July 6, 2022

Ron Paul Talks About Economic Collapse and Lack of Federal Reserve Transparency

dickensIn an interview with CNBC, former GOP presidential candidate Ron Paul endorsed the efforts of his son, Senator Rand Paul, to hold up the nomination of Janet Yellen as Federal Reserve Chairman until laws are passed requiring more transparency from the Fed.

Senator Rand Paul has introduced legislation for an “Audit the Fed” bill which would require the Federal Reserve to disclose the details involving trillions of dollars the Fed has provided to both domestic and international financial institutions.

According to Ron Paul, “We don’t know the details of the trillions of dollars that were used to bail out banks and central banks around the world and corporations during the crisis.  The numbers that they give you I don’t think are all that revealing.”

Ron Paul has been one of the few voices in the American government pushing for financial responsibility by both the Federal government and the Federal Reserve.

After the most recent capitulation by Republicans to reduce the exponential increase in Federal government debt and spending, Ron Paul lamented the hypocrisy of the deal to end the government shutdown.

The latest spending-and-debt deal was negotiated by Congressional leaders behind closed doors, and was rushed through Congress before most members had time to read it. Now that the bill is passed, we can see that it is a victory for the political class and special interests, but a defeat for the American people.

The debt ceiling deal increases spending above the levels set by the “sequester.” The sequester cuts were minuscule, and in many cases used the old DC trick of calling reductions in planned spending increases a cut. But even minuscule and phony cuts are unacceptable to the bipartisan welfare-warfare spending collation. The bill also does nothing to protect the American people from the Obamacare disaster.

US debt to gdp

Members of Congress and the public were told the debt ceiling increase was necessary to prevent a government default and an economic crisis. This manufactured fear supposedly justified voting on legislation without allowing members time to even read it, much less to remove the special deals or even debate the wisdom of intervening in overseas military conflicts because of a YouTube video.

Congress surrendered more power to the president in this bill. Instead of setting a new debt ceiling, it simply “suspended” the debt ceiling until February. This gives the administration a blank check to run up as much debt as it pleases from now until February 7th. Congress can “disapprove” the debt ceiling suspension, but only if it passes a resolution of disapproval by a two-thirds majority. How long before Congress totally abdicates its constitutional authority over spending by allowing the Treasury permanent and unlimited authority to borrow money without seeking Congressional approval?

private debt gdp

Hopefully, those of us who understand sound economics can convince enough of our fellow citizens to pressure Congress to make serious spending cuts before Congress’s reckless actions cause a total economic collapse.

debt monster

Sound advice Mr. Paul, but the odds of preventing an economic collapse decline with each additional dollar borrowed by the government and each additional dollar printed by the Federal Reserve.  Debt at all levels is out of control and has overcome the ability of the nation to service the debt. Ironically, the only way to prevent a collapse today is through the Ponzi scheme method of further printing and borrowing which puts off the day of reckoning.

Realistically, Ron Paul has been ignored by the public and his fellow legislators for decades.  The odds of controlling the growth of debt by the U.S. and other major industrialized countries is almost zero since legislators are elected based on promises to extend the social welfare state and serve special interests.

The odds of central banks reducing quantitative easing is even more remote since an absence of money printing would hasten the economic collapse Mr. Paul warns about.  The future collapse predicted by Mr. Paul seems inevitable at some point and the only concern of an investor should be finding a safe haven for wealth preservation.

Precious Metals Little Changed On Week While Investors Ponder Government Defaults

Precious metal prices traded in a narrow range this week.  As measured by the closing London Fix Price, gold, platinum and silver declined slightly while palladium gained $16 per ounce.

After the London close, prices of precious metals rose across the board in New York afternoon trading.  Gold closed at $1,514.50 up $19.70, silver at $35.26 up $.12, platinum at $1,775 up $8 and palladium at $739 up $8.   Buying in the precious metals may have been prompted by late day worries over the downgrade of Greek debt by Fitch Ratings as well as concerns over the worsening state of public finances in Spain, Portugal and Italy.

Yields of 25% on short term debt Greek debt imply that the markets are are pricing in a very high probability of default by Greece.  What markets do not seem to have priced in is the contagion risk of Greek default and what impact that would have on investor confidence, world financial markets and the global banking system.

Meanwhile the U.S. debt crisis continues to brew as the debt ceiling limit was reached with no indication of a resolution by Congress.  If the past is any guide, Congress will let the debt bomb/deficit crisis simmer until the last minute when the debt ceiling will be raised yet again under the guise of “future fiscal restraint” and the deficit spending and borrowing will continue as usual.

Ignoring the eroding financial condition of the U.S. today only ensures that the inevitable financial crisis will be more devastating than one might chose to contemplate.  The timing may be uncertain but the outcome is not.

The American Precious Metals Exchange (APMEX) included a chart in one of its latest email newsletters that depicts the gap between the growth of  U.S. GDP and debt.  The chart graphically illustrates the extent to which the U.S. has been living beyond its means and using trillions in deficit financing to do so.

DEBT VS GDP - COURTESY APMEX

APMEX also notes that  “If there is no resolution (of the budget ceiling) by August 2nd, there could be disastrous ramifications for the U.S. and the global economy. The U.S. will be in default on its promises to pay. The value of the dollar could drop dramatically.”

 

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,490.75 -15.00 (-1.00%)
Silver $34.80 -1.40(-3.87%)
Platinum $1,767.00 -7.00 (-0.39%)
Palladium $734.00 +16.00 (+2.23%)

Precious metals, silver in particular, have been undergoing corrective price action during May, but the fundamental reasons for owning precious metals grows stronger by the day.   Demand for precious metals remains strong.  The World Gold Council’s latest report shows that global demand for gold increased by 11% in the first quarter, while buying by Chinese investors reached all time highs.  The trend is still your friend in the precious metals markets and price weakness should be viewed as an opportunity to increase long term positions.

Gold and Silver Prices Hold Gains, Rise in Late Trading

Gold and silver prices declined slightly on the week, as measured by the closing London PM Fix prices.  Gold finished the week at $1,411.50 for a loss of $15.50 while silver declined fractionally by 33 cents to close at $34.10.  However, as markets assessed the impact of a slowing world economy, higher inflation, higher oil prices and the massive earthquake in Japan, prices for gold and silver saw significant price improvement in late Friday New York trading.  Gold moved up $9.20 to $1,421.30, while the silver price rose $.60 to $35.90.

In a week of tumultuous economic and political news, platinum and palladium saw significant declines on the week as investors worried about reduced industrial demand in the face of a slowing world economy.

Precious Metals Prices
Fri PM Fix Since Last Recap
Gold $1,411.50 -15.50 (-1.09%)
Silver $34.10 -.33 (-0.96%)
Platinum $1,777.00 -51.00 (-2.79%)
Palladium $754.00 -57.00 (-7.03%

The minor price consolidation for gold and silver over the past week are impressive considering the strong gains of the previous month.  Strong bull moves are never straight and price corrections should be seen as an opportunity to increase positions.

None of the concerns that have propelled the precious metals higher have been resolved.  There is a strong probability that one or more of them will blow up putting major financial pressures on governments that are already staring into the abyss due to untenable levels of debt.  Which event will trigger another financial crisis is impossible to predict, but here’s a quick rundown of the obvious suspects:

1.) The final implications of the massive Japan earthquake will take weeks to assess but is certain to add huge financial stress to a country already overwhelmed by the highest debt to GDP ratio in the world.  The Japanese central bank has already indicated it is ready to loosen monetary conditions to calm financial markets, which may be a signal that they will follow the U.S. Fed’s lead and engage in a significant amount of quantitative easing or money printing.  The cost of credit default swaps on Japanese government debt widened significantly reflecting the need for increased borrowings by a government already overwhelmed by indebtedness.  As investors become increasingly alarmed at the prospects of default on government debt and currency debasement, the flight to gold will accelerate.

2.) The sovereign debt crisis in Europe continues to spiral towards a crisis as the European Central Bank attempts to solve a debt crisis with more debt.  Monetary authorities worldwide are out of standard policy options and will follow the lead of the U.S. Fed by printing money.   The implications of money printing on a global basis removes all constraints on the appreciation limits of the precious metals.

3.) The largest bond fund in the world dumps all longer dated U.S. Treasury securities. Bill Gross, manager of PIMCO, the largest bond fund in the world warns that when QE II stops in June, there will not be enough buyers for government debt, leading to a funding crisis for the U.S. Government.  If one of the planet’s smartest and biggest bond investors thinks it’s time to sell U.S. Treasuries, the risk of contagion becomes substantial.  Foreign governments currently purchase half a trillion dollars of U.S. debt every year and are becoming alarmed by Fed policies which make their debt investments look riskier by the day.  How long will it be before other major investors in U.S. debt decide to follow Bill Gross’s lead and initiate a massive sell off in U.S. treasuries?

4.) Oil prices have pulled back in recent days but the situation remains volatile.  A small group of protesters in Saudi Arabia were immediately dispersed with a hail of rubber bullets from security forces, an action that can only further inflame the passions of those who feel repressed by regimes in Saudi Arabia and other oil producing countries.  Chaos in Saudi Arabia would quickly put the world economy back into an economic meltdown that governments may be unable to contain.

SILVER - COURTESY STOCK CHARTS.COM

The last upward move in silver last four months from September through the end of 2010 with a price gain of over 70%.  After a brief correction early in the year, investor and industrial demand pushed silver to a new yearly high.  A rally equivalent to that of last year would drive silver up to the $50 level by June.