Are You in Switzerland?
QUESTION: Ar you in Switzerland and do you intend to do a small seminar in October?
ANSWER: Yes, I am in Switzerland. We have not yet set any specific date yet for a Swiss seminar.
Scenarios
QUESTION: Marty,
Is it true to say that…
If we run the printing presses full-bore, then inflate, we will then be able to at least re-boot with a new currency and start again
BUT…
We are on the path of going on the mother of all tax hunts, causing catastrophic deflation and being on a trajectory toward the Mad Max scenario?
In other words, neither are pretty outcomes, but at least with the inflating scenario we avoid having to put on the leathers and pack a shit-load of heat?
S.B. from Melbourne
ANSWER: The hyperinflation has just never happened with any mature government because they have too much to lose even in tax revenues and personal wealth. Revolutions are typically the people who had nothing then seize power. They also know nothing about finance or fiscal management. They print money because they think that will make them rich.
The only viable outcome is the path we are on and that leads to DEFLATION as government seizes everything to stay in power. They fail to grasp that they are killing the goose that lays the egg. They are too greedy to understand that.
The trick is if we can gather enough people to comprehend the risks, then we can stop short of a Mas Max event. But keep in mind that we are dealing with also the upturn in the War Cycle. This is lined up because we often see war emerge from economic distress.
The US was massive deflation imposed by England where any payment to them had to be in silver or gold whereas what they sent here was only copper. Extracting silver and gold led to the creation of paper money and the slogan no taxation without representation. It was the SHORTAGE of money (DEFLATION) that sparked the revolution.
The French Revolution was the same. Massive DEFLATION because the government bailed out the Mississippi Bubble to save face at the expense of citizens – not much different from bailing out the NY Bankers.
In both those cases, a new currency emerges. This is the NORMAL course of action.
So What Does the Future Hold?
QUESTION:
Dear Martin,
In your last post you say that sovereign debt crisis may be postponed for 8.6 years. Would this delay the phase transition in the Dow and other US share markets. Thank you for your posts, me and others I talk to read your blog everyday.
Sincerely,
JD
ANSWER: Any postponement in the Sovereign Debt Crisis would be from the US Perspective. In other words, the pace would be slower. There are still problems in Europe and now that the German elections are out-of-the-way, we will see a stronger move toward the federalization of Europe. Japan is also on the list to fall. The rise in the dollar will send losses throughout the developing nations who have funded their debts in dollars. A dollar rally creates a massive debt crisis worldwide outside the USA.
We also have the Pension Crisis that is boiling now. We may see that distract people during the 2016-2020 decline. The smart Pension funds are starting to move into equity. They have no choice or go into default. The Baby-Boomers also come on-line by 2016. The demands on pensions will rise sharply.
This is the pressure cooker we are in right now. Governments are hunting cash. Germany will now raise the top tax rate to 49% since the elections are finished. This is creating slower economic growth and with the rising costs, we enter STAGFLATION. So there is not much good news because the pressure is not yet sufficient to push us into monetary reform of the entire system. Until that happens, politicians will not be willing to release power as long as they think they can survive.
The Phase Transition is not yet confirmed. This may come into play during the first quarter next year.
The Future from Two Different Perspectives
Gold & Monetary Expansion
The gold price has continued to drift lower as the no-taper rally of a week ago quickly fading into a distant memory. Whether the US Federal Reserve continues its economic stimulus program unchanged adding $85 billion a month, is really irrelevant. The Fed’s balance sheet will only hit the $4 trillion mark by the end of the year and that honestly is still nothing significant when you look at the money supply globally, since the dollar has become the de facto global currency. The Bank of Japan, European Central Bank, and the Bank of England, have all printed money and that is near $9 trillion added to the whole system.
Monetary expansion, has been the selling point behind the gold price since 2007. True, gold was trading at about $830 an ounce prior to Bernanke’s announcement of Q1 in November 2008. However, the assumption is clear that this is the one-dimensional relationship people point to. But is it really that simple?
Gold and the US dollar move in the opposite directions only during certain periods when all the stars line up so to speak. Gold’s perceived status as a hedge against inflation has no real long-term correlation beyond anything else. You could make the same argument for a loaf of bread. The gold price for the most part has failed to mirror monetary expansion on a long-term basis. The US National Debt stood at $1 trillion in 1980 when gold hit $875 and now with nearly $17 trillion, gold should be trading at $14,875.
It is clear that there is no real long-term correlation to this simple one-dimensional idea of gold tracking monetary expansion. This claimed relationship has now broken down even though the printing presses haven’t stopped and this is only causing more confusion that is at the level of the Japanese having to face the fact that the Emperor was not the sun of God when he lost to the United States.
There is no single relationship that exists in anything. Capital inflows can be caused by an economic decline whereby domestic people sell foreign assets because they need money home. Capital inflows can also take place by foreign capital pouring into a country for opportunity. It all depends on a mix of trends on a global basis – not a single one-dimensional idea.
Gold rose NOT because of monetary expansion as is clear right now. Gold rose because of the perceived risk in government irrespective of the quantity of money. That is what will cause gold to rise – the realization that government is in trouble. This has NOTHING to do with the quantity of money, hyperinflation, or QE1-10. It has to do with the HEDGE against the sustainability of the economic structure. This is what is crumbling. So for gold to rally on a sustained basis, forget money supply. It is a matter of CONFIDENCE in government surviving in the face of a collapse in socialism.
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