Weekly Article 01-24-2019
Many people seem to be shocked by the absolute disregard that many politicians seem to have for debts, deficits and insane amounts of spending. Of course, it appears to me- and has for decades- that those politicians who promise the most freebies get the most votes. I don’t know if that is human nature or just stupidity on the voters part.
Since the central banks have, so far, been able to keep “printing” up “money” out of nowhere and there is still an illusion of value to the “money” the politicians have been able to kick the bill down the road.
Even as global debt has skyrocketed it appears that all is well because central banks have purchased trillions of dollars of bonds and securities to keep interest rates artificially low and allow governments and companies to pay the interest on the outstanding debt. Of course, notice I didn’t say pay off the debt- which is climbing exponentially with no end in sight- just to SERVICE it. Even then, there is new debt being issued to roll over maturing debt and money being “printed” to pay current bills to give the illusion of solvency and normalcy- which would not exist without the money from nowhere.
Since this is obviously a plan to keep the system propped up the question has to be when do people become aware that this “money”, because of its sheer amount and ability to be created with virtually no cost, is of little to no value?
This “printing” and manipulation of prices of everything has caused MAJOR problems in the production of items we need to live- like food, water, etc. and could lead to shortages in the future as many producers cannot survive on the artificial prices that are made far worse by short-term traders. This type of gambling is distorting prices even further and making the public pay more for most all goods that we need. Of course, these “traders” produce nothing but are far more than willing to make a profit at everyone else’s expense.
Of course, those closest to the central banks- their owners- the banks- are the most likely to benefit from this system because they can get that cheap “money” in massive amounts and move prices in most cases in any direction they would like them to go.
This to me is the financialization of our economic system. Instead of supply and demand we have “money from nowhere” creating false demand where none may exist at the current price and keeps prices artificially high (or low depending upon the bet they are making).
In an article from Kunstler.com “Financialization, it’ll turn out, was just money with its value removed. Imagine how pissed off the voters will be”. To me, that explains it all.
Of course, we are now running totally off the rails as Bernie Sanders-types are emerging all over the place and not many getting more press than Alexandria Ocasio-Cortez. She appears to be in over her head in most instances but she is hell-bent on her “free stuff for everyone”.
Now you and I know that there is no such thing as something for nothing. Someone has to pay.
While many criticize her- maybe rightly so- it appears to me that she is part of a generation that has known nothing of real markets, were not taught any financial lessons in their schooling, and have seen shocking amounts of “money” “printed” out of nowhere. They have also seen this “money” enrich those at the top at the expense of those at the bottom (which is where most young people start out).
It is not shocking to me that when asked how we would pay for all of her generosity her response was “We’ll just pay it!”. As ridiculous of a statement as that seems to be it appears to me that virtually all other politicians have been DOING the same thing for years.
Let me just ask this question:
If we were unable to pay our debts in 2008 (without tens of trillions in money “printing” and government and central bank bailouts) and we have more than doubled our debts since then and we have not had anywhere near that type of growth in the economy why would anyone with a functioning brain think that all is well now?
There appear to be no good choices after a 10-year experiment with central planners determining prices rather than the markets. Massive imbalances have built up because of the interference in the markets by those who have the power to conjure up unlimited amounts of “money” to bend the market to their will.
Of course, all of this new “money” is actually debt so as they buy assets with this “money” they leave us with the debt to pay for the assets that they now own. How convenient for them!
The problem? At some point the regular people who are impacted by rising prices and less services rise up because their lifestyles are being destroyed. Look at Venezuela, Zimbabwe, France, Greece, Italy, etc. These debts may become unpayable even with 0% interest. I believe we are WAY past that point already its just that most people are not paying attention.
One area that I pay attention to is with gold and silver. Of course, these assets are nowhere near as important as the production of food and clean drinking water or even energy but the same trials that the miners have are shared by these producers also.
If the price is held artificially low as I believe gold and silver have been for the past 8 years or so the miners stop exploring for new deposits and eventually that may lead to a shortage of supply. The same with food producers and energy production. If the market is not the determining factor then imbalances grow and it may become uneconomical for production to continue. If you can’t produce your product for less than you can sell it for you would be a fool to not stop producing. Someone once said that if you find yourself in a hole the first step is to stop digging.
The miners have pulled back. Many are noticing. Sam Zell, American businessman and billionaire has bought gold for the first time in his life because he calls it a “good hedge”. He, like many others is likely sensing trouble in paper assets. Mr. Zell has been pretty impeccable in his timing of macro events at least since around 2006 when I started to notice what he was doing. Like buying at lows and selling near highs a real estate empire.
I don’t know if Mr. Zell knows about the central banks and major banks buying gold or about most nations buying gold now too but he might know that this debt is far out of hand and will likely cause major pain at some point in the near future. Anyone as savvy as this guy has to know that debt is a drag on growth and now the drag may be becoming an albatross.
Will they “print” currencies into oblivion or will they stop short of that and risk a financial implosion. Being a fan of history and looking at what happened in December when they may have just tested what might happen if they were to actually stop propping up markets, I will vote for “print to oblivion” as this is what virtually all other incidents like this have led to.
Lenin “The best way to destroy the capitalist system is to debauch the currency”. Of course, it has been decades since we had a REAL capitalist system- even China may be more capitalist than we are today but the currency currently holds only 4% of its purchasing power that it had 100 years ago. Prices go up when the value of your “money” goes down.
I would prepare for both deflation and inflation- and we might just get battling bouts of both as the future unfolds- but of this I am sure those that hold gold and silver will be happy regardless of whether inflation or deflation takes hold. Each outcome has its own reasons for this but most of all the prices have been artificially suppressed for far too long and as assets “revert to the mean” or find their true unmanipulated values these two assets appear to me to be near the top of the list.
JP Morgan: “Gold is money. All else is debt” Think about that!
Mike Savage, Financial Advisor
2642 Route 940 Pocono Summit, Pa. 18346
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