Holding Physical Gold Preserves Wealth in Dangerous, Unstable and Challenging Times

Continuing Massive Bailouts and Federal Reserve Stimulus Loom Well into 2022.

As this missive is put to bed in late-November 2020, economic, monetary and political stability are not in place for the United States. Any appearance of domestic financial-market health or stability—including a record-high Dow Jones Industrial Average—is a happy façade created by the financial-market make-up artists on Wall Street, at the U.S. Federal Reserve and by some political elements in Washington, D.C. and the popular press.  
 

Consider first that the U.S. Presidential Election still is in contention, with potential risk of already extreme monetary stimulus being exploded to hyperinflationary levels by Modern Monetary Theory1 policies being promoted by social-spending activists in the Democrat-controlled House of Representatives. Such presumes that the underlying, extraordinary monetary stimulus of the last nine months has not already pulled that hyperinflation trigger2.    
 

Second, despite happy news on pending effective treatments for the Coronavirus COVID-19, the recovery of the collapsed U.S. economy to pre-Pandemic levels is not likely before 2023, or later.  This reflects severe structural damage to the U.S. economy and to the financial and psychological conditions of the citizenry from the Pandemic’s impact to date. Many domestic businesses have failed, while headline economic improvement in areas ranging from employment to Industrial Production has stalled in negative territory, in a developing “L”-shaped recovery. New economic stimulus is needed and will follow, irrespective of the Administration in power. The question at hand will become if the system can be stabilised without triggering a hyperinflationary depression.
 

In response to the initial Pandemic-triggered stock market panic and to the government’s Pandemic-shutdown of the U.S. economy in February and March of 2020, massive monetary and fiscal stimuli were injected into the economy and financial markets. Those actions by the Federal Reserve and U.S. Government, were aimed at stabilising the system, preventing systemic collapse. While there was little choice as to taking the emergency measures, those actions already may have set the United States on course for a hyperinflationary depression.
 

ELECTION RESULTS LIKELY WILL NOT BE FINAL UNTIL JANUARY

Despite the U.S. election being held on November 3rd, delays in counting Pandemic-generated mail-in ballots forestalled the U.S. news media declaring Biden to be President-Elect, until about mid-day New York time, on November 7th. Mr. Biden happily acknowledged same and addressed the Nation that evening. Yet, the U.S. news media do not determine who wins a Presidential election. With votes still being counted or recounted, President Donald Trump has not conceded and has launched challenges, claiming election fraud. Republicans appear to have serious and meaningful issues with the Election “results” in a number of key states. As those various legal challenges advance to the Supreme Court, keep in mind that the financial markets do not like uncertainty and likely would provide an early signal of any shifting sentiment. Republicans broadly are expected to retain control of the U.S. Senate, but such will not be determined until Georgia run-off elections for the Senate in January. Democrats appear to have retained control of the U.S. House of Representatives, but with a reduced majority.  
 

EXPANDED FISCAL AND MONETARY STIMULUS WILL FLOW THROUGH 2022 AND BEYOND

Irrespective of whether Donald J. Trump or Joseph R. Biden is sworn in as President of the United States on January 20, 2021, intensive new Federal Deficit Spending will follow. 
 

Such spending likely would be more massive with a President Biden, where the Democrats tend to favour greater deficit spending, and extremely more massive with him, in the event that the Democrats win control of both the Senate and the House of Representatives, along with the White House. If the Democrats control the government, the MMT crowd looks to gain control of major areas of the budget that would address massive social programs.   
 

“Now We Take Georgia, Then We Change the World.”  Current Senate Minority Leader Charles E. “Chuck” Schumer, Democrat of New York, likely would be the effective U.S. Senate Majority Leader, should the Democrats take the two Senate seats in the January 6th Georgia runoff, and should President Donald J. Trump lose his court battles. 
 

After the November 7th popular-media calls of the election for a Biden-Harris victory, an exuberant Senator Schumer proclaimed, “Now we take Georgia, then we change America,” updating his earlier proclamation of  “...then we change the world.”
 

The best the Democrats can do at present, taking the Georgia Senate seats, is a 50-50 split in the Senate.  In a Biden Administration, however, Vice President Harris, as President of the Senate, would cast the tie-breaking vote in that Chamber, giving the Democrats control of the Senate, the House of Representatives and the White House.  In such a circumstance, the Democrat Party would be able to pack the Supreme Court, open U.S. borders and create two new states (Puerto Rico and Washington, D.C.) with the effect of guaranteeing one-sided Democrat control of the U.S. government and its policies for years to come. The financial markets tend to prefer political stability and predictability to one-power control.

Again, as discussed in Executive Global (Spring 2019), “...with U.S. federal debt levels up against the debt ceiling, a euphemistically entitled Modern Monetary Theory (MMT) has generated some political turmoil in Washington. Largely dismissed out of hand by mainstream economists and politicians, MMT offers a rapid downhill ride into a U.S. hyperinflation. In contrast, mainstream U.S. politicians already have the U.S. on a slower, albeit just as calamitous downhill ride into hyperinflation.”  
 

“...  MMT centers on the concept that a sovereign state, such as the United States, can print its money at will, no need to balance a budget or to sell bonds. The theory goes that the U.S. cannot default on debt denominated in its sovereign currency, the U.S. Dollar, since the U.S. simply can print any dollars needed to cover its obligations. 
 

“Applied to the United States, the theory advocates that the government simply print whatever dollars it needs to provide a guaranteed minimum income and/or employment to the general population. There is no need to issue bonds. Should inflation pick up and become a problem, the U.S. government simply has to take excess cash out of the system to contain it, by raising taxes or then by selling bonds, per MMT.  

“Having reviewed the MMT approaches, I find that this system effectively guarantees a hyperinflation, and a full debasement of the purchasing power of the U.S. dollar, rather quickly.
 

“Nonetheless, the MMT concept has been embraced by Democratic Socialists in the U.S. Congress. That circumstance could foment particularly contentious and tumultuous political conditions coming into the 2020 Presidential and Congressional elections, where elements of the popular U.S. media already have embraced the MMT concepts. In contrast, Federal Reserve Chairman Powell indicated, ‘The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong.’  MMT largely has been denounced and dismissed out of hand by establishment economists, politicians and Federal Reserve officials, who otherwise have brought the U.S. economy, U.S. fiscal conditions and the U.S. Dollar to their current [pre-Pandemic] states of extreme peril.”
 

WE ARE ALREADY HEADED INTO HYPERINFLATION? 

What happened?  In response to the unfolding, Pandemic induced, systemic collapse in February 2020, the U.S. Federal Reserve embarked upon massive, unfettered money supply creation, while the Federal Government launched uncontrolled deficit spending (albeit only the first round, pre-election). Continuing uncontrolled monetary and fiscal stimuli already are promised for the year(s) ahead. As we go to press, the latest weekly level of M1 Money Supply was by a record 55% year-to-year, with the level of U.S. Federal Debt exceeding GDP by a record ratio, well beyond the prior historical extreme seen with World War II. If the Federal Reserve and the Federal Government are unable to stabilise the economy and financial system, or to bring the monetary extremes under control, the United States Dollar will face increasingly rapid debasement in mounting inflation, ultimately a full collapse in a hyperinflation.
 

A SURGING GOLD PRICE WILL TEND TO SIGNAL AN ACCELERATING INFLATION PROBLEM

Gold is a store of wealth, and holding physical gold will tend to maintain the purchasing power of one’s assets and income. Historically, gold often has been the currency, and it has maintained its purchasing power over millennia. The same amount of gold that bought a loaf of bread in Ancient Rome would buy a loaf of bread today. As frequently discussed here, the price of gold tends to follow and often anticipates underlying actual inflation.   EG