When I first invested in Precious Metals in May 2002, the first “guru” I latched onto was Richard Russell, a six-decade financial analyst from La Jolla, California. Aside from his message, I was drawn to his personality – a hard-nosed New Yorker that gained his wisdom through decades in the trenches, including those of World War II (actually, he was a fighter pilot). In fact, parts of my writing style – telling it like it is and adding a personal touch – were influenced by his work.
In investments – and life in general – NOTHING is more powerful than an oft-repeated mantra, motto, or mission statement, and NO ONE understands this better than Richard Russell. When he’s long gone fifty years from now – as likely myself as well – people will still remember his iconic “INFLATE OR DIE.” I’m not sure EXACTLY when he created it, but it was pretty close to when I started reading him in mid-2002. Given the dollar was just in the process of topping at the time – and gold bottoming – it was one of the most prescient calls in financial market history. Obviously his words struck a chord, but back then, I had NO CLUE how bad things could become.
At the time, I was unclear as to what “inflation” meant – to this day, a concept lost on 99% of the population. Consumer and commodity price increases are inflation’s symptom, but its meaning is the RATE OF MONEY SUPPLY GROWTH. In other words – in today’s purely fiat world – the amount of GOVERNMENT MONEY PRINTING.
I have oft-described fiat money as defining a PONZI SCHEME – in that to survive, it MUST grow larger, and MUST maintain confidence. Over the past decade, this thesis was proven IN SPADES, as each time financial markets COLLAPSED – in 2002, 2008, 2011, and now 2012 – GLOBAL Central banks had no choice but to PRINT MORE MONEY, in exponentially greater quantities. Supplemented – of course – by a heaping helping of MARKET MANIPULATION and PROPAGANDA, to convince the masses such actions were “working.”
Unfortunately, the operative term is “exponentially greater quantities,” whether referring to the money supply…
…or its natural corollary, debt…
…in ALL the world’s fiat-based economies…
The pitiful market reaction to last weekend’s “Spanish bailout” – inclusive of MASSIVE PPT support – should serve as a LOUDLY BLARING ALARM, signaling the law of “DIMINISHING RETURNS” is asserting itself. This is the point when incremental MONEY PRINTING not only has no positive impact on the economy or financial markets, but – to the contrary – a massively negative impact. At this juncture, all MONEY PRINTING engenders is HIGHER INTEREST RATES and INFLATION – hence, lower corporate profits and capital expenditures, yielding increased unemployment, reduced consumer spending, and plummeting asset prices. And thus, the need for MORE MONEY to be PRINTED and INJECTED into the markets.
However, in the ultimate “Catch-22” situation, financial markets – stocks AND sovereign bonds – crash immediately if additional money is not PRINTED and INJECTED, like a withdrawing crack addict. But as is the case this week, the crack addict withdrew further – look at how Italian stocks and bonds have performed – CONFIRMING my view that Global Meltdown III – i.e. “the Big One” has commenced, defined as when MONEY PRINTING no longer works…
Reality is getting more real – Bill Holter
To all; Ben Bernanke is testifying before Congress this morning and merely hinted at more Twist which entails purchasing long term Treasuries while selling an equal amount of short maturities. The Fed’s balance sheet has been shrinking for several months and surely the reason that May was such a disaster for equities. Now, we are in “put up or shut up” phase in a backdrop where the global economy has definitely stalled out. The Fed has a choice to make, as Richard Russell has said, “inflate or die”, period. They absolutely MUST step on gas, now, and really really HARD. The current respite in the stock markets will not hold and will give way to collapse and panic without another dose of liquidity.
Later today or tomorrow we will hear that Gold was down $30 because Bernanke did not even hint at easing, further down in the article you will also read that equity markets were up in “hopes” of further easing. As I said, in the next several weeks, we will get an answer one way or the other. I say the next several weeks because “reality”, though it would be nice, cannot and will not be ignored much longer, stress is rising everywhere and rising rapidly. The global economy is screaming for another fix, the derivatives markets (as evidenced by JP Morgan) needs the same and let’s not forget about European bank “withdrawals” (pun intended). Yet, Gold goes down?
Why tie “yet Gold goes down” to this? Because the ONLY way that Gold can become valued less in fiat terms is if budgets, economies and markets move to an even keel. Think of it this way, Gold can only go down long term if money supplies remain stable, economies (thus employment) strengthen, sovereigns “fix” their balance sheets and banks magically get recapitalized. Not going to happen. We will fall on one side of the fence or the other, inflation or deflation and once started the snowball will grow and grow exponentially. Mathematically a “win win” for precious metals.
Follow this through, IF they screw up and allow deflation to get the upper hand (almost a 0 % chance in a fiat system), everything financial will get destroyed almost overnight because “everything is based on nothing and everything is valued off of everything else”. In other words, “everything is worth nothing” and Gold becomes worth “everything” since it is the only money that cannot default. On the other hand, they can (and will) inflate and print whatever is necessary to prevent collapse. Fiats will be diluted and devalued literally by adding “zeroes” when all is said and done because that is what will be required given how many $ Trillions ($ Quadrillion++) that already need to be protected. It really is the most simple of logic and the exercise is very very close commencing because “reality” is becoming too real to be denied.
Gold, “by default” (…others…, get it?), needs not do anything to become valued as everything. It doesn’t need to “produce, pay a dividend or interest”, it doesn’t need to be “insured or guaranteed”, It doesn’t need to be “recapitalized, funded or rated AAA”. It just has to “be”, Gold that is. Gold has value because it “is”, it has value because it is MONEY. We are going through the process of investors coming to the realization that their “monies” are really not money at all. These “monies” are chits, they are loans/IOU’s to pay more of the same and more of the same and even more of the same. Gold needs not promise anything, it’s one and only promise is that it is pure and will hold it’s value over the long term. Isn’t that what everyone wants (will want even more) when they understand that the current system is flawed and the money is counterfeit? Do you not think that “investors”, once they fully understand that their investments are denominated in in fake currency will want out as fast as possible? Do you see that governments far and wide are taking actions that can only expose their currencies as the fakes that they are? This is really easy logic if you put your mainstream media blinders on! Regards, Bill H.
Don’t worry, they’ll keep PRINTING. Only this time, “INFLATE OR DIE” has metamorphasized into “INFLATE AND DIE!”
PROTECT YOURSELF, and do it NOW!
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