Financial sanity and stability may not return,
but we can protect our assets and learn from the discussion.
The DOW, S&P500, NASDAQ and other markets sell
at all-time highs. However, many imbalances exist within our financial world.
This is not new – things have been crazy
before, are now, and will be again.
But
to regain financial sanity we need:
From “Doug Casey on the New
Fed Chair
”
“In an
ideal world there would be some radical changes. The best thing for the US in
the (famous) long run is to go “cold turkey.” To abolish the Federal Reserve,
fire its thousands of employees with their worthless PhDs. Return to 100%
reserve banking with a strict separation of demand and time deposits.
Depoliticize money by using gold, not Federal Reserve Notes. And default on the
national debt, which is rewarding crony capitalists, and will turn future
generations of Americans into serfs. And massively deregulate. And abolish the
income tax, while cutting spending 90%. Etc. Etc.
The chances of that happening are exactly
zero.”
It’s easy to see there is no chance for a return to financial
sanity as defined by Casey.
Doug Casey is not alone in his assessment of the self-created
problems in our current financial system. Alasdair Macleod in “
Deflation Must Be Embraced” defines what
he calls
“the minimum policy changes required to
escape from the credit-fueled merry-go-round that will end up destroying us
all.”
CHOICES AND CHANGES
The choices are: continue
the insanity and hope to survive the next election/crash/war/disaster, or
contemplate the abyss. Macleod’s eleven point
plan for change is:
- “Accept that another nation’s business is not your
affair. Cease all military spending, other than required for purely
defensive purposes. The resources and technologies released by this move
would be redirected by entrepreneurs for the service and benefit of
consumers.
- Stop colluding at the supra-national level to follow
common monetary and economic policies. G20, G8 meetings only promote
interventionist groupthink, to the exclusion of a proper understanding of
policy errors.
- Embrace the benefits of free trade, removing all tariff
barriers. If a foreign manufacturer wishes to dump excess capacity into
your economy, let your consumers reap the benefit.
- Deregulate, making it clear that individuals must look
out for themselves. The state is useless at protecting the consumer.
Companies that plan to prosper will realize their reputations for fairness
and honesty are paramount, instead of hiding behind regulations.
- Encourage family cohesion, instead of automatically
expecting the state to look after your elderly, your handicapped and your
children. Socializing family values is not the business of the state,
which cannot deliver welfare services effectively.
- Reduce the state’s role in the economy with a long-term
objective of absorbing less than 20% of GDP.
- The state should be banned from running deficits. Tax
must match state spending. Capital loaned to the state will no longer be
drained away from productive use in the private sector.
- Re-introduce sound money, by means of a currency-board
arrangement tied to physical gold, which is deliverable on demand to
all-comers.
- Make it clear to the banks and their customers there is
no lender of last resort, and no deposit guarantees. Deregulation of
financial services and the removal of this safety net will force banks to
stop speculating in financial markets and be conservative in their
financial gearing, to protect their reputations. Interbank loan rates will
penalize financial aggression.
- Sack all government economists, and close all
government statistical offices. At best, they serve no constructive
purpose, and at worst they are repositories for bad advice, as growing
economic and financial instability attest.
- Close the central bank, and replace it with a currency
board with one purpose: to regulate the issuance of the currency
convertible into the national stock of gold.”
Yup, he’s not expecting a
return to financial sanity.
“We criticize Venezuela and Zimbabwe, because
their mistakes are obvious to us. But we
fail to realize the only difference between them and us is the speed of their
failure compared with ours.”
Macleod sees “money printing” and inflation in
our future – with Zimbabwe and Venezuela leading the way.
Oops!
The
process and direction are clear. The uncertainty revolves around the timing and
degree of the inflationary disaster.
Consumer
price inflation is here to stay.
Consider prices from 1970 to show how consumer price inflation is
“hard-wired” into our financial system.
From Casey on
choices:
“It will be a deflationary
collapse if the Fed doesn’t continue buying debt and creating new dollars. And a hyperinflation if they do.” … “the government and the Fed will definitely
veer towards more inflation.”
Choice: Collapse or
hyperinflation!
Debt increases exponentially – as shown from the St. Louis Federal
Reserve:
Date Total
Debt Securities S&P 500 Index
1/1/1971 $0.77 trillion 92
1/1/2009 $31.6 trillion 902
11/30/17 $44.1 trillion 2,646
The U.S. increased debt securities by $12.5 trillion in the last
nine years and levitated the S&P by 1,700+ points. The consequences of that
debt creation will manifest in coming years.
Total debt securities have increased at a compounded rate of 6%
per year for over two decades. At that rate current debt of $44 trillion will
grow to over $66 trillion in 2025. That massive increase in debt (currency in
circulation) will create the price inflation that Casey and Macleod foresee in
our future.
But, add a teaspoon of panic to the inevitable debt increases, mix
with a double-handful of fear, stir in several cups of counter-party risk, add
five heaping tablespoons of central bank and government intervention, and bake this
toxic cake in the central banker oven for a few years.
The result will be a huge boost in consumer price inflation and large
increases in gold and silver prices.
Expect inflation, possibly hyperinflation, asset price crashes, and
reflation of equity bubbles. Central bankers will be prodded by politicians to
“do something,” and they will, to the detriment of most people.
The result
is predictable since the world will choose not to act on the suggestions from
Casey and Macleod. Governments and central banks will choose inflation and
continued currency devaluations.
However, we
can protect our savings and retirement.
Consider the long-term correlation between total debt securities and
gold prices.
Panic, fear and “out of control” debt increases will drive gold
prices higher. This will accelerate when
central bankers and governments lose remaining credibility. Expect the gold to
S&P 500 Index ratio to move much higher in coming years.
Expect a rise in volatility, consumer price inflation, massive
central bank printing, and more debt … lots more debt.
Gold and silver prices will rise!
CONCLUSIONS:
- Casey and Macleod have defined what is necessary to correct our
self-created fiscal and monetary insanity.
- It won’t happen.
- Expect massive “money printing,” stock and bond crashes, asset
price levitations, inflation, and possibly hyperinflation.
- Timing: Coming soon to our
world, probably in 2018.
- Debt increases exponentially.
Gold prices follow, occasionally zooming ahead of debt and then
collapsing, but always tracking the inevitably increasing debt and devaluation
of fiat currencies. Gold will rise compared to the S&P 500 Index in coming
years.
- Gold and silver will help protect your savings, retirement, and purchasing
power. Their prices will fly much higher when the coming category five crises devastate
our financial system.
