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Timestamps:

0:00 Wealth Preservation Highlight

0:16 Introductions – Egon von Greyerz Background

3:15 ECB Rising Rates

5:20 High Inflation

9:12 The Looming Recession

15:26 Credit Suisse Collapse

22:00 Protecting Your Assets Now!

22:32 BRICS Gold-backed $

24:26 Dollars, Gold and Wealth Preservation

In this brief (33-minute), yet engaging, conversation with Silver Bullion TV, Matterhorn Asset Management Founder, Egon von Greyerz, addresses the importance of balance and meaning in a global financial backdrop increasingly absent of both.

The conversation opens with the ECB’s latest rate hikes in its ever-comical dance to fight an inflationary tide which the central banks alone created. Von Greyerz addresses the fiction of “target 2%.” He sees rates (as well as energy pricing) going higher, which will ultimately add to the inflationary pressures. As rates (and hence the cost of debt) go higher, the need for more synthetic liquidity to cover that debt will end up being inflationary.

Of course, the impact of such poor policies (rising rates and inflation) will affect the man on the street the hardest. This is a gradual but real pain evident across Europe, which is simultaneously (and sadly) suffering from extremely poor leadership. Net result: Citizens will have to pay the recessionary Piper for the financial negligence of their policy makers.

Von Greyerz confirms that banks and policy makers have very few tools left other than empty words to hide embarrassingly poor math, an undeniable embarrassment as evidenced by the recent implosion at Credit Suisse for massive leverage and poor loan underwriting. Unfortunately, such poor banking practices are hardly unique to Credit Suisse. The entire banking system, as argued herein and warned for years, is under extreme pressure. Bail-ins are very likely especially in the US but also in Europe.

As to de-dollarization and the recent headlines as to a gold-backed trading currency among the BRICS, von Greyerz sees the trend away from the USD but is not expecting any complex gold-backed currency in the near or even medium term. The case for gold, however, is rising among central bank reserves. Most importantly, such trends and signs make a far stronger case for informed investors to protect their wealth with physical gold rather than fiat dollars and increasingly unloved sovereign bonds.

As von Greyerz consistently reminds, gold as a wealth preservation asset has never been more important.

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“When elephants and central bankers (with wings) fly, don’t hold gold”

This is what Egon von Greyerz recommends in this 25 min. interview with Jan Kneist of Investor Talk.

Egon suggests that they will all fly when: “There are no deficits……, no inflation….., no debasement of currencies ….., strong statesmanship based on real values”!

All very unlikely in the foreseeable future according to Egon. Thus the case for gold and wealth preservation is stronger than ever.

Jan and Egon also discuss increasing pressures on ordinary people with declining food sales in Germany and France due to price increases around 20% and the increasing in housing costs both in Europe and the US, leading to a major increase in evictions. The commercial property sector is also under tremendous pressure in Europe and the US due to higher rates and lower occupancy.

Also credit portfolios are deteriorating rapidly, with a high risk of the banking crisis, which started in mid March, resuming with a vengeance.

The BRICS meeting at the end of August in Johannesburg is much discussed in the media. Egon believes that it is premature to expect a gold backed BRICS currency at the August meeting. What is probable is that the commodity rich BRICS countries will no longer hold the dollar as a reserve asset but instead gold.

The consequences of these events make the case for physical gold as a reserve asset for investors self-evident.

Timestamps:

0:00 Introductions

0:55 Egon’s views on Crypto news

3:05 Inflation will remain high, forcing consumers to save

6:32 Housing and Property Cost increases, USA evictions exceeding pre-pandemic levels

10:20 Payroll employment – The US jobs market is still being equated with the strength of the US economy. a fake?

13:21 According to official figures, the USA has grown much faster than Europe since 2008

15:15 Are Banks Still in Shambles? The US banking crisis is far from over

18:43 A gold-backed BRICS currency is doubtful, the dollar nevertheless continues to lose

24:10 When should you NOT hold gold?

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Below we separate the hype from the sad reality of the USD in the face of a new “BRICS currency.”

Net conclusion: The real death of the USD will be domestic not foreign.

The Bell Has Been Tolling for Years

When it comes to the “bell tolling for fiat,” we can all hear its loud chimes, but that bell has been tolling since 1971 (or frankly 1968), when the US leadership decoupled the world reserve currency from its golden chaperone.

Like any teenager throwing a house party, the lack of a parental chaperone leads to lots of crazy events and lots of broken furniture.

The same is true of post-71 politicians and central bankers suddenly freed of a gold-backed chaperone and thus suddenly loaded with drunken power to mouse-click currencies and expand deficits.

And since then, all kinds of things have been breaking, from banks to bonds to currencies.

And now, with all the extreme hype (and, yes, some genuine reality) behind the headlines of a revolutionary gold-backed BRICS trade currency, many are making sensational claims that the World Reserve Currency (i.e., USD) is nearing its end and that fiat money from DC to Tokyo is effectively toast.

Hmmm…

Don’t Bury the Dollar Just Yet

Before we start tossing red roses over the shallow grave of an admittedly grotesque US Greenback in general, or fiat fantasy money in general, let’s all take a deep breath.

That is, let’s re-think through this inevitable funeral with a bit more, well, realism, mathematics and even geopolitical common sense before we turn our backs on the USD, and this is coming from an author who has never thought highly of that Dollar, be it fiat, politicized and now weaponized.

So, let’s take a deep breath and engage open, informed and critical minds when it comes to debating many of the still open, un-known and critical issues surrounding the so-called “game changer” event when the BRICS+ nations convene this August in S. Africa.

Needed Context for the “BRICS New Currency” Debate

As made clear literally from Day 1 of the Western sanctions against Putin, the West may have been aiming for Putin’s (or the Ruble’s) chest, but it then shot itself in the foot.

After decades of DC exporting USD inflation from Argentina to Moscow, a large swath of the developing countries of the world who owe greater than $14T in USD-denominated debt were already reeling under the pain of rate-hike gyrations which made their own debt and currency markets flip and flop like a dying fish on the dock.

Needless to say, a 500-basis-point spike in the cost of that debt under Powell didn’t help. In fact, it did little good (or goodwill) for USD friends and enemies alike, from the gilt markets in London to the fruit markets in Santiago.

Adding insult to injury, DC coupled this strong-Dollar policy with a now weaponized-Dollar policy in which a nuclear and economic power like Russia had its FX reserves frozen and access to SDRs and SWIFT transactions blocked.

Like Napoleon at Moscow, this was going a step too far…

The net result was an obvious and immediate distrust of that once neutral world reserve currency, an outcome which economists like Robert Triffin warned our congress against in 1960, and even John Maynard Keyes warned the world against long before.

Heck, even Obama warned against such weaponization of a reserve currency as recently as 2015.

Thus, and as I (and many others) warned from Day 1 of the sanctions, the distrust for the USD unleashed by the sanctions in early 2022 was “a genie that can never go back in the bottle.”

Or more simply stated, the trend toward de-dollarization was now going to come at greater speed and with greater force.

This force, of course, is now being seen, as well as debated, under the highly symbolic as well as substantive example of the BRICS+ nations seeking to usher in a gold-backed trade currency to move openly away from the USD, a move which some maintain will soon de-throne the USD as a world reserve currency and send its value immediately to the ocean floor.

The Trend Away from the USD Is Clear, But It’s Pace Is Not

For me, the trajectory of this de-dollarization trend is fairly obvious; but the speed and knowable magnitude of these changes are where I take a more realistic (i.e., less sensational) stance.

But before I argue why, let’s agree on what we do know.

The BRICS New Currency Is Very Real

We know, for example, that Russian finance experts like Sergei Glasyev have real motives and sound reasons for planning a new (anti-Dollar) financial system which not only seeks a Eurasian Economic Union for cross boarder trade settlements backed by local currencies and commodities, but to which gold will likely be added as a “backer” to the same.

Glasyev has also made headlines with plans regarding the Moscow World Standard as a far more fair-playing and fair-priced gold exchange alternative to the Western LBMA exchange.

If we take his gold backing plans seriously, we must also take seriously the plan to expand such gold-backed trade currency plans into the Shanghai Cooperation Organization which would make the final tally of BRICS+ nations “going gold” as high as 41 country codes.

This could ostensibly mean greater than 50% of the world’s population and GDP would be trading in a gold-backed settlement currency outside of the USD, and that, well, matters to both the demand and strength of that Dollar…

China’s Motives Are Also Anti-Dollar

China, moreover, has invested heavily in the Belt & Road Initiative (152 countries) as well as in massive infrastructure projects in Africa and South America, areas of the world that are all too familiar with America’s intentional (or at least cyclical) modus operandi of developing nations enjoying low US rates and cheaper Dollars to create local credit booms which later crash and burn into a local debt crisis whenever those US rates and Dollars rise.

China therefore has a vested interest in protecting its EM investments as well as EM export markets in a currency outside of a USD monopoly.

Meanwhile, as the US is making less and less friends with EM markets, Crown Princes, French Presidents and EU and UK bond markets, China has been busy brokering peace between Saudi Arabia and Iran, as well as building a literal bridge between the latter and Iraq while simultaneously making Yuan-trade deals with Argentina.

Other Reasons to Take the BRICS+ Currency Seriously

Tag on the fact that Brazil, China and Iran are trading outside the USD-denominated SWIFT payment system, and it seems fairly clear that much of the world is leaning toward what Zoltan Poszar described as a “commodity rather that debt-based trade settlement currency” for which Charles Gave (and the BRICS+ nations) see gold as an “essential element” to that global new trend.

Finally, with a strong Greenback making USD energy and other commodity prices painfully (if not fatally) too expensive for large swaths of the globe, it’s no secret to those same large swaths of the globe (including petrodollar nations…) that gold holds its value far better than a USD.

Given this fact, it’s easy to see why BRICS+ nations wish to settle trades in a gold-backed local currency in order to ease the pressure on commodity prices. This gives them the opportunity, as Luke Gromen reminds, to buy time to pay down their other USD-denominated debt obligations.

In addition to the foregoing arguments, the fact that the BRICS+ nations are cloning IMF and World Bank swing loan and “contingency reserve asset” infrastructure programs under their own Asian Monetary Fund and New Development Bank, it becomes more than clear that a new BRICS+ world, trade currency and institutionalized infrastructure is as real as the trend away from a monopolar hegemony of the USD.

In short, and to repeat: There are many, many reasons to both see and trust the obvious and current trend/trajectory away from the USD as warned over a year ago, all of which, no matter what the slope and degree, will be good, very good for gold (see below).

But here’s the rub: The speed, scope, efficiency and ramifications of this trend in general, and the “BRICS August Game Changer” in particular, are far too complex, fluid and unknown to make any immediate (or “sensational”) funeral plans for the USD today.

And here’s a few reasons as to why.

Why the BRICS New Currency Is No Immediate Threat to the USD

First, we have to ask the very preliminary question as to whether the August BRICS summit will even involve an actual announcement of a new, gold-backed trading currency.

So far, all we have to go on is a leak from a Russian embassy in Kenya, not an official communication from the Kremlin or CCP.

Meanwhile, India, a key BRICS member, has openly denied such a new trade currency as a fixed agenda item for this August.

But notwithstanding such media noise, we must also look a bit deeper into the mechanics, economics and politics of a sudden “game-changer” new currency.

The BRICS New Currency: Many Operational Questions Still Open

Mechanically speaking, for example, who will indeed be the issuing entity of this new currency?

The new BRICS Bank?

What will be the actual gold coverage ratio? 10% 15% 20%?

Will BRICS+ member nations/central banks need to deposit their physical gold in a central depository, or will they enjoy (most likely) the flexibility of pledging their domestically-held gold as an accounting-only-unit?

Cohesion Among the Distrusting?

As important, just how much trust and cohesion is there among the BRICS+ nations?

Sure, this collection of nations may trust gold more than they trust each other or the US (which is why such a gold-backed trade currency may work, as it can’t be “inflated away”), but if a BRICS member country wishes to redeem its gold from say, Russia, years down the road, can it realistically assume it will happen?

What if Russia (or any other trade partner) is in a nastier mood tomorrow than they are today?

Basic Math

In addition, there are certain economic/mathematical issues to consider.

We know, for example, that the collective BRICS+ gold reserve (as of Q1 2023) is just over 5452 tones, valued today at approximately $350B.

Enough, yes to stake a new currency.

But measured against a net global amount of $13T in total physical gold, are the BRICS+ gold reserves enough to make a sizable dent (even at a partial coverage ratio) to tilt the world away from the USD overnight, when the USA, at least officially, has much, much more gold than the BRICS+?

That said, we can’t deny that the actual gold stores in places like Russia and China are far, far higher than officially reported by the World Gold Council.

Additionally, the historically unprecedented rate of central bank gold stacking in 2022-23 seems to suggest that the enemies of the USD are indeed “loading their guns” for a reason.

Expecting, however, all of the BRICS+ members to maintain the discipline to continue to purchase and store more physical gold despite the political temptations to redeem the same for later or unexpected domestic spending needs may be a naive assumption in a real world of ever-shifting national behaviors.

Geopolitical Considerations & the BRICS New Currency

Speaking of such shifting behaviors, we also can’t ignore the various pro and con forces within a geopolitical backdrop wherein much of the world, whether it loves or hates the US, still needs its USDs and USTs.

China, for example, may be letting maturities run and even dumping the USTs it now owns at a fast pace (only years away from total UST liquidation), but for now, China needs to keep the USD from growing too weak to buy all the Chinese exports of those American products made, in well…China.

That said, if the trend is indeed a new world of currency wars, rather than currency cooperation, which is a more than fair assumption, then all such liberal economic cooperation/trade arguments fall to the floor.

Nevertheless, with over $30T worth of USDs held by non-US parties in the form of bonds, stocks, and checking accounts, the collective desire (common interest) to keep those USDs alive and at least relatively strong is a major counter-force to the notion that the world and USD are coming to a sudden change this August.

Furthermore, in such an uncertain world of competing currencies as well as national and individual self-interests, the trillions and trillions of off-shored USTs/USDs tangled up within the foreign as well as US banking and derivative markets is important.

Why?

Because any massive dislocation in risk asset (and even currency) markets emanating from South Africa or elsewhere, in August or much later, would more than likely (and ironically) cause a disruption in foreign markets so dramatic that we could easily see a flow into, rather than away from, USDs for the simple (and again ironic) reason that the mean and ugly Greenback is still the best/most-demanded horse in the global fiat slaughter house.

In other words, even if all the BRICS+ plans for a gold-backed trading currency go flawlessly, the time gap between the accepted rise of such a settlement currency and the open fall of the USD is likely to be long, wide and unknown enough to see the USD actually get stronger rather than weaker before we experience any final fall in the USD as a global reserve currency.

The USD: Supremacy (Still) vs. Hegemony (Gone)

So, no, I don’t think that the USD will fall entirely from grace or even supremacy in August of 2023, even if the trend away from its prior hegemony is becoming increasingly undeniable.

It will take more than sensational BRICS headlines to make such a rapid change, but yes, and as the Sam Cooke song says, “change is gonna come.”

My only point is that for now, and for all the reasons cited above, the trajectory and speed of those changes are likely not as sensational as the trajectory and speed of the current headlines.

No Matter What: Gold Wins

The case for gold, of course, does not change just because the debate about the speed and scope of the new BRICS+ trade currency rages today.

No matter what, the very fact that such a gold-backed trade settlement unit will inevitably come to play will be an equally inevitable tailwind for global gold demand and hence global gold pricing in all currencies, including the USD.

The Dollar Will Die from Within, Not from Without

Furthermore, and despite all the hype as well as substance behind the BRICS headlines, I see the evolution of such a gold-backed trade currency as a reaction to, rather than attack upon, the USD, whose real and ultimate threat comes from within, rather than outside, its borders.

The world is losing trust in the USD because US policy makers killed it from within.

Ever since Nixon took the gold chaperone away, politicians and central bankers have been deficit spending like drunken high school seniors in a room filled with beer but absent of parental consent.

The entire world has long known what many Americans are finally seeing from inside their own walls, namely: The US will never, ever be able to put its fiscal house in order.

Uncle Sam is simply too far in debt and there’s simply no way out as it approaches a wall of open and obvious fiscal dominance in which fighting inflation will only (and again, ironically) cause more inflation.

Or stated simply, Uncle Sam can’t afford his own ever-increasing and entirely unpayable deficit spending habits without having to resort to trillions and trillions of more mouse-clicked Dollars to keep yields in check and IOUs from defaulting.

And that, far more than a BRICS new currency, is what will put the final rose on a fiat system (and Dollar) that is already openly but slowly dying—first slowly, then all at once.

But I don’t think that day will be August 22.

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In this lengthy discussion with Ivor Cummins of Ivor Cummins Science, Matterhorn Asset Management, AG Partner, Matthew Piepenburg, speaks intentionally broadly of the macroeconomic, debt and currency risks to a new yet data-curious audience otherwise less familiar with financial markets and risks. For those just entering such economic topics, Piepenburg covers many, but by no means all, of the core themes now shaping global markets in a common-sense and refreshingly straight-forward manner.

Piepenburg opens with a brief description of his own road to precious metals paved by concerns over rising debt, market, banking and currency risks. The conversation begins with the critical dynamic of unprecedented debt levels “solved” with “mouse click money.” Piepenburg unpacks this fantasy, as well as the dramatic consequences and dangers of such a “solution,” which includes equity melt-ups followed by dramatic melt-downs, all driven by signals from a misunderstood bond market.

He describes the current political landscape of mis-managed policies as one in which nations operate with a “bus-boy’s salary yet Ferrari appetite.” In short, the historical disconnect between global debt and income/productivity levels creates delusionary levels of disfunction across numerous settings, including currency devaluation/debasement, market deformation (in bonds and stocks), social unrest (wealth inequality) and finally: increased centralized controls (i.e., CBDC) at the expense of private rights/freedoms—themes which Piepenburg addresses broadly yet directly and with historical/cyclical evidence as well as personal experience.

Ultimately, Piepenburg advises listeners to never abandon their own judgement, but reminds that each individual is uniquely responsible for informing their that judgement by considering as many facts, cycles and even contrary opinions as possible. In the end, Piepenburg’s own informed opinion boils down to this: Western economies are objectively broke, illiquid and trending within/toward a deflationary recession which will eventually be “saved” at the expense of increasingly mouse-clicked and debased currencies in an inflationary end-game for which physical gold is one obvious antidote.

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Will the world experience a catastrophic debt implosion?

Just like the Titan Submersible that recently imploded, the global debt bubble can implode “within just a fraction of a millisecond”. More later in the article.

Are we now in the third circle in Dante’s Inferno?

Dante describes the 9 circles of hell. The 3^rd circle is Gluttony which is fitting for a self indulgent Western world with excessive consumption of both material and financial resources.

Each circle represents a gradual increase in evil, culminating at the centre of the earth where Satan is held in bondage. The sinners of each circle are punished for eternity in a fashion fitting their crimes.

Financial markets have also been dominated by gluttony for an extended period. This has led to the biggest asset bubble in history. 

But in spite of unprecedented risks in investment markets, for the few investors making the right choice, now is a period of great opportunity not just to preserve wealth but also to enhance it. More later.

END OF THE CURRENT WESTERN EMPIRE

But here we are in the 21^st century with the current Western Empire in the final stages of a secular decline which looks very similar to the fall of the Western Roman Empire in the 5^th century. Wars, debts, deficits, collapsing currencies,  decadence, corruption and socialism – Plus ça change (the more things change, the more they stay the same). 

Whether this cycle is the end of a 100, 300 or 2000 year era, only future historians will know the answer to.

WAR DRUMS AND NATO

To diffuse the real reasons for the collapse of the Western economy and the Financial System, there is nothing like starting a war. Leaders love to play real war games although most of them have never been near the front line. A war creates fear in the people and permits the leaders to govern the country irresponsibly, both in relation to the economy and by controlling the people. 

So all the Western leaders got together for the NATO meeting in Vilnius, Lithuania last week to listen to Zelensky’s rantings about more money and more weapons in a war that Ukraine is unlikely to ever win. But since this is a proxy war for the real battle between the US and Russia, the West is grudgingly giving in to many of Zelensky’s demands, thus escalating the war to levels which could have catastrophic consequences for the world. 

This war could at best lead to 100s of thousands of additional deaths. The Ukrainian people don’t want war, probably more than 10 million of them have left the country and won’t return. Neither the Russian, American or European people want war, only their leaders. When it comes to wars, leaders have ultimate power and also access to money. Although no country has funds available for this war, they all borrow and print to the detriment of the countries and their people. 

At best this war will be limited but go on for years at a massive cost of lives and resources.  At worst we could have a global and nuclear war with disastrous repercussions. 

Western leaders would serve their people much better if they instead sent peace makers and focused on their economies which are on the verge of a major implosion. 

Coming back to debt, this is what will finally destroy the West and likely lead to decades of misery. 

US DEBT UP BY SAME AMOUNT IN LAST 5 YEARS AS THE FIRST 221 YEARS

The latest financial crisis started in September 2019 when the US banking system came under serious pressure and the Fed injected major liquidity into the near bankrupt system. Since that time, total US debt has increased by $21 trillion. 

Let’s put this into perspective. It took the US 221 years to go from Zero debt in 1776 to $21 trillion in 1997 and just in the last 4 years, debt has gone up by that same $21 trillion.   

Now some will argue that it is not the same money today as 200 years ago.

No of course it is not the same money. Because every government destroys the value of their currency by creating unlimited amounts out of thin air to the detriment of savers and pensioners. 

The graph below shows the debt explosion during my working life so far. Up from $1.5 trillion in 1969 to $95T today – a totally mind boggling 63x increase.  

To gain power the incumbent government must promise the earth. Once in power they realise that there is no chance of maintaining prosperity without buying votes through chronic deficits and money printing. That’s why there have only been a handful of years since 1930 when US federal debt didn’t go up. Even in the Clinton years debt went up so the surpluses declared were due to false accounting. 

But total US debt of $ 95 trillion is only part of the total liabilities. Add to that unfunded liabilities of Social Security and Medicare of say $150 trillion. Then there are gross derivatives within the banking system and in the shadow banking system of probably $2-2.5 quadrillion. This is a form of credit that can easily blow up when counterparties fail.  

A COMING INFERNO

Coming back to Dante’s Inferno, the 9 circles of hell are: 1. Limbo – where there is no god, 2. Lust, 3. Gluttony, 4. Greed, 5. Wrath, 6. Heresy, 7. Violence, 8. Fraud, and 9.Treachery.

Many of the 9 sins in Dante’s Inferno apply to today’s world but maybe Gluttony is one of the more fitting to a self indulgent Western world. 

Cerberus, the three-headed beast of hell, guards the gluttons mauling and flaying them for eternity.  (Sounds pretty horrible. A more modern version might be the song “Hotel California” by the Eagles – “You can check out any time but you can never leave”.) Also Homer wrote about Cerberus.

What we do know is that in this final phase that probably started in 1913 with the foundation of the Fed and accelerated from 1971 when Nixon closed the gold window we have seen the required excesses or gluttony that inevitably lead to a severe punishment.

We have seen historical bubbles in all asset markets whether in Stocks, Bonds, Property and many others. 

We have also seen debt explode, especially since 1971. As always in the final stages of an empire, real growth first slows down and then stops. 

THE WORLD HAS REACHED PEAK CHEAP ENERGY

The primary driver of economic growth since the second half of the 1700s has been the discovery and use of energy on an industrial scale, starting with the industrial revolution. 

The growth of the economy is not driven by money but by energy. 

As Tim Morgan of Surplus Energy Economics states:

“The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.”

The dilemma is that the Energy Cost of Energy is constantly increasing. In 1990 that cost was 2.6% of fossil fuels and is estimated to be 12% in 2025. According to Dr Morgan, with the current  Energy Cost of Energy, the real economy as well as prosperity has started to decline and that trend will continue for several decades. Fossil fuels still represent 83% of all energy globally and renewable energy is unlikely to make any significant difference in the next few decades. 

So we are now looking at peak cheap energy at a time when asset markets are in bubble territory with debts and deficits at levels which can only result in an implosion. 

Again let me emphasise that cheap energy is a prerequisite for economic growth.

PANICKING GOVERNMENTS TAKE IRRATIONAL MEASURES

So, what are governments doing about this? They are clearly aware of the risks and this is why they invent all kinds of events that will enable them to control the people. This includes Covid lockdowns, forced vaccinations, climate control, CBDCs (Central Bank Digital Currencies), wars and unlimited rules, regulations and laws. The US for example now has over 300,000 laws controlling all aspects of daily life and making everyone a likely daily felon. 

REVALUATION OF GOLD

I have already in previous articles discussed the seismic shift that will take place from West to East and South based on commodities and manufacturing rather than debt and services. That will be a long process which is just starting: “A DISORDERLY RESET WITH GOLD REVALUED BY MULTIPLES”

Whilst a lot of gold investors are excited about the prospect of a BRICS currency backed by gold, personally I think that is far away. The Tweet by an official at the Russian embassy in Kenya is not quite enough to confirm this. 

As I have already written about here , I believe that gold will be the asset of choice for central banks to hold as reserves rather than dollars. Such a move would have a major impact on gold which I wrote about here: “MAJOR REVALUATION OF GOLD AND PRECIOUS METALS IS IMMINENT”.  

So with  risks facing the Western world of a magnitude never seen before in history, including  geopolitical, financial, economic, with the biggest asset and debt bubble in history coming to an end. 

It is clearly impossible to predict how this will play out. It is not even worth speculating. 

What we do know is that risk is now at a level which makes investment markets extremely dangerous. In the next few years major fortunes will be lost permanently. 

ASSET & DEBT EXPLOSION – IMPLOSION

Before we look at how to survive the biggest global asset bubble that has ever existed, let’s first look at the spectacle we have witnessed in the last 54 years. This is a selfish time period and reflects when in 1969 my working life started in banking in Geneva. 

This period conveniently coincides with Nixon closing the gold window in 1971. That was the end of sound money and the beginning of a free-for-all bonanza in money printing. 

So during my working life since 1969 US total debt has gone up 63X from $1.5 trillion to $95T. 

Bubbles always burst, without exception. But we know of course that bubbles can always grow bigger before they burst. 

What few people realise is that when a debt bubble explodes or more likely implodes, it could go almost as quickly as the recent implosion of the Titan Submersible. 

The pressure on this vessel was remarkable:

A catastrophic implosion is “incredibly quick,” taking place within just a fraction of a millisecond, said Aileen Maria Marty, a former Naval officer and professor at Florida International University.

“The entire thing would have collapsed before the individuals inside would even realise that there was a problem,” she told CNN. “Ultimately, among the many ways in which we can pass, that’s painless.”

I doubt that global debt and the world financial system will implode in a fraction of a millisecond but as I have warned many times, an implosion of the $3 quadrillion of debt and derivatives could happen very, very quickly. It would unroll at such a speed that no central bank would have time to react. 

And as I have also pointed out, when the debt implodes, so will all the assets which were inflated by the debt. 

So even if it doesn’t happen in milliseconds, it will be too quick to save. We saw this in the middle of March when 4 banks, led by Silicon Valley Bank, collapsed in a matter of a couple of days. And shortly thereafter Credit Suisse imploded too. 

As we know, it is impossible to time such an event. But the good thing is that we don’t need to time it. 

A MAJOR OPPORTUNITY

Investors must forget about gluttony and greed and stay away from Cerberus’ hell. If they can steer away from the current risks in the system, the opportunities to not just evade disaster but even enhance wealth are considerable. 

So forget about short term timing. And forget about greed. 

Just avoid the potential implosion of asset markets and safely position yourself for incredible opportunities, whenever they may happen. 

Personally, I don’t think things will take too long to unravel but I don’t care about the timing as long as I am sitting right. 

My views are not recommendations but only my personal risk assessment. 

Firstly I would hardly touch the following assets with a barge pole:

• General stocks, bonds of any kind, corporate or sovereign, currencies, bank deposits, investments in commercial or residential property. 
  
  There are of course always exceptions like commodity related stocks, defence stocks and many others.   
  
  But remember that in a real bear market, all stocks tend to suffer. 
  
  Even for the best companies, profits can halve and P/Es go from 20 to 5. That for example would lead to a decline in the share price of 88%! 

When I was at Dixons Plc in the UK during 1973-4 stock market collapse, I experienced a similar decline in our share price although the company was sound financially. From there we built Dixons to the leading electronic retailer in the UK and a FTSE 100 company. 

So anyone who believes that a 90% fall can’t happen to good businesses is seriously mistaken. 

What not to own is easy but what should we own?

The answer is self-evident as far as I am concerned. 

• Commodities started an uptrend in 2020 and have a long way to go. 
  
  With gold being the only money which has survived and maintained its purchasing power in the last 5000 years, it is clearly the wealth preservation asset par excellence. 
  
  We have mainly stayed away from silver in the last 20 years due to its volatility. It has not been a good metal if you want to sleep well at night. But now with the gold/silver ratio at 80 (meaning silver is relatively cheap vs gold), and with strong industrial demand for solar panels, electricals etc, we are likely to see a decline of the ratio to 30 initially and eventually to 15 or lower. That means silver will go up 3-5x as fast as gold. 
  
  But physical gold is the king of metals for wealth preservation purposes and a smaller investment in physical silver should be seen as an investment/speculation with a massive potential. 
  
  In addition to yellow gold, black gold – oil – moves very similar to the yellow metal. Thus major price increases in oil are likely. 
  
  So owning stocks in good gold and silver companies as well as oil companies is likely to be an excellent investment for a number of years. 
  
  But again I must stress that protection against the probably biggest asset implosion in history necessitates holding the majority of investment assets in physical gold and some silver, stored outside the financial system in a very safe jurisdiction and vault. 
  Preferably the majority of your metals should be stored outside your country of residence. In case of emergency, you should be able to flee to your reserve asset. 

A WORLD AT CROSSROADS

What is very clear to me is that the Western world is now at a crossroads. As Brutus said in his speech,  the right turn “leads on to fortune” whilst with the wrong turn you end up “in shallows and miseries”.

For anyone who realises the severity of the situation, the choice should be obvious, if not we will “lose our ventures”.

Facing such a momentous risk, protecting our families and stakeholders must be the only option.

AFTER SVB AND CREDIT SUISSE COLLAPSE, BAIL-INS NEXT

It’s time to talk about Powell…

Becoming Powell’s (and the Devil’s) Advocate?

I’ve been thinking, and re-thinking, Powell.

Hmmm.

It’s no secret that in numerous interviews and articles, Jerome Powell has been on my critical mind.

I called him a breathing weapon of mass destruction, and have openly mocked his attempt to be Volcker 2.0 in a USA facing $32T in public debt and climbing.

So, what gives?

Why and what am I re-thinking?

Some Things Can’t be “Re-Thought”

First, let me be clear that there are a lot of criticisms and dis-likes that I have not re-thought.

In fact, I keep a list of stubborn thoughts which probably can’t ever be “re-thought.”

For example, I don’t like centralized anything, be it economies, governments, media cabals, currencies or banks.

Thus, I don’t like the Fed (or ECB etc.) as a concept nor central bankers as a group.

Why?

Because they distort the hell out of natural supply and demand, crush free market price discovery and have effectively killed capitalism while simultaneously and directly creating wealth inequality at levels akin to modern day feudalism.

In fact, my last two books, Rigged to Fail and Gold Matters, spend a great deal of pages underscoring just how rigged the banking system is in general and the Fed in particular.

I’ve equally penned many essays on the open corruption I’ve seen in our so-called financial “elites” and have bluntly said “shame on you” to the entire bunch.

Furthermore, I don’t like Bernanke getting a Nobel Prize for essentially “solving” an historical debt crisis with equally historical levels of new debt, which is then paid for with historically unprecedented levels of inflationary, mouse-click money.

There’s literally nothing noble in that Nobel Prize.

And I don’t like easy money magicians like Janet Yellen who took the Bernanke play-book of ZIRP (Zero Interest Rate Policy) too far and too long in a myopic, career-saving, time-buying, fantasy-narrative to solve every fiscal or monetary addiction/crisis with more synthetic and inflationary liquidity (i.e., QE to the moon).

Nor do I like Yellen saying things like “we may never see another recession in our lifetimes.”

Similarly, I don’t like Powell, around the same time (circa 2019) declaring that there’s no reason not to believe that our bull markets could go on for longer, “perhaps even indefinitely”—when just a year later the markets tanked by greater than 35% (and would have fallen to the ocean floor but for trillions in unlimited QE to “save” the system).

Nor I am a big fan of Powell’s open declaration that inflation was transitory, when we were arguing long before him that inflation was anything but “transitory.”

In short, I don’t like the Fed, and by extension, I can’t declare myself a big “advocate” of Jerome Powell.

So, What Gives?

Why, then, do I find myself playing the devil’s advocate to my own devil, and this includes Jerome Powell?

It’s no secret that I have always seen easy money as a fantasy (criminal) solution to real economic problems.

In the end, such fairytale policies simply create debt bubbles saved by currency bubbles, which like all bubbles, just “pop.”

And when a currency bubble pops (always the last bubble to do so), nations and even reserve currencies, from the Dutch Guilder to the British Pound, equally come to a dramatic end.

And given that every central banker has been openly guilty of this “quantitative” sin since patient-zero Alan Greenspan sold his soul and hard-money graduate thesis to Wall Street in the late 1990’s, I’ve happily lumped Powell into this embarrassing crowd of politicized “data-dependers.”

In short, Powell, like his immediate predecessors, was no Paul Volcker or William Martin, in much the same way that Dan Quayle (as famously declared by Senator Bentsen) was no John Kennedy.

In fact, Martin and Volcker remain semi-iconic for being among the few and the brave Fed Chairs to actually take the punch bowl of easy money away from their spoiled nephews in the trading pits of Wall Street or the re-election seekers in DC.

But this “punch bowl thing” got me to thinking (i.e., re-thinking) about Powell.

Powell Taking Away the Punch Bowl

Yes, I still think Powell’s plan to raise rates into an historical credit bubble and debt cycle will break things, including the economy, markets and banks.

And I still think his public/optic claim of raising rates to fight inflation is an open charade, as he needs inflation to inflate away historical debt yet has the subsequent trick/ability to then mis and under-report otherwise toxic and sticky inflation levels.

But…and this is a big but…, one (or at least myself) has to admit that Powell is the first Fed Chair in a long time to make a genuine effort to, well…take away that punch bowl.

Hard-Money Powell & Needed (Constructive) Destruction?

Yes, Powell’s rate hikes and drying punch bowl are breaking things, as I’ve argued over and over.

But then again, as a follower of Austrian (rather than Keynesian) economics, I confess that some things need breaking.

In fact, it’s a von Mises/Schumpeter concept known as “constructive destruction,” and tanking credit markets can clean out over-levered and debt-soaked markets with SVB-like effect.

I must further confess that Powell, unlike Yellen (the God-Mother of Easy Money) had been a proponent of hard money since he was a junior member of FOMC.

Throughout 2018, for example, Powell had at least tried (quarter after quarter) to forward-guide a tightening of the Fed balance sheet while simultaneously raising rates.

Of course, we all know how badly that ended by year-end. What followed was a 2019 rate “pause” and then a 2020 of unlimited QE…

But I must confess, at least Powell made an attempt at hard money thinking, not easy money thinking, and it’s Powell’s hard-money thinking which has me thinking harder about Powell.

The Death of LIBOR & Now Powell the Savior?

In fact, an equally bemused Libertarian, Tom Luongo, just gave a rather telling interview on KITCO which goes even deeper (see minute 14:20) down this rabbit hole, suggesting that Powell may indeed be trying to make America, well better…

Hmmm…

Luongo, for example, reminds us that the June 30^th sunsetting of the London-based LIBOR debt indexing standard for domestically produced USD-denominated debts (think credit cards, mortgages etc.) in favor of the new SOFR index (nod to John Williams) is a major, as well as deliberate, attempt by Powell to save, liquify and repatriate the USD.

Huh?

What does that mean in plain English?

Stated simply, by replacing LIBOR (global-bank-based) with the SOFR (US repo-based) system, this means the USD and US credit markets will be less vulnerable to European bank and credit market failures, which Powell, apparently, foresees.

Thus, if a French or German bank, were to implode under the old LIBOR system, the shock waves of that implosion won’t hit the US system as hard under this brand new SOFR index.

Powell the Anti-Globalist?

In addition, Luongo argues that Powell is quietly at war with the technocrat “one-world-government” types behind the otherwise well-telegraphed “great-reset.”

Luongo bluntly/refreshingly describes this “re-set” as a policy in which globalists (he says communists) in the European Union, IMF, UN and, of course Davos, are effectively aiming to crash the markets (and USD) in order to centralize and “re-set” the entire global system with a clean slate.

Toward that end, my own concerns about Davos, CBDC and more centralization are shared.

Seen in such a light, Powell’s hard money/rate hike policies could thus be interpreted as a direct threat to this globalist agenda, an agenda which, according to Luongo, requires low rates to feed an otherwise bogus/false “green agenda” to justify more global debt.

Fair enough.

Powell, De-Dollarization and the Milkshake Theory

Finally, a valid argument can be made (and Luongo makes it) that by raising rates by over 500 bps since Q1 of 2022, Powell is deliberately trying to crush the leverage (and hence tangled/illiquidity) in USDs held offshore (i.e., the “Euro dollars”).

That is, by raising rates at record speed and at a record slope, it’s much harder for offshore derivative markets to keep levering (and hence tangling up) off-shore USDs on the cheap.

This decline in leverage, complimented by what many believe can lead to a tanking of European sovereign bonds (and spiking yields) can in turn lead to an off shore/European banking and credit crisis.

Such a banking crisis would then create a flow of off-shore money back into USTs as the best horse (or sovereign bond) in the global glue factory, which is yet another nod to Brent Johnson and the milkshake theory.

Thus, and despite all the very real, all too real signs/threats of open de-dollarization, Luongo argues that Powell’s rate hikes are a valid plan to save the USD by soaking up all those off-shore dollars and re-patriate the same back into the UST market.

Summing Up the Devil’s Advocacy

Based on the foregoing, there is at least a case to be made that Powell’s openly hard-money stance since last March is potentially seeking to accomplish three very important goals:

1) Protecting US debtors from cracking and formerly LIBOR-based foreign banking risk;

2) fighting the “good fight” against the globalist technocrats from the IMF to Davos; and…

3) stemming the tide of open de-dollarization by letting EU banks, and hence bonds, implode, which would in turn create a tidal wave of money flows back into the “safe” (safer?) haven of the UST market.

Constructive or Non-Constructive, It’s Still Gonna be Destructive

Whether or not Powell has a method to his madness, and that his own allegedly choregraphed rate-hikes of “constructive destruction” lead to a pro-USD, pro-UST flow of global funds back into the US remains to be seen.

Like Luongo, I do feel that the real test, and signal, for such a flow of capital will come when Japan finally throws in the towel on its insane QE policy (and hence Yield Curve Control).

Once JGB’s lose central bank support, they’ll tank and their yields will spike.

Such a sovereign bond crisis in Japan would spread to a terribly fragile Europe, and the bond spreads between Italian bonds and German bunds would then rip beyond the control of Lagarde’s teetering ECB.

That will be destruction, for sure, but not very “constructive” to the millions of citizens from Berlin to Barcelona who will then suffer for the sins of their central bankers, which include, sorry to say: Jerome Powell.

Gold Favors Man-Made Destruction

Most importantly, and whatever one thinks of Powell (devil or patriot) in particular or central bankers in general, there’s simply no easy answer or solution today for a world already on a fatal debt path which these bankers forged with drunken abandon/policies.

In other words: There’s No Way Out. Or more to the point, the USA is screwed.

Even if Powell’s hawkish “plan” leads to a straw-sucking flow of capital into the USA’s better “milkshake,” the levels of destruction in credit, currency, equity and financial markets which would precede/necessitate such a “flow event” will be catastrophic.

Thus, whether we see a deflationary depression of “constructive destruction,” a globalist “re-set” conveniently blamed on COVID and Putin, or a massive pivot to unprecedented QE (my opinion), the global system will be on its knees and no fiat currency will emerge victorious.

A few investors already know this. An increasing number of BRICS + leaders and Russian finance ministers know this, and an increasing number of central bankers (especially out East) know this.

Which is why they are all buying physical gold at record levels.

They see history and math with clarity, and although history can never be timed with precision, patient preparation for its turning points is all one needs to know.

Got gold?

AFTER SVB AND CREDIT SUISSE COLLAPSE, BAIL-INS NEXT

It is considered the most anticipated recession of all time – the one looming in the US. And although countless indicators ranging from the yield curve, the Leading Economic Index (LEI) and PMIs to producer prices and international trade volumes have been pointing to a recession for months, it has not yet materialized in the USA. However, the labor market, which has been more than robust up to now, is now showing the first signs of a slowdown. A labor market which, due to demographic change, is structured completely differently than it was in the 1970s. Initial jobless claims have been on an upward trend since last fall.

Despite this increasingly widespread gloom, it is not too late to ask the question: Which asset classes are now proving to be good investments in a recession, and which are bad? To this end, we have conducted an in-depth analysis.

The following analysis does not consider the recession as a uniform block. The Incrementum Recession Phase Model (IRPM) divides a recession into a total of five distinct phases. Dividing a recession into different phases can help reduce the risk of losses and maximize gains. It helps investors develop a balanced investment strategy that takes into account the different phases of a recession. This is because, as will be seen, individual asset classes sometimes exhibit significant differences in performance across the five recession phases. After all, each of the five recession phases has unique characteristics.

1. The run-up phase (phase 1) of a recession is characterized by burgeoning volatility on the financial markets. In this phase, the market increasingly starts to price in an impending recession.
2. In phase 2, the so-called initial phase, there is a transition between increased uncertainty and the peak of the economic slowdown. In this phase, the slowdown in economic momentum can also be documented for the first time with negative macroeconomic data.
3. In the middle phase (phase 3), the negative economic data manifest themselves. It also marks the low and turning point of the recession.
4. In phase 4, the final phase, a stabilization of the economy gradually occurs, resulting in a return of optimism on the markets.
5. In the fifth and final phase of the recession model, the recovery phase, the economy returns to positive growth figures.

In the case of a short recession, such as in the spring of 2020, there are phases that last less than 3 months, so phase 3 is irrelevant if the recession goes on only 6 months or less. For our model, we chose the NBER’s recession definition, which states that a recession has occurred when there is a significant decline in economic activity that spans the entire economy and lasts longer than a few months. The Federal Reserve also follows this definition.

We know that official recession declarations are always announced with some delay, be it according to the criteria of the National Bureau of Economic Research (NBER) or other alternative definitions such as the technical recession definition of two consecutive quarters of negative GDP growth. It often takes months for the final quarterly GDP numbers to be released. This poses a major challenge to investors, who should always be one step ahead of the actual development. Therefore, it is of great importance to recognize a recession at an early stage in order to position oneself as an investor in the best possible way.

What are the key messages of the Incrementum Recession Phase Model?

Let’s now look at the performance of the S&P 500 as well as gold and the BCOM index, which tracks commodities, during the last eight recessions since 1970 and broken down into the five recession phases.

Over the entire recession, equities lost an average of 5.3% in value. However, the 2007/2008 Global Financial Crisis is an exception that strongly influences the average. If we look at the median, we see a lower negative performance of -1.6% for equities during a recession.

In the various phases of a recession, equities exhibit significant differences in performance. Particularly in the third phase, the peak of the recession, stocks suffered heavy losses. However, once the last three months of the recession (phase 4) were reached, equities recovered exceptionally well in all eight cases considered. This positive trend even continued in the first months after the recession. Based on the recession phase model, it is therefore advisable to reduce the share of equities in the portfolio at an early stage. Once the peak of the recession has been reached, an increase in the equity share then makes it possible to benefit from the subsequent recovery rally.

Gold, the perfect recession hedge

Unsurprisingly, gold has lived up to its reputation as a recession hedge, averaging an impressive 10.6% performance throughout the recession. Most notably, gold has averaged positive performance in all phases of the recession. Gold’s largest price increases are seen in Phases 1 and 2, likely due to the increased uncertainty in the markets during these phases. Another explanation for gold’s strong average performance in Phase 1 is the 120.1% price increase in the initial phase of the recession in 1980, which is an outlier.

In the first three phases of a recession, gold tends to be ahead of equities. It is interesting to note, however, that the tide turns as soon as the first signs of an economic recovery appear, and market uncertainty gradually subsides. In the terminal and recovery phases, equities can often outperform gold. Especially in the early stages of the model, gold manages to act as an ideal recession hedge. It provides excellent diversification, helping to stabilize portfolio performance in times of economic turbulence.

Let us now dive into the world of commodities. The average performance of the BCOM index during a recession since 1970 is -6.3%. This means that commodities perform worse overall than equities in our analysis.

If we look more closely, however, clear differences emerge in each phase of the recession. While commodities show gains in phase 1, the run-up phase, and phase 5, the recovery phase, no clear trend can be identified in phase 2, the initial phase, and phase 4, the final phase. The negative performance therefore mainly occurs in phase 3, the middle phase, when the economy reaches its low point.

Our analysis therefore shows that, from a portfolio perspective, an increased weighting of commodities in the run-up to and recovery phase of a recession is beneficial. This finding is also supported by theoretical considerations suggesting that precious metals, especially gold, are a suitable hedge against uncertainty before the peak of a recession. In addition, energy and base metal commodities prove to be particularly beneficial due to the reflationary effect associated with picking up growth after the peak of a recession.

Finally, we also want to take a look at silver and the mining stocks.

Silver is not a reliable recession hedge, with an average performance of -9.0% throughout the recession. This is probably because silver is perceived much more as a cyclically sensitive industrial metal than as a monetary metal in the midst of the downturn.

Mining stocks also showed a positive performance over the entire recession, but this was only about half as high as that of gold. The significant decline in phase 3, the low point in the recessionary trough, is a major contributor to this.

Average Asset Performance – Incrementum Recession Phase Model
Asset	Recession*	Phase 1	Phase 2	Phase 3	Phase 4	Phase 5
Gold	10.6%	10.9%	5.7%	2.9%	2.7%	2.6%
Silver	-9.0%	31.5%	0.8%	-10.9%	3.5%	17.4%
Stocks	-5.3%	-2.8%	-6.0%	-13.2%	12.6%	8.6%
Commodities	-6.3%	6.4%	0.2%	-6.5%	-0.2%	5.0%
Mining Stocks	5.4%	8.9%	8.5%	-11.7%	8.3%	24.3%

Conclusion

Our analysis reveals how different assets perform during a recession. It becomes clear that there are significant differences in performance and investors need a strategic approach to succeed in each phase of the recession cycle. What stands out is the brilliant dominance of gold as the ultimate recession hedge, with an average performance of 10.6% and positive performance in every phase of a recession.

On the other hand, equities and commodities show negative performance on average during a recession, with equities performing best in phase 5 at 12.6% and commodities in phase 1 at 6.4%. However, mining stocks show that not all equities post losses during a recession. It is also striking that, with the exception of commodities, all assets are able to gain in phases 4 and 5.

In light of these findings, however, it is also clear that investors need to implement extreme caution and a well-thought-out strategy to successfully navigate the turbulent waters of a recession.

by Ronald-Peter Stöferle, Incrementum AG

AFTER SVB AND CREDIT SUISSE COLLAPSE, BAIL-INS NEXT

The time has now come for the 99.5% of financial assets which are not invested in gold, silver or precious metals mining stocks to grab both the investment and wealth preservation opportunity of a life time. 

Making that decision before it is too late is likely to determine your financial and also general wellbeing for the rest of your life! 

If you have already joined that exclusive group of 0.5% of global financial assets which are invested in precious metals, you understand what is coming. 

But if you belong to the group that neither understands precious metals nor holds any, it might be worthwhile to continue reading. 

More about this opportunity later in the article.

FROM A DEBT BASED WEST TO A COMMODITY BASED EAST AND SOUTH

As the Western Empire is breaking up currently, the Eastern & Southern Empire is gaining ever more significance. More than 30 countries want to join the BRICS and many also the SCO (Shanghai Cooperation Organisation). There is also the Eurasian Economic Union (EEU) which exists since 2014 and consists of several ex Soviet Union States. 

The enlarged group will consist of more than 40 countries and represent around 2/3 of global population and 1/3 of global GDP. As I have written about in the article “A disorderly reset with gold revalued by multiples”, this is the area which will experience the fastest growth in coming decades as the West gradually declines/collapses under its own deficits and debt burden together with political and moral decay. 

The Russian Foreign Minister Lavrov has just announced that Iran will join the SCO on July 4  and that Belarus will also become a full member. There is a virtual SCO meeting on July 4 chaired by India. It seems like more than a coincidence that the meeting takes place on the US Independence Day!

The BRICS meeting in Johannesburg takes place on Aug 22-24 with Macron trying to gatecrash. But he was rejected. Macron is devious and has always tried to ride several horses simultaneously. 

But BRICS is not interested in opportunists happy to turn with the wind of success.

At some point, these three groupings might be merged into one, with gold playing a central role. I don’t expect that there will be one gold backed currency at a fixed parity but rather that gold will float at a much higher value than currently with a link to BRICS currencies. 

So as the West and especially the US licks its mortal wounds the East is looking forward to the coming feast. 

THE DOLLAR IS NO LONGER AS GOOD AS GOLD

There was a time when the US dollar was “As Good as Gold” and until 15 August 1971, sovereign nations could exchange dollars for gold at $35 per ounce. 

But sadly most leaders whether of countries or corporations eventually resort to GREED when real money runs out. So this is what Nixon did in 1971 when he closed the gold window. 

In spite of falling 98% in real terms since 1971, the dollar has remained both the preferred reserve currency and also the currency of choice for global trade.  

The two principal reasons why the dollar hasn’t yet died is that virtually all other currencies have declined by similar percentages. Also the astute introduction of the Petrodollar in 1973-4, the brainchild of Nixon’s secretary of state Henry Kissinger, played an important role in convincing Saudi Arabia ( the dominant oil producer at the time) to sell oil in dollars against a package of US weapons and protection. 

As the West now sinks in a quagmire of debt, corruption and decadence, the world will experience a tectonic shift away from fiat/fake money with zero intrinsic value to currencies backed by commodities with gold playing a central role. 

WHERE HAVE ALL THE STATESMEN GONE

The West has not got one single statesman who can pull it out of the swamp. Many countries are now turning to the right like Italy with Meloni and Spain also probably swinging right in July with the Partido Popular and the far right Vox party. Macron is extremely unpopular and Le Pen now leads the opinion polls with 55%. Scholz in Germany has also failed badly and the Nationalist AfD is now ahead of the ruling social democrats in the polls. 

The UK is currently the only major country that is likely to turn to the left at the next election in 2025. No one believes in the weak Sunak and Labour leader Kier Starmer is the clear favourite to win. But sadly he is not a statesman either.

So with a motley crew of weak leaders in Europe, things don’t look any better if we look west to the US. Sadly, the US hasn’t got a leader at all. It seems that Biden has got his strings pulled by an unelected and unaccountable team around him. This is an extremely vulnerable situation for what has been the mightiest country in the world. A major military power without a leader is very dangerous. 

As President Eisenhower said in the 1950s:

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes.”

As empires die, weak leaders are the norm and seem a necessary condition to exacerbate  the inevitable collapse. 

So we can all speculate about the outcome of the current crisis in the West and how it will all end. These situations seldom consist of individual events but are normally processes that take a number of years or even decades. 

We must remember that we have already seen half a century of decline since 1971 so we are now likely to experience an acceleration of the process. As I have pointed out above, it is not just the decline of the West which is happening in front of our eyes, but also the emergence of an extremely powerful cooperation of 40 plus countries which will drive a global commodity based expansion on a scale never seen before in history. 

Just take Russia. With $85 trillion of natural resource reserves, they will play a major role in this real physical asset expansion as long as the country holds together politically, which I would expect. 

Remember that the massive global shift which is about to start is not based on personalities. Leaders are instruments of their time and the right leaders will emerge in most countries to bring about this tectonic shift. 

DON’T TOUCH SOVEREIGN DEBT, EVEN WITH A BARGEPOLE 

So how will ordinary investors in the West protect and enhance their assets in a world which is on the cusp of major shifts financially, economically and politically?

Well let’s first look at what not to do.

As I have stressed for many years, it is not a matter of maximising returns but minimising risk. After the biggest global asset bubble in history, the everything collapse will be  vicious and take down many investments that have been regarded as safe as sovereign debt. See my article “First gradually and then suddenly – the Everything Collapse”.

Take US government bonds or treasuries. For years I have never understood how someone can invest in a “security” which is created by just snapping your fingers. This is how a senior Swedish Riksbank  (central bank) official described to a journalist where money comes from. So whether we call it mouse-click money like my good colleague Matt Piepenburg or finger-snapping money, both expressions clearly tell us that we live in a hocus-pocus world where money is unlimited and can be created by snapping your fingers.

Oh yes, we mustn’t forget the additional $2+ quadrillion of quasi debt or liabilities in the form of derivatives.  I have argued many times that a big part of these derivatives are likely to become debt as central banks create liquidity to save the financial system from a an implosion of these financial instruments of mass destruction as Warren Buffett calls them. 

I have long argued that holding Western sovereign debt is financial suicide. Lately some big names agree with me whether it is Jamie Dimon of JP Morgan- “Don’t touch US bonds”- or Ray Dalio the very successful hedge fund investor – “It would take 500 years to get the money back”. Yes, but what money I wonder??

Firstly, whether it is the Fed or the ECB, their balance sheets are insolvent and no one can ever get real money back. At best it would be another worthless debt/money instrument like CBDC (Central Bank Digital Currency) that would lose 99-100% over 1 to 50 years. Not the best of odds to say the least. 

The US 10 year treasury bond peaked in 1981 at just below 16% after a 39 year downtrend it bottomed in 2020 at 0.55%. That was the bottom of the interest and inflation  cycle. We will now see higher inflation and rates for decades. But it obviously won’t be a move without major corrections and volatility.

As major central banks are pressing for higher rates, one wonders if  they are aware of the consequences. Because in a debt infested world, higher rates mean a high risk of default, both private and sovereign. 

But in their normal style, central banks will be behind the curve and realise their misdemeanours once the system has collapsed. 

NB: The only buyer of US treasuries will be the Fed as the rest of the world runs away from the US poisonous debt chalice. It’s like passing the parcel when you can only pass it to yourself. 

OPPORTUNITIES OF A LIFETIME COMING

So buying anything commodity based will be a clear growth area for decades. In this group is not just commodity businesses but companies that supply the commodity companies with software or hardware.  

In addition to the precious metals market whether physical or stocks, we see the potentially most interesting areas being oil and uranium. 

We have been in the physical precious metals market for almost 25 years for wealth preservation purposes. During that time gold has gone up 6-12 times in most Western currencies and silver slightly less. 

As the premier company for bigger wealth preservation investors in physical gold and silver, outside the financial system, we have had a very exciting journey so far.

But looking at the last 23 years I am very clear that in spite of greater returns in physical gold than most investment classes and much lower risk, the real moves haven’t even started yet.

I have never seen a more obvious situation during my soon 60 years in investment markets. 

Although some of the precious metals mining stocks will vastly outperform physical gold and silver, we will stick to what we know best in order to serve our esteemed clients as well as future wealth preservation investors. 

In coming years, most investors will lose a major part of their investments and net worth as they hold on to their conventional investments.

For a quarter of a century I have been standing on a soap box, imploring investors to protect their wealth. During that time we have seen The Nasdaq lose 80% in the early 2000s and the financial system being a few minutes from implosion in 2008. 

But with the help of finger-snapping $10s of trillions into existence, most markets have remained strong.  Still,  the (almost) Everything Collapse is hanging over us and this time finger-snapping money into existence is unlikely to help. 

WHEN SHOULD YOU NOT HOLD GOLD?

You should not hold gold when:

• There are no deficits and there is a balanced budget
• There is negligible or no inflation 
• There is no debasement of currencies
• There is strong statesmanship based on real longterm values 

When that day comes, we will also see flying elephants as well as flying central bankers with wings! 

But just like Icarus, the son of Daedalus in the Greek mythology, these bankers will crash!

Anyone who has held a major part of his wealth in physical gold, in any country, in this century has achieved an excellent return and still has his gold asset intact. He has also been able to sleep well at night. 

Although picking the right precious metals stocks can lead to an opportunity of a lifetime, we will still recommend that investors keep the majority of their funds in physical gold and silver, stored in the right jurisdiction and in the safest vaults with direct access to your metals. 

That way investors avoid many risks like:

• Custodial risk, your shares held in a fragile financial system
• Political risk, mines are often in risky countries), 
• Fraud, corruption, Doug Casey can tell you about this. Read his book Speculator 
• Financial risk, many companies will run out of cash

Still I would advise even the cautious investor to hold some gold and silver stocks or a fund or an index, since the upside is substantial. 

NO MAJOR GOLD DISCOVERY FOR YEARS

There has not been a major gold discovery for 4 years. 

Major gold discoveries over 1 million ounces:

1990s – 180
2000s – 120
2010 to 2018 – 40
2019 to date – 0

Not only do we have peak oil but also peak gold. So the world is facing a vicious  a cycle of increasing energy costs leading to higher costs of extracting precious metals and other commodities. 

This confirms that high inflation is here to stay, leading to higher interest rates and very high risk of debt defaults within the private and sovereign sectors. 

To hold US dollars is to hand your wealth to the state which is likely to either debase it, lose it, spend it, confiscate it or misappropriate it in any other way.  

Why would anyone trust a government like the US which currently is doing all of the above things. 

And don’t believe that the Euro will fare better.

The only way to be in control of your own money is to hold it in physical gold outside your country of residence in private vaults. 

The trust in the US and the dollar is now coming to an end after the confiscation of all Russian assets. Who would want to hold their assets under the control of a government what can just steal it at will. 

So we are not facing a dollar crisis. Instead, the dollar and its issuer is the crisis. No one who is worried about preserving his wealth would ever consider holding it in a crisis currency, controlled by a crisis government. 

I find it fascinating that the JP Morgan who has become a joint custodian of the GLD gold ETF is  planning to move the gold to Switzerland. This confirms my strong view that Switzerland will further strengthen its position as a major gold hub. Currently 70% of all the gold bars in the world are refined in Switzerland which also have more major private gold vaults than any other country. 

Also, as I discussed in a recent article, no central bank will want to hold its reserves in US dollars with to a capricious US government that can steal it at will. The only money that could mantle the role as a reserve asset as the dollar fades away is obviously gold. 

TOO LATE TO JUMP ON THE GOLD WAGON?

Nobody should believe that it is too late to jump on the Gold Wagon. It has hardly started yet.  

Even if the percentage invested in physical precious metals and precious metals stocks, goes from 0.5% to only 1.5%, there will not be enough metals or stocks available to satisfy a fraction of that increase at current prices for the metals. 

So the only way that the increased money flows into metals can be satisfied is through vastly higher prices. 

AND AS I HAVE OUTLINED IN THIS ARTICLE, THE SCENE IS NO SET FOR SUCH A MAJOR REVALUATION OF GOLD AND SILVER AND THE WHOLE PRECIOUS METALS SECTOR

AFTER SVB AND CREDIT SUISSE COLLAPSE, BAIL-INS NEXT

We have hardly been the first nor the last to realize that rising rates “break things.”

We’ve all seen the disastrous credit events in the repo crisis of late 2019, the UST debacle in March of 2020, the gilt implosion of October 2022 and, of course, the banking crisis of March, 2023.

And behind, beneath, above and below each of these debacles lies a bemused central banker.

There’s More “Breaking” to Come

But there’s far more “breaking” to come.

As for recessions, the data is equally (and objectively) abundant that those rising rates (red circles below) tend to correlate directly with recessions, both soft and hard (grey lines below).

Powell can re-define recessions with words, but despite his double speak, he too knows that a recession is already under, or at the very least, directly off, the American bow.

Powell’s Un-Spoken “Plan”?

It has always been my contention that the rate hikes of late have been a public ruse to allegedly “defeat inflation,” when in fact inflation and negative real rates were always part of the unofficial plan to help inflate away portions of Uncle Sam’s openly embarrassing bar tab.

More importantly, Powell’s deeper motive (in my opinion) for the rate hikes of 2022 was done in order to give the Fed something to cut once the mammoth recession they’ve publicly denied becomes, well: mathematically undeniable.

The Past as Prologue

As in 2018, when Powell forward-guided rate hikes simultaneously with QT (Fed balance sheet reduction via UST dumping), the end result was disastrous (remember December 2018 and the days of 10% daily market swings).

This disaster was soon followed by an inevitable/foreseeable rate “pause” and then more QE.

The current pattern is fairly similar.

Although a QT policy of letting the Fed’s reserve of bonds “mature” rather than be dumped into the open market slightly differentiates 2022’s rate hikes from 2018, the end-game of raising rates into an even greater debt bubble will end with even more pain, volatility (and ultimately, QE) than seen in the 2018-2019 debacle/policy.

This pattern is easy to see because the Realpolitik of the bond market is easy to see.

The Bond Market is the Thing

In the most simplistic terms, Uncle Sam survives off debt, which means he survives off of IOUs (i.e., USTs).

If no one buys those IOUs, Uncle Sam falls off his bar stool into a puddle of his own tears as USTs fall further in price and hence yields and rates rise further in interest-expense pain.

And as 2022 reminds, that weaponized USD led to Uncle Sam’s worst fears coming foreseeably true as the world dumped USTs at the same time central banks made historically unprecedented purchases of gold.

The Next Moves Are Fairly Easy to See…

Needless to say, this bond-dumping scares the “H-E- double-toothpicks” out of Uncle Sam and his cadre of corporatist, number-crunching technocrats at the Treasury Dept and FOMC, as even they know what we all know: Someone or some thing has to buy Uncle Sam’s IOUs or it’s game over.

And who do you think that buyer will be?

All together now: “The Federal Reserve.”

And where will the money needed to buy those unloved USTs ultimately come from?

All together now: “An inflationary mouse-clicker at the Eccles Building.”

Pain, then Pleasure for Stocks, But No Way Out for the Dollar

But between now and that oh-so-foreseeable QE end-game, more things will need to break, which means we are likely to see deflationary forces (tanking market, emerging recession) followed by profoundly inflationary money printing.

Or stated more simply, stocks will tank and then stocks will rise as the currency which measures (and “saves”) them gets more and more diluted by failed policy makers and a Fed which should never have been conceived in 1910.

Why do I believe this?

Well, the markets, rather than Powell, are telling us so.

Let’s dig in.

The Futures Markets: Neon-Flashing Signs of Stock Market “Uh-Oh”

There are a number of signs pointing toward an “uh-oh” moment in risk assets.

The fact, for example, that we are seeing oil futures pricing oil lower despite production cuts (what the fancy lads call “backwardation”) stems from a market anticipating the kind of tanking oil demand that only comes from a much-anticipated stock market fall (mean reversion) in the wake of an equally anticipated recession in 2023.

The Eurodollar futures market is also screaming of a similar market fall in the coming months.

But perhaps most importantly (or obviously), the S&P futures market is now net-short at levels surpassing 2011 and approaching the levels of late 2007.

If I recall, those were not promising times for subsequent stock prices…

Or stated more simply, the big boys at those oh-so clever hedge funds (who are tracking credit crunches, bond flows and Powell’s “higher-for-longer” meme) are betting heavily against the S&P as the “higher-for-longer” Powell soon becomes the “higher-something-broke-again” Powell.

In short: The next thing to “break” will be stocks.

What Goes Naturally Down Then Goes Un-Naturally Up

Then comes the volatility and the dip-buyers after stocks take a hit (driven by more bank failures and rate hikes) which could be worse than 2008.

It’s my view that hedge funds are waiting to buy low and are biding their time like snipers patiently hiding behind a bond-market breastwork.

That is, they have been piling into negative-yielding USTs of late (that is, willingly losing a bit of return) as a holding pattern “asset” which they will then quickly dump to buy discounted equities once the stock market pukes as per above.

Amidst this looming volatility (buy the VIX?), I thus foresee a subsequent move out of anemic bonds and back into discounted stocks.

Of course, if the hedge funds start dumping Uncle Sam’s IOUs, their yields and rates will get dangerously higher (expensive) for Uncle Sam, which means Uncle Fed will have to do what it did in 2019/2020 and start mouse-clicking more instant liquidity to control Treasury yields and monetize America’s increasingly unloved UST market.

Such QE will be good for stocks dying on the field, but bad for the inherent purchasing power of an ever-more debased and diluted USD.

Chess vs. Checkers

Thus, deflationary or inflationary, the end-game for the neutered USD and its checker-level financial planners is fairly foreseeable, which means the end-game for gold is no less so.

See why the chess-players (mostly Eastern Central Banks) are stacking gold at levels higher than ever recorded?

A Rigged Game

This journey from tanking markets to rising markets is a game which many insiders at the hedge funds know and play well.

Furthermore, it’s a game the Fed has no choice to play, as a rising stock market (and capital gains taxes) is one of the few ways Uncle Sam can get tax receipts at a level high enough to pay its $800B (and climbing) interest expense on debt.

The rise-and-fall stock game is rigged, and ultimately, as I’ve written, “Rigged to Fail,” but regardless of its immoral and capitalism-destroying mandate, one can front-run the Fed if one sees the totally centralized chess-board.

AFTER SVB AND CREDIT SUISSE COLLAPSE, BAIL-INS NEXT

Below, we look at simple facts in the context of complex markets to underscore the dangerous direction of Fed-Speak and Fed policy.

Keep It Simple, Stupid

It’s true that, “the Devil is in the details.”

Anyone familiar with Wall Street in general, or market math in particular, for example, can wax poetic on acronym jargon, Greek math symbols, sigma moves in bond yields, chart contango or derivative market lingo.

Notwithstanding all those “details,” however, is a more fitting phrase for our times, namely: “Keep it simple, stupid.”

The Simple and the Stupid

The simple facts are clear to almost anyone who wishes to see them.

With US debt, for example, at greater than 120% of its GDP, Uncle Sam has a problem.

That is, he’s broke, and not just debt-ceiling broke, but I mean broke, broke.

It’s just THAT simple.

Consequently, no one wants his IOUs, confirmed by the simple/stupid fact that in 2014, foreign Central Banks stopped buying US Treasuries on net, something not seen in five decades.

In short, the US, and its sacred bonds, just aren’t what they used to be.

To fill this gap, that creature from Jekyll Island otherwise known as the Federal Reserve, which is neither Federal nor a reserve, has to mouse-click money to pay the deficit spending of short-sighted and opportunistic administrations (left and right) year after year after year.

Uncle Fed, along with its TBTF nephews, have thus become the largest marginal financiers of US deficits for the last 8 years.

In short, the Fed and big banks are literally drinking Uncle Sam’s debt-laced Kool aide.

The Fed’s money printer has thus become central to keeping credit markets alive despite the equal fact (paradox) that its rate hikes are simultaneously gutting bonds, banks and small businesses to fight inflation despite the stubborn fact that such inflation is still here.

The Inflation Narrative: Form Over Substance

My view, of course, is that the Fed’s war on inflation is a headline optic rather than policy fact.

Like all debt-soaked and failing regimes, the Fed secretly wants inflation to outpace rates (i.e., it wants “negative real rates”) in order to inflate away some of that aforementioned and embarrassing debt.

But admitting that is akin to political suicide, and the Fed is political, not “independent.”

Thus, the Fed will seek inflation while simultaneously mis/under-reporting CPI inflation by at least 50%. I’ve described this as “having your cake and eating it too.”

All that said, inflation, which was supposed to be transitory, is clearly sticky (as we warned from the beginning), and even its under-reported 6% range has the experts in a tizzy of comical proportions.

Neel Kashkari, for example, is thinking the US may need to get rates to at least 6% to “beat” inflation. James Bullard is asking for more rate hikes too.

But what these “go higher, longer” folks are failing to mention is that rate hikes make Uncle Sam’s bar tab (i.e., debt) even more expensive, a fact which deepens rather than alleviates the US deficit nightmare.

The War on Inflation is a Policy that Actually Adds to Inflation

Ironically, however, few (including Kashkari, Bullard, Powell or just about any economic midget in the House of Representatives) are recognizing the additional paradox that greater deficits only add to (rather than “combat”) the inflation problem, as deficit spending (an economy on debt respirator) keeps artificial demand (and hence) prices rising rather than falling.

Furthermore, these deficits will ultimately be paid for with more fiat fake money created out of thin air at the Eccles building, a policy which is inherently (and by definition): INFLATIONARY.

In short, and as even Warren B. Mosler recently tweeted, “the Fed is chasing its own tail.”

Inflation, in other words, is not only here to stay, the Fed’s “anti-inflationary” rate hike policies are actually making it worse.

Even party-line economists are forecasting higher core inflation this year:

The Real Solution to Inflation? Scorched Earth.

In fact, the only way to truly dis-inflate the inflation problem is to raise rates high enough to destroy the bond market and the economy.

Afterall, major recessions/depressions do “beat” inflation—along with just about everything and everyone else.

The current Fed’s answer to combatting the inflation problem is in many ways the equivalent of combatting a kitchen rodent problem by placing dynamite in the sink.

Meanwhile, the Rate Hikes Keep Blowing Things Up

Buried beneath the headlines of one failing bank (and tax-payer-funded depositor bailout) after the next, is the equally dark picture of US small businesses, all of which rely on loans to stay afloat.

But according to the U.S. Small Business Association, loan rates for the “little guys” have reached double digit levels.

Needless to say, such debt costs don’t just hurt small enterprises, they destroy them.

This credit crunch is only just beginning, as small enterprises borrow less in the face of rising rates.

Real estate, of course, is just another sector for which the “war on inflation” rate hikes are creating collateral damage.

Homeowners enjoying the fixed low rates of days past are naturally remiss to sell current homes only to face the pain of buying a newer one at much higher mortgage rates.

This means the re-sale inventory for older homes is shrinking, which means the market (as well as price) for new construction homes is spiking—serving as yet another and ironic example of how the Fed’s alleged war on inflation is actually adding to price inflation…

In short, Fed rate hikes can make inflation rise, and equally tragic, is that Fed rate cuts can also make inflation rise, as cheaper money only means greater velocity of the same, which, alas, is inflationary…

See the Paradox?

And that, folks, is the paradox, conundrum, corner or trap in which our central planners have placed us and themselves.

As I’ve warned countless times, we must eventually pick our poison: It’s either a depression or an inflation crisis.

Ultimately, Powell’s rate hikes, having already murdered bonds, stocks and banks, will also murder the economy.

Save the System or the Currency?

At that inevitable moment when the financial and social rubble of a national and then global recession is too impossible to ignore, the central planners will have to take a long and hard look at the glowing red buttons on their money printers and decide which is worthing saving: The “system” or the currency?

The answer is simple. They’ll push the red button while swallowing the blue pill.

Ultimately, and not too far off in our horizon, the central planners will “save” the system (bonds and TBTF banks) by mouse-clicking trillions of more USDs.

This simply means that the deflationary recession ahead will be followed by a hyper-inflationary “solution.”

Again, and worth repeating, history confirms in debt crisis after debt crisis, and failed regime after failed regime, that the last bubble to “pop” is always the currency.

A Long History of Stupid

In my ever-growing data base of things Fed-Chairs have said that turned out to be completely and utterly, well…100% WRONG, one of my favorites was Ben Bernanke’s 2010 assertion that QE would be “temporary” and with “no consequence” to the USD.

According to this false idol, QE was safe because the Fed was merely paying out dollars to purchase Treasuries is an even swap of contractually even values.

What Bernanke failed to foresee or consider, however, is that such an elegant “swap” is anything but elegant when the Fed is marred by an operating loss in which its Treasuries are tanking in value.

That is, the “swap” is now a swindle.

As deficits rise, the TBTF banks will require more mouse-clicked (i.e., inflationary) dollars to meet Uncle Sam’s interest expense promise to the banks (“Interest on Excess Reserves”).

In the early days of standard QE operations, at least the Fed’s printed money was “balanced” by its purchased USTs which the TBTF banks then removed from the market and parked “safely” at the Fed.

But today, given the operating losses in play, the Fed’s raw money printing will be like like raw sewage with nowhere to go but straight into the economy with an inflationary odor.

Bad Options, Fluffy Words

Again, the cornered Fed’s options are simple/stupid: It can continue to hawkishly raise rates higher for longer and send the economy into a depression and the markets into a spiral while declaring victory over inflation, or it can print trillions more fiat dollars to prop the system and neuter/debase the dollar.

And for this wonderful set of options, Bernanke won a Nobel Prize?

The ironies do abound…

But as a famous French moralist once said, the highest offices are rarely, if ever, held by the highest minds.

Gold, of course, is not something the Fed (nor anyone else) can print or mouse-click, and gold’s ultimate role as a currency-insurer is not a matter of debate, but a matter of cycles, history and simple/stupid common sense. (See below).

Markets Are Prepping

In the interim, the markets are slowly catching on to the fact that protecting purchasing power is now more of a priority than looking for safety in grossly and un-naturally inflated “fixed income” or “risk-free-return” bonds.

Why?

Because those bonds are now (thanks to Uncle Fed) empirically and mathematically nothing more than “no-income” and “return-free-risk.”

Meanwhile, hedge funds are building their net short positions in S&P futures at levels not seen since 2007 for the simple reason that they foresee a Powell-induced market implosion off the American bow.

Once that foreseeable implosion occurs, get ready for the Fed’s only pathetic tools left: Lower rates and trillions of instant liquidity—the kind that kills a currency.

In Gold We Trust

The case for gold as insurance against such a backdrop of debt, financial fragility and openly dying currencies is, well: Simple stupid and plain to see.

Few on this round earth see the simple among the complex better than our advisor and friend, Ronni Stoeferle, whose most recent In Gold We Trust Report has just been released.

Co-produced with his Incrementum AG colleague, Mark Valek, this annual report has become the seminal report in the precious metal space.

The 2023 edition is replete with not only the most sobering and clear data points and contextual common sense, but also a litany of entertaining quotations from Churchill and the Austrian School to The Grateful Dead and Anchorman …

Ronni and Mark unpack the consequences of a Fed that has raised rates too high, too fast and too late, which is, again a fact plain to see:

Needless to say, hiking rates into an economic setting already historically “debt fragile” tends to break things (from USTs to regional banks) and portends far more pain ahead, as both history and math also plainly confirm:

In a debt-soaked world fully addicted to years of instant liquidity from a central bank near you, Powell’s sudden (but again too late, too much) hiking policies will not “softly” restrain market exuberance nor contain inflation without unleashing the mother of all recessions.

Instead, the subsequent and sudden negative growth of money supply will only hasten a recession as opposed to a “softish” landing:

As the foregoing report warns, the looming approach of this recession is already (and further) confirmed by such basic indicators as the Conference Board of Leading Indicators, an inverted yield curve and the alarming spread between 10Y and 2Y yields. 

Self-Inflicted Geopolitical Risks

The report further examines the geopolitical shifts of which we have been warning(and writing) since March of 2022, when Western sanctions against Russia unleashed a watershed trend by the BRICS and other nations to seek settlement payments outside of the weaponized USD.

One would be unwise to ignore the significance of this shift or underestimate the growing power of these BRICS (and BRICS “plus”) alliances, as their combined share of global GDP is rising not falling…

As interest in (and trust for) the now weaponized USD as a payment system declines alongside a weakening faith in Uncle Sam’s IOUs, the world, and its central banks (especially out East) are turning away from USTs and turning toward physical gold.

Again, I give credit to the In Gold We Trust Report:

See a trend?

See why?

It’s fairly simple, and for this we can thank the fairly stupid policies of the Fed in particular and the declining faith in their prowess in general:

Myths Are Stubborn Things

Many, of course, find it hard to imagine that a Federal Reserve based in DC and within the land of the Great American dream (and world reserve currency) could be anything but wise, efficient and stabilizing, despite an embarrassing Fed track record that is empirically unwise, inefficient and consistently destabilizing…

Myths are hard to break, despite the fact the myth of MMT and QE on demand has been a failed experiment and is sending the US, as well as the global, economy toward a reckoning of historical proportions.

But the messaging of “Keep calm and carry on” from Powell is calming in spirit despite the fact that it hides terrifying math and historically confirmed consequences for the fiat money by which investors still wrongly measure their wealth.

But as Brian Fantana of Anchorman would tell us, trust the central planners.

“They’ve done studies, you know. 60% of the time it works every time.”

As for us, we trust the kind of data Ronni and Mark have gathered and that barbarous relic of gold far more than calming words and debased, fiat currencies.

As history reminds, when currencies die within a backdrop of unsustainable debt, gold in fact does work—and every time.

AFTER SVB AND CREDIT SUISSE COLLAPSE, BAIL-INS NEXT

Below, we see why the USA is screwed.

De-Dollarization: Downplaying the Obvious

De-Dollarization is a real, all too real trend, though it is both fascinating and disturbing to see what is otherwise so obvious being deliberately down-played, excused or ignored from the top down.

But then again, the laundry list of ignored facts and open lies from the top down to hide hard truths in everything from inflation data to recessionary debt traps is nothing new.

Instead, such propaganda replacing blunt transparency is the new normal (and classic trick) for all historical endings to debt-soaked (and failing) nations/systems and their fork-tongued (i.e., guilty) policy makers.

Slow & Steady

De-Dollarization, of course, is a gradual rather than over-night process.

Its origins stem from 1) years of exporting USD inflation overseas (to the painful detriment of friend and foe alike) and 2) the insanely stupid decision to weaponize the world reserve currency (i.e., USD) subsequent to a border war between two local tyrants in the Ukraine.

Whether or not you buy into the Western “media’s” narrative which categorizes Putin as Hitler 2.0 and Zelensky as a modern George Washington, the weaponization of the USD (and freezing of FX reserves) has made an already dollar-tired globe even more distrusting of Uncle Sam’s currency and IOUs.

This trend is confirmed by the profound dumping of USTs throughout 2022 and the undeniable trend among the BRICS (and the 36 other nations) to deliberately seek bilateral trade agreements and settlements outside of the USD.

Furthermore, with Saudi talking to China and Iran, and with China talking to Mexico, Russia and just about everyone else, it’s fairly clear that a move away from the once sacred petrodollar (Pakistan now seeking Russian oil in Yuan) is no longer just the fantasy of conveniently eliminated folks like Saddam Hussein or Muammar Gaddafi…

As I discussed here and here, the petrodollar is under threat, which means longer-term demand for the USD is equally so.

But the USD Still Has Legs—For Now…

That said, there’s also no denying that the USD is still very strong, very important and very much in demand.

After all, and despite welching in 1971 on its 1944 promise to be gold-backed, the USD is still the world reserve currency.

With over 40% of global debt instruments denominated in Greenbacks and over 60% of the reservoir of global currencies composed of USDs, this reserve status (and hence forced demand) aint going anywhere too soon.

Furthermore, and as I have written and agreed, the so-called “milk-shake theory” is not altogether wrong.

That is, demand for USDs (and USTs) within the tangled and levered web of US derivative and Euro Dollar markets is baked into a system which will take years (not days) to unravel, monetize or replace, and this sure as heck won’t be orderly, global nor overnight.

Then Comes Change, Pain and Open Denial

But let’s get real: The days of the USD as a trusted payment system or hegemonic power broker are unwinding right before our very eyes.

And the best way to see the truth of this reality is to catalogue the ever-expanding list of lies from the big boys and their complicit, media ja-sagenders (“yes-sayers”) desperately trying to deny the same.

At first, for example, the centralized economists were blaming de-dollarization and CNY energy transactions on the Russian sanctions.

Gee. Go figure?

Thereafter, the economists said de-dollarization is just the result of Emerging Market (EM) countries momentarily running out of (in fact they’re intentionally dumping) USD reserves.

Western “experts” are trying to convince themselves and the rest of the world that EM nations will implode unless they eventually acquire more USTs and USDs to buy energy.

What these experts are failing to see (or say), however, is that many of those countries are already beginning to buy that energy outside of the USD…

Folks, de-dollarization in global commodity markets is happening already, and will accelerate rather than fade away into some fantasy image of how the “West was Won,” for as argued elsewhere, the West is already losing.

Facts Are Stubborn Things

As for the list of nations, both big and small, de-dollarizing right before our watering eyes, just consider, well…China, Russia, India, Pakistan, Ghana, Bolivia…

Even the world’s largest hardwood pulp producer, Suzano SA, is in talks with China to trade its commodity in CNY.

This transition from a weaponized USD to an expanding CNY is not just the sensationalism of fiat-haters but the hard math of real events and data, which the following chart of the Renminbi Globalization Index (up 26% in 2022) makes all too clear…

The undeniable trend and rise (which is not the same as “hegemony”) of the CNY is certainly not good news for the fiat-all-too-fiat USD, who is less and less the prettiest girl at the dance.

As trust/demand in the USD falls, so too does its purchasing power, which may explain why China, at the very same time its trade power increases, is simultaneously growing its gold reserves in anticipation for what it knows is coming but what the West still refuses to see, namely: The slow-drip neutering of Uncle Sam’s fiat currency.

See the trend folks?

We Told You So

See why picking a currency-for-energy war against Russia (the world’s biggest commodity exporter and a nuclear power in bed with China, the world’s biggest factory owner and a nuclear power) may have been a bad idea?

As we warned literally from day-1 of the sanctions, this was obviously not the same as picking a sanction fight with say, Iran or Venezuela…

Nope. This scale of this was far more dangerous, and the avoidable casualties still piling up in the West’s proxy war (on Ukrainian soil/rubble) are not just soldiers and civilians, but Greenbacks too.

This was foreseeable.

Even Obama foresaw it in 2015:

Clearly, Biden’s handlers, however, didn’t see it in 2022.

They wanted to play war rather than sound economics, and the end result will be a loss of both.

As for the USD: Volatility Before Debasement

As for the fate and price of the USD near-term and long-term, the move will be volatile rather than in a straight line north or south.

The USD can still go higher, much higher, as fewer Greenbacks overseas still face large debt payments.

Ultimately, however, Uncle Sam’s own twin deficits and schoolyard of children masquerading as House Members/”leaders” will deficit spend the USA into a debt spiral whose only “cure” is more mouse-clicked and debased dollars along side more unloved and over-issued USTs (IOUs).

Thereafter, the up and down moves of the USD will eventually just sink, Titanic-like, in one direction as ever-more USD’s collide with a growing debt iceberg.

As argued so many times, but worth repeating: The last bubble to die in a debt-soaked regime is always the currency. Even the increasingly unloved world reserve currency will be no exception to the laws of over-supply and decreasing demand.

Between now and then, all we can expect are more lies from on high and more centralized controls masquerading as efficient payment systems and national emergencies blamed on Eastern bad guys and bat-made (?) virusesrather than the bathroom mirrors of our central planners (happy idiots?).

All Good Until Things Break

We have always warned that Powell’s rate hikes (too much, too fast, too late) would be too expensive for Uncle Sam, and would thus break things here and abroad—from repo markets, gilt markets and Treasury markets to a US fiscal implosion and dying regional banks.

Next to implode are the labor markets.

Six decades of data confirm that rising rates always break things.

But when you place such rising rates into the context of the greatest debt crisis in US (as well as global) history, the “breaking” gets really ugly.

Until the Fed supplies more inflationary liquidity (fiat-fantasy money), the dual forces of a hawkish Powell and a de-dollarizing yet milk-shake world means the USD could rise and squeeze out the dollar short traders nearer term.

Anything but “Softish”

Ultimately, however, and after enough smaller banks have been murdered (more will die) and after the UST market has suffered all it can suffer, too much will break at once, and it won’t be soft, or even “softish.”

This is not fable but fact. The only “tool” the centralizers will have left is more synthetic, fiat (and inflationary) liquidity on demand.

This trend is simple: Uncle Sam is broke and his only solution is a money printer.

In short, a counterfeit answer to a real cancer.

Don’t believe me?

Just ask the US Treasury Dept.

More Ignored Math from DC

The latest TBAC (Treasury Borrowing Advisory Committee) confirms the US has already deficit spent $2.060T in fiscal 1H23, the interest expense alone of which is 101% of tax receipts.

This effectively puts the USA into a red-zone of imbalance reminiscent of the COVID crisis, only this time they don’t have COVID to blame for a debt addiction that was in play long before Fauci stained our screens or Powell printed more money post-March-of-2020 than was produced in the entire compounded history of our nation.

The TBAC report further indicated that projected US Federal deficits for 2023 to 2025 have risen by 30-50% in just the last 90 days…

And folks, the only way to pay for this embarrassing bar tab in DC is either more open QE (mouse-clicked trillions) and/or a much, much, much weaker USD to inflate away this debt as we head simultaneously into the mother of all recessions.

Such a crisis, of course, could be preceded by temporary (relative, rather than inherent) spikes in the USD until more UST supply/liquidity weakens the Greenback and sends gold higher, regardless of the USD’s relative strength and then subsequent weakness.

Meanwhile the Propaganda from On-High Continues

As I’ve said in interview after interview, you know things are getting really bad when comforting words and de-contextualized data increasingly replace simple (but scary) math.

At $95+T in public, household and corporate debt, the US has irreversibly passed the Rubicon of any easy solutions.

As Egon von Greyerz makes abundantly clear week after week, the US in general and the Fed in particular have irrevocably cornered themselves.

Stated otherwise: The USA is screwed.

DC has to chose between saving its “system” (of insider/TBTF banks, self-interested politicos–from the Maoist “woke” to the neocon “dark” and Wall Street Socialism) or destroying its currency.

Needless to say, it’s ultimately the currency that will fall on the sword for this now openly corrupt and pathetic “system.”

But again, rather than confess their own sins, the message is always “be calm and carry on.”

The Latest Fantasy Chart

Take, for example, the latest puff-tweet regarding Bloomberg’s “US Economic Surprise Index” which paints an oh-so rosy picture of the US economy rising at the fastest pace in over a year.

But as far smarter folks than me (i.e., Luke Gromen) will remind, this so-called data is ignoring a few contextual elephants in the room…

Context Helps

First, the above “good news” ignores a US debt/GDP ratio of 125%, a deficits/GDP ratio of 8% and government spending at 25% of GDP.

Secondly, US Government Outlays (i.e., deficit spending) has been growing at 30% for five of the last seven months.

Spending rates like this have only occurred twice in the last four decades, namely: 1) during the height of the COVID hysteria and 2) during the height of the 2008 GFC.

So, despite the “good news” in puff-charts above, the pundits are ignoring the fact that Uncle Sam (and his mis-fit children in the House of [lobbied] “Representatives”) are spending as if the USA is already in the eye of a financial storm.

And yet we haven’t even seen the recession officially hit or labor and risk markets tank, YET.

Imagine the spending when things get officially far worse than today—and they will; it’s now mathematical.

Out of Sight, Out of (Our) Mind

Sadly, however, very few investors are seeing the bigger picture and the wandering elephants.

In the interim: 1) the military industrial complex will create more profits and jobs here and more casualties overseas; and 2) deficit spending will keep unemployment in check (for now) and GDP “stable” until 3) its deficits (and debts) cancerously metastasize within a nation frog-boiling in debt and fractured by manufactured identity politics over transgender beer ads and slavery reparations from the 1860’s.

Such “woke” trends are ironic, given the fact that middleclass Americans of all colors, sexualities, “privileges” or political bends are already unknowing slaves/serfs in a modern feudalism of fake capitalism fighting against the bogus (yet SJW) “equity” euphemism of a woke (but hidden) re-distribution of social “shares” smacking of modern yet genuine Marxism.

Slowly, Then All at Once

And amidst all this distraction, division and in-fighting, the reality of rising rates colliding into historically unprecedented debt levels will just crush all stripes of Americans in the same manner Hemingway described poverty: “Slowly, then all at once.”

As Egon has often told me: Be careful what you wish for or already know.

Gold will inevitably go higher as the rest of the nation/world slides into its foreseeable debt trap and fiat end-game.

This may be obviously good for gold; but it will be at the expense of so much else, as the disorder ahead is neither fun nor pretty.

 And it’s only just beginning…

AFTER SVB AND CREDIT SUISSE COLLAPSE, BAIL-INS NEXT

Tectonic shifts lie ahead. These will involve a US and European debt crisis ending in a debt collapse, a precipitous fall of the dollar and the Euro with Gold emerging as a reserve asset but at multiples of the current price.

The next phase of the fall of the West is here and will soon accelerate. It has been both precipitated and aggravated by the absurd sanctions of Russia. These sanctions are hurting Europe badly and affecting the US in a way that they didn’t expect, but was obvious to some of us. The Romans understood that free trade was essential between all the countries that they conquered. But the US administration blocks have both the money and the ability to trade of the countries they don’t like. 

But shooting yourself in the foot really hurts and the consequences are in front of our eyes. No foreign country will want to hold US debt or dollars. That is a catastrophic problem for the US as their deficits will grow exponentially in coming years. 

So a debt collapse is not just a looming disaster but a bomb hurling towards the US economy at supersonic speed. 

With the imminent death of the petrodollar and explosion of US debt, there is only one solution for the funding requirements of the US Government – the FED which will stand as the sole buyer of US Treasuries. 

A CATASTROPHIC DEATH SPIRAL 

So the DEBT spiral of higher debt, higher deficits, more Treasuries, higher rates and falling bond prices will soon turn into a DEATH spiral with a collapsing dollar, high inflation and most probably hyperinflation. Sounds like default to me but that word will probably never be used officially. It is hard to admit defeat even when it stares you in the face!

Yes, the US will probably obfuscate the situation with CBDCs (Central Bank Digital Currencies) but since that is just another form of Fiat money, it will at best buy a little time but the end result will be the same.

 US Debt Ceiling Farce belongs to Broadway rather than Wall Street

The debt ceiling was created in 1917 as a means of restricting reckless spending by the US government. But this travesty has gone on for over 106 years. During that time there has been a total disdain for budget discipline by the ruling Administration and congress. 

The problem is not just the debt but the cost of financing it. 

The annualised cost of financing the Federal debt is currently $1.1 trillion. If we assume conservatively that the debt grows to $40 trillion within 2 years, the interest cost at 5% would be $2 trillion. That would be 43% of current tax revenue. But as the economy deteriorates, interest will easily exceed 50% of tax revenue. And that is at 5% which will probably be much too low as inflation rises and The Fed loses control of rates. 

Thus a very dire scenario lies ahead and that is certainly not a worst case scenario.  

THE FED IS BETWEEN A ROCK AND A HARD PLACE 

The Fed and the thus US government are now between Scylla and Charybdis (Rock and a Hard Place). 

As it looks today, the US will bounce between Scylla and Charybdis in coming years until the US financial system and also the economy takes ever harder knocks and goes under just as every monetary system has in history. 

Obviously the rest of the West including an extremely weak Europe will follow the US down. 

BRICS AND SCO – RISING POWERS

The whole world will suffer but the commodity rich nations as well as the less indebted ones will ride the coming storm far better. 

This includes much of South America, Middle East, Russia and Asia. The expanding power blocks of BRICS and SCO (Shanghai Cooperation Organisation) will be the strong powers where a much increasing part of global trade will take place. 

Barring major political and geopolitical upheavals, China will be the dominant nation and the main factory of the world. Russia is also likely to be a major economic power. With $85 trillion of natural resource reserves, the potential is clearly there for this to happen. But first the political system of Russia needs to be “modernised” or restructured. 

What I outline above is of course structural shifts that will take time, probably decades. But whether we like it or not, the first phase, which is the fall of the West, could happen faster than we like. 

A MONETARY SYSTEM ALWAYS ENDS IN A DEBT EXPLOSION 

In 1913, total US debt was negligible, and in 1950, it had grown to $406 billion. By the time Nixon closed the gold window in 1971, debt was $1.7 trillion. Thereafter the curve has become ever steeper as the graph below shows. From September 2019 when the US banking system started to crack, the Repo crisis told us that there were real problems although no one wanted to admit it. Conveniently for the US government, the Repo crisis became the Covid crisis which was a much better excuse for the Government to print unlimited amounts of money together with the banks.   

Thus, just in this century, total US debt has grown from $27 trillion to $94 trillion!

But that was history and we know we can’t do anything about the past. But now comes the fun. 

I have been warning about a coming debt explosion for some time. Well, I believe this is it. 

In a recent article about the price of gold I explained that the final stages of hyperinflation are exponential.  

We will see a very similar exponential pattern with the coming debt explosion. If we assume that the final 5 minutes of the exponential phase started in September 2019, the stadium was then only 7% full and will in the next few years grow from 7% to 100% full or 14X from here. 

This is obviously just a demonstration and no exact science, but it shows that theoretically US debt could now explode. 

So let’s take a quick look at a few factors that will cause the debt explosion.

BANK FAILURES  

A Hoover Institute report calculates that more than 2,315 US banks currently have assets worth less than their liabilities. The market value of their loan portfolios are $2 trillion lower than the book value. And remember this is before the REAL fall of the asset values which is still to come. 

Just take US property values which are greatly overvalued by the lenders: 

So the four US banks that have gone under recently are clearly just the beginning. And no one must believe that it is just small banks. Bigger banks will follow the same route. 

During the 2006-9 subprime crisis, bailouts were the norm. But at the time, it was said that the next crisis would involve bail-ins.

But as we have seen so far in the US, there were no bail-ins. Clearly the government and the Fed were concerned about a systemic crisis and did not have the guts to bail in the bank customers, not even above the FDIC limit. 

As the crisis spreads, I doubt that bank depositors will be treated so leniently. Neither the FDIC, nor the government can afford to rescue everyone. Instead depositors will be given an offer they can’t refuse which is compulsory purchase of US treasuries equal to their credit balance. 

The European banking sector is in an even worse state than the US one. European banks are sitting on large losses from bond portfolios acquired when interest rates were negative. No one knows at this stage the magnitude of the losses which are likely to be substantial. 

Both in commercial property and housing, the situation is worse in Europe than in the US since the European banks are funding most of these loans directly themselves, including € 4 trillion of home mortgages. 

The banks also have a mismatch between low rates received on mortgages against high rates paid to finance them. 

The ex-governor of the Bank of France and ex-head of the IMF, Jacques de Larosière accuses the authorities of subverting the private banking system with deranged volumes of QE after it had become toxic: 

“Central banks, far from promoting stability, have delivered a Masterclass in how to organise financial crisis”

$3 QUADRILLION OF GLOBAL DEBT & LIABILITIES  

If we add the unfunded liabilities and the total outstanding derivatives to the global debt, we arrive at around $3 quadrillion as I discussed in this article:

“This is it! The financial system is terminally broken”

Sadly, the Western financial system is now both too big to save and too big to fail. 

Still all the king’s horses and all the king’s men cannot save it. So even if the system is too big to fail, it will with very dire consequences. 

GOLD TO BE SUBSTANTIALLY REVALUED IN THE DISORDERLY RESET

Just over a century after the creation of the Fed and the beginning of the debt ceiling, the mighty dollar has lost 99% of its value in purchasing power terms. 

And measured against the only money which has survived in history – Gold – the dollar has also lost 99%. 

This is obviously not an accident. Not only is gold the only money which has survived but also the only money which has kept its purchasing power throughout the millennia. 

For example, a Roman Toga cost 1 ounce of gold 2000 years ago, which today is also the price for a high quality man’s suit. 

You would have thought that losing 99% of its value for the reserve currency of the world would be a disaster. Well it is of course, but the US, as well as most of the Western world, has adjusted by increasing debt exponentially to make up for the disastrous debasement of the currencies. 

What is even more interesting, gold is up 8-10X this century against most currencies.

That is a superior performance to virtually all major asset classes. 

And still nobody owns gold which is only 0.5% of global financial assets. 

More recently gold is at all-time-highs in all currencies including the dollar. 

But in spite of the extremely strong performance of gold or more correctly put, the continued debasement of all currencies, no one talks about gold.

Just looking at the number of articles covering gold in the press in the graph below (white bars), it confirms that the most recent price increase of gold (blue line) is met by a yawn. 

This is obviously very bullish. Imagine if all stock markets made new highs. It would be all over the media. 

So what this is telling us is that this gold bull market, or currency bear market, has a very long way to go. 

As I often point out, no fiat money but only gold has survived throughout history. 

Gold’s rise over time is always guaranteed as governments and central banks will without fail destroy their currency by creating virtually unlimited fake money.  

Since this has been going on for 1000s of years, history tells us that this trend of constantly debasing fiat money is unbreakable due to the greed and mismanagement of governments. 

And now with the debt crisis accelerating, so will the gold price. 

Luke Groman makes a very interesting point in his discussion with Grant Williams (grant-williams.com by subscription).  Luke suggests that although the dollar will not yet die as a transactional currency, that it is likely to be replaced by gold as the reserve asset currency.  

The combination of dedollarisation and liquidation of US treasuries by foreign holders will lead to this development. 

Commodity countries will sell for example oil to China, receive yuan and change the yuan to gold on the Shanghai gold Exchange. They will then hold gold instead of dollars. This will avoid the dollar as a trading currency when it comes to commodities. 

In order for gold to function as a reserve asset, it will need to be revalued with a zero at the end and a bigger figure at the beginning as Luke says. The whole idea would be that gold will become a neutral reserve asset which floats in all currencies. 

The inverse triangle of Global debt resting on only $2 trillion of Central Bank gold shown above makes the revaluation of gold obvious. 

A floating gold price as a reserve asset is of course much more sensible than a fixed gold price backing the currencies and would be the nearest to Free Gold. 

See my 2018 article, “Free Gold will kill the Paper Gold Casino”.

So the consequence of gold becoming a reserve asset could involve a rise of say 25X or 50X the current level.  Certainly not an improbable outcome in today’s money. The debasement of the dollar and other Western currencies is likely to have a similar effect but then we are not talking in today’s money. Time will tell. 

As gold is now in an acceleration phase, we are likely to see much higher levels however long it takes and whatever the reason is for the rise. 

The 1980 gold price of $850, adjusted for real inflation would today be $28,300 

As gold is now in an acceleration phase, we are likely to see much higher levels however long it takes. 

What is clear is that fiat money, bonds, property and stocks will all decline precipitously against gold. 

What is important for investors is to take protection now against the most significant RESET in history which is a disorderly reset. 

So if you don’t hold gold yet, please, please protect your family, and your wealth by acquiring physical gold.  

Gold repositioning as a Global Reserve Asset could happen gradually or it could happen suddenly. But please be prepared because when it happens you don’t want to hold worthless paper money or assets.