Toothpaste, QE, Gold and Debt

Miles Franklin sponsored this article by Gary Christenson. The opinions are his and are not investment advice.

Breaking News: For the week ending April 3, the DOW fell 584, gold rose $20, and silver fell $0.04.

• The Fed supercharged their “monetary firehose” and injected hundreds of billions into the debt markets. They support the political and financial elite. The non-elite will receive a few benefits, later, maybe, someday.

• Unemployment claims went ballistic. Ten million in two weeks.

• The U.S. has over 300,000 (April 4) confirmed cases of COVID-19. One month ago, there were 159 confirmed cases. This is an exponential rise of 28.5% every day for 30 days. At this rate we will reach 10,000,000 cases by April 19. However, the rate should decrease. Suppose it drops to half, “only” 14% increase every day. The US will reach 10,000,000 cases by early May. Strengthen your immune system.

• The reaction to the virus has devastated business, the economy and future expectations.

THE TALE OF TOOTHPASTE:

We all know from experience that toothpaste can be squeezed out but can’t be pushed back into the tube. It’s a one-way process. The tube and paste are materially changed after squeezing the tube.

• Do you think our world has materially changed after nearly 10 million Americans were dumped onto the unemployment rolls in two weeks?

• Local, state and federal tax revenues will crater, while unemployment, welfare costs, and social benefits jump higher. Budgets were tight before this disaster. Post-virus will be much worse.

• Many jobs will disappear permanently. How many restaurants and small businesses will never reopen? Will “Zombie” corporations survive? Will movie theaters and small businesses reopen in weeks or months? Is the “newer normal” an ugly depression?

• How many homes will be lost in foreclosures? Credit card delinquencies? Auto loans defaulting? Student loans?

• Movie theater revenue dropped nearly to zero for the last week of March. April looks grim for most businesses. That revenue is gone forever.

• The toothpaste is out of the tube. Life for everyone has changed because of global reaction to the virus. We will not return to what we hoped was “normal” in 2019.

THE ROLE OF THE FED:

For decades the Fed (and banking cartel) “centrally planned” the currency supply, “printed” dollars from nothing, generated consumer price inflation, inflated three massive bubbles in the past 24 years, created $trillions in debt, levitated stock prices, hammered interest rates and encouraged the transfer of wealth from the many to the few. They enabled, instead of inhibited, financial fraud and the coming meltdown in derivatives.

Official national debt exceeds $23.8 trillion, thanks to Fed policies, deficit spending and congressional mismanagement. That debt cannot be paid with 2020 dollars. Pick one: default or hyper-inflation.

The Internet bubble of 1996-2000, real estate bubble from 2003-08, and everything bubble from 2016 – 2020 were created by excess credit creation and inexpensive debit. To save the banks and revive the economy after the inevitable crashes, the Fed created more debt, making the next crash worse.

The Fed balance sheet increased by $1.5 trillion in three weeks. A $10 trillion balance sheet of “printed” QE currency units looks inevitable. Their plan: Create more debt to fix an excessive debt catastrophe.

Question: What could go wrong with that plan?

RESPONSE TO THE VIRUS AND ECONOMIC DOWNTURN:

The Fed created $1.5 trillion (to bail out Wall Street and the Treasury) in three weeks and is “printing” more every day. Wolf Richter says, “If the Fed had sent that $1.5 trillion to the 130 million households in the US, each household would have received $11,538.”

Since the government runs a deficit every year, the current $2 trillion in bailouts (more bailouts are coming) are funded via created debt, not accumulated savings. Our $23.8 trillion in national debt will soon exceed $30 trillion.

Those newly created dollars will devalue existing dollars and create consumer price inflation. However, the falling stock markets and increasing debt defaults are deflationary. The Fed will fight corrections and deflationary forces by creating more debt, as they have for decades. The purchasing power of the dollar is expendable.

SUMMARY:

• The Fed and government will address an excessive debt problem and collapsing economy by creating more debt. Don’t ask what could go wrong… just do it.

• The Fed’s credibility, what’s left of it, will deteriorate further.

• People will (eventually) lose faith in the Fed, fake money, government promises and QE4ever.

• Debt is flying higher with no end in sight.

• The dollar will be sacrificed.

THE GOLD AND DEBT CONNECTION:

Our debt-based financial system guarantees debt must increase. Banks and the Fed want more debt. Government and politicians consistently spend beyond their revenues and borrow the shortfall. Debt rockets higher.

Year                             National Debt

1981                            $1 trillion

1995                            $5 trillion

2008                            $10 trillion

2017                            $20 trillion

2020                            $23.8 trillion

2023?                          $30 trillion?

As debt rises, dollars buy less. The dollar price of gold (COMEX) increases.

This graph shows 45 years of exponential (straight line on a log scale graph) increases in national debt. The quarterly gold prices were smoothed by a seven-period moving average. Gold prices rise along with national debt, but slower. The correlation of quarterly national debt and smoothed gold prices since 1976 is 0.91.

WHAT SHOULD WE EXPECT IN THE NEXT FIVE YEARS?

a) Debt will increase more rapidly than during the past five years. Think bailouts, declining tax revenues, pension and corporate bailouts, QE4ever, MMT, enormous stimulus packages, a fearful Fed, and panicked politicians.

b) Debt will grow faster than gold prices, but both must rise exponentially as dollars buy less.

c) Gold prices will follow the growth of debt, rocket higher (as in 1979-80 and 2011), fall back and repeat.

d) Gold prices will soon exceed their all-time high of $1,923.

e) Higher prices, such as $3,000, $5,000 and $10,000 are coming. How soon depends upon QE4ever, government stimulus, dollar weakness, bailouts, economic and financial ignorance, politicians, stupidity, payoffs, wars, and time.

QUESTIONS:

• The ten-year Treasury note returns under 1% per year. If gold prices rise by a similar 1% per year, in ten years COMEX gold prices will be about $1,800. You need retirement capital in ten years. Invest today in gold or the 10-year note?

• A responsible congress would manage debt and expenditures. Do you expect congress to act responsibly?

• The Fed has done a miserable job controlling debt, fraud, and the value of the dollar. Do you expect their management will improve?

• Will the official national debt be hyper-inflated or defaulted?

• Will the stock market soon return to its 2018-2019 rally mode or fall for several years?

• Do you think the rise in COVID-19 confirmed cases will soon reverse? Will unemployment claims rise further? Will the Fed continue QE4ever? Will the “newer normal” look like 2019 or the 1930s?

• Regardless of who is elected in November 2020, do you think the national debt will stabilize, fall or rocket higher?

• Are you convinced that gold and silver prices will rise substantially during the next two to five years?

Read: Silver – Left Behind Today, But Not Tomorrow.

Miles Franklin can’t solve the COVID-19 pandemic, can’t change QE4ever, can’t stop dollars from devaluing, and can’t fix the loss of purchasing power problems that confront every household. They do sell gold and silver coins and bullion. Call 1-800-822-8080.

Gary Christenson

The Deviant Investor