3 Minute Gold News
A synopsis of Jim Rickards, New York Times bestselling author of The New Case for Gold, The Death of Money, Currency Wars, The Road to Ruin and Aftermath with KeithMcCullough on Hedgeye.
Jim is the Editor of Strategic Intelligence, Chief Global Strategist for Meraglim Inc., former general counsel for Long Term Capital Management, and a consultant to the U.S. Intelligence community and U.S. Department of Defence.
Topics:
Fed Money Printing
Gold Price
War
Deflation
Inflation
Changing Psychology
War and Debt
MMT
China
War With China
Pandemic
Lockdown
World Reserve Currency Replacement
Link to Vidcast
FED MONEY PRINTING
Even if gold wasn’t a multi-millennial standard and reference point, which it is, the Federal Reserve’s monetary and fiscal policy would fail, and is in the process of failing.
The rising price of gold is signalling that it won’t work.
The way the gold price moves tells you where the market is going in 6 – 18 months into the future.
It’s signalling that the Fed’s policy won’t work and something else will be tried which will cause the price of gold to rise – so the market is buying it now.
Jim’s price prediction for gold is $15,000 per ounce by 2025. He believes that if he’s wrong then it will be higher and sooner.
Gold will preserve wealth and make money.
The price could go down in the short term, but all the vectors are pointing strongly up.
Three things drive the price of gold:
1. Real interest rates.
2. Supply and demand.
3. Geopolitical risk.
Right now all three are flashing a higher gold price.
ENOUGH GOLD
Some say there can’t be a gold standard because there isn’t enough gold to support world commerce and that mining output isn’t high enough.
There’s always enough gold.
It’s just a question of price.
There’s about 33,000 tonnes of official gold in the world. At the current price of $1,950 per troy ounce the metal can’t support the money supply. But it can at a higher price.
WAR
You increase the money supply for a war and then you reduce the money supply afterwards in peace to prepare for the next one.
You can either reduce the money supply or raise the price of gold.
DEFLATION
Deflation is the Fed’s worst nightmare because:
1. You can’t tax it.
The standard of living goes up in deflation because each dollar you have buys more stuff. But the Fed doesn’t know how to tax the increase.
With inflation people get a pay raise and the Fed can tax it.
2. It increases the real value of debt.
The debt-to-GDP ratio in the U.S. is heading up to 130%. It’s catching up to Greece, Lebanon and Italy.
The dollar amount of the debt is the same, but the value of each dollar is less so it costs more to repay it.
This is good for the creditors until it reaches a point where the debtors default. Then the banks are left in distress because they own the assets but can’t collect on them. Then the Fed bails the banks out.
It all ends up in the Fed’s lap, whether it’s the Treasury not being able to afford the debt because of lack of GDP growth, or else the banks are going under because they ended up owning all the assets but they can’t collect.
The Fed has to get inflation but they don’t know how to do it.
They’ve been trying for 12 years.
Jim suggests the Fed could have a meeting and use open market operations to increase/decrease the money supply and buy/sell gold to keep it at an announced price of maybe $5,000 per ounce.
Nothing happens in isolation so the price of everything goes up.
The world of $5,000 gold is the world of $400 oil and $100 silver.
President Roosevelt did it in 1933 – 1934 on purpose and President Nixon set it in motion by accident between 1971 – 81.
Right now the Fed is just going to keep printing more and more fiat currency.
INFLATION
The Fed can print money all day long and Congress can spend money all day long, but it will not stimulate the economy, because the debt is too high compared to GDP.
Money printing has nothing to do with inflation.
The thing that causes inflation is velocity – the turnover of money. The lending and the spending.
That is psychological.
People are not spending.
If their savings can be turned into productive investing then that can drive an economy.
But that takes 5 – 7 years and meanwhile consumption drops.
The U.S. economy is about 70% consumption and if people are saving and not consuming then it kills velocity, which means no inflation.
You can print all the money you want, but if you don’t have velocity then you don’t have an economy.
CHANGING THE PSYCHOLOGY
Something big needs to change in order for people to stop saving and to spend or invest instead.
Announcing the target price of gold to now be $5,000 per ounce, with the Fed buying and selling the metaal to keep the price in range, would be something big.
DEBT and WAR
The Fed could cap interest rates. They did it in World War II through the Korean War.
If the Fed capped the interest rate at 2% on the U.S. 10 Year note and inflation was at 4% then that would cut the value of the debt in half in 17 years.
In 17 years the dollar would be worth half what it’s worth today.
That’s how you get the debt-to-GDP ratio under control.
The debt-to-GDP was as high as it is today at the end of World War II. It then went from about 120% in 1945 to 30% when Ronald Reagan was sworn in.
How did they do it?
They ran inflation slightly higher than interest rates.
It’s like watching an ice cube slowly melt in your hand – the debt goes away.
MODERN MONETARY THEORY MMT
Why can’t we have a debt-to-GDP of 200%? Or 300%?
Why can’t the U.S. just spend whatever they want and then print the currency to pay for it?
One of the reasons is that you leave a cushion between your actual debt level and your potential debt level so you can use in an emergency if you have to.
That could be for a war, a depression, or a pandemic.
CHINA
China is incredibly weak.
They are putting on a pretty good show.
China has ambitions to eventually take over the world. They’d be pretty happy taking over everything from central Asia to Hawaii, and Australia to the North Pole.
They’re working on that, but in the meantime the flash points are pretty obvious: Taiwan and the South China Sea.
There’s also a new flashpoint in the Himalayas. China’s fighting India on that border.
They’ve expanded the membership into the Asian Infrastructure Investment Bank to over 100 members.
Pretty much everyone except the U.S. has signed on.
It’s housed in China.
Xi Jinping said a few days ago that the AIIB is a model for the future and everyone is welcome.
So, whether it’s militarily, diplomatically or financially, China is pushing as hard as they can in all directions to shove the United States out of the western Pacific or east Asia, and basically become a global hegemon.
They will fail.
But that doesn’t mean there won’t be some serious confrontations and possibly even a shooting war in the meantime.
That’s a reason to keep the debt under control.
WAR WITH CHINA
The war started either ten or twenty years ago. Take your pick. You can say it started in 2001 when China became a member of the World Trade Organization. Or in 2010, when China severely devalued their currency to promote their exports. And they’re doing that again now.
China is setting up an internal payment system to prepare in case they’re kicked out of SWIFT, which is the global hard currency payment system.
PANDEMIC
China is responsible for the global coronavirus outbreak.
The weight of evidence is that it came from a laboratory in Wuhan. Jim isn’t saying it’s a bioweapon or that it was leaked intentionally, but it came from that lab and spread around the world.
At minimum, China’s handling of it once it became apparent was criminally negligent at best, and Jim would say it’s a crime against humanity.
(China shut down all flights from Wuhan to anywhere in China, but kept flights continuously going out to all international destinations.)
The U.S. has the most cases, the most fatalities and the most economic damage, measured in the trillions of dollars.
There are already lawsuits in U.S. courts suing China for criminal negligence. If they win and get a judgment for $3 – 4 trillion dollars, then China’s $1.4 trillion in Treasury Notes (which are digital and not paper) could be put in a trust and ownership transferred from China for the benefit of the plaintiffs. The bond market would rally because the floating supply would be reduced by $1.4 trillion. There wouldn’t be a confiscation. It would be all due process.
China has no doubt thought of this, so what would they do?
One thing they can do is buy gold. If it’s physical and in their own vaults then no one can get their hands on it.
DEFLATION BEFORE INFLATION
Either deflation or inflation could occur first depending on the Fed’s policy, but Jim expects deflation.
Deflation was the state of the world before the pandemic.
It’s driven by:
1. Demographics
2. Debt
3. Default
The UN’s population growth trends show that from 1950 – 1995 the world population was going up.
Then in 1995 the growth rate fell off a cliff.
Money velocity peaked in 1998. The first inflation scare was 2001. Alan Greenspan kept interest rates too low for too long because he was worried about deflation.
China, thanks to their one-child policy, has the most rapidly aging population in the world, next to Japan. China workforce is reaching retirement age and everyone who was moving from the farm to the city has already gone. The super large manufacturing labour force is retiring and they don’t have the replacements.
Population is declining in Russia, and it’s declining in Japan.
Where does economic growth come from? Labour force and productivity.
How many people are working and how productive are they?
Productivity has been going down and labour force participation has been going down. That’s a recipe for decline in GDP which is deflationary.
The Fed was trying to fight the deflation with money printing.
It was like a stand-off between deflation and inflation so the Fed wasn’t getting the inflation they wanted.
They were trying to print money faster than the velocity was declining.
PANDEMIC LOCKDOWN
Then the pandemic came and they shut down the whole U.S. economy.
It was the greatest blunder in economic history.
They could have gotten 90% of the benefit from 10% of the cost. They could have gone with hand washing, masks and stopping large events, but they didn’t have to shut down every nail salon, bar, restaurant and dry cleaner.
They didn’t have to do that.
That adds to the deflationary vectors.
So, there will be deflation. But the Fed can’t tolerate deflation.
How do they get out of it?
They can do it the same way FDR did. They can raise the price of gold and everything else will go up.
President Nixon did it in 1977 accidentally and ended up with hyperinflation.
So, President Carter had to denominate bonds in Swiss francs because no one wanted the US dollars. That’s how low the confidence in the dollar was.
JUDY SHELDON
Maybe Judy Sheldon can give voice to how gold can be used to break the back of deflation. Jim is optimistic that she will be confirmed to the Fed board of directors.
IS THE US RESERVE CURRENCY ENDING
No matter how much you don’t like something you can’t beat it with nothing.
The potential is there for a rapid and complete loss of confidence in the U.S. dollar. But it won’t result in the loss of the dollar as the world’s reserve currency unless there’s something to replace it.
It won’t be the yen. Or the yuan. Or the euro. All of world’s major fiat currencies are like passengers in a life boat – they’re all going to sink or swim together.
The reserve currency is just the way of denominating the assets you invest it. You don’t need dollars.
What you need are dollar denominated assets – primarily U.S. Treasuries.
Meaning, you can’t have a reserve currency unless you have a bond market. You need something to invest it.
To have a bond market you need, first off, a rule of law. So China and Russia are out.
You need Repos, you need Forwards, Primary Dealers, and a clearance system. You need so much stuff to have a functioning bond market. It took the U.S. decades to create theirs and it’s still evolving.
There’s nothing anywhere close to replacing the U.S. dollar among fiat currencies.
REPLACEMENT CANDIDATES
There are only two candidates to replace the dollar as the world reserve:
1. Gold
Jim isn’t forecasting a gold standard but he is forecasting a much higher price for gold.
If you did want to go with a gold standard then it’s $15,000 – $20,000 per ounce, and you’d need some kind of open market operation.
2. The SDR
Special Drawing Rights is the IMF’s world money.
An SDR world would be digital.
A digital SDR could be anchored to or backed by gold. They can be printed at will by the IMF and handed to the UN to fund a global climate change agenda. That’s not a stretch.
That’s what China has its eye on because it knows the yuan isn’t ready.
Jim advises the U.S. government (who listen but haven’t taken his advice yet) to buy gold.
If they bought 2,000 tonnes of gold then the price of the metal would rise and China wouldn’t be able to keep up and by the same amount because the U.S. can print the dollars.
The price of gold would rise and the Fed would get the inflation it wants.
A win win.
Jim Rickards can be found on Twitter and at James Rickards Project.
Thank you to Jim Rickards for including me in his bestselling book The New Case for Gold.
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Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.
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Gold is at $1,956.89 U.S. per ounce.
via Gold Price
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From the recent Cariboo Gold Rush Trail trip:
My thoughts…
The first leg of the gold rush (and silver rush) has begun. Gold crossed over its all time high price this week.
Ours lives swing from expanding and gaining ground to returning home and rebuilding strength. Every relationship. Every closed system. Every person goes through that swing from fear to excitement, war to peace, So if you’re life is in upheaval with the pandemic then take time to look at the bigger, slower patterns and see where you can gain peace and a plan for the future. Look where trends are moving to instead of what is. The gold and silver people are swinging towards excitement even though it comes with knowing that the metals do well when the world is devolving into chaos. But order will come again. The money system is falling apart and will reset in its time. When that happens, and as it’s evolving, the stresses will increase. I choose to own the physical metals so I have less dependence on a system that is becoming less dependable. A 10% parking in gold and silver is a good hedge. Some will want to invest in miners or index funds that follow them. The world is swinging from valuing a promise to valuing what is solid. The world is fractal and just as your life goes through that swing, so does the greater world. Just a quick thought.
Here’s the lyrics to a new song:
Not everyone and everything survives the bleak and bitter winter season. Particularly the unprepared, or those without the means to purchase or barter for even the bare necessities. Those poor souls freeze or starve before the first blossoms of spring. It will be a long and flat road to recovery and there are so many businesses, large and small, that didn’t even make it through the first frost.
painting by: alex schaefer alex schaefer’s website
Riots. The V and the L Shape.
(Liars, Liars, Banks on Fire)
VERSE 1
Each time we all try to stand up
is harder than it was before
Everyone’s reaching for safety
For bricks for windows and doors
The stick and the carrot are frozen
Scorched and cold-blooded world
The rules may always be golden
but the straight and narrow have curled
CHORUS:
It’s so hard to stay an angel
When devils are clipping the hedge
Those tools can turn on a dime
When the notion takes up in their head
VERSE 2
Each time we all try to stand up
More callous than the cause before
They’ve set the banks afire
After the looters got bored
See now the fevered green shoots
the red, the white and the blue
Rockets all race to Euclidean space
to restart as they’ve done before
CHORUS:
It’s so hard to stay an angel
When devils are clipping the hedge
Those tools can turn on a dime
When the notion takes up in their head
VERSE 3
Each time we all try to stand up
We owe them all more than we had
The party gets pushed to the future
With the mylar balloons looking sad
This burning Age is turning
Banks blaze fit to fight
All those futures raging
Against the dying of the light
BRIDGE
Daring flames can flush us out
A precious market’s gain
But this turning is no riot
The dark and deep insane
Bank and brawn and creeping
Break the locked down night
Stoke the brick and pounding feet
Minds and hearts and pain
CHORUS:
It’s so hard to stay an angel
When devils are clipping the hedge
Those tools can turn on a dime
When the notion takes up in their head
The liars, liars, banks on fire
words and music Elaine Diane Taylor
©2020 Elaine Diane Taylor
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Coins and Crowns
words and music Elaine Diane Taylor
SOCAN/ASCAP
from the album Coins and Crowns
Coins and Crowns is featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.
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Not Much of a Holiday (Bank Holidays and Media Persuasion)
words and music Elaine Diane Taylor
Single available on iTunes
Available soon on the site Store.
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A Terrible Breeze (War and Social Media)
The news comes down
A little bluebird sings
Words of war
Fire and furious things
Of testing might
‘Til no patience knows
If keeping still
Still keeps you safe at home
It’s a terrible breeze
They speak of today
Of threats that used to live a world away
We all know wind
Can blow both ways
And a terrible breeze can blow it all away
A worldwide net
Sees our village grow
Until we all forget
What each one used to know
How a blind bird’s wings
Can reach the shore
And turn the wheel of peace and war
Village fools sinking down, down, down
Debt and gold wound in numbered shrouds
Deal of a life it’s bread and clowns
Can we afford another go around?
The news comes down.
It’s a terrible breeze. The news comes down.
words and music Elaine Diane Taylor
Single available on iTunes
Available soon on the site Store.
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Preparing for the Fall live boutique album available for digital download now — featuring Wag the Dog, Black Swan Dive, American Pie and Gods of the Copybook Headings. Also available on iTunes, Google Music, Amazon Music and major digital distributors.
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The Gods of the Copybook Headings
words by Rudyard Kipling and music by Elaine Diane Taylor
from the album Preparing for the Fall.
The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods, of our world. All the empires who followed the gods of the marketplace instead have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.
Another Week on Wall Street
words and music Elaine Diane Taylor
from the album Coins and Crowns.
“A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“. The world is changing as we know it.
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Elaine Diane Taylor 