Techtonic Shift and Gold

 

Two extraordinary flow of funds shifts are now beginning to hit the US financial markets.

1) Japanese Central Bank is comitted to raising rates.  This means that two trillion dollars of Japanese yen carry trade invested in US financial markets will be unwound as that money heads back into Japan.  That is a significant outflow especially form our debt markets.

2) The Chinese Government and Populace combined have another trillion dollars invested in the US financial markets.  China has just announced that going forwards investment in any US financial markets will be illegal.  And China has two years to unwind and repatriate all investment.  Anything remaining after that time will be coniscated.

This alone will put tremendous pressure on the US ability to fund it massive and rapidly growing debt (nearly 40 trillion dollars plus another 100 trillion of unfunded liabilities).  The debt is now growing at a rate of a trillion dollars every hundred days.  And that doesn't include funding for the forever wars we are now engaged in that by conservative estimates will add another trillion dollars per year to our deficits.  Don't even count the vanity building/celebration projects that are set to add a few hundred billlion.  That's just a rounding error at this point.

But add to this pressure the fact that tarrifs by design are meant to decrease our financial acount surplus.  Every dollar for which this policy succeeds is a dollar not available to be invested in US debt.  To call this the most baffling policy goal in the history of finance would be an understatement.

The pressure on our debt markets is so extreme we now have everyone from Stanley Druckenmiller to Ray Dalio to Jamie Diamond to  Hank Paulsen to David Stockman to James Grant to Jim Rickards and a host of billion dollar fund managers are warning that a Debt crisis is imminent.

Question: How can the fed do anyting but ease and then print in the face of an imminent debt crisis? (I know the market is placing a 68 percent chance of a rate raise.  That's a strange joke.)  And this in the face of o 4.5 percent CPI and 6.8 percent PPI.  And that's just official inflation.

So GOLD?  Draw you own conclusion.  But consider this: when the credit market falters, the Fed will have the choice of saving the credit market or saving the currency.  Which will they choose?  If they choose the credit market (correct answer!) the currency will crash and gold will skyrocket.