The Federal Reserve is warning investors in no uncertain terms that higher rates of inflation are coming. Yet markets, for the most part, have disregarded that warning.
Bond yields, for example, remain well below 2% across the entire duration range. Stock market valuations continue to reflect a sanguine outlook for inflation. And crude oil futures suggest limited upside pressure on prices.
The dramatic ascent of precious metals markets this summer reflects what could be just the start of a longer-term decline and fall in the Federal Reserve Note’s value and status.
With gold prices surpassing $2,000/oz recently, the monetary metal has now made new all-time highs versus all the world’s major fiat currencies. Gold is, as former Federal Reserve chairman Alan Greenspan has acknowledged, the “ultimate money.”
The Fed, by contrast, is the ultimate inflator.
Fed officials won’t tolerate deflation (an increase in the purchasing power of the currency) – or even “no-flation” (in the form of a stable-value Federal Reserve Note).
Despite a year of tumult on Wall Street and Main Street, the banking system seems to be holding up remarkably well… for now.
Whereas previous financial crises were marked by a surge in bank failures, hardly any have gone under so far in 2020. The Federal Deposit Insurance Corporation (FDIC) reports that only 1% of FDIC-insured banks are on the “problem list” for financial weakness.
“Banks are safe,” according to FDIC chair Jelena McWilliams. “There are no concerns for depositors.”
The massive set of stimulus measures rolled out last month by the Treasury Department and Federal Reserve has left many Americans wanting more… and politicians scheming for new ways to dole out additional trillions in cash.
Most taxpayers have already received their $1,200 “stimulus” payments. However, that one-time payment will do little to repair the long-term financial health of the 26 million (and rising) who are newly unemployed.
And it surely won’t bail out all the small business owners who were callously deemed “non-essential” and forced to shut down during this pandemic.
A national WalletHub survey found that 84% of Americans want another stimulus check.
The idea of getting free money is understandably appealing, especially during times of extreme economic anxiety.
But ultimately, there ain’t no such thing as a free lunch. All government handouts come at a cost that will be paid one way or another.
A group of young radical leftist Congresswomen – the “Squad,” as President Donald Trump calls them – want to use the current crisis to install a universal basic income scheme.
Squad members Rashida Tlaib and Pramila Jayapal recently issued a press release pushing the so-called Automatic BOOST to Communities Act.
The metals markets are being pulled in multiple directions simultaneously like never before. The global virus-triggered economic freeze has caused industrial demand for all commodities to crater.
At the same time, mining output is also crashing as virus fears force many mines around the world to suspend operations.
What is the “right” equilibrium price for copper, silver, gold, and other metals in an environment of such extreme and unstable supply and demand stresses? The verdict of the market changes – often dramatically – day by day.
In March, hard assets tumbled along with stocks as investors priced in increasingly dire scenarios for the economy. A double-digit contraction in U.S. GDP and double-digit spike in unemployment became inevitable after economic lockdowns spread across the country.
Now hopes are growing for the economy being able to start reopening in May and reverse some of the damage done by the draconian policies prescribed Dr. Fauci and adopted by most state governors.
“All of the projection models were wrong. All of them,” admitted New York Governor Andrew Cuomo in an interview last week with MSNBC.
Governor Cuomo had been issuing frantic demands for tens of thousands of ventilators… that turned out not to be needed as the rate of new hospitalizations for COVID-19 infections in New York plunged with surprising speed.
Governor Cuomo had warned America that New York City was the canary in the coal mine, that other cities would soon suffer similar death rates.
Deeply flawed infection models have led
to economic and societal devastation.
And based on models cited by Dr. Anthony Fauci just a few days ago, the United States was expected to rack up around 200,000 deaths from the virus – or more than 2 million if we failed to socially distance, according to other widely cited models.
Following months of cajoling by the White House, the Federal Reserve finally cut its benchmark interest rate. However, the reaction in equity and currency markets was not the one President Donald Trump wanted – or many traders anticipated.
The Trump administration wants the Fed to help drive the fiat U.S. dollar lower versus foreign currencies, especially those of major exporting countries.
Instead, the U.S. Dollar Index rallied throughout July ahead of the expected rate cut and continued rallying after Fed chairman Jerome Powell made it official on Wednesday.
In fact, the Federal Reserve Note broke out to its highest level since early 2017.
The Fed also announced it would end its balance sheet reduction program a month earlier than originally scheduled.
These dovish policy changes apparently weren’t dovish enough. The central bank could have gone for a 50-basis-point cut instead of the more routine quarter point cut it delivered. It could also have announced a new Quantitative Easing program.
Perhaps the biggest market-moving disappointment (equity bearish, dollar bullish) was Fed Chairman Jerome Powell shooting down the idea of an extended rate-cutting cycle.
In his press conference, he described the cut as “mid-cycle adjustment” that didn’t necessarily imply follow-up cuts.
President Trump moved recently to nominate an avowed sound money advocate, Judy Shelton, to the Federal Reserve Board. That triggered a flurry of superficial and derisive references in the controlled media to Shelton’s past support of a gold standard.
For example, CBS News described her as “a believer in the return to the gold standard, a money policy abandoned by the U.S. in 1971.” According to the story, “mainstream economists believe it’s a fringe view.”
As the “mainstream” media portrays sound money advocates, we apparently are nostalgic for the monetary system that existed all the way up until 1971.
Being backward looking by nature, our driving purpose in life is apparently to salvage that “abandoned” system.
Never mind the fact that the post-World War II Bretton Woods gold window that existed until 1971 was meant to ensure U.S. dollar hegemony in international trade – not sound money for the people.
The War on Cash isn’t a conspiracy theory. It’s an
open agenda. It’s being driven by an alignment of interests among bankers,
central bankers, politicians, and Silicon Valley moguls who stand to benefit
from an all-digital economy.
Last week, Facebook – in partnership
with major banks, payment processors, and e-commerce companies – launched a
digital currency called Libra. Unlike decentralized, free-floating cryptocurrencies,
Libra will be tied to national fiat currencies, integrated into the financial
system, and centrally managed.
warn Libra is akin to a “spy coin.” It’s certainly not for anyone who wants to
go off the financial grid.
Many of the
companies involved in Libra (including Facebook itself) routinely ban users on
the basis of their political views. Big Tech has booted scores of individuals
and groups off social platforms for engaging in “far right” speech. If Libra
one day becomes the predominant online payment method, then political
dissidents could effectively be banned from all e-commerce.
still obtain some degree of anonymity in the offline world by using paper cash.
But that will become impossible in the cashless future envisioned by bankers.
Bank of America CEO Brian Moynihan touted new developments in digital payment
systems while speaking at a Fortune conference. He said, “We want a cashless
society…we have more to gain than anybody from a pure operating costs.”
They gain –
at the expense of our financial privacy. A cashless society is the end of a
long road to monetary ruin that began many decades ago with the abandonment of sound money backed by gold and silver.
Stefan Gleason is
President of Money Metals Exchange, the national precious metals company named 2015 “Dealer of the
Year” in the United States by an independent global ratings group. A
graduate of the University of Florida, Gleason is a seasoned business leader,
investor, political strategist, and grassroots activist. Gleason has frequently
appeared on national television networks such as CNN, FoxNews, and CNBC, and
his writings have appeared in hundreds of publications such as the Wall Street
Journal, Detroit News, Washington Times, and National Review.
That’s what President Donald Trump supposedly instructed his former chief economic adviser Gary Cohn to do in response to the budget deficit. The quote appears in Bob Woodward’s controversial book Fear: Trump in the White House.
Trump disputes many of the anecdotes Woodward assembled. But regardless of whether the President used those exact words, they do reflect an “easy money” philosophy that he has expressed many times before.
Trump Likes Low Rates, Loose Money
President Trump has described himself as a “low interest rate person.”
This past summer, Trump launched a very public attack on the Federal Reserve’s rate hiking campaign. He wants it to stop because it’s making the dollar “too strong” and threatening to undercut his tax cut fiscal stimulus.
There’s only so much dollar strength the U.S. economy and U.S. debt and equity markets can take. President Trump is keenly aware of the risks.
A Fed rate hike next week is a given at this point.