Discovering the Power of Gold: De-Dollarization and its Impact

• 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. 

Discovering the Power of Gold: De-Dollarization and its Impact

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?

Discovering the Power of Gold: De-Dollarization and its Impact

“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?

Discovering the Power of Gold: De-Dollarization and its Impact

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.

Discovering the Power of Gold: De-Dollarization and its Impact

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.

Discovering the Power of Gold: De-Dollarization and its Impact

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?

Discovering the Power of Gold: De-Dollarization and its Impact

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

Discovering the Power of Gold: De-Dollarization and its Impact

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

Discovering the Power of Gold: De-Dollarization and its Impact

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.

Discovering the Power of Gold: De-Dollarization and its Impact

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…