Tag Archives: money supply

What Happens To Gold & Silver When Trump Attacks The Dollar?

Get prepared because we’re going to have the worst economic problems we’ve had in your lifetime or my lifetime. – Jim Rogers, Macro Outlook in the Trump Era – MacroVoices

Make no mistake, it’s going to get ugly at some point in 2017. Elijah Johnson at Silver Doctors invited me to discuss why I believe Trump’s policies, assuming he gets anything passed and implemented, will be phenomenal for gold. Another factor not being discounted or widely discussed is an acceleration in the rate of inflation over and above the ability of the Government’s CPI sausage grinder to mute actual price inflation in everyday consumables.

Does Gold & Silver Care Who Wins?

Short answer:   No.

A local financial advisor texted me today asking what I thought gold would do if Hillary wins today. Obviously he’s been reading the pedestrian analysis on the topic that has flooded the mainstream media.

But gold doesn’t care who wins.  The United States is beset with unsolvable financial and economic issues that will require a systemic reset.  The amount of funded Treasury debt outstanding since Obama took office has doubled to $20 trillion.  So much for his claim that he reduced the spending deficit.  But the result would have been the same if McCain had won in 2008 or if Romney had won in 2012.

Stocks and bonds are historically overvalued.  While the accounting standards have been substantially liberalized thereby enabling companies to artificially boost earnings with gimmicks, using comparable accounting rules to compare now to any other market top in history would show that current valuation ratios are significantly higher than at any other time in the history of U.S. markets.   The bond argument is easy:  interest rates are at or near all-time lows.  Rates can only go higher which means bond prices can only go lower (unless artificially taken negative by the Fed, which would cause gold to go parabolic) .

With fiat paper assets at historically overvalued levels, gold and silver are highly undervalued relative to financial assets and in relation to the quantity of paper money, where the quantity paper money is currency issued plus credit outstanding.  The latter is included because debt functions exactly like currency until it’s repaid.  Guess what?  This country has not reduced the cumulative public and private debt outstanding in the post-World War Two period.  The small “blip” indicating overall debt declined in 2010 reflects massive banking sector write-offs and debt-forgiveness, both of which were monetized by the Fed.  As long as the level of debt increases, credit outstanding needs to be included in the money supply.

The bottom line is that gold is going to move much higher in value relative to the dollar regardless of which candidate or which party controls the political process.  The laws of nature and economics remain constant throughout history.   When the Central Bank and Government market intervention eventually fails and these laws reassert their force – which they always do – the “money” that floods out of stocks and bonds will flood into physical gold silver.

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“We’ve Got To Start Rigging The Gold Market”

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold [FDR1934]If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.  – Alan Greenspan, “Gold and Economic Freedom” 1966

GATA has sourced a speech given in 1981 by the President of the BIS, Jelle Ziljstra, at the IMF headquarters in 1981 in Washington, DC in which he advocated Central Bank intervention in the gold market in order to control the price and prevent gold from competing with a global system which was based on paper fiat currency:

“I feel it is necessary for us, within the Group of Ten and Switzerland,consider
ways to regulate the price of gold…”  – Jelle Zijlstra

The “Group of Ten” are the Central Banks of France, Germany, Belgium, Italy, Japan, the Netherlands, Sweden, the United Kingdom, the United States and Canada plus Switzerland.  As everyone knows, the BIS is the Central Banks of global Central Banks and therefore controls – de facto – global monetary policy.  Here’s a link  to the speech – there can be no questions that Central Banks – through their agent “bullion” banks (primarily JP Morgan, HSBC, Scotia, Deutsche Bank, Goldman Sachs, Citibank, Barclays and UBS) – make a concerted effort to limit the upward price movement of gold.

That day the U.S. announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake. – Paul Volcker, “Nikkei Weekly” Nov. 15, 2004 (original incident on February 12, 1973)

Below are couple graphs from the St. Louis Fed website, with my commentary, to put Zijlstra’s speech context.

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The Fed discontinued reporting M3 in March 2006.  The excuse was that M3 was too expensive to compile and report.  This is in the context of the Fed spending millions to fight all attempts by Congress to authorize a full audit of the Fed.  The U.S. is the ONLY industrialized country which does not report M3.  Make no mistake, M3 is the most accurate – though not completely accurate – measure of the money supply.   Any honest economist will admit that.

Note the difference in the level of M3 vs M2 when M3 was discontinued.  M3 shows that the money supply was nearly $4 trillion higher using M3 at the time M3 was discontinued.  Nothing happens by accident and it’s no coincidence that M3 reporting was discontinued a little more than 2 years before the Great Financial Crisis and the advent of Bernanke’s “QE.”  Many of us saw the financial collapse coming in the early 2000’s – certainly the price of gold “saw” it.  If we did, I can guarantee that the BIS and the Fed saw the collapse coming and the need to flood the system with dollars to keep it from collapsing and destroy the elitists’ ability to confiscate wealth and control the western world.

IF the Fed were to report M3 now, how high would the U.S. money supply truly be?

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This second chart above shows the parabolic, hyperinflating growth of U.S. Government debt.  Note that the growth in Treasury debt did not start taking off until after Nixon closed the gold window.  It started to rise a little more quickly after 1981, when Volker began to ease up on monetary policy.  The rest is history, but note that issuance of Treasury debt goes parabolic after Bernanke began to flood the banking system with money.

It was shortly after the Bernanke Money Floodgate opened that gold almost broke through $2,000 per ounce before the BIS/Fed was able to get control of the price and push it lower using Comex and LBMA paper gold, which can be printed in unlimited quantities as long as counterparties  do not demand delivery of the underlying gold.

In other words, the U.S. dollar-based global monetary system is one massive paper fraud and gold is the arch-enemy of a system based on fiat paper currency.  The only way it has been perpetuated this long is through the outright intervention in the gold market by the BIS and western Central Banks.

Like ALL Government interventions in history, this too shall come to an end – an end that will be painful for all of us.