We had planned on writing about China’s emergence as the world’s new superpower, while the United States keeps sliding into Third World status, but we cannot escape the more cogent political implications/ramifications of the diverging paths between the two countries. Actually, the United States has turned direction from a positive influence to a negative one with almost all other countries in the world. There is no other country aggressively pursuing war and human rights violations more than the United States is, today. The US has engaged in perpetual warfare with one country after another in the Middle East: Iraq, on totally false pretenses, [Weapons of Mass Destruction]; Afghanistan, [seeking control […]
Tag: economic analysis
Personally, I am certain that some type of cosmetic deal will be reached soon and it will be back to business as usual. The U.S. Debt Ceiling will be raised once again. Another increase in the debt ceiling will allow U.S. politicians to continue spending which will lead to a further loss in confidence as well as the value of the U.S. dollar. And, as this happens the price of gold will go much higher.
The U.S. economy is being overwhelmed by a loss of faith and trust in politicians, government, and bankers, excessive debts, artificially low interest rates, unsustainable deficit spending, expensive wars, QE (money printing) to infinity, “Inflate or Die” monetary policy, potential derivatives implosion, Obamacare and so much more. A slow-motion collapse is occurring and most of us do not see it.
Despite recent disappointing economic data from the US, it is generally expected that the Federal Reserve will begin to taper its asset purchases. No matter what the Fed decides, any tapering or even lack thereof, its size, and what the FOMC implies for future tapering will almost certainly spark sharp price reactions in the bond markets, currency markets, stock markets, and precious metals. Your portfolio should include physical gold that is held out of the banking system. And, this physical gold does not include gold exchange traded funds, or limited edition medallions. Gold is not like other commodities, it’s the only honest currency and an alternative currency to all paper currencies.
Gold prices climbed back above the $1,400 an ounce on Tuesday after Interfax reported that Russia detected a missile launch. A Russian Defence Ministry spokesman quoted by the Interfax news agency said the launch was picked up by an early warning radar station at Armavir, near the Black Sea, which is designed to detect missiles from Europe and Iran. The momentum in gold prices continues to trade with an upward bias and look set to soon re-test $1450 an ounce.
I do expect a full-blown currency crisis at some point and I expect gold to be the beneficiary. The global spotlight has been on Europe, and spotlights are typically a sign that problems will strike elsewhere. Japan is a crisis-in-waiting, and the emerging markets are taking a beating now. I have been in a very tiny minority who likes gold while simultaneously suggesting the US dollar would not collapse.
This week’s data show that the wealth effect is working in reverse already. Peter Schiff compares it with a “house of cards recovery” which is already collapsing before the real taper starts. The remarkable thing is that the Fed has only been talking about a slight easing of their asset purchases. Moreover, the failure of the latest bond auction should result in less interest in the dollar. That is what shapes the prospects for gold and explains recent price action.
One must consider the high debt burden of the US government. Any increase in yield will translate into higher servicing costs, and thus the US government has trapped itself in a situation where it finances itself by selling treasuries, but cannot afford increasing the interest rate. How much longer can the Fed continue to buy bonds in order to keep rates low? And, when they stop, what will happen? Owning gold is essential. Trading for a profit is not the same as owning a valuable asset. Physical gold is about ownership and not about price and profit.
In 1979, inflation was rising, gas prices were soaring, incomes were dropping, and mortgage rates were climbing. The S&P was rising, but not so much in real terms. GDP growth was high, but it was clearly not a rosy time for consumers or workers. The gold price rose 23% in 1977 and 37% in 1978, both of which are considered economic expansion years. But as things worsened in 1979, the price accelerated and went into a mania, ending the year with an incredible 127% return.
Excessive monetary stimulus and low interest rates create financial bubbles. This is the biggest debt bubble in history. It is a potent deflationary force and central banks are forced into deploying increasingly aggressive offsetting inflationary forces.
Gold and silver will not only continue to serve in their timeless role as a store of wealth while fiat currencies flail and ultimately fail—right now, market conditions are ripe for a once-in-a-lifetime profit opportunity to take shape. The current gloom in the mining-stock sector has stock prices at astounding lows… but those who know which companies are best positioned to ride out this temporary collapse and have the fortitude to invest in them now can make a fortune. This isn’t exaggeration—this scenario has played out before in the US.
Ben Bernanke is a one-trick pony and running the printing presses, i.e. bond buying, is Bernanke’s only trick. Bernanke, a central banker, however may have a less transparent motive in mind. Bernanke knows the Fed’s bond-buying has led to speculative bubbles around the world. But Bernanke also knows that without the Fed’s continuing lifeline, US demand would plummet sending the world into perhaps another deflationary depression.
In this article, John Mauldin looks in a critical way to the positive economic forecasts of mainstream economists. He points to the very low statistical probability that we will not have a recession in the US for the rest of the decade. Presumably, we all agree with that. Yet not one budget projection assumes a slowdown, let alone a recession, which would absolutely devastate any budget as far as deficits are concerned. His research shows how bad economists really are at forecasting.
Peter Schiff comments on the latest disappointing US GDP figures and the real inflation rate. Since 2002 the price of a Big Mac is up with 6% while the CPI has increased less than 2%. Besides he discusses the increase of 3.2% in consumer spending, the decrease of earnings and the savings rate (which stands at its lowest points since Q4 2007).