WAR + INFLATION = GOLD

All the fundamentals are now in place for the above equation to be true: 

• Wars will sadly not go away but instead escalate since there is ZERO desire for peace from the US neocons or the weak Europeans. 
• Inflation and interest rates will increase rapidly, driven by deficits and exponential growth of debt.
• Wars and inflation will lead to a major shift into GOLD by Central Banks, the BRICS  as well as for wealth preservation purposes.

“Poverty is the parent of revolution, crime and war” is what Aristotle stated 2,300 years ago. I added “war” since this is often the consequence of poverty and bankruptcy for a nation in a desperate attempt to borrow more money and blame the war for the economic woes.

As the US is now totally losing its hegemony, we can on a daily basis follow the desperate actions that a failing super power takes. 

As every empire and nation that fails, the US has followed the same pattern whether we talk about the Roman, Mongol, Ottoman, Qing or British Empires. 

Initial economic success as well as military might lead to illusions of grandeur and infallibility. 

Riches, often stolen from other nations, turn to deficits and debts, collapsing currencies and decadence. That leads to money printing followed by the collapse of the currency. At that stage wars are often started which generally have disastrous consequences. 

The RISK OF A COLLAPSE OF THE global geopolitical and economic SYSTEM is crystal clear BUT the outcome is extremely murky.

So let us look at what is clear on the geopolitical side:

• The US is not led by a visible leader but by an invisible and unaccountable group of neocons who only want war. And in Europe there is not a statesman to be found. Instead, weak European leaders follow the headless US.

• The US Neocons want to crush Russia by any means, even if it leads to nuclear war. Thus the US has implemented sanctions against Russia and forced Europe to take their full part by also sending weapons, money and military expertise to Ukraine. The cost of these measures is destroying the European economy and making the US even more bankrupt than it is, by running a deficit approaching $2 trillion with total US debt at soon $100 trillion. Remember it was $1.7 trillion in 1971 when Nixon closed the gold window.  See graph further down. 

• If the US war against Russia (carried out in Ukraine) escalates, Russia will have many friends on their side like China, North Korea and Iran. The US and NATO do not have the capacity to win a war on the ground so any war involving the West will be in the Air and very likely nuclear. 

• The US also wants to crush the Muslim/Arab world. Iran is currently the principal enemy. But the US is also supporting Israel against Hamas and the Houthis in Yemen. The Muslim world has no capacity for a major war against the West but they have a much more effective method of paralysing the West which is terrorism on a major scale.  Most Western countries have well armed Muslim cells, most probably also with dirty nuclear weapons. So surprise attacks on strategic buildings or major shopping centres  in the US, UK  and rest of Europe are probable. That would totally paralyse the countries involved.

• A cyber war is also very likely. Whether Russian and Chinese missiles can take out major communication satellite systems, as recently published, remains, to be seen. But they have well developed skills for cyber attacks anywhere. 

• The US has no desire for peace. They and other NATO countries are not sending a single peacemaker to Russia but only weapons and money. 

• The majority reaction to the recent Tucker Carlson 2 hour interview is typical for the propaganda led hatred for Putin. Most people in the West have been told by MSM to hate Putin and blame him for all evil acts and thus not listen to the interview. I am by no means saying that Putin is an angel because he definitely isn’t. But nor is any other leader of course. Nevertheless Sun Tzu, the Chinese General, strategist and philosopher told us 2,500 years ago: KNOW YOUR ENEMY.  

• So how can anyone in the West understand Russia or Putin when they are not prepared to listen to him calmly presenting the Russian side for 120 minutes? 

• Tucker Carlson – Biden interview. Some US politicians wanted to ban Tucker Carlson from coming back to the US after the interview. Instead I would suggest that Tucker would be given a 2 hour interview with Biden. Just like with Putin, there should be no advisors present, no crib sheets and no teleprompters. 

• Let the world thereafter compare the quality of the argument of the two leaders, their clarity and if they are both Compos Mentis. After all, these are the minimum requirements for a leader of a major power and someone who personally can press the nuclear button. 

I  have above covered the global geopolitical situation which is “crystal clear” from a risk point of view. 

I have since the Ukraine war started been very clear that Ukraine can never beat Russia. After a lot of initial enthusiasm for the underdog and a lot of fake news that Ukraine was winning, the world now realises that this war is a human catastrophe with both sides reporting big losses for the enemy and minimal for themselves. Total deaths are probably well above 500,000 but we will never know. 

The tragedy is of course that the leaders sit in their safe offices and send 100s of thousands of men to their slaughter with no resolution in sight. 

How this war will play out in detail, we will of course only know afterwards. But in the end it will be seen as another futile war with no winners and one or several million losers, just like most wars that megalomanic leaders start. 

THE RISK OF A COLLAPSE OF THE WESTERN ECONOMY IS CRYSTAL CLEAR

So let us now look at the global economic picture. 

The risk of your wealth declining by 70-90% in the next 5-7 years is today probably greater than any time in history. 

The US market is driven by a handful of tech stocks which are massively overvalued. 

On any measure, US stocks are greatly overvalued and as the US debt disaster starts to dominate the discussion, markets will quickly realise that the US is bankrupt.

TOTAL US DEBT IS NOW GROWING EXPONENTIALLY  

US debt has almost quadrupled this century. 

As I have set out in several articles, the interest cycle bottomed in 2020 and we will now see a long term trend up for 20-30 years.  

US Federal debt has doubled every 8 years on average since 1980. With the state of the US finances, the debt is likely to now grow super exponentially. Thus it is likely that $100 trillion Federal debt will be reached before 2036 as a mere doubling every 8 years would result in. 

So with $100 trillion or more of Federal debt within the next 10-12 years, the US economy will default, especially if interest rates reach 10% or more. Remember they were around 20% in the late 1970s and early 80s. 

Obviously, at that point, or more likely well before it, the US dollar will have collapsed and gold will be the only real money that central banks and ordinary investors will be willing to hold. 

Yes, there will probably be a few rounds of other forms of fake money in between like CBDC’s issued by central banks, in the next few years. But they will fail as CBDC’s will just be another Fiat currency backed by debt and no assets. 

So there we have it. Aristotle’s prediction is coming to pass. The US debt and deficit is the Poverty for the country as a whole and will rapidly spread to the people as the financial system implodes. Revolution or internal conflicts will follow both in the US and Europe. The truckers’ action in the US and in many European countries is the start of a form of Revolution.  But it will get much worse. There will be conflict between various political fractions whether it is Trump supporters against the system or neo-Nazis against immigrants or just ordinary people against the wealthy. Extreme income and wealth inequalities, like we are currently seeing in the West,  normally lead to conflicts or revolutions. 

And anyone living in the WEST knows that Crime (as Aristotle said) is rampant and the prisons in most countries are full.

Anyone who doesn’t see that we are at the end of a major era, with massive calamities next, will soon have a rude awakening. 

So overvalued stock markets will crash as will bond markets with interest rates surging. 

SO WHAT ABOUT CASH IN A BANK– will that save investors?

Your cash in a bank belongs to the bank: And that is where most people keep their cash. 

What people don’t realise is that your cash in the bank isn’t your money. 

No, all you have is a claim on the bank as an unsecured creditor. 

And as soon as the bank receives your electronic money, it lends it out up to 10X!

The consequence of that is if one borrower out of the ten can’t repay his loan, you have lost all your money. 

This process is now happening slowly but just as debt is accelerating exponentially, so will defaults. I explain the process in this article. 

First Gradually and then Suddenly – The Everything Collapse

Banca Rotta or Bankrupt: This expression comes from the Italian financial system in Florence in the 1600s when banking was conducted on a bench or desk. If the banker couldn’t honour his obligations, his bench was broken. And that is where the word Bankrupt (Banca Rotta in Italian) derives from. 

So there we have it, a broken or rotten banking system is what the world is looking at now. 

We had the first signs just under one year ago when four US banks had to be saved, starting with Silicon Valley Bank. Shortly thereafter Credit Suisse, Switzerland’s second largest bank, had to be saved by the Swiss National Bank and government and then UBS were made an offer by the Swiss government that they weren’t allowed to refuse and bought Credit Suisse. 

What we saw during the Ides of March last year (March 15 when Caesar was murdered), was the first warning signal for the world that the banking system is broken.

The pressure on the banking system continues. The number of companies that failed to meet required repayments increased by 83% in 2023. 

US corporate debt has increased by 18% since 2000 and is now at $13.7 trillion.

Further deterioration is expected for 2024 due to higher rates. 40% of debt Rated B- or below is risking to be downgraded in 2024. 

The market is hoping for lower rates in 2024 but as I have stated many times, inflation and continued deficits will put pressure on the debt markets.

Commercial property is a real timebomb with vacancy rates approaching 15% and rents under pressure. Office sales prices are also falling rapidly by between 20% and 66% (in San Francisco).

The commercial property market is likely to lead to major write-offs for the banks and eventually either rescue actions (=money printing) or defaults – Banca Rotta!

But let’s face it, the exponential growth of total US debt is unsustainable. 

Please read my article on how exponential moves explode towards the end. So whether US debt goes to $200 trillion, $500t or quadrillions will be determined in particular by the collapse of the derivative market. 

I have in many articles explained that the outstanding derivatives are likely to be a lot higher than the BIS figure of just under $700 trillion like in this article: $2 quadrillion debt precariously resting on $2 trillion gold.

There are sources quoting up to $7 quadrillion derivatives but since I cannot prove it, I cannot make that claim myself. But since there are so many “bets” outside the banking sector and in the shadow banking sector, most of them uncollateralised, we will never know the true size until the system implodes. But whatever the sum is “only” $700 trillion or as much as $7 quadrillion, it is at least 8X global GDP which is enough to break the world financial system and collapse the world economy. 

This is not a fantasy. It is a nightmare. Because when counterparties fail the gross outstanding derivates cannot be netted and the gross amount outstanding is due. 

Initially governments will assist banks in turning the derivatives into on balance sheet debt but as the sheer weight of the debt becomes unmanageable and hyperinflation ravages, that’s when the system will fail. 

Yes, central banks will issue CBDS (Central Bank Digital Currencies)  and try to hide the debt but CBDS is just another form of fake money and will suffer the same fate as paper money. 

Besides the risk of the financial system, governments and central banks around the world, have throughout history destroyed our money without fail. 

Only since the early 1700s over 500 currencies worldwide have become extinct, the majority through hyperinflation. 

Just take the dollar which has lost 98% of its purchasing power since 1971 and 86% since 2000. 

GOLD

As I declared in a recent article – Catch the Goldwagon or lose your Fortune.

If stocks crash there might be some short-lived gold sales but 

GOLD IS ON THE CUSP OF A MAJOR MOVE AS:

• Wars will continue to ravage the world.
• Inflation will rise strongly due to ever increasing debts and deficits.
• The world flees from stocks, bonds, and the US dollar. 
• The BRICS countries continue to buy ever bigger amounts of gold.
• Central Banks buy major amounts of gold as currency reserves instead of US dollars.
• Investors rush into gold at any price to preserve their wealth. 

SO PLEASE DO NOT MISS THE GOLD WAGON BECAUSE IT WILL BE YOUR LAST CHANCE TO PRESERVE YOUR WEALTH

WAR + INFLATION = GOLD

VON GREYERZ partner, Matthew Piepenburg, joins VON GREYERZ advisor, Grant Williams along with Andy Schectman and Jay Martin in the opening presentation at the recent Vancouver Resource Investment Conference to discuss the truly “tectonic shifts” in the global political and financial playing field.

The panel gives specific attention to the now undeniable and growing trend toward de-dollarization and the rise of the BRICS+ trading alliances outside of the USD. The evidence of the shift away from the USD and UST in the wake of the 2022 Putin sanctions is literally everywhere, from Main Street and the bond market to global currency, energy and gold markets.

For longer-term investors seeking to prepare for these changes, this special panel makes it clear that change is not just coming, it is already here. Knowing where currency and bond markets are moving, as well as global trade, the extent and implications of these changes won’t be scary but opportunistic. Of course, gold will play a central role in the new world unfolding before our very eyes.

WAR + INFLATION = GOLD

The French poet, Arthur Rimbaud famously wrote that “Nothing is true.”

Hmmm.

Fairly sensational, no?

Deciphering the nuance behind such poetic phrases is almost as difficult as deciphering the meaning behind so many political (and hence central banking) phrases.

Reality Amidst Fantasy: Putin Speaks

Of course, not everything is a lie—but in the backdrop of a now openly discredited legacy media and the growing swells of mis-information, dis-information and mal-information, one has to be selective in sifting through pounds of fantasy for an ounce reality.

Recent headlines regarding the Carlson/Putin interview, for example, will draw passionate reaction, commentary and bias depending largely upon whether or not one views Putin as Hitler 2.0 or a Realpolitik pragmatist, Zelenskyy as George Washington reborn or a puppet thespian, or Tucker Carlson as a media lightweight or awe-shucks truth seeker.

Nothing we say here will change such personal biases floating above a cesspool of politicized and weaponized tricks and messages, from the DOJ to the WSJ, or the FOMC to NYT.

Stick to the Math

That is why math and factual data, far more than prompt-readers, sell-side bankers and power-prioritized politicos offer the safest lighthouse in the current financial and geopolitical fog.

So, let’s stick to math and facts and let us/you be our/your own judges.

Putin Getting Cheeky?

Putin, for example, wondered out loud why the US is spending billions in an avoidable war protecting its Ukrainian satellite nation despite its own country drowning in over 33 (in fact 34) trillion in public debt, a clear immigration disaster on its southern border and undeniable signs of de-dollarization as China and Russia, along with a whole lot of BRICS+ nations, move gradually away from the Greenback.

He also made a few sly, and potentially prophetic observations about the slow demise of the petrodollar, a theme we’ve addressed many times.

Was this just dis-information? Pro-Russian propaganda and hence more biased lies?

You can decide for yourselves.

Putin is no angel, after all, but that doesn’t mean he’s stupid, and when it comes to certain mathematical facts, he does have a few points worth considering…

Debt Matters

When it comes to US national debt (now over 120% of its GDP), we and many others, have been openly warning for years that it’s not only a national embarrassment (and managerial sin), but that such abstract trillions of debt are also mathematical deterrents to genuine (rather than debt-based) “growth.”

After all, debt-based “growth” is not actual growth, it’s just more debt—akin to giving teenage frat boys a credit card to party every semester while ignoring the subsequent invoice until graduation…

We’ve also reminded that the war on inflation, which Powell famously described as “transitory,” is not only far from over, but that its worst battle wounds (i.e., inflation pains) are yet to come.

In plain speak, Powell needs inflation and a debased dollar (via inevitable rate cuts and more mouse-clicked trillions, i.e., QE to the moon) to pay for (and inflate away) not only Uncle Sam’s rising, and embarrassing public debt, but the trillions more in unfunded liabilities off the public balance sheet.

Caught in this fatal undertow of debt, the Fed, and hence the US economy and dollar, is now openly trapped, and whatever one thinks of Putin, he knows this to be true.

Powell’s “higher-for-longer” rate hikes since 2022 were indeed dis-inflationary, but they also strengthened the USD, crushed bond prices and sent bond yields too high (and too costly) for foreigners holding over $13T in debt obligations pegged to those rising yields.

This forced foreigners to sell large chunks of their $7.6T in USTs to come up with the cash (i.e., USDs) to pay their dollar-denominated debts.

The net result was an increasingly disorderly bond market as the USD and yields rose while bond prices tanked, which only added more depth to US deficits (fiscal dominance), more pain to small businesses, more interest expense for Uncle Sam, tighter lending at the banks and increasing IOU issuance (i.e., more debt) from the US of A.

The Big Rub

But here’s the rub—and it’s a BIG RUB: No one wants those IOU’s.  (They prefer gold.)

Trust in American debt just aint what it used to be, and faith in that weaponized USD (as we warned since 2022) is fading—slowly, yes, but surely.

Recently, Jay Martin, Andy Schechtman, Grant Willaims and myself knew this; central banks know this, and not surprisingly, even that clever and hated/loved Mr. Putin knows this…

Thus, unless Uncle Sam wants to default on its debt (aint gonna happen) or allow a UST auction to fail (aint gonna happen), the only realistic option for more needed dollar liquidity (short of a Bretton Woods 2.0) is going to boil down to more synthetic liquidity, first from the repo markets and Treasury General Account (as seen in Sept of 2019 and 2022, and in March and October of 2023) and finally, from QE to the moon (as seen in March of 2020).

As for when the bow breaks and “Super QE” kicks in (and the USD falls and inflation once again rips), don’t ask me for a date, as NO ONE knows—but it’s coming, and at a faster pace than even Putin thinks…

Where the Rubber Meets the Road for Investors

So, what does all this debt, bond, currency and Fed disfunction mean for YOU, the markets and your fiat money?

Well, a helluva lot.

As for Main Street, the suffering, as I’ve shown and argued many times, is as loud and clear as Oliver Anthony’s guitar.

Stated simply—the middle class is already screwed.

Stocks, Gold, BTC and Bonds

Job cuts are objectively trending up, which ironically boosts earnings for companies with less over-head due to, well less employees…

Full-time employment has tanked by 1.4 million Americans in the past 3 months at a pace rarely seen in US history while politicians are bragging about GDP growth.

But, and to repeat, that GDP “growth” is coming from deficit spending (deficit to GDP at 8%), not a robust Main Street.

Think about that a second.

In the near-term, these disfunctions, lay-offs, lower-rate projections by the Fed and embarrassing debt levels are actually bullish for equities, a point which seemed to shock one of my recent interviewers.

Be Careful You Near-Term Dragon Slayers

But tread carefully in this so-called “bull market” of new stock highs, as there’s a great deal of comical rot beneath its rising wings.

Notwithstanding a 2024 market opening of all-time highs marked by extreme volatility, short-earnings momentum and AI mis-pricings reminiscent of the dot.com mania, the market is dangerously narrow—lead by Amazon, Microsoft, Nvidia and META.

The fact that Microsoft is bigger than the French GDP has me wondering about my anti-trust books in law school as well the definition of corporatism in the annals of fascism… As warned elsewhere, what I see is more akin to feudalism not free-market capitalism.

Meanwhile, in the span of 30 days, Nvidia has become another Tesla in terms of market cap, with mind-numbing factor pair moves (i.e., price to value mismatches). The signals we are seeing look almost identical to 1998-2000, 2006-08 and 1970-73, circumstances which ended “with blood in the streets.”

Just saying…

Longer Term Wisdom

Longer-term investors tend to be more prudent than short-term speculators. They see the broader debt (and death) spiral of the US currency and IOU (measured by the US sovereign bond index, or TLT).

The growing performance of the GLD/TLT, BTC/GLD and SPX/TLT ratios (i.e., gold, Bitcoin and S&P outperforming the US10Y bond), for example, is fairly clear evidence that the markets are seeing what we have been warning, namely: Cash and bonds are no longer a “safe haven” in a nation on its knees in debt and a debased dollar.

Gold Matters

Of course, our bias, and more importantly, our conviction in a world wherein currency debasement is effectively inevitable and already in play regardless of relative strength comedies, is to protect your wealth in the best currency debasement asset history has ever known: Gold.

As for gold, I recently reminded that among the many foreseeable consequences of the stupid idea of weaponizing the USD to “hurt” Putin was the slow but equally inevitable move from Western to Eastern gold repricing, which is just another way of saying “fairer repricing.”

In short, fundamentals are slowly returning to a once completely price-fixed NY and London based gold market.

The SGE Matters

That is, as more nations are moving away from the weaponized USD and net-settling their trade deltas in gold rather than greenbacks (a fact which Putin, love him or hate, coyly reminded Tucker Carlson), the Shanghai Gold Exchange (SGE) is getting busier by the day converting Rubbles, CNY and other currencies into gold to settle trade imbalances outside USD circles.

Premiums on the SGE, as well as pricing of the metal, are moving from West to East.

At some point, the 200-day moving averages in the gold price set on exchanges in London and New York will have to mirror rather than ignore what’s happening in the increasingly more popular Chinese exchange.

And speaking of the SGE, big things are happening right before our eyes.

Gold Withdrawals—Scary or Bullish?

Specifically, the SGE just saw 271 tons of gold withdrawals in a single month, the largest amount seen in 10 years.

Is that not bad for gold? Is it not akin to a “run on the [gold] bank”?

Actually, it’s the very opposite.

First, this move openly signals that Chinese investors trust gold more than their stock and real estate portfolios, something American investors have been slower to realize—often until it’s too late.

But in the US, gold held in ETF’s (which is not a smart place to “own” gold…) is also seeing big withdrawals at the same time the Spot price has been surging rather than falling.

Such Western gold ETF sell-offs occurred before in 2015 and 2013, and it drove the gold price down—not because investors hated it, but because the LBMA banks in London needed more of it.

This time, however, as ETF withdrawals increase, the gold price is going up.

Hmmm.

Why the new direction?

How the West Mistakenly Created a New Gold/Oil Order

Well, it has a lot to do with what we’ve been saying about the SGE.

Unlike 2013, the world now has an increasingly powerful Yuan-driven gold exchange as well as a Yuan-driven oil contract (with, among others, Russia…).

This creates a Yuan-based gold/oil ratio, as we predicted from Day 1 of the back-firing Putin sanctions, and this ratio is competing with the USD-based gold/oil ratio.

Again, and we can’t repeat this enough: Weaponizing the USD against Putin in Q1 of 2022 was a watershed momentin global currency (and hence oil, gold and other commodity markets).

Why?

Because it brought two major powers (Russia & China) closer in geopolitical and financial alignment, along with a growing list of eager BRICS+ nations now making bi-lateral trade deals outside the USD.

Don’t believe us or our warnings two years back? Well: See for yourself, here.

We also said this process would be slow, rather than overnight, but even we are amazed by the speed and scope of these market changes.

Given that global markets will not tolerate two-prices and two-markets for gold and oil, it is our contention (as well as Luke Gromen’s) that “the USD gold/oil ratio must remain the same as the CNY gold/oil ratio.”

The West Forced to Acknowledge Gold’s Monetary Role

As Gromen further argues, and I agree, this means that if the USD price of gold were to crash, then USD oil prices would have to crash along side the gold price, which would “crush” US shale production and “effectively cede the global oil market to Russia and Saudi.”

This makes the US nervous. More importantly, it will force some changes…

Stated more simply (and ironically), thanks to the knee-jerk Western sanctions against Putin, the West now and unwittingly has a vested interest in keeping gold more fairly priced as a primary net reserve asset for commodity and energy trade deltas/imbalances.

After all, the USA can’t simply ignore what the rest of the world is doing with gold and oil.

This, of course, creates even more ironies and more challenges for the openly cornered US.

For example, everyone in DC and Wall Street knows the open secret that a rising gold price, as well as a rising gold role in international trade, is an open insult and embarrassment to an increasingly unloved, debased and mouse-clicked fiat USD.

It’s also an open embarrassment to years of central bank mismanagement of the USD.

But now the West in general, and the US in particular, can no longer ignore the golden elephant in the room nor openly ignore (and quietly manipulate) the gold price.

The East, in short, is now reminding the world, and the West, that in a world of increasingly crappy paper dollars, money-printing and debt gone wild: Gold matters.

It really matters.

Fork in the Road

This means the US-led west will have to face realities about its currency and debt markets, as well as its society and Main Street.

Putin, whether trusted or untrusted, has suggested peace and more cooperation.

Does our power-thirsty and Pentagon-led DC, so openly disconnected from its citizens and once credible State Department, seek the same?

Or will DC simply do what Hemingway warned, and drag us further into wars and a debased Dollar in your wallet?

We shall see…

WAR + INFLATION = GOLD

In this brief yet refreshingly blunt discussion, VON GREYERZ partner, Matthew Piepenburg joins David Lin at the Vancouver Resource Investment Conference. From Canada, Piepenburg fleshes out the longer-term facts vs. the short-term inflation “debate” and the now mathematical inevitability of further USD debasement to “save” an objectively broken financial system.

The conversation opens with the media-ignored (and almost comical) denial of an economic hard-landing despite current market highs driven by forward-guided rate hikes. Piepenburg reduced the stock market to a Pavlovian dog which simply turns up or down on dovish or hawkish Fed policies. Free market capitalism is now entirely perverted.

Powell’s projected rate cuts, necessary to bail out private and sovereign bonds repricing in 2024, is a tailwind for over-valued stocks but is not a sign of economic strength. Instead, we are seeing centralized markets, Fed desperation and a further postponed debt reckoning. The end-game will be “mouse-clicked” trillions to monetize unwanted USTs, the net result of which, is naturally inflationary.

Piepenburg reminds that such an inflationary end-game is part of undeniable and historical debt patterns which are always blamed on “external” forces which then justify increased policy dishonesty, as well as political control and centralization. This sickening pattern, he says, is historically true “without exception” as policy makers “prostitute sound debt policies at the expense of the many for the benefit of the few.”

Of course, sacrificing the currency to extend and pretend otherwise broken risk asset markets and purchase votes in the near-term ruins Main Street purchasing power while creating social unrest–the political, social, cultural and financial evidence of which is literally everywhere we look.

Gold, by itself, can’t save the financial system from these abuses and mis-uses of power and political opportunists. Leaders and central bankers will continue to maintain power while perverting currencies and pointing the blame outside their bathroom mirrors. This, however, does not prevent sophisticated investors from protecting their own wealth against currency destruction by owning their own physical gold outside of a failed financial order and Fed-protected banking system.

WAR + INFLATION = GOLD

In this brief yet substantive conversation with Charlotte McLeod of Investing News Network, VON GREYERZ partner, Matthew Piepenburg, bluntly answers the financial questions and concerns which political figures and central bankers have a vested interest in mis-representing.

Toward that end, he highlights the recessionary facts which are currently being ignored by an S&P rising on rate cut projections from the US Federal Reserve. As for pending rate cuts, Piepenburg argues that Powell will indeed cut rates in 2024 for the simple reason that Uncle Sam (and risk asset markets) can’t afford “Higher for Longer” much longer…

Of course, rate cuts make Piepenburg temporarily bullish on equities, as lower rates are an obvious tailwind for risk assets which go up or down depending on whether central banks are dovish or hawkish.

As for gold, this asset wins regardless of which direction—hawkish or dovish—the Fed takes. Should Powell cut rates (dovish), the USD declines and gold outperforms. However, should Powell be bluffing and stick to higher rates (hawkish), then risk asset markets tank and gold ultimately rises above that chaos. Again, gold will rise in either scenario.

Most importantly, Piepenburg sees an ultimate and inflationary end-game when the Fed is eventually required to resort to extreme QE (mouse-click money) to monetize the trillions in deficit spending projected out of the US Congressional Budget Office. Stated simply, Uncle Sam is drowning debt, and the only buyer of his IOUs will be a Fed money printer, which is inherently inflationary. As such, gold will rise because the USD will be debased to pay Uncle Sam’s debt.

As Piepenburg concludes, this pattern of debasing sovereign currencies to save otherwise rotten debt systems is nothing new. In fact, and without exception, this is what all broke(n) regimes have done throughout history. The US, and USD, will be no exception, which means gold will be exceptional.

WAR + INFLATION = GOLD

VON GREYERZ founder and chairman, Egon von Greyerz, sits down with Investor Talk’s Jan Kneist to discuss his outlook for 2024, which includes clear signs that now, more than ever, investors need to be prepared for an historic wealth transfer.

Egon opens with a brief explanation of the naturally evolved name change from Matterhorn Asset Management AG to VON GREYERZ AG. He places specific emphasis on the values and principles behind the family name–the very same values which will mark his enterprise for generations to come.

As to looking forward, Egon’s core views of current and future financial conditions are driven by a consistent understanding of past lessons and patterns. Market patterns today, for example, are reminiscent of the boom and bust cycles of yesterday; he addresses the massive (and dangerous) over-valuation in current markets with greater detail.

As to inflation concerns, Egon’s conviction for a much higher inflationary end-game remains the same. Current Fed balance sheet tightening (QT) is also discussed. Given massive deficit levels in the US, the shift toward synthetic liquidity to monetize US debts will make future QE inevitable. As Egon reminds, demand for USTs is weakening not strengthening, a fact made even more obvious by the West’s absurd decision to freeze the FX reserves of a major economy like Russia.

In short, trust in the American IOU has now irrevocably fallen, all of which places more pressure on the Fed as the buyer of last resort for its own national debt—all classic characteristics of a banana republic.

Turning to gold, its superior performance over the last two decades remains ignored and misunderstood by the vast majority of pundits and investors. Of course, once this misunderstanding (and BIS-led great deception) becomes clear to more investors, the subsequent demand for this relatively fixed-supply asset will send gold’s price much higher in the years ahead. The DOW-Gold ratio, Egon argues, will reach 1:1, which means risk assets will see pain and physical gold will surge in price as global debt levels send markets and economies toward historical turning points, from the US to China.

This, of course, requires sophisticated investors to think more about preparation and wealth preservation over delusion and speculation. Gold, and VON GREYERZ, serve to provide such preservation.

WAR + INFLATION = GOLD

In late December, I published a final report on the themes of 2023 while looking ahead at their implications for the year to come.

I repeated my claim that debt markets and debt levels made the future of Fed policies, currency moves, rate markets and gold’s endgame fairly clear to see.

Of course, as facts change, opinions change as well.

But the facts are only worsening, which means my opinions in late 2023 are only growing stronger as we conclude the first month of 2024.

Then as now, the debt-soaked US is tilting ever more toward policies which will weaken its currency, wound its middleclass and reward its false idols (and false markets) with even greater desperation.

In particular, some recent facts below are emerging which further support my otherwise sad conviction that the American economy (not to be confused with its Fed-supported stock exchanges) is literally living on borrowed time.

The Latest Bits of Crazy from the CBO

Almost a year ago to date, I was shaking my head and rubbing my eyes as the Congressional Budget Office (CBO) announced a staggering $422B Federal budget deficit for Q1 2023.

Now that’s a lot of borrowing in a short amount of time…

For some strange reason, this bothered me in early 2023, as I was still under this odd impression that debt, and hence deficits, actually mattered.

Fast forward to January 2024, and that same CBO has just announced a $509B Federal budget deficit for Q1 2024.

Folks, that adds up to annual deficit run rate of $2.2T.

Please: Re-read that last line again.

Do the Math: DC is Getting Even Dumber

In this 12-month interim, fiscal revenues did increase by about 8%, but outlays (i.e., expenses) for that same period rose by 12%, which is just a mathematical way of saying that either: 1) Uncle Sam is out of his mind in debt; or 2) that I am out of my mind in common sense.

But it seems I’m not the alone in saying out loud what no one DC can say to themselves, namely: The US is now in an open and obvious debt spiral.

Uncle Sam’s embarrassing bar tab of debt is now racing at a rate that far exceeds his GDP, pushing the deficit to GDP ratio toward 8% and higher–ratios we’ve never seen except during the GFC of 2008 and the “COVID” (i.e., hidden bond) crisis of 2020.

From Debt Spiral to Super QE

If recent memory serves me correctly, in both of those embarrassing years (and ratios), what followed was QE to the moon and the ongoing fantasy that every debt problem can be solved with trillions of fiat dollars mouse-clicked out of thin air.

And this time around will likely be no different, as I and others like Luke Gromen have been warning week after week, and month after month.

Such warnings, which NO ONE can time, are not merely bearish “opinions” and don’t require a crystal ball or sensational guessing.

They just require a calculator and a basic understanding of history.

Simple Math

As to basic math, one can have their own opinions but not their own facts, and the facts (i.e., math) tell us that the current cost of servicing the aforementioned debt is 16% of Federal tax receipts.

Again: Please re-read that last line. It matters, because, well…debt destroys nations.

Nor am I alone in this sober understanding.

As the former head of European block trading at Goldman Sachs, Alex Harfouche, just warned, these sickening debt ratios mean the US economy’s ability to shoulder such debt is both “horrible” and “crippling.”

Which means we all know (or should know) what’s coming next.

The Patterns of the Foolish

As in 2008 and 2020, we can now see a pattern playing out in 2024, namely an inevitable shift from rate hikes and pauses toward rate cuts and the inevitable shift from QT to QE.

Why inevitable?

Because stupidity combined with a Will to Power that would make Nietzsche blush are the profile traits of nearly all math-ignorant but ego-savvy policy makers seeking re-election or a Nobel Prize in Economics (fiction?).

That is, and especially in an election year, policy makers will not cut spending but increase it in a desperate bid to bribe the gullible masses into a Pavlovian voting pattern based on generations of political over-promising and grotesque under-delivering.

This political inability to cut entitlement spending makes a US debt spiral (and hence QE to the moon) as foreseeable as the NY Yankees beating my high-school baseball team.

DC Cutting Rates Rather than Spending

Furthermore, since the DC children running our country into the ground won’t cut spending, the only thing they can (and will) cut is interest rates.

Why?

Because cutting rates not only takes pressure off Uncle Sam’s IOUs (USTs), but also eases the pain of those complicit S&P zombies staring down the barrel of over $740B in debt rollovers in 2024.

Main Street Screwed Again

Remember: The Fed serves TBTF banks and exchanges, not citizens and their realities.

Interest rate cuts + QE = a further debased USD and rising inflation (with a deflationary recession in the middle).

And this means the voters on Main Street are about to feel the darker side of DC’s real mandate: Covering their own A$$’es while keeping Wall Street on a respirator.

Meanwhile, the masses feel pain, but can’t quite see from where it’s coming, as the media, MMT hucksters and political Ken and Barbies keep telling them that deficits don’t matter.

Deficits Don’t Matter?

Even worse, there are those sitting in private wealth management suites smugly reminding their clients that Japan is in much worse debt (see below) than Uncle Sam, and if Japan can muddle through, certainly the US has nothing to fear.

But as I recently reminded the attendees at the Vancouver Resource Investment Conference, Japan does not have twin deficits, a negative 65% Net International Investment Position nor an externally financed bond market.

In short: Japan aint America. But even if it were, it’s nothing of which to boast…

Whistling Past the Debt Graveyard with More Spending

Like Luke Gromen, I am of the sober and math-based view that unless the US cuts entitlement and defense spending by 40% (unthinkable in an election year and a world of beating [US?] war drums almost everywhere), such austerity is about as likely as an honest man in Congress…

Failing such needed cuts and sound budget honesty, policy makers will merely whistle past another year of multi-trillion deficit levels and pass the bill on to current and future generations while inflating their way out of debt with more of the debased money in your pockets.

As I’ve written before, this is no surprise. In fact, it was the plan all along, despite Powell’s efforts to pretend otherwise.

Keep It Simple: Powell Will Pivot

Debtors, including Uncle Sam, need inflation and need a debased currency. 

They need negative real rates whereby inflation outpaces the yield on 10Y bonds.

Powell, of course, tried pushing real rates to a positive 2% to allegedly “fight inflation,” but, and as in 2018-19, the net result was that he simply broke nearly everything but the USD in the process.

In fact, Powell was merely raising rates and thinning the Fed balance sheet so that he’d have something (anything) to cut (rates) and fatten (balance sheet) when the recession that his higher-for-longer policies ushered in (and then denied) became too impossible to ignore.

Or stated more bluntly: His recent QT was a planned precursor to more QE, and his recent rate hikes were a planned precursor to more rate cuts.

Keep It Simple: A Future of Debased Currency

Thus, and long before hitting “target 2%,” Powell will once again throw in the towel in 2024 on rate hikes for the simple reason that Uncle Sam can’t afford them.

Or stated (and repeated) more simply, his “war on inflation,” waged in the last 2 years, will ultimately (and ironically) end in even greater inflation.

Ahhh the ironies. Or better yet: “The horror, the horror…”

History confirms this pattern in one debt-failed nation after the next.

In fact, and without exception, currencies are always sacrificed to save a broken regime. And folks, our regime is objectively broke(n).

Thus, for those who know the math (above), and the history of yesterday, preparing for tomorrow is simple.

Projected rate cuts (and the scent of more synthetic liquidity) can and (already have) sent inflated risk assets higher as the inherent purchasing power of the currency gets weaker.

Keep It Simple: Natural Gold vs. An Un-Natural Dollar

This simply means gold, though never marching in a straight line, will reach higher highs and lower lows for no other reason than paper currencies like the USD will get more debased.

And this is all because the issuance of unloved sovereign USTs will become greater and greater, as the opening data from the CBO in Q1 now makes factually clear.

Soon the Fed will run out of tricks within Treasury General Account (Yellen’s game) and the Reverse Repo Markets to generate fake liquidity for those over-supplied and under-demanded USTs.

And this means Powell will once again crank out the money printers at the Eccles Building to “buy” those IOUs.

Fortunately, Powell has no machine in DC to produce physical gold, which means this natural precious metal of unlimited duration yet finite supply will rise, while USTs, an unnatural asset of finite duration yet infinite supply, will continue to sink.

It’s just that simple.

WAR + INFLATION = GOLD

In this brief yet important conversation between Egon von Greyerz and Matthew Piepenburg, these former “MAMChatters” announce a new discussion series, GOLD MATTERS. The timing and series-change is both appropriate and exciting, as Matterhorn Asset Management, AG has now officially changed its entity name to VON GREYERZ, AG.

VON GREYERZ principal, Matthew Piepenburg, opens by explaining the new entity name as a natural and shared decision among the entire VON GREYERZ organization to reflect the insights and vision of its founder and Chairman, Egon von Greyerz.

As Matthew reminds, Egon’s professional career, which includes years in Swiss banking before taking a small UK retail enterprise to much greater heights as a listed FTSE 100 company, is one marked by a steady understanding of business ethics, personal values and disciplined growth. Those same characteristics shaped Egon’s journey in taking Matterhorn Asset Management from a small circle of family-and-friend investors into a global enterprise with clients in over 90 countries.

Matthew specifically enquires about Egon’s relationship with–and deep understanding of–global debt and risk levels as critical components of the VON GREYERZ narrative, the success of which Egon explains with the clarity earned from decades of experience. Gold, he reminds, is the culminating asset for those who understand the myriad risks now rising before us in real time, from fractured banking practices and geopolitical fissures to unsustainable debt levels and broken fiat currency systems. Toward this end, the VON GREYERZ wealth preservation service via physical gold is the perfect expression of (and name for) Egon’s deeply respected approach to solving for such risks.

Piepenburg concludes the discussion by announcing the enhanced VON GREYERZ website, which offers users an even richer experience (and on-site education) in not only why sophisticated investors own gold, but where and how it needs to be held, and not held, in the current global backdrop. The new website also underscores the menu of services behind VON GREYERZ, which have made it the industry leader in wealth preservation.

WAR + INFLATION = GOLD

In this first discussion of a longer series focusing on key risk themes nearing a 2024 breaking point, Matterhorn Asset Management principals, Egon von Greyerz and Matthew Piepenburg, open with a blunt discussion on the critical (as well as controversial) topics of geopolitics, escalating war signals and the key differences between gold and BTC in a global setting of open currency destruction.

Beginning with the topic of war, Egon and Matthew discuss a daisy chain of expensive and ultimately unsuccessful wars with DC origins but global ramifications. Of course, the rising tensions within the middle east form a part of this narrative, one which includes an ongoing (and still unresolved) war in the Ukraine and now headlines of further NATO expansion into Sweden and Finland.

Neither Egon nor Matthew offers easy solutions or predictions for such volatile issues. However, what can be easily foreseen is the simple and historically-confirmed relationship between escalating wars and hence escalating costs, debt levels and hence currency debasement to monetize the same. This relationship between war, inflation, and currency destruction, which even Hemingway foresaw, is anything but fictional and points yet again to the absolute necessity of protecting against such currency risk with real money, namely: Physical gold.

Of course, many crypto investors see BTC as an equally convincing form of “digital gold” to one day emerge as a viable store of value to protect against similar risks. Neither Egon nor Matthew ridicule crypto as an asset nor the investors who trade them. One can be a tenacious proponent of physical gold without having to cast dispersions at BTC, which has been a superlative speculation trade (and risk) for countless investors.

That, however, is precisely how both Egon and Matthew distinguish gold from BTC: With Gold being an undeniably (and historically-confirmed) store of value and hence wealth preservation asset; and BTC being an equally undeniable speculation asset. Egon and Matt track the price moves, for example, in BTC and compare its volatility to gold to make this conclusion objective rather than sensational. Matt, moreover, defends BTC against recent headlines, like SBF’s corruption or Binance’s multi-billion-dollar legal judgements, which are not blockchain failures but human failures. Toward that end, Matt addresses the equally “human” risks which Larry Fink’s Blackrock poses to the BTC narrative.

Although cryptos like BTC have adopted the same narrative as gold to highlight the themes of being an  alternative currency outside of an openly failing global banking and fiat monetary system, the more popular (and frankly, actual) use/role of BTC has been as an astonishing speculation asset. The fact, moreover, that numerous crypto millionaires have approached Matterhorn to convert their speculative BTC into wealth-preserving gold adds anecdotal evidence to this conviction. The additional fact that central banks are stacking gold rather than BTC at historical levels suggests that when serious concerns over currency stability are the key drivers, gold is the obvious choice.

Of course, speculation and preservation are each important aspects of wealth, but Egon and Matt remind that gold preserves generational wealth with far greater effect and far less risk.

In the coming weeks, Egon and Matt will address other key risk themes (oil, currencies, BRICs etc.) as we enter a very important 2024.

WAR + INFLATION = GOLD

With the US shooting itself in the foot again, we are now certain that this is the final farewell to the bankrupt dollar based monetary system.

More about this follows but, in the meantime, an extremely important warning: 

If you have never been a goldbug, this is the time to become one. 

I decided 25 years ago that the destiny of the world economy and the financial system necessitated the best form of wealth preservation that money could buy. 

And physical gold performs that role beautifully just as it has done for several thousands of years as every currency or fiat monetary system has collapsed without fail throughout history. 

Thus, at the beginning of this century we told our investor friends and ourselves to buy gold for up to 50% of investable liquid asset. 

So at $300 we acquired important amounts of gold and have never looked back. We have of course never sold any gold but only added since. 

I have never called myself a goldbug, just someone who wanted to protect assets against the risk of the destruction of the financial system including all currencies. But now is really the time to become a real gold bug. 

So, today just over 20 years later, gold is up 7 – 8X in most Western currencies and multiples of that in weaker economies like Argentina, Venezuela, Turkey etc.

The total mismanagement of the US financial system has led to the dollar losing 98% of it’s value since Nixon closed the gold window in 1971. Most other currencies have followed the dollar down at varying speeds. 

But now comes the really exciting phase of this race to the bottom. 

We have only 2% left for the dollar based currency system goes to ZERO. 

As Voltaire said in 1728, “Paper money always returns to its intrinsic value – ZERO.”

What we must remember is that the dollar doesn’t just have a further 2% to fall to reach zero. Because to reach zero, it will next fall 100% from where it is today. 

I know the sceptics will say that this is not possible. But these sceptics don’t know their history. Since fiat currencies’ record is perfect, no one must believe that because we live today, it is different to a 5,000 year faultless record of success, or shall we call it failure, of currencies always reaching zero. 

THE US CONTINUES TO SHOOT ITSELF IN THE FOOT

How many times can you shoot yourself in the foot and still walk upright with pride?

Well, the US government certainly has wounded itself mortally with both feet being so full of holes that there is hardly any space left for another hole. 

So, the latest hole in the US dollar foot is a proposal to steal $300 billion of Russian reserves and use the funds for the reconstruction of Ukraine.

A deadline has been set for the G7 nations to come up with the detailed proposal by 24 February. 

The proposal has obviously come from the US backed by its faithful lapdog the UK. 

Now don’t get me wrong, I really like the US and also the UK and their people but that doesn’t mean that I concur with the idiotic decisions taken by their governments without the consent of their people. 

So will 2024 be the year which, when all the evils which the West has created, erupt in the most violent chain of events political, civil wars, geopolitical, more war, terrorism, economic collapse including the fall of the monetary system. 

Well the ingredients are certainly present to create a picture similar to The Triumph of Death painting by Bruegel.  

We obviously hope that this is not where the world is heading but all the ingredients are sadly in place for the start of a series of events which will be both unpredictable and uncontrollable. “The Financial System has reached the End”

MOST MAJOR WARS SINCE WWII HAVE BEEN INSTIGATED BY THE US

As Merkel admitted, since the Minsk agreement in 2014, it was always the intention of the US to push Ukraine into a conflict with Russia. 

This war is still going on with more than 500,000 having been killed. (Since propaganda from both sides is a major part of a war, we will never know the correct figure.) 

It will obviously be very tempting for the G7 to use the $ 300 billion funds stolen, for the war since many countries’ parliaments are becoming reluctant to fund this war. 

So is the US and its allies going to set a precedent that should also apply for other wars?

Since the US initiated the attacks on Vietnam, Iraq, Libya, Syria and many other countries, should not the US foreign reserves be applied for the reconstruction of all these nations? 

But as always, it is one rule for the mighty US and another rule for its enemies. 

As Bush Jr said, “Either you are with us or you are with the terrorists.”

THE LAST PHASE OF THE DOLLAR DEBASEMENT NEXT

This very final phase of the dollar debasement to zero really started on June 29, 2022 when the US decided to seize all Russian financial assets. 

That action was the nail in the coffin (as well as the shot in the foot) of the Petrodollar system. This has been in place since 1973 to support the dollar with a payment system for black gold since yellow gold was no longer supporting the dollar. 

To seize a major sovereign state’s (Russia’s) assets can never end well. And then to give those assets to an enemy of that state (Ukraine) is guaranteed to seal the fate of the dollar dominant currency system and its backers. 

An economically weak EU gave its support with the Brexit UK always obeying its US masters. 

A historical post mortem of this total submission to the command of the US will clearly conclude that it was totally disastrous for the German economy as well as the rest of Europe. But sadly weak leaders always make disastrous decisions. 

And as the West has a massive surplus of weak leaders, it is running from one crisis to the next.

Is Treasury Secretary Yellen blind to what is happening to her economy or is she just giving the world the propaganda lies that all politicians must do to buy votes?

This is what Yellen said to the House Financial Services Committee in August 2023:

“The dollar plays the role it does in the world financial system for very good reasons that no other country is able to replicate, including China. We have deep liquid open financial markets, strong rule of law and an absence of capital controls that no country is able to replicate….. But the dollar is far and away the dominant reserve asset.”  – 

“Deep liquid financial markets” means “we” have until now been able to create unlimited amounts of worthless fiat money. “Strong rule of law” means that whoever totally obeys the US increasingly totalitarian system, like for example the Patriot Act, is protected by the law. And as regards capital controls, FATCA (Foreign Account Tax Compliance Act) that the US forced upon the world’s finical system in 2014 has led to a total US control of the global financial system.  

And as regards “the dollar is far and away the dominant reserve asset”, not for long Mrs Yellen. 

Has Janet heard of de-dollarisation, has she heard of the BRICS and has she understood that the runaway debts and deficits are destroying the fabric of the US economy and financial system?

Yes of course she knows all of this and she also knows that she can’t do anything about it except to print more money. So her principal role is to keep the pretences up and hope that the system will not collapse on her watch. And then hopefully she can pass the baton to the next treasury secretary unscathed, so that he/she can get the blame. 

BRICS

The BRICS already has 10 members, India, China, Brazil, Russia, South Africa, Saudi Arabia, UAE, Iran, Egypt and Ethiopia. 

In addition, another 30 countries want to join including for example Venezuela. 

The BRICS produce just under 50% of global oil. 

But if we look at oil reserves, the existing BRICS plus aspiring members like Venezuela, have over 20X the oil reserves of the US. 

PEAK ENERGY

Another major economic crisis for the world is the contracting energy system.

The world economy is driven by energy which means fossil fuels. Without sufficient energy the living standards would decline fatally. Currently fossil fuels account for 83% of the world’s energy. The heavy dependence on fossil fuels is unlikely to change in the next few decades.

 And as I have always believed, even electric vehicles are no longer the holy grail that world governments are trying to push onto consumers. There are just too many problems such as cost of buying and cost of repairs, range and questionable CO2 benefits. Also environmentally EVs are a disaster since batteries have a short life and cannot be recycled. 

But that’s not the only problem. For the first 60-70,000 miles an EV produces more CO2 than an ordinary vehicle.

Stocks are building up of unsold EVs, exacerbated by companies like Hertz selling off 20,000 vehicles. 

Also, to produce ONE battery takes 250 tons of rock and minerals. The effect is 10-20 tons of CO2 from mining and manufacturing even before the vehicle has been driven 1 metre. 

In addition, car batteries cannot be recycled but go to landfill which has major environmental implications. 

And as concerns renewable energy, it is unlikely to replace fossil fuels for a very, very long time even if this is a politically uncomfortable view for the climate control activists. What very few realise is that most renewable energy sources are very costly and also all dependent on fossil fuels whether it is electric cars, wind turbines or solar panels.

As the graph shows, the energy derived from fossil fuels has declined for the last few years. This trend will accelerate over the next 20+ years as the availability of fossil fuels decline and the cost increases. The economic cost of producing energy has gone up 5X since 1980.

What very few people realise is that the world’s prosperity does not improve with more debt but with more and cheaper energy.

But sadly, as the graph above shows, energy production is going to decline for at least 20 years.

Less energy means lower prosperity for the world. And remember that this is in addition to a major decline in prosperity due to the implosion of the financial system and asset values.

The graph above shows that energy from fossil fuels will decline by 18% between 2021 and 2040. But although Wind & Solar will proportionally increase, it will in no way compensate for the fall in fossil fuels. For renewable energy to make up the difference, it would need to increase by 900% with an investment exceeding $100 trillion.  This is highly unlikely since the production of Wind & Solar are heavily dependent on fossil fuels.

Another major problem is that there is no efficient method for storing Renewable energy.

Let’s just take the example of getting enough energy from batteries. The world’s largest battery factory is the Tesla Giga factory. The annual total output from this factory would produce 3 minutes of the annual US electricity demand. Even with 1,000 years of battery production, the batteries from this factory would produce only 2 days of US electricity demand.

So batteries will most probably not be a viable source of energy for decades especially since they need fossil fuels to be produced and charged.

Nuclear energy is the best available option today. But the time and cost of producing nuclear means that it will not be a viable alternative for decades. Also, many countries have stopped nuclear energy for political reasons. The graph above shows that nuclear and hydro will only increase very marginally in the next 20 years.

Of course the world wants to achieve cleaner and more efficient energy. But today we don’t have the means to produce this energy in quantity from anything but fossil fuels.

So stopping or reducing the production of fossil fuels, which is the desire of many politicians and climate activists, is guaranteed to substantially exacerbate the decline of the world economy.

We might get cleaner air but many would have to enjoy it in caves with little food or other necessities and conveniences that we have today.

So what is clear is that the world is not prepared for even the best scenario energy case which entails a major decline in the standard of living in the next 20-30 years at least.

IMMINENT DECLINE OF THE WORLD ECONOMY

The above explanation, of the world economy as an energy driven system, is important to grasp in order to understand the effect of the declining energy production. This decline together with the increased energy cost of producing energy will exacerbate the decline of the world economy. 

To add to this longer term energy crisis which very few people discuss or fathom, the world is facing the end of the current monetary system.

Yes, the BRICS countries will over time assume the mantle of the waning Western empire. 

But it won’t happen overnight, especially since the world’s second biggest economy, China, also has a debt problem almost as big as the US one.

Just look at the growth of China’s money supply in this century. No country has survived such an explosion of money supply without serious consequences.

The advantage that China has is that their financial and currency system is principally domestic and can therefore be resolved “in-house”.

JUMP ON THE GOLD WAGON

No one can forecast with certainty when an event will take place.

But what we can determine with great certainty is that the risk is imminent for the world economy and the Western monetary system to go through an uncontrollable  reset of proportions never seen before in history. 

What we also feel certain about is that the gold price very soon will reflect the major problems that the world economy is facing. 

In this century, gold has performed very strongly against all currencies as the table below shows. 

All major central banks will do all they can to support the gold price. 

The BRICS and other Eastern countries will accelerate their already substantial purchases of gold. And the West, led by the US will accelerate the debt creation and spend unfathomable amounts in futile attempts to save their collapsing economies. 

In June 2016 I advised investors to jump on the Goldwagon when gold was $1,300. https://vongreyerz.gold/get-on-the-goldwagon-to-10000/

Today with gold at $2,050 gold is still very cheap and anyone with some savings, small to very big, must now jump on the goldwagon and buy as much physical gold (and a bit of silver) as you can afford and then some more. 

Owning gold will not solve all our problems, but it will at least give us a very important nest egg and protection against the coming financial debacle that will hit the world. 

WAR + INFLATION = GOLD

In Europe, many countries have been seething since 2015, when the first major wave of refugees reached Germany and Austria in particular. In the US, it was the election of Donald Trump as President in November 2016 that brought the deep divide between Republicans and Democrats to everyone’s attention. A few months earlier, to the surprise of many, the UK had opted for Brexit, an exit from the EU. Only a few years have passed since then, but the density of crises has increased rather than decreased: Covid-19, the climate crisis, inflation, the war in Ukraine, the energy crisis, and finally Hamas’ terrorist attack on Israel and its response.

2024 will see a number of important elections in these times of multiple crises: presidential elections in the USA, elections to the European Parliament, and three state elections in eastern federal states in Germany(in each of which the AfD is leading in the polls by more than 30%). 2024 could be the year of major social and political upheavals.

Because business and investment always take place in a specific political and social environment, in this article we want to look at investment as a topic in a broader sense. Over the course of dozens of events and hundreds of client visits, we exchanged views with professional market participants such as asset managers, fund managers and private investors, as well as with private clients and representatives from a wide range of media. In the course of many discussions, we have been able to diagnose, roughly speaking, three different world views with regard to the assessment of the overall economic situation. We want to outline these below and, based on this, the respective affinity for a gold investment:

1. “Believers in the system”

Among these are, for example, financial analysts and market commentators who believe that the interventionist Keynesian economic policy, which has been implemented in the wake of the global financial crisis, is in principle correct and necessary. According to their view, the economy is in a recovery process which, due to unforeseeable regional economic difficulties, such as the euro area debt crisis, slowing growth in China, the aftermath of the Covid-19 crisis, interest rate shock etc. has been developing at a slower pace than expected. All in all, the “patient” that is our global economy, is however on the way to regaining his health, and the financial markets are in the process of gradually sounding the “all clear”. The supervisory authorities have moreover learned much-needed lessons from the crisis and have lowered systemic risk by implementing better regulations.

Representatives of this camp are increasingly critical of the fact that expansive monetary policy has lately been “the only game in town”. According to believers in the system “secular stagnation” or the “new normal” are the paradigms which best describe the current phase of weak growth. This state of affairs is supposed to be countered by more stimulus, such as fiscal stimulus measures, and/or “helicopter money”. They also consider a rapid and radical energy transition to be indispensable, whatever it takes. Gold allocation in the portfolios of this group has been extremely low, effectively zero over the past decade. It could even happen that gold could get a public reputation problem from this group, who are very influential in state and public institutions, as gold could increasingly be branded as the asset of potentates and conspiracy theorists.

• “The Sceptics”

This camp comprises people who harbor doubts about the sustainability of the extreme economic policy measures that have been taken and deemed necessary to overcome the global financial crisis, the sovereign debt crisis in the eurozone and the coronavirus pandemic. After these crises, many of them instinctively came to the conclusion that fighting a debt crisis with even more debt, and extravagant monetary policy measures, is probably not an appropriate therapy. This group includes, inter alia, hedge fund managers and traditional asset managers who are often unable or unwilling to communicate their critical assessments, especially publicly. Sometimes a schizophrenic situation arises in which fund managers position their private portfolios in a much more crisis-proof way, with a higher allocation to gold.

With respect to gold allocations within the portfolios managed by this group, many have acted in a pragmatic manner: In the years after the global financial crisis, they accumulated a lot of gold. But from 2013 onwards, these positions were reduced, and in some cases even sold in their entirety, often on account of performance pressures. From 2016 onwards, ETF inflows were on the rise again. This significant increase in ETF inflows indicate that, inter alia, these skeptical investors have partially returned to the market. ETF holdings more than doubled by October 2020. Since then, interest in Europe and the US has been on the decline, while demand from Asia has increased slightly.

In recent years, due to the current “investment emergency” and the pressures exerted by reporting structures and benchmarks, many sceptics have  joined the bandwagon in traditional “risk-on” asset classes like (technology) stocks, private equity, real estate, high yield bonds etc. However, in many cases this was done half-heartedly, in order to “ride the wave”.

It is remarkable how many market participants are questioning the sustainability of current economic and monetary policy measures behind closed doors. It is also worth noting that the group of sceptics has, in our assessment, gradually grown in recent years and has likely become the largest group.

We believe the sceptics could play a particularly important role as marginal buyers in driving the future gold price trend: Many of them have not yet invested in gold, but are keeping an eye on it from the side-lines. As soon as the “slow recovery of the economy” narrative no longer holds up, they will be among the first to shift portfolio allocations in favor of gold.

• “Critics of the System”

Members of this group are convinced that the monetary architecture is systematically flawed. Criticism of the system can be formulated on the basis of several schools of thought, or at times even based on common sense. In our opinion, the most consistent critical assessment of the status quo can be performed by employing the analytical methods of the Austrian School of Economics. Austrian theory systematically explains why the forecasted economic mini-recovery is neither sustainable nor self-supporting. 

People who have come to adopt this critical stance have one thing in common: It is almost impossible for them to regain faith in the system. Thus, there is a one-way street into this camp, and the growth of this group is almost inevitable.

We are making no secret of the fact that we belong to the third group. We only regard criticism of the system as serious if it results from investigations free of value judgements. Our findings are based on the methodological framework of the Austrian School. We want to emphasize that we are opposed to system rejection, for mere ideological reasons. Simply being against the system is a childish attitude of defiance that will not improve anything.

The instability of credit expansion induced growth, which we routinely criticize, is impressively illustrated by the following chart. Since 1959, “total credit market debt” – the broadest debt aggregate in the US – has increased by 12,800%, bringing the annualized growth rate to 7.4%. In every decade, outstanding debt has – at least – doubled. In order to trigger credit-induced GDP growth again – after the volume of total outstanding debt dipped slightly for the first time in 2009 – the Fed implemented a series of never-before-seen monetary policy measures.

Currently, the US federal government, in particular, is piling up the debt burden through persistently high budget deficits. In the fiscal year 2023, which concluded in September 2023, the deficit reached 6.3%, compared to 5.4% in the fiscal year 2022. In the two pandemic years 2020 and 2021, the deficit even reached the double-digit percentage range, at 15.0% and 12.4% respectively. In the first quarter of the current fiscal year, there is no sign of a reduction in the spending orgy.

This inevitably leads to a rapid increase in US debt. This debt is now over USD 34 trillion and the latest trillion was added in only 14 weeks. As around a third of US debt has to be refinanced within a year, interest payments will continue to rise. More than a third of federal taxes already have to be spent on servicing interest alone.

There is no reverse gear that can be engaged in today’s monetary system – the money supply has to be increased incessantly – which in turn means that the amount of credit in the system continually rises as well.

Critics of the system know: The fact that the steady expansion in the volume of outstanding debt has run into snags in recent years, characterizes the current (critical) phase in the monetary system’s evolution. Over the medium-term, these record levels of debt will either be dealt with by defaults, financial repression, or a forceful reflation, possibly in the form of “helicopter money”.

Conclusion

In light of this critical assessment, we advocate more strongly than ever for a strategic allocation to physical gold in long-term investment portfolios. This is because one of the most important portfolio characteristics of gold is and remains that it has no counterparty risk.

Precisely because gold is such an important part of the financial safety net against severe systemic crises, any efforts by governments, authorities or interest groups to demonize gold as an asset of extremist groups or rogue states, and therefore to regulate it more strictly, should be resolutely opposed. The current monetary system is not facing a crisis because citizens could switch to gold, but rather because citizens are increasingly switching to gold, precisely because the current monetary system is bound to face a crisis sooner or later. Bad-mouthing gold does not prevent a crisis, it exacerbates it, because it deprives the population of the golden safety net. Without a safety net, people are known to fall deeper and harder.

WAR + INFLATION = GOLD

Ever since day-one of the predictably disastrous and politically myopic insanity of weaponizing the world reserve currency against a major power like Russia, we warned that the USD had reached an historical turning point of slow demise and increasing de-dollarization.

We also warned that this would be a gradual process rather than over-night headline, much like the slow but steady death of the USD’s purchasing power since Nixon left the gold standard in 1971:

But as we’ll discover below, this gyrating process is happening even faster than we could have imagined, and all of this bodes profoundly well for physical gold, yet not so well for the USD.

Bad Actors, Bad Policies & Predictable Patterns

Regardless of what the media-mislead world thinks of Putin, weaponizing the USD was a foreseeable disaster which, naturally, none of DC’s worst-and-dimmest, could fully grasp.

This is because chest-puffing but math-illiterate neocons pushing policy from the Pentagon were pulling the increasingly visible strings of a Biden puppet at the White House.

In short, the dark state of which Mike Lofgren warned is not only dark, but dangerously dumb.

These political opportunists have forgotten that military power is not as wise as financial strength, which is why broke (and increasingly centralized nations) inevitably lead their country toward a state of permanent ruin preceded by cycles of war and currency-destroying inflation.

Sound familiar?

Despite no training in economics, Ernest Hemingway, who witnessed two world wars, saw this pattern clearly:

We also found “Biden’s” sanctions particularly comical, given that his former boss clearly understood the dangers of such a policy for the USD as far back as 2015:

The myopic (i.e., patently stupid) sanctions against Putin simply (and predicably) pushed Russia and China closer together while the BRICS+ nations increasingly began arbitraging gold for oil.

Or stated more bluntly, DC’s plan to weaken the Rubble has only served to put the USD at historical risk.

Does the Petrodollar Suck?

Throughout2022 and 2023, we warned of the weakening respect Saudi Arabia has for the allegedly Biden-“lead” US in general and its increasingly unloved UST and weaponized USD in particular.

Of course, we were specifically warning of the slow, gradual and yet again—inevitable—demise of the oh-so important Petrodollar which has been a critical “straw” of the milkshake theory’s faith in global demand for the USD.

But as the facts are now making increasingly clear, that “straw” is no longer sucking on a USD which much of the world now considers, well, a Dollar that sucks…

Three days after Christmas, the Wall Street Journal confessed what JP Morgan’s head of global commodities strategy had been tracking since 2015, namely that approximately 20% of the global oil bought and sold in 2023 was in currencies other than the USD.

Ouch.

That Dollar-straw appears to be losing its sucking-power, no?

Currently, this is because two nations all too familiar with American sanctions—i.e., Iran and Russia—just happen to have a lot of oil and have cranked up their oil selling in alternative currencies among willing buyers like China and India.

By the Way: This is All VERY Good for Gold

One, for example, can sell oil in London for gold, then transfer that gold to a Yuan trade hub where the gold is converted to CNY, and then use that CNY to buy oil outside of the USD.

Or stated more simply, gold will slowly be filling the delta in a BRICS+ oil trade once ruled by the USD, which mean’s gold’s price, hitherto controlled by NY and London, is about to return to actual fundamentals rather than OTC price fixing.

As gold traded on the Shanghai Exchange gathers greater and greater momentum (and premiums), the 200-day moving average of gold priced in USD will have to keep pace for the 200-day moving average in CNY…

Again, all of this was foreseeable but only now is the math finally making the headlines.

How Much Worse Can It Get for the USD?

Given the rapid pace and percentages of oil trading outside of the USD, the obvious next question is how much worse can it get?

The short answer: A lot worse.

Iran and Russia, for example, are playing hard-ball, but what happens if Saudi Arabia, which is now an official BRICS member (and more prone to fist-pumping Biden while shaking hands with Xi) decides to look more East than West in the coming years?

Saudi Arabia’s increasingly open relations with the Shanghai Cooperation Organization and BRICS New Development Bank suggest that unlike former nations who tried to sell oil outside of the USD (think Iraq and Libya), the Saudi Crown Prince appears far less afraid of meeting the same coincidental fate of say, Saddam Hussein or Muamar Gaddafi…

As we’ve warned numerous times, once the US weaponized the USD, there was no turning back, as nations both friendly or not-so-friendly to the US would never trust a non-neutral reserve currency in the same way they had in prior times.

Thanks to folks like Nixon and now Biden, we are a looonnnggg way from the Bretton Woods USD…

Stated simply, broken trust has made the once tolerated USD less tolerable, and like a genie that can never be put back in the bottle again, the USD will never be fully trusted again, which means demand for that Dollar will never be the same again.

But What About the UAE and Saudi Dollar Peg?

Defenders of the Petrodollar (and hence milkshake theory) will rightfully point out that both the Saudi riyal and UAE dirham are pegged to the USD, which might suggest that both of these mega oil powers have a vested interest in seeing a stronger rather than weaker role of the USD in their critical oil markets.

It’s also worth admitting that Russian oil enterprises are slamming into liquidity issues with Indian rupees and Chinese yuan, which are not nearly as liquid as the USD, which despite its weak legs and twisted back, is still the best horse in the global currency glue factory.

These are fair, very fair points.

This is why we still maintain our belief that the USD’s supremacy, just like it’s post-1971 purchasing power, will die slowly by a thousand cuts rather than an overnight headline.

So yes, the riyal and dirham are both pegged to the USD, but as Luke Gromen recently observed, that’s only true “…for now.”

Gromen makes a compelling case that most investors are underestimating the ability by which both the UAE and Saudis have to de-peg their currencies from a weakening USD and re-peg “their energy to gold… while having their currencies APPRECIATE against the USD.”

Brent Johnson, who argues for a stronger USD, would counter such an argument by reminding us that OPEC considered cutting its link with the USD in 1975, and it never happened.

But like Gromen, I’d argue that we are not in 1975 (or Kansas) anymore.

Much has changed—including the distrust of that post-sanction USD, the subsequent rise of the BRICS+ nations, the aforementioned percentage of oil volumes trading outside the USD and the open decline of US monetary and foreign policy in recent years and headlines.

And like Gromen, I’d remind readers that even the hint of an OPEC link-cut in 1975 with the USD sent the gold price up by 5X in a period of less than five years.

This explains why the Fed of that same period hiked rates from 5.25% to over 18% to make the USD more attractive to OPEC.

BLACK Gold Colliding with Real Gold = A GREENback in the RED

But folks, with public US debt now racing past $34T, the current Fed has no ability to put such rate-hike lipstick on a high-debt pig of the current magnitude, which means Powell, unlike Volcker, simply can’t make the USD attractive to OPEC in 2024 like it could in the late 1970’s.

Or stated more simply, the USD, like the cornered US Fed, is running out of both credibility and options.

And This Again, Is Good for Gold

The implications and ripple effects of a now weaponized Greenback are nothing short of extraordinary as gold slowly rises to the status of an oil currency for the first time since Nixon welched on the gold standard in 1971.

And given the disconnect between current USD oil production (massive) and USD gold production (tiny), the potential for an historically significant repricing of gold is as powerful (and predictable) as good ol’ fashioned supply and demand.

After all, when a golden asset of infinite duration yet finite supply collides with spiking demand, the price of that asset skyrockets.

By contrast, when an unloved asset of finite duration yet infinite supply—like a UST—collides with tanking demand, the price of that asset sinks to the ocean floor…

Don’t Get Too Comfortable with Lower Rates and Defeated Inflation…

Thus, despite recent and openly desperate attempts by the FOMC to project reduced rates while declaring victory over inflation (after having engineered a deflationary, yet unreported and rate-hike-driven recession), we foresee a longer-term scenario of tanking USTs and hence rising yields, which means rising interest rates.

Such bond-market-determined (rather than Fed-set) rate hikes will also be colliding with a US Congressional Budget Office forecasting another $20T of UST issuance in the next 10 years.

This will be a perfect storm of more IOU issuance colliding with even higher rates and hence higher costs, which will in turn only be payable if the Fed prints even more trillions of USDs out of thin air to pay Uncle Sam’s bar tab.

Needless to say, such inevitable synthetic liquidity (i.e., QE to the moon) will lead to further rather than less debasement of an already debased USD (very good for gold…), proving that Hemingway’s predictions above make him a far more deserving recipient of the Nobel Prize in Economics than Bernanke.

Ah, the ironies, they do abound…

Bernanke’s thesis of solving a debt crisis with more debt is far more deserving of a prize in fiction than math, but as per above, it was Papa Hemingway, the novelist, who understood history and math far better than this falsely idolized central banker…

All Signs Point to Gold

In 2023, we saw gold reaching record highs in all currencies including the USD despite a year marked by a relatively strong USD, positive real rates and spiking yields—all traditional headwinds for USD-priced gold.

This disconnect from traditional metrics is based upon the USA’s disconnect from sound monetary and foreign policies, all of which have left the USD, UST and US Government looking more like the island of misfit toys rather than a trusted land of the reserve currency.

Gold will continue to diverge from traditional metrics as its role as a net trade settlement among the growing BRICS+ nations makes the issue of positive or negative US real rates less relevant in a world turning away from, well…the US and its broken/dis-trusted currency.

These hard facts, combined with the inevitable return to mega QE to monetize massive and projected UST issuance (and hence debt) in the coming years, will further debase the USD to support the UST market.

Ludwig von Mises, Ernest Hemingway, and David Hume understood the philosophy of debt long before the first central banker was spawned. They warned that all debt-soaked and failing nations have and will sacrifice their currency to save their rotten “system.”

They were and are correct.

In blunt yet historically and math-confirmed terms, gold, priced in USDs, will continue to rise much higher for the simple reason that the USD, despite its powerful reserve status, will continue to debase itself in real terms.