GOLD"S SECRET WEAPON: MISTRUST

 

The entire global economic system works on the foundation of something concrete- liquidity - and something equally important but entirely ephemeral: Trust.

The last post dealt with how the trend in liquidity is entirely supportive of higher gold prices.

But the trend in trust - or mistrust is equally supportive.

There can be no transaction - even the smallest, simplest transaction - without trust.

Nobody would ever lend a cent to anybody if they had no trust they would ever get it back.  Every loan would take a tremendous amount of liquid collateral.  Derivatives which are a quadrillion dollar business would stop.  (that might be a good thing - but then hedging would die which would also gum up the global economy.)  No more options.  No more futures.  Farmers couldn't hedge their crops.  No more drilling.  No more mining.  No more banking. No more shipping.  No more insurance (how can you trust you'd ever get paid?) No more mortgages.  No more - you get the idea...

Obviously we're talking about a complete absence of trust which could never happen, right?

Actually it has happened before, and it could happen again.

We're not there yet but we're heading in that direction.  Less and less trust in all our institutions.  Especially the legal institutions that enforce all contracts.

Trust in Congress which makes our laws: stands at 13 percent.

Trust in the US judicial system stands at 25 percent!

Trust in the Supreme Court: 40 percent.

Trust in the banking system stands at 10 percent!!!!!

40 percent of Americans believe in a "Deep State" that seceretly controls everything.

40 percent of Americans believe we are living in a Biblical End of Times.

40 percent of Americans believe in a New World Order in which a shady class of Elites led by Jews is trying to take control of everything.

40 percent of Americans believe the last election was rigged.

And one of our two political parties is running on the platform that all of these institutions are rotten to the core and deserve even less trust.

The truth behind all this mistrust is irrelevant.  It is the mistrust itself that leads investors to protect themselves with the one great hedge against mistrust: Gold.  

Gold is the only investment with no counterparty risk.

Gold is the only form of money with no counterparty risk.

As trust dies gold soars.

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.

GOLD BREAKS OUT AND NOBODY NOTICES - THANK GOODNESS

 

Yesterday gold made a monthly closing high.  Today 12/1/2023 gold made a weekly closing high.  It has yet to make an all time daily closing high.  But the fact that nobody in the United States of America is making a big deal of this gold move is awesome.  

To be sure, a lot is going on.  

A) An election is ramping up that might well change the course of democracy.  Argentina and Holland have recently elected anti-democracy plutocrat populists (Yes - it sounds absurd but we may do the same.)

B) Two hot wars with Western proxies vs Russia and Iran (and their proxies) could well presage world war III.

C) Though government statistics indicate inflation is dropping and extremely wealthy analysts are worried about deflation - everything from Housing to Education to Healthcare to Food is still so expensive that 62 percent of Americans would become homeless and starve is they miss a single paycheck.  If you don't believe that, it shows you're  part of the lucky 38 percent.

So, sure, why notice a gold market that is beginning a massive breakout?

After all this is the fifth try to break out over $2100.

BUT - this time gold is breaking out in advance of the next recession that many still don't see coming and in advance of the most massive dollar denominated debt refinancing in the history of the world.  Hundreds of billions of dollars of corporate debt around the globe and trillions of government debt originally issued to around ZERO PERCENT will have to be refinanced at much higher levels in 2024 and 2025.

There isn't anyone from Drukenmiller to Zulauf to Paul Tudor Jones to Ted Oakley, to Lacy Hunt to James Grant to Marc Faber to Jim Rogers to Ray Dalio etc etc who don't see this refinancing causing massive cracks in the global economy.  Cracks that can only be filled by extreme Central Bank Injections of Liquidity.  So extreme that nobody has any idea what the result will be.

Except everybody understands this will vastly weaken the purchasing power of the world's currencies with respect to real hard assets.

So maybe it's time to notice the gold breakout.