GOLD: THE BASE CASE

 

The base case is things going on exactly as they are now, not getting any worse.  And not getting any better.  That's the best we can hope for because for things to get better we need to elect a politician who is unelectable (willing to take things away from their voters - carried interest exceptions - stock buyback loopholes, corporate tax loopholes - entitlement reform etc, cuts to military spending).  An impossibility.

So what is the base case?

Inflation.  This is when a Central Bank monetizes massive government debt.  Over time this destroys the confidence in a fiat currency's purchasing power.

The starting point for this inflation is deglobalization.  The reversal of the trend that kept rates low while massive debt was amassed globally.

The starting point for this inflation is ultranationalism a trend that keeps demographics shrinking just when they most need to expand to keep inflation under control.

The starting point for this inflation is 2 to 3 trillion in yearly government deficits. 

The starting point for this is 46 trillion in corporate debt.

The starting point is 40 percent of this 46 trillion in corporate debt being currently insolvent.

The starting point is when 2 trillion dollars of corporate debt financed near zero percent has to be refinanced ot 6-9 percent over the next 2 years.

The starting point is a trillion dollars of yearly government interest payment on the cumulative debt.

It's starting out when the total deficit outstanding is 700 percent of yearly revenue.

Eventually as the economy slows and the Fed drops rates to grease the economy and to allow all this debt to be refinanced at more manageable interest rates - 

Then who will retain confidence in the Fed and the Currency as inflation rises while the economy slows and the currency loses purchasing power vs real things?

This is the base case: It is called STAGFLATION.

The worse case is we continue to weaponize the dollars as the global situation becomes ever more warlike ande confrontational.  This will cause other countries to dedollarize more rapidly which is highly inflationary for us.

The even worse case is a global trade war that puts tarrifs on everything making inflation many times worse for us.

The even worse case is a political establishment that causes the Fed to drop rates back to Zero, even as inflation rises.  Then long rates keep rising under the financing avalanche.   This will cause the stagflation to morph into hyperinflation.

So base case or worse case.

Choose your poison.

Both are great for gold - if nothing else.