Tag Archives: economy

ECONOMIC DISASTER AHEAD – CLOUDS ARE FORMING

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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. 

THE DAYS OF WINE AND ROSES ARE COMING TO AN END? WHAT DOES THE FUTURE HOLD?

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The past century brought innumerable opportunities and hence riches to Americans; we were the envy of the world. WWII was over, American GIs came home – the economy roared ahead. The sixties were the best of times, the dollar ruled the world. Seventies saw great anxiety, the eighties inflation, the nineties dot.com bust. Growth could not be held back as it took hold time and time again. The new millennium saw house prices boom, then crash, bringing with it the rest of the economy and that of the world. Financial empires were lost and new ones rose from the dead.

Despite an avowed socialist winning the presidency in 2008 and 2016, the economy prospered as the monetary fountain showered the land with easy money. New technologies came to the fore, older paradigms became obsolete. Brawn became old hat, physical labor trumped by brain power. Artificial intelligence, virtual reality and the algorithm revolution gave birth to new enterprises.  Despite all the hoopla, predictions of the coming doom and economic malaise can be found in various media outlets.

(click)Factories turning to robots like there is no tomorrow; menial jobs being replaced at warp speed with bots. But with all that being said, the economy is buzzing along, employment at an all time high and unemployment skidding south faster than America’s retailers. Bitcoin has becomes the new tulip craze, propelled by Viagra chewing speculators.Image from Industriemuseum Chemnitz.

When will it end, can we see the future, what disaster lies ahead? Will China rule the world? Will a black swan make an appearance? Is America’s glass half full or half empty? It is important to note that the odds of us remaining the behemoth that we are for another century are slim indeed. Technology can migrate in milliseconds, communication sees to it. Fifty percent of start-ups are by foreign born; they come here for economic reasons knowing that their inventions are safe from tyrannical governments, but that is changing fast. Other countries are now transforming their political and legal systems. They understand what it takes to grow the new economy, especially those in the tech sector. Manufacturing at one time ruled, holding sway not only here, but in the developing countries as well, but these countries have not stood idly by. They have found out that economies don’t run on oil alone.

A tour of tomorrow’s factory may raise the question. Where have all the employees gone? Again change comes swiftly and without notice, so expect the unexpected before it is too late.

Warning signs abound!

JAPAN INC. GOES NEGATIVE

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Remember Japan, once the envy of the capitalistic world, today a bag of bones shrinking faster than the Fukushima reactor. Image result for fukushima daiichiWhat happened to their state controlled, keiretsu cabals is the question; the economists don’t have an answer, but it is plain as the light of day; they hobbled, like a cripple from the dragon.

After the implosion of their stock market twenty plus years ago the government stepped in large to alleviate the pain, dropping interest rates in a vain attempt to spur the economy; sounds like our dim-wits here took the same approach. However, things are so bad in Japan right now, the people are afraid to spend their money.

This has caused the government to step into the fray once again. This time they have gone over board with the Mother of all policies. The Bank of Japan (BOJ) is charging banks who make deposits in the BOJ, interest. In other words banks that don’t loan out money will be penalized by paying the BOJ a fee (interest) for keeping or depositing their surplus funds in the bank. This is a way of telling the banks to loan out money to anyone who needs it, good credit or no credit.

Does anyone imagine what a policy like that would cause in the United States. Say you had a $100,000 in your bank account and the government forced the bank holding your funds to charge you, say 5% a year, for keeping the money in the bank. We know what will happen then, the deposit will be withdrawn and the depositor would convert the paper into GOLD.

You say it can’t happen here! Wait, we are living in a funny, fluid and ….ed up world. Thank you economist, thank you Obama, thank you Bernake, thank you Yellin. Thank you dumb politicians who have stolen the wealth of the middle class. You are personas non-gratae. THE REVOLUTION IS AT HAND.

GOVERNMENTS AFRAID OF GOLD? YOU BETCHA!

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Since 1971 when Nixon closed the gold window, governments have been free to print fiat money and spend at will. Why not, no one will stop them. Secondly this keeps the politicians in power. Without handouts to one constituency or another no one would vote for an incumbent.  What is confusing to us is why do governments bring up the gold subject so often? This does not make sense. This action is similar to digging up an old body looking at for a moment or two then covering it over until next time.

The main reason governments bring up the dead is because they fear them and so it is with gold. Suppose gold never existed, what would prevent governments for printing as much wallpaper as their pretty heart desires? Nada! Like a governor on a car, the shadow of gold keeps the thief within certain parameters.  Gold is the invisible hand restraining governments from going off the deep end as did Weimar in the 1920’s.   Picture of a 5 trillion dollar note.

When government loses their credibility, a REVOLUTION is ready to fill the gap.

The old saying went like this, “when the United States sneezes, the world catches a cold.” The world is now topsy turvy, today the world looks at China not the United States for the sign of a sneeze. What appears to be the onset of more than a whiff of a sneeze in China has caught the attention of the developed and undeveloped world. First sign of problems were the ghost cities, then the unrestrained growth forecasts then went thud, then came the everyday speculators who went whole hog buying stocks in a frenzy. Then came the recent missed economic forecasts which sent up a red flag. Then out of nowhere the China crash, stocks imploded in a flash. Instead of letting the free market take care of the problem, the government decided to be the purchaser of last resort. But they were not through, China saw signs of influenza in the distance and they reacted by debasing their currency 2%. This was their Nixon moment. This has caused turmoil in the Asia currency markets. Others soon followed not wanting to miss the sampan. 

Back to gold for a moment. With the world economy in the tank, oil sliding to new lows, commodities rusting in warehouses, inflation negative in many countries; in fact some banks charge their customers for making a deposit – give them $100 and they will give you $99 a year later. Wow, that is a new twist.  With all of that being said isn’t it logical to see gold at $20 or $35 like it was in 1933? But there must be something buried out yonder, it is the call of the wild that implores the initiated to take hold, something is up while the world economies are going down.

Something certainly is up. Currencies being debased in a frenzy. China, last week spent $500 billion. With reserves now at $3.5 billion, if this continues in another seven weeks they will be out of cash. And our old friend the Chavismo state of Venezuela, we heard that they are on the verge of economic collapse, riots breaking out in city after city. The calls for Brazilian President Rousseff to quit are becoming louder by the day. And all sorts of stuff, like bombs exploding in country after country; makes one wonder what is will happen next. Wack a mole world keeps us on edge, particularly with many governments in the hands of liars, ours included.  Stay tuned for more elephants dropping by. No wonder gold is still in the $1100 range.

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THE CHINA SYNDROME

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The China Syndrome, the worry that an American nuclear plant meltdown could penetrate the earth’s crust finally ending up in China. A worry to this day. Economically we have seen the reverse, a China economic meltdown, now winding its way through oceans leaving economic woe and devastation in its path. The financial markets have confirmed the economic twister’s wake since China’s stock market swooned 30%. Now it is leaving a financial trail of devastation in our financial markets.China syndrome.jpg The bottom line here is simple. Over the past twenty years China has accumulated a couple of trillion dollars of our money; shipping slave produced goods to the United States in return they purchased foreign companies worldwide.

Their bounty was spent gobbling up companies across the global board. These included natural resources, manufacturing, biotech, electronic and software. They are today’s elephant in the economic room. China catches a cold, the world catches the flu.

While other countries economic woes are common place, the United States economy is humming along. This is an anomaly.  Questions arise on how our economy has shielded the blow of economic stagnation. It does not seem possible. True that interest rates are at all time lows, oil has imploded, but these circumstances exist in Europe too and their economy is in the tank. Something does not jive hear. Is our government covering something up? That is the question.

WHAT THE GOLD BRICKS WON’T TELL YOU

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Through out history gold has been the medium of exchange; the store of value. Paper money displaced gold early in the 17th century; first used in Massachusetts then by the states during the Civil War. The banking industry’s genesis was initiated early on by warehouses which issued a receipt – thus a warehouse receipt – entitling the holder to redeem the receipt for the said amount of gold as defined in the receipt. As the industry blossomed it became apparent that the holders of receipts very rarely requested the physical gold; they only transferred the receipts. Thus the warehouses evolved into lenders realizing that a call for 100 percent of the gold at any one time was not a probability.

The 18th through the 21st century became the glory days of gold. Banks became behemoths lending more gold than they had in inventory. When a run on a bank occurred, which it ultimately did, culminating in bankruptcy and ruin. As the United States entered the 20th century as the world’s big money player the world treated the dollar as if it was good as gold.

This was true up until 1971.  Not dismissing the illegal taking of individuals gold by FDR back in 1933 (see executive order 6102).  The world was on the path of becoming a dynamic and risky adventure from 1971 on; the dollar was no longer convertible to gold, the dream of El Dorado became a reality by inventing paper gold on a scale never seen before. The physical gold window had closed, the dollar pyramid scheme began.  Hence the printing of paper money on a scale never seen before. Economies were on financial cocaine, a euphoria that is still manifested by governments gone wild. More printing enabled the exalted to exert control of economies, countries and world politics. But good times don’t last forever.

Entering the 21st century has proved that the dollar panacea has a long reach, but things can changes in a quant moment. Across the globe one country after another has defaulted; Greece and Argentina head the list. Is it possible that the United States is next?  A probability that cannot be counted out. What brings us to that conclusion is the loss of faith in the United States. We are no longer control world events – Obama saw to it.

Future obligations are the tail wagging the dog and that is about to become the albatross under our neck for the next two decades. Obligations are coming due. And the question remains, who will be responsible to pay them. for sure you can’t count on today’s youth to hand over their hard earned cash.   17 Trillion and counting is a gargantua number, that is just debt, counting social security, medicate obligations and interest on the debt we are looking at a google type number closer to 100 trillion. $100,000,000,0000,0000.

Another relevant question to ask a politician of the goldbrick variety is:  Will we ever be able to pay back the money we owe?   Don’t expect a straight answer.  The next question is, Will gold provide a solution to political largesse?