February 6, 2026

Can I Buy Gold In My IRA Account?

October 1, 2013 by Leave a Comment

tenth oz gold-eaglesThe “I won’t buy an umbrella until it rains” crowd has been dumping gold while the case for ownership of  safe haven gold has never been stronger.

As the credit bubble continues to grow at an alarming pace it’s not a question of if but rather when the next financial crisis engulfs the entire world.  Gold has been used forever as the only form of sound money since it has no credit risk or counter party.

Here’s a neat info-graphic from American Bullion that nicely sums up the compelling case for allocating part of a portfolio to gold.

Gold IRA Infographic

Filed Under: Bullion Sales, Currency debasement, Featured, Gold, US Debt Crisis Tagged With: , , ,

Next Economic Crisis Looms as Debts and Deficits Explode

October 1, 2013 by Leave a Comment

money printingForget about a government shutdown. The quibbling over concessions to keep the government funded distracts from what might be the most predictable economic crisis. We have problems that may affect everything from the value of the U.S. dollar to investors’ savings, but also to national security.

In a presentation earlier this year, Erskine Bowles (of the Simpson-Bowles commission) explains why he travels around the country to drum up support for fiscal reform:

  • We are doing this (traveling around the country to drum up support for fiscal reform) not for our grandkids, not even for our kids, but for us.
  • If we don’t get elected officials to pull together, we face the most predictable economic crisis in history. The most predictable, but avoidable crisis.

Mr. Bowles is 68 years old; when someone his age says we need to get fiscal reform done for his generation, we should take note. The good news is that we see awareness increase. The bad news is that policy makers have an amazing ability to kick the can down the road. Former Bundesbank President Axel Weber has said policy makers choose the cost of acting versus the cost of not acting. We fully agree and would like to add that the bond market may be the one force powerful enough to get policy makers to make the tough but necessary choices. Unlike the Eurozone, however, we have a current account deficitin the U.S. which means that should the bond market apply pressure on policy makers, the U.S. dollar might come under far more pressure than the Euro has ever been.

But we are getting ahead of ourselves. To see why we have a problem, let’s look at the projections of the Congressional Budget Office (CBO); we are using their “Extended Alternative Fiscal Scenario.” The extended alternative fiscal scenario incorporates the assumptions that certain policies that have been in place for a number of years will be continued and that some provisions of law that might be difficult to sustain for a long period will be modified. From 1973-2012, government spending averaged 20.4% of GDP; in contrast government revenue averaged 17.4% of GDP. That equates to an average yearly deficit of 3%. As long as an economy grows sufficiently, it may be able to carry a sustained 3% annual deficit. A future Merk Insight might question this logic, but today’s analysis focuses on a much bigger problem.

Democrats and Republicans argue about the size of the government. Democrats tend to favor a larger government to provide healthcare or other services deemed valuable by their constituents; Republicans, in contrast, brand themselves as favoring small government. But as much as anyone may have a preference for one model or another, either approach must be financed. Financing any level of government spending can occur either through increasing revenue (taxes) or borrowing. Trouble is that there aren’t enough rich folks out there to tax to mend the system. Consider the following projection by the CBO:

  • In 10 years, our annual budget deficit is projected to be 4.5% of GDP.
  • In 25 years, our annual budget deficit is projected to be 13.6% of GDP.
  • In 35 years, our annual budget deficit is projected to be 18.7% of GDP.


You might shrug off these numbers as unrealistic given that it’s impossible to forecast 35 years out. However, keep in mind that the biggest driver of expenses in the coming 35 years are known as “entitlements,” taking Social Security, Medicare & Medicaid together, these expenses are expected to rise from 9.3% to 15.7% of GDP; that’s an increase of 6.4% of GDP. If one accepts a substantially larger tax burden, possibly by introducing a national sales tax or carbon tax, one could conceivably finance this increase, although getting the political majority for such taxes might be elusive.

But the biggest elephant in the room is interest expense. As we keep piling on deficits at some point the cost of borrowing might increase to rates that are more in line with historic averages, and we have a problem:

 

According to the CBO, in 2048, we will be spending almost 12% of GDP on interest expense, compared to just over 1% now. Differently said, as a share of GDP, we will be paying more in 2048 for entitlements and interest expense than we currently pay for all government services combined. Said still another way, even with substantially higher taxes, there may not be any money to pay for the military, education, or infrastructure. In fact, Republicans and Democrats can stop arguing about discretionary spending, as there might not be any to fight over! Mr. Bowles argues, and we agree, that our deficits might be the biggest threat to our national security.

Now there’s a thing or two we can learn from Europe. Most notably that policy makers can be incredibly creative when it comes to kicking the can down the road. Culturally, there are differences, too. In Germany, austerity sells. In the U.S., we may be much more tempted to count on the Federal Reserve to help us finance our deficits.

In this context, we think the biggest threat we are facing might be economic growth. That’s because economic growth may send the bond market down, increasing the cost of borrowing. The U.S. currently pays just under 2% on its marketable debt; in 2001, it was over 6%. We are not suggesting that the average cost of borrowing will shoot up overnight. But let’s look at just the next 10 years. The below chart shows a CBO projection next to a projection that suggests we revert to a slightly higher rate, namely the rate that was the average for the past 40 years. Unrealistic? You judge. But it suggests that we might be paying $1.2 trillion in interest expense in 2023:

 

As indicated, with the exception of our suggestion that interest rates might move back up to their historic average, the estimates are CBO projections. If there were another military conflict, for example, expenses could easily be higher.

So what does it mean for investors? The most obvious choice might be to consider shorting bonds. But while we agree that bonds may be one of the worst investments over the coming decades, be warned that it can be very expensive to short bonds. Markets tend to exert maximum pain on investors; as such, it’s conceivable that bonds hold on much longer than one might think, possibly even rise. During this “wait and see” period, investors shorting bonds have to pay the interest on them.

A more effective way to prepare for what lies ahead might be to focus on the greenback. As indicated earlier, the U.S. has a current account deficit. That means foreigners have to buy U.S. dollar denominated assets to keep the dollar from falling to cover the deficits. Higher interest rates might attract investors, but if one believes the Federal Reserve might keep rates artificially low, it also means that Treasury securities would be intentionally overpriced. Less abstractly speaking, if you think the Bank of Japan in Japan or the Fed in the U.S. might try to keep a lid on yields, the currency may well be the valve. In fact, we would go as far as to argue that we cannot afford high positive real interest rates. As a result, the Fed might need to err on the side of inflation rather than cripple the economy. Sure, a hawkish Fed might be able to hike rates in the short-term, but let the economy kick into higher gear. If we look at what happened, for example, in Spain, perception maters more than reality: Spain had very prudent debt management, with an average duration of about 7 years; yet the market started to lose confidence, causing concern in the market that Spain might lose access to the market. Similarly, in the U.S., the numbers above matter little should investors lose confidence. By all means, U.S. markets are deeper and more liquid than Spanish markets. But to us, it also suggests that policy makers will be more tempted to kick the can down the road, only exacerbating the day of reckoning.

All the more so, shorting bonds may only be for the brave. Diversifying out of the greenback, however, be that through gold or a basket of currencies, is also risky, but allows investors to potentially take advantage of other opportunities along the way. A more active investor may want to contemplate whether there’s money to be made from the “currency wars” that might rage as different regions of the world address their challenges in different ways. None of these are easy choices, but doing nothing may also be a risky proposition, as the purchasing power of the dollar may increasingly be at risk.

Please register to join us for an upcoming Webinar as we dive into these dynamics in more detail. Also make sure you subscribe to our newsletter so you know when the next Merk Insight becomes available.

Axel Merk

Axel Merk is President and Chief Investment Officer, Merk Investments, Manager of the Merk Funds.

Filed Under: Currency debasement, Featured, Gold, US Debt Crisis Tagged With: , , , ,

Fed’s Inflate or Die Monetary Policy Guarantees A Monumental Financial Crisis

September 25, 2013 by Leave a Comment

economic collapseBy: GE Christenson

The U.S. economy is being overwhelmed by a loss of faith and trust in politicians, government, and bankers, excessive debts, artificially low interest rates, unsustainable deficit spending, expensive wars, QE (money printing) to infinity, “Inflate or Die” monetary policy, potential derivatives implosion, Obamacare and so much more.

If you believe that total government debt can grow FOREVER and more rapidly than the underlying economy, this article is NOT for you.

If you believe that governmental deficit spending, QE, and bond monetization can continue FOREVER without major consequences, this article is NOT for you.

But if you are sane enough to know that our current economic policies will produce a “train wreck,” read on…
A slow-motion collapse is occurring and most of us do not see it.

Consider these thoughts from insightful writers: –
Collapse Indicated by Stalling Growth in Global Financial Reserves

Hugo Salinas Price:

“As it is, the US can only continue to monetize government debt. Higher dollar interest rates are inevitable and will cause further government deficits; the debt overhang in both the US and Euro Zone is so great that a rise of a few points in interest rates will explode the deficits, and so on and so forth.

Bottom line: Stalling growth in International Reserves tells me that a world financial collapse is in the offing.”

Collapse Indicated by Loss of Trust in Western Economic Systems

David Stockman:

“There is no honest pricing left at all anywhere in the world because central banks everywhere manipulate and rig the price of all financial assets. We can’t even analyze the economy in the traditional sense anymore because so much of it depends not on market forces, but on the whims of people at the Fed.”

“The Blackberry Panic of September 2008, in which Washington policy makers led by former Goldman Sachs CEO Hank Paulson, panicked as they saw Wall Street stock prices plummet on their mobile devices, had very little to do with the Main Street economy in the United States. The panic and bailouts that followed were really about protecting the bonuses and incomes of very wealthy and politically well-connected managers at banks and other heavily leveraged businesses that were eventually deemed too big to fail. What followed was a massive transfer of wealth from the taxpayers and middle-class savers, in the form of bailouts and zero interest rates on bank deposits imposed by the Fed, to the so-called One Percent.”

“I think the political realities of the situation make the most likely scenario one in which there will be some kind of real financial collapse and disorder that will require a total reconstruction of the system.”

The Burning Platform:

“Despite the frantic efforts of the financial elite, their politician puppets, and their media propaganda outlets, collapse of this aristocracy of the moneyed is a mathematical certainty. Faith in the system is rapidly diminishing, as the issuance of debt to create the appearance of growth has reached the point of diminishing returns.”

“We are witnessing the beginning stages of political collapse. The government and its leaders are being discredited on a daily basis. The mismanagement of fiscal policy, foreign policy and domestic policy, along with the revelations of the NSA conducting mass surveillance against all Americans has led critical thinking Americans to question the legitimacy of the politicians running the show on behalf of the bankers, corporations and arms dealers.”

“We are supposedly five years past the great crisis. Magazine covers proclaimed Bernanke a hero. If we are well past the crisis, why are the extreme emergency measures still in effect? If the economy is growing and jobs are being created, why do we need $85 Billion of government debt to be monetized each and every month?”

“Just the slowing of debt creation will lead to collapse. Bernanke needs a Syrian crisis to postpone the taper talk. Those in control need an endless number of real or false flag crises to provide cover for their printing presses to keep rolling.”

Bill Fleckenstein:

“Since April, the 10-Year has gone from about 1.6% to as high as 3% recently. Now we have to see when this rally in bonds stops. The bond market will then roll over and then the Fed won’t have the tapering as an excuse. It means the bond market has ceased to price in the scenario that the Fed wants, and the bond market is not responding to the Fed’s moves in the short-run. In the old days we would call that ‘losing control of the bond market.’ And if that starts to happen, all hell is going to break loose.”

Michael Pento:

“The 10-Year went from 1.4% to 3%, and that made Mr. Bernanke panic. The average on that (10-Year) yield is 7% in the modern era since 1971 when we closed the ‘gold window.’ So, if the average is 7%, and the United States of America, this once great land, can’t (even) tolerate a 3% yield on the 10-Year Note, that means the Fed can never unwind QE.

That’s enough to cuff Mr. Bernanke’s hands. So the Fed is indeed trapped as you indicated. They cannot significantly bring down QE. That means a perpetual increase in the Fed’s balance sheet. That (also) means an inexorable rise in asset bubbles like stocks, bonds, and real estate, and it’s going to end (very) badly.”

Hank Paulson Interview:

“Paulson believes there will be another financial crisis.”

“It’s a certainty. As long as we have markets, as long as we have banks, no matter what the regulatory system is, there will be flawed government policies. Those policies will create bubbles.”

Alternate Interpretation: As long as we have Treasury Secretaries who represent the interests of Goldman Sachs and Wall Street bankers instead of the US economy, then we can be certain of another financial crisis.
Collapse in Retirement Income

Dennis Miller:

“While the Federal Reserve holds down interest rates and floods the banking system with money, it’s destroying the retirement dreams of several generations. The Employee Benefit Research Organization reports that 25 – 27% of baby boomers and Generation Xers who would have had adequate retirement income – under return assumptions based on historical averages – will run out of money if today’s low interest rates are permanent.”

In addition to the problem of low yielding investments caused by the historically low interest rates created by the Fed, even more retirees will run out of money, much sooner, when the inevitable inflation in food and energy prices smacks the U.S. economy, and especially retirees.
Discussion

It seems clear that we are losing faith in our politicians, our leaders, and our financial systems. Approval levels for congress and the President of the United States are low. Too-Big-To-Fail banks and “banksters” are despised and openly criticized.

The Federal Reserve is losing credibility; more and more people are realizing that QE is good for the bankers and the wealthy, but that it does little for “Main Street” people except drive up the prices they pay for food and energy.

The American public is generally opposed to war in the Middle East but that seems to matter little to the political and financial elite who will profit from the war.

Most people, so it appears, know that inflation is much higher than officially stated, and that inflation will become far worse than it is today. (When was the last time you saw a cup of premium coffee or a gallon of gasoline for less than $1?)

Read: Going Dark! Economic Cycles Point Downward

GE Christenson
aka Deviant Investor

Filed Under: Currency debasement, Featured, Gold, US Debt Crisis Tagged With: , , , , , , ,

Will The Fed’s “Beautiful Money Printing” Lead to Economic Recovery?

September 23, 2013 by Leave a Comment

The End GameBridgewater’s Ray Dalio, one of the world’s most successful hedge fund investors, has put out a neat video explaining how the economic system works and how the suffocating burden of unmanageable debts can be reduced without propelling the world into uncontrollable inflation or a deflationary depression.

According to Dalio, every deleveraging  in history has involved a combination of cutting spending, reducing debt through defaults and restructuring, redistributing wealth and the printing of money by central banks.

Each method of deleveraging must be done in just the right amount to avoid tipping the economy into either deflation or inflation.  For example, spending cuts, also know as austerity, leads to falling incomes as less money is spent and debt burdens becomes even more untenable as deflation sets in.  Fewer jobs and higher unemployment from spending cuts require even further spending cuts and this vicious cycle of lower incomes and higher debts ultimately leads to a severe economic contraction known as a depression.  Increased taxes on the wealthy to redistribute spending power to the poor and debt write offs must also be conducted in measured amounts to avoid social unrest between the “haves and have nots.”

Money printing by the central bank is also essential in Dalio’s view since interest rates are already at zero and printed money is necessary to make up for disappearing credit.   If money printing along with spending cuts, wealth distribution and debt restructuring are done in just the right proportions, a “beautiful deleveraging” occurs resulting in declining debts and strongly positive economic growth.  If the four factors of develeraging are done properly, money printing will not cause inflation since the printed money merely offsets the credit destruction triggered by reduced lending and borrowing and debt restructurings.

Dalio does not explain how the central bank and central government can accurately determine how to precisely apply his four develeraging factors to get the economy back on track.  In addition, Dalio admits that the whole system winds up falling apart if incomes do not grow faster than debt.  If debts continue to grow at 4% and incomes increase by only 2%, the debt burdens continue to grow, the economic problems compound and banks continue to cut back on lending until incomes increase.

Income growth can outpace debt growth, according to Dalio, if the Fed prints “just the right amount of money.”  Good luck with that – the members of the Fed can’t even agree on whether or not money printing is causing more harm than good and the Fed’s money printing efforts have been totally counterproductive in attempting to increase incomes as Household Incomes Remain Flat.

Over a longer perspective, the figures reveal that the income of the median American household today, adjusted for inflation, is no higher than it was for the equivalent household in the late 1980s.

For all but the most highly educated and affluent Americans, incomes have stagnated, or worse, for more than a decade. The census report found that median household income, adjusted for inflation, was $51,017 in 2012, down about 9 percent from an inflation-adjusted peak of $56,080 in 1999, mostly as a result of the longest and most damaging recession since the Depression. Most people have had no gains since the economy hit bottom in 2009.

Government programs remain a lifeline for millions. Unemployment insurance, whose eligibility the federal government expanded in response to the downturn, kept 1.7 million people out of poverty last year. Food stamps, if counted as income, would have kept out four million.

Since the recession ended in 2009, income gains have accrued almost entirely to the top earners, the Census Bureau found. The top 5 percent of earners — households making more than about $191,000 a year — have recovered their losses and earned about as much in 2012 as they did before the recession. But those in the bottom 80 percent of the income distribution are generally making considerably less than they had been, hit by high rates of unemployment and nonexistent wage growth.

The Fed’s money printing rampage has done nothing but inflate the cost of living for the average American even as wages continue to spiral downward.  What will the Fed do next?  There is every reason to believe that the money printing will continue to expand as it did in the Weimar Republic as explained in The Economic Collapse.

There is a reason why every fiat currency in the history of the world has eventually failed.  At some point, those issuing fiat currencies always find themselves giving in to the temptation to wildly print more money.  Sometimes, the motivation for doing this is good.  When an economy is really struggling, those that have been entrusted with the management of that economy can easily fall for the lie that things would be better if people just had “more money”.  Today, the Federal Reserve finds itself faced with a scenario that is very similar to what the Weimar Republic was facing nearly 100 years ago.  Like the Weimar Republic, the U.S. economy is also struggling and like the Weimar Republic, the U.S. government is absolutely drowning in debt.  Unfortunately, the Federal Reserve has decided to adopt the same solution that the Weimar Republic chose.  The Federal Reserve is recklessly printing money out of thin air, and in the short-term some positive things have come out of it.  But quantitative easing worked for the Weimar Republic for a little while too.  At first, more money caused economic activity to increase and unemployment was low.  But all of that money printing destroyed faith in German currency and in the German financial system and ultimately Germany experienced an economic meltdown that the world is still talking about today.  This is the path that the Federal Reserve is taking America down, but most Americans have absolutely no idea what is happening. It is really easy to start printing money, but it is incredibly hard to stop.  Like any addict, the Fed is promising that they can quit at any time, but this month they refused to even start tapering their money printing a little bit.

Long term investors in gold and silver should continue to accumulate positions at current bargain prices as part of a long term wealth preservation strategy.

Filed Under: Currency debasement, Featured, Gold, Silver, US Debt Crisis Tagged With: , , , , , , , , , ,

Collapse of Bernanke’s Credit Bubble Will Destroy the Global Financial System

September 20, 2013 by Leave a Comment

collapseBy: GE Christenson

The U.S. stock market is near all-time highs, while politicians and economists are blathering about recovery, low inflation, and good times, but instability and danger are clearly visible in our debt based monetary system. To the extent we rely upon the fantasies of ever-increasing debt, money printing, and credit bubbles, we are vulnerable to financial collapses. Perhaps a collapse is not imminent, but it would be foolish to ignore the possibility. Consider what these insightful writers have to say:

The Fantasy of Printing Money To Solve Problems

Bill Fleckenstein:

“Money-printing cannot solve problems. It doesn’t really give us much gross domestic product growth, as we have seen. It hasn’t really helped on the employment front either, as job growth is meager (of course, it is also hampered by other government policies). What money-printing has accomplished is to push the stock market high enough to cause people to once again become delusional in their expectations.”

Egon von Greyerz:

“Debt worldwide is now expanding exponentially. With absolutely no possibility of stopping this debt explosion, we will soon enter a period of unlimited money printing leading to a total destruction of paper currencies. The consequence will be a hyperinflationary depression in most major economies.”

Andy Hoffman:

“No, Larry Summers won’t be able to save the day… The damage is already done; and thus, NOTHING can turn the tide of 42 years of unfettered, global MONEY PRINTING – which as I write, has entered its final, terminal phase.”

Bullion Bulls Canada:

“So the ending is already clear. The U.S.S. Titanic is about to be intentionally sunk (again), and B.S. Bernanke’s ‘fingerprints’ will be planted all over the crime scene.”

CREDIT BUBBLE IN THE GLOBAL ECONOMY WILL EVENTUALLY COLLAPSE

John Rubino:

“…nothing was fixed after 2008, just as nothing was fixed after the housing, tech stock, and junk bond bubbles burst. The response has been the same each time, only progressively more aggressive and experimental. That the financial, economic and political mainstream think that the system has been reset to ‘normal’ because asset prices are back where they were just before the 2008 crash is, well, crazy. With financial imbalances bigger than ever before – and continuing to expand – the only possible outcome is an even bigger crash.”

Bill Holter:

“THIS is where THE REAL BUBBLE is! The biggest bubble in all of history, (larger than the Tulip mania, South Sea, the Mississippi Bubble, 1929, current global real estate and global stock bubble combined then cubed) is the current and total global financial system. EVERYTHING EVERYWHERE is based on credit. In fact, over 60% of this credit is dollar based and ‘guaranteed’ by the U.S. government. The minor little problem now is that we have reached ‘debt saturation’ levels everywhere. There are no more asset classes left able to take on more credit (air) to inflate the balloon. The other minor detail is that the ‘asset’ that underlies the value of everything (the dollar and thus Treasury securities) is issued by a bankrupt entity. What could possibly go wrong?”

Discussion

Growing and healthy economies mean more people are productively employed. It appears that much of the “growth” in the U.S. economy over the last five years has been in disability income, food stamps (SNAP), unemployment, student loans, welfare, debt, and government jobs – none of which are productive. Examine the following graph of Labor Force Participation Rate – the actual percentage of the populace that is employed. Does this look like a healthy economy experiencing a recovery or a collapse in productive employment?

The damaging effects of 100 years of Fed meddling in the U.S. economy, many expensive wars, 42 years of unbacked debt based currency, and unsustainable growth in credit and debt have left the Western monetary system in a precarious position.

Using common sense, ask yourself:

  1. Can total debt grow much more rapidly than the underlying economy which must support and service that debt? FOREVER?
  2. Can government expenditures grow much more rapidly than government revenues? FOREVER?
  3. Will interest rates remain at multi-generational lows? FOREVER?
  4. Will a fiscally irresponsible congress rein-in an out of control spending system that our fiscally irresponsible congress created?
  5. Is another and larger (than 2008) financial collapse likely and inevitable?
  6. Do you still believe in the fantasies of ever-increasing debt, printing “money” and credit bubbles? Are you personally and financially prepared for a potential financial collapse?
  7. Have you converted some of your digital currencies into real money – physical gold and silver? Is it safely stored outside the banking system and perhaps in a country different from where you live?

Read: The Reality of Gold and the Nightmare of Paper
Read: What You Think is True Might Be False and Costly

GE Christenson
aka Deviant Investor

Filed Under: Currency debasement, Featured, Gold, Silver, US Debt Crisis Tagged With: , , , , , , , , , ,

Higher Gold and Silver Prices Are Guaranteed By the Endless Creation of Paper Currency

August 22, 2013 by 3 Comments

bernanke's paperBy: GE Christenson

Step into the “Wayback Machine” and journey back in time to:

1932: Silver was selling for about $0.25 per ounce (average annual price per Kitco.com). Our $100 bill would buy about 400 ounces.
1962: Silver was selling for about $1.20 per ounce. Our $100 bill would buy about 83 ounces.
1982: Silver was selling at about $10.60 per ounce. Our $100 bill would buy about 9 ounces. (Early in 1980 silver spiked to about $50 per ounce for a day or so and then crashed.)
2012: Silver was selling for about $31 per ounce. Our $100 bill would buy about 3 ounces.
Today: Silver prices have been volatile. Our $100 bill will buy perhaps 4 ounces of silver.

Over the course of the last 100 years, during which we have been blessed with the Federal Reserve and massive government spending, our $100 bill no longer buys 400 ounces of real physical silver; now it will purchase only about 4 ounces.

What have we learned from our quick survey of the history of silver prices?

Prices are volatile – they can go drastically higher and then crash.

On average, $100 buys less silver with each passing decade because the currency is worth less each decade.

What can we expect for the price of silver? It seems obvious that:

All paper currencies eventually decline in value to their intrinsic value – approximately zero. Voltaire understood this concept almost three centuries ago. Several hundred unbacked paper currencies have become worthless since the time of Voltaire.

Governments and banks represent the status quo so very little will change without a crisis or collapse. Governments spend more than their revenues and borrow the difference, thereby increasing total debt and the money supply. The status quo involves the creation of more and more currency, all of which is backed by debt, not assets.

US Government Revenue, Expenses, Official Debt (rounded in $Billions):

Year                       1971    2012
Expenses                210     3,500
Revenues               187     2,400
Official Debt           408    16,100

Inflation and debt are “hardwired” into our monetary system. Don’t expect government spending or total debt to decrease unless there is a massive financial crisis.

Official debt is shown but it does not include unfunded liabilities for Social Security, Medicare, Pensions and so forth. The total debt including unfunded liabilities has been calculated in the $100 – $200 Trillion range and rapidly rising.

As the money supply and total debt increase, average prices increase. Hence silver has increased from a few cents to many dollars per ounce. Five cent coffee and $0.19 gasoline are ancient history.

The process will continue until it no longer can – perhaps a few years, perhaps a decade. Don’t bet on the imminent demise of a system that enriches banks and the political elite while it increases governmental power.

Plan on reduced purchasing power of unbacked fiat currencies.

Bet on the inevitability of higher silver and gold prices – because the value of the paper currencies is decreasing every year.

For the Future

 

Eighty years ago $100 purchased 400 ounces of silver while today that $100 purchases about 4 ounces. Someday soon $100 will purchase only one ounce of silver.

Depending on how rapidly the money supply is increased and how quickly confidence in paper money evaporates we may see the day when it takes ten, or more, $100 bills to purchase a single ounce of silver. Hyperinflation has happened in many countries in the past 100 years and many good analysts believe that it COULD occur again in Europe and the United States. If hyperinflation occurs, your silver and gold will be worth much more in nominal dollars and will, to some extent, protect your purchasing power. Unfortunately, life in a hyperinflationary economy is likely to be exceedingly difficult for most people.

Prepare by purchasing physical silver and gold and storing it outside the banking system.

Read: Gold, Silver and Sins of the Past

By GE Christenson, aka Deviant Investor

GE Christenson
Filed Under: Currency debasement, Featured, Gold, Silver, US Debt Crisis Tagged With: , , , , ,

Gold and Silver Are the Only Safe Assets In a Dangerously Unstable Financial System

July 31, 2013 by Leave a Comment

Physical-GoldBy: GE Christenson

Consider these thoughts on “the great lie,” our strange world, its unstable financial system, overwhelming debt, exponential growth, inevitable collapse, fractional reserve banking, counterparty risk, and gold – from highly intelligent individuals who think beyond the traditional:

From Karl Denninger: Detroit: The Shape Of Things To Come

“If you make political promises that can only be met through increased tax rates, now or in the future, you begin the process of slitting your own throat. That outcome is inevitable when you agree to political promises that have escalating expenses over time as pensions, medical benefits, salary “step” increases, bond issues that have a payment schedule longer than the useful life of the asset bought and similar.

There is no way out of this box other than to repudiate those promises.”

From Richard Russell: (subscription service)

“The compounding debt is the monster that is eating the U.S. The only way out is to renege on the debt or try to pay it off with inflation or hyperinflation. The bull market in bonds is over. From now on, we are dealing with a bear market in bonds, at which time natural forces will drive bonds down, and as bonds fall, interest rates will rise.”

“It’s taken almost two centuries for bankers to pull the wool over Americans’ eyes, but today you and I are working for intrinsically worthless paper that can be created by bureaucrats – created without sweat, without creative ability, without work, without anything but a decision by the Federal Reserve.

This is the disease at the base of today’s monetary system. And like a cancer, it will spread until the system ultimately falls apart. This is the tragedy of the great lie. The great lie is that fiat paper represents a store of value, money of lasting wealth.”

From Bill Bonner: Why Gold is the Only Money that Works

“When you have a system based on credit, rather than bullion, deals are never completely done. Instead, everything depends on the good faith and good judgment of counterparties – including everybody’s No. 1 counterparty: the US government. Its bills, notes and bonds are the foundation of the money system. But they are nothing more than promises – debt instruments issued by the world’s biggest debtor.

A credit system cannot last in the modern world. Because, as the volume of credit rises, the creditworthiness of the issuers declines. The more they owe, the less able they are to pay.”

“Naturally, everybody loves a credit system… until the credits go bad. Then they wish they had a little more of the other kind of money. Wise governments, if there are any, take no chances. They may feed the paper money to the people. But they hold onto gold for themselves. Throughout history, the most powerful governments were those with the most gold.”

But suppose much of the government and central bank gold is gone. As Eric Sprott concluded, after considerable research,

“Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today.”

It seems likely that the western governments and central banks have sold (or leased to a bullion bank who sold it to a buyer in China, India, Hong Kong, or the middle-east) most of their gold. Germany recently requested the return of their gold from the Federal Reserve Bank in New York but was told they would have to wait seven years to get a portion (only 300 tons) of it. It is clear there is more to the story – and the obvious conclusion is that the Federal Reserve Bank can’t easily return what it no longer possesses. In non-banking circles, this could be called theft or embezzlement, but in the banking world it is called “leasing” or rehypothecation, and it is legal.

Bill Bonner:

“But if they (central banks) have sold such massive quantities over the last 10 years, how much do they have left? Maybe not much.

Which wouldn’t be surprising. Western central banks are committed to their credit-money system. They intend to stick with it. And they know that unraveling this unruly skein of credit would be extremely painful.

Selling gold into the bull market of the last 12 years probably seemed like a very smart move. We’ll see how smart it was later, when the credit-based money system blows up.”

But, I ask you, who formerly owned the gold, and who is quietly amassing a vast horde of gold to increase global influence in the future? This process of selling gold and converting it to paper promises has been occurring (so the evidence indicates) for several decades and appears to be working well for now. The “game” appears to be:

Asian countries and the middle-east accumulate more gold and unload their dollars.

The bullion banks borrow gold from the central banks, sell the gold, and earn interest.

The central banks claim they own the gold, even though much of it is almost certainly gone.

The gold sales support the value of the dollar so the US government benefits.

Consumers in the US pay for imports with dollars that are still relatively strong, although when the dollar weakens and gasoline costs $10, the “game” won’t look so attractive.

Conclusions

Politicians and bankers work together to benefit themselves at the expense of the people actually producing something of value. Politicians increase their power and influence by spending ever-increasing amounts of paper currencies. The bankers enable the process by creating the paper currencies (from nothing), loaning those newly created dollars, euros, yen, and pounds to the politicians, governments, and businesses, and collecting interest. This process succeeds until the debts must be paid. Then:

Borrow more paper currencies, extend and pretend, lie and deny, etc.

Inflate or die! QE4-ever!

Raise taxes and fees. (Hope the parasites don’t kill the host.)

Encourage the Fed to create enough new currency to bail out the bankers and prevent a deflationary collapse (the other option besides horrific inflation).

Let consumer price inflation accelerate. $10.00 gasoline anyone?

When the mathematics doesn’t work, when the plan is lame, when the debts must be paid, when the sins of the past must be acknowledged and corrected, there are few choices remaining.

Review the cogent thoughts from The Burning Platform, Karl Denninger, Richard Russell, and Bill Bonner. Then ask yourself:

Do you believe debt and interest payments can increase forever?

Do you believe that either an inflationary or deflationary collapse (in some form) is inevitable?

Do you believe that unbacked paper currencies represent a store of value or a wasting asset? (Do you remember gasoline at $0.19 per gallon?)

Do you trust the lasting value of gold more than the integrity of a politician’s promise?

Do you believe that the US government and the Federal Reserve have all the gold they claim (not audited since the 1950s), when it benefits both the US government and the Fed to surreptitiously “lease” gold (sell it into the market)?

Do you believe that Russia, China, the Arab countries, Hong Kong, India, and many other countries are making a wise choice by trading dollars for gold?

Do you believe that your food and energy expenses will remain constant or substantially increase in the next four years?

Do you believe congress will balance the budget and that world peace is coming?

Do you believe and understand counterparty risk?

Do you believe the existing economic system will meet your needs in the future?

Having considered your beliefs, do you think it would be wise to convert some of your paper assets to real gold and silver? If so, I encourage you to purchase gold and silver from a reputable dealer and store them safely outside the banking system.

GE Christenson
aka Deviant Investor

Filed Under: Currency debasement, Featured, Gold, Silver, US Debt Crisis Tagged With: , , , , , , ,

Does The Decline In Gold Signal An Imminent Financial Collapse?

June 26, 2013 by Leave a Comment

GOLD COINBy: GE Christenson

Unsustainable trends can survive much longer than most people anticipate, but they do end when their “time is up” – at the culmination of their time cycles. Examples of these trends include deficit spending, exponential debt increases, overpriced bond markets, and unbacked paper currencies, to name a few. For perspective on how and when these trends could change direction, we analyzed more than 20 different cycles. They nearly unanimously point to tectonic shifts in the months and years ahead. We have been warned!

At this point, we have enough confirmation to accept that the precious metals crash – starting in April of 2013 – was the first warning of what is coming globally.

Financial crashes and economic collapses are not inevitable, but they seem more likely in the next few years, starting later this summer. Preparation might appear to be a waste of time and resources, but lack of preparation could result in the loss of wealth, incomes, jobs, and lives. Perhaps our leaders will guide the world economies through some upcoming hard times, but they might also aggravate those hard times by following policies that benefit the political and financial elite at the expense of the middle class and the poorer classes. Look at current trends in government and banking, and decide for yourself!

The remainder of this decade is likely to be quite problematic for most of the world’s population, particularly the poor. People who have the majority of their assets in stocks, bonds, and paper debt may also be hurt as the currencies are inflated and purchasing power declines sharply.

We have presented a summary of cycles for stocks and bonds, war, gold and silver. We show the source of the cyclic information, the relevant timing, and some commentary.

Summary

There are many cycles that suggest a stock market correction or crash is near. That correction/crash will probably be accompanied by a correction in the bond market that reverses much of the bullish action of the past 30 years. (Signs of a bond bear market are already visible.) Gold and silver should rally substantially as their cycles are turning up while money flees the stock and bond markets and attempts to find safety in an increasingly dangerous world. Financially and socially, many cycles have turned downward; and many will not bottom until later in this decade. Much can go badly wrong during the next seven years. Now is NOT the time for complacency or procrastination.

Along with the decline in equities, bonds, and the value of paper money will come – probably – more social unrest, considerably higher consumer prices for food and energy, bankrupt local, state and national governments, more debt defaults, higher unemployment, possible monetary and/or economic collapse, and a likely escalation in regional and global wars.

A gradual cooling (NOT warming) will reduce crop yields and drive already expensive food prices much higher. The world’s poor will suffer. Hungry people are inclined to rebel and threaten governments. Hence governments will become more repressive and will increase their information gathering on all those viewed as potentially threatening to the status quo.

(Read entire article here.)

GE Christenson

aka Deviant Investor

Filed Under: Currency debasement, Featured, Gold Tagged With: , , , , ,

“Sentiment on Gold and Bonds Incredibly Negative” – Marc Faber Predicts Endless QE

June 22, 2013 by Leave a Comment

Liberty-EagleIts hardest to buy at bottoms since you never know where the bottom is.  Equally hard to do is to buy when the sentiment is incredible negative as it was in early 2009 for stocks and 2000  for gold and silver.

Marc Faber, editor of Gloom Boom & Doom Report discussed the current status of the global markets and investment strategies on Bloomberg Television.

Faber said that the sentiment on gold and bonds in incredible negative and that the Fed, regardless of who winds up replacing Bernanke, will be forced to engage in endless monetary stimulus.   According to Faber “as I said already three years ago, we are going to go with the Fed to QE99.”

Faber notes that the cost of living continues to increase  on a global basis and the benefits of QE are mainly benefiting the richest members of society who hold large amounts of assets.  As money printing destroys the purchasing power of the middle class there will be worldwide social unrest which has already erupted in numerous countries.

As to what the price of gold will be at year end, Mr. Faber declined to speculate saying that “I am not a prophet but I will continue to buy gold.”

Filed Under: Currency debasement, Featured, Gold, US Debt Crisis Tagged With: , , , , , , ,

Why I Will Always Own Gold and Silver

May 16, 2013 by Leave a Comment

What I Know for Certain –  By:  GE Christenson

gold-dollar

      • Death and taxes!
      • Fear and greed are powerful motivators.
      • Individuals, businesses, and governments do what they think is beneficial for them.
      • Businesses and governments protect their products and territory and resist competition and enemies.
      • Concentrated wealth creates power and corruption. The greater the concentration of wealth, the larger and more pervasive the power and corruption.
      • Gold and silver have been money for over 3,000 years.
      • Unbacked paper money systems have always failed.

What I Think is True

      • The basic product of a central bank is the unbacked paper currency it prints in ever-increasing quantities.
      • Central banks will fight all competitors to their currencies. The oldest competitor to unbacked paper currencies is gold, ancient money.
      • Politicians want to spend money and increase their power.
      • Bankers want to create money, lend it to governments, and thereby secure a permanent and increasing revenue stream.

What I Think the Consequences Are

      • Bankers use their wealth to “influence” politicians. Politicians respond with favorable legislation. It has worked for centuries.
      • Central banks want an expanding money supply and ever-increasing debt. The consequence is that consumer prices inevitably increase.
      • A currency collapse is like a bank run – everyone scrambles to remove his/her wealth from the currency (or the bank) due to a loss of confidence. In fractional reserve banking systems, bank runs are inevitable. Even though they may last for many decades, unbacked paper currencies inevitably devalue and eventually collapse.
      • Bank runs and currency collapses are feared by bankers and politicians; they do what they can to support confidence in their products and to squash their competitors.

In the United States

      • Debt and government spending seem likely to increase until a crash-reset occurs.
      • The crash-reset will involve a dollar collapse.
      • Gold and silver will eventually reach much higher prices due to the loss of value and confidence in the dollar, the banking system, and the sustainability of the current financial system.
      • “Paper gold” will be seen for what it is – a promise that might not be paid.
      • Physical gold will be seen for what it is – real wealth.
      • The USA and Europe are sending their real wealth – gold – to China, India, Russia, and the Middle East. China, India, and Russia are buying aggressively and know that exchanging paper dollars and euros for gold will strengthen their economies and governments tomorrow.
      • It is openly speculated that much of the sovereign government and central bank gold supposedly owned by the USA and Europe is either gone, leased, or otherwise committed.

Read: The Crash Before the Climb

Accept what you cannot change and act based on facts, not our current financial and economic fictions. Protect your financial well-being with physical gold and silver safely stored in a secure location.

GE Christenson
aka Deviant Investor

Filed Under: Currency debasement, Featured, Gold, Silver Tagged With: , , , , , , , ,