John Maynard Keynes, Milton Friedman, Adam Smith, legacy economists and monetarists to boot, who with religious verve touted their economic theories during the past three centuries.  All three of them believed, one way or another, that the economy can be fine tuned to perfection by the government or in the case Smith, left free of individuals to make their own purchase and supply decisions. Only one thing has gotten in their way and that is the printer of money, the central bank, has proved them wrong time and time again. However, we must admit that all of them had a good run.

Money by definition is a medium of exchange. After all you can’t walk into an auto dealer and exchange 30,000 bananas for a SUV, but the dealer will gladly accept $30,000 U.S. dollars. And in turn he deposits the dollars in to the bank for safe keeping. When needed he makes a withdrawal to exchange them for something else; this goes on and on in a loop of economic activity that keeps the economy churning. But what happens when the dollar is no longer accepted in return? Either of two things, one the seller of goods may require more dollars than before or as was the case until 1933 the holder of dollars could exchange them for a fixed amount of gold. So there was protection, a backup to the dollar; a universally excepted store of value going back millennium. That was the case until FDR closed the-gold exchange window in 1933.

As we enter the next decade (2020) storm clouds are not only forming on the horizon but rising as well. China and Japan for instance hold at least a trillion of our debt. One of these days it will occur to them that a different form of foreign exchange is needed. Notice that today, the dollar is not as good as gold. Gold will soon see its value as the medium of exchange throughout the world. Printing paper and creating money out of nothing has been tried before resulting in economic disasters. Ask Venezuela how are they doing?

Be aware of the Black Swan, an event that will occur, but is seldom expected. This is the caveat. Governments will always take advantage of a crisis; just ask our good old friend Rahm Emanuel. He knows all too well how to hammer down.

Today’s gold consensus on gold has a pessimistic bias, optimism languishes, however when the dark overtakes the light or when fear overtakes reason, expect the unexpected. Today’s markets show a robust stock market and a dissed precious metal market. Be reminded that they can turn on a dime. That doesn’t mean the bias to the downside won’t change in an instant; again a heads-up is worth listening too. Several times during the past century unforeseen events have occurred without notice. Take for instance the FDR edict that United States citizens turn in their gold. Imagine if that happened today? Major insurrection would occur.

The question remains though, when will the almighty dollar implode AND INFLATION SKYROCKET? OUR BET IS THAT IT IS COMING SOONER THAN ANYONE THINKS. Good times can’t last forever. 

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