The word “because” has been around for a long time; in fact it has been around (since the beginning of language?) since you were a little kid and were just learning to speak. Do you remember the little kid who answered “because” to anything and everything? Why is the sky blue? Why does it rain? Why does the sun rise? Why does 2+2=4? “Because.” Then of course when you were a little kid and were pissed off at your parents long enough and kept asking for something they would answer “because” but with a caveat…”because I said so.” Without looking up the definition in a dictionary you can break the word “because” down into two parts, “being” …the “cause.”
But now “because” has taken on a whole new meaning and unfortunately this simple word is what the powers that be have fallen back to when it comes to policy. Economic policy, social policy…all policies. For example, “why is the stock market up?” “Because” we are recovering and have better times ahead. I would ask if this is really true. Are things getting better? Do we really have more people employed? Is inflation really under 2% for the things that YOU use to live with? Is life better now that you know that every e-mail, every phone conversation and every website that you have visited has been recorded to “make you safer?” I could go on and on but you get the point.
So here we are, the entire collective around the globe has become one huge “because.” “Because” has morphed into a “picture” that is painted every single day for YOUR consumption, for your “benefit.” The picture has been painted so that our “leaders” can point at it and say “because”…”see,” “look”…”then how come the stock market is up” or “see, just look at the price of gold.” At this point every detail in every market is “painted” to create the picture…only the “picture” is not the reality.
The problem is this; here in the U.S. we are still running a $1 trillion+ deficit that if it were not spent …”growth” (economic activity) would be $1+ trillion less. And then of course you have the Fed pumping $85 billion per month (over $1 trillion annually) into the system to purchase debt that otherwise would not be purchased by investors at anywhere near the current yields. We ask why and are told “because” if we don’t run deficits the economy won’t grow or “because” if we don’t pump $85 billion per month into the financial system and the housing markets they will collapse.
Now, since “because” has gone on for such a long time the picture (message) has to be altered. Talk of withdrawing QE is all the rage now and we are being told that the economy is strong enough to come off of QE’s life support. Really? The 10 year treasury just hit a new high of 2.7% which is now a full 80% increase in yield from the lows…and the Fed has not even curtailed buying yet. Where will interest rates go if they really do stop buying? Another interesting tidbit might be “how well will the economy do with these much higher interest rates?” We really don’t know yet since rates only started to rise 2 months ago. As a side note, Fed governors have been paraded this past week to tell us that “oh no, we aren’t talking about ‘tightening’, we are only talking about lessening the amounts that we purchase.” Well, 10 yr. rates have gone from 1.5% to 2.7%…is this not a “tightening” all on its own? Should we be worried? Of course not, “we have it all under control.” Why won’t higher rates affect the economy and markets this time around if they always have affected them negatively in the past? “Because”…….yeah right, because either this time it’s different or because the “Fed says so”…and by the way, oil is now firmly over $100 again, is this also “good” for the economy?
Another “because” out there is gold. Why is gold down? “Because” everyone knows that higher interest rates are bad for gold. “Because” there are more sellers than buyers. “Because” people are selling since the economy is getting better and the dangers from the financial crisis have passed. Really? Selling? Real gold? I must say, gold is down “because”…………….. it has been “PUT” down.
Never mind that the fundamentals have never ever been better for exchanging fiat for gold, never mind that a financial crisis far larger than the last averted one is right outside the door, never mind that this time around we have governments themselves that are insolvent and the plan is no longer to bail out banks, rather to “bail in” depositors. Forget about what “they” are telling you about how depositors will lose money this time around. Just look at the stock market, “it is up so everything must be fine.” Or look at gold, “it is down so there must not be any problems out there.”
Let me put this in perspective for you. The Fed is pumping $85 billion per month into the system for a reason. The reason “being to cause” paper assets must remain inflated. The reason is “because” if they did not…there is no one else who will buy treasuries at these yields. It might take a yield of 5%, 10% or even over 20% to attract enough buyers to satisfy the Treasury’s borrowing needs. And by the way, do you know how much gold is produced across the entire globe in one year’s time? A little over $100 billion! Do you know how much gold the Treasury says they have at today’s prices? Less than $300 billion!
So, we in the US have $17 trillion of on books debt, close to $200 trillion of guarantees, promises and unfunded debt…all supported by less than $300 billion of gold inventory that has not been audited since 1956. The banks in this country are counterparty to at least $500 trillion worth of derivatives in a market of over $1 quadrillion globally, the $1 trillion of gold stock held officially is not even the head of a needle compared to the upside down pyramid that it will ultimately be asked to support. The “picture” is false, the “reality” sucks….. It will be asked later “why or how this could have happened?” …”Because” as an answer just won’t cut it!