In the run-up to this afternoon’s supposed “end of QE”, “mainstream madness” has reached a fever pitch – as has TPTB’s “manipulation, jawboning, and prayer.” Humanity’s dark side is fully visible in articles like “Yahoo! Finance’s illustration of QE “success”; a panel of sub-humans attacking Peter Schiff for telling the truth to the delight of CNBC’s bubble-headed, Stepford Wife host; and of course, flat out contradictions, as the dumbed down media rapidly loses touch with reality. Meanwhile in Europe, the ECBs Chief Economist claims to see no signs of deflation or recession, despite having taken interest rates to negative territory and initiated a new round of QE.
And taking the cake, Switzerland’s Finance Minister warned that the proposed gold initiative would be disastrous for a nation that, as it turns out, became the world’s premier financial destination on the back of a gold-linked currency. Claiming a gold-backed Franc would damage the “credibility of SNB monetary policy,” she described gold as “among the most volatile, and risky investments” on its book. Fortunately, Swiss bankers won’t make this decision – as the people will do it for them, via a potentially historic referendum on November 30th. “Shockingly,” initial polls favor a “yes” vote; and as you’ll see in this must read piece by Grant Williams, the “yes” movement will indeed be a force to be reckoned with.
All along we have written of how the gold price at the time of the vote will be a key factor in its outcome, which is why the Cartel has so viciously suppressed prices this Fall. That and countless other reasons, like today’s FOMC meeting, next week’s mid-term elections, and the aforementioned commencement of ECB QE. However, irrespective of how successful – or unsuccessful – they are between now and November 30th, we expect “yes” support to not only be strong, but exceedingly so. The Swiss fiercely support their direct democracy process; and after a decade of Central banking madness, they have a unique, historic opportunity to regain the top tier of global financial credibility. Given the horrific disaster the Swiss Franc’s peg to the Euro has been, I wouldn’t be surprised one bit to see the initiative pass. And if it does, you will be kicking yourself for having neglected to buy precious metals at such historically undervalued prices – just as Swiss National Bankers already do, for having sold near the markets lows at $300-$500/ounce.
In the two weeks following the “liquidity vacuum” that caused all-out panic amongst Fed governors, market manipulation has been historic – with each passing day causing the “reality gap” to widen. As you can see, we have witnessed nearly identical trading patterns for stocks and precious metals each day this week, utilizing the same algorithms as usual. This morning is no different, as the Fed prepares to “end QE,” but do so with all manner of dovish caveats. Trust us, if the PPT and Cartel hadn’t been able to “stabilize” markets the past two weeks, the Fed’s message would be far more urgent. Which ultimately it will be, when TPTB inevitably lose control. Today, it’s just commodities and currencies thwarting their “recovery” propaganda; but shortly, stocks, bonds and precious metals will join the “exposure party.”
Speaking of reality, let’s start today’s principal topic with this graph of the true state of the global economy – depicting nominal trade growth barely above zero and inflation-adjusted growth deep in negative territory. Which sadly, gibes perfectly with the painful reality of the “median” American, per this depiction of his real net worth plunging to the 1992 recession lows; this one depicting the same for real median household income; this one of home ownership at 1983 levels – per this one of mortgage purchase applications at 1995 levels; and of course, this one depicting Labor Participation at 1978 levels. Unfortunately, this ugly chart shows that whilst Americans have lost their homes at a record pace, rents have surged to record levels – causing the “American Dream” to not only die, but kick dirt in millions of citizens’ faces. And despite relentless hype of “recovery,” there’s no longer a doubt that the housing market peaked more than a year ago – and this summer for “1%” units above $1 million.
Many of these economic ills are the result of global competition – particularly from the Far East. However, politicians and lobbyists’ combined efforts to offshore jobs accelerated this process exponentially. And don’t forget the deadly demographic wave overtaking much of the West, which will only worsen as the Baby Boomers age. However, undoubtedly the Fed’s unfettered money printing has been the most culpable culprit, yielding the inflation that has dramatically reduced living standards – not just in the U.S, but worldwide. Thus, when I read this damning article, describing how 50% of Americans earn less than $28,031/year, yielding median real household income of $51,939, I was motivated to write this article.
Yes, the average family (of four) earned just $51,939 of pre-tax income in 2014, explaining why half of all Americans receive entitlement payments; which, by the way, commenced their parabolic growth nearly simultaneous with the 1971 gold standard abandonment. Not to mention, why student loans have rocketed well above $1 trillion, as desperate families “recruit” children into this inescapable debt prison to pay bills. Looking at this horrific chart of how 45% of all 25-year olds have student debt balances – averaging $20,000 – it’s not difficult to see why home ownership is plummeting. Or, for that matter, why consumer spending is in freefall with desperate retailers already commencing holiday spending promotions. And heck, I haven’t even mentioned Obamacare – which “conveniently” delayed publication of its 2015 prices until a week after the elections.
To demonstrate just how devastating the effect of flat real income, we have put together this “median nightmare” chart. Using estimates of key spending categories in the “need versus want” universe, excluding all discretionary spending, we estimate an annual “cash flow gap” for the average American family above $18,000, which can only be funded by draining record low savings, drawing record high entitlements or increasing record debt levels. Ominously, even if the median income level was after-tax, the average family would be living hand to mouth.
And thus, for those that still believe the Fed will eventually raise interest rates – much less, remove the unprecedented “stimulus” that leaves the U.S. economy and median American – in historically bad shape, please re-think your assumptions. Mathematically, QE must expand exponentially, just as all other fiat Ponzi schemes have engendered. And as it does, the “median nightmare” will only worsen, yielding dramatically increased entitlements, social unrest and currency devaluation. Which is why precious metals have never been more underpriced and perhaps never again will be.