Gold is the true “safe-haven” currency. The U.S. dollar is “strong” only when compared to more toxic currencies. Since the 2007 credit collapse, the dollar has fallen 100% against gold.
On the day markets FROZE worldwide [Aug. 9, 2007], the price of gold was $662.60/oz [London p.m. fix]. It now takes twice as many dollars to buy the same Troy ounce of PHYSICAL gold. The rising price of gold is signaling declining confidence in the dollar-reserve system.
THE DAY LIQUIDITY EVAPORATED
It is generally acknowledged the current crisis in financial markets began with a liquidity freeze on August 9, 2007. France’s largest bank, Banque BNP Paribas, cited that date as “the day liquidity completely evaporated from certain segments of the U.S. securitisation market.”*
After confidence in the banking sector collapsed and interbank lending seized up, the Federal Reserve created many trillions of dollars [of brand-new credit] to bail out financial institutions and restore confidence.
From nowhere — trillions of U.S. dollars sprang into existence [$1 TRILLION = ONE MILLION MILLION DOLLARS].
Americans were told bailouts were necessary to ‘stimulate’ the economy: Quantitative Easing [QEI, QEII, and QEIII-$1,020,000,000,000/ per year]; the “Stimulus Package;” “Operation Twist;” “Term Asset-Backed Securities Loan Facility” [TALF]; “Troubled Asset Relief Program” [TARP]; AIG bailout; Chrysler bailout; General Motors bailout; Extended Unemployment Benefits, “Cash for Appliances,” “Cash for Clunkers;” $8,000 “Home-Buyer Tax Credit.” (And the U.S. funds 17.9% of United Nations IMF/ World Bank bailouts.)
THE BIG WEALTH-TRANSFER
Although the Federal Reserve is a private entity and cannot be audited, Congress acquired documentation of post-crash bail-outs exceeding sixteen trillion dollars [$16,000,000,000,000 went to financial institutions in China, Europe, etc.]. After that, the Federal Reserve bought up “troubled assets” [about $1.3 trillion of “Mortgage-Backed Securities”], becoming the largest private holder of residential real estate in the United States.
The stock market rose significantly after the 2007/ 2008 crash — with very little retail participation. But after QE money injections ended the summer of 2011, the market declined; and world credit markets FROZE up once again.
The Fed’s resumption of pumping QE trillions into the market [purchasing corporate bonds and stocks] has resulted in stock market highs. But since October 2014, market “events” have been increasing in magnitude and frequency — with triple-digit swings, flash crashes, and diminished liquidity in junk bonds and derivatives. Volatility went crazy in August 2015 and in the first quarter of 2016.
Today, prices for stocks, rent, healthcare, and gold are rising because the value of the dollar is declining. ‘Stimulus’ trillions water down the purchasing power of the dollar just as water dilutes the potency of a shot of whiskey.
NOTE: Prices are rising faster than the government’s Consumer Price Index [CPI] indicates. On the following chart, the blue line represents calculations based on traditional methods of accounting, courtesy of John Williams, ShadowStats.com.
ALARMING TRENDS IN THE REAL ECONOMY
Besides early signs of surging price inflation, earnings growth has never been lower and production is slowing down sharply. Bill Gross recently said ‘the trend for productivity is negative.’
GDP [Gross Domestic Product] is the annual measure of the market value of all goods and services produced by a nation. GDP is equal to total consumer spending plus total government spending plus total investment plus the value of all exports — minus the value of all imports.
LOW WORK-FORCE PARTICIPATION
More than 94 million able-bodied workers are not counted in the government’s unemployment statistics. The ShadowStats Alternate Unemployment Rate for August 2016 is 23%.
High unemployment is structural. Over many decades, “FREE TRADE” treaties have served to hollow out the manufacturing base. Foreigners now supply the majority of the manufactured products Americans use [manufacturing employment down 14% since 2006]. The jobs that have been lost are not coming back to America’s shores.
HOW DID WE GET HERE?
In the twenty-five years leading up to the financial crisis, the American consumer —rather than manufacturing— was the engine of growth for the U.S. economy. Personal Consumption Expenditures [PCE debt] kept growing and compounding.** For a long time, the debt-based economy seemed to work.
From 1998 until 2007, consumer spending [debt] plus U.S. government spending equaled 96% of the growth in GDP. During the same period, U.S. exports plus business investment accounted for only 3% of GDP growth. **
Before the bottom dropped out of the U.S. housing market, many people carried the maximum amount of debt their income levels would allow them to bear. Personal, maxed-out debt bubbles began to pop about a year before the crash.
For years, the Federal Reserve has been praised for United States economic “RECOVERY.” However, the central bank merely “papered over” the crisis — with unprecedented money printing and zero percent [0%] interest rates. The results of the insane “CURE” for the debt-crisis are textbook:
• Public debt is growing.
• Tax revenues are declining.
• Corporate profit margins are narrowing.
• Industrial demand and manufacturing are collapsing.
• Consumer spending, retail earnings and sales are contracting.
WE ARE HERE: Deteriorating household wealth, falling consumer confidence, stagnant incomes, and low work-force participation. Instead of spending and consuming, anxious savers are sitting on their money; fearful businessmen and worried individuals are trying to pay down debt.
AMERICA’S PONZI ECONOMY IS MALFUNCTIONING
There are three phases in a credit collapse. In 2013, the U.S. economy passed into the second stage. America’s shrinking consumer base is no longer sufficient to drive GDP growth; and economic conditions are deteriorating. During Phase II, money-printing will increase and business activity will slow to a crawl.
The combination of rising public debt, falling production, and currency debasement always ends in credit collapse. There are no historical exceptions.
As the Federal Reserve explores “broader asset purchases” [direct interventions in the market] and negative interest rates [Mrs. Yellen, Feb. 2016], smart investors are trying to escape from the banking system [and third-party risk].
Protect your wealth by taking delivery of actual silver and gold. After 9 years of monetary ‘stimulus,’ new dollars by the wheelbarrow are chasing a limited supply of PHYSICAL coins.
Submitted by Denise Rhyne
* Schumpeter blog at economist.com; Aug. 9, 2012, Associated Press.
** William Emmons Jan 2012 Federal Reserve Bank of St. Louis. In the 25 yrs. leading up to the 2007 crisis, Personal Consumption Expenditures [PCE] drove GDP growth. Consumer spending [debt] accounted for 82.5% of real GDP growth. Each year, PCE grew 3.5% continuously compounded. “…in terms of its contribution to average quarterly real GDP growth during the decade ending in the third quarter of 2007, PCE accounted for 81.3%.” http://www.stlouisfed.org/publications/re/articles/?id=2158
After WW II, the U.S. was a manufacturing dynamo. Rapid growth –driven by manufacturing- wiped out a large portion of the WWII debt. The maximum debt-to-GDP ratio (debt as a % of Gross Domestic Product) was 108.7% in Dec. 1946. The minimum debt-to-GDP ratio was 23.9% – Dec. 1974. White House Office of Management and Budget.
Too much debt causes a nation to lose financial flexibility. At some inflection point, the ratio of debt-to-GDP reaches a critical imbalance. When debt exceeds the critical thresh-hold, economic growth begins to deteriorate rapidly. Suddenly, manageable debt becomes unmanageable. WEIMAR: First DEFLATION Then INFLATION