Is the U.S. really as wealthy as it looks? We “print” money, but what effects does this have on the overall economy? Read more from Pocono Summit’s financial consultant. Get in touch to learn all about retirement planning, annuities, and more.
Weekly Article 09-06-2018
I have written in the past about how “printing” money gives the illusion of demand where none may exist and how it falsifies all prices by, instead of letting market forces determine prices, where a willing buyer and willing seller determine a fair price, someone who “prints” currency out of thin air buys or sells assets and masks the true value of what is being bought and sold.
This form of manipulation determines what assets rise and what assets fall based upon likely what furthers the “printer’s” agenda or makes the most profit for those who are printing up or keystroking that currency into existence.
This has been going on for so long now that many consider this a normal market. Nothing could be further from the truth. As I have also said- you can’t have unlimited money creation in a world where there are finite resources. The problem here is that “printing” has to continue to increase or the whole edifice could collapse under its own weight- see the problem? The money may never run out but the real stuff just may.
It appears to me that the only reason the central banks have gotten away with this for so long is that they have been working together to :
- Keep the price of gold and silver suppressed so there is no canary in the coal mine as far as all of the “printing” taking place globally. In the past a rising gold price would tip the public off in advance that inflation could be a large problem shortly.
- Make sure that all currencies had been depreciating at approximately the same level so that there is not a panic in any one place. Of course, recently we are seeing the cracks in this strategy as many countries including Argentina, Turkey, Venezuela, India, Brazil, Iran and many others are seeing the value of their currencies collapse at an alarming pace. This appears to be the beginning of the end for this strategy. In those places the “printing” has already caught up with them and their currencies are in trouble.
- Buying stocks and bonds- possibly many other things also both domestically and globally.
- It also appears that countries may be purchasing other countries bonds and keeping those purchases off the official books- this became a subject for discussion when President Trump offered to bail out Italy by buying their sovereign bonds. (A bankrupt nation bailing out another bankrupt nation- go figure!).
As long as the central banks all played nice the illusion could be maintained. Today, however, the cracks are becoming more than obvious. Some are winning the currency war (USA) and the rest of the world seems to be losing- some far more than others.
Russia, Turkey, China, Iran and many others are starting to fight back and reduce the role of the US dollar going forward. They are setting up oil exchanges, alternate payment systems and are signing trade deals bypassing the use of the US dollar amongst themselves. In many cases these same entities are selling US assets- mainly Treasury notes.
Some other disturbing signs are that the price of copper and lumber have collapsed. That could be signaling a major economic slowdown. In addition, the world’s largest exporting countries- China, South Korea and Germany all have stock markets that have entered bear market territory.
While many will blame the tariffs for this, and to some extent they may be partially right, the real culprit, in my opinion, is the false prices on all assets. We have entered a paradigm where since there is manipulation of all prices it throws production of products out of whack.
If the price of gold and silver is lower than the cost to mine it the exploration and mining will slow down or stop if it gets too far out of whack. The same is true with oil, gas and all commodities. The price can be manipulated but will likely lead to FAR higher prices in the future because of a scarcity caused by the low prices that were artificially engineered.
I got a dose of reality yesterday and I am still upset as I am writing this.
I met with a client who has also become a friend over the past 15 years or so. He has been a farmer his whole life. He has a farm that had dairy cows and corn for the most part. I was told yesterday that all of the cows were sold (for a terribly low price) and that the farm would be worked part-time to produce what they could. No more dairy cows, however, because the economics don’t make any sense.
Producing milk- a commodity that is needed by us all has been destroyed by the fake prices that are all around us. If a farmer can’t make enough of a profit after feeding the cows, paying taxes and bills, then at some point we are going to have a problem with milk production. This is not much different than the manipulation of gold and silver where people in trading pits with calls, puts, buys and leverage can move the price to make a profit. With gold and silver they have been pushing the price down with puts and selling paper gold into the market with market orders when few buyers are around. In this case gold investors are harmed. This was proven in a civil case against Deutsche Bank. In the case of manipulating food and oil prices in much the same way EVERYONE gets hurt- other than the few that profit handsomely by moving the market. At some point the financial damage could easily transform into physical harm for many as basic necessities cannot be had because of a lack of productive capacity.
This is why I am so adamant about letting people know how dangerous our current situation has become and why I always end with … Be Prepared!
When I asked if this situation was isolated I was told that this (bankrupt farms) is an epidemic and that many in the dairy industry were culling their herds. (killing off the animals because they cost more to maintain than can be earned by keeping them).
I also remember this happening in 2008 and this same fellow bailed out the farm and continued on.
Unfortunately, as of yesterday he said “When there’s no hope- you give up.”
It is one thing to hear about fake pricing and manipulation but this is a real-world example of how central planning and government actions can have an impact first on the producers life and eventually on everyone when the infrastructure we rely on is destroyed because of bad economic planning or outright fraud which gets punished with billions in fines but likely earns trillions in profits.
We here in the United States have been “printing” money for a long time now. I say all of the time it produces NOTHING. This is a great example of how destructive these type of actions are. Take a look around. We are the most indebted nation in the world. All around us we see economic, societal and moral decay. This is what money “printing” and managing of prices gets you.
Our energy infrastructure is woefully out of date. Our bridges, roads and other transportation infrastructure is falling apart. A friend of mine was pulled over for the suspicion of drunk driving. Actually, as he told the officer- “I was just swerving around the potholes!” Ok it was me- I admit it.
Our society is being pulled apart because of income inequality. This is mainly because those who can “print” the money can front-run everyone and make a profit by hitting a button and creating purchasing power out of nothing. This, of course, raises the price of virtually everything because someone else can either buy it first or because of the increased (fake) demand the price goes higher.
If this sounds like a sustainable situation then just keep doing what you are doing. If, however, you think a little planning may make sense just in case the authorities can’t figure out a way to get out of this situation without some serious pain we should probably have a chat.
Mike Savage, ChFC, Financial Advisor
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