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- Post #8,181
- Quote
- Apr 18, 2020 8:31pm Apr 18, 2020 8:31pm
- | Commercial Member | Joined Dec 2014 | 11,791 Posts
- Post #8,182
- Quote
- Apr 18, 2020 9:55pm Apr 18, 2020 9:55pm
- | Commercial Member | Joined Dec 2014 | 11,791 Posts
https://www.zerohedge.com/markets/vo...ops+to+zero%29
Authored by Egon von Greyerz via GoldSwitzerland.com,
A Hyperinflationary Depression has always been the inevitable end to the biggest financial bubble in history. And this time it will be global. Hyperinflation will spread from country to country like Coronavirus. It could start anywhere but the most likely first countries are the US and the EU or ED (European Disunion). They will quickly be followed by many more like Japan and most developing countries. Like CV it will quickly jump from country to country with very few being spared.
CURRENT INTEREST RATES ARE A FALSE INDICATOR
Ever since the last interest cycle peaked in 1981, there has been a 39 year downtrend in US and global rates from almost 20% to 0%. Since in a free market interest rates are a function of the demand for credit, this long downtrend points to a severe recession in the US and the rest of the world. The simple rules of supply and demand tell us that when the price of money is zero, nobody wants it. But instead debt has grown exponentially without putting any upside pressure on rates. The reason is simple. Central and commercial banks have created limitless amounts of credit out of thin air. In a fractional banking system banks can lend the same money 10 to 50 times. And central banks can just print infinite amounts.
https://zh-prod-1cc738ca-7d3b-4a72-b...ds-600x360.jpg
Global debt in 1981 was $14 trillion. One would have assumed that with interest rates crashing there would not have been a major demand for debt. High demand would have led to high interest rates. But if we look at global debt in 2020 it is a staggering $265 trillion. So debt has gone up 19X in the last 39 years and cost of debt has gone from 20% to 0% – Hmmm!
CORONAVIRUS IS THE CATALYST BUT NOT THE CAUSE
The crisis that the world is now encountering has not been caused by the Coronavirus. As I have stressed in many articles recently, CV is just the catalyst, albeit the most vicious one which could have hit the world. The real cause of the Greatest Financial Crisis in history is the Central Banks. They have been pouring fuel on the fire for 50 years by continuously reducing the cost of money until it became free in 2008 when rates were reduced to ZERO. Since then we have also seen negative rates around the world.
Negative rates are not just a total paradox but also absolute lunacy. Bankrupt sovereign nations around the world have been issuing debt at no cost or have even been paid for it. The whole purpose of interest is to be paid for the risk of lending money. As governments around the world have issued virtually unlimited debt which will never be repaid, the risk of lending to them has increased exponentially. But instead of much higher rates, to reflect the massive increase in debt plus severely elevated risk, central banks have got away with defying the laws of nature buy falsely manipulating rates..
FALSE MARKETS WITH NO REAL PRICES
Money is a commodity and the price should be a direct function of risk plus supply and demand. But since we currently have a false financial system with fake money and false markets, there are no real prices. So through constant manipulation and intervention central banks together with a few accomplices can totally rig most markets and prices.
Therefore, the cost of money today neither reflects the risk nor the demand. All it represents is malicious manipulation to serve governments and their masters the central bankers. But like all fake markets, also this one will end, not just badly but catastrophically.
THE SITUATION IS DESPERATE FOR BUSINESSES AND INDIVIDUALS
As I discussed in last week’s article, we now have the perfect storm. Virtually every government in the world is now committing billions and trillions of dollars, euros etc in fruitless attempts to save a collapsing world economy. In many countries, 50% or more of industry is shut. Most service industries are in a total lockdown and so is aviation, transport and most small businesses. Unemployment is approaching rates not seen since the 1930s depression. All businesses need assistance, from major corporations to small firms. The majority of individuals haven’t got savings for more than a couple of weeks living and for the ones who are now becoming unemployed, the situation is desperate.
Many major US corporations need assistance from the government. Very few of these have put aside profits to reserves for a rainy day. Instead management has been too generously rewarded as well as the shareholders. Since 2009, S&P 500 companies have spent $5.4 trillion in share buybacks. Instead of asking government for assistance, management should pay back their bonuses and shareholders who have received major payouts should recapitalise the companies. But this will obviously not happen. Just like in 2006-9, profits are privatised and losses are socialised.
https://zh-prod-1cc738ca-7d3b-4a72-b...ks-600x258.jpg
Businesses are haemorrhaging cash and so are individuals. All that becomes a vicious circle with bills not being paid including rents, mortgages and taxes. Estimates predict a 40-50% fall in Q2 2020 GDP in the US. The problem is that this is not a temporary crisis. This means that GDP will see permanent erosion of a major magnitude in most countries.
SECULAR DOWNTURN LEADING TO HYPERINFLATIONARY DEPRESSION
So what we are experiencing is the start of a secular downturn which soon will become a hyperinflationary depression. This was always the inevitable end to this cycle as I have discussed in many articles for over 20 years.
A crisis of this magnitude is always a debt crisis. Very soon we will see debt around the world come under enormous pressure as borrowers start defaulting. This will lead to bonds crashing and rates surging. Central banks will then lose control of interest rates as long rates first go up and soon also pulling the shorter rates up. Rates can easily go to 15-20%. Many bonds will go to zero and rates to infinity. I have previously talked about paying 21% on my first mortgage in the UK in 1974. So I have personal experience of high inflation but never hyperinflation.
Since the majority of the $1.5 quadrillion derivatives market is interest related, this market will also blow up. All this will lead to unlimited money printing and currencies crashing fast to their intrinsic value of ZERO. At that point the entire financial system will be unrecognisable and parts of it nonexistent. All of this could happen very quickly, possibly within the next 6 -18 months.
2006-9 WAS A REHEARSAL
Could my Cassandra forecast be wrong. Yes, of course it could. But let’s be clear that the rehearsal of what I am predicting took place in 2006-9. Nothing was resolved at that point, just temporarily deferred. This is now the real thing and whatever money central banks print this time will have no effect. So I doubt very much that our banker “friends” can pull another trick out of the hat again. Because the only trick they know, to print more money, can never solve a debt problem.
https://zh-prod-1cc738ca-7d3b-4a72-b...owell-Gold.jpg
MARKETS
Stock markets, in their first leg down of the new secular bear market, reached a 40% loss in most countries and that in less than 4 weeks. We are now seeing a typical correction that can go a bit higher. But when that is finished which could take 1-3 weeks, the next devastating downleg will start. Anyone trying to catch this falling knife will be slaughtered.
Bond markets might hold up for a bit longer with massive central bank manipulation and money printing. Junk bonds will first start crashing and constant downgrades will turn a lot of debt to junk. Much of corporate debt will go the same way and within 6-12 months also sovereign debt will come under attack.
Property markets are a major bubble and are already starting to disintegrate. Industrial, commercial, retail and residential, no sector will be spared. There will be no buyers, no financing and many forced sellers. A perfect recipe for a collapse.
Before the secular bear market has bottomed in these three markets, prices will be down 90-100% in real terms. And real terms means in constant purchasing power like gold.
We must remember that markets will bottom long before the economy. The likely development is first a hyperinflationary depression that could come and go very quickly within the next couple of years. Thereafter we will most probably see a deflationary implosion of all assets and a collapse of most of the financial system.
But we mustn’t believe that this is the end. It is just another phase in the world economy to correct excesses of the 100 or 300 years or even 2000 years. Once debt has imploded and all asset prices have come down from current fantasy valuations, a new system will emerge built on sound values and principles. And then the cycle starts all over again.
GOLD
There are currently severe pressures in both the paper gold market and the physical market. The Comex and LBMA are making noises that everything is under control. LBMA is giving the illusion that they have plenty of gold in their vaults. But virtually all of that gold is already committed. Comex, the gold futures exchange is under tremendous pressure since they can’t deliver more than a small fraction in physical when paper holders of gold demand delivery. And that day is not far away.
The 3 biggest refiners in the world based in Ticino, Switzerland have been closed for 2 1/2 weeks, representing at least 50% of world production. The refiners have just opened this week but at a very reduced capacity of 25-33%.
If we just take the Gold ETFs as an example, they increased their holdings by 93 tonnes in the last 4 weeks. That represents a total value of $5 billion
It is today virtually impossible to get hold of physical gold so you wonder where the ETFs have bought their gold.
The answer is of course simple. It was lent to them by LBMA banks which are custodians for the biggest gold ETF GLD. These banks also hold central bank gold and all they need to do is to lend the same gold yet one more time to the ETFs. So if you hold a gold ETF, which you mustn’t, you know that it is unlikely to be backed by gold for more than a small portion of the fund total.
In a world where prices of most assets are about to implode, gold is life insurance and virtually the only asset that will maintain its value in real terms. Silver is also likely to do very well and will most probably outperform gold. But gold is safer and much less volatile.
https://zh-prod-1cc738ca-7d3b-4a72-b...sd-330x450.jpg
As the 20 year gold chart shows above, gold is in an extremely strong uptrend. In all currencies but US dollars, gold has surpassed the 2011 highs. The gold price in dollars has just broken out and is now likely to go to $1,700 on its way to the old high of $1,920 and thereafter much, much higher.
As I have expressed before, I have been standing on a soap box for 20 years in my attempt to inform investors of the critical importance of gold for wealth preservation purposes. Fortunately many investors have listened but they still represent less than 0.5% of world financial assets. Since we started 18 years ago, gold is up 6-7X depending on the currency. That rise is insignificant compared to what is coming next.
But remember you are not holding gold to measure the gains in debased paper money. Instead you are holding physical gold as insurance against a broken financial system that is unlikely to be repaired for a very long time.
Authored by Egon von Greyerz via GoldSwitzerland.com,
A Hyperinflationary Depression has always been the inevitable end to the biggest financial bubble in history. And this time it will be global. Hyperinflation will spread from country to country like Coronavirus. It could start anywhere but the most likely first countries are the US and the EU or ED (European Disunion). They will quickly be followed by many more like Japan and most developing countries. Like CV it will quickly jump from country to country with very few being spared.
CURRENT INTEREST RATES ARE A FALSE INDICATOR
Ever since the last interest cycle peaked in 1981, there has been a 39 year downtrend in US and global rates from almost 20% to 0%. Since in a free market interest rates are a function of the demand for credit, this long downtrend points to a severe recession in the US and the rest of the world. The simple rules of supply and demand tell us that when the price of money is zero, nobody wants it. But instead debt has grown exponentially without putting any upside pressure on rates. The reason is simple. Central and commercial banks have created limitless amounts of credit out of thin air. In a fractional banking system banks can lend the same money 10 to 50 times. And central banks can just print infinite amounts.
https://zh-prod-1cc738ca-7d3b-4a72-b...ds-600x360.jpg
Global debt in 1981 was $14 trillion. One would have assumed that with interest rates crashing there would not have been a major demand for debt. High demand would have led to high interest rates. But if we look at global debt in 2020 it is a staggering $265 trillion. So debt has gone up 19X in the last 39 years and cost of debt has gone from 20% to 0% – Hmmm!
CORONAVIRUS IS THE CATALYST BUT NOT THE CAUSE
The crisis that the world is now encountering has not been caused by the Coronavirus. As I have stressed in many articles recently, CV is just the catalyst, albeit the most vicious one which could have hit the world. The real cause of the Greatest Financial Crisis in history is the Central Banks. They have been pouring fuel on the fire for 50 years by continuously reducing the cost of money until it became free in 2008 when rates were reduced to ZERO. Since then we have also seen negative rates around the world.
Negative rates are not just a total paradox but also absolute lunacy. Bankrupt sovereign nations around the world have been issuing debt at no cost or have even been paid for it. The whole purpose of interest is to be paid for the risk of lending money. As governments around the world have issued virtually unlimited debt which will never be repaid, the risk of lending to them has increased exponentially. But instead of much higher rates, to reflect the massive increase in debt plus severely elevated risk, central banks have got away with defying the laws of nature buy falsely manipulating rates..
FALSE MARKETS WITH NO REAL PRICES
Money is a commodity and the price should be a direct function of risk plus supply and demand. But since we currently have a false financial system with fake money and false markets, there are no real prices. So through constant manipulation and intervention central banks together with a few accomplices can totally rig most markets and prices.
Therefore, the cost of money today neither reflects the risk nor the demand. All it represents is malicious manipulation to serve governments and their masters the central bankers. But like all fake markets, also this one will end, not just badly but catastrophically.
THE SITUATION IS DESPERATE FOR BUSINESSES AND INDIVIDUALS
As I discussed in last week’s article, we now have the perfect storm. Virtually every government in the world is now committing billions and trillions of dollars, euros etc in fruitless attempts to save a collapsing world economy. In many countries, 50% or more of industry is shut. Most service industries are in a total lockdown and so is aviation, transport and most small businesses. Unemployment is approaching rates not seen since the 1930s depression. All businesses need assistance, from major corporations to small firms. The majority of individuals haven’t got savings for more than a couple of weeks living and for the ones who are now becoming unemployed, the situation is desperate.
Many major US corporations need assistance from the government. Very few of these have put aside profits to reserves for a rainy day. Instead management has been too generously rewarded as well as the shareholders. Since 2009, S&P 500 companies have spent $5.4 trillion in share buybacks. Instead of asking government for assistance, management should pay back their bonuses and shareholders who have received major payouts should recapitalise the companies. But this will obviously not happen. Just like in 2006-9, profits are privatised and losses are socialised.
https://zh-prod-1cc738ca-7d3b-4a72-b...ks-600x258.jpg
Businesses are haemorrhaging cash and so are individuals. All that becomes a vicious circle with bills not being paid including rents, mortgages and taxes. Estimates predict a 40-50% fall in Q2 2020 GDP in the US. The problem is that this is not a temporary crisis. This means that GDP will see permanent erosion of a major magnitude in most countries.
SECULAR DOWNTURN LEADING TO HYPERINFLATIONARY DEPRESSION
So what we are experiencing is the start of a secular downturn which soon will become a hyperinflationary depression. This was always the inevitable end to this cycle as I have discussed in many articles for over 20 years.
A crisis of this magnitude is always a debt crisis. Very soon we will see debt around the world come under enormous pressure as borrowers start defaulting. This will lead to bonds crashing and rates surging. Central banks will then lose control of interest rates as long rates first go up and soon also pulling the shorter rates up. Rates can easily go to 15-20%. Many bonds will go to zero and rates to infinity. I have previously talked about paying 21% on my first mortgage in the UK in 1974. So I have personal experience of high inflation but never hyperinflation.
Since the majority of the $1.5 quadrillion derivatives market is interest related, this market will also blow up. All this will lead to unlimited money printing and currencies crashing fast to their intrinsic value of ZERO. At that point the entire financial system will be unrecognisable and parts of it nonexistent. All of this could happen very quickly, possibly within the next 6 -18 months.
2006-9 WAS A REHEARSAL
Could my Cassandra forecast be wrong. Yes, of course it could. But let’s be clear that the rehearsal of what I am predicting took place in 2006-9. Nothing was resolved at that point, just temporarily deferred. This is now the real thing and whatever money central banks print this time will have no effect. So I doubt very much that our banker “friends” can pull another trick out of the hat again. Because the only trick they know, to print more money, can never solve a debt problem.
https://zh-prod-1cc738ca-7d3b-4a72-b...owell-Gold.jpg
MARKETS
Stock markets, in their first leg down of the new secular bear market, reached a 40% loss in most countries and that in less than 4 weeks. We are now seeing a typical correction that can go a bit higher. But when that is finished which could take 1-3 weeks, the next devastating downleg will start. Anyone trying to catch this falling knife will be slaughtered.
Bond markets might hold up for a bit longer with massive central bank manipulation and money printing. Junk bonds will first start crashing and constant downgrades will turn a lot of debt to junk. Much of corporate debt will go the same way and within 6-12 months also sovereign debt will come under attack.
Property markets are a major bubble and are already starting to disintegrate. Industrial, commercial, retail and residential, no sector will be spared. There will be no buyers, no financing and many forced sellers. A perfect recipe for a collapse.
Before the secular bear market has bottomed in these three markets, prices will be down 90-100% in real terms. And real terms means in constant purchasing power like gold.
We must remember that markets will bottom long before the economy. The likely development is first a hyperinflationary depression that could come and go very quickly within the next couple of years. Thereafter we will most probably see a deflationary implosion of all assets and a collapse of most of the financial system.
But we mustn’t believe that this is the end. It is just another phase in the world economy to correct excesses of the 100 or 300 years or even 2000 years. Once debt has imploded and all asset prices have come down from current fantasy valuations, a new system will emerge built on sound values and principles. And then the cycle starts all over again.
GOLD
There are currently severe pressures in both the paper gold market and the physical market. The Comex and LBMA are making noises that everything is under control. LBMA is giving the illusion that they have plenty of gold in their vaults. But virtually all of that gold is already committed. Comex, the gold futures exchange is under tremendous pressure since they can’t deliver more than a small fraction in physical when paper holders of gold demand delivery. And that day is not far away.
The 3 biggest refiners in the world based in Ticino, Switzerland have been closed for 2 1/2 weeks, representing at least 50% of world production. The refiners have just opened this week but at a very reduced capacity of 25-33%.
If we just take the Gold ETFs as an example, they increased their holdings by 93 tonnes in the last 4 weeks. That represents a total value of $5 billion
It is today virtually impossible to get hold of physical gold so you wonder where the ETFs have bought their gold.
The answer is of course simple. It was lent to them by LBMA banks which are custodians for the biggest gold ETF GLD. These banks also hold central bank gold and all they need to do is to lend the same gold yet one more time to the ETFs. So if you hold a gold ETF, which you mustn’t, you know that it is unlikely to be backed by gold for more than a small portion of the fund total.
In a world where prices of most assets are about to implode, gold is life insurance and virtually the only asset that will maintain its value in real terms. Silver is also likely to do very well and will most probably outperform gold. But gold is safer and much less volatile.
https://zh-prod-1cc738ca-7d3b-4a72-b...sd-330x450.jpg
As the 20 year gold chart shows above, gold is in an extremely strong uptrend. In all currencies but US dollars, gold has surpassed the 2011 highs. The gold price in dollars has just broken out and is now likely to go to $1,700 on its way to the old high of $1,920 and thereafter much, much higher.
As I have expressed before, I have been standing on a soap box for 20 years in my attempt to inform investors of the critical importance of gold for wealth preservation purposes. Fortunately many investors have listened but they still represent less than 0.5% of world financial assets. Since we started 18 years ago, gold is up 6-7X depending on the currency. That rise is insignificant compared to what is coming next.
But remember you are not holding gold to measure the gains in debased paper money. Instead you are holding physical gold as insurance against a broken financial system that is unlikely to be repaired for a very long time.
- Post #8,183
- Quote
- Edited 6:12am Apr 19, 2020 6:01am | Edited 6:12am
- | Commercial Member | Joined Dec 2014 | 11,791 Posts
https://www-vanityfair-com.cdn.amppr...-is-trying/amp
Sweden has a way of triggering people. It represents everything we’re supposed to do or everything we’re not supposed to do. It is the welfare state at its best or multiculturalism at its worst.
True to form, or contrary to form, Sweden is now setting off everyone in its handling of the coronavirus. Unlike most of the developed world, including neighboring Norway or Denmark, Sweden has kept its elementary schools running and allowed most its businesses, including restaurants and bars, to remain open. Travel in and out of the country remains possible for E.U. nationals.
And social distancing remains, for the most part, voluntary, provided the group in question has fewer than 50 people. In short, Sweden has refused to join the rest of us in a lockdown.
In the prestige press, which among these factions is closest in sympathies to the MSNBC left, we see lots of articles hinting at impending disaster. “Sweden’s Relaxed Approach to the Coronavirus Could Already Be Backfiring,” warns a Time headline. “Sweden Girds for Thousands of Deaths Amid Laxer Virus Policy,” reports Bloomberg. “Swedish PM warned over ‘Russian roulette-style’ COVID-19 strategy,” offers the Guardian. As for the populist right, Trump has mollified it with some gentle slams of Sweden’s approach, claiming that “Sweden is suffering greatly.”
Meanwhile, many of those on the establishment right are now looking to Sweden as a role model of keeping the show going and letting commerce proceed. “Sweden has courageously decided not to endorse a harsh quarantine, and consequently it hasn’t forced its residents into lockdown,” wrote John Fund and Joel Hay in National Review. “Sweden is developing herd immunity by refusing to panic.”
It’s understandable that people have strong reactions to Sweden’s experiment. After all, every fight we have over how some other country has been handling this crisis is a fight we’re having with ourselves about how to handle it. Have we gone too far or not far enough? Should we try to push cases to zero or just flatten the curve? What happens if we loosen up sooner rather than later? How many deaths is a growing economy worth? But all of the baggage we bring to our conceptions of Sweden—if we happen to have conceptions of Sweden—gets in the way of giving its policies a fair appraisal. Whatever comes of Sweden’s approach, it’ll have something to teach us about the spread of this disease. So let’s try to understand what’s behind it and what we’re seeing.
To start with, it’s a myth that Sweden is doing nothing about the virus. Most Swedes have changed their habits a lot. Schools for older kids are closed, as are universities. People are working from home, when they can, and the elderly are being urged to keep to themselves. Gatherings of over 50 people are prohibited, and ski resorts are closed. Restaurants and bars are allowing table service only, and grocery stores are installing glass dividers between customers and cashiers. People who go to Stockholm may be stunned to see bars and cafés with customers, but they’re seeing only the Swedes who choose to run higher risks. They’re not seeing all the Swedes who are staying home.
Second, contrary to the claims of John Fund and Joel Hay and many others, Sweden isn’t trying to develop “herd immunity,” meaning a state of affairs in which so many people get the virus that the virus runs out of kindling. (At least, Swedish officials claim they aren’t doing this, and they would have a lot to lose by lying about it.) Instead, Sweden intends to take as loose an approach as possible that still keeps case growth down to nonexponential numbers. “We are not in the containment phase,” said Sweden’s chief state epidemiologist, Anders Tegnell, last month. “We are in the mitigation phase.”
What Tegnell means is that the coronavirus is all over the world now, and, without a vaccine or a massive outbreak that brings about herd immunity, you won’t get rid of it. Even if you do what China did and lock down so hard that you eradicate the virus within your borders, it will return as soon as you allow any travel in and out of your country to resume. So Sweden has based its policies on two premises: (1) The coronavirus can only be managed, not suppressed. Short of going full Wuhan on the entire planet, we’ll have to live with it. (2) People won’t tolerate severe lockdown for more than a month or two, since boredom, isolation, and economic desperation will get overwhelming.
With these premises in mind, Sweden has pumped the brakes instead of slamming on them. You close school for older kids, but you keep grade school going, because evidence so far suggests that younger children are not a major cause of transmission for the novel coronavirus. (The opposite is true of influenza: Kids are the big spreaders.) You prohibit standing room and shoulder-to-shoulder seating in popular bars and restaurants, but you allow them to keep operating with greater space between tables and customers. You encourage people to keep a physical distance among one another, but you don’t command it.
The question, then, isn’t whether Sweden is going to see more deaths from the coronavirus in the short term than it would with a total lockdown. It obviously will.
The question is whether it’s going to see exponentially more cases. So far, that hasn’t happened. With unchecked spreading of the virus, a country could expect to see a mortality rate that was 10 or 100 or 1,000 times higher than that of a country with strict controls in place. But Sweden has a mortality rate that’s only about twice as high as that of Denmark, which has a strict lockdown (0.01% of the population dead versus about 0.005% of the population dead), and only half that of France. Its hospitals are challenged but not overwhelmed. Between the unhappy poles of shutting down society entirely or eliminating COVID-19 deaths entirely, it may have found a balance it can live with.
Sweden has a way of triggering people. It represents everything we’re supposed to do or everything we’re not supposed to do. It is the welfare state at its best or multiculturalism at its worst.
True to form, or contrary to form, Sweden is now setting off everyone in its handling of the coronavirus. Unlike most of the developed world, including neighboring Norway or Denmark, Sweden has kept its elementary schools running and allowed most its businesses, including restaurants and bars, to remain open. Travel in and out of the country remains possible for E.U. nationals.
And social distancing remains, for the most part, voluntary, provided the group in question has fewer than 50 people. In short, Sweden has refused to join the rest of us in a lockdown.
In the prestige press, which among these factions is closest in sympathies to the MSNBC left, we see lots of articles hinting at impending disaster. “Sweden’s Relaxed Approach to the Coronavirus Could Already Be Backfiring,” warns a Time headline. “Sweden Girds for Thousands of Deaths Amid Laxer Virus Policy,” reports Bloomberg. “Swedish PM warned over ‘Russian roulette-style’ COVID-19 strategy,” offers the Guardian. As for the populist right, Trump has mollified it with some gentle slams of Sweden’s approach, claiming that “Sweden is suffering greatly.”
Meanwhile, many of those on the establishment right are now looking to Sweden as a role model of keeping the show going and letting commerce proceed. “Sweden has courageously decided not to endorse a harsh quarantine, and consequently it hasn’t forced its residents into lockdown,” wrote John Fund and Joel Hay in National Review. “Sweden is developing herd immunity by refusing to panic.”
It’s understandable that people have strong reactions to Sweden’s experiment. After all, every fight we have over how some other country has been handling this crisis is a fight we’re having with ourselves about how to handle it. Have we gone too far or not far enough? Should we try to push cases to zero or just flatten the curve? What happens if we loosen up sooner rather than later? How many deaths is a growing economy worth? But all of the baggage we bring to our conceptions of Sweden—if we happen to have conceptions of Sweden—gets in the way of giving its policies a fair appraisal. Whatever comes of Sweden’s approach, it’ll have something to teach us about the spread of this disease. So let’s try to understand what’s behind it and what we’re seeing.
To start with, it’s a myth that Sweden is doing nothing about the virus. Most Swedes have changed their habits a lot. Schools for older kids are closed, as are universities. People are working from home, when they can, and the elderly are being urged to keep to themselves. Gatherings of over 50 people are prohibited, and ski resorts are closed. Restaurants and bars are allowing table service only, and grocery stores are installing glass dividers between customers and cashiers. People who go to Stockholm may be stunned to see bars and cafés with customers, but they’re seeing only the Swedes who choose to run higher risks. They’re not seeing all the Swedes who are staying home.
Second, contrary to the claims of John Fund and Joel Hay and many others, Sweden isn’t trying to develop “herd immunity,” meaning a state of affairs in which so many people get the virus that the virus runs out of kindling. (At least, Swedish officials claim they aren’t doing this, and they would have a lot to lose by lying about it.) Instead, Sweden intends to take as loose an approach as possible that still keeps case growth down to nonexponential numbers. “We are not in the containment phase,” said Sweden’s chief state epidemiologist, Anders Tegnell, last month. “We are in the mitigation phase.”
What Tegnell means is that the coronavirus is all over the world now, and, without a vaccine or a massive outbreak that brings about herd immunity, you won’t get rid of it. Even if you do what China did and lock down so hard that you eradicate the virus within your borders, it will return as soon as you allow any travel in and out of your country to resume. So Sweden has based its policies on two premises: (1) The coronavirus can only be managed, not suppressed. Short of going full Wuhan on the entire planet, we’ll have to live with it. (2) People won’t tolerate severe lockdown for more than a month or two, since boredom, isolation, and economic desperation will get overwhelming.
With these premises in mind, Sweden has pumped the brakes instead of slamming on them. You close school for older kids, but you keep grade school going, because evidence so far suggests that younger children are not a major cause of transmission for the novel coronavirus. (The opposite is true of influenza: Kids are the big spreaders.) You prohibit standing room and shoulder-to-shoulder seating in popular bars and restaurants, but you allow them to keep operating with greater space between tables and customers. You encourage people to keep a physical distance among one another, but you don’t command it.
The question, then, isn’t whether Sweden is going to see more deaths from the coronavirus in the short term than it would with a total lockdown. It obviously will.
The question is whether it’s going to see exponentially more cases. So far, that hasn’t happened. With unchecked spreading of the virus, a country could expect to see a mortality rate that was 10 or 100 or 1,000 times higher than that of a country with strict controls in place. But Sweden has a mortality rate that’s only about twice as high as that of Denmark, which has a strict lockdown (0.01% of the population dead versus about 0.005% of the population dead), and only half that of France. Its hospitals are challenged but not overwhelmed. Between the unhappy poles of shutting down society entirely or eliminating COVID-19 deaths entirely, it may have found a balance it can live with.
- Post #8,184
- Quote
- Apr 19, 2020 6:14am Apr 19, 2020 6:14am
- | Commercial Member | Joined Dec 2014 | 11,791 Posts
- Post #8,185
- Quote
- Apr 19, 2020 7:25am Apr 19, 2020 7:25am
- | Commercial Member | Joined Dec 2014 | 11,791 Posts
https://ask-socrates.com/Blog/Articl...c98d0a30162d63
Have The Fund Managers Learned Anything?
SUNDAY, 19 APRIL 2020 BY: MARTY ARMSTRONG
https://ask-socrates.com/Blog/GetIma...c98d0a30162bfe
Ray Dalio is out in full force doing his YouTube preaching the very same reasoning which is why he declared at Davos that Cash Was Trash. Bloomberg reported that he was down about 20% for the 1st quarter. He is preaching the very same scenario about all this stimulus will be inflationary and the debt has to be repaid.
That is very nice, but his reasoning is so old school, he obviously did not learn his lesson. He is coming out in full force to try to explain his losses are somehow temporary and not real.
https://ask-socrates.com/Blog/GetIma...c98d1418a57ac4
If you are going to place money at any fund, look at the track record. If they lost money beyond 5% during this crash and did not make more than 10% in 2019, you should look for someone who demonstrates that they are professional and not married to a theory. This is no time for dogma. I was named hedge fund manager of the year during the 1998 Long-Term Capital Management Crisis for one reason - I never cared if the dollar rose or fell - it was always just a trade (see Deutsche Bank track record).
This entire theory that Dalio pitches remains constructed on the Quantity Theory of Money which goes back to Gresham's Law that bad money will drive out good money from circulation. The problem with that theory is that all the currencies of various European nations traded against one-another solely on weight. There was no premium added at that early stage in international finance with respect to the power of a nation.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c22
Gresham represented England at the Amsterdam Exchange where kings would borrow money from investors. England and Spain were in a battle of the competitive debasement of their coinages. This is what Gresham observed. Debts were being contracted not denominated in coin, but in metal. Therefore, Gresham's observations are particularly limited to this very narrow period where kings were beginning to borrow for the first time in an international market.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c3f
Dalio's famous call that "cash is trash" will be remembered for a long time because it was clearly reflecting his reasoning which has still not changed. If we look past his 20% loss for the first quarter of 2020, we see also a very disappointing 2019 Year where Bridgewater’s Flagship Fund Returned 0.5% because he also missed the bull market.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c66
Gresham's Law is limited to a very narrow period in monetary history where there was no seignorage premium to the metal content in international commerce. This was not the case prior to the Dark Ages when there were great empires and the coinage of these empires traded as a premium to the metal content. For about 224 years, India imitated the coinage of the Roman Emperors rather than issuing their own because they were worth more than the actual gold content. In fact, here is a gold aureus struck in the image of the Emperor Septimius Severus (193-211AD) which was even heavier in weight than the Roman coinage.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c73
Here we have the Swiss imitation of the gold coinage of Philip II of Macedon (382-336BC) which was the father of Alexander the Great. This imitation was of a gold half-stater.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c78
There are imitations of Athenian Owls, the first true world currency. It traded throughout Europe, Asia, and Africa and we find numerous imitations once again showing that it was not the metal content, but the respect for the power of that empire at that moment in time. This is what Ray Dalio fails to understand. He keeps losing money for he remains very much part of that old school thinking that is even begin the attempt to use Keynesian Economics to stimulate the economy by increasing the supply.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c97
We MUST look at the monetary system before the Dark Age to comprehend how the supply of money was not directly linked to inflation in the least. The reason for this was the plain fact that the demand for the supply of the coinage of these empires circulated externally to their domestic economies. The increase in the supply did not result in inflation because the supply was being absorbed internationally. Because the coinage was all hand struck and the dies were individually carved, we are able to reconstruct even the money supply during Roman times. It is possible to even see when they drastically increased the supply of the coinage and was there any effect.
https://ask-socrates.com/Blog/GetIma...c98d0a30162ca3
It then becomes possible to even look at the accumulative money supply and how the economy responded to such increases. None of the modern theories used by the central banks and Dalio based upon this Quantity of Money Theory ever work when we are looking at the dominant currency of an empire. Such theories are confined to the small peripheral economies where there is no "premium" attached to their currency as was the case in Germany after World War I which resulted in the hyperinflation period or Zimbabwe. You do not find such hyperinflations in the dominant economies.
https://ask-socrates.com/Blog/GetIma...c98d0a30162cd2
The only exception we find is in the coinage of Athen when it was besieged by Sparta during the Peloponnesian War. Athens lost control of its silver mines and restored to debasing their silver Owls to bronze silver plated. This was the fall of Athen in 404BC.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c17
Dalio nor the central banks have learned any lessons whatsoever. We have witnessed persistent Quantitative Easing since 2008 with artificially low-interest rates and there has been no inflation to speak of. Why?
In Europe, people have hoarded their money for the future remains uncertain. The same trend existed during the 3rd century AD in Rome. Even though they debased the coinage dramatically, it did not result in wholesale hyperinflation. The barbarians were invading and people simply hoarded their money shrinking the money supply and the economy imploded.
The expansion of the dollar had no impact on inflation as the Fed has found it difficult if not impossible to get even a 2% inflation rate post-2008. Here the problem is exactly what we find with the Athenian, Macedonia, and Roman Empires - the money supply was being absorbed internationally well beyond the domestic borders.
This is the missing link that economists NEVER understand and fund managers who have lost a fortune missing the rally and then losing 20% in a matter of days just cannot grasp. They are all confined to their thinking by the Quantity of Money as if the supply is confined to inside the border.
*All market numbers are based on Prior Day close, as provided by our third-party data provider(s).
Have The Fund Managers Learned Anything?
SUNDAY, 19 APRIL 2020 BY: MARTY ARMSTRONG
https://ask-socrates.com/Blog/GetIma...c98d0a30162bfe
Ray Dalio is out in full force doing his YouTube preaching the very same reasoning which is why he declared at Davos that Cash Was Trash. Bloomberg reported that he was down about 20% for the 1st quarter. He is preaching the very same scenario about all this stimulus will be inflationary and the debt has to be repaid.
That is very nice, but his reasoning is so old school, he obviously did not learn his lesson. He is coming out in full force to try to explain his losses are somehow temporary and not real.
https://ask-socrates.com/Blog/GetIma...c98d1418a57ac4
If you are going to place money at any fund, look at the track record. If they lost money beyond 5% during this crash and did not make more than 10% in 2019, you should look for someone who demonstrates that they are professional and not married to a theory. This is no time for dogma. I was named hedge fund manager of the year during the 1998 Long-Term Capital Management Crisis for one reason - I never cared if the dollar rose or fell - it was always just a trade (see Deutsche Bank track record).
This entire theory that Dalio pitches remains constructed on the Quantity Theory of Money which goes back to Gresham's Law that bad money will drive out good money from circulation. The problem with that theory is that all the currencies of various European nations traded against one-another solely on weight. There was no premium added at that early stage in international finance with respect to the power of a nation.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c22
Gresham represented England at the Amsterdam Exchange where kings would borrow money from investors. England and Spain were in a battle of the competitive debasement of their coinages. This is what Gresham observed. Debts were being contracted not denominated in coin, but in metal. Therefore, Gresham's observations are particularly limited to this very narrow period where kings were beginning to borrow for the first time in an international market.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c3f
Dalio's famous call that "cash is trash" will be remembered for a long time because it was clearly reflecting his reasoning which has still not changed. If we look past his 20% loss for the first quarter of 2020, we see also a very disappointing 2019 Year where Bridgewater’s Flagship Fund Returned 0.5% because he also missed the bull market.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c66
Gresham's Law is limited to a very narrow period in monetary history where there was no seignorage premium to the metal content in international commerce. This was not the case prior to the Dark Ages when there were great empires and the coinage of these empires traded as a premium to the metal content. For about 224 years, India imitated the coinage of the Roman Emperors rather than issuing their own because they were worth more than the actual gold content. In fact, here is a gold aureus struck in the image of the Emperor Septimius Severus (193-211AD) which was even heavier in weight than the Roman coinage.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c73
Here we have the Swiss imitation of the gold coinage of Philip II of Macedon (382-336BC) which was the father of Alexander the Great. This imitation was of a gold half-stater.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c78
There are imitations of Athenian Owls, the first true world currency. It traded throughout Europe, Asia, and Africa and we find numerous imitations once again showing that it was not the metal content, but the respect for the power of that empire at that moment in time. This is what Ray Dalio fails to understand. He keeps losing money for he remains very much part of that old school thinking that is even begin the attempt to use Keynesian Economics to stimulate the economy by increasing the supply.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c97
We MUST look at the monetary system before the Dark Age to comprehend how the supply of money was not directly linked to inflation in the least. The reason for this was the plain fact that the demand for the supply of the coinage of these empires circulated externally to their domestic economies. The increase in the supply did not result in inflation because the supply was being absorbed internationally. Because the coinage was all hand struck and the dies were individually carved, we are able to reconstruct even the money supply during Roman times. It is possible to even see when they drastically increased the supply of the coinage and was there any effect.
https://ask-socrates.com/Blog/GetIma...c98d0a30162ca3
It then becomes possible to even look at the accumulative money supply and how the economy responded to such increases. None of the modern theories used by the central banks and Dalio based upon this Quantity of Money Theory ever work when we are looking at the dominant currency of an empire. Such theories are confined to the small peripheral economies where there is no "premium" attached to their currency as was the case in Germany after World War I which resulted in the hyperinflation period or Zimbabwe. You do not find such hyperinflations in the dominant economies.
https://ask-socrates.com/Blog/GetIma...c98d0a30162cd2
The only exception we find is in the coinage of Athen when it was besieged by Sparta during the Peloponnesian War. Athens lost control of its silver mines and restored to debasing their silver Owls to bronze silver plated. This was the fall of Athen in 404BC.
https://ask-socrates.com/Blog/GetIma...c98d0a30162c17
Dalio nor the central banks have learned any lessons whatsoever. We have witnessed persistent Quantitative Easing since 2008 with artificially low-interest rates and there has been no inflation to speak of. Why?
In Europe, people have hoarded their money for the future remains uncertain. The same trend existed during the 3rd century AD in Rome. Even though they debased the coinage dramatically, it did not result in wholesale hyperinflation. The barbarians were invading and people simply hoarded their money shrinking the money supply and the economy imploded.
The expansion of the dollar had no impact on inflation as the Fed has found it difficult if not impossible to get even a 2% inflation rate post-2008. Here the problem is exactly what we find with the Athenian, Macedonia, and Roman Empires - the money supply was being absorbed internationally well beyond the domestic borders.
This is the missing link that economists NEVER understand and fund managers who have lost a fortune missing the rally and then losing 20% in a matter of days just cannot grasp. They are all confined to their thinking by the Quantity of Money as if the supply is confined to inside the border.
*All market numbers are based on Prior Day close, as provided by our third-party data provider(s).
- Post #8,186
- Quote
- Apr 19, 2020 8:03am Apr 19, 2020 8:03am
- | Commercial Member | Joined Dec 2014 | 11,791 Posts
In today's world of record monetary stimulus and inconceivable deficits, investors are rushing to the safety of gold.
The extreme monetary and fiscal measures recently enacted by the Federal Reserve and U.S. government are fuelling demand for an alternative to the U.S. dollar. Many fear the Fed may have finally gone too far.
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Fed Balance Sheet Goes Vertical, Exceeding $6 Trillion
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
https://ecp.yusercontent.com/mail?ur...X8p0YDLdTg--~C
Source: U.S. Federal Reserve
The monetary experiment we are witnessing today goes far beyond anything we saw following the Great Recession of 2008-2009. In this environment, where the U.S. alone has committed to more than $8 trillion in aid to fight the Covid-19 economic crisis, investors are bearish on the U.S. dollar's future value.
As a result, historic liquidity has flooded the gold market in a bid to diversify away from the U.S. dollar.
A few weeks back, we outlined this phenomenon in a Weekly Intelligence Newsletter titled, Record Stimulus and Deficits to Drive Gold in 2020. This past week, gold hit a 7-year high, nearly breaching US$1,750 an ounce.
https://ecp.yusercontent.com/mail?ur...BsPlEps.Lg--~C
Source: GoldPrice.org
https://ecp.yusercontent.com/mail?ur...SO7uGOJyAA--~C
Source: Quotemedia
According to the World Gold Council,
Global gold-backed ETFs (gold ETFs) and similar products added 298 tonnes, or net inflow of US$23 billion, across all regions in the first quarter of 2020 the highest quarterly amount ever in absolute U.S. dollar terms
https://ecp.yusercontent.com/mail?ur...gU_Lo9vhlw--~C
Source: BNNBloomberg
According to Bloomberg,
BlackRocks iShares Gold Trust, ticker IAU, took in $486 million on Tuesday, its largest one-day inflow on record.
And,
State Streets SPDR Gold Shares, or GLD, has seen 10 straight days of inflows totaling about $2.9 billion.
James Pillow, managing director at Moors & Cabot Inc., sums it up perfectly,
With the global amount of central bank money printing, there is a innate drive to acquire the oldest currency in the world gold.
Amid this chaotic rush to gold, let us remember why investors often choose the precious metal to protect their wealth.
Our Twitter account curates the most timely international news so Canadian investors get global context on the issues directly impacting their portfolios and lives.
Follow Pinnacle Digest on Twitter to stay ahead.
https://ecp.yusercontent.com/mail?ur...lBvf.Sb1KQ--~C
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
A Stable Money Supply
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
The answer to why gold? lies in its autonomy from policymakers and the predictability of its supply.
Excluding a few epic gold discoveries such as Witwatersrand in South Africa (1886) and the California Gold Rush (1848), golds rate of supply has remained relatively stable, expanding at approximately 1.5 - 2.5% annually in recent years.
https://ecp.yusercontent.com/mail?ur...cWCpDzgSxg--~C
Source: USFunds.com
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Gold Buoyed by Real Interest Rates
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Lets exclude the global money supplys multi-trillion-dollar expansion for a moment, and just focus on real interest rates.
Given that gold doesn't yield interest, it must compete with interest-bearing assets. This is why many market commentators believe rising interest rates detract from golds appeal.
However, real interest rates across much of the Western world are negative... and will be for some time.
The U.S. is simply unable to raise interest rates without adding trillions in future interest payments. Even at today's depressed rates, the U.S. is still paying hundreds of billions in interest every year.
With interest rates near zero for the foreseeable future, and inflation at 1.5%, currencies are effectively losing purchasing power every day. In theory, investors can mitigate this erosion of purchasing power by diversifying into mediums of exchange that have a limited supply growth rate (i.e. gold).
In The Bitcoin Standard: The Decentralized Alternative to Central Banking, Saifedean Ammous explains,
"The problem with government-provided money is that its hardness depends entirely on the ability of those in charge to not inflate its supply."
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Historic National Debt
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
In early 2019, when the U.S. national debt stood at roughly $22 trillion, every U.S. citizen (babies included) owed roughly $67,000. With national debt now above $24 trillion, and likely going to $30 trillion in the next 5 years, the amount owed by U.S. citizens will grow...
By the end of 2020, the national debt will exceed the size of U.S. GDP for the first time since World War II.
Analysis by the Committee for a Responsible Federal Budget (CRFB) forecasted,
"...the deficit for fiscal 2020 will exceed $3.8 trillion, more than 2.5 times the record set during the Great Recession."
What we find so disconcerting about the projected $3.8 trillion deficit is that the economy will likely be contracting at the same time.
According to TradingEconomics.com,
The United States recorded a government debt equivalent to 106.90 percent of the country's Gross Domestic Product in 2019.
The United States highest ever debt to GDP ratio was 118.60%, which occurred in 1946 following the end of WWII. We are predicting the U.S. debt to GDP ratio will exceed 115% by the end of 2020 and reach a new record in 2021, as the U.S. economy fails to recover strongly and debt continues to pile on.
https://ecp.yusercontent.com/mail?ur...vYr3WRXgnw--~C
The threat of rising debt to GDP levels is far more impactful to the everyday citizen than many economists suggest.
According to Just Facts, in the 40 years following the end of World War II (19461985),
"...federal spending as a portion of GDP fell by 50% within two years and averaged 41% lower than the last year of the war during this period...
And that,
...the national debt as a portion of GDP declined by 76 percentage points."
Does anyone really believe the U.S. will suddenly be able to tighten its belt and reduce runaway spending? President Trump ran a near $1 trillion deficit last year in what was considered a booming modern-day economy.
Equally difficult to imagine is the U.S. experiencing the growth it did in the 1950s and 1960s that enabled it to pay down its debt. For two decades during the 1950s and 60s, U.S. GDP enjoyed average growth above 4%. While 4% growth isnt impossible, averaging it over the next 20 years is unrealistic given the current economic climate.
What's more, during the 1950s, America had higher income tax rates than today's. For example, the top marginal income tax rate in America was 91% in the 1950s. While this is a topic for another Intelligence Newsletter, just know that higher income tax rates, as well other forms of increased taxation, are inevitable... We will have to pay for the Covid-19 Crisis at some point.
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Wrapping Up
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Billions of U.S. dollars are moving into gold, gold equities, and gold-backed ETFs. Faith in both the U.S. dollar and its policymakers is waning. With fear surrounding rising debt and a massive increase in the money supply, investors are turning towards stores of value with predictable supply.
This rush to gold may present a massive opportunity for TSX Venture investors and speculators in Canadas small-cap market.
Many senior gold producers are now trading at record highs. Although it typically takes a year or two for this money to trickle down to the juniors, the gains among mining explorers could be explosive especially if gold breaches US$2,000
In the short-term, expect significant volatility in gold's price. However, it is our strong belief that over the next 18-24 months, gold will remain in a bullish trend.
All the best with your investments,
PINNACLEDIGEST.COM
The extreme monetary and fiscal measures recently enacted by the Federal Reserve and U.S. government are fuelling demand for an alternative to the U.S. dollar. Many fear the Fed may have finally gone too far.
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Fed Balance Sheet Goes Vertical, Exceeding $6 Trillion
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
https://ecp.yusercontent.com/mail?ur...X8p0YDLdTg--~C
Source: U.S. Federal Reserve
The monetary experiment we are witnessing today goes far beyond anything we saw following the Great Recession of 2008-2009. In this environment, where the U.S. alone has committed to more than $8 trillion in aid to fight the Covid-19 economic crisis, investors are bearish on the U.S. dollar's future value.
As a result, historic liquidity has flooded the gold market in a bid to diversify away from the U.S. dollar.
A few weeks back, we outlined this phenomenon in a Weekly Intelligence Newsletter titled, Record Stimulus and Deficits to Drive Gold in 2020. This past week, gold hit a 7-year high, nearly breaching US$1,750 an ounce.
Gold Trades Above $1,700 - 15-Year Chart
https://ecp.yusercontent.com/mail?ur...BsPlEps.Lg--~C
Source: GoldPrice.org
Gold VanEck Vectors Gold Miners (GDX) Hits Multi-Year High of $32.28 on April 14th
https://ecp.yusercontent.com/mail?ur...SO7uGOJyAA--~C
Source: Quotemedia
According to the World Gold Council,
Global gold-backed ETFs (gold ETFs) and similar products added 298 tonnes, or net inflow of US$23 billion, across all regions in the first quarter of 2020 the highest quarterly amount ever in absolute U.S. dollar terms
Blackrock iShares Gold Trust (IAU) 1 Year Chart
https://ecp.yusercontent.com/mail?ur...gU_Lo9vhlw--~C
Source: BNNBloomberg
According to Bloomberg,
BlackRocks iShares Gold Trust, ticker IAU, took in $486 million on Tuesday, its largest one-day inflow on record.
And,
State Streets SPDR Gold Shares, or GLD, has seen 10 straight days of inflows totaling about $2.9 billion.
James Pillow, managing director at Moors & Cabot Inc., sums it up perfectly,
With the global amount of central bank money printing, there is a innate drive to acquire the oldest currency in the world gold.
Amid this chaotic rush to gold, let us remember why investors often choose the precious metal to protect their wealth.
You Should Follow Pinnacle Digest on Twitter...
Our Twitter account curates the most timely international news so Canadian investors get global context on the issues directly impacting their portfolios and lives.
Follow Pinnacle Digest on Twitter to stay ahead.
https://ecp.yusercontent.com/mail?ur...lBvf.Sb1KQ--~C
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
A Stable Money Supply
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
The answer to why gold? lies in its autonomy from policymakers and the predictability of its supply.
Excluding a few epic gold discoveries such as Witwatersrand in South Africa (1886) and the California Gold Rush (1848), golds rate of supply has remained relatively stable, expanding at approximately 1.5 - 2.5% annually in recent years.
Gold Production Remains Remarkably Stable
https://ecp.yusercontent.com/mail?ur...cWCpDzgSxg--~C
Source: USFunds.com
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Gold Buoyed by Real Interest Rates
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Lets exclude the global money supplys multi-trillion-dollar expansion for a moment, and just focus on real interest rates.
Given that gold doesn't yield interest, it must compete with interest-bearing assets. This is why many market commentators believe rising interest rates detract from golds appeal.
However, real interest rates across much of the Western world are negative... and will be for some time.
The U.S. is simply unable to raise interest rates without adding trillions in future interest payments. Even at today's depressed rates, the U.S. is still paying hundreds of billions in interest every year.
With interest rates near zero for the foreseeable future, and inflation at 1.5%, currencies are effectively losing purchasing power every day. In theory, investors can mitigate this erosion of purchasing power by diversifying into mediums of exchange that have a limited supply growth rate (i.e. gold).
In The Bitcoin Standard: The Decentralized Alternative to Central Banking, Saifedean Ammous explains,
"The problem with government-provided money is that its hardness depends entirely on the ability of those in charge to not inflate its supply."
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Historic National Debt
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
In early 2019, when the U.S. national debt stood at roughly $22 trillion, every U.S. citizen (babies included) owed roughly $67,000. With national debt now above $24 trillion, and likely going to $30 trillion in the next 5 years, the amount owed by U.S. citizens will grow...
By the end of 2020, the national debt will exceed the size of U.S. GDP for the first time since World War II.
Analysis by the Committee for a Responsible Federal Budget (CRFB) forecasted,
"...the deficit for fiscal 2020 will exceed $3.8 trillion, more than 2.5 times the record set during the Great Recession."
What we find so disconcerting about the projected $3.8 trillion deficit is that the economy will likely be contracting at the same time.
According to TradingEconomics.com,
The United States recorded a government debt equivalent to 106.90 percent of the country's Gross Domestic Product in 2019.
The United States highest ever debt to GDP ratio was 118.60%, which occurred in 1946 following the end of WWII. We are predicting the U.S. debt to GDP ratio will exceed 115% by the end of 2020 and reach a new record in 2021, as the U.S. economy fails to recover strongly and debt continues to pile on.
U.S. Debt to GDP to Surpass 120% by 2021
https://ecp.yusercontent.com/mail?ur...vYr3WRXgnw--~C
The threat of rising debt to GDP levels is far more impactful to the everyday citizen than many economists suggest.
According to Just Facts, in the 40 years following the end of World War II (19461985),
"...federal spending as a portion of GDP fell by 50% within two years and averaged 41% lower than the last year of the war during this period...
And that,
...the national debt as a portion of GDP declined by 76 percentage points."
Does anyone really believe the U.S. will suddenly be able to tighten its belt and reduce runaway spending? President Trump ran a near $1 trillion deficit last year in what was considered a booming modern-day economy.
Equally difficult to imagine is the U.S. experiencing the growth it did in the 1950s and 1960s that enabled it to pay down its debt. For two decades during the 1950s and 60s, U.S. GDP enjoyed average growth above 4%. While 4% growth isnt impossible, averaging it over the next 20 years is unrealistic given the current economic climate.
What's more, during the 1950s, America had higher income tax rates than today's. For example, the top marginal income tax rate in America was 91% in the 1950s. While this is a topic for another Intelligence Newsletter, just know that higher income tax rates, as well other forms of increased taxation, are inevitable... We will have to pay for the Covid-19 Crisis at some point.
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Wrapping Up
https://ecp.yusercontent.com/mail?ur...S80TXC2Rcg--~C
Billions of U.S. dollars are moving into gold, gold equities, and gold-backed ETFs. Faith in both the U.S. dollar and its policymakers is waning. With fear surrounding rising debt and a massive increase in the money supply, investors are turning towards stores of value with predictable supply.
This rush to gold may present a massive opportunity for TSX Venture investors and speculators in Canadas small-cap market.
Many senior gold producers are now trading at record highs. Although it typically takes a year or two for this money to trickle down to the juniors, the gains among mining explorers could be explosive especially if gold breaches US$2,000
In the short-term, expect significant volatility in gold's price. However, it is our strong belief that over the next 18-24 months, gold will remain in a bullish trend.
All the best with your investments,
PINNACLEDIGEST.COM
- Post #8,187
- Quote
- Apr 19, 2020 8:07am Apr 19, 2020 8:07am
- | Commercial Member | Joined Dec 2014 | 11,791 Posts
4/18 John Rubino - Now Comes The Real Crazy
Now Comes The Real Crazy
John Rubino
April 18, 2020
A recurring theme of modern financial crises is the temporary nature of the extreme steps governments take to fix the system.
Recall that the massive increase in the Feds balance sheet during its Great Recession asset-buying binge (which is another way of saying currency printing binge) was going to be reversed out.
But a funny thing happened on the way back to normal: We couldnt get there from here. The Fed actually did raise interest rates and shrink its balance sheet a bit in 2018, but towards year-end the financial markets melted down. Heres the S&P 500:
This flash bear market was enough to send the Fed back to cutting rates and printing money. And just like that, zero-to-negative interest rates and QE to eternity became permanent features of the global economy.
Then came the pandemic that not only ratified QE but expanded it to cover pretty much any financial asset anywhere, while sending government deficits to levels last seen during World War II. The IMF now projects that by year-end global debt will be $8 trillion higher than it would have been otherwise. Advanced economy sovereign debt will surge from 105% of GDP to 122% in one year.
Now lets assume the best-case scenario going forward, which is that a cure for covid-19 is developed and the global lockdown ends in a few months. The world goes back to work and growth returns to the previous 2 or so percent.
What happens to all this new debt? Nothing. We simply carry it into the next crisis, amplifying a mess that would have been spectacular in any event.
2018 proved that tightening of any kind is destabilizing for a society this highly leveraged. So currency once created and debt once incurred can never be retired, only rolled over.
And rolling over ever-rising amounts of debt requires ever-easier money, which means the current loan guarantees, direct payments to individuals, industry bailouts and all the rest are just a taste of things to come. The true crazy begins when one-off relief payments are made permanent (hello, UBI), when the Fed makes QE equal to the entire federal deficit (come on in, MMT) and when whole categories of private sector debt are simply forgiven (step out of the bible, Mr. Debt Jubilee). Oh, and when interest rates go firmly negative in the US (see you in the rear-view mirror, zero bound).
Put another way, the entire socialist/corporatist wish list is about to be enacted in one ear-shattering primal scream of WE GIVE UP!
It hardly needs to be said that faced with this financial murderers row, holders of the worlds major currencies will run screaming for the exits. The obvious response to this would be to load up on precious metals. But since theyre apparently no longer available, I dont know what to tell you, other than snooze, you lose.
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- Post #8,188
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- Edited Apr 21, 2020 8:02am Apr 20, 2020 8:26pm | Edited Apr 21, 2020 8:02am
- | Commercial Member | Joined Dec 2014 | 11,791 Posts
Good Evening !!!
Bruce
https://www.armstrongeconomics.com/q...ains-king-qa/?
11868
Blog/Q&A
Posted Apr 20, 2020 by Martin Armstrong
https://d33wjekvz3zs1a.cloudfront.ne...ollar-King.jpg
QUESTION #1: Dear Mr. Armstrong,
I’ve been following your blog for quite a while, and have a Basic subscription to Socrates. Wish I could have been able to attend a WEC, but so far that’s not been possible. Also wish I understood everything in Socrates so much better, but my old brain isn’t what it used to be, even tho’ I’ve learned a great deal.
I’m 72, retired, with a small pension, SocSec, and interest/dividends from the stock market. My home is free and clear. Investments are mostly Corporate Fixed Income and Municipal Bonds (for tax advantages), and a few stocks. I’m not an active trader, and have taken about a 16% hit so far.
Given that what I have is all I’ll have for the future, what is the best I (and other seniors essentially on fixed incomes) can do to protect ourselves for these next few years? Wish I could just pull it all out in cash and bury it in the backyard, but that isn’t a rational strategy, and likely not even do-able with the limits on cash withdrawals. I do have a fair amount of cash for “emergencies”, but certainly not enough for the next 10 years. It seems like I need to do something, but what?
Many thanks for all you do,
SH
ANSWER: Probably your greatest risk will be the Municipal Bonds. I know they love to say no munis defaulted during the Great Depression. The city of Detroit “suspended” all payments in 1937 and eventually repaid in 1963. This lockdown has been either the most stupid decision ever made by any politician, or they have been the puppets of the Climate Change Socialists whose dream it has been to shut down the economy, nationalize industry, to reduce CO2. Even Bill Gates TED Talk was all about how do we get to ZERO CO2.
Because of this unbelievable wholesale destruction of the world economy, state, provincial, and local governments are going to be in major trouble. They cannot print money as can the Federal governments. They rely on taxes and these morons have shut down their local economies without even comprehending what they were doing to their local tax base. They cannot pay pensions without current revenue. They will try to raise taxes and will find revolts and people who will be unable to pay because they lost their job, probably healthcare insurance that went with that, and all their various loans from cars and mortgages, etc.
As far as corporate debt, stay away from consumer-oriented companies such as retail sales with brick & motor establishments. Take Neiman Marcus, for example, their biggest shareholder is the Canadian pension system CPPIB.
Keeping gold in safe deposit boxes will be risky. We have already witnessed some European banks using the virus as a justification to deny access. You then must provide the reason for your access and what you intend to take out. Remember that when gold was confiscated, it was whatever was on deposit in banks. They did not go door to door.
QUESTION #2: Marty I’m based in UK and have been reading your posts for a while about Central banks and the collapse of Europe. I have recently retired and am holding funds in cash in Banks and also have a deposit box with a bit of gold. I have 2 investment properties with mortgages. Would you recommend that I use my cash and repay the mortgages and withdraw the box as u were talking about banks confiscating gold. Very worried about the future.
Thank you
K
ANSWER: Do not pay off the mortgages. Keep the cash. Be very careful about leaving gold or cash in a bank safe deposit box. Banks will not be trustworthy at this point. The governments can decree to seal all such boxes and they will do that in a split second.
https://d33wjekvz3zs1a.cloudfront.ne...EmpiresDie.png
COMMENT #3: Marty, Good morning. Been keeping an eye on things and also making analyses and forecasts. If this was a casino with sports betting odds, the Dark Age would be seeing better odds daily at a rapidly increasing rate and would soon be among the favorites, if not the odds on favorite.
Hope all is well in your area.
Best,
E
ANSWER: I am always amazed when Socrates makes such a bold forecast and I personally cannot find the words to articulate it. I wrote the report How Empires Nations & City-States Fall? The Dark Age Cycle and priced that at $29.50 for the average person because it was important to understand what makes such events unfold. I would have to confess, I underestimated the Climate Change contingent. They have persuaded many at the upper echelon of power and flipped even the wealthy into feeling guilty that they have so much to support this all-out assault on shutting down the world economy. I have inside knowledge that members were told to sell all stocks and bonds in January. They picked their favorites to protect.
I never imaged that the could shut down the world economy like this so fast. They have openly destroyed Capital Formation and have hurled society toward war and that certainly now raises the stake for a Dark Age coming post-2032. They have won. They are destroying civilization to save the planet. Nobody will bother to investigate – the question is WHY?
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Bruce
https://www.armstrongeconomics.com/q...ains-king-qa/?
11868
Blog/Q&A
Posted Apr 20, 2020 by Martin Armstrong
https://d33wjekvz3zs1a.cloudfront.ne...ollar-King.jpg
QUESTION #1: Dear Mr. Armstrong,
I’ve been following your blog for quite a while, and have a Basic subscription to Socrates. Wish I could have been able to attend a WEC, but so far that’s not been possible. Also wish I understood everything in Socrates so much better, but my old brain isn’t what it used to be, even tho’ I’ve learned a great deal.
I’m 72, retired, with a small pension, SocSec, and interest/dividends from the stock market. My home is free and clear. Investments are mostly Corporate Fixed Income and Municipal Bonds (for tax advantages), and a few stocks. I’m not an active trader, and have taken about a 16% hit so far.
Given that what I have is all I’ll have for the future, what is the best I (and other seniors essentially on fixed incomes) can do to protect ourselves for these next few years? Wish I could just pull it all out in cash and bury it in the backyard, but that isn’t a rational strategy, and likely not even do-able with the limits on cash withdrawals. I do have a fair amount of cash for “emergencies”, but certainly not enough for the next 10 years. It seems like I need to do something, but what?
Many thanks for all you do,
SH
ANSWER: Probably your greatest risk will be the Municipal Bonds. I know they love to say no munis defaulted during the Great Depression. The city of Detroit “suspended” all payments in 1937 and eventually repaid in 1963. This lockdown has been either the most stupid decision ever made by any politician, or they have been the puppets of the Climate Change Socialists whose dream it has been to shut down the economy, nationalize industry, to reduce CO2. Even Bill Gates TED Talk was all about how do we get to ZERO CO2.
Because of this unbelievable wholesale destruction of the world economy, state, provincial, and local governments are going to be in major trouble. They cannot print money as can the Federal governments. They rely on taxes and these morons have shut down their local economies without even comprehending what they were doing to their local tax base. They cannot pay pensions without current revenue. They will try to raise taxes and will find revolts and people who will be unable to pay because they lost their job, probably healthcare insurance that went with that, and all their various loans from cars and mortgages, etc.
As far as corporate debt, stay away from consumer-oriented companies such as retail sales with brick & motor establishments. Take Neiman Marcus, for example, their biggest shareholder is the Canadian pension system CPPIB.
Keeping gold in safe deposit boxes will be risky. We have already witnessed some European banks using the virus as a justification to deny access. You then must provide the reason for your access and what you intend to take out. Remember that when gold was confiscated, it was whatever was on deposit in banks. They did not go door to door.
QUESTION #2: Marty I’m based in UK and have been reading your posts for a while about Central banks and the collapse of Europe. I have recently retired and am holding funds in cash in Banks and also have a deposit box with a bit of gold. I have 2 investment properties with mortgages. Would you recommend that I use my cash and repay the mortgages and withdraw the box as u were talking about banks confiscating gold. Very worried about the future.
Thank you
K
ANSWER: Do not pay off the mortgages. Keep the cash. Be very careful about leaving gold or cash in a bank safe deposit box. Banks will not be trustworthy at this point. The governments can decree to seal all such boxes and they will do that in a split second.
https://d33wjekvz3zs1a.cloudfront.ne...EmpiresDie.png
COMMENT #3: Marty, Good morning. Been keeping an eye on things and also making analyses and forecasts. If this was a casino with sports betting odds, the Dark Age would be seeing better odds daily at a rapidly increasing rate and would soon be among the favorites, if not the odds on favorite.
Hope all is well in your area.
Best,
E
ANSWER: I am always amazed when Socrates makes such a bold forecast and I personally cannot find the words to articulate it. I wrote the report How Empires Nations & City-States Fall? The Dark Age Cycle and priced that at $29.50 for the average person because it was important to understand what makes such events unfold. I would have to confess, I underestimated the Climate Change contingent. They have persuaded many at the upper echelon of power and flipped even the wealthy into feeling guilty that they have so much to support this all-out assault on shutting down the world economy. I have inside knowledge that members were told to sell all stocks and bonds in January. They picked their favorites to protect.
I never imaged that the could shut down the world economy like this so fast. They have openly destroyed Capital Formation and have hurled society toward war and that certainly now raises the stake for a Dark Age coming post-2032. They have won. They are destroying civilization to save the planet. Nobody will bother to investigate – the question is WHY?
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- Post #8,189
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- Apr 21, 2020 8:48am Apr 21, 2020 8:48am
- | Commercial Member | Joined Dec 2014 | 11,791 Posts
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Disliked{quote} Your business partner Mr.Capocelli had pretty good trading results today. I hear he might be taking over your business by June?Ignored
EXPECT TO BE ARRESTED VERY SOON - Angelo Vincenzo AKA Carmine Polanco - You were warned enough times. SEE you in court at your TRIAL !!!
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Disliked{quote} EXPECT TO BE ARRESTED VERY SOON - Angelo Vincenzo AKA Carmine Polanco - You were warned enough times. SEE you in court at your TRIAL !!!Ignored
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Historic day April 20th 2020 when a roll of toilet paper was worth more than a barrel of Oil!
- Post #8,199
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- Apr 22, 2020 9:01pm Apr 22, 2020 9:01pm
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"Why WTI traded at -$40...
Imagine the following...you pay $500 today and commit to receiving an escort at your house in fifteen days, because your girlfriend will then be traveling...
Unfortunately, quarantine came and your girlfriend will be home for the next 3 months...
Like all girlfriends from all over the world...
You do not want this woman to show up at your house at all and try to pass this future contract to someone...
Only you cannot sell this commitment because nobody can receive the escort at home anymore. Everyone is with their respective girlfriends. To make matters worse, not even the pimp has more room to receive girls because his house is crowded with other call girls.
Do you understand why oil may have a negative price when the contract is delivered? ��"
Imagine the following...you pay $500 today and commit to receiving an escort at your house in fifteen days, because your girlfriend will then be traveling...
Unfortunately, quarantine came and your girlfriend will be home for the next 3 months...
Like all girlfriends from all over the world...
You do not want this woman to show up at your house at all and try to pass this future contract to someone...
Only you cannot sell this commitment because nobody can receive the escort at home anymore. Everyone is with their respective girlfriends. To make matters worse, not even the pimp has more room to receive girls because his house is crowded with other call girls.
Do you understand why oil may have a negative price when the contract is delivered? ��"
- Post #8,200
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- Edited 8:19am Apr 23, 2020 8:08am | Edited 8:19am
- | Commercial Member | Joined Dec 2014 | 11,791 Posts
https://rabble.ca/blogs/bloggers/vie...nada-now-incur
Most Canadians are not aware that, prior to 1975, the construction of major public facilities, as well as the provision and improvement of social programs, were funded by interest-free loans from the Bank of Canada. Such loans helped Canada recover from the Great Depression of the 1930s and to achieve a prompt and prosperous economic boom after the Second World War.
The construction of the Trans-Canada Highway, the St. Lawrence Seaway, modern airports and seaports, and other essential parts of Canada's infrastructure were all accomplished with Bank of Canada loans. And because they were essentially interest-free, they caused only a small increase in the government's debt.
After 1975, however, when Ottawa abruptly started borrowing from private banks instead of "the people's bank" for large public projects, the steep interest rates it then had to pay built up steadily mounting debts.
Most provincial and municipal governments, too, although the Bank of Canada could also have legally extended loans to them, have piled up massive debts from private bank loans over the past four decades. Our governments at all levels are now collectively paying some $60 billion in interest on these debts every year.
"This enormous debt burden need never have been incurred," says George Crowell, a retired University of Windsor professor. "It deprives our governments of revenue that could be used instead for much-needed improvements to our social and economic services."
Instead, both Liberal and Conservative governments not only flatly refuse to resume borrowing from the Bank of Canada, "but also use their deliberately incurred debts as an excuse for cutting public programs and services instead of preserving and expanding them.
"At the same time," Crowell notes, "they keep reducing the tax rates on profitable corporations and wealthy individuals who don't need tax relief -- and many of whom evade the taxes they owe, anyway, by stashing their wealth in offshore tax havens."
Ford and Edison favoured government funding
Political and business leaders scoff at Crowell and other knowledgeable monetary critics, even dismissing them as impractical idealists or even "crackpots." I could continue to quote the irrefutable arguments that Crowell and other financial experts advance for going back to the pre-1975 Bank of Canada borrowing system, but instead will quote the salient views of two famous Americans: industrialist Henry Ford and inventor Thomas Edison.
Ford and Edison were great friends. They often met to discuss current events and issues, including the construction of the huge Muscle Shoals water plant on the Tennessee River in 1928. They both claimed that this massive public edifice should be funded by the federal government rather than by borrowing from the private banks. They regarded the charging of high interest rates by the banks as a form of usury that caused social and economic inequities.
Were Ford and Edison daydreamers or left-wing crackpots? Decide for yourself after reading the following excerpts from their interviews with the press.
Henry Ford's interview
FORD: "Army engineers say it will take $40 million to complete this big dam, but Congress is not in a mood just now to raise that amount through taxation. The customary alternative is to float 30-year bonds at 4 per cent. That means the United States government, to obtain $40 million to finance construction of a great public benefit, will have to go to the private money-sellers to buy its own money.
"At the end of 30 years, with compound interest, the government not only pays back the $40 million, but it has to pay 120 per cent in interest. It literally has to pay $88 million for the use of $40 million for 30 years. Think of that! Could anything be more outlandish, more unbusinesslike?
"Now I see a way by which our government can get this great work completed without paying a nickel to the money-sellers. The government needs $40 million.
That's 2,000 20-dollar bills. Let the government issue these bills itself and with them pay every expense connected with construction of the dam. When it's completed, we get the whole works running and, in a shorter time than you would suppose, the entire $40 million can be retired out of the earnings of the plant."
Thomas Edison's interview
Reporter: "What do you think of Henry Ford's proposal to finance Muscle Shoals by an issue of currency instead of bonds?"
Edison: "A splendid idea! Let us suppose that Congress follows his proposal. Personally, I doubt that Congress has imagination enough to do it, but let's suppose that it does. The required sum is then issued directly by the government, as all money ought to be. When the workers are paid, they receive these U.S. bills, which will be the same as any other currency put out by the government -- that is, they will be money.
"The bills will be based on the public wealth already in Muscle Shoals, and they will be retired by the earnings and power of the dam. That is, the people of the United States will have all that they put into Muscle Shoals and all that they can take out of it for centuries to come -- with no additional taxes and no increase in the national debt."
Reporter: "But what if Congress doesn't see it that way? What then?"
Edison: "Then Congress must fall back on the old way of doing business. It must authorize an issue of bonds. That is, it must go out to the money brokers and borrow enough of our own national currency to complete this and other great national projects, and we must pay interest to the money brokers for the use of our own money. In other words, under the old way, any time we wish to add to the national wealth, we are compelled to add to the national debt.
"Now that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $40 million of our own money, the people of the United States should be forced to pay $88 million. People who will not turn a shovel-full of dirt nor contribute a pound of material to Muscle Shoals will collect more money from the U.S. government than will the people who do the work and supply the material.
"That is the terrible thing about interest. In all our bond issues, the interest is always greater than the principal. All of our great public works cost more than twice the actual cost on that account.
"But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. What makes the bond good also makes the bill good. The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond plus an additional 20 per cent, whereas the currency pays nobody except those who contribute directly to the construction of the Muscle Shoals dam in some way.
"It is absurd to say that our country can issue $40 million in bonds and not $40 million in currency. Both are promises to pay, but one fattens the usurers and the other helps the people. If the currency issued by the government was no good, then the bonds would be no good, either.
"It is a terrible situation when the government must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold."
* * *
Despite these compelling arguments by Ford and Edison for government funding of the Muscle Shoals dam construction, the U.S. Congress instead went ahead and borrowed the $40 billion from the private money-lenders at high interest rates, enriching them with $88 million of taxpayers' money. Ford and Edison, despite their fame and financial expertise, could not match the overwhelming political influence of the banks, Goldman Sachs, Citigroup, and other big investment firms.
The same profligate private-borrowing system still prevails in the United States, and, since 1975, also in Canada. And the irrefutable case for government funding put forward by Crowell and other progressive financial analysts in this country are as rudely dismissed by our government as were the equally powerful arguments made back in 1928 by Ford and Edison.
Such a horrific and needless mass transfer of billions of dollars from taxpayers to the banks and money-brokers is even more inexcusable in Canada than it is in the United States. We actually had an effective and virtually interest-free system of funding large public projects prior to 1975, before the Bank of Canada was callously stripped of that immensely beneficial public function.
It's interesting that the provisions in the Bank of Canada Act that originally authorized the Bank to fund public projects have never been deleted from the Act. The Bank could therefore resume that advantageous operation any time a federal government directed or permitted it to do so.
However, given the preference of our predominant "neoliberal" parties to coddle and subsidize the banks and big corporations rather than improve Canadians' standard of living, that's not likely to happen any time soon.
Or at least not until a great many more Canadians become aware of the enormous and inexcusable waste of billions of their tax dollars that is incurred by needlessly borrowing from private banks instead of the People's Bank.
Ed Finn grew up in Corner Brook, Newfoundland, where he worked as a printer’s apprentice, reporter, columnist, and editor of that city’s daily newspaper, the Western Star. His career as a journalist included 14 years as a labour relations columnist for the Toronto Star. He was part of the world of politics between 1959 and 1962, serving as the first provincial leader of the NDP in Newfoundland.
He worked closely with Tommy Douglas for some years and helped defend and promote medicare legislation in Saskatchewan.
Photo: d.neuman/Flickr
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Most Canadians are not aware that, prior to 1975, the construction of major public facilities, as well as the provision and improvement of social programs, were funded by interest-free loans from the Bank of Canada. Such loans helped Canada recover from the Great Depression of the 1930s and to achieve a prompt and prosperous economic boom after the Second World War.
The construction of the Trans-Canada Highway, the St. Lawrence Seaway, modern airports and seaports, and other essential parts of Canada's infrastructure were all accomplished with Bank of Canada loans. And because they were essentially interest-free, they caused only a small increase in the government's debt.
After 1975, however, when Ottawa abruptly started borrowing from private banks instead of "the people's bank" for large public projects, the steep interest rates it then had to pay built up steadily mounting debts.
Most provincial and municipal governments, too, although the Bank of Canada could also have legally extended loans to them, have piled up massive debts from private bank loans over the past four decades. Our governments at all levels are now collectively paying some $60 billion in interest on these debts every year.
"This enormous debt burden need never have been incurred," says George Crowell, a retired University of Windsor professor. "It deprives our governments of revenue that could be used instead for much-needed improvements to our social and economic services."
Instead, both Liberal and Conservative governments not only flatly refuse to resume borrowing from the Bank of Canada, "but also use their deliberately incurred debts as an excuse for cutting public programs and services instead of preserving and expanding them.
"At the same time," Crowell notes, "they keep reducing the tax rates on profitable corporations and wealthy individuals who don't need tax relief -- and many of whom evade the taxes they owe, anyway, by stashing their wealth in offshore tax havens."
Ford and Edison favoured government funding
Political and business leaders scoff at Crowell and other knowledgeable monetary critics, even dismissing them as impractical idealists or even "crackpots." I could continue to quote the irrefutable arguments that Crowell and other financial experts advance for going back to the pre-1975 Bank of Canada borrowing system, but instead will quote the salient views of two famous Americans: industrialist Henry Ford and inventor Thomas Edison.
Ford and Edison were great friends. They often met to discuss current events and issues, including the construction of the huge Muscle Shoals water plant on the Tennessee River in 1928. They both claimed that this massive public edifice should be funded by the federal government rather than by borrowing from the private banks. They regarded the charging of high interest rates by the banks as a form of usury that caused social and economic inequities.
Were Ford and Edison daydreamers or left-wing crackpots? Decide for yourself after reading the following excerpts from their interviews with the press.
Henry Ford's interview
FORD: "Army engineers say it will take $40 million to complete this big dam, but Congress is not in a mood just now to raise that amount through taxation. The customary alternative is to float 30-year bonds at 4 per cent. That means the United States government, to obtain $40 million to finance construction of a great public benefit, will have to go to the private money-sellers to buy its own money.
"At the end of 30 years, with compound interest, the government not only pays back the $40 million, but it has to pay 120 per cent in interest. It literally has to pay $88 million for the use of $40 million for 30 years. Think of that! Could anything be more outlandish, more unbusinesslike?
"Now I see a way by which our government can get this great work completed without paying a nickel to the money-sellers. The government needs $40 million.
That's 2,000 20-dollar bills. Let the government issue these bills itself and with them pay every expense connected with construction of the dam. When it's completed, we get the whole works running and, in a shorter time than you would suppose, the entire $40 million can be retired out of the earnings of the plant."
Thomas Edison's interview
Reporter: "What do you think of Henry Ford's proposal to finance Muscle Shoals by an issue of currency instead of bonds?"
Edison: "A splendid idea! Let us suppose that Congress follows his proposal. Personally, I doubt that Congress has imagination enough to do it, but let's suppose that it does. The required sum is then issued directly by the government, as all money ought to be. When the workers are paid, they receive these U.S. bills, which will be the same as any other currency put out by the government -- that is, they will be money.
"The bills will be based on the public wealth already in Muscle Shoals, and they will be retired by the earnings and power of the dam. That is, the people of the United States will have all that they put into Muscle Shoals and all that they can take out of it for centuries to come -- with no additional taxes and no increase in the national debt."
Reporter: "But what if Congress doesn't see it that way? What then?"
Edison: "Then Congress must fall back on the old way of doing business. It must authorize an issue of bonds. That is, it must go out to the money brokers and borrow enough of our own national currency to complete this and other great national projects, and we must pay interest to the money brokers for the use of our own money. In other words, under the old way, any time we wish to add to the national wealth, we are compelled to add to the national debt.
"Now that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $40 million of our own money, the people of the United States should be forced to pay $88 million. People who will not turn a shovel-full of dirt nor contribute a pound of material to Muscle Shoals will collect more money from the U.S. government than will the people who do the work and supply the material.
"That is the terrible thing about interest. In all our bond issues, the interest is always greater than the principal. All of our great public works cost more than twice the actual cost on that account.
"But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. What makes the bond good also makes the bill good. The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond plus an additional 20 per cent, whereas the currency pays nobody except those who contribute directly to the construction of the Muscle Shoals dam in some way.
"It is absurd to say that our country can issue $40 million in bonds and not $40 million in currency. Both are promises to pay, but one fattens the usurers and the other helps the people. If the currency issued by the government was no good, then the bonds would be no good, either.
"It is a terrible situation when the government must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold."
* * *
Despite these compelling arguments by Ford and Edison for government funding of the Muscle Shoals dam construction, the U.S. Congress instead went ahead and borrowed the $40 billion from the private money-lenders at high interest rates, enriching them with $88 million of taxpayers' money. Ford and Edison, despite their fame and financial expertise, could not match the overwhelming political influence of the banks, Goldman Sachs, Citigroup, and other big investment firms.
The same profligate private-borrowing system still prevails in the United States, and, since 1975, also in Canada. And the irrefutable case for government funding put forward by Crowell and other progressive financial analysts in this country are as rudely dismissed by our government as were the equally powerful arguments made back in 1928 by Ford and Edison.
Such a horrific and needless mass transfer of billions of dollars from taxpayers to the banks and money-brokers is even more inexcusable in Canada than it is in the United States. We actually had an effective and virtually interest-free system of funding large public projects prior to 1975, before the Bank of Canada was callously stripped of that immensely beneficial public function.
It's interesting that the provisions in the Bank of Canada Act that originally authorized the Bank to fund public projects have never been deleted from the Act. The Bank could therefore resume that advantageous operation any time a federal government directed or permitted it to do so.
However, given the preference of our predominant "neoliberal" parties to coddle and subsidize the banks and big corporations rather than improve Canadians' standard of living, that's not likely to happen any time soon.
Or at least not until a great many more Canadians become aware of the enormous and inexcusable waste of billions of their tax dollars that is incurred by needlessly borrowing from private banks instead of the People's Bank.
Ed Finn grew up in Corner Brook, Newfoundland, where he worked as a printer’s apprentice, reporter, columnist, and editor of that city’s daily newspaper, the Western Star. His career as a journalist included 14 years as a labour relations columnist for the Toronto Star. He was part of the world of politics between 1959 and 1962, serving as the first provincial leader of the NDP in Newfoundland.
He worked closely with Tommy Douglas for some years and helped defend and promote medicare legislation in Saskatchewan.
Photo: d.neuman/Flickr
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