What the Rising Gold Price Signals
The recent run-up in the gold price has not garnered the attention among the mainstream financial media outlets as it should. Gold has, in part, been overshadowed by the rise in the price of bitcoin and other cryptocurrencies.
Naturally, the financial press, which is really an arm of the government and its central bank, wants to ignore, as much as possible, references to gold as protection against the continuing increase in the price level which itself has been deliberately understated by monetary officials. The media and government understand that precious metals are the ultimate security against runaway inflation and economic collapse.
While the increase in the gold price has reached nominal highs, it and the price of silver have not passed their all-time 1980 highs in real terms. Adjusted for inflation, gold would have to rise to about $3590 an ounce while silver would have to surpass $50 an ounce. Both are poised to exceed these watermarks in the not-too-distant future.
Precious metals will continue to escalate unless the Federal Reserve radically changes its interest rate policy to combat inflation as former Fed Chairman Paul Volcker once did. Volcker raised interest rates to double-digit levels which caused gold prices to fall. While Volcker could get away with such actions (because, at the time, the U.S. was still a creditor nation), current Chair Jerome Powell cannot because of the enormity of public and private debt. Double-digit interest rates would collapse the economy and plunge millions of Americans into bankruptcy.
The rising price of gold is anticipating some of the promised policy actions of the Fed. Since the end of last year, the central bank has indicated that it would be cutting interest rates. In addition, Powell is considering ending the Fed’s “Quantitative Tightening” (QT) program. Both are highly inflationary.
While commentators have focused on gold’s spectacular price rise, there is an underlying issue that is also taking place. The record setting gold price is signaling that the present fiat monetary order, which is based on the dollar as the world’s reserve currency, is coming to a financially unpleasant end.
Ever since 1971, when the Nixon Administration closed the “gold window,” refusing to redeem gold for dollars held by foreign central banks, the world has been on a “dollar standard” where bank reserves are held in Greenbacks. If the Fed continues to print dollars to sustain government spending at this rate, the dollar will continue to lose purchasing power and foreigners will no longer want to hold them. Foreign central banks will then turn to gold. In fact, central banks are already increasing their positions in gold which has been a catalyst that has fueled the latest rally.
Not surprisingly, the Fed has not purchased much gold (or is not admitting publicly that it has) since it would be a bad look for the issuer of the world’s reserve currency to be abandoning its own currency for gold.
Besides the severe financial implications if the dollar is dethroned, there will be dramatic geopolitical repercussions from the loss of its hegemony. Just like the British pound was replaced as the dominant world currency after England insanely exhausted itself in fighting WWII and ending its empire, America will face a similar future when the dollar becomes just another money. Many will see it as a “blessing” if and when the U.S. Empire comes to an end.
While it would appear logical and morally sound to replace the present crumbling monetary order with one based on gold and silver, a far worse paradigm than even the present one is, no doubt, being planned. The new system will be one of central bank digital currency (CBDC) which would give governments and bankers the power to monitor and control all aspects of economic and social life.
Some states have passed legislation to counter CBDC, such as Florida in 2023 under Governor Ron DeSantis who said: “The Biden administration’s efforts to inject a Centralized Bank Digital Currency is about surveillance and control. Today’s announcement will protect Florida consumers and businesses from the reckless adoption of a ‘centralized digital dollar’ which will stifle and promote government-sanctioned surveillance. . . .”*
While the press and policy makers have ignored the surge in precious metal prices, it should be a warning to everyone that difficult economic times are still yet to come with the potential of a new draconian monetary order to be installed on the horizon. Observant individuals should heed gold’s signals and take appropriate measures to safeguard their futures.
*https://www.flgov.com/2023/03/20/governor-ron-desantis-announces-legislation-to-protect-floridians-from-a-federally-controlled-central-bank-digital-currency-and-surveillance-state/
Antonius Aquinas@AntoniusAquinas
posted, 4-22-’24
The U.S. Is Spending $1 Trillion Every 100 Days On The Deficit
While it made some headlines in the financial press, neither policy makers nor the two presumptive presidential nominees have paid much attention to the fact that the U.S. is adding a mind-boggling $1 trillion to the national debt every 100 days. This amounts to around $3.6 trillion annually.
As law makers remain willfully ignorant of the financial elephant in the room, it is most likely that the only way that the debt will be addressed is through a monetary crisis which will involve the status of the dollar as the world’s reserve currency. Such a scenario would then force authorities to take action.
As if there needed to be more evidence of how impervious Congress and the Biden Administration are to the burgeoning debt spiral, the House and Senate passed two stop-gap funding packages to avoid a government shut down on March 22, 2024. One Senator called it “a pork fest of epic proportions.”*
Despite the ominous prognostications of a dollar collapse by financial doomsayers, the Greenback has remained the best of all competing currencies. Yet, this time could be different, since interest rates – which have been artificially suppressed by the Federal Reserve (Fed) – have risen, making servicing of the national debt more expensive as Moody’s Investors Service noted: “In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.”**
While “King Dollar” has continued its financial hegemony, the running of a staggering national debt – which now stands at over $34 trillion – has had baneful repercussions for the average American. The funding of the debt has led to a resurgence in 1970s-style stagflation with a decline in productive job growth such as manufacturing and near double-digit price inflation. This, of course, has had a deleterious effect on the middle and lower classes’ standards of living since rising prices disproportionately effect these groups harder than the more affluent.
Of course, the simplest approach (although politically unpalatable) to the problem would be to dramatically cut government spending by eliminating agencies and programs. With the Uniparty in charge, however, there is virtually no chance of budget cuts, especially in an election year. Whatever happened to the “deficit hawks” and those calling for a balance budget amendment to the Constitution?
The funding of the debt is the primary factor for the rise in consumer and producer prices. Since federal spending is beyond what the government receives in revenues, it must borrow through the issuance of debt/bonds to make up for the shortfall.
The principal buyer of government debt has been the Fed, which pays for the bonds by the creation of money, “out of thin air.” The printing of money (now done through the stroke of a computer key) bids up prices in the market. Federal Reserve officials have innocuously called this scam “Quantitative Easing” (QE), which is in realty a monetization of the debt.
The principal buyer of government debt has been the Fed, which pays for the bonds by the creation of money, “out of thin air.” The printing of money (now done through the stroke of a computer key) bids up prices in the market. Federal Reserve officials have innocuously called this scam “Quantitative Easing” (QE), which is in realty a monetization of the debt.
It is highly doubtful that the U.S. will escape the fate of other republics who have pursued reckless fiscal and monetary policies. It is almost a mathematical certainty that the nation will default on its debt by either hyperinflating the currency or discounting bonds with massive haircuts to their premiums.
The most likely path is hyperinflation; then the dollar will once again fulfill Voltaire’s dictum that all “paper money eventually returns to its intrinsic value – zero.” While there will be massive social misery from a dollar collapse, the one bright spot from its demise is that it will mean an end of the murderous U.S. Empire.
The most likely path is hyperinflation; then the dollar will once again fulfill Voltaire’s dictum that all “paper money eventually returns to its intrinsic value – zero.” While there will be massive social misery from a dollar collapse, the one bright spot from its demise is that it will mean an end of the murderous U.S. Empire.
*Tyler Durden, “’A Pork Fest of Epic Proportions:’ Congress Passes Spending Package to Avert Shutdown.” Zero Hedge 8 March 2024. https://www.zerohedge.com/markets/pork-fest-epic-proportions-congress-passes-spending-package-avert-shutdown
**Quoted in Michelle Fox, “The U.S. national debt is rising by $1 trillion about every 100 days,” cnbc.com https://www.cnbc.com/2024/03/01/the-us-national-debt-is-rising-by-1-trillion-about-every-100-days.html Updated, 4 March 2024.
Antonius Aquinas@AntoniusAquinas
Posted 3-25-’24
The Hypocrisy of the Sam Bankman-Fried Conviction
Sam Bankman-Fried (SBF), the founder of FTX and Alameda Research hedge fund has been found guilty on all seven counts related to financial fraud and money laundering in a lower Manhattan court room. The trial took a lot less time than expected as did the jury’s deliberation of the case which speaks to the overwhelming evidence against the onetime financial guru of entertainers, crypto enthusiasts, and politicians. SBF could face up to 100 years behind bars.
Gary Gensler, chairman of the Securities and Exchange Commission, said that “Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.”* Manhattan U.S. Attorney Damian Williams concurred, calling Bankman-Fried’s actions “one of the biggest financial frauds in American history.”**
SBF’s conviction is particularly fitting since he had marketed himself as a new-style capitalist who was more interested in philanthropy and giving away his wealth, instead of enriching himself. That so many were taken in by this charlatan, especially a number of supposedly savvy investors, demonstrates again that greed remains a significant part of the human condition.
While SBF will hopefully receive his just rewards for his wrongdoings, there is another fraud that has been taking place in the financial world for quite some time which dwarfs exponentially the scam of the one-time “crypto-king.” Unlike SBF, however, this entity continues to exist and faces no prosecution, but instead is often praised for its operations.
The institution, of course, is the Federal Reserve and, for that matter, all central banks. Central banks do what FTX did but on a colossal scale. While SBF’s crimes were limited to those who foolishly invested with him, the Fed’s customers are all those who hold dollars and have little option to not use them unless they want to revert to barter and become desperately poor. Like what SBF did to his investors, the Fed has defrauded (although surreptitiously) its “customers” by robbing them of their purchasing power through monetary debasement. The loss of purchasing power by the public has been redistributed to the Fed, the political class, and financial elites.
The Federal Reserve
While Fed officials, the government, academia, and the sycophantic financial press may try and obfuscate the matter, the fact remains that the Federal Reserve has the ability to create money out of thin air and without limit. It is counterfeiting writ large. No criminal, be it SBF, Bernie Madoff, or the Mafia could ever dream of such a scenario!
The Fed’s creation of money through credit expansion is certainly more subtler than the swindling which SBF engaged in or what took place in earlier times from “coin clipping,” but the criminality of the action is the same. Under Western jurisprudence, however, central banking is now enshrined in law as a legitimate part of financial life.
As SBF wrapped himself in an aura of a benevolent and charitable new-age businessman, the Fed hides behind its criminality by presenting itself as a necessary and indispensable factor for the nation’s economic well-being. Without the Fed and its dual mandate of “price stability” and full employment, the economy would collapse.
Yet, this is a ruse. Before the advent of central banking, economic life went about quite nicely. It was only when central banks appeared that the dreaded boom and bust cycle became more frequent and severe. Moreover, in the pre-central bank era, the world was on a metallic monetary standard which protected peoples’ purchasing power.
The Fed was created by the major U.S. banks and top politicos at the time to allow banks to counterfeit without facing the consequences of their actions. Stable prices and low unemployment are secondary functions of the Fed and mostly spoken about for public relations. Protection of the system, especially the solvency of the Big Banks and now funding the national government through debt monetization, remains the prime responsibility of the Fed.
This, of course, is not to exonerate SBF. Why is it though that the justice system which convicted the rogue crypto financier is not applied to America’s central bank? When sovereigns of the past debased the money supply most acknowledged its immorality and pointed out who benefited. In this supposed enlightened age where “equal justice before the law” is a ruling mandate of the legal system, its application apparently does not apply to the monetary authorities of the world.
Capitalism, at its core, is a moral argument where respect for property rights, the freedom to exchange, honest money, and the liberty to become an entrepreneur are the foundations which the system rests. Those who legitimately satisfy consumer tastes and demand are rightly rewarded. Naturally, in doing so, entrepreneurs enrich themselves but they do so by providing for the needs of their customers and in the process create jobs and incomes for those they employ, all of which is done on a voluntary basis.
Central banking is the essential instrument of “crony capitalism” which is the antithesis of free enterprise. Crony capitalism is a new version of mercantilism which was condemned by the likes of Adam Smith and was one of the factors why the American Revolution was fought. It has since come back with a vengeance.
Besides the immorality of central banking, the Fed’s manipulation of the money supply has deleterious effects on economic life. Inflation hurts the poor and the working class disproportionately while the Fed’s control of interest rates and credit is the reason for the dreaded business cycle.
The present age has prided itself in its efforts to attain justice in regard to race relations, the environment, economic equality, and now gender recognition. Yet, the immorality of central banking remains and while Sam Bankman-Fried may be incarcerated, social justice warriors (as well as conservatives) willfully ignore the counterfeiting elephant in the room. Until central banking is outlawed, a truly just social order is an impossibility.
*https://www.zerohedge.com/political/sam-bankman-fried-found
**https://nymag.com/intelligencer/2022/12/sam-bankman-fried-has-been-arrested.html
Antonius Aquinas@AntoniusAquinas
posted 11-20-’23
“Don’t Buy Government Bonds”
This is exactly what you do when you
cooperate with the State’s borrowing
program. You are loading on your children
and your children’s children an obligation to
pay for something they had no voice in, and
for which they may not care at all. Your
‘investment for posterity’ may earn you
nothing but the curses of posterity.
Chodorov understood, as most commentators do not today, that a gold-backed currency restrained State largesse: “When money was redeemable in gold, the inherent profligacy of government was somewhat retrained; for, if the citizen lost faith in his money, or his bond, he could demand gold in exchange, and since the government did not have enough gold on hand to meet the demand, it had to curtail its spending proclivity accordingly.”
It was Franklin Delano Roosevelt’s despicable and criminal act of taking the U.S. off the gold standard domestically that led to the expansion of the public debt as Chodorov describes: “. . . Mr. Roosevelt removed this shackle and thus opened the flood gates. The only limit to the inclination of every politician to spend money, in order to acquire power, is the refusal of the public to lend its money to the government. . . . the government can then resort to printing of money, to make money out of nothing. . . .”
Not realized at the time, but the ability of the American government to expand its revenue base fit nicely into FDR’s later nefarious foreign policy objectives.
Chodorov’s viewpoint on public debt can also easily be applied to FDR’s decision to eradicate the gold standard through which the U.S. currency could be redeemed for precious metals. FDR’s act, however, was a “violation of contract” with American citizens since the U.S. government defaulted on its obligations.
In Orwellian fashion, the verbiage used with most government operations is often misused to legitimize State functions. “Investment” is one such term that has been corrupted in relations to spending and debt.
In promoting their spending schemes, politicians will often use the term investment, “investment in education,” “investment in infrastructure,” etc. This is deliberate, since it tries to equate government spending with a vital component of the market process.
In a market economy, investment means the lending of savings, which is used to expand and/or start an enterprise. In return, the lender receives a stock or a bond. If the business is successful, the lender’s investment will receive a return – dividends from a stock or interest from a bond. Business investment is, therefore, a necessary aspect of capitalism which results in economic growth and increased living standards.
As Chodorov incisively points out, however, government investment is the antithesis of what takes place in the marketplace:
The State, however, does not put your money into production. The State spends it – that is all the State is capable of doing – and your savings disappear. The interest you get comes out of the tax fund, to which you contribute your share, and your share is increased by the cost of servicing your bond.
Chodorov’s solution to deficit financing was not to buy government bonds. While this would certainly be a step in the right direction, a more radical approach is needed since the problem has now become so immense.
Simply put: there should be a prohibition on government borrowing of any kind. State revenues should only come through tax receipts and fees paid by those in the present. This would completely eliminate the “moral hazard” of debt financing and drastically reduce the size and scope of government over society.
For those who seek to put an end to the current debt-ceiling charade and rectify the immoral practice of burdening future generations by the irresponsibility of the present, the works of Frank Chodorov are essential.
posted 5-17-’23
* “Don’t Buy Government Bonds,” The Mises Institute, 13 January 2011. https://cdn.mises.org/Out%20of%20Step_4.pdf
Antonius Aquinas@AntoniusAquinas
Antonius Aquinas 