In my view, 2013 was a key inflection point in modern history; surpassed only by 2008 in terms of irreversible economic damage, but NONE as pertains to unabashed usage of overt (and covert) money printing, market manipulation, and propaganda in a last-gasp attempt to “kick the can” that last, pitiful mile. At least – or more appropriately, as Rizzo said in Grease, the very least – the “pre-QE” efforts of 2008-11 had the semblance of (misguided) officialdom actually believing they were “saving” the world. Unfortunately, since the current crisis commenced in late 2011 – yielding QE3 and QE4 in the U.S., “whatever it takes” market support in Europe, and “quantitative-qualitative easing” in Japan, TPTB’s intentions have clearly taken on a more malignant tone. In other words, whilst the inflationary after-effects of TARP and other post-2008 money printing schemes were simply considered collateral damage, today’s collapsing currencies, rising political tensions, emerging militarism, and burgeoning financial repression are considered “weapons” to quell the nasty, acrid smell of “the 99%” daring to desire “the 1%’s” blood money.
The year started with Congress selling out America’s interests with the vile “fiscal cliff deal”; in fact, nearly to the minute, given that it was passed in a rare New Year’s Eve session. Ironically, the eleventh hour deal that dramatically reduced the “sequester” cuts created by the paradoxically named “Budget Control Act of 2011” – which itself, was a diluted replacement of what the “Super Committee” failed to achieve – was deemed the “American Taxpayers Relief Act of 2012.” I’m still having trouble understanding that name, given the payroll tax exemption was eliminated for all Americans, whilst top earners received a significant tax increase. But then again, no budget was created by the aforementioned Budget Control Act; whilst essentially all the “sequester cuts” it earmarked for 2013 were cancelled by the October 2013 “Continuing Appropriations Act.” Better yet, said act claimed $20 billion of annual budget savings on a $1.012 trillion budget; when in fact, that “budget” represented just a quarter of the government’s nearly $4 trillion spending plans (let alone, that such budget savings are, as always, “back-end loaded”). Last week, I discussed this very issue in “the truth of the so-called budget deal”; yet, no one seems to care that the deal excludes the $2.8 billion of annual spending considered “essential” – and thus, not subject to negotiation.
As for the national debt, it was $14.2 trillion when Standard & Poor’s stripped America’s triple-AAA rating in August 2011. Today – barely two years later – it stands at $17.3 trillion today; excluding, of course, $5+ trillion of “off balance sheet” debt, and perhaps $200 trillion of “unfunded liabilities.” At the time, S&P’s reasoning was the following…
The downgrade reflects our opinion that the fiscal consolidation plan Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.
More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.”
The outlook on the long-term rating is negative, “. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.
-Standard and Poors, August 5, 2011
No sane person, including the most rabid government sympathizer, could opine that, according to S&P’s own criteria, the U.S. credit rating should still be rated AA+ – or even investment grade, for that matter. However, as S&P’s CEO was “forced to resign” immediately following that decision, and S&P itself subsequently sued by the U.S. government, the so-called leading rating agency not only didn’t follow up on its own advice, but raised its outlook in June 2013 – per what I wrote in “S&P hits a new all-time low.” Then again, as Matt Taibbi described earlier this year – as if we didn’t already know – the ratings business is as corrupt as the Wall Street criminals that fund it.
As for the supposed “debt ceiling,” it was “delayed” by the even more inappropriately named “No Budget, No Pay” act of February 2013; thus, allowing it to grow unabated until the arbitrary date of May 18th, 2013. Of course, no budget was created during that time, so “Citigroup Jack” Lew simply stole from U.S. pensioners and along with other accounting chicanery (cumulatively deemed “extraordinary measures”), pushed the debt ceiling breach into October 2013. At that point, the aforementioned “Continuing Appropriations Act of 2014” again delayed the debt ceiling – this time, until the equally arbitrary date of February 7th, 2014”; enabling said “extraordinary measures” to immediately be counted as debt (to the tune of $300+ billion), and starting the clock on a second round of “extraordinary measures” – which this time, will only last until March.
Amazingly, “Tough Talk” Boehner actually allowed the Democrats to insert fine print into the October law, enabling the President to veto any future attempts to cap the national debt. Only a 2/3rds majority of both the House and Senate can stop the President now; which I think we allknow can never happen. And thus, when a new “deal” is hashed out on February 6th – likely, with another, even more egregious misnomer of a name – there will be absolutely ZERO consternation about the debt ceiling; which, frankly, may be overtly eliminated in the same manner as it just was in Australia.
“Tapering” and all – which last week, I provedis but a mirage, the Fed now owns one-third of all U.S. Treasury bonds, and one half of all mortgage-backed securities. Overt QE amounted to more than $1 trillion this year – and likely, with covert spending was closer to $1.4 trillion. Moreover, in 2014, the current plan is to spend another $900 billion (taking Treasury and MBS holdings to 50% and 75% of their respective, outstanding totals); whilst government spending rises by 5%, excluding “off balance sheet” items, of course. Thus, I have ZERO doubt that the published national debt will be well above $18 trillion by year-end; and perhaps, if interest rates continue to rise, considerably more. Remember, each 1% increase in interest rates raises annual debt service by nearly $200 billion; and that’s just on the Federal level. The nation as a whole has never been more addicted to ultra-low interest rates; and sadly, the coming wave of adjustable rate resets could make the 2006-08 “subprime” wave look like a mere ripple. Worse yet, in recent years, the Federal government has refinanced most of its debt to short-term maturities and thus is heavily sensitive to even microscopic rate changes.
Of course, I have barely scratched the surface of the infamy that 2013 was; as even the government’s economic crimes and policy errors have been barely touched. Increased financial repression – across the board – has characterized a nation on the verge of a police state. Between FATCA; FBAR; the banning of certain nations from the SWIFT international wiring system; heightened attacks on offshore accounts and telling Germany it must wait until 2020 to receive a measly 300 tonnes of gold, the U.S. government has shown the entire world its lack of respect for investors, both domestic and foreign. It’s no wonder Europe’s largest PM storage operator – ViaMat – has kicked out American investors; which, by the way, is NOT an issue with Miles Franklin’s Brink’s Montreal vault.
Moreover, the economic damage caused by the U.S. government is not all of the direct kind. As discussed in the “Most important article I’ve ever written,” the inflation exported by the Fed’s expanding QE program has caused the average global currency to plunge 20% over the past two years, with the majority occurring in the last nine months or so. Trust me it’s no coincidence that social unrest has erupted in the “Fragile Five” nations of India, Indonesia, Brazil, Turkey, and South Africa, where 25% of the world’s population resides; or, for that matter, many other areas. The “Final Currency War” has officially begun; and now that the Fed is committed to hyper-inflating the dollar for the sake of its Wall Street masters, all other nations are being forced to follow suit. Such is the Ponzi scheme nature of fiat currency; and no nation is a better poster child for such mutually assured destruction tactics than the “Land of the Setting Sun” itself; i.e., Japan.
Internally, both Presidential and Congressional approval ratings have reached all-time lows; in the latter case, below 10%, as each day it becomes increasingly clear how little our elected “representatives” care for America’s best interests. Between the IRS and NSA spying scandals; the Russian-squelched attempt to attack Syria; and the oppressive, inept Obamacare launch, it’s hard to believe there are any remaining believers in the efficacy of America’s government. Heck, when combining the failures of the Bush and Obama regimes, it’s difficult to find a single redeeming moment!
And then, of course, you have the political and economic carnage in the world’s largest population block – Europe. Draghi officially declared the ECB’s intention to create an unelected continental government when he stated he’d do “whatever it takes” to save the Euro in July 2012. And sadly, since then, the European economy has plummeted from hell to something worse. Like the U.S., both overt and covert market manipulation has temporarily masked the horror of economic reality. However, with European unemployment at an all-time high – in sync with the U.S. Labor Participation rate at a 35-year low – it’s only a matter of time before reality once again steps to the fore. The people’s voices will be heard decisively in the EU Parliamentary election in May 2014; and I assure you, it won’t be pretty. Here at the Miles Franklin Blog, we continue to rate the PIIGS – or more appropriately, the PIFIGS due to France’s cascading economic issues – as the most likely to catalyze the next, irreversible, global financial crisis. And oh yeah, I forget to mention the Cyprus “bail-in”; which, since it shocked the world in March, has been accepted as a global template for future financial crisis. Nope, nothing to worry about here!
Of course, when speaking of potential “crisis catalysts,” I’d be remiss if I didn’t mention India; where, also in May, major national elections could replace the ruling, Wall Street friendly leaders with more traditional, pro-gold factions. The current Indian regime is perhaps the world’s most incompetent; and this year’s suicidal attempt to slow Precious Metals buying is already collapsing upon itself. Silver imports will set an all-time high this year; and as for gold, smuggling has become so prevalent, it has overtaken narcotics as the nation’s top illegal industry after just four months’ time. PHYSICAL premiums have surged to all-time highs above 25% – thus, making a mockery of the fraudulent PAPER markets; and with the Rupee on the cusp of plunging anew, there’s no telling what might happen in 2014. Remember, the Indian government made an insane promise earlier this year to provide heavily subsidized rice to roughly three quarters of the population; and thus, even a modest increase in rice prices could cause the nation’s finances to implode. Sort of like the U.S. national debt’s sensitivity to interest rate changes, to drive the point home.
In the interest of brevity, I’ve left out a whole bunch of things; sort of like Rodney Dangerfield in this hilariousclip from my all-time favorite comedy, Back to School. However, I of course must mention the most egregious – ultimately, self-destructive acts of Precious Metal suppression of our lifetimes. In November’s “(End of the) Manipulation Timeline,” I listed the incredible list of PM-positive headlines since “dollar-priced gold” achieved its all-time high in August 2011; and particularly, throughout 2013’s heinous Cartel attacks, as exemplified by the April 12th-15th “Alternative Currencies Destruction.”
Fortunately, those holding PHYSICAL gold and silver are none for the worse; aside, of course, from the anger, frustration, and helplessness of living through such blatant attacks on their net worth – whilst overvalued assets like stocks, bonds and real estate were supported by the very same entities putting the hammer to gold and silver. Personally, I increased my “stack” by between five and ten percent – in terms of ounces owned; and thus, have turned this year’s lemons into lemonade. Undoubtedly, it was the most mental strain I have ever dealt with – which is saying a lot, given the Cartel hell that was 2008. However, in the end game, both Miles Franklin and I have never been better positioned.
Moreover, if anything, TPTB have only accelerated the end game of fiat currency collapse, by stepping up the money printing whilst causing the tiny, remaining inventories of PHYSICAL gold and silver to be rapidly drained. I mean, seriously, record 2012 Chinese gold demand more than doubled in 2013; whilst even the U.S. Mint set a record high for Silver Eagle sales! Furthermore, with PM prices having been pushed well below the cost of production, the Cartel has inadvertently created what will unquestionably be years, if not decades, of reduced gold and silver production, just when it will be needed most. Frankly, when prices do finally take off – and consequently, permanently break the Cartel’s bonds; I expect government nationalizations and windfall profit taxes to cause further, even more deleterious production declines.
When the ball reaches Times Square at midnight on Tuesday, no one will be happier to put 2013 behind us. It was indeed a “year of infamy”; but fortunately, one that clearly set up better times for 2014 and beyond. Of course, I say “better times” tongue-in-cheek”; as whilst higher gold and silver prices will make PM holders “richer,” such events will likely coincide with a far scarier, more difficult world. The good news is the ultimate, inevitable financial crash will set the stage for a better world in the future; based on honest money, of course. However, getting from “here” to “there” will likely be an extremely dark chapter in human history. Hopefully, you are one of the few taking actions to PROTECT assets amidst what will likely be history’s largest-ever wealth transfer; and equally importantly, preparing for the difficult times ahead.
As always, Miles Franklin is here to help, as it has for the past 24 years. Give us a call, and we’ll be happy to answer your questions any time. All we ask is the opportunity to earn your business; which via premium customer service and the industry’s broadest, most intensive education platform, is our ultimate goal. We consider our clients to be “partners” in the quest to preserve wealth; and thus, are always available.
