The western welfare states (US, UK, EU etc.) have borrowed more digital
currency than can be repaid at current values. The choices are:
Massive inflation: a bad choice
Default: an even worse choice
From Jim
Rickards (Strategic Intelligence – Sept. 2016 issue):
“Given the nonsustainability of sovereign debt under current monetary
regimes and the necessity for global inflation, there are three possible
endgame scenarios facing us now.”
- “The first scenario is that central banks are
finally successful in launching inflation …”
- The second scenario is a massive issuance of SDRs
(Special Drawing Rights from the IMF) in the multitrillion-dollar
equivalent range …”
- “… the third scenario is the nuclear gold option …
last resort … central banks and the IMF would … peg the price of gold
much higher …”
“What these three outcomes have in common is inflation… Inflation
is another word for the destruction of the value of the U.S. dollar.” [emphasis
mine]
**************
This is a FICTIONAL discussion regarding inflation
between two western central bankers. It is purely speculation….
“The US economy is mired in a low inflation and outright deflationary
swamp. What are we gonna’ do to pump up inflation?”
“And you think low inflation is real based on official inflation
statistics that have been gimmicked to reduce cost-of-living raises and to
make politicians look competent?”
“Of course! As a central banker I support pretend money, goofy
economic policies, and officially managed statistics. That is my job.”
“Right! But back to inflation. Your kid is in college. Just as a test
regarding the low inflation story what are tuition, fees, and the whole
shebang costing you?”
“About $75k each year. What is your point?”
“My college back in ancient days cost less than $3k per year. You
still think there is no inflation?”
“Good point. My neighbor b*tched about a 27% increase in his health
insurance for next year. Fortunately our health insurance is paid by the skim
from the central banker game. Okay, I admit, there actually is inflation.”
“Exactly! The S&P was about 50 back in 1962 and now it is over
2,000. Housing costs have risen back to 2007 levels. Average rent is the
highest in history. A new truck costs over $50k, college tuition is
outrageous, the national debt is nearly $20 trillion, and military expenses
are insanely high. Yes, there is inflation.”
“Speaking of military expenses, I saw that the US
Army screwed up their accounting so badly they had to make a few
trillion bucks in plug entries to balance their books. Probably military
expenses are far higher than reported, just like inflation is worse than we
realize for everything but crude oil. And even crude oil costs four times
more than in 1998.”
“But the real elephant in the room, the real issue behind the phony
inflation and deflation discussion is debt. Horror of horrors, what if half
that debt defaults? I mean student loans are about $1.4 trillion and much of
that balance is delinquent, sub-prime auto loans are another trillion and
dangerous, consumer credit card debt is nearly a trillion, non-financial
corporate debt is over five trillion, and the upcoming recession will kick
much of that debt into default. A few defaults are no big deal, but central
bankers and politicians have been figuratively hanged when massive defaults
tanked employment and the economy. I like my cushy job, fancy office,
humongous salary, and all the perks. We have to support the central banker
game, keep the money flowing, minimize defaults, and crank up inflation.”
“So what is the big deal? Argentina and dozens of other countries have
fed the inflation monster, so we can too. More inflation makes all that debt
you’re so worried about much easier to service and it preserves our jobs,
keeps the upper 1% wealthy and powerful, and gives the politicians cover for
what they have planned.”
“So triple the money in circulation, double wages, make the debt more
serviceable, and live happily ever after. We can do it! The trick is cranking
up inflation but successfully blaming someone else – like China or Russia.”
“Bingo! Of course inflation screws a lot of people, especially the
poor, but so what? We’ve been taking care of the wealthy and powerful for a
long time, and we’ll continue to do so. The poor and middle class will have
to take care of themselves.”
**************
CONCLUSIONS:
- Central banks continually devalue their currencies and
always cause collateral damage from that devaluation, but central banks
exist to facilitate the transfer of wealth from the masses to the
wealthy and powerful, so that collateral damage has been inflicted upon
the masses for over 100 years. Expect it to continue.
- Politicians and central bankers need and want more
consumer price inflation. One good war will do the trick. Pick your
poison – Russia, China, the Middle-East, South China Sea, or the
Ukraine.
- Devaluation of fiat currencies is locked in – it is
essential to the system. Hence consumer price inflation, over the
long-term, is guaranteed. Gasoline prices may be low compared to two
years ago, but most other prices are higher.
- Consumer price inflation is here to stay, unless
central bankers and politicians choose to crash the system, default on $
trillions, and want to lose their jobs, perks, power and wealth. Don’t
bet on that choice.
- Central bankers may be the cause of many of the ills in
the world, but they own the politicians, so expect central bankers to
remain powerful, wealthy, influential, and corrupt.
- Stocks are overpriced, bonds are in a bubble, and gold
will be much higher in five years. Bet on consumer price
inflation, continued devaluation of fiat currencies – all of them – and
much higher gold and silver prices.
- Stack gold, stack silver, and ignore the babble
from Wall Street, the media, and all politicians.
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GE Christenson is the owner and writer for the
popular and contrarian investment site Deviant Investor and the author of the book, “Gold
Value and Gold Prices 1971 - 2021.” He is a retired accountant and business
manager with 30 years of experience studying markets, investing, and
trading. He writes about investing, gold, silver, the economy, and central
banking. His articles are published on Deviant Investor as well as other
popular sites.
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The author is not affiliated with, endorsed or sponsored by Sprott Money
Ltd. The views and opinions expressed in this material are those of the
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