

The Euro is up 16% against the dollar in the last nine months. The Euro is the currency of a failed political experiment. A one-for-all currency was always doomed to fail, even before it was launched. How could Greece or Portugal ever have the same currency as Germany? The efficient Germans with their very strong industrial base have benefited enormously from a relatively weak Euro, whilst many inefficient Mediterranean EU countries have become debt-laden and uncompetitive due to a currency which is too strong. But in spite of the problems in Euroland, the Euro has outperformed the dollar by 16% in 2017. As we know, there is no absolute value for a currency. They are all virtually worthless and only backed by debt. But it is a relative game. And relatively, the world’s reserve currency, the dollar, is losing value fast against an artificial construction called the Euro. The Euro has been doomed for a number of years, but it is still winning the war against the dollar.

The US empire is crumbling

So what has the dollar got going for it? The US is the biggest financial empire in the world and the greenback was desired by most people around the globe for many decades. Like all empires, the US world dominance is now crumbling, and so is the dollar. The dollar’s strength was based on the US being the mightiest industrial nation in the world, with low debts and a balance of payment surplus. But that gradually changed, starting already in the early 1960s when the US couldn’t afford to make ends meet. Since then, the US debt has gone up every single year for 56 years. Also, the US has had a trade deficit every year for the last 45 years. As the dollar came under attack in the early 1970s, Nixon took the fatal decision to back the dollar with nothing. When gold on August 15th was removed from backing the dollar and the world’s currency system, few realised the disastrous effects this decision has had for the world. Global debt has since grown exponentially, and most currencies have fallen by 70-80% in real terms.

US investment returns are underperforming

2017 has been a year when many US investors have lost money as well as purchasing power. So, how can that be possible when most investments have been strong, measured in dollars? Americans seldom worry about what happens to their currency since they measure their wealth in dollars. But on an international purchasing power basis, dollar investors are losing out in 2017. As an example, the chart below shows the Dow down 10% in Euros since March 2017.

Will the bubble grow bigger?

Since we are looking at the end of a major cycle, bubbles have a tendency to grow bigger than you thought would be possible. This is why we might still see strength in stocks for a few months yet, and also credit markets continuing to ignore risk. But very few investors have become wealthy by holding on to the end of a major bull market. Look at the Nasdaq at the end of the 1990s. It went up 5x between 1996 and early 2000 and then lost 80%. Many Nasdaq stocks lost 100%. Between 2009 and 2017, we saw the Nasdaq go up 5x again. Many leading Nasdaq stocks are now trading on stratospheric valuations. It would be surprising to see an 80% correction only this time. More likely is 90-95% in the next few years.

Whichever catalyst will trigger the next crisis in the world, we will only know afterwards. What is certain is that it will come. When is of course the big question. Will this bubble expand further or will it start imploding this autumn? No one knows the answer. What we do know is that we are dealing with unprecedented risk. The risk is also immeasurable.

When the next financial crisis comes, it will be bigger than in 2006-9. We also know that the tools that central banks applied then are unlikely to work the next time. Money printing no longer has any effect on stimulating the economy. It only creates asset bubbles. And the interest rate weapon no longer exists. In 2006, interest rates around the world were around 5-6%. Today, there are 20 countries with negative rates, and most of the rest are just above zero. This won’t stop central banks from a final round of unlimited money printing leading to hyperinflation and the final move of currencies to zero. The asset and wealth destruction will be catastrophic. In real terms, most assets will decline by 75- 99%.

Most investors will not heed this warning and will not get out of markets until they have lost most of their money. But even for the people who consider these forecast as scaremongering, would it not be worth considering some insurance? If there is a high risk of a fire or a flood, most people would insure their house if they could. So why are so few insuring financial risk? Clearly because they can’t see it.

Buy risk insurance while it is still cheap

But even if investors don’t see any of these risk factors materialising, wouldn’t it still be worthwhile to own some insurance? Conventional financial insurance will not work when we are looking at systemic risk. Puts, swaps and other derivative instruments are unlikely to pay out due to counterparty failure. The best insurance is real assets. Normally, land and buildings have withstood most catastrophes as long as they are unencumbered. The problem with the property market today is that in most countries, it is massively overvalued.

The best real assets are physical gold and silver, as long as they are kept outside the banking system. As I showed in last week’s article, gold has now resumed the uptrend to new highs after a long correction. The same goes for silver. Silver broke out of a 5 year downtrend in 2016. As the chart below shows, silver has again broken out of a 1 year correction and is now ready to move up explosively.

Bubbles can always grow bigger than we expect. That could also be the case today. But if they grow bigger so will the risk of the bubbles imploding. The risk is massive today on a global basis. If markets continue to defy reality, that makes the reason for insurance even more compelling.

The best insurance is precious metals. For investors who don’t already own precious metals, this is the time to buy physical gold and silver. When you buy insurance, you must have enough cover to protect other assets and to be able to live comfortably off your insurance. I do realise that most investors are not in that fortunate position. But whether you buy a few ounces or a few tonnes of gold, it is absolutely critical to own some insurance cover. So, what percentage of financial assets should be in gold and silver? It could be anywhere from 5% to well over 50%, depending on the investor’s situation. We would say that 20-25% should be a minimum.

For all investors, owning proper insurance cover in the form of gold and silver, against what is probably the biggest risk situation in history, will prove to be an extremely wise decision.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

The coming gold and silver moves in the next few months will really surprise most investors as market volatility increases substantially.

It seems right now that “All Quiet on the Western Front” is about WWI, as Erich-Maria Remarque wrote about. Ten years after the Great Financial Crisis started and nine years after the Lehman collapse, it seems that the world is in better shape than ever. Stocks are at historical highs, interest rates are at historical lows, house prices are booming again, and consumers are buying more than ever.

Have Central Banks saved the world?

So why were we so worried in 2007? There is no problem big enough that our friendly Central Bankers can’t solve. All you need to do to fool the world is to: Print and expand credit by $100 trillion, fabricate derivatives for another few $100 trillion, make further commitments to the people in forms of pensions and medical, social care for amounts that can never be paid and lower interest rates to zero or negative.

And there we have it. This is the New Normal. The Central Banks have successfully applied all the Keynesian tools. How can everything work so well with just more debt and liabilities? Well, because things are different today. We have all the sophisticated tools, computers, complex models, making fake money QE, interest rate manipulation management and very devious intelligent central bankers.

Or is it different this time?

All these shenanigans by central banks have created fortunes for the top 1% and massive debts for the rest of the world. For some of us who spend considerable time studying risk, we can make two very distinct conclusions:

• On the one hand, central bankers have been extremely skilful in using all the tricks in the book, including some new ones, and saved the world by printing unlimited amounts of money, expanded credit exponentially and abolished the cost of borrowing by setting rates at zero or negative. This is the perfect scenario, and the Krugmans of this world must be really pleased since this justifies receiving the Nobel Prize and confirms that they have found the perfect method which can be applied indefinitely with great success.
• On the other hand, for those of us who believe that trees can’t grow to the sky and that sound money always prevails, we know that we are in the last stages of a bubble of epic proportions. Fortunately, our side has also received a Nobel prize through von Hayek, although it was back in 1974.

This has been a very long battle between the manipulators and the advocates of sound money. With free money and socialism, you can fool most of the people for a very long time. But sadly for the Keynesians, they will run out of ammunition when all the printed currencies return to their intrinsic value of zero. This means you can’t fool all of the people all of the time. As Margaret Thatcher said: “The problem with socialism is that you eventually run out of other people’s money (OPM).” And this is exactly where we are today. The world has run out of OPM. When our company went aggressively into gold and silver in 2002 for our investors and ourselves, we did not believe that the central bankers would be able to manipulate markets for over 15 years. Still, silver was $4 at the time and gold $300, so the manipulation has only been partially successful.

Money printing no longer works

But the signs are now very clear that the money printing experiment is coming to an end very soon. Despite all the trillions of dollars created in the world, real GDP has stopped growing.

As the chart below shows, all the money printing and credit expansion are no longer having an effect. Even a child could understand that you can’t grow an economy by printing paper and calling it money, but for some reason, the Keynesians seem to ignore the obvious.

Money printing has benefited the 1%

The only area which is still very strong is stock markets, property and bonds. This is where all the money printing goes, and the 1% believe that their riches are exploding due to their investment skills. Little do they realise that these skills will just vanish into a big black hole in the next 4-7 years as the exploding assets implode and all the global debt with it. Sadly, this must happen in order to create a sane world again. We cannot build a world on fake values and fake money. Mankind will not survive in such a world. It will totally destroy itself. It will be hard enough to survive the coming collapse of the Ponzi scheme that has flourished in the last 100 years.

The transition from a false system based on an illusion to real values and real money will be painful for most of the world. The wealthy will lose at least 95% of their assets, and many normal people will starve and live in misery. We will have wars, civil unrest, political upheaval and economic devastation. This is what the elite have caused by creating a dishonest system for the benefit of the 1%, but to the detriment of 99% of mankind. The problems we will see in the coming years are likely to reduce the world population by at least 1/3rd, which is more than 2 billion people. The combination of wars, civil wars, famine, disease and economic collapse is likely to lead to this. World population has exploded from 1 billion to 7.5 billion in the last 160 years. Historically, there have been numerous instances of substantial population decline, often attributed to wars or disease. During the Black Death of the 14th century, for example, the World population is estimated to have declined by 50%.

So the risks are major, even though we are only talking about probabilities. Things could take longer and they could be less severe. But with risks of this magnitude, the very privileged few who have the possibility to take precautionary measures must do so. Because at some point in the next few years, a financial and economic collapse is inevitable.

Gold has broken out

The autumn of 2017 has for some time looked precarious. The question is what catalyst will pop the bubbles in markets and the economy. Stocks look very vulnerable and overvalued on any criteria. Even though bubbles can always grow bigger, the risk is now unacceptable. At the same time, gold and silver have now finished the long consolidation period since 2013 and resumed the uptrend to new highs.

Explosive metals in the autumn

Moves in the metals could easily be explosive during the autumn. The strength the precious metals are now showing is a very strong indication that the manipulation by central banks, the BIS and the bullion banks is going to fail in the next few months.

I have previously pointed out that at the current low demand, the entire mine production of gold and silver is absorbed. Less than 0.4% of global financial assets are invested in gold. The annual silver mine production of $15.5 billion is less than 0.01% of global financial assets. Since all gold and silver production is being easily absorbed currently, with negligible investment demand, there will be no physical gold or silver available at current prices for the coming increase in demand. In addition, the paper market in the precious metals is likely to have major disruptions and fail as the demand for physical metal increases. As institutions and funds start to focus on the physical precious metals and the PM stocks, they will only be able to invest at prices which will be many times higher than current levels. This is what will drive gold to my long-standing target of $10,000 and beyond. With a gold/silver ratio back to the historical level of 15, that would make silver $666. I believe that these levels can be reached in today’s prices, and when hyperinflation takes hold, we could see multiples of those levels.

If silver today were at the same level against the US monetary base as at the 1980 peak, the price would be 80x greater at $1,424. Although this sounds like fantasy today, it is not unrealistic. Just look at what is happening to Bitcoin. And remember that silver is real money, whilst Bitcoin is just an electronic construction with no underlying asset. This won’t stop Bitcoin from going much higher in a Tulip bulb type mania.

Silver will outperform gold

Technically, silver is likely to outperform in the next few years. We have always argued that wealth preservation investors should hold gold mainly, due to the volatility of silver. But at this point, silver looks extremely good value so an exposure of say up to 25% silver and 75% gold would be an excellent mix.

The gold and silver universe is minuscule compared to tech stocks

With annual mine production of $128 billion in gold and $16 billion in silver, this market is so small that it is totally dwarfed by the stock market. Just take some of the most well-known Nasdaq stocks, Apple, Google, Microsoft, Amazon and Facebook. Their total market cap is $3 trillion. Compare that to the annual gold and silver mine production ($143B) and the top 20 gold stocks ($150B) and the top 25 silver stocks ($30B). The total annual precious metals mine production and the biggest metals stocks add up to $437 billion. That is only 15% of 5 the five biggest Nasdaq stocks and less than the smallest of those five, which is Amazon, valued at $ 470 B. Since these five stocks have probably topped, big investors will liquidate part of their holdings and look for new opportunities. The gold and silver universe is likely to get very crowded as funds and institutions enter.

Physical gold, silver, and precious metal stocks will be a crowded market

Gold in many currencies bottomed in 2013. In dollars, the bottom was in 2015. After the rally in the first half of 2016 and the subsequent correction until December 2016, gold and silver are now on their way to new highs. We obviously will not see a straight line move as there will be temporary stops on the way. But for the ones who are not fully protected against major global risk, now is the time to be fully invested in gold with an important allocation in silver. Precious metals will become an extremely crowded investment sector and the time to get in at reasonable prices is soon ending.

This is a totally unique situation. Seldom has a protective wealth preservation investment also had massive capital appreciation potential. Don’t be left behind. There is too much at risk.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

There are lies damned lies and Central Bank Gold statistics. Total official global gold holdings are reported to be 33,000 tonnes. That is 19% of all the gold ever produced in the world. But how can anyone ever believe any of these figures? Because no central bank ever has a public audit of all its gold holdings. Since the gold belongs to the people, they have the right to know if the gold actually exists, especially since the gold reserves are backing the currency.

Why is the US gold not audited?

But no, the truth about these gold reserves is veiled in total secrecy. And why we may ask. Why are the people, as well as the creditors of a country, not told the true financial position? What do these central banks have to hide? Let’s take the US. The US is allegedly holding 8,100 tonnes of gold, stored in Fort Knox, Denver and New York. The last official audit was 64 years ago in 1953 when Eisenhower was president. Since then, the US Government claims that the US gold has been audited over the period from 1974 to 2008. But no proper figures have ever been published.

FORT KNOX – WHERE IS THE GOLD?

The first question to ask is, of course, how an audit can ever take 34 years!!!! Only a government organisation can take 1/3 of a century to audit their assets. I know of no company in the world that can take 34 years to report its assets to the shareholders. The stakeholders of the US gold are the US people, and they certainly have the right to know if the country really holds $332 billion worth of gold. Steve Mnuchin, the US Treasury Secretary, spent an afternoon in Fort Knox last week. After having seen a few per cent of the total gold held there, he confirmed that it was SAFE! Well, that’s good to know, but he obviously hasn’t got a clue how much is there.

Secondly, an audit carried out over 34 years cannot possibly be accurate. The movement in gold over that period would totally nullify the accuracy of the audit.

Thirdly, an audit should be carried out by independent auditors. This audit was done by a Government Committee for Gold and the Treasury. The exact method of the audit has not been revealed, but according to some sources, the methods were highly suspect.

Fourthly, and just as relevant, is the total balance sheet position of the US gold holdings. The physical gold is only one part. Central banks practice gold lending or leasing on a major scale. Thus, the US could lease its gold to another bank against a fee. Lending can take place without the physical position of the gold changing. Other banks are allowed to borrow gold from the Fed without having it in their possession. There can also be swaps, forward sales and other derivative transactions that reduce the holding.

Germany still holds 50% of its gold abroad

Germany used to store 70% of its gold abroad, with the majority in the US. In 2013, they were under public pressure to repatriate the gold and declared that 674 tonnes would be repatriated from the US and France. They only received 5 tonnes in the first year because there was no gold available. It had probably been lent on to someone else. Finally, they just stated that the 674 tonnes are now in Germany. This means that around 50% of the German gold, or 1,665 tonnes, is still held abroad. The obvious question is, of course, why not hold it all in Germany? The official reason is risk spread and trading. It is dubious whether the US or the UK is a safer place than Germany. Financially, Germany is clearly safer. All central banks trade part of their gold. To lease gold to someone, it doesn’t have to be held in New York or London. The leasing could easily be done from Germany.

Possibly, the 1,665 tonnes held abroad have been covertly sold or leased to a bullion bank, which has sold them on to China. And China, of course, always takes delivery. They wouldn’t be so stupid as to keep a major part of their gold in the US or London. If the German gold has been leased and shipped to China, all the German government has is an IOU from a bullion bank. So instead of physical gold, they have a piece of paper.

Silk Road nations are buying all the gold

The same could easily be the case with the US gold or other central bank gold. With the massive buying we have seen from Silk Road countries in the last 10 years, it would not be surprising that a major part of the gold has come from Western Central banks. Since 2005, four Silk Road countries have bought 28,000 tonnes of gold.

Many market observers estimate that official gold holdings could be as little as half of the reported figures. In my view, that is not unrealistic. As the chart above shows, there has been a major shift of gold from the West to the East. Four Silk Road countries have absorbed more than the annual gold production for the last 10 years. An important part of the sales to the East will most certainly come from Western Central Bank holdings.

The UK is a major gold exporter

Switzerland publishes the monthly imports and exports of gold. These give a good indication of global gold trading since Switzerland refines up to 70% of the gold bars in the world. The chart below shows the Swiss gold imports from July. Of 152 tonnes imported, 80 tonnes came from the UK. The UK is certainly not known as a gold producer. The gold that the Swiss refiners get from the UK is 400 ounces (12kg) bars, most probably sold by central banks. The bars are broken down to 1 kilo bars and then shipped to China and India. These bars could either have been sold covertly by central banks or leased by them to the LMBA banks in London. In the past, the bars leased by central banks would have stayed in London.

SWISS GOLD IMPORTS JULY 2017

Since the Silk Road countries started to accumulate gold, the gold held by the LBMA banks in London has declined significantly. The Silk Road buyers are not content to keep their gold in London. They don’t trust the LBMA system, where the same gold is lent many times over. Thus, they take delivery, which shifts the gold power centre from West to East. Eastern countries, and especially China, understand that gold is the only currency that will survive the coming collapse of paper money. That is why they are accumulating substantial quantities of gold. China knows the Golden Rule: He who has the (physical) Gold makes the rules.

I added the word “PHYSICAL” before gold since physical possession is the only thing that counts. In the West, the vast majority of gold is paper gold, which is leveraged several hundred times in relation to the physical. But even physical gold held by banks is sold many times over. We have experienced many times how clients who hold gold in major banks realise that the gold isn’t there when they want us to transfer it to private vaults.

The day that gold investors holding paper gold or unallocated gold, ETF gold ,etc, realise that there is no gold to back their claims, the whole market will panic. At that point, the market will also understand that a lot of central bank gold has gone from West to East without anyone noticing.

We are seeing the beginning of the Dollar collapse

The dollar bottomed in 2011 at the same time as gold and silver peaked. In dollar index terms, the dollar rallied 40% until December 2016. That marked the end of the 5 ½ year dollar correction. In 2017, the dollar index has lost 10% so far, but that is just the beginning. The major decline of the dollar has now started and will finish when the dollar has reached its intrinsic value of ZERO.

Gold is on its way to new highs

Gold peaked temporarily in 2011 at the same time as the dollar bottomed. Since 2013, gold has traded in a tight range. At $1,300, gold is 31% below the 2011 peak. But it is only when measured in dollars that gold looks weak. In pounds, Australian or Canadian dollars, gold is only 10% from the top (monthly close).

In 2017, gold outperformed the US stock market and rallied 12%. It is likely that we will see a major gold rally in the autumn on the way to a new high. So, after a very long consolidation period, lasting six years, gold and silver will now resume the uptrend that started in 2000.

The coming rise of gold and silver in the next few years will not just be the reflection of the fall of all paper currencies. Major contributors to the rise will also be the failure of the paper market in the metals and the realisation that central banks possess much less physical gold than they have indicated.

Therefore, physical gold and silver will continue to be the best way to preserve wealth during the coming destruction of all bubble assets such as stocks, bonds and property. But the opportunity to purchase gold and silver at reasonable prices is soon ending. There just won’t be enough gold to satisfy the coming demand.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

“America is now a dangerous nation.” This is the title of an article written by the journalist Gideon Rachman in the Financial Times last week. He goes on to declare: “Under Donald Trump, America looks like a dangerous nation.”

As I stated in my KWN article last week, the risk of a major war is now very high. The dilemma is that this is just one of many problems with potentially catastrophic consequences that the world is currently facing. Looking at total global risk, the current situation is probably graver than anything the world has faced in history. The world is now standing in front of a potential nuclear war between the US and North Korea, a war that easily could lead to a world war involving initially China and Russia and many more nations. The economic, financial and political consequences would obviously be catastrophic for the world.

Ignorance is bliss

Ordinary people are very fortunate that they are never exposed to the real problems in the world. Between Facebook, Instagram, YouTube and some game shows on television, they are blissfully ignorant of the very precarious position the world is in. Luckily for most people, television news and newspapers report very little that touches on anything but local news or the latest divorce or affair by their favourite artist. Virtually no journalist today is capable of doing any analysis or objective reporting. They just report what they are being fed by the government or a handful of media organisations that dominate the world.

Nine steps to the abyss

The average person is totally ignorant of the insoluble risks facing the world currently, namely:

• Record global debts of $225 trillion, which can never be repaid and will bankrupt most nations in the next few years. This includes public as well as private debt.
• Their money, whether it is dollars, euros, yen or yuan, will become worthless within 5 or, at most, 10 years as governments finish off the 100-year debasement of all currencies, which are already down 97-99% since the Fed was founded in 1913.
• Most assets will decline by 75% to 99% in real terms. This includes the bubble markets financed by the credit boom and money printing, such as stocks, bonds and property.
• The banking system will fail, and most assets held in a bank will disappear. This includes both money and securities.
• As nations go bankrupt and money printing has no effect, the state will become totally ineffective. This means that there will be virtually no money left to maintain the socialist system that the world has experienced for almost a century. A system which, in most Western countries, absorbs and wastes more than 50% of what the country produces. As the very wise Margaret Thatcher said: “The problem with socialism is that you eventually run out of Other People’s Money.” (abbreviated OPM).
  And this is exactly what will happen next. As the world runs out of OPM, there will be no money or taxes to fund social security, medical care, pensions, defence, etc. On the one hand, this will, of course, be devastating for most people who are totally dependent on the state and OPM. On the other hand, government tax departments will be decimated or disappear, and all the unproductive bureaucrats and civil servants will also be gone. This will be a very good thing. I do realise that the transition will be devastating for most people initially, but hopefully the Phoenix that will come out of this will create a much stronger and sounder system based on personal initiative and self-reliance rather than destructive socialism.
• The core of democracy and values is being totally torn down as a result of the socialist system. For many, the family is no longer the kernel of society. In the West, the divorce rate is 50% or above in most countries. Many people are restless and less grounded. This is also linked to the Earth’s magnetic field, which is weakening significantly. Religion, as well as moral and ethical values, are waning. Heritage, history and culture are denied by the powers that be. Tearing down historical monuments is a sign of this. Everything must now be politically correct. And political correctness is determined by the minorities and not the majority.
• There will be political upheaval in most countries in the coming years. The party in power will be pushed out or lose the next election since they can’t fulfil their socialist promises. The opposition party will gain power since they will promise the earth. But they will soon run out of OPM and also fail.
• We will see social unrest and also civil wars. People without money or jobs will revolt. There will be major clashes or civil wars between political factions.

• 

  Central banks will become insolvent. Most central banks are today hedge funds with massive leverage. The assets they hold, government bonds, stocks and other bonds, will all become worthless. The demise of these banks will be a blessing for the world since they are the primary cause of the coming financial collapse.

Are Kim and Trump dangerous to the world?

So is the US now a dangerous nation based on the conflict with North Korea? Yes, this is certainly a high-risk event. Both Kim and Trump are impulsive characters. With over 28 resignations or firings in Trump’s administration over the last seven months, there are clear signs of instability and a lack of harmony. As I said in an interview with Grant Williams after Trump had been elected in late November, with Trump being a dominant individual and an entrepreneur, I expected him to change his mind constantly. Most entrepreneurs have no strong principles but the ability to change their minds frequently. It is this flexibility that makes them successful in business. But this doesn’t work in politics. I also predicted that Trump, being a very strong individual, would not be able to retain people with strong personalities. Hiring a number of very top people, including billionaires, was a high-risk strategy for Trump. The 28 people who have left so far prove that point.

The risk with a leader who is under tremendous pressure on the domestic front is that he turns outwards and starts a war. This is an extremely normal pattern in history. And nobody in the US can stop the President from pushing the nuclear button. In theory, the military could disobey orders from the commander in chief, but normally, generals are very keen to start wars. With three top generals in the White House as Trump advisors, the risk of war is significantly heightened. But hopefully, Trump will understand the horrendous consequences of starting a nuclear war. Trump should avoid a desire to join former war-hungry leaders such as Bush, Obama, Blair, Cameron, Sarkozy and others who, through their ignorance and megalomania, managed to change global history for the worse, for a very, very long time.

As regards Kim of North Korea, he would probably be very keen to prove his nuclear power. The biggest risk is that his missiles miss Guam, making him a laughing stock. As an alternative, South Korea would be an easier target and therefore more likely. But let us hope and pray that we will not see a nuclear war. That would be the end of the world most of us know today.

A less safe world

The fact that many, especially in Europe, see the US as a dangerous nation is, of course, not new. Since WWII, the US has been involved in numerous wars, many of which were started by the US, assisted by other nations. The unprovoked attacks on Iraq and Libya are examples of US interference with dire consequences for Europe, especially, but also for the rest of the world. In Iraq, more than ½ million people died as a result of the war. But the serious and long-term effect of these wars is the migration which Europe is now experiencing. Germany, for example, has had 1.5 million immigrants since January 2015. There are no jobs, nor housing or schooling for most of these migrants, and the legal system cannot cope with all the asylum seekers. This will have long-term and permanent social and cultural consequences of major proportions for most European countries. Europe will be a very different place in 2050. Also, the terrorism that the world is now experiencing is only the beginning. Even without a major war, the world as a whole will be much less safe due to terrorism and an increase in crime. I was born at the end of WWII and have experienced a long period of peace and prosperity as well as safety. Sadly, my children and grandchildren are unlikely to be so lucky.

Time to act

I do realise that bearers of bad news are unpopular figures. If they are right, nobody will thank them, and many people will blame them. If they are wrong, they will be ridiculed. But as most readers know, I am not here to be a prophet of doom and gloom. No, my purpose is just to tell things as I see them and to warn people about the massive risks that the world is now facing. Some people will argue that ignorance is bliss. Yes, it could be, especially since we don’t know exactly when the end of an era is upon us. But it is very clear to me that the time for change is now very near, as I outlined in last week’s article.
So, at least for the ones who are forewarned, they can take some preventive actions. But even the knowledge of major changes in the world would probably ease the shock.

For the privileged few who have assets to protect or the ability to move to a safer place, now is the time to seriously consider this. Big cities will not be the best places to live.

I think this autumn will be the autumn of market turmoil and shock. Over-extended stock markets seem ready for major falls. Same with the dollar, the world’s reserve currency, only backed by gigantic debts. Property markets worldwide will first freeze and then fall hard. Central banks will try to hold interest rates down but will eventually fail, leading to major falls in bond markets.

Gold and silver shortages are coming

Physical precious metals will be major beneficiaries of the coming global crisis. Gold should go to $1,360-70 quite quickly on its way to new highs. Due to a temporarily strong dollar, gold in US dollars is 29% below the 2011 high (monthly close). In most other currencies gold is down a lot less. See gold in Canadian dollars above.

Silver, albeit very volatile, will rise faster than gold. For anyone considering buying physical gold or silver, there will soon be a time when there will be major shortages. There just won’t be sufficient production or stocks to cover the coming demand. Also, we recommend that gold and silver be held outside the country of residence. There will soon be exchange controls in many countries, including the USA. So the option to transfer assets or money out of your country might not exist for much longer.

The risk that we will have major market turmoil this autumn is high. But remember that even if things take a bit longer to materialise, insurance must be acquired before the event.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

Totally irresponsible policies by Governments and Central Banks have created the most dangerous situation that the world has ever experienced. Risk doesn’t arise quickly as the result of a single action or event. No, the risk of the magnitude that the world is experiencing today is the result of many years or decades of economic mismanagement.

Cycles are normal in nature and in the world economy. And cycles that are the result of the laws of nature normally play out in an orderly fashion without extreme tops or bottoms. Just take the seasons, they go from summer to autumn, winter and spring with soft transitions that seldom involve drama or catastrophe. Economic cycles would be the same if they were allowed to happen naturally without the interference of governments. But power corrupts, and throughout history, leaders have always hung on to power by interfering with the normal business cycle. This involves anything from reducing the precious metals content of money from 100% to nothing, printing money, leveraging credit, manipulating interest rates, taking total taxes to 50 %+ today from nothing 100 years ago, etc, etc.

Governments doing god’s work

Governments will always fail when they believe that they are gods. But not only do governments believe they perform godly tasks, but also hubris-filled investment bankers like the ex-CEO of Goldman Sachs, who proclaimed that the bank was doing God’s work. It must be remembered that Goldman, like most other banks, would have gone under if they and JP Morgan hadn’t instructed the Fed to save them by printing and guaranteeing $25 trillion in 2008. Or maybe that was God’s hand, too?

We now have unmanageable risks at many levels – politically, geopolitically, economically and financially.

This is a RISK ON situation that is extremely dangerous and will have very grave consequences. There is one very small but important silver lining, which I will return to later.

1. RISK ON – US Political Situation and War

When there are numerous risks that can all cause the collapse of the world economy, they all have equal relevance. However, the political situation in the USA is very dangerous for the world. This is the biggest economy in the world, albeit bankrupt, with debt growing exponentially and real deficits every year since 1960. Before the dollar collapses, the US will still be seen as a powerful nation, although a massive economic decline will soon weaken the dollar and the country, burdened by debt at all levels, government, state, and private.

What makes the US particularly dangerous today is that the President is a lame duck. Both political parties are working against him and are trying every trick in the book to get him impeached. The Elite or powers that be are obviously also doing what they can to outmanoeuvre Trump and make him ineffective. But Trump is a fighter and will not give up easily. As he is virtually paralysed when it comes to any political or economic decision, what remains is military action or war. As commander in chief, he has the ultimate say in pressing the nuclear button. He, like most of us, understands the catastrophic consequences of nuclear war. And we are not talking about just the US and North Korea. We would see China, Russia and many other countries involved. Wars are often started by an impulsive and power-hungry leader, which we certainly have in Kim and Trump.

Real power in the US comes from major sectors such as defence, energy, big pharma and investment banks. Their “contributions” to virtually all politicians are where the real power lies. When a leader is under major political pressure on the home front, starting a war quickly diverts attention from domestic problems. And Trump would of course get total support from the military since their whole raison d’étre is war.

For Trump, a war would mean that he takes total control, and all domestic squabbling is forgotten. He would be the king war maker and the “saviour” of the US.

Except for all the extreme consequences of a nuclear war, there will, of course, be serious economic implications such as stock and bond market collapses, dollar fall, etc. There would also be massive money printing.

Hopefully, it won’t come to this, and Kim and Trump will realise the global catastrophe that nuclear war would involve. But the risk is extremely high.

2. RISK ON – Global Stock Markets

Stock markets worldwide are all in bubble territory. With volatility at historical lows and valuation at historical highs, stock market investors are displaying a total disregard for risk and reason. No trees grow to heaven, even if it looks like it right now. Yes, bubbles can grow even bigger, like the Nasdaq in 1998-2000. But investors should not worry about missing the last few points on the way up when the subsequent fall is 80%, as happened to the Nasdaq 2000-2.

Virtually every stock market around the world is vulnerable. Below are monthly charts of the Nasdaq, TSX – Canada, Nifty- India and DAX- Germany. All are showing a similar picture. They are severely overextended and have made new highs with bearish divergence. This means that the new highs are not confirmed by momentum indicators, which are showing weakness. Other technical indicators are confirming that we are seeing long-term tops in all stock markets and that the next major move will be a vicious and sustained fall. Thus, stocks are very high risk today, medium to long term.

3. RISK ON – US Dollar, Currencies

With the coming economic collapse, all currencies will decline to zero due to unlimited money printing. The US dollar is substantially overvalued and has been falling against all currencies since December 2016. The graph below shows the dollar index, which is down 10% since December last year. The initial target is the 2007 low of 70, which is a 25% fall from here. Eventually, the dollar will fall a lot further. But so will, of course, all currencies which so far have fallen 97-99% in the last 100 years. The final fall of 1-3% from here is likely to take place in the next five years. This will happen as a result of unlimited money printing, undertaken by central banks in a final attempt to save the financial system. This is sadly very likely to fail.

4. RISK ON – Debt

Global debt is growing exponentially. Since 1971, debt has exploded in most countries. As the graph shows, in Japan, for example, total debt has gone from 320% of GDP in 1979 to almost 600% today. And in the US, debt-to-GDP has gone from 160% to almost 400% in the same period.

Growing debt substantially faster than GDP over a sustained period means that the growth can only be “bought” with printed or borrowed money. Thus, the growth is not real but is achieved by artificial means. There is no difference between that method and an individual or company borrowing to survive. Eventually, it leads to bankruptcy, and this is where the world, including the US, is heading in the coming years.

The US position is particularly bad. Since lifting the gold backing of the dollar in 1971, US debt has gone up 39x from $1.7 trillion to $ 67 trillion. How can the Keynesians believe that this is prosperity and wealth? Debt is slavery and misery, which soon will lead to immense suffering in the US and the rest of the world. And this is only because governments have interfered in the natural economic cycles and bought votes at a cost which will be devastating for the world.

Rates at historical lows and bottoming as expected with the 35-year cycle in 2015-16 are now likely to go to highs similar to, at least, the levels in the late 1970s, which is 15%+. The consequences of rates at that level will have a dramatic effect on record global debt financing as well as the $1.5 quadrillion derivatives. The vicious cycle of money printing, more debt and hyperinflation is next. Eventually, that can only lead to a total failure of the system.

A 35-year interest cycle has bottomed

5. RISK OFF – Gold

Ray Dalio (Founder of the very successful hedge fund Bridgewater) just published an article on LinkedIn in which he states that the historically low volatility we are currently seeing in global markets is soon going to turn to much higher volatility. He also stated: “So if you don’t have 5-10% of your assets in gold as a hedge, we’d suggest that you relook at this. Don’t let traditional biases, rather than an excellent analysis, stand in the way of you doing this.”

5-10% in gold is, of course, substantially lower than we would recommend, as we believe that 25% is a minimum. But if big investors and institutions put 5-10% of their assets into physical gold, the gold price will go up exponentially from here. Currently, less than 0.5% of world financial assets are in physical gold, and even if that went to 1.5% only, the price would go up 5- 10x at least. There is no stock of physical gold available and all current production is absorbed by China, India, Russia and a few other major buyers. From a production point of view, we have reached peak gold and mine production is expected to decline from 3,000 tonnes a year to 2,000 tonnes in the next ten years. The only way that new buyers will get their gold is by paying much higher prices, thereby releasing gold held by reluctant sellers and gold currently in jewellery.

Gold is only as low as $1,295 per ounce due to manipulation in the paper market. This is likely to fail as demand increases and holders of paper gold ask for delivery. That is when gold will jump $100s or more in a very short period. What we have seen in cryptocurrencies in rapid price rises will also happen with the gold price. The big difference is that the higher gold price will be sustained, whilst once the cryptocurrencies peak, that bubble will burst. You cannot compare gold, which has been money for 5,000 years and which has an intrinsic value, with an electronic entry on a computer, which has been created out of thin air.

In the next 5-10 years, all bubble assets such as stocks, bonds and property will decline 75-95% in real terms, which means versus gold. This is a totally natural finish to what Neil Howe (co-author of “The Fourth Turning”) calls the fourth turning, which is the final phase of the 80-year cycle. He states:

“The fourth turning is the final season of history, if you will, the final generation. And that is the period of crisis. That is the period when we tear down institutions that we’ve built, everything that’s dysfunctional. And we sort of rebuild things from scratch again. And it usually follows a period where—it’s bound up in a period where there’s complete disgust, complete distrust with what we have.”

“The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.”

According to Howe, the final 20-year phase, which is the Fourth Turning, started in 2008 and therefore has another circa 10 years to go. My views and Howe’s are very similar in many aspects, and if we are anywhere near correct in our predictions, the coming years could be the most difficult in the history of mankind. It is obviously impossible to totally prepare for this, but the ones who prepare and plan in all aspects of their lives will more likely cope better than the ones who don’t. Remember that when we buy fire insurance, it is not because we expect our house to burn down, but if it does, the insurance becomes critical.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

Fake money has created a totally uneven playing field for most ordinary people.

Money used to represent a medium of exchange that would facilitate bartering. Instead of exchanging goods or services, people would receive a piece of paper that was equal to the value of their goods or services. This was initially an honest system when, for each service or good offered, there was only one bank note issued. Eventually, the banker started to cheat and issued a lot more money/paper than the counter value produced in kind.

And that was the beginning of money printing. It just became too tempting and convenient for governments and bankers to simply create more money since nobody would really know. So if the value of a day’s work or a pig were both, say, $100, the money or paper issued for this should be $100 for each. But gradually, governments/banks would issue more and more paper with nothing produced in return. All banks today lend at least 10x the money deposited, so for every $100 received, $1,000 is lent. But the leverage can be much greater, like Deutsche Bank, which is leveraged at nearly 50x.

The effect of this money creation is that the $100 pig will eventually cost 50x more, or $5,000 for the same pig. The pig hasn’t gone up in price since there is no scarcity of pigs, but the money has instead gone down in value to 1/50th. The same for a day of labour. The man who previously received $100 per day now gets $5,000 for his work. He is not working harder, and the price of labour has not gone up in real terms. But the value of money has gone, so he needs to work one day to buy a big one, which now costs $5,000. I do realise it is a very simplified explanation, but in essence, it is the way the corrupt monetary system works.

And this is how governments destroy the value of money. As they mismanage the economy and can’t make ends meet, they just issue more paper, which has zero real value since it just lowers the purchasing power of money.

The value of paper money has been totally decimated in the last 100 years since the creation of the Fed in 1913. The chart shows how paper money has declined in relation to “real money”, which is gold. All major currencies have declined 97-99% against gold during this period. So there is only 1-3% to go until they reach ZERO. But from here to zero is another 100% fall, which will be disastrous for the world and involve an economic collapse as well as hyperinflation.

In a final attempt to save the world, governments will print unlimited amounts of money. This is what will make paper money totally worthless and reach zero. This is, of course, nothing new in history. Governments have always done it. The Romans did it, and many governments since. I don’t know how many times I have quoted Voltaire in the last 17 years, but it is worth repeating what he said in 1729:

“PAPER MONEY EVENTUALLY RETURNS TO ITS INTRINSIC VALUE – ZERO”

The problem with money printing is not just that it destroys the value of paper money, as creating money out of thin air also creates a totally uneven playing field. Producing goods or services requires a lot of hard labour for ordinary people. But governments and bankers have the upper hand because they just need some electricity, which allows them to press a button to produce money. And this money that they produce has the same value as what ordinary people struggle to earn.

We are now not far from the point when the bubbles in stocks, credit and property will collapse. This will lead to a final futile attempt by governments to save the world by printing unlimited amounts of money. At that point, normal people will finally realise that the money they are holding is totally worthless. This will lead to protests, attacks on the government and bankers, as well as social unrest.

In spite of a small move in the last few days, many holders of precious metals are getting restless. This is totally normal since we have seen a 6-year range of $150 above or below the June $1,220 bottom.

I often get the question if the paper gold manipulation will go on forever, as seems to be the case since 2013. My very firm belief is that we are likely to see the end of this consolidation period right now. During the autumn of 2017, gold is likely to resume its uptrend to eventually much higher levels. That next strong uptrend in gold will also eventually break the paper gold market.

The reasons for the coming move are manifold. The risk situation in the world is more critical than ever, both economically and geopolitically, as I have outlined many times in my articles. Also, the supply situation of physical gold is very tight. All the mine production of 3,000 tonnes is easily absorbed, and no more can be produced.

In my recent audio interview with King World News, I explained this in detail, and that we have never seen sellers of physical gold in quantity, and that bigger wealth preservation buyers are now buying again. We are likely to see many surprises in the coming months.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

Over the last 150 years, the West has gone from human slavery to debt slavery. Slavery was officially outlawed in most countries between the mid-1800s and early 1900s. In the British Empire, it was abolished in 1834 and in the US in 1865 with the 13th Amendment.

But it didn’t take long for a different and much more subtle form of slavery to be introduced. It started officially in 1913 with the creation of the Federal Reserve Bank in New York. More than 100 years before that, the German banker Mayer Amschel Rotschild had stated: “Give me control of a nation’s money and I care not who makes its laws.” The bankers who gathered on Jekyll Island in November 1910 were totally aware of the importance of controlling the country’s money, and that was the objective of their infamous secret meeting, which laid the foundations for the Fed. The Fed is officially the Central Bank of the USA, but it is a private bank, owned by private banks and for the benefit of private banks and bankers.

Mortgage = Death pledge

So the Western world was free from human slavery for around half a century, but is now subject to a form of slavery which most people are unaware of. It is a slavery which no law, no regulation or edict can abolish. Nor are there any magic financial tricks that can make this form of slavery disappear. I am, of course, talking about debt slavery, which has gradually taken hold of the West in the last hundred years and now is enslaving many emerging market countries too. There is mortgage slavery. The word mortgage comes from Latin and French and means death pledge. And this is exactly what it will be for a lot of people who will neither be able to afford the coming increase in interest rates nor the repayment of capital on their property, which will collapse in value. We also have credit card slaves, auto loan slaves and student slaves. Virtually all of these loans will expire worthless as the enslaved borrowers default.

US debt grows at 2x GDP

In 1913, global debt was negligible but grew steadily to 1971 when Nixon abolished the gold backing of the dollar. Since 1971, the debt enslavement has taken off at an exponential rate. Just looking at the US total debt, it was $1.7 trillion in 1971 and is now $67 trillion. At the beginning of this century, US debt was “only” $30 trillion, so just in the last 16 years it has doubled.

Since 1971, US total debt has grown 39x whilst GDP has grown 16x only. This is more proof that perceived improvement in the standard of living and wealth can only be achieved with printed money and credit expansion. What the world is experiencing today is a Fake prosperity based on Fake money and Fake growth. Hardly a recipe for a sustainable US or world economy.

Global debt is $ 2 quadrillion

Debt slavery is now a chronic condition that the world finds itself in. The word debt has the same roots as death and clearly has very dark connotations. Slavery means being owned and controlled by someone. What the bankers started on Jekyll Island has now enslaved the world in a debt/death grip from which there is no escape. Global debt of $230 trillion plus unfunded liabilities and derivatives takes us to over $2 quadrillion, and this debt and liabilities are just too big a weight to get rid of.

 

Krugman – Print more money

So, how does the world attempt to solve this debt/death trap? We can, of course, ask Nobel prize winner Krugman, and he will give us the Keynesian solution, which the world has applied for ¾ of a century with catastrophic consequences – JUST PRINT MORE MONEY!

Money printing has created a massive debt problem, more printing exacerbated it, and even more merely postponed the inevitable collapse. Any further dose of this poisonous medicine will be like pushing on a string – it will have zero effect as a remedy, but a disastrous effect when it comes to the destruction of money. And this is, of course, what is likely to happen in the next few years. I have for many years been clear that massive money printing is the only tool that central banks have left. This will lead to hyperinflation, the total destruction of paper money and to a deflationary asset and debt collapse. Only after that can the world grow again, but before that, there will be a lot of pain in the world.

Sweden – An enslaved cashless society

The powers that be have not been satisfied just to enslave the world with debt. People must also be prevented from spending whatever money they have left. The banning of cash transactions and withdrawals is growing. In many European countries, the cash limit is between Euro 1,000 and 3,000. But that is just the first step. Sweden, for example, has virtually abolished all cash transactions. Many retailers only take credit cards. New banknotes have also been introduced, making the old ones unusable. This is similar to India and a way of punishing the holder of cash and confiscating money. It is no coincidence that personal debt in Sweden is among the highest in Europe. Abolishing cash will stop the Swedes from taking their money out of the bank.

Sweden has also made the few remaining coins look like cheap plastic monopoly money. One Swedish Krona used to contain 80% silver until 1942. Then it was reduced to 40% silver until 1968. From then on, there was no silver content but only copper and nickel. The latest Krona, introduced in 2016, is made of steel with a copper plating that quickly wears off. It is also much smaller and half the weight of the previous one. Well, nothing changes in the world. The Romans experienced exactly the same between 180 and 280 AD when the Denarius went from almost 100% silver to 0%. The Krona has, like all other currencies, lost 99% of its value in the last 100 years. So only 1% to go until it is worthless. This will, of course, happen to the Krona like all other currencies.

Big Brother is watching

The first reason for abolishing cash is to have total Big Brother (Orwell- 1984) control of the people’s spending and tax compliance. Remember that most countries had no income tax 100 years ago. In the US, for example, income tax was first introduced in 1913 (the same year as the Fed was created). The tax rate was 1% for income above $3,000 for individuals and $4,000 for couples. Above $500,000 income ($11m today), the tax was 7%. The high threshold meant that virtually nobody paid any tax. These tax levels are slightly different to today, when the total tax burden in most countries, including all direct and indirect taxes, social security, etc, amounts to over 50%. This is part of the financial slavery and control of the people today. The individual’s incentive to work hard and spend his money on what he chooses is taken away, and instead the state takes a major part of the cake and wastes most of it on bureaucracy, health or social security. Income tax should be abolished and replaced by a Value Added Tax or sales tax.

The second reason to abolish cash is to totally control people’s spending. With a banking system that is leveraged up to 50 times, there is no chance that bank depositors will ever get their money back. The government knows this, and this is why having only electronic money gives the state total control of people’s assets and cash. The state can now control exactly how much money is withdrawn and stop people from spending their own money. Governments believe that this is an efficient method of controlling the people, but instead of achieving control of the money, governments are at some point likely to lose control of the people, which will result not just in bank runs but in government runs, civil unrest and anarchy.

EU to ban cash withdrawals

Another very dark new development is that the European Union is considering measures to stop people withdrawing cash to stop bank runs. The plan is currently being discussed and would block payouts for 5 to 20 days. Once this law is in place, it is very easy to extend to much longer periods or to become permanent.

The trend is clear. Governments worldwide know that the banking system is totally bankrupt. The problem is that most governments are also bankrupt. The only solution they have is to print money, but as I have discussed above, money printing will solve absolutely nothing. Nobody holding cash or assets in the bank must believe that the government guarantees of $100,000 or €100,000 is worth anything. Firstly, governments don’t have any money, and secondly, they will renege on their commitments.

End of a century of illusions

We are now reaching the final stages of the 100-year-old plan devised by the bankers and the elite to control the financial system and thus also major parts of the world, as Rothschild said. The final collapse is inevitable, as von Mises stated:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

Autumn 2017 looks precarious

The coming autumn could be decisive. All the bubble markets show no fear. Stocks are at highs, and the VIX, or volatility index, is at historical lows. Property markets continue to be strong, fuelled by cheap money. And the global Bond market continues to expand exponentially.

Stock investors’ complacency is dangerous. Dollar holders should start worrying now. The dollar is weakening and is on the verge of collapse. Short term, the dollar is possibly a bit oversold, but medium to long term, it looks sick. Out of all the weak currencies, the dollar is likely to fall first then followed by most of the others until they reach their intrinsic value of zero.

Gold – New highs in 2017?

Gold and the other precious metals have now finished their correction. Next should be a major breakout, which will accelerate in the autumn. The cryptocurrencies could continue to benefit from the mess in the world and go higher. But remember that cryptos have nothing to do with wealth preservation. It is electronic money with no underlying value. When the mania is over, cryptos are likely to be as valuable as Tulip bulbs were when that speculative craze collapsed in the 1630s.

As currencies fall, exchange controls will be introduced in most countries. The US will most certainly be one of the early countries to announce it.

Physical Gold will, in the next few years, be one of the few ways to preserve wealth as the world experiences total wealth destruction. There is still time to take money out of the bank and to own gold in a safe jurisdiction like Switzerland and Singapore. But that opportunity will not be open for long. Also, gold is unlikely to be as cheap as today for very much longer. We could see new highs in 2017. However, the price level short term is irrelevant. What is important is that physical gold is superb insurance against a very risky world.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

Stock investors are rejoicing about stock markets making new highs in many countries, totally oblivious of the risks or the reasons. It seems that this is an unstoppable rally in a “new normal” market paradigm. No major increase is expected in the inflation rate or the historically low interest rates. The present rally has lasted 8 years since the 2009 low. There is virtually no fear in markets, so investors see no reason why this favourable climate would not continue for another 8 years at least.

Yes, of course it could. All that is needed is that governments worldwide print another $20-50 trillion at least, and that global debt goes up by another $200-500 trillion.

“If you tell a big lie often enough …”

The gullibility of people today is exacerbated by the power of the internet and social media. Anything we read is accepted as fact or truth, whilst a major part of it is just fake news. This is, of course, nothing new as it has been used by governments for centuries. Goebbels, the Nazi Propaganda Minister, who was an expert at manipulating the German people, said: “If you tell a big lie often enough and keep repeating it, people will eventually believe it.” The power of the internet and other media has facilitated the spreading of news and propaganda to billions of people, and very few can distinguish whether they hear or read “real” news or “fake” news.

Anyone in government is capable of telling the truth. Automatically, when someone assumes an elected position, his Pinocchio nose grows extremely long since his entire purpose is then to be all things to all men in order to be re-elected. This is why virtually no elected official has a backbone or any morals or principles. Because if they had, telling the truth would make them unelectable.

The old-style honest banking is a thing of the past

During my early professional years as a banker at the end of the 1960s and early 1970s, I spent some time with a prominent UK Merchant Bank. This is what the old-style Investment Banks used to be called before the Americans came to dominate the sector. The senior bankers used to arrive at work around 10am and then go to lunch at 1pm. The lunch would consist of at least one gin and tonic to start with, and then a good three-course meal with a bottle of wine or two. Afterwards, some Port with cheese and maybe a beer or two at the pub to finish off. Then back to the office at around 3pm for 4-5 hours of work. And this is how the City of London would operate when it was the financial centre of the world.

Any transaction was based on a handshake and a brief contract. Lawyers played a very small role in this process. Banking was based on trust, personal relationships and high moral standards. Banks displayed total loyalty to their staff, and employees did not fear for their jobs. Major deals were concluded with a minimum of legal interference, and compliance hardly existed. And still,l there was very little deception or fraud.

Today, the financial world in London and major parts of the world is dominated by the US investment banks, the US legal system and the US government. Trust and loyalty are gone. Handshakes are worth nothing. Lawyers and compliance officers dominate everything, and contracts are now running to hundreds of pages. Staff fear for their jobs since the banks have no loyalty to them. The only thing that counts is short-term performance. This makes staff totally disloyal, too, as they know they can be fired on a whim.

Investment bankers are now Masters of the Universe, and as the former Goldman Sachs CEO said, “Doing god’s work”. Well, one thing is certain: there is certainly no humility in the financial world today or as Michael Lewis said in his book “Liar’s Poker”, major parts of US investment banks are dominated by “Big swinging di–s”. (Bankers with very big egos.)

Fake everything in spite of the onerous legal and compliance system

The system we now have is based on Fake News, Fake Money with no morals, no principles and no moral or ethical values. In spite of, or more correctly due to, all the lawyers, government legislation, compliance and regulations, the financial system is today functioning much worse than ever, with more fraud, more government intervention and more manipulation of markets. Also, clients are today secondary. Instead, it is all about lining the pockets of the bankers with their multi-billion-dollar deals and multi-million-dollar bonuses and options. As we experienced in 2006-9, profits are for the bankers and losses for governments and customers. During the time of the Great Financial Crisis, many Investment Bankers received the same bonuses during the crisis years as before, although most banks would have gone under without the government support they benefited from to the extent of $25 trillion.

End of a major era

All of this is proof of the fact that we are at the end of a major financial era that started either with the Renaissance, which came after the Dark Ages, or with the end of the South Sea Bubble in the early-mid 1700s. I doubt that the cycle is of a smaller degree, like just 100 years since the creation of the Federal Reserve in 1913. Only future historians will tell us the magnitude of the current cycle.

What is certain is that we are now in the final stages of a major era. It has been clear to me for quite some time that this will sadly end badly. The inevitable implosion of the asset and debt bubbles that the world is now experiencing is guaranteed. But governments and central banks have for some time been able to fool most of the people by telling them that the emperor is wearing a suit of gold whilst he is actually naked.

Bubbles everywhere

We have bubbles in every aspect of society. Stocks are at ridiculous valuations. The Schiller PE is at 30, which is where it was in 1929. Still, it is below the 2000 level, which tells us that the market overvaluation could extend for a bit longer.

Schiller PE at record level

On many other measures, like valuation to GDP or sales revenue, markets are past or near all-time highs. The graph below shows the margin debt on the New York Stock Exchange, which is substantially above the 2000 and 2007 levels.

NYSE Margin Debt

Not just stocks, but virtually all assets are at record levels, whether we talk about the biggest bubble in the world, which is bonds, or property values, which are inflated by interest rates manipulated down to the lowest levels in history.
I have, in many previous interviews and articles, stressed the problem of both US and global debts, which have grown exponentially in the last half a century. These high debts have inflated asset prices, benefitting a small minority and at the same time impoverishing ordinary people.

Just look at the real earnings of a US worker. As the chart shows, they peaked in 1973, and since then, the perceived improvement of Americans has been achieved with the aid of debt.

Real US worker wages peaked in 1973

A borrowed prosperity

The chart below shows that the gap between wages and the standard of living has been filled by an increase in consumer credit. The sad thing is that most Americans or ordinary people in the industrial world do not realise that they are now enslaved by debt, which they can never repay.

Sadly, a large number of people in the world will be unemployed within the next few years. At that point, governments will be insolvent and print money, which will be worthless. There will be no social security and no pension system. The health care system will also fail in many countries with disastrous consequences.

With most individuals totally unaware of what will hit them in the next few years, they continue to accumulate debt, whilst a small minority continue to speculate to accumulate wealth.

These speculators don’t realise that most of the wealth they have today is due to credit expansion combined with governments printing money. Any future increase in asset prices will merely be due to the music playing faster and louder and will have nothing to do with real economic growth. Very few people realise that soon the music will stop, and at that point, all the assets inflated by debt will implode. This will lead to the biggest wealth destruction in history. But as always happens at the end of a major cycle, it only turns when the maximum number of investors has been sucked in. This is why we could easily see even higher stock prices before it all collapses.

Just look at the Nasdaq in 1999-2000. From January 1999 to March 2000, the Nasdaq went up 2 ½ times. In the final stages of that euphoria, more and more investors were sucked in. The same could very well happen again.

The nearer a peak the market is, the bigger the number of participants. Markets have a horrible tendency to punish as many as possible.

Instead of riding the final rally and then losing 80% as Nasdaq investors did after the March 2000 peak, now is the time to exit the market and protect your profits. Just look at what happened to the Nasdaq in relation to gold since the Nasdaq 2000 peak. As the chart below shows, the Nasdaq has lost 71% against gold since the 2000 peak.

Gold has outperformed all asset classes in the 2000s

No one can pick the top, and when a market is heavily overbought, this is not necessary either. I am taking the Nasdaq as the extreme example here, but all stock markets are overbought globally. It makes no sense to pick the final rise if it happens. Now is the time to take protective measures and be concerned about the “Return OF your money rather than the return ON your money”. The perfect wealth preservation asset is, of course, real assets and especially physical gold and silver, stored safely outside the financial system. For anyone who still wants to speculate in the final stages of a secular bull market, options are the only sensible method. With options, losses are limited to the premium paid, which is the only acceptable risk in a bubble market. The majority of wealth should now be kept in real asset,s with physical gold being the biggest holding.

In the next 3-5 years, most asset classes, be it stocks, bonds or property, or just currencies, are likely to lose 75% to 99% against gold and silver. Certainly not a risk worth taking.

Printing $1/2 quadrillion or more will make no difference. Not even Deus ex Machina will save the world this time.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

It is not only paper gold which is fake. Few investors realise that most of their investments are fake.

Fake news and fake assets are everywhere. Let’s start with social media, which dominates major parts of the world. Facebook, for example, has 2 billion active users. WhatsApp has 1.2 billion users and Instagram has 700 million. There will obviously be quite a lot of overlap between the various social media. But what is clear is that these three Apps reach billions of people and their power is much bigger than that of any other media; Social Media has more impact than newspapers or television, and is the only media that 2-3 billion people follow regularly. Most people, and in particular young people, don’t watch television and don’t read the papers. They get all their “news” from social media.

Social media is a source of fake news

Social media is instant gratification. You post something or you send a message, and you get a message back or a number of likes, which generates dopamine and makes you momentarily happy. But as I have experienced from our many grandchildren, social media is a perfect source of fake news. Many young people using social media will be the recipients of fake news or bullying. Social media is perfect for spreading false rumours, which are very often difficult to get rid of. Trump’s Twitter account is another example of alleged fake News. Trump accuses the papers and television of fake News, and they accuse him of the same.

This is the world we live in today – a world with fake markets, fake assets, fake values, fake money, Fake people and fake news.

Fake identity

There was recently an interesting example of fake identity in Sweden. The head of Sweden’s biggest security company, Securitas, had his identity stolen in March. A loan of an undisclosed amount was then taken out by the person who stole the identity. The loan was not repaid, and the fake head of Securitas was declared bankrupt on July 10th. The real head of the company was not aware and has been fighting to reinstate his honour and position.

We are now in a world where everything becomes electronic entries. Real people are no longer important. We are just all electronic entries in a register.

Money is fake

It is the same with money. Money is totally fake today. Money used to be silver or gold. To make trading easier, it was later replaced by paper money on a one-for-one basis. So initially, paper money still represented real value for goods and services. But bankers and governments soon realised that by reducing the amount of precious metal in a coin, they could enrich themselves. They didn’t care, of course, that this was fraud and debased the value of “real” money. Later, the same was done with paper money. When paper money was first introduced, it represented the amount of silver or gold held by the bank. Soon, governments and bankers realised that by leveraging the silver and gold, they could make a lot more money at the expense of savers and depositors. And so the Ponzi scheme started with fake Money and fake Assets.

ETFS hold fake assets

Today we have a situation where virtually all assets and all liabilities are just electronic entries, leveraging the underlying “real” values 10s, 100s or 1,000s of times.

Money is leveraged many times, stocks are also leveraged by the issuance of various derivative instruments like ETFs or futures which supposedly reflect the underlying instrument but which in effect is just an electronic entry with nothing behind. Since the global debt position, including unfunded liabilities and derivatives, amounts to over $2 quadrillion, so should global assets. But global assets are not even a fraction of that. Supposedly, global assets are $250 trillion, but these are all bubble valuations that will implode as the debts and liabilities implode.

Cashless Sweden

Spending some time in Sweden currently, I am also experiencing the cashless society. In many places, cash is not accepted. Everyone wants a credit card or an electronic payment. Banks charge a high fee for anyone depositing cash.

Money can disappear at the click of a button

Nobody realises that their money is just an electronic entry that can be turned off in a second by the government. This means that their money will be totally gone and will never reappear again. This is what governments and central banks are introducing into most Western countries. People believe that their money is safe in the bank and don’t realise that electronic money is not introduced for convenience but to stop people taking money out when the heavily leveraged and insolvent banks run out of cash. What everyone with a bank account must understand is that one day, there will be little or no money left in the bank. ATMS will then be closed, and no money will be available. This is an elegant solution to the insolvency of the financial system. No paper money will be available, nor any electronic money. Thus, there is no money to be had.

At that point, the government will no longer print money for private individuals, since it can’t be used. Instead, they will print coupons to be used in shops and for other expenses. This is already happening in countries like Zimbabwe today. Alternatively, they will allow people to spend a very limited amount of their bank balance every month, like we have seen in Argentina, for example.

There will, of course, still be massive money printing to save the financial system as all assets implode. But very little of that money will reach ordinary people.

Most people will consider this scenario to be totally unrealistic and worse than doomsday. Hopefully, it will never happen. But the point I am making is that by handing over assets to the banks and ultimately to the government, which controls the banks, most people will have totally surrendered control of their assets.

It is, of course, not only cash which would suffer this destiny, but all assets which are held within the financial system, whether it is stocks, bonds, or any other security held in electronic form.

We have now reached a stage when the world is no longer at a crossroads; it has reached a dead end. But this is not a dead end with a chance of going back. It is a dead end with the only way out being a precipice. And this is where the world could easily be heading next.

The build-up has been the perfect recipe for disaster:

1. Take $18 trillion of debt printed by insolvent central banks, up 300% since 2006.
2. Add other public debt as well as private debt to reach $230 trillion, up 60% since 2006.
3. Add unfunded global liabilities and other commitments of $270 trillion, making a total of $500 trillion at a minimum.
4. Just one small bit to add, which is derivatives of $1.5 quadrillion, taking us to a total of $2 quadrillion or more.
5. Run budget deficits for over 50 years like the US.
6. Always buy more than you sell, creating trade deficits for over 40 years, again like the US or the UK.
7. Print money to pay for all your government expenses, like Japan.
8. Buy your own debt like Japan, the USA, the EU, the UK, etc.
9. Mismanage your country and currency until the money reaches its intrinsic value of zero. So far, all major currencies are down 97-99% since 1913. Only 1-3% to reach zero.
10. Allow the financial system unlimited leverage to benefit a minuscule minority and burden the masses with debt.
11. Manipulate all markets to totally obscure price discovery.
12. Set interest rates at zero or negative so that governments can borrow unlimited amounts.
13. Suppress the value of gold in order to hide the mismanagement of money and the economy.
14. Set up a system of misinformation and fake news to mislead the people.
15. Once 1 to 14 has been achieved, start at 1 again and do more of the same.

So what is the best recipe for protecting against the biggest risk in world economic history?

Hard assets held directly by the investor reduce the risk. This can be anything from property, farmland, forest or mineral assets. For most people, it is impractical to hold these types of assets. Instead, the perfect asset to protect against the risks in the financial system is, of course, physical gold or silver stored safely outside the system and preferably outside your country of residence.

This is the time not to trust fake news or fake assets. Only real assets will protect you.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

Lethargic summer markets tend to instil a sense of false security. Stocks and property are near all-time highs, interest rates are at 72-year lows, and most investors feel richer than ever. Central banks signal strong economies with indications of higher interest rates and tapering of their balance sheets.

Central Bank Chief Beheaded

As I discussed in last week’s article about the Fed (CHRONIC CRISES NEXT FOR YELLEN AND THE FED), we must never trust central banks since they are always hopelessly wrong. Sweden is another example of a central bank which has an appalling record in forecasting the economy. And it is not just any bank since I am talking about the oldest central bank in the world – Sweden’s Riksbank, which was established in 1668. But age clearly means nothing when it comes to understanding markets and the economy. Below we see the Riksbank’s forecasting record for the Swedish Repo rate. It is just an appalling record, which shows that during the last 7 years, they have been hopelessly wrong. Several times a year since 2011, they have forecast rate increases of 1-2%, and every year since then, rates have gone lower. In all, they have made 25 incorrect forecasts since 2011. Hopefully, their record since 1668 has been more accurate.

Not only have they forecast higher rates, but they have consistently lowered rates since 2011 and now have negative interest rates since 2015. It is quite amazing that a central bank makes 25 forecasts of higher rates, but instead lowers the Repo rate 10 times. Rates have been manipulated lower to make the Swedish currency weaker in order to stimulate exports. These low rates have created a massive housing bubble in Sweden. Swedish consumer borrowing, including mortgages, is among the highest in Europe, and any significant increase in interest rates will create a major problem in the Swedish economy and financial system, much worse than the early 1990s. As I have discussed before, the 35-year interest cycle has turned up and whether central banks like it or not, rates in the next few years will be much higher. The selling of long-term bonds by nervous investors is what will drive rates higher. This will also pull the shorter rates up.

In the 17th and 18th centuries, the Riksbank ran out of silver due to very high war debts. The bank resorted to paper money, which quickly failed. They then again minted copper money, which was not trusted by the Swedes, with the consequence that the head of the Riksbank was beheaded in 1719. In the last 104 years since the creation of the Fed, most central bank heads have failed massively. So far, there has been no beheading of a central bank chief in modern times, but when the financial system fails in the next few years, many bankers will feel very vulnerable.

New Subprime Crises Looming

Whether a central bank is the oldest in the world or just one hundred years old like the Fed, the problem is the same. All central banks make hopelessly inaccurate forecasts. As a result, they interfere with the normal economic cycle, which has natural highs and lows of relatively small amplitude. It is this natural cycle which is totally destroyed by central banks’ manipulation. In their total lack of understanding of the laws of supply and demand, central bankers think they have divine powers. They believe that low interest rates and printed money create economic prosperity, whilst the opposite is the case. The only thing that this type of manipulation achieves is massive booms and busts that ruin the fabric of the economy. We have now had one of the longest artificial booms in history, so next is a bust that will totally change the world for a very long period. This time, the financial repression, which temporarily delayed the inevitable disaster during the 2006-9 financial crisis, will not work. Money printing will create hyperinflation, and all attempts to lower the already low rates will fail. Central banks will be totally powerless in stopping the biggest financial crisis in history.

I have often discussed the global debt mountain, which has grown exponentially for many years to reach around $2.5 quadrillion, including derivatives and unfunded liabilities.

US mortgage debt or subprime debt was the major factor during the last crisis. Well, the Fed or the US government has learnt nothing. The subprime crisis in the US was minutes away from causing a global financial collapse. But US Household Debt has just surpassed the 2008 peak and is now at $12.7 trillion.

As interest rates rise and house prices collapse, the next mortgage debt crisis will be much bigger than the 2006-9 one. Eventually, house prices could decline by 75-90% in real terms. The coming crisis will also involve two new subprime crises, namely Student and Auto loans. Students not finding jobs will not repay their debts, and many jobless car buyers will stop paying off their car loans. Collapsing second-hand car prices will exacerbate the problem. So now is an excellent time to hold back on a house or car purchase. There will be real bargains in the next few years.

Whilst there is still euphoria in investment markets, investors have very little fear and very little understanding that the asset bubbles which have been created in the last few decades have nothing to do with real prosperity but are only based on debt, printed money and artificially low rates.

The Most Lethal Concoction of Debt

Incredibly, most investors see no danger in stocks, bonds, property and debt being at historical highs. This is the most lethal concoction of bubbles that has ever existed in history. Of course, bubbles can expand further before they implode. But who wants to be in a bubble that bursts, resulting in losses between 75% and 100% in real terms? Because this is what will happen to stocks, bonds and property in most countries. I am well aware that 99.99% of investors consider this kind of projection as scaremongering doom and gloom nonsense. But even if history doesn’t repeat itself, it certainly rhymes, and we know that bullishness is at a peak just before the cycle turns.

Since there is very little fear amongst investors in the West, very few are buying the cheapest and best form of insurance available as protection. Even more importantly, most people don’t realise that this investment has outperformed virtually every asset class this century. I am, of course, talking about gold. Since 1999, the Dow, for example, is down 60% against gold. Gold had a massive rise from $250 in 1999 to $1,920 in 2011. Since then, gold has been recharging for the next leg up. Between 2013 and 2017, gold traded in a $290 range, which is very small compared to the $1,670 rise from $250 to $1,920 between 1999 and 2011.

The Gold Price is Fake News

Looking at the chart above, there seems to be very little interest in buying and holding gold. Gold currently looks very sluggish with a tendency to drift down easily. What most investors don’t understand is that the gold price as depicted by the chart above has nothing to do with the real price of gold. As with most financial markets today, the chart above is fake news. The gold chart shows the effect of covert financial manipulation at the very highest government and central bank level. And this manipulation takes place in the paper gold market, which is many 100 times bigger than the physical gold market. The real players behind this dark, clandestine paper market are never revealed. All investigations are stopped at the source. At best, some insignificant junior bank trader is fined. Virtually every trade that is executed to depress the gold price is done when most gold markets are closed and there are no buyers. The amounts of paper gold traded are also massive. No commercial seller would ever trade in such a blatantly idiotic fashion. Who would ever sell gold in huge quantities when there are no buyers and no market?

If this were a real market backed by physical gold, this type of trading would be impossible. With a seller dumping several months’ production in a few seconds, there is, of course, not a single ounce of physical behind. If the buyer demanded delivery, the seller would either default or pay $100s or even $1,000s above the market price to acquire the physical. But the truth is that the physical doesn’t exist to fulfil the trade.

There is only one Real Gold Market

The real gold market is the physical market, and in this market, all gold produced has already been presold. In the real gold market, long-term contracts absorb all the gold mined and refined. But the West doesn’t understand this market. Because the West trades in false markets based on false values. Most trading in the world financial markets is in the form of derivatives with no delivery of the underlying assets.

This is why most of the people trading gold in the West have no concern about ever getting delivery. They see physical gold as impractical and expensive to trade. Why hold physical when all you need is an electronic entry saying: x oz of GOLD. Virtually nobody realises that these electronic entries at some point will not even be worth the electricity that has been used to create them.
Whilst very few in the West understand the value of real money and insurance in the form of gold, most people in the East take the opposite view because both individuals and governments in the East continue to accumulate gold at ever-increasing levels.

Just look at the gold buying of the most significant Silk Road countries in the chart below. Since 1995, India, China, Russia and Turkey have bought 34,000 tonnes of gold. The buying has accelerated since the Financial Crisis in 2007. From 2007 to May 2017, these four countries bought 26,000 tonnes of physical gold. This means that they have absorbed more than the mine production in the last 10 years. It is very likely that these figures greatly underestimate the buying of both China and India. The Indian figures don’t include the smuggling of gold, which at times can reach very large quantities. And the Chinese authorities prefer not to reveal the real level of Chinese gold buying. Just in May, these countries bought 400 tonnes of gold. That is an annual rate of 4,800 tonnes, 60% above the annual global mine production of gold.

If we look at the cumulative Silk Road demand after 5 months of 2017, it is the second highest since 2013 at 1,552 tonnes.

These charts and figures from the East clearly illustrate that the physical gold market is extremely strong, with demand at a record level. The weak gold price is an illusion based on a false and manipulated gold paper market. Like all false markets, it is only a matter of time before the truth will be revealed. And the truth will be very painful to anyone who holds paper gold or other paper assets.

The gold price will jump faster than cryptocurrencies

Gold at currently $1,220 is a false price in a false market set by paper gold manipulators. At some point in the not-too-distant future, the gold price will be set in the physical market as no one will trust the paper market. The availability of physical gold is extremely limited at current prices. The rush to cover the shorts, combined with a massive increase in demand due to higher gold prices, will create a vicious gold price cycle. The result will be gold jumping $100s and even $1,000s in a very short period of time. Once this move starts, we are likely to see percentage rises which are much greater than we have seen in cryptocurrencies lately.

For anyone who doesn’t hold sufficient insurance in the form of gold, the current price is a real gift. And for the people who already own physical gold, they can sleep well knowing that they hold the ultimate wealth preservation asset that in the next few years will reach levels which are hard to imagine today.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

“The report of my death has been grossly exaggerated” are words that Janet Yellen is likely to utter within the next few years. It was, of course, Mark Twain who said it over 100 years ago, before the Fed even existed. Yellen has recently stated that there won’t be another financial crisis in her lifetime, and she will most likely have to eat those words in the coming years. We know that the Fed’s record of economic forecasting has been abysmal. They have never forecast or anticipated a single economic downturn. Here is what Greenspan said in 2010: “We didn’t forecast better because we can’t”.

Well, there we have it from the master himself of both Fedspeak and gobbledygook. For over a century, the Fed has not anticipated any of the major economic or financial events that have plagued the world. Instead of predicting these events, the Fed has actually caused most of the economic downturns or financial crashes.

A total failure by the Fed to fulfil its mandate

The Fed has a Dual Mandate of Price Stability and Maximum Sustainable Employment. Since the US government uses a yardstick with infinite flexibility, it should be able to produce whatever figures it needs to meet its targets.

If we take the official US consumer price inflation, it has fluctuated from 25% to -15% in the 1920s and between 12.5% in 1980 to -0.3% in 2009.

This can hardly be called price stability and shows that at no point has the Fed achieved its goal. The fact that official inflation is now just under 2% is just sheer fluke and has nothing to do with Fed policy. Inflation levels in most industrialised countries are currently between 0 and 2%. Real inflation is substantially higher than anyone buying food, insurance, paying for education, etc, knows.

As regards the Fed’s goal of Sustainable Employment, they have found a very elegant way of solving this. By eliminating everyone who hasn’t found a job after six months, the unemployment rate miraculously declines from 23% to 4%. The fact that 95 million Americans capable of work can’t find a job is not taken into consideration. There are many ways to skin a cat, and the Fed has used every method possible to achieve its goal. No one should be fooled because all is certainly not well in the kingdom of America (Hamlet paraphrased).

The Fed’s stated Dual Mandate does not seem to be the real policy they are pursuing. Instead, their actual policy is to create cheap money by setting interest rates at zero and to print massive amounts of money. This benefits their banker masters and shareholders by providing access to free financing, which can be leveraged 10-50 times, thereby generating substantial profits. The Fed policy also creates massive gains for the banks and the wealthy in stocks, bonds and property. These bubbles are now so big that the Fed doesn’t dare to pop them. But regardless of Fed policy, the sheer size of the bubbles will lead to their implosion in the next few years.

Global debt up 2.5x in 15 years

Central banks worldwide have gradually stepped up their attempts to create a demand-induced inflation over the last two and a half decades. It started with Japan in the 1990s, with the rest of the world following in the 2000s. Since 2003, the major central banks have printed $12.5 trillion and still have not managed to boost inflation figures. But this is just a small part of total credit creation since global debt has increased by $130 trillion in the last 14 years to $217 trillion.

This means that since 2002, we have seen a credit explosion which is equivalent to 2 years’ global GDP. It is a frightening thought that for 2 out of the last 14 years, there would have been ZERO GDP without a credit expansion of $130 trillion. And even with this credit growth, world GDP has grown on average by less than 2% (excluding China). Debt-to-GDP has grown from 160% in 1979 to 375% today in the US and from 320% to 580% for Japan. Most countries have seen similar increases to levels which are totally unsustainable and thus confirm that this will not end well.

The effect of the credit growth is not shown in official inflation figures, as all that printed money has instead created high inflation or hyperinflation in asset values. The values of stocks, bonds and property have all exploded. Just look at Japan. Since 2009, the Boj has printed Yen 370 trillion ($3T), which has pushed the Nikkei index up 2.5x. The ECB and the FED printing have achieved similar results. Credit expansion has created massive wealth for a minuscule elite and massive debts, both private and public, for normal people.

Concentration of wealth will lead to social disorder

The Wealth Pyramid shows how 0.7% of the world population controls 45% of global wealth, and 8% own 85% of wealth. These are the privileged few. Most people in the world either have negative or no savings. And these are the people who will suffer when governments default, which is extremely likely in the coming years. This unequal wealth distribution will eventually lead to social disorder and serious civil unrest.

A nation can default in many ways

Defaults can occur in many ways. It can involve just not paying back debt or not paying the interest. Or it can be debasing the currency until it is totally worthless. The default will also entail not paying entitlements such as pensions or social security, or not providing free or subsidised medical care. It is virtually guaranteed that with the current state of the world economy, many or most of these default events will happen within 5 to 10 years maximum but probably sooner. That is the only way the world can solve a $2.5 quadrillion debt and liability problem (including unfunded liabilities and derivatives). But sadly, that will involve a very different world for an extended period.

Central banks’ success in destroying paper money

A manipulated economy can never be in equilibrium. The Fed’s and the government’s artificial meddling in economic cycles will always result in massive overshoots, thus creating gigantic booms and busts. Very few people realise what is actually happening to the value of money. Since true inflation statistics are never produced, nobody realises how everything becomes more expensive. Let’s take a couple of examples: A loaf of bread in 1971 was 25 cents and is now $2.00. One pound of hamburger meat has gone from 62 cents to $5.00 during the same period. What most people do notice is that the value of their house has gone up dramatically. An average American house in 1970 was $25,000, and today it is $290,000. These price increases are all due to the total mismanagement of the economy by the Fed and the government and have nothing to do with increases in real value.

If we look at the purchasing power of the dollar since the Fed was founded in 1913, the dollar has lost 97% of its value.

There has been a lot of talk about the strong dollar in recent years. But a strong dollar is an illusion. It is true that the dollar has strengthened somewhat, but just look at the long-term trend against the Swiss Franc. When I started my working life in Switzerland in 1969, $1 bought Swiss Francs 4.30. Today, $1 buys 0.96 Swiss cents. So, in 48 years, the dollar has lost 78% against the Swiss Franc. Looking at the chart, there has been a pause in the downtrend for the last 6 years. But it now looks like the dollar soon will resume its downtrend and go down by another 50% in the next few years to 0.50 Swiss cents. That major depreciation of the dollar doesn’t mean the Swiss Franc will be strong. All it means is that the dollar will be extremely weak.

Record US Budget Deficits for over half a century

The US Treasury’s Financial Report for 2016 shows a Budget cash deficit of $587 billion. On a proper accounting basis, the deficit is $1.047 trillion. So the 57-year trend of continuous US budget deficits is not going to be broken in the next few years. For anyone who believes there were surpluses in the Clinton years, I will just remind them that these were false and that the debt continued to go up in spite of the manufactured surpluses.

There is every reason to believe that the US deficit will double every 8 years, just as it has since 1981. That would mean that the road to perdition will lead to a US debt of $40 trillion by 2025, with a static tax revenue which will never be sufficient to reduce or repay the debt.

All major central banks will raise rates at the wrong time

European Central Bankers met at the ECB Economic Forum this week in Sintra, Portugal. They were all echoing the Fed and talking about higher rates. Central bankers are always far behind the curve, and what they didn’t do several years ago to restrict the credit explosion, they are likely to do now. Of course, the heavily indebted world will not cope with higher rates. But higher rates will happen across the world, whether it is right or not. The 35-year interest cycle bottomed last year, and now higher rates will be a major contributing factor to the coming fall of the world economy. Central banks will try to break the fall of bond markets (higher rates), but that will fail as bond investors panic to exit the biggest credit bubble in history. Central banks will also panic as higher rates will create private and public debt defaults. The only tool that they have left is money printing, and the world will see plenty of that in the coming years. Will it be just in the trillions of dollars, or will it reach quadrillions as derivatives fail due to higher rates? Time will tell.

As I discussed in a recent article (HUBRIS KILLS WHILST GOLD PROTECTS), the pieces are now falling into place with the dollar and stocks falling and rates rising. So far, gold is not reacting as price suppression in the paper market is still going on. But at some point in the coming months, the gold manipulation will fail, and at that point, it will be virtually impossible to get hold of physical gold at anywhere near current prices. 2017 is likely to end very differently from how it started.

UNPRECEDENTED GLOBAL RISK – NO ONE CARES

A message from Egon von Greyerz:

I am extremely pleased to announce that Grant Williams has agreed to join Matterhorn as an Advisor.

Grant has spent 30 years in finance, holding senior positions with many leading financial institutions around the world. He is the co-founder of RealVision TV, an online, on-demand financial channel showcasing the brightest minds in finance. He also publishes “Things That Make You Go Hmmm”, an extremely popular and widely-read publication.
Grant is very much in demand as a speaker at financial investment conferences around the world. He has a wonderful ability to mix finance, history and humour into greatly appreciated presentations.

I have known Grant for many years and find him to be one of the most brilliant and interesting thinkers in finance today, on top of being an extremely nice individual. Grant, like me, is a freethinker who is not bound by conventional wisdom. We are both deeply concerned about the risks in the world today. We both believe in sound money and consider physical gold to be an extremely important wealth protection asset.

Our intention to work together is very much based on a meeting of minds at many levels, with a true desire to inform investors around the world of the perils that we are facing and to assist them in their wealth preservation plans.

Egon von Greyerz

Founder & Managing Partner