Centralization & the Death of Capitalism, the Middle Class and Democracy

In this latest conversation with Tom Bodrovics of Palisades Gold Radio, Matterhorn Asset Management partner, Matthew Piepenburg, offers his latest assessments on the American economic and political decline.

Piepenburg opens with a sober critique of the slow-drip toward increasing but now undeniable centralization in American markets and society. The net result is an ephemeral yet tragic demise of both classic capitalism and true democracy. 

Instead, what Piepenburg sees now and ahead are more signs of a dystopian form of modern feudalism in which a political and financial minority operate behind a façade of liberalism as lords over a middle-class falling deeper into politically ignored serfdom. He unpacks the open marriage between corporate and governmental powers (weaponized/corporatized  media, science, justice system, markets, banking, currencies etc.) which more resemble Mussolini’s definition of fascism than the democratic ideals of America’s founding fathers.

Not surprisingly, the foregoing theme of centralization incudes the frog-boil toward more regional bank failures, the duplicity of the Davos crowd and the Trojan horse of CBDC, which Piepenburg describes as “horrifying.” Ultimately, Piepenburg sees an ironic yet undeniably cornered Fed whose alleged war against inflation will only create more inflation. Powell’s “higher-for-longer” policy to fight the CPI is only making Uncle Sam’s grotesque debt levels grow equally “higher for longer.” As a result, more mouse-click money will be needed to monetize this embarrassing bar tab, which by definition, means more inflation and hence currency debasement ahead—all of which is bad for America but good for gold.

Piepenburg dives deeper into current market distortions (over-pricing), including various examples of ignored risks (needles) pointing at the global and national debt balloon. Toward this end, he links ignored risks in the Japanese markets (the “carry trade”) to equally ignored risks in the ticking time-bomb that is the US (and global) credit markets. He also squarely addresses the ongoing recession narrative and beleaguered US labor markets with sober facts.

The conversation closes with an equally sober (i.e., non-hyped) analysis of the BRICS headlines regarding a potential gold-backed trading currency. Although Piepenburg was among the first to warn of watershed de-dollarization trends last year, he does not see a gold-backed trading currency suddenly emerging from the BRICS conference this month in South Africa. Ultimately, the trend away from the USD is now inevitable, but the process will be slow at first and then all at once. Piepenburg is also keeping a careful eye on Saudi Arabia and the Petrodollar as another risk hiding in plain sight.

Centralization & the Death of Capitalism, the Middle Class and Democracy

The Fed has two mandates – Maximum Employment and Price Stability

If we look at price stability, the Fed has failed miserably. 

The Fed employs 3,000 people in Washington DC of which 300 have a Ph.D. degree.

Their mission is “to provide our nation with a safer and more flexible and more stable monetary and financial system” with the overall mandate being price stability. 

In addition to discussing the Fed’s total failure in controlling inflation, in this article I will also stick my neck out in the climate debate before I go on to the likely disastrous effects of debts, deficits and inflation will have on investment markets. 

POWELL’S ABRACADABRA INFLATION TARGETING

Last week the Fed chairman explained, in the Senate, the method the 300 Fed PhDs and many of the 3,000 Fed staff apply for inflation targeting.

Senator Cortez asked Powell:

Cortez: 

“Why 2% inflation?”

Powell: 

“The 2% is globally agreed between all major central banks as a target.”

EvG question: So for this Lemming system 300 PhDs are required?

Cortez: 

“How does it help people?”

EvG: The contorted Fed Speak reply which Powell utters summarises the entire wisdom of the Fed.

Powell: 

“I will tell you how it does, I guess it is obviously not obvious how that is.”

EvG: Hmmmm… Powell obviously doesn’t have a clue – “OBVIOUSLY NOT OBVIOUS!” 

Powell continues:

“To have people believe that it will go back to 2% anchors inflation there. 

Evidence is that the modern belief is that people’s expectation has an effect on inflation. If we expect inflation to go up to 5%, then it will because businesses and households expect it.”

So there we have the inner secrets of the Fed’s inflation policy and targeting. 

Firstly, the 2% target is just a Lemming system. Every other central bank does it, so we the Fed must follow the system of mediocrity.

Secondly, it is only a matter of making people believe that inflation goes to 2% and it will. What about if the people believe inflation will go to 20%?

This is where Powell the magician comes in to hypnotise businesses and household into believing in 2% inflation:

I agree with senator Cortez’ question: Why 2%?  There is nothing desirable about the 2% at all. With 2% inflation, prices double every 36 years. The aim should really be to have no inflation.

The problem with an arbitrary Lemming system targeting 2% is that it doesn’t work. Neither the Fed nor any other central bank have managed to hold it at that level except for accidentally on the way to higher or lower inflation.  

INFLATION WILL TURN BACK UP

Between 2015 and 2021 inflation in most industrialised countries was between 0% and 3%. 

When inflation in 2021 shot up significantly, Powell and Lagarde (ECB) proclaimed that that was only “transitory”. Still inflation went up to around 10% before it started to retreat in 2022. 

As I have explained in previous articles, the world is gradually moving from a financial and debt based economy to a one based on real assets and commodities. 

This will lead to a shift from a financially and morally bankrupt Western system to the East and South based on commodities and manufacturing.  

An upmove in commodity prices normally lead inflation by 6-9 months. So when commodity prices turned up in late 2019, inflation followed in most countries in early to mid 2020. 

After a correction, commodity prices bottomed in March-May 2023 so we could see inflation in the US and Europe turning during the autumn 2023. 

So sadly for Powell and Lagarde, their 2% inflation targeting is going to fail again, however much they hypnotise the people to believe it!

Instead high inflation and high interest rates will prevail for decades. But it will most certainly involve a very high level of volatility with fast up moves and violent corrections. 

Before I move on to the dire effects that inflation deficits and debts will have for the US and global economy, I will stick my neck out in the heated climate debate.    

CLIMATE EMERGENCY – HYSTERIA OR REALITY

The climate debate is totally polarised and dominated by powerful interest groups. 

Since Al Gore politicised this issue at a heightened level at the Copenhagen Climate conference in 2009, the trend has been clear. 

Just like with Covid, it has suited Western governments to use the climate debate as a means of controlling the people and protecting special interests. 

The official climate debate is totally one sided. Any money for research is only granted to scientists who support the notion of man-made global warming caused mainly by fossil fuels. 

The fact that fossil fuels account for 83% of all energy and most probably cannot be reduced more than marginally for the next several decades is totally ignored in the debate.

A further problem is that the world has reached peak energy by way of fossil fuels and there is no serious alternative in sight for decades. 

In addition, the energy cost of producing energy is increasing fast. The consequence will be falling standards of living for a foreseeable future. (SEEDS – Surplus Energy Economics)

The fact that the Holocene period which started 11,700 years ago has been the coldest in geological history is totally ignored. All the climate activists are just looking at figures for the last couple of hundred years. 

Also, the fact that CO2 has been declining for 1 billion years is totally ignored. Without CO2 there would be no life on earth. Total CO2 in the atmosphere is today 0.04%. If that percentage declines below 0.02% there would be no life on earth.

Dr John Clauser, the 2022 physics Noble Prize winner, criticises the climate models as unreliable and not accounting for the dramatic temperature-stabilising feedback of clouds. Clauser says that clouds are more than 50X as powerful as the radiative effect of CO2. In summary he says that there is no climate crisis and that increasing CO2 concentrations will benefit the world. 

A leading nuclear physicist Dr. Wallace Manheimer warned that Net Zero would end modern civilisation. He observed that the new wind and solar infrastructure would fail, cost trillions, trash large portions of the environment “and be entirely unnecessary”.

I am not a Covid expert. But in the case of Covid, the debate was totally skewed by the hundreds of billions of dollars spent on propaganda and corruption by the pharmaceutical companies. A small censored scientific minority were totally against an untested gene-manipulating vaccine and warned about its severe dangers. Three years later the fears of this minority have been vindicated. 

I am obviously not a Climate expert either. But having studied economic cycles for many years, I am a great believer in understanding history and very long trends rather than basing my opinion on short term opportunism. 

Thus studying very long climate cycles, it is clear to me that they are much more powerful than whatever effect that mankind has had on climate in the last 150 years. 

To take an example, just look at the 11,000 year climate cycle graph above. It shows a Roman Climate Optimum 2,000 years ago. At that time Rome had a tropical climate. As far as I am aware, there were no cars or other manmade CO2 producing matters at that time. 

Of course we all want a world with less pollution in the air and in the oceans and should strive for that globally. 

But to believe that we can achieve Net Zero CO2 Emissions by 2050 is as unrealistic as believing that mankind can limit the temperature increase by 1.5 degrees by 2050.

Let me just take some examples. Many Western countries are legislating that only electric vehicles (EVs) can be produced after 2030 or 2035. 

What the climate activists ignore is that EVs are costlier to produce than ordinary cars and have a major CO2 effect.

To produce ONE battery takes 250 tons of rock and minerals. The effect is 10-20 tons of CO2 from mining and manufacturing even before has been driven 1 meter. 

Also, car batteries cannot be recycled but go to landfill which has major implications. 

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

Hopefully the CO2 and cost efficiency of EVs will be improved but so far progress is very slow.

US DEFICITS ARE SURGING

The borrowing requirements of the US treasury is reflecting the total lack of fiscal discipline which is typical for a Banana Republic. 

From January to the end of December 2023, the Treasury expects to borrow $3.3 trillion. With some extra bad news, including higher interest rates, the $3.3 trillion could easily rise to $4 – 4.5 trillion. This deficit plus the ongoing QT (quantitative tightening) is likely to put upward pressure on rates. 

Except for the Fed, there will be no buyer of an ever increasing amount of US debt. 
And so the vicious circle of higher debts, higher inflation, higher deficits starts to spin ever faster. 

Sadly, such a dire scenario can never have a happy ending.

For the banks, higher rates mean much higher defaults and a constant squeeze to reduce lending, also mandated by the Fed. 

With massively increasing borrowing requirements from the US Government and the Fed as well from the banking sector with dwindling sources of funding, the likelihood of drastic measures are obvious. 

After the subprime crises 2006-9, governments agreed that bailouts would be replaced by bail-ins at the next crisis. So far this didn’t happen in mid-March when 4 US banks and Credit Suisse collapsed. 

But the coming pressures on both public and private funding are likely to lead to draconian actions by governments next time around. This will probably involve forced savings in government debt for most Western countries, including US, Europe and Japan. 

It could involve compulsory purchases by bank depositors of say 10 year bonds with interest rolled up for 25-50% of customer liquidity in the bank.

My old forecast of future US debt made in 2016 is so far looking on target. Whether the debt will be my original $40 trillion forecast or the revised $50 trillion, time will tell. 

Major bank and derivatives defaults could easily push it up to $50t.

HOLD TANGIBLE ASSETS  

The main beneficiaries of the Western debt and deficit problems are of course: 

• Precious Metals – especially gold and silver 

• Commodities – especially oil and uranium

Stocks might benefit short term from higher inflation but over the medium and long term they will collapse. 

Buffett’s favourite indicator, Stocks to GDP is massively overvalued. To decline to the mean would involve a 50% fall. But overbought markets always overshoot. So a 70-90% decline would not be unrealistic. In such  scenario, it won’t only be stock prices that decline but GDP could easily fall 10-20% in real terms.  

Bonds, especially issued by governments, should be avoided like the plague. Inflation and potential defaults or moratoria will make them the worst investment ever. In addition the debasement of currencies will lead to the value of bonds in real terms reaching ZERO very quickly.

So is my forecast too pessimistic. Maybe but I doubt it. No one can of course predict the exact timing. 

But what we can evaluate is the risk. 

And with global risk being more elevated than at any point in history (and I haven’t even discussed political or geopolitical risks), why not protect your assets today from potentially the biggest wealth destruction ever. 

Centralization & the Death of Capitalism, the Middle Class and Democracy

• 00:00 In this section, Matthew Piepenburg, partner at Matterhorn Asset Management, discusses the growing distrust of the US dollar and the trend of de-dollarization. He highlights how the Western sanctions against Russia have caused ripple effects and raised eyebrows for other countries, as the weaponization of the world reserve currency has created a sense of distrust. He also mentions the recent BRICS summit in South Africa and the discussion of a gold-backed trading currency as further symptoms of this growing trend. While he believes this is not yet the end of the US dollar as a world reserve currency or fiat money, he emphasizes that the trend of de-dollarization is clearly underway and warns that once the genie of weaponized currency is out of the bottle, it cannot be put back in.
• 05:00 In this section, the speaker discusses the world reserve currency status of the U.S. dollar and the upcoming BRICS meeting. They mention the importance of trust in determining which countries developing nations will choose to align with, highlighting the question of trust in countries like China, Russia, Indonesia, Brazil, and India. Moving on to the U.S. Federal Reserve, the speaker suggests that the Fed realized they raised rates too fast and too high, leading to a pseudo-recession and a break in trust in bond markets. As a result, they took a pause in their tightening policy to give the banks and credit markets a break. The speaker emphasizes that the market’s reaction to the Fed’s actions will determine whether this pause is a precursor to more heightening or an eventual pivot towards liquidity infusion. They also question the reliance of the markets on the Fed and why the central bank has such a significant impact on stock and bond markets.
• 10:00 In this section, the speaker discusses his belief that the US is already in a recession, citing indicators such as the yield curve, the change in the M2 money supply, and the inflation to deflationary moves. Piepenburg also mentions that the labor market will be the next to crack. When asked about gold not keeping up with the equity market rally, the speaker explains that gold is seen as insurance against dying currencies and a hedge against the weakening purchasing power of the US dollar. He attributes the rally in equities to the market’s expectation of the Federal Reserve adopting a more dovish stance in response to a recession. However, he also highlights the stress on the banking system and the potential for more liquidity crises. He suggests that as people realize their currency is getting weaker, they will turn to gold as a means to deal with the low purchasing power of their currency, all of which is held in increasingly beleaguered banks.
• 15:00 In this section, Matthew Piepenburg explains that building investor interest in gold is a subjective matter, as it relies on trust and a loss of faith in fiat currencies. He argues that gold becomes more attractive when it becomes obvious that the purchasing power of the currency in one’s wallet is diminishing, regardless of reported CPI or market discussions. Piepenburg suggests that when countries reach a point of fiscal dominance, where they are unable to effectively fight inflation due to excessive debt, investors will seek an alternative to weak money. For many, this alternative is physical gold, while others turn to more volatile and speculative cryptocurrencies like Bitcoin. 

Centralization & the Death of Capitalism, the Middle Class and Democracy

I recently blew the dust off an old Rudyard Kipling poem, “If,” which many have castigated as a bit overly romantic, despite its high praise from Mark Twain and T.S. Eliot to India’s Khushwant Singh.

The fact, moreover, that “If” was written by a Victorian era colonial in 1895 as a father’s advice to a son, could easily put its otherwise timeless insights at risk of being cancelled by the woke elite as potentially misogynistic or regionally insensitive…

Notwithstanding such critiques, financial readers might equally be asking what Kipling has to do with global markets, the currency wars, inflation/deflation tensions or the US bond market?

Well, given the fact that each of these financial topics, when examined closely or even broadly, are now signs of open madness, yet still consistently ignored or down-played by our leaders and media midgets, I could not help but consider the following (and opening) line of advice:

“If You can keep your head when all about you

Are losing theirs…”

Well: Can we?

What is Happening All About You? A Complete Denial of Debt’s End-Game

As headlines from an increasingly distrusted 4^th Estate debate everything from a challenged USD (the recent BRICS gold hysteria) and weaponized State Department (Raytheon’s war in the Ukraine graveyard) to an equally weaponized/politicized justice system (Hunter vs. Trump’s legal woes), most of America seems blind to a ticking time bomb.

That is, amidst all the political and social distractions of late, the financial wizards leading an increasingly splintered America have been quietly doing what they do best: Sending the USA into a fatal debt spiral.

I recognize, of course, that bonds, budgets, deficits and yield curves don’t excite the same immediate reactions as, say, Joe Biden’s now undeniably compromised mental state or who or what’s image adorns a can of Bud Light, but as I’ve said so many ways and times: Debt matters.

In fact, debt destroys nations. And not just sometimes, but every time.

Such destruction, hiding in plain sight, is creepy, because, well…it creeps up on us slowly, and then—all at once.

The Latest Creepy Numbers Creeping out of DC

But sadly, debt data and bond markets bore most citizens.

This is why the majority of invisibly taxed and intentionally enslaved American serfs probably haven’t noticed that the US Treasury Department’s quarterly net-borrowing estimates for the second half of 2023 just came out, and that number is a sickening $1.85 TRILLION.

Read that again. $1.85T in 6 months.

This is openly ignored madness. Our experts having officially lost their minds.

We are talking about nearly 2000 billion (or 2 million millions) of new debt to be created/issued in the span of months, the implications of which are staggering.

This is especially scary when you add Powell’s 525 basis point rate hikes into the borrowing equation, which only makes the interest-expense of this appalling debt (cess) pool beyond payable without, well…more debt creation.

So, there you have it, American monetary genius: “We can solve a debt problem with more debt.”

Keeping Our Heads When All About Us Are Losing Theirs

But just because the “experts” in DC (who made Faustian bargains with their common sense and advanced degrees in exchange for a DC job title) may have completely lost their ambitious little minds/heads, it doesn’t mean the rest of us can’t hold on to ours.

Fighting Inflation Will Increase Inflation

Powell’s comical, and ultimately disingenuous, war on inflation, for example, is actually poised to end in far greater inflation, something understandable to any whose market attention span is greater than a typical tweet or YouTube short.

As a June white paper from even the St. Louis Fed recently confessed (and folks like Luke Gromen better explained), the US is approaching a grossly paradoxical point called “Fiscal Dominance,” a sober concept of basic math which I boil down to this:

“When a debt-strapped nation with nearly $33T in public debt raises rates to ‘fight’ inflation, the increased cost of servicing that debt becomes so egregious that the only way to ‘pay’ for it will come from a re-ignited mouse-click money-maker at the Fed, which is inherently, well: Inflationary.”

In other words, at some point (and don’t ask me when, but it’s looming), the Fed will pivot from dis-inflationary QT to mega-inflationary QE—all to be conveniently blamed on COVID, Putin and/or the climate.

It has always been my personal view, however, that Powell’s Volcker 2.0 charade of raising rates and trimming (barely) the Fed’s balance sheet to “fight” inflation has been a deliberate ruse.

His hawkish narrative buys him time to replenish the ammunition of his only two monetary weapons (rates and money supply) so that he’ll have more to cut (rates) and expand (Fed balance sheet) once overly-stretched credit markets blow to shreds.

At that point we’ll see: 1) QE to the moon and/or 2) a monetary re-set that will make Bretton Woods look like a pleasant game of international snooker.

Credit Markets, Death by a Thousand Cuts

In fact, this “blowing to shreds” process in the credit markets has already begun, in a kind of death by a thousand cuts.

Just ask all those nations dumping USTs, or all those regional banks that have failed and all those bigger banks consolidating (i.e., centralizing); or ask all those mutual fund managers who lost greater than 20% in 2022, or the repo markets back-firing since 2019, or all those foreign sovereign bonds (from gilts to JGB’s) tanking and all those wannabe BRICS+ nations looking for anyway they can to join a sanctioned Russia and patient China to trade outside of an openly weaponized USD.

In other words, it’s not just that change is gonna come, it’s literally all around us, hiding (or ticking) right before our media-distracted eyes.

Buying Time Today as More Things Break Tomorrow

Powell, in the meantime, will stick to his “data dependence” and bide his time going higher for longer until something, i.e., topping markets now riding the AI tailwind (narrative), finally break under their own grotesque weight.

So yes, debt matters. Deficits matter. And supporting Uncle Sam’s otherwise unloved IOUs matters.

This is because, and I’ll say it again and again and again: The bond markets matter.

Why?

Repeat: The Bond Market Matters

Because if no one is buying those over-supplied bonds (see above), their yields spike in a simple supply & demand mismatch, which means the cost of serving US debt—which is the only wind beneath our national/financial wings—spikes too.

Spiking debt costs, of course, are a death knell to a system (from banks, bonds, stocks and Treasury Departments) already drowning in historically unprecedented (and unpayable) debt.

Thus, without more inflationary mouse-click money (QE) to stave off more credit contraction, bank deaths, failed UST auctions, and all those low-rate, extend-and-pretend-addicted companies on an S&P 500 (which is nothing more than an S&P 7 in terms of real market cap), the slow implosion discussed above becomes a sudden implosion.

Recession Denial

And that’s not even factoring in a looming but now Powell-ignored and media-down-played recession, that malleable term of economic art, which, like inflation and employment data, those fiction writers at the BLS and Eccles Building can redefine at their convenience.

Facts, after all, are like math. They are stubborn. This is why the experts are apt to distort them, like a corrupt lawyer who tampers with evidence to win a jury trial. That is, even a witch looks pretty when you hide the warts.

As I’ve argued many times, and based upon recent on-the-ground experience in USA main streets as well as a neon-flashing yield curve, the conference board of leading indicators and the year-over-year change in the M2 money supply, America is already in a recession.

At some point, even Powell’s forked tongue and the DC data manipulators won’t be able to hide a recession which citizens feel despite CNN, The View or their politicos telling them otherwise, especially as gas prices and lay-offs continue to rise into year-end.

Recession, Banana Republic America and the Inflation/Deflation Cycle

Toward this end, we need to keep our heads and think for ourselves about what recessions can do to countries like the USA whose balance sheet and debt levels are quantifiably no better than your average, and once mocked, banana republic.

Like any banana republic, extreme debt and embarrassing deficits spell their doom, as over time such heavy debt tides are inherently inflationary, despite the current (and expected) dis-inflationary period.

After all, crushing the middle class and small business sector with a record-breaking rate hike is dis-inflationary.

In a recession, for example, a nation’s already weakened ability to produce goods and services (thanks to Powell’s rate hikes) at levels high enough to sustain those deficits only gets even weaker.

As Luke Gromen again argued, and illustrated below, a recession could easily send the US deficit to $4.5T, or 8% of GDP.

In such an all-too-likely deficit scenario (and all we really have today are bad scenarios), we could see bonds fall into the next official recession (always announced too late), as we saw them fall along side stocks in the 2020 COVID crash.

If bonds fall in a similar manner, this means bond yields, and hence rates, would rise, which would only add more pressure on the Fed to issue more US IOUs then paid for with more inflationary mouse-click Dollars to control their yields.

For now, and as Gromen, and myself, would confess, such a view is still a minority view—but that doesn’t necessarily make it a wrong view, especially in a world figuratively losing it head.

Alternative Scenarios Are No Better

But even the most sober convictions must consider alternative scenarios and views.

Like Brent Johnson, I agree that we could easily see an implosion in the EU markets (Germany now in recession) or even in Japan long before the US markets raise their white flags and surrender to instant, mouse-click liquidity measures.

In such a “foreigners-first” scenario, we could indeed see a flight into the perceived “safety” of the UST and hence USD as the best horse in the global slaughter house.

Such a “milk-shake inflow” (or straw-sucking sound) into USTs could take some temporary pressure off the Fed’s inflationary QE gas pedal. It could also make the USD stronger rather than weaker in the interim.

The End-Game Stays the Same

But no matter which white flag goes up first, from Tokyo to Berlin to DC, the end-game for all debt-soaked nations, regions, currencies and systems is ultimately the same.

That is, and to repeat, there really are no good scenarios left, just more desperate measures to buy time and postpone the inevitable.

As I wrote elsewhere, even the most proud and victory-accustomed armies, from Napoleon’s Grande Armee in 1812 to Lee’s Army of Northern Virginia in 1863, eventually extend themselves too far and suffer a “Gettysburg Moment.”

Nations whose debt levels are too far extended offer no exception to this rule or metaphor.

That is, no brave cavalry or infantry charge by Marshal Ney or General Picket can defy the simple law of too many bullets against too few men.

Too Many Debts, Not Enough Liquidity

Like Japan, the EU and the UK, America has too many debts and not enough natural liquidity to sustain them.

Powell can buy time and headlines, and he can even print trillions of more fake fiat dollars to “save the system,” but in the end, it is always the currency which is left dying last on the field.

For those who understand the stubborn math, history and cycles of fiat currencies, the precise timing of such final currency defeats is impossible to predict with precision, but easy enough to see coming, and thus easy enough to prepare for in advance.

Advanced Preparation—The Minority Which Kept Their Heads

Gold, which is an obvious and historically-confirmed weapon (as opposed to barbarous relic) against such open currency destruction, is an equally obvious and historically-confirmed means of achieving such advanced preparation.

Despite such objective facts (and the media-ignored power of gold as an open threat to fiat money), gold makes up only 0.5% of the global investments.

This, it might be said, makes such lonely “gold bugs” crazy, but as alluded to above, sometimes one must keep their heads when all about them are losing theirs.

The question, then, like the title of Kipling’s poem, is not “If” fiat money dies, but “When.”

The former is obvious, the latter is approaching.

Got gold?

Centralization & the Death of Capitalism, the Middle Class and Democracy

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.

Centralization & the Death of Capitalism, the Middle Class and Democracy

“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?

Centralization & the Death of Capitalism, the Middle Class and Democracy

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.

Centralization & the Death of Capitalism, the Middle Class and Democracy

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.

Centralization & the Death of Capitalism, the Middle Class and Democracy

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.

Centralization & the Death of Capitalism, the Middle Class and Democracy

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?