The Miles Franklin Newsletter
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From The Desk Of David Schectman
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We are living in the midst of historical times.
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"Warning signs are mounting, and should be bullish gold into the second half.
For the near-term, the current bull-run in equity markets will likely remain.
Not only is gold likely to benefit from central bank liquidity injections, but it also offers exposure to a weaker dollar and should provide a hedge to some of the downside risks [including U.S./China trade tensions and civil unrest in the U.S.]."
– JPMorgan
• Entire Economic Expansion Since the Great Recession Is at Risk of Collapse
• Driven by the Pandemic, U.S. Economic Plunge and Financial Market Turmoil Are Accompanied by Rapidly Mounting Risk of a Hyperinflationary Systemic Implosion
• The Fed Is Creating Unlimited Money, Liquidity and Bailouts, With the Federal Government Embarking on Unlimited Deficit Spending and Bailouts
• Annual Growth in Money Supply M1, M2 and the ShadowStats M3-Continuation Jumped to Historic Highs in April 2020, With Accelerating Expansion in Early-May
• Ratio of Collapsing GDP to Exploding Federal Deficit and Debt Shows Historic Low Ability of the U.S. Economy to Cover U.S. Government Obligations
• GDP Inventory Changes Suggest Developing Shortages; Infinite Money Creation Chasing Too Few Goods Can Trigger Early, Rapid and Meaningful Inflation, As Seen Already With Meat and Other Foods
• Headline CPI-U Inflation in the United States from 1970, the Last Year of the Gold-Backed U.S. Dollar, to Date Has Been 561%
• Corrected for U.S. Government Understatement of the CPI-U ShadowStats Alternate CPI Inflation (1970 to Date) Has Been 4,257%
• Increase in the U.S. Dollar Price of Gold (1970 to Date) Has Been 4,314%
• Gold and Silver Prices Remain the Canary in the Coal Mine of Hyperinflation
– John Williams, Shadowstats
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David's Commentary (In Blue):
The protests are still going on and many of our largest cities are starting to clean up the mess after the riots and burning and looting. Protests are one thing; burning and looting are another. So much for Martin Luther King’s non-violent protests. The Coronavirus is expected to re-appear for a stage two assault. If that happens, it means another lockdown.
Unemployment is higher than it was in the Great Depression and GDP will check in, according to a report on the Fed’s webpage, at -52% (year on year) for the second quarter.
So how does the stock market react to all of that? It’s up baby, up, up and away. The Dow is heading for new all-time highs and the Nasdaq has already reached a new high.
On Friday it was announced that a couple of million new jobs were created. The Dow rose 829 points. I’ve got news for you. These are not NEW jobs; they were just people returning to their old jobs (many at reduced hours and/or reduced pay) as a handful of states relaxed their stay-at-home rules, on a limited basis.
What difference does it make if the unemployed number drops from - say 50 million to 47.5 million? What difference does it make if another 10 million people return to work? Yes, the “trend” is moving in the right direction, but we will still be in a Great Depression. The economy will still be in tatters. Tax revenues will still be far, far short of what the cities and states need to maintain services, and keep up with their pension obligations. Are all of the people who are jumping back into the stock market out of their freaking minds?
This is the calm one experiences in the eye of the hurricane.
When the Coronavirus returns, while people are congregating again, the number of new case start to rise again - along with the daily death count. There is a good chance that the public will be ordered back into home quarantine. That will be the death blow to most of the remaining retailers and restaurants and all of the small businesses that are barely hanging on by their fingernails after the first shutdown.
Think of the impact of all of the coming defaults on home mortgages and business leases and credit card defaults and car loan defaults. Better yet, don’t bother. It is too staggering to even comprehend.
And when the government’s $600 stimulus check and welfare payments run out, the “calm”, if you can call it that, will have ended and we will be back into the full force of the hurricane. People who have nothing have nothing to lose. And in this case, these people will number in the tens of millions.
Here are two of the best commentaries I’ve come across that address the riots and mayhem spreading across the nation. They are not political. They tell it like it is. The Hell with political correctness; It is what it is, and THIS is what it is. If we don’t address the issues they bring up with strong leadership everything could easily fall apart.
The way I see it, we are currently living in the midst of a sea change in our history. It started just three months ago. This one will be featured in future history books on the 21
st
Century. We are in the middle of what appears to be the end of an era. Its impact will be greater than the great depression and the Spanish Flu epidemic of 1919 and, it is possible even on the level of the civil war. Yes, don’t be mis-led. It is that serious. This will go down as one of those kinds of events. If
you
come out of this unscathed, then you will be one of the blessed. Gold and silver and a big bank account may not be enough to get you through. But you stand a much better chance with it than without it.
It is often said that people in the precious metals industry focuses on “doom and gloom.” I have been reading and researching from this negative (I say realistic) perspective for over 30 years. It does not make me fearful; it makes me more aware. I have predicted much of what is happening now for a long time (i.e. the final stages of the dollar and the economy based on decades of rampant inflationary currency creation, and crushing debt and credit bubble.). In an interview a bit later in today’s daily, John Williams of Shadowstats sees a similar ending. He says Hyperinflation is coming, in fact he says it is already here, in the early stages. We can thank our politicians and the Fed for that. As for the virus, that was a surprise, an accelerant to the rest of the problems, which are only just beginning to surface.
I, for one, am very concerned when I see the Black Lives Matter folks burning down buildings, and proudly holding up a fist in a black glove. I am concerned when I see Antifa shooting policeman and ruthlessly beating store owners who are trying to protect their property. Yes, black lives matter – all lives matter. But just watch the videos of the looting. Be sure and watch the 17-minute-long Candace Owens video:
https://www.youtube.com/watch?v=HTF-85H_E6o
As long as the thugs stay in their own neighborhoods (a big IF), and stay out of the suburbs, where most of us reside, we can feel safe. One thing that has come out of the violence and the riots – you can’t count on the police to protect you or your property. You will be on your own. You better buy yourself a shotgun and learn how to use it, just in case. But what will happen if the economy doesn’t recover? - and I don’t think it will. Be prepared.
For me this is like taking a history class while living it. It is fascinating, indeed. Fascinating is good. Dangerous is not. It could soon morph to dangerous.
People tell me, “David, you should be more optimistic.” I’d love to be. Show me how we get out of this mess, please, so I can share your optimism. The reason for people’s optimism is not based on what is happening now, because we have never before experienced what is happening now. It is based on tired old clichés: “Americans are at their best when things get bad,” or, “We’ve always made it through the tough times before and we will now.” Maybe that will be true again? But I can assure you that even if we do make it through this mess, it will take a long time to recover, and it will be very challenging. It’s time to hunker down and prepare for hard times. If I am wrong, and everything goes back to normal, then we can laugh at our unnecessary preparations and admit, “we were wrong – thank God.” And all the gold and silver you set aside will still be worth a fortune. The inflation that is already in the pipeline, courtesy of the Fed and congress, will see to that.
Just because I am
aware
of what is happening, and being ahead of the curve, does not mean my quality of life is any the less for it. My life is just more interesting. I am very much like Camus’ character Meursault, in
The Stranger
, who wandered through life with “interested indifference.” I tend to keep the emotion of it out of the equation. I lived through the Polio epidemic in the early 1950s, and the Viet Nam war riots and the Rodney King riots and a severe recession in late 70s. And that was followed by a more severe recession in the early 80s and a brief stock market crash. And there was another stock market crash in 2000 and another one in 2008. Plus 9/11 and two Iraqi wars and Afghanistan. We made it through all of that and still managed to prosper. (Unfortunately, all of the prosperity was built on debt and money creation that has finally run out of steam.) But I have never seen anything like the confluence of events that are all coming together now. No one alive has. It’s like the perfect storm.
There has never been a time when all sports, high school, college, pro, etc. were shut down. When the economy was shut down. When people were afraid to leave their homes or venture out without a mask. Most of us will make it through this one too. For some of us, this will just another difficult time, but many of the 40 to 50 million people who are currently out of work, with dim prospects of coming out of this with a job or in as good a shape as they were just a couple of months ago, life will be a nightmare. To me, that means social unrest, and the riots are just round 1. It will be a long hot summer.
Trump has the lowest ratings of any first term president, which is an indicator of how divided this country is. If you think that Trump is bad, do you think that Biden is any better? Is there anyone in the wings who can lead us out of this mess? Our government is made up of managers when we need is leaders. Where are they?
This is historic stuff. All of it. Many people roll their eyes, yawn as they mumble, “You worry too much, things will work out.” Unless this ends up in a nuclear war, which is a possibility, then yes, things will work out. It may take 10 years. Our grandchildren will talk about this to their kids, but we are living in the midst of it. Soak it all up. It’s a fascinating thing, as long as you are healthy, mentally and financially sound.
Why isn’t gold up $2000?
It’s all about liquidity. The Fed has provided the
liquidity
to levitate the markets. But rising stock prices has nothing to do with the economy. The stock market is NOT the economy. So far, most of the money that has been created is going into financial assets. When it finally starts to trickle down, watch out for hyperinflation. More money chasing fewer goods and services. John Williams discusses this later in today’s daily.
Returning to the 2.5 million new jobs – they were not new jobs; they were people returning to old jobs. And the numbers are probably cooked to begin with.
Stop looking at the stock market, it is a complete scam. It has nothing to do with the economy. What is real is the closed businesses, the vacant real estate, the oceans of cars sitting beneath the sun in parking lots and stadiums.
On July 31, when the $600 stimulus checks end, let’s see what happens. The Fed is going to drive the stock and bond markets higher, but not the economy. If you don’t see this, you are disconnected from reality.
If the Fed didn’t have zero percent interest rates, if the Fed wasn’t throwing trillions of dollars into these markets, where would the economy be right now? If we didn’t have corporate buybacks, where would the stock market be now? If the government wasn’t giving people $600 bonuses, and extending unemployment benefits where would we be now? Where would this all be if 5 million people who were out of work with no money weren’t able to put their homes in forbearance? Where would we be if 15 million people who are out of work and out of money weren’t putting off paying their credit card payments and their car loans? What if they couldn’t do this, where would this all be? The economy is dead. Cities are burning, states are bankrupt, pensions are unfunded – none of this makes any sense, it’s all artificial, it’s the Fed driving the markets.
Look at the debt and the deficits, they are blowing up, out of control. At some point this Ponzi scheme ends and we are all on the hook for this massive debt. Look at the overvaluation of stocks, and the housing bubble that nobody wants to talk about. What is happening to commercial real estate is nothing short of a disaster all the way up to the largest shopping malls in America. The Mall of America, here in Minneapolis could file for bankruptcy.
Police budgets across the country are going to be cut. Your number one priority is security. What is the citizen, and the store owner going to do when there are no police? You are on your own, you are responsible for you, nobody is going to come to save you. Do you have a plan? Do you have a gun? Would you even know how to use it?
Warren Buffet said, “There is nothing to buy, the Fed acted too quickly,” yet people are pouring back into the stock market. There is no “V” shaped recovery. It is mathematically and economically impossible.
People will tell you the stock market is up so the economy is recovering, but remember, most people don’t benefit from the stock market gains. The top 10% own 84% of the stock market, so who is benefiting? The 10% and especially the billionaires whose wealth has increased by over half a trillion dollars since the beginning of the Pandemic. This is why people are taking to the streets. It goes far beyond another black man being murdered by the police.
Right now, unemployment remains at all-time highs, and what difference does it make whether it’s 40 million, or 50 million, or 30 million? Nobody really knows; it depends on who’s cooking the books.
Only 14% of individual families are invested in the stock market. So how do you think most people are doing? How many are doing better that they were six months ago? If you ask people, how is the economy doing? They will probably say fine. If you ask them, How are you doing? They will probably say, “Not very good, I lost my job.”
Do you have job security? Many people are going to be returning to work, but how long are those jobs going to last? If business doesn’t pick up, they are going to have to let people go. If business doesn’t pick up, businesses will close and more jobs will be lost.
If you are lucky enough to be doing well, do not take it for granted. Be prepared for the uncertainty that lies ahead. Make sure that you have security, food, water and hard assets.
51 percent of the people make less than $32,000 a year and many have to work multiple jobs to survive – and that’s before the economy crashed.
The stock market experienced a 30% drop followed by a 30% recovery, but there really isn’t anything to justify where prices are today. The GDP is going to be 52% lower in Q2, yet the Nasdaq is at record highs. Insane. When the Q2 numbers come out, the Buffett indicator (Corporate Equites to GDP) will be at the most overvalued, by far, in history, yet the stock market keeps rising and we are told everything is fine and the “V” recovery is here. The published unemployment numbers show 43 million people are without a job. Half the country is jobless, riots continue, and yet the stock market rises. If you are rational, you must see this cannot continue. Wall Street will tell you that all that matters is liquidity. That’s true, for now, for your stock portfolio but it does not help the economy or the tens of millions of Americans who are out of work.
The Fed has dramatically reduced the amount of liquidity that it has front-loaded into the market, from $500 billion a week to around $65 billion a week. $65 billion a week is still a lot of money compared to previous QE programs. If the Fed stops adding the liquidity the stock markets could collapse, yet this very same liquidity is exacerbating the wealth gap. The more they force that gap wider, the greater the chance of outright revolution.
Greg Hunter Interviews John Williams
I just finished watching Greg Hunter interview John Williams (Shadowstats). I have subscribed to Shadowstats for over 15 years. He is a voice of reason and truth in a misguided and corrupt world. When I spoke at
The Money Show
in Orlando a dozen years ago, his data was the foundation of my speech. I have highlighted a portion of what Williams had to say.
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BUY GOLD – COMING HYPERINFLATION MAKES DOLLAR WORTHLESS
Did we really gain two million jobs or is there something else going on here? There were a lot of unusual things in the BLS report. They changed methodologies; there were downsize revisions, and there is something strange going on in terms of game playing. The month before last they admitted that there were 4.9 million people that they counted as employed when they were unemployed and last month they did the same thing with 7.5 million. The difference it makes is that you’re looking at an unemployment rate now of 13% when it’s really 16%. They realized they made the mistake but they said, “We don’t change the survey once it’s done.”
If we counted the unemployment number the same way that they used in 1994 what would the rate of unemployment be today? The real rate would be about 38%. Let’s just say the real unemployment rate last month was 40% and it’s not getting better. The BLS doesn’t account for the Discouraged Worker, the person who has given up looking for a job because they can’t find work after a year.
Can they pay people unemployment indefinitely? Why not? They can print all the money they want to. It’s not healthy for the economy and it’s certainly not healthy for the public but they can do what they want.
I have a chart of the money supply and its going vertical, just like the chart of the Nasdaq. The Fed is creating the highest level of money growth ever seen. It’s the highest level for M1, M2 and even M3 ever seen. The Fed can go to infinity with this but the currency will be destroyed. So, what could go wrong? Hyperinflation. Your money becomes worthless. There are ways to protect yourself. Own
physical
gold to protect yourself against the terrible times that are ahead here.
I’m still buying gold in the face of all the manipulation and all the money printing. Central banks hate gold because it shows that they are not doing their job.
I also measure inflation the way it used to be measured. I tied inflation to the CPI with a base starting point of 1972. What I found is when plotted against gold, it was very close. Gold followed the CPI.
If we use the government gimmicked inflation number, (the current numbers) which reduces the inflation, the headline inflation would be something like 560% (since 1970) and if you looked at gold you would be up around
4,400%.
If you go back in time to New Amsterdam New York in the 1660s the total inflation between New Amsterdam and the founding of the Fed in 1913 was just
9%.
If you take the total inflation since the founding of the Fed to today we are up around
16,000%.
That might tell you something about who creates inflation. If you go back to the beginning of the gold standard, gold and inflation tracked together. Once we got off the gold standard in 1971 gold started to rise faster than the “adjusted” inflation numbers, but if you look at the real inflation versus, gold has kept up. No matter how much they manipulate the price of gold it will always find its true worth.
By hyperinflating the money supply, it’s going to work through to inflation, but gold will protect you (and silver too).
We are facing a confluence of the worst things that can happen. Because of the Pandemic, the economy has collapsed and we are looking at the worst economic numbers we have ever had, so we have major sectors of the economy that have shut down and inventory levels are sharply lower. We have low production and shortage of goods and at the same time the Federal Government is spending unlimited amounts of money to support the system.
You’ve got a lot of money that’s being thrown at too few goods and that creates inflation. This is the early stage of hyperinflation
. That’s what gold and silver are beginning to respond to.
Will they confiscate gold? People will still buy gold and trade gold and I don’t believe we will have a confiscation. Gold ownership here is legal and there is no reserve requirement to back the dollar any more. If they do that, Jim Sinclair says just own US coins, Eagles, Buffalos, junk silver, double eagles, etc. They are legal tender. The likelihood of them taking that is near zero.
In terms of inflation, I’m looking for a hyperinflation. As the money that’s being created gets into circulation, you will see prices start to rise and it will soon be worthless to you.
It will be rapid
. The government will have to come up with something to allow the currency to have some value, perhaps by adding zeros to the number. They will have to come up with a new currency and if they wanted to back it with gold it would not be practical because you would have to control deficits. In WW2 the GDP to debt ratio got up to 120. (The debt was 20% higher than the GDP) Right now, the GDP to debt ratio is around 170 and after the second quarter numbers come in, and they will be horrible, it could top 200. So, who will want to buy the debt (bonds), which will force interest rates to rise and spike inflation?
We’re heading into bad times. It is not sustainable. You can thank our politicians and our bankers for this. The April numbers for industrial production was the worst drop in its 101-year history. Look at retail. We’ve had two slumps in retail sales since WW2. The second quarter will show 60% to 80% contractions. We’ve never had anything like that. I think we will see a GDP contraction in the second quarter of about 50%. That’s annualized. The “consensus” is around 34%, which is still the worst we have ever seen, worse than the Great Depression.
We should see some kind of bottom because this is not an economically driven event, it is the Pandemic which shut things down. The economy now is back to the level last seen at the onset of the Great Recession, and have erased 10 years of growth.
The real numbers indicate
the economy is still turning down.
It’s slowing in its downturn but it is still falling. There were around 6 million new claims a week ago and now, as people are starting to come back to work, it’s slowing, but it’s still around 1.5 million new claims a week. But it used to be around 200-300 thousand a week.
The stimulus helps people with liquidity but it doesn’t help the economy because there are no jobs. My 38% unemployment rate is indicative of all the jobs that left the country due to NFTA and to China and there were no jobs for people to find.
Why did the Fed just come out and say the banks no longer need to hold reserves? Because they are printing money to infinity. They eliminated the reserve requirements so the banks would have more liquidity. We are headed to hyperinflation. The system is bankrupt and the Fed is just printing money to bail it out and slow down the collapse. People have done that throughout history – the Weimar Republic and Zimbabwe. They will print all the money they need to and bail out any bank that needs help. But guess what, you also get a hyperinflation. They have crossed the line. The real inflation number now is around 10% and that is the threshold before the onset of hyperinflation.
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Ed Steer feels sorry for us. Our leaders have let us down. The gig is up and the Fed knows it. Rampant inflation is all that is keeping our economy alive. They are keeping company’s “solvent” but not alive.
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Ed Steer
When I saw the story on the job numbers I knew immediately that it was a total fabrication. I was saddened by the fact that the U.S. government had pulled off a bald-face lie like that one, in a blatantly transparent attempt to affect the markets and public opinion.
I was sad for the American people that their deep state 'leaders' had fallen this low -- and how, over the last 50 years or so, I've watched America turn from the respected and beloved nation that it was back then, to the horror show it has become today.
We are in a very dark economic hole right now -- and nothing will bring it back to what it was. I said many years ago that when the depression that the central banks had long been fighting against, finally manifested itself, that I would not live long enough to see it breath its last...and I won't.
All the money printing in the world won't save us now -- and the central banks know that they are fighting an impossible battle against this deflationary depression that's pounding on their ramparts.
They've played all their cards -- and are all out of aces...except one. The gold card.
The fractional reserve banking system, as I and others have stated over the last two decades, does not work in reverse. The economic, financial and monetary systems must be kept ever expanding -- and the trillions they're printing out of thin air to keep this 'Everything Bubble' inflated, are having less and less effect either financially, monetarily...or psychologically. The jig is now up -- and they know it.
They must generate inflation -- and lots of it. Rampant counterfeiting by the Fed et al. is only keeping equity prices elevated -- and companies liquid, if not solvent. A new price for gold will fix a lot of their deflationary problems literally overnight, as everything will be devalued against hard assets...including all fiat currencies.
The smart money is already in the precious metals, with more arriving by the day, week and month -- and I know you are as well.
This fiat currency game will celebrate its 50th anniversary in August of next year -- and I wouldn't be prepared to bet any money that the system makes it to that date, before everything implodes into a financial and monetary black hole.
So, one has to wonder how close the deep state powers-that-be will get to the event horizon before they play it?
But I'm still happy playing at being my own central bank here in Merritt -- and I'm still "all in".
And while on the subject of central banking, the Fed has its FOMC meeting this coming Tuesday and Wednesday -- and we'll find out on Wednesday afternoon what new rabbits Jay Powell has pulled out of his hat.
If there's anything out there that demonstrates the continuing momentum which will likely drive gold to new heights, and drag silver up with it too, it is the continuing flow of gold and silver into their respective metal-related ETFs. Those of you who read my article of Wednesday - Unsustainable equity markets. All the more reason to invest in gold and silver - should hopefully have taken notice of the comment about the huge inflows into U.S. gold and silver ETFs in May and the first couple of days of June. Now the World Gold Council (WGC) has released a report citing the exceptional level of inflows into global gold ETFs in May - inflows which have continued so far almost every working day in the current month.
According to the WGC gold-backed ETFs added 154 tonnes - net inflows of US$8.5 billion (+4.3%) - across all regions in May, boosting global holdings to a new all-time high of 3,510 tonnes. Year-to-date, inflows (623 tonnes, $33.7 billion) have now already exceeded the highest level of annual inflows (591 tonnes) recorded back in 2009. And, as we pointed out in Wednesday's article, recent silver flows into ETFs have probably been even more spectacular. All this increase has happened despite some fairly volatile movement in the gold price which, at one time even spent much of the first half of May back below the $1,700 level, which many had reckoned to be the new base price for the yellow metal. This volatility has continued into the current month with the gold price being driven down to around $1,680 yesterday, before recovering back to around $1,720 as I write.
Despite the pressure under which gold and silver prices currently find themselves we think the momentum generated by the enormous flood of money going into the precious metals ETFs is indicative of things to come for the sector. We suspect that the $1,750 current ceiling for gold will be breached comprehensively by the northern hemisphere fall and $2,000 gold will not be too far behind, although there will be periods of resistance along the way. Anecdotal reports suggest that demand in China and India, the two leading gold consumers, is beginning to turn up again, while global new mined gold production seems at last to be beginning to fall, both because of coronavirus related production losses and through other factors as we are already seeing in Australia, the world's No.2 gold mining nation and as we have been seeing in China, the world No.1, for several years already. With the accelerating gold-related ETF rises worldwide, and as the world comes out of the coronavirus lock-downs, gold's supply/demand fundamentals may be improving. While what we expect to be a severe equities plunge, coupled with perhaps a declining dollar index, should further enhance gold's appeal as the ultimate safe haven investment - which should drag silver up with it. In our view the prospects look positive for both principal precious metals.
One country. Two systems.
One financial. One economic.
One for Wall Street. One for Main Street.
One for the elite. One for everyone else.
One fraudulent. The other just a rip-off.
To make a long story precariously short (and deliberately provocative), the "rich" got some of their wealth honestly.
The rest they got by ripping off the poor and middle classes, using their fake-money system.
In effect, after 2008, they had access to an almost unlimited amount of credit priced at artificially low rates, giving them a greater and greater share of the nation's real wealth.
And who noticed? They said the Federal Reserve was "stimulating" the economy.
But the two-system system is now wreaking havoc on our economy, our society, and our government... and driving the whole kit and caboodle to a disaster.
U.S. equity prices are near or at all-time highs at a time of unprecedented economic collapse, a festering main street Depression, unemployment way higher than in the 1930s, with no prospect for a V-shaped recovery, only its illusion.
The Wall Street owned and controlled Fed is responsible for the extraordinary melt-up in stock valuations, money printing madness to blame - saving the stock market at the expense of the economy and welfare of ordinary Americans.
For the first time in U.S. history, the Fed's balance sheet exceeds $7 trillion.
It's up from around $250 billion in the late 1980s and $750 billion in late December 2007, the onset of the 2008-09 financial crisis - a colossal example of mismanagement, an eventual price to pay for what's going on.
Wall Street on Parade (WSOP) noted a disconnect between the Fed's balance sheet and economic collapse.
At year-end 2019, WSOP explained that the Fed "was already deep into a debt crisis," reflected by its minutes.
From mid-September 2019 to late January, the Fed already "had made $6.6 trillion cumulatively in emergency revolving repo loans to Wall Street" - even though the first US COVID-19 death didn't occur until February 28.
Flooding the market with liquidity at near-zero percent interest is a virtual open sesame to unrestrained speculation for easy profits - no matter the extraordinary divergence between equity valuations and intrinsic value.
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Casey Research
Doug Casey: Gold Will Soon Replace Cash
Gold’s main use, contrary to the belief of some, isn’t in jewelry or dentistry – although those uses are important. Its main use has almost always been as money. But gold’s ancillary uses are growing in importance because, given its physical characteristics, it’s a high-tech metal. It’s one of the most resistant to chemical reaction, one of the most ductile, the most malleable of all the elements, and it’s an exceptional electrical conductor.
There are lots of other advantages to gold as money. It’s by far the most private kind of money; gold coins, unlike paper currency, don’t even carry serial numbers. That makes it truly untraceable. At current prices, it’s more portable than cash, even in the form of $100 bills. It doesn’t retain traces of drugs, as does currency, which makes it less liable to arbitrary confiscation. Although efforts have been made to counterfeit gold bars, with tungsten filler and such, it’s much easier to authenticate than currency.
Until quite recently, 90% of the world’s people were either flat-out prohibited from owning gold (Russia, China, and the rest of the ex-communist world) or simply too poor to consider it (most Indians and other residents of the Third World).
But these people are now allowed to own gold and have a fast-increasing ability to buy it. And they’re rapidly doing so. Their cultures have long histories with the metal and recent histories of living in a police state; they understand the value of real money. Although common people are now the biggest gold buyers, their governments and central banks are accumulating it as well.
I expect that gold will soon become the preferred medium of exchange for many. Early adopters will include dealers in drugs, armaments, and other prescribed merchandise; these folks are very security-conscious. They will be joined by all manner of people who just want to do business below the government radar.
And in the years to come, paper currency is gradually going to be eliminated by governments in favor of debit cards, credit cards, and other media of electronic transfer. Governments prefer these things, for obvious reasons. People, therefore, are going to need a private way to trade when paper cash is unavailable.
It’s not just that cash will be harder to come by and harder to use. People won’t want to hold it as inflation gets serious; as U.S. dollars are increasingly viewed as hot potatoes, people around the world will gradually go to gold.
In 100 or so countries, the dollar is already the de facto currency for large purchases and long-term saving. What will people in these countries do as the dollar starts losing value rapidly? They won’t go back to their local currencies; their only reasonable alternative is gold. All these things will add to demand for the metal. This is good news for those who own gold in size now.
Almost everybody, even gold bugs, has far too little gold. Most people have no gold at all. Pity the poor fools. Gold is going to be reinstituted as money within our lifetimes, simply out of necessity. But that can only happen at higher prices, since only about 6 billion ounces exist above ground in the entire world.
Debt
Now that we’ve defined what money is, let me further define what money is not: debt. All U.S. dollars, which is to say Federal Reserve Notes, are debt. They are neither redeemable for anything by their issuer, nor is there a limit on how many can be created.
They represent only a vague claim against the “good faith and credit” of the United States government, which is to say the government’s ability to extract taxes from its subjects. But Uncle Sam has shown himself to be remarkably lacking in good faith and is currently embarked on a course to destroy his credit.
The dollar is literally an “IOU nothing.” It’s true that your grocer and your barber have to accept the dollar because of “legal tender” laws, and because they currently wouldn’t know what else to take in payment. But that’s not true of foreigners, who own something like $6 trillion.
Paper money is an excellent means for governments to tax people indirectly, surreptitiously, through inflation. That’s one reason central bankers love paper money. But also, phony economic theories, like those of John Maynard Keynes, hold that the government not only can, but should, meddle with the economy. The ability to print paper money gives them a means to do that.
In today’s world, not only do people around the world take it for granted that paper is money, but that it should be so.
But it’s all nonsense. After the current system collapses, as every paper money system in the past has collapsed, some form of money will have to replace it, and it’s almost certainly going to be gold.
You know, in the 19th century, the “paper money” you carried in your wallet was called banknotes. Why? Because they actually were notes from your bank representing a specified amount of real money on deposit. People carried these things because they were much more convenient for large amounts of money than chests of gold. Dollars today say, “Federal Reserve Note,” not “XYZ Bank Note,” on the back, because they aren’t redeemable for anything besides more Federal Reserve notes.
That’s why today’s paper money substitutes are called fiat currencies; they have zero intrinsic value and are not redeemable for anything, but are accepted because the government will put you in jail if you don’t. It’s a fiat accomplished by force, not real value recognized by those who accept the notes.
Hundreds of years ago, people accepted bank notes because they knew the reputations of the banks issuing them (when you traveled, you went to a reputable local bank, which knew the reputation of the bank that issued your notes, and the local bank could issue you new notes in local currency, etc.). There was no central authority to certify these notes. But today, people don’t think that way. They think it takes a government to assure the value of money.
Of course, anyone in Zimbabwe can tell you a government’s guarantee is not necessarily worth anything. A collapse of the dollar – the world’s de facto reserve currency – could spark such a change in that way of thinking.
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About Miles Franklin
Miles Franklin was founded in January, 1990 by David MILES Schectman. David's son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin's primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.
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