Modern monetary theory is the new name for, and the proof of QE to infinity. We have been told for a dozen years QE was temporary and only for emergency use. We now know QE can never end or even be curtailed.
Previous blasts of central bank QE served only to extend the day of reckoning while enlarging the already existing asset bubbles with each episode. Monetary authorities are intent on doubling down time and again, with policy already discredited in current time as well as the history books. Even though monetisation has never worked and always ended in disastrous failure, they believe...this time is different. It is not!
Many things socially, economically, and financially have occurred over the last year or so. A global pandemic leading to the virtual shutdown of the real global economy while financial markets crashed. We have seen negative interest rates, and unbelievably, even a brief negative price for oil. But equities roared back to make all-time highs in many markets. Before getting to the meat of the matter, something else happened as a precursor to the spectacle.
On Sep. 17, 2019, the ”repo” market went into complete meltdown. Overnight rates were trading sub 1% and showed few overt signs of stress until that fateful evening. Rates blew out to 10%. Never before has the overnight repo market seen a 10-fold rise in rates and a virtual seizure of THE most basic credit market in the world. To this day, we still do not know for sure ”who” had the problem- but that is not important. What is important were the reactions of central banks, in particular the Fed. The Fed was forced to supply $50-$100 billion each and every evening from that point forward, just to keep the repo markets from imploding.
Along came the coronavirus pandemic. The official reactions to shut down the real economy were disastrous, but ”timing” was quite fortuitous for the powers that be. First, a shrinking economy lessens the pressure for credit, so think of the shutdowns as a relief valve for credit demand. The shutdowns also provided cover for central banks to open their credit and money supply spigots wide open. If you recall back in 2008-09, the public pushback to TARP and all the other free money fiascos, was quite fierce. But not this time...because the populous was included with individual checks. $Trillions were literally spewed from central bank firehoses without barely a whimper of protest!
The resumption of new QE was something we knew had to happen as the Fed’s lack of balance sheet expansion during 2018/19 led directly to the repo train wreck. The danger of course was repo problems spilling over to the bill markets, then notes, and finally to long dated bonds. Something had to be done and done large. Under cover of the pandemic, the public cheered as the Treasury was opened wide.
THE POINT OF NO RETURN
QE and ZIRP are now entrenched as far as the eye can see, but there will be ramifications not seen during previous QE episodes. In the past, money was only given to financial institutions, who then either sat on the funds to bolster and repair their balance sheets, or invested the largesse, blowing the asset bubbles ever larger. Now, individuals, corporations and probably even state and local governments will receive funds which will be ”spent” and create a huge problem, namely inflation and visible debasement of the dollar.
We have already seen some unintended consequences spawned by the multi $trillion handouts. A buoyant stock and bond market was their hope. The biggest credit/asset bubble of all time was the result. Until this point, it has been thought that inflation had remained under control. The dollar has remained somewhat firm when viewed via the USDX average, versus foreign currencies. Nothing could be further from the truth! All one needs to do, is look to where the freely printed new money has gone. On any valuation model- whether PE ratio, price to book, price to cash flow etc., equities have never been here before. Bonds? Zero percent or negative yields are all you need to see. Real estate has also been part of the party.
The real proof of dollar/currency debasement is gold. Since the GFC low of $700 per ounce, gold has nearly tripled. The factual way to state this is as follows, the dollar has lost nearly 65% of its purchasing power relative to ”barbaric” gold in only a dozen years. And just recently the entire commodity complex has begun to rise, this is a worry to even mainstream economists, because it signals the beginning of inflation. What they do not understand is, inflation of the money supply has already occurred. Inflation is defined as the increase in money stock, what we await now are the unintended consequences of their ”financial engineering”.
NAKED SHORTING VIA DERIVATIVES
We at JSMineset.com have long held that derivatives (the use of extreme leverage) have allowed this game to continue far longer than it should, or would without the leverage. Mass malinvestment has been the result. Derivatives have been used to prop up ”good” (paper) markets and to depress ”bad” (markets for real goods). Silver is a perfect example. It has been claimed and proven for years that silver (and gold) have both been manipulated downward in price via the sale of naked paper contracts. It will not be surprising to find out when all is said and done, that 300 or more paper ounces of silver have been sold short for every real, one ounce that exists! In other words, many who believe they own silver or gold via paper products, will find out they only own contracts representing metal which does not exist. Now might be a good time to ask themselves, what is the value of a contract that cannot perform? The answer, once you include the consternation and emotional distress of being hoodwinked...is less than zero!
SILVER A FAR GREATER SHORT SQUEEZE
We finally are beginning to see hedge funds attack over shorted individual equities. Take the darling Gamestop for example. Clearly a buggy whip producer in an age of online gaming. They purportedly had a 140% short to total stock outstanding ratio. By definition, 40% is naked, which also by definition is absolutely illegal. It is illegal because the stock does not exist to borrow, to then sell short. Regulators? Nowhere to be seen so far. In this instance, a failing business model was bid to $500 and many many billions of market cap, by creating the mother (so far) of short squeezes.
I just mentioned ”so far”, because it looks like the hedge funds have now set their sights on silver. Silver has a short to actual stock ratio many multiples of any of these shorted stocks, but, with a very large difference. These stocks were heavily and illegally shorted, because their business models were failing with declining sales while saddled with too much debt. Silver is a totally different story. Silver (nor gold) can ever fail. Silver is merely a monetary/industrial use asset, with no liability and thus can never default.
Herein lies the problem. Silver was originally sold short and suppressed, because it is gold’s little brother. Gold is THE direct competitor to the dollar and all other fiat currencies for that matter. What would the optics be if gold were to explode higher versus currencies? Would not confidence be shaken violently if gold were $10,000 per ounce? Could silver trade to $100, $500, $1,000 or more and not light a fire under the gold price? Silver being a very small market, cannot be allowed to trade freely because the ripple effects to gold, and then to currencies/credit, which would unmask the fractional reserve nature of the entire system!
We are now extremely late in the ”game”. Since 1971 when the U.S. went off the gold standard, the global financial system has become more and more fractional reserve and thus Ponzi in nature. The danger, and with mathematical certainty, is that the monetary and financial systems get outed for what they are. It is no longer if, but when this occurs. Savings, investments and assets in general, will be crushed as credit enters a domino like failure, please remember this, our daily lives rely on the use of credit in anything and everything. A loaf of bread arriving at your grocery store, may have a dozen or more instances of credit, not to mention ”distribution” of any and all products. EG