GOLD AND LIQUIDITY: 2025

 

LIQUIDITY is the only meaningful metric when judging what will happen to all asset classes in the global economy.

So what is Liquidity?

Liquidity is money creation and dissemination.

In the United States of America which still possesses the Global Reserve Currency, the Dollar, money is created by the US Treasury which has a printinhg press and can print as much money for any purpose as demanded by A) the Federal Government (Fiscal Liquidity) and B) the Federal Reserve Bank. (monetary liquidity).

The Federal Governemnt starting with Trump in 2016 began to run yearly 3 trillion dollar deficits (pre-covid).  This has continued unabated through Biden.  Despite lip service to fiscal restraint this fiscal deficit can only grow because the portion of the this spending that is Debt Service is 18 percent of the federal budget and growing at about 3 percent a year but if rates ever reflect real future cost of money that figure could become much much larger.

Therefor Liqidity in Fiscal terms can only continue to grow .  There is plenty of it.  And no politician in the US will ever succeed in bringing it down because that would involve either much higher taxes (no one can be elected advocating for that) or the erradication of Social Security (no politician will ever be elected advocating for that).

Monetary liquidity can be measured by the balance sheet of the Federal Reserve Bank.  Since covid that expanded to about 10 trillion dollars.  Under supposed Monetary Tightening the Fed has gotten it down to about 8 trillion dollars.  Back in 1980 it was in Surplus.  There were no monetary deficits.  

But the Fed has ways of creating monetary liquidity even when it is suppposedly tightetning. The Fed's Bank Term Funding Program (BTFP), is currently providing trillions in liquidty to undercapitalized banks.  As long term rates continue to stay higher for longer (even as short term rates come down a bit) the trillions that were borrowed at zero percent over the last 10 years will have to be refinanced at much higher rates going forwards which means that either many corporation and banks will go bust (HA HA HA like that will ever happen in the US) or the FED will have to ask the Treasury to create money out of thin air to bail them all out.

Obviously the latter will happen.  This creates massive amounts of Monetary liquidity going fowards.

As crisis hits and certain instituions get in trouble there will be moments of ILLIQUIDITY that will rock all markets.  Each one will result in massive bailouts meaning more and more liquidity.

We will eventually drown in a sea of liquidty. This will result in crushing stagflation, yeild curve control and a declining currency.

Meanwhile all this liquidity means one thing certainly: The price of Liqudity Hedges will rise.  

The best Liquidity Hedge is Gold.

You ain't seen nothing yet.