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Showing posts with label inflation. Show all posts
Showing posts with label inflation. Show all posts

Thursday, April 13, 2017

Over the past 220 years the one key factor in higher gold prices is when inflation is higher than interest rates

Many analysts have been citing the Fed and their new interest rate hike policies as the catalyst for rising gold prices, as well as a few who have been pointing to geo-political events such as Brexit and the Trump election as the key driver of gold.  But the reality of this is that most moves following these events have been fleeting, especially with the central bank's ability to manipulate prices through derivatives and the paper markets.

So if there was one intrinsic data point we could point to that would ensure a near certainty for gold to move higher and higher in price, which one has the historic evidence to back this up?

How about when real inflation is higher than central bank set interest rates.

Chart of Consumer Price Index, 1800-2005

As we can see from the above chart, when the nation was on a gold standard from the start of the Republic to 1913, inflation was relatively flat except for the periods of war (1812 and 1860-1865) when monetary expansion was needed to conduct them.  And even during the time of the industrial revolution in the late 19th century, the set price of gold remained the same as it was in 1792 and where inflation barely grew at all.

It was only after the creation of a private central bank in 1913 that mirrored the ones controlling Europe that inflation really began to take off in America.  And it was this inflation, coupled with a devaluing of purchasing power of the dollar, that forced FDR to raise the gold price from $20 per ounce to $35.

Yet even this increase in the price of gold to keep up with the jump in inflation that took place over the 20 years from 1913 to 1933 was enough to sustain the dollar's purchasing power until the 1960's when the U.S. began to increase the currency's monetary base to pay for the extended war in Vietnam.  And this led to nations beginning to reject the dollar and demand redemption in gold which began to dwindle the nation's gold supply.

And with a smaller gold supply to back the ever increasing currency supply, the gold price was once again raised in 1972 to $42.22 per ounce.

One year later however, the dollar was completely removed from a gold backing and instead backed by the petrodollar agreement which as part of the deal with Saudi Arabia and the OPEC nations, allowed for a tripling of the oil price so that the U.S. could then triple their money supply.  And this is once again seen in the above chart around 1973 when inflation was finally let loose upon the public in an unprecedented way.

Of course we know from that point on the gold price was free to move as the market's saw fit, and as inflation turned into stagflation, and then high inflation (13% by 1979), the gold price eventually rose to near $850 per ounce before Paul Volker and the Fed did something drastic...

The raised interest rates from 11.5% to 21% over the next 18 months.

And with interest rates now finally being above Real inflation, the gold price began to fall, almost in tandem to inflation itself.

During the 1980's and into the early 1990's the Fed kept interest rates relatively high, and well above the rise of Real inflation.  And you can see on the chart that during this period inflation rose moderately and was easily masked by the economic boom that took place during the Reagan years.  But following the 1987 stock market crash, Alan Greenspan would soon take over control of the Federal Reserve and began to lower interest rates from 7.5% to eventually 1% following 9/11, and as such the gold price once again rose in tandem to real inflation being greater than set interest rates.


Image result for gold price chart 1992 - 2008

And ever since 2003, interest rates have never been above 4.5%, and have mostly been below 1%.

So what has been the REAL inflation during that time period?


Chart courtesy of Shadowstats.com

Around 2015 real inflation has begun to rise once again, and the Fed has summarily been forced to embark on a new rate hike policy that started in December of that year.  And even with three rate hikes over the past 18 months, interest rates are not even close to the real rate of inflation, and thus the gold price has remained constant despite the crash in the gold price between 2009 and 2011 when real inflation dropped by more than 50%.

So what does the future hold for gold both now, and in the coming years?  Well the Fed no longer has the ability to raise interest rates above real inflation since U.S. and global debt levels have made it impossible to do so without bankrupting all sovereign nations.  And this means that while the paper manipulators may succeed in holding down the price in the short run, the invisible hand of the markets will always win out, and rising inflation that is greater than central bank interest rates will mean that the gold price cannot help but keep moving up.

Wednesday, March 29, 2017

Rising inflation could be the catalyst to finally send gold price beyond ability for market manipulation

At long last real inflation has emerged in the U.S. economy, with even the Federal Reserve acknowledging it between the lines as they rush to enact up to four interest rate hikes before year's end.  And for gold investors who have suffered through central bank and Wall Street manipulation of the metal's price since the advent of ZIRP and QE, inflation is the best friend of gold and silver and likely to be the catalyst for the next strong leg up in this Bull Market.

Gold is poised to rally to levels last seen four years ago as rising inflation and negative real interest rates combine to boost demand, according to Incrementum AG, which says that the precious metal may be in the early stages of a bull market. 
Prices may climb to $1,400 to $1,500 an ounce this year, said Ronald-Peter Stoeferle, managing partner at the Liechtenstein-based company, which oversees 100 million Swiss francs ($101.5 million). Spot bullion -- which was at $1,249 on Wednesday -- last traded at $1,400 in September 2013. 
Gold has climbed this year as investors weigh risks that President Donald Trump won’t be able to implement his agenda, adding to uncertainty surrounding European elections and the Brexit process. Against that backdrop, investors are on alert for signs of faster inflation, with the Federal Reserve’s preferred gauge jumping recently to near the bank’s target. Policy makers raised rates this month, and kept forecasts showing two more hikes in 2017. - Bloomberg

Tuesday, March 21, 2017

As dollar has fallen 200 bps since Fed rate hike on March 15, gold has climbed more than $50

On March 15 the Federal Reserve announced their second quarter point rate hike in the past four months, and third in the past 15 leading the markets to believe that central bank was finally serious about tightening the cost to borrow money.  However, the reactions from the dollar and gold have been exactly the opposite of what should have been expected due to the Fed's efforts to attack rising inflation, and this has all but revealed that the markets as we used to know them are completely broken.

In just the past six days since the Fed raised rates on March 15, the dollar has plummeted 200 bps on the Dollar Index, and gold has risen every single day to its current position of $1244, which is a climb of more than $50 in that period.

Dollar Chart


March gold chart

Live New York Gold Chart [Kitco Inc.]

Gold chart for March 21

Saturday, March 18, 2017

Fed manipulation vs. economic stagflation: who will win the future over gold and stocks

Going back to at least 2008, if not further back into the 1990's and the Dot Com bubble, markets have no longer run on fundamentals and technicals, but rather on central bank and sovereign manipulations.  And all one has to do is look at the fact that despite corporate earnings declining for seven straight quarters, and most like an eighth here in 2017 Q1, the Dow has not only surpassed 20,000, but its acceleration to 21,000 was the fastest in history.

And now this breaking of market fundamentals by the central banks through their keeping interest rates down to near zero for 10+ years and infusing Wall Street with tens of trillions of dollars in credit has reached a crisis point, and a place where the Fed no longer has control over economic forces.  For the inflation they strove so hard to create in asset prices has now broken through into every facet of the economy, and has returned a monster from the that required extraordinary means to defeat.

Stagflation.

Image result for stagflation monster

In the late 1970's the economy reacted to the U.S. removing the monetary system from the Gold Standard and instituting a new Oil Standard (Petrodollar) by opening the door to massive inflation thanks in part to Henry Kissinger's agreement with OPEC that allowed for the price of oil to be raised.  And this then also allowed the U.S. monetary base to expand by that same amount and more to supply the world with dollars to be able to purchase energy.

This huge increase in the monetary base coupled with the economic slowdown of the middle to late 70's created the then unknown environment that would be labeled as Stagflation.  Stagflation of course is where you have slowing growth coupled with rising inflation.

To defeat this economic dragon, Federal Reserve President and later Chairman Paul Volker had to raise interest rates first from 9% in 1978, to its final top of around 20% in 1981.  And it was only from this that Stagflation was able to be crushed.

But unfortunately today the Fed has no possibility of doing a repeat of this since they and the U.S. government have pushed themselves into a corner by accumulating extraordinary debt.  In 1981 the national debt was around $500 billion, and the Fed's balance sheet was nary a blip on the radar.  However today the U.S. debt is now just under $20 trillion, and the Fed has debt based holdings of over $4.8 trillion making it impossible for them to raise interest rates of any substance since the interest alone on those obligations would bankrupt the country when they are rolled over at higher borrowing costs.

So what does this mean for the economy, for stock markets, for inflation projections, and perhaps the one asset we have yet to mention in this mirror world of 40 years ago?

When stagflation hit the economy beginning in the middle 1970's the one asset that excelled during that time was gold.  Gold went from $106.43 in 1973 (the year of the Petrodollar agreement) to over $850 at its peak in 1980.  This was a rise of 800% in just seven years.

1980
$594.90
29.61%
1979
$459.00
120.57%
1978
$208.10
29.17%
1977
$161.10
20.43%
1976
$133.77
-3.96%
1975
$139.29
-24.20%
1974
$183.77
72.59%
1973
$106.48
66.79%

Looking back in hindsight, Chairman Volker later lamented that the one thing he wished he done differently during the central bank's battle to fight stagflation was to manipulate the rising price in gold, which had acted as a barometer against the dollar, and was a much better safe haven than investors trusting in U.S. Treasuries.  And it was this lesson that Ben Bernanke, and now under Janet Yellen, that the Fed would not forego during their implementation of monetary policies that would inevitably lead us back into the straits we are in today.

Thus we are now at a crossroads since Stagflation has returned with a vengeance and the Fed has little if any ammunition to counter it.  And it is for this reason alone that the real asset winner going forward will be gold over stocks, and we may have seen this start last Wednesday when the Fed's latest rate hike resulted in not even a pothole that slowed down either inflation, or the strong rise in the gold price.

Sunday, March 12, 2017

As central banks lose control over inflation, and manipulation of metals slowly ends, what is the real price of gold and silver

In the late 1970's central banks lost control over inflation forcing New York Fed President Paul Volker to push for a boosting of interest rates beginning in 1978.  In fact, during a six month period in that year, rates were increased 2% to a level of 9%, only to find out that inflation still continued to climb.

A year later inflation was raging at a level of 13%, and following President Jimmy Carter's firing of several people in his cabinet, declining confidence in the dollar led to gold shooting up an unprecedented $300 an ounce in a short amount of time.

Gold of course would go on to reach a then historic high of around $850 per ounce until Volker, who would become the next Chairman of the Fed under President Ronald Reagan, took the ultimate step of raising rates from 9% to 20% between late 1979 and 1981.

The moral of this story is that once inflation gets away from central bankers, only a move of raising interest rates to extreme levels will have any chance of taming the inflation monster, but at a cost to the general economy, as well as the stock markets.

Fast forward to 2017...

On March 10 central bankers in Japan and Europe both hinted that they may now be forced to end their policies of ZIRP and could soon commence on monetary policies of raising rather than lowering interest rates because the inflation they have been masking for the past nine years has begun to rise precipitously similar to what occurred in the U.S. economy during the 1970's.  Added to this was what the market titled 'Bond King' Bill Gross said about the 10-year Treasury, that if it reaches and stays above 2.6% it will mean armageddon for almost everything.
Investors need to watch only one number in 2017 to figure out what returns are going to look like across the various markets, bond guru Bill Gross said Tuesday. 
Whether the 10-year Treasury yield crosses the 2.6 percent mark will be critical both to the bond market and to stock prices, the fund manager at Janus Capital wrote in his monthly report for clients. The yield was around 2.39 percent Tuesday morning. Higher yields reduce a bond's face value. 
"If 2.6 percent is broken on the upside ... a secular bear bond market has begun," Gross said. "Watch the 2.6 percent level. Much more important than Dow 20,000. Much more important than $60-a-barrel oil. Much more important than dollar/euro parity at 1.00. It is the key to interest rate levels and perhaps stock prices in 2017."
Gross said the 10-year yield has been in a downward trend line since 1987. If that channel is broken, look out. 
"Investment happiness and/or despair may lie ahead over the next 12 months depending on it," he said. - CNBC

This week will see at least two, if not three or more important financial, economic, and political events occur that will have tangible effects on interest rates, inflation, gold and silver, as well as the overall economy.  These include but are not limited to:  The debt ceiling vote, the Fed's FOMC meeting and announcement, and elections in the Netherlands which could bring another anti-euro and anti-EU candidate to a presidency.

All if this of course is almost meaningless in regards to the potential of inflation moving into a higher gear no matter what the central bank does monetarily, and the Congress does fiscally.  Because through our 100 year plus virtual fiat currency system, where the purchasing power of the dollar has lost over 97% of its value, what would the price of gold and silver be if that inflation completely disconnects from any chance of central bank or government control?

Earlier today on March 12, Matterhorn Capital Management head Egon Von Greyerz laid out a chart of what the actual price of gold and silver should be today using dollar terms if the cost of inflation had been, and was allowed to effect money and asset prices.  And in his charts going back 300 years of actual inflation (not reported or manipulated), then gold today would be around $14000 in 1980 dollars, and silver above $650.
The 300-year chart of gold adjusted for real inflation shows that gold is now at the bottom of the range. Even more interestingly, the $850 top in January 1980, adjusted for inflation, would be $14,463 today.
300 year gold price
The 300-year silver price chart, adjusted for real inflation confirms that the 1980 $50 top would be $669 today. - News.gold-eagle
300 year silver price

Many will say that these prices are absurd, and that central banks will always have the ability to control and manipulate gold and silver markets, as well as obfuscate the reporting of real inflation.  But all one has to do is look back to 2008 when they had to come hat in hand for a taxpayer bailout to save the entire global financial system, or in 1980 when it took extreme measures that are impossible for them to do today regarding interest rates because of how high the U.S. and global debt levels are, and you will see that if the scenario of out of control inflation is already set, then it is only a matter of time now before they lose control over all prices and assets, and gold and silver will very quickly spring back to their equilibrium true values that will not just leave the metals unaffordable, but damn well completely priceless.

Sunday, December 18, 2016

Venezuela's Maduro halts cash ban as desperate people left with no choice but to give up their children

On Dec. 18, Venezuela President Nicolas Maduro halted his policy from earlier in the week of banning the 100 bolivar currency as the economic situation in the country became even more desperate.  And in addition to the growing starvation, riots, and looting that has emerged from the nation's mass inflation, some Venezuelans are having to give away their children as they can no longer afford to feed them amid the economic chaos.


Struggling to feed herself and her seven children, Venezuelan mother Zulay Pulgar asked a neighbor in October to take over care of her six-year-old daughter, a victim of a pummeling economic crisis. 
The family lives on Pulgar's father's pension, worth $6 a month at the black market rate, in a country where prices for many basic goods are surpassing those in the United States.
"It's better that she has another family than go into prostitution, drugs or die of hunger," the 43-year-old unemployed mother said, sitting outside her dilapidated home with her five-year-old son, father and unemployed husband. 
With average wages less than the equivalent of $50 a month at black market rates, three local councils and four national welfare groups all confirmed an increase in parents handing children over to the state, charities or friends and family. 
The government does not release data on the number of parents giving away their children and welfare groups struggle to compile statistics given the ad hoc manner in which parents give away children and local councils collate figures. 
Still, the trend highlights Venezuela's fraying social fabric and the heavy toll that a deep recession and soaring inflation are taking on the country with the world's largest oil reserves. - Reuters


Sadly, the people's trust in their socialist government, along with in their fiat currency, is partially to blame why few Venezuelan's were prepared for the quick, and in some cases deadly, effects that escalating high inflation has caused for their nation and economy.  And because of the growing loss of confidence in the Bolivar, as well as in access to hard currencies such as the dollar, stories have broken out of those who owned a little gold and silver being able to not only survive this ongoing economic collapse, but actually thrive in it.
Tom Cloud: We got an incredible email this morning from one of our clients who's brother in law is a missionary down in Venezuela.  And he was telling us that in Venezuela, once ounce of silver will buy you food for three or four months... one ounce of silver.  And an ounce of gold will buy you a house. - The Daily Economist
While many Americans believe that what is taking place right now in Venezuela, India, and in Greece over the past six years could ever come to America, then all one needs to do is look back 80 years ago in our history to see what the Great Depression did for a large portion of our citizens following a financial crash that involved stock markets, debt, derivatives, the collapse of a housing bubble, and the overall banking system.
From one perspective, the story emerging from the Great Depression can be described as one of family "disorganization" and deprivation. Marriage rates declined, although they started to rise in 1934, and the trend toward decreasing birthrates, already underway, accelerated during the 1930s. Although divorce rates also declined, this seems to have been largely the consequence of the inability to pay lawyers' fees; desertion rates increased during the decade. In some cases, two or more families crowded together in apartments or homes designed as single-family residences. Some 250,000 youths were on the road, travelling by freight train or hitchhiking in order to find work or more favorable circumstances. From 1929 to 1931, the number of children entering custodial institutions increased by 50 percent. In many economically deprived families, children suffered from malnutrition and inadequate clothing. - IC.Galegroup

Friday, November 18, 2016

Strong dollar about to trigger a massive dumping of treasuries and dollar reserves by foreign holders of U.S. debt

Few people actually connected the dots six years ago as to the real reasons behind the Arab Spring uprisings in places like Yemen, Egypt, and elsewhere in the Middle East.  Politicians and a lazy mainstream media wanted us to focus on how it was due to people wanting to rise up against tyrannical dictators, but the truth of the matter was that the civil unrest was intrinsically tied to the dollar, and in nations being unable to afford to purchase commodities such as wheat because of how strong the reserve currency was in relation to their own.

Image result for arab spring bread helmet
(Egytian protester wearing a bread helmet)

When grain prices spiked in 2007-2008, Egypt's bread prices rose 37%. With unemployment rising as well, more people depended on subsidised bread - but the government did not make any more available. Egypt's annual food price inflation continued and had hit 18.9% before the fall of President Mubarak. 
Fifty per cent of the calories consumed by Egyptians originate outside its borders. Egypt is the world's largest wheat importer, and no country in the region (except for Syria) produces more than a small fraction of the wheat it consumes. Should the global markets be unable to provide a country's need, or if there are not enough funds available to finance purchases and to offer price support, then the food of the poor will become inaccessible to them. - Guardian
Despite the fact that the entire world was involved in the Great Recession, and most of their economies did not have access to strong central banks able to implement ZIRP and QE programs, it did not take the dollar exploding over 100 on the dollar index to cause financial havoc to one or more countries, but only a move from 72 to 84 to be just enough for countries deep in recession to be unable to buy dollars so they could purchase over-inflated commodities to feed their peoples.


In the past 30 years there have been three times when the dollar was over 100 on the index, and on every occasion a financial or monetary crisis emerged someone in the world.  In the 1980's it was the Mexican Peso crisis, and in the late 1990's it was both the Argentinian and Asian financial crises.

And now in November of 2016, and immediately following the election of Donald Trump as President, the dollar has skyrockted upwards and has crossed 100 on the index for the first time in 13 years.  And in that short amount of time since Nov. 8 we have seen India experience a monetary meltdown, and China see its currency strengthen to its highest levels in a decade.

However, both India and China are not Argentina, Egypt, Mexico, and Thailand.  And unlike these second world economies who were unable to withstand the reserve currency's pressure on their own money back 20 and 30 years ago, the world's second and seventh largest economies do have a form of ammunition to respond to the dollar's move and counter the dollar with its own medicine...

That of their dollar reserves.  And China appears ready now to bring heavy pain to the U.S. bond market by dumping hundreds of billions, if not trillions of dollars worth to protect their own economy.
Asked about when the Yuan may cross the psychological barrier, a PBOC advisor told Reuters that "I don't think the breaking of 7 is imminent. We may have to wait until next year." Actually, at this rate, "breaking" of 7 may happen as soon as next week, to which he adds :"If the pace of depreciation is too fast, if it hit 7 before the end of this year, the central bank will control it." 
And that's when the liquidation of Chinese USD-denominated reserves begins in earnest, among all those other measures the PBOC implemented a year ago when the market was far less sanguine about the Chinese devaluation: 
The policy insiders said the central bank was likely to intervene in currency markets and enforce capital controls to slow the rate of decline in the yuan. 
As we expected, the intervention has already started:
traders said large Chinese state banks had offered dollars in the domestic currency market on Thursday in an apparent effort to slow down the depreciation of the yuan. 
They said there had been no sign of state dollar selling in previous sessions. 
Another way of saying "offering dollars" is selling US assets. - Zerohedge
Once China begins dumping more of their dollars in earnest, and the bond rates for Treasuries start to spike arithmetically or even exponentially, it will open the floodgates for everyone else to dump their $14 trillion in foreign held dollars where the ramifications of them returning to the U.S. will be catastrophic.  And all that inflation that has been exported for decades to the rest of the world will come back in one sudden wave to prices and consumers, and might very easily spell the end of the American century, as well as dollar hegemony as the global reserve currency.

Saturday, September 10, 2016

Wall Street fund manager who hated gold suddenly telling clients to buy the metal due to inflation expectations

With both the Fed and the government continuously putting out false data reports to support the political establishment, it is sometimes difficult to find out the true state of the economy and the myriad of indicators that drive the markets.  For example, last Friday the August jobs reports came in much lower than expected, and manufacturing declined to its lowest levels in six months, but an analyst from Goldman Sachs went on CNBC and stated their bank had raised the odds of a rate hike from 40% to 55%.

So quite often the best way to gauge the true condition of markets and the economy is to watch what the rich are doing, especially if they engage in a trend that is counter to what they have done previously for months or years at a time.  ie... when several hedge funds and billionaire investors went long into gold starting back in February as a counter to negative interest rates in the bond markets.

And on Sept. 9, a former Chief Investment Strategist for Merrill Lynch, and long-time hater of gold as an investment did a 180 and is now advocating his clients to purchase gold primarily out of expectations that higher inflation is right around the corner.

Rising inflation expectations have attracted an unlikely investor to gold. 
Richard Bernstein, who has spent more than 35 years on Wall Street, is buying gold for his clients' portfolios for the first time. 
"My firm and I are not gold bugs," said Bernstein, a former chief investment strategist for Merrill Lynch who started his eponymous firm in 2009, at the Morningstar ETF conference on Thursday. "Most of the people who tell you stories about gold are people trying to sell you gold funds and gold ETFs, and those stories are not based on reality at all." 
But when Bernstein quizzed conference attendees on the right time to buy real assets, like metals, he revealed the reasoning behind a gold buy for a guy who thinks it's 'wampum.' 
The answer: "You buy real assets when inflation expectations are starting to go up," he said. 
"For a long time, gold was really not a diversifier," Bernstein said. When gold prices hit new highs earlier this decade, gold had a positive correlation to stocks, meaning when stocks rose, so did gold prices. 
Gold has become slightly negatively correlated to the stock market, Bernstein said, and so gold adds extra ballast in a portfolio to hedge against volatility. "It's a change in the way we look at the world," Bernstein said. - CNBC

Monday, June 13, 2016

Adjusted for inflation, the real value of gold against the dollar should be over $7300 per ounce

When the Federal Reserve took over control of the U.S. monetary system in 1913, the price of gold in relation to dollars was $20.42.  But over the past 103 years, that central bank has devalued the currency by more than 98%, eroding the purchasing power of the dollar through inflation for the products and services we buy

Yet it is interesting that while price inflation has occurred on a relatively equal basis for most items in the economy, and for the commodities and resources that businesses consume, gold has not risen in equal proportion with everything else.

The Debt Clock is an algorithm that approximates the second by second increase in America's national debt, as well as several other monetary factors that are tied to our dollar system.  One of these elements is the estimated real value of gold, which in relation to dollar devaluation over the past 100 years, should be over $7300 per ounce when adjusted for inflation.


In the lower right hand corner is the algorithm that estimates the value of gold, and the relation between the true gold price and the dollar.


And while none of these numbers are actually official, they provide a very good barometer for the erosion of the dollar as a medium of exchange for goods and services, and what the value of gold should be if it had been left to rise in price on the open market without government, central bank, and market intervention.

Wednesday, May 18, 2016

Mainstream wonders why consumers aren’t spending because they don’t actually look at the data

Many Americans by now know that the mainstream media is little more than a propaganda tool of the banks and government, and they rarely if ever report on actual data that could deter from their agenda of ensuring the public believes everything is fine.  This has been true in many facets, whether it is the whitewashing of the actual unemployment rate, or by having the President go on air and call anyone who doesn’t believe in a strong economy as being delusional.
Yet the economy in America today rests upon too shaky pillars of both consumer and government spending.  And despite the media’s continuous attempts to say buy stocks because the consumer is doing fine, the newest CPI report out on May 17 shatters this rhetoric by showing a rise in prices of over .3% in just the last month, and the highest move since 2013.

Read more on this article here...

Friday, April 29, 2016

Guest Post: Gold and Negative Interest Rates

Guest Post - Dan Popescu, Goldbroker.com

gold and negative interest

We hear more and more talk about moving into negative interest rates in the US. In a recent article former Fed chairman Ben Bernanke asks the question as to what tools the Fed has left to support the economy and discusses in this article the use of negative rates. We have to first define what we mean by negative interest rates. For nominal rates it’s simple. When the interest rate charged goes negative we have negative nominal rates. To get the real rate of interest from the nominal rate we have to subtract inflation. That’s what we call the illusion of inflation.

real effective fed funds rate

Real interest rates have been negative fairly often, including for most of the period since 2009. The problem then comes in choosing the appropriate measure of inflation. Since the calculation of inflation is highly subjective and easy to manipulate I came to adjust nominal prices to gold to get the real interest rates. In the chart below you can see nominal U.S. 10-year Treasury rates versus gold-adjusted rates since 1962.

US 10 years tresury rates

Ben Bernanke says in his article that, “The fundamental economic constraint on how negative interest rates can go is that, beyond a certain point, people will just choose to hold currency, which pays zero interest. (It’s not convenient or safe for most people to hold large amounts of currency, but at a sufficiently negative interest rate, banks or other institutions could profit from holding cash, for a fee, on behalf of customers). Based on calculations of how much it would cost banks to store large quantities of currency in their vaults, the Fed staff concluded in 2010 that the interest rate paid on bank reserves in the U.S. could not practically be brought lower than about -0.35 percent.”

In Japan, the European Union and Switzerland, where negative interest rates are already there, an increased demand was observed for safes and cash. When negative rates took effect in mid-February in Japan, queries about home safes surged, especially from customers aged 50 and over. Sales of safes are now running some 40 to 50 percent above this time last year, according to a Reuters’ article. In the European Union Reuters reports the same trend. The European Central Bank's negative interest rates are sparking demand for safe deposit boxes, where bank customers can store cash to avoid the prospect of paying the bank interest on their accounts, said German bankers to Reuters. The same trend was observed recently in Switzerland, not only with private investors but also with pension fund managers.

At the same time, we learn that negative rates have boosted demand for gold in Japan. According to Takahiro Ito, chief manager at Tanaka Kikinzoku Kogyo K.K.’s store in Tokyo’s Ginza shopping district, “Many customers are wagering that it’s better to turn their savings to gold as a safe asset rather than deposit money at banks that offer low interest rates,” reports Bloomberg. Consumer gold demand in Japan rose to 32.8 metric tonnes in 2015 from 17.9 tonnes a year earlier, also reports Bloomberg in the same article. Gold bar sales climbed by 35 percent to 8,192 kilograms in the three months ended March 31 from a year earlier, Tanaka Kikinzoku Kogyo K.K., the country’s biggest bullion retailer, said, according to Bloomberg.

A boom in safe-deposit-box companies was also observed in Switzerland in the canton of Ticino, according to another Bloomberg article. The rise of safe-deposit boxes has created a boon for jewelers along Lugano’s Via Nassa, home to Cartier, Bulgari, and Bucherer boutiques, as people race to convert cash into assets they can lock away. Bloomberg reports that, “Investors are buying more gold as an alternative to holding Swiss franc cash deposits, according to Vontobel Holding AG, a Swiss bank and wealth manager… “We keep noticing that gold is coming back into favour with investors,” said Vontobel’s Chief Executive Officer Zeno Staub.”

Gold in a negative interest environment is the best way to store large amounts of cash. A gold coin of 1 once (31.1 grams) stores about $1,230 while a one-kilogram bar of gold stores about $39,620 today and is just about the size of your palm. With the threat of banning cash and with the one-hundred-dollar bill being the largest denomination, both in the U.S. and Canada, you can easily see the advantage of holding gold in a safe or under the mattress. In the European Union there is also talk of banning large euro denominations like the 500-euro bill.The largest denomination in the UK is just 50 pounds.

gold bar

But negative interest rates also increase the cost of doing business for the banks, which find it hard to pass on those costs to borrowers, therefore weakening the banking system. This has the effect of encouraging people to buy gold and hold it outside the banking system despite the inconveniences. It is for this reason some economists are associating negative interest rates with a ban on physical currency. In order to impose effectively negative rates, you must have control of people’s cash. The state can easily control access to electronic money by limiting the amount of withdrawal from the banking system just with a small adjustment in the software. The state can stop printing fiat money but it can’t easily ban physical currency like gold and silver. It is estimated that there is approximately 20% of the above-ground gold in private hands and in the purest bullion form. A large part of the jewelry stock can also be used, if necessary, as cash.

Above ground stocks of gold

Today in this negative interest rate environment you should be more concerned about the return of your money, than the return on your money. Compared with negative interest rates it is obvious why people are rediscovering the value of holding gold. Gold tends to perform well in declining or negative real interest-rate environments. The more central banks move to negative rates, the more gold is going to take off because there's no carrying cost. High real rates are bad for gold while negative real rates are good for gold.

Real rates & gold

3 months real rates & gold

3 motnhs real rates & gold since 2006

Monday, April 18, 2016

Price inflation for dining out may make $15 minimum wage laws moot

30 years ago, dining out for the average American family was a once a week experience, with working parents adding to this total with an occasional lunch break at a restaurant.  However, the past three decades have seen this paradigm completely turn around, and in 2015, people spent more money eating out than they did in buying groceries since the convenience of cost was worth the experience.
Yet this trend may have quickly reached a peak here in 2016 as the growing movement of mandatory $15 per hour minimum wage demands being coupled with huge jumps in price inflation have seen the affordability of dining out now much greater than the cost of eating at home.
Read more on this article here...

Friday, April 8, 2016

On the cusp of 2008: Inflation at its lowest levels since just before the financial crash

Because the Treasury Department and the Federal Reserve decided to base our economy on debt around four decades ago, the most important indicator they must at all costs keep growing is that of inflation.  This is because to afford to either pay off or rollover the debts they accumulate, they must continue to increase the money supply to support this credit expansion.

But as we know from history, these policies have one major achilles heal, and that of course is the gold.  And it is why for the past six years of QE and Zero Interest Rates the Treasury and central banks have had to manipulate the price to keep it down, and keep it from revealing just how insolvent the system really is.
Today’s chart shows the annual inflation rate of advanced economies, which includes the U.S., Europe, and Japan. Inflation measures how fast prices for everyday goods and services are rising. Last year, inflation fell to its lowest level since the financial crisis. This worries central bankers. 
You see, central bankers don’t view inflation like most people do. They think inflation helps the economy grow. For the past eight years, they’ve done everything they can to stoke inflation. They’ve slashed interest rates. They printed trillions of currency units.
None of this has worked. Prices for everyday goods and services have barely increased. 
Central bankers are becoming desperate to increase inflation. We expect them to “double down” on the same bad policies they’ve been using since 2008. That could mean more interest rate cuts...more QE...or even helicopter money. 
Owning physical gold is the best way to protect your money from these reckless government policies. - Casey Research

Since the middle of 2014, increases in the money supply have resulted in a point of diminishing returns, where it takes on average $14 new dollars just to create $1 new dollar in GDP growth.  And this can be seen even today on April 8 when the Atlanta Fed lowered its estimated for Q1 GDP for the third time in one week, and down originally from 1%, to .1% in three separate cuts.

There is little more that the central banks can do to stabilize the economy, the dollar, or their insurmountable debt bubble.  And the only thing that you as an individual can do is protect yourself from what is coming by taking your dollars and putting them into the one asset that functions well in deflationary times, and even better during inflationary ones.

Gold.

Monday, April 4, 2016

There is no longer a path to retirement unless you make it happen

Before the U.S. chose to engage in a path of monetary inflation starting in the 1960's, retirement was not a difficult endeavor for most Americans since the cost of goods and services were comparable to the monthly allocation of pension benefits and social security.  However, when these two things began to disconnect a decade later, it became almost a necessity for an individual to start investing early in the markets or in assets that could provide a return feasible to counter price inflation that has been almost non-stop for 50 years.

But with the central bank embarking on a more aggressive policy of monetary expansion to purposely increase the amount of inflation in the economy, it appears that for the American people we have reached a point of no return, and the dream of a comfortable retirement without incredible intervention by the individual themselves is pretty much done.



Graphic courtesy of Jim Quinn, Burning Platform
In fact, the number of full-time workers over the age of 55 numbered only 11 million in 2000, representing 18.6% of the over 55 population. Today, over 21 million full-time employed over 55 year olds, represent close to 25% of the rapidly growing over 55 year old category. 
Boomers aren’t retiring en mass because they can’t afford to retire. The labor participation rate of the younger generations is being negatively impacted by the non-retirement of Boomers. This is called the trickle down effect from unintended consequences. The establishment has strip mined the wealth of the country, leaving a barren wasteland in its wake, creating a seething populace, seeking perpetrators to blame. The populist uprising which propels Trump and Sanders has been spurred by the destruction of the working middle class as the corporate fascists, global elite, and banking cabal have pushed their game of financialization roulette to its limit. - Burning Platform

Tuesday, March 8, 2016

The Central bank of central banks (BIS) recommends new financial model and puts gold standard as a new alternative

In a recent presentation by the Bank of International Settlements, or as it is known to the masses the central bank of central banks, the head of the bank's Monetary and Economic Department recommended that the global economy needs to get rid of its current debt-based monetary system, and move to another that provides more stability with less inflationary and deflationary extremes.

And in presenting his proposal to other members of the BIS, one of the alternative systems that is on Claudio Borio's recommended sheet was a return to a form of the gold standard.


This presentation suggests an alternative lens through which to view the global economy's struggle to achieve sustainable and balanced growth, reflecting a failure to prevent the build-up and collapse of hugely damaging financial booms and busts. A symptom of the current malaise can be seen in interest rates that have been exceptionally low for an exceptionally long time, with a record high amount of global sovereign debt trading at negative yields. To break out of this trap, there is a need to take a longer-term view and rebalance policies towards structural measures, abandoning the debt-fuelled growth model that has brought us to the current predicament. - Claudio Borio 
And an additional commentary on this recommendation was made by Economist Jim Rickards: 
It's interesting that they included the Classical Gold Standard period in their comparisons. Why include gold as a baseline case unless there was some chance of going back to gold? 
The main point they are making is that inflation and deflation show up more in asset prices than consumer prices. While consumer price swings have been modest, asset price swings have been huge and dangerous. Asset price bubble bursts impose huge hidden costs and are dragging down productivity because of the misallocation of capital.
So, there are a lot of "hidden costs" in debt-fueled expansions. Once these costs are taken into account, periods without as much debt or asset bubbles (such as the gold standard period) look like a better growth model by comparison." - Lone Star White House

Monday, February 22, 2016

Got Karatbars? Global war on cash is meaningless if you own gold

While it is rather unlikely that the U.S. would dare to eliminate cash altogether, like with guns, it is one of the last remaining freedoms that Americans would come out en masse to protest and fight for.  But the U.S. financial system is no longer simply a domestic entity, and the 21st century global economy affects every nation in one form or another.  So as the world in general rushes headlong into negative interest rates, capital controls, and a war on cash, we as Americans will be affected by their actions since we are both a creditor nation, and one that relies heavily on global imports.

Many people today are used to electronic forms of payment in both online purchasing, and in everyday shopping.  But there is a massive difference between using tools such as debit cards, credit cards, and online bill pay features as a convenience versus not ever being allowed to transport your money from one place to another should you find your bank no longer living up to your expectations, or in a more drastic scenario, insolvent and working towards a capitalization bail-in.



But the point of the matter is, all finance today is built on a debt based system of credit, and not on real or sound money.  And thus the real way to protect yourself while still having the ability to function in a world of electronic convenience is to keep your wealth in assets like physical gold, which supersede any attempts by banks or governments to limit your choices and freedoms as the war on cash escalates.
Negative interest rates?  Big deal.  Over long periods of time the relative value of gold accelerates vs. all other currencies when real rates are negative.  When the Fed takes nominal rates negative the price of gold/silver will begin to go parabolic.  Will that happen immediately?  Of course not.  The Fed will try to cap the price movement of gold with B-52 payloads full of paper gold.  When this happens, take as much cash out of the banking system as possible and convert it into physical gold and silver bullion coins. 
The rampant proliferation of “war on cash / negative interest rate” warnings are little more than the childish rants of alternative media propaganda artists.   It’s like a repetitive announcement that the earth is round and circles the sun.  Yes, we know that the Government is going to digitize the currency system and take interest rates negative in an attempt to channel bank balances into consumption or the stock market or Treasury bonds. 
But whatever measures the Government takes to implement capital controls and increasingly exert more control over your life can be offset if you move as much cash as possible out of the system now and into precious metals. - Dave Kranzler via Silver Doctors


Just like with Bitcoin and facilities such as Paypal, more and more business models are emerging that allow people to function outside the traditional and antiquated banking system.  And more importantly, many of these facilities and companies are structuring themselves outside the purview of governments and banks, and provide a means for people to bank, store their wealth, and above all, protect their wealth in the only money that is not affected by inflation, deflation, negative or zero interest rates and central bank or government policies.

And the best way to both function and protect yourself in this manner is with a company called Karatbars.



Buying gold through Karatbars is one of the easiest things on the net.  In fact, the business model of Karatbars is to sell gold in affordable quantities, such as 1, 2.5, and 5 gram increments, and allow customers to get into the metal without having to shell out $1200+ for a single ounce coin.

And as added perks to signing up with Karatbars, as a customer or affiliate, Karatbars is working on a new e-wallet system that functions just like an offshore bank account, and is outside the authority of the banking system.  From there, you can take your fiat currency in any denomination... dollars, euros, yen, etc... and purchase physical gold which can either be delivered directly to you, or stored for free at one of Karatbar's vaults.

Additionally, any gold that you buy can easily be sold back to Karatbars, or any metals dealer, and if with Karatbars it is then exchanged for currency that is uploaded to you through a pre-loaded debit Mastercard which is connected directly to your e-wallet.  And as we know, MasterCard is recognized in nearly every country around the world, and usable in any currency that accepts it.

But perhaps the best feature with Karatbars is their affiliate program, where you can earn money off commissions from getting others to sign up and become a customer or affiliate.  Not only do you receive commissions from their purchasing of physical gold, but you also earn commissions from anyone who buys a commission package, with that money going directly into your debit MasterCard when you have enough units to cycle.

Imagine the ability to earn the money in which to buy your gold savings simply by purchasing a commission affiliate package one time, and then getting others to sign up and do the same thing.

How many businesses or entrepreneurs can build an infinite business with spending less than $400 of their own money?  And there is never a mandatory requirement to buy beyond what you desire, on your own schedule.  And there is nothing to lose, because you're using money (paper dollars) to buy gold (physical money) and in the end you don't lose a thing.


The global financial system, along with dozens of respected economists, are telling us that now is the time for the end of our current form of money, and the beginning of the transition into a new monetary system that is expected to be backed by gold.  And with banks, governments, and even Harvard professors mandating that central banks have no choice but to eliminate cash from usage by the people to stave off collapse, will you wait until it is too late to make a decision on how you will protect your wealth, and be able to function within the coming new monetary system?

To learn more about Karatbars, you can contact the individual who sent you this article, and click on their referral link to open a free account and begin buying, or building your own gold savings or business with the company of the future.

Saturday, January 30, 2016

Negative interest rates, free money... central banks are showing by their new policies that we are near the end

On Friday the Bank of Japan entered into the deep shark infested waters of negative interest rates (NIRP), signalling that they have no other option but to force people to spend their savings or lose it to fee based confiscation.  And for those that think Japan is simply a lone wolf in the global economy, negative interest rates have already emerged in several European countries desperate for inflation.

But NIRP is not the only scheme being concocted by governments and banks to force people to spend their money instead of saving it.  In Switzerland on Jan. 29, a referendum was issued for the people to vote on whether their government should outright give each adult $1700 Euros and each family the equivalent of $2500.00 to stimulate growth and inflation in the midst of an emerging meltdown.

And like the use of price controls in 3rd world banana republics, the end result of giving out free money based on increased debt is price inflation to the point where eventually the entire system will collapse upon itself.



Saturday, January 23, 2016

In all the fear over lower oil prices, few are talking about its impact on the dollar

When the U.S. signed its 1973 agreement with the House of Saud to peg oil to the dollar, few tended to realize that the opposite would be true, and that the dollar itself is intrinsically tied to oil and the price of this commodity.  It is one of the reasons why Kissinger had the Saudi’s (and OPEC) increase the price three fold so that this inflation would allow the U.S. to then increase the nation’s money supply by having the House of Saud put all of their reserves in U.S. debt instruments (Treasuries).
But as the use of debt and credit began to expand, and eventually reach exponential growth due to central banks choosing the Keynesian road over sound monetary policies, it put the dollar on a fragile precipice that then relied upon oil and other asset prices to remain high to keep the spigot going enough to be able to both roll over the growing debt, and to ensure confidence that in desired times they could increase that debt with little opposition.
However, following the Credit Crisis of 2008 confidence in the dollar began to crack, and eventually lead to an ever growing rejection of the reserve currency by nations who have been forced to devalue their own currencies to remain sustainable.  And this worldwide increase in debt has not only brought about a global point of diminishing returns (see the need for negative interest rates by some), but it has also killed real economies who’s consumers can no longer spend at the rates they were over the past two decades.
petrodollar1

Friday, January 15, 2016

Should we get ready for a Canadian Spring?

Back in 2011, what would become known as the Arab Spring emerged in Middle Eastern countries like Tunisia, Egypt, and Yemen over the inability of the people to have access to affordable food that was primarily imported into their nations through world markets.  At the heart of the problem was the artificial strength of the U.S. dollar, and the need to buy these dollars to purchase foodstuff commodities.
But since the Arab Spring was a phenomenon was back then tied to 2nd world nations where wages and net worth were relatively poor, the question to ask now is, could this same type of uprising take place in a 1st world nation as well?

Tuesday, December 22, 2015

Got Karatbars? Fed's raising of interest rates actually beneficial for gold prices

When economists look at the comparison between gold prices and interest rates, most simply take a singular period of time and use that as the basis for their entire argument.  That period of course is the early 1980's when then Fed Chairman Paul Volker raised rates to a whopping 20% at the height of stagflation, and when gold had reached its prior all-time high of around $850 per ounce.

But in the chart below you can see that leading up to the that unprecedented interest rate hike, gold had been moving in relative lock-step with interest rates, and over the course of the 1970's, 90's, and 2000's, gold rose rather than fell when the central bank raised interest rates.


Gold prices vs. interest rates 1970 - 1980


Gold prices vs. interest rates 1995 - 2007

You can see with these comparisons that for the most part, higher interest rates equate to greater moves into gold, and in higher gold prices as savings mechanisms appeal far more to investors than speculative ones like stocks.
It is widely assumed that the gold price must decline when the Federal Reserve is hiking interest rates. An example is given by thisrecent article on Bloomberg, which informs us that SocGen believes “gold will be a casualty of Federal Reserve policy”. Never mind that the assumption that the Fed will now be able to simply embark on a “normal” rate hike cycle is in our opinion utterly absurd. It will only do that if the inflation genie unexpectedly gets out of the bottle, and is guaranteed to remain “behind the curve” if that happens (more on this further below). 
It seems logical enough: gold has no yield, so if competing investment assets such as bonds or savings deposits do offer a yield, gold will presumably be exchanged for those. There is only a slight problem with this idea. The simple assumption “Fed rate hikes equal a falling gold price” is not supported by even a shred of empirical evidence. On the contrary, all that is revealed by the empirical record in this context is that there seems to be absolutely no discernible correlation between gold and FF rate. If anything, gold and the FF rate exhibit a positive correlation rather more frequently than a negative one! 
So the gold price is falling when the Fed hikes rates? Not in the 10 years depicted above, when it did the exact opposite. It rose by 2,350% over the decade, and the vast bulk of the increase happened while the FF rate rose sharply. Gold did however plunge by almost 50% in a mid cycle correction from late 1974 to mid 1976 - while the FF rate actually went down. - Acting-Man.com
Taking all this historical data into account, we must also look at the fact that the Federal Reserve has signaled their intentions to raise rates two to four more times between now and the end of 2016, making the potential for gold to break out of its long-standing doldrums a very strong possibility.  And this can be validated in a recent interview over the weekend by Andrew Maguire who reported that after last week's rate hike, dealers were hit with massive buying in both London and Asia, so much so that a liquidity drain is occurring in all the major gold markets.
Andrew Maguire:  “Eric, now that we have the well-anticipated Fed rate hike out of the way I wanted once more to focus upon the unprecedented, game-changing liquidity drain out of London into Asia. This is evidenced by the increasingly illiquid LBMA fixes. I don’t see this discussed anywhere else and given the pace of this liquidity drain, this will become the catalyst for the inevitable forced cash reset in the highly leveraged unallocated London gold markets… 
Maguire continues:  “The global gold market structure has so radically altered that the physical markets have migrated and continue to migrate away from the LBMA conduit into Asia, leaving massive embedded naked-short mismatched lease obligations on the books of the central banks, which are largely shuffled onto the books of the agent bullion banks, the same insider bullion bank’s that are privileged to have gold accounts with the Bank of England. 
As liquidity drains away from London, fix painting — forcing gold down into the fix at the expense of the captive producers who are forced to sell at market — has become far too visible. Liquidity is draining because producers are increasingly able to access non-predatory alternative non-LBMA financing and selling conduits. The longstanding collusive game of paper market fix painting is unsustainable without an increasing amount of synthetic market supply to offset these liquidity outflows. This is simply no longer available in enough size to keep this game going for much longer. - King World News


No one knows for sure why the Fed has chosen to raise rates at a time when the economy as a whole is in a deflationary rather than inflationary period, but it appears likely that this is now being done to save the credibility of a central bank that has been jawboning recovery and a strong economy for more than four years.  And if the course has now been set for higher interest rates for the foreseeable future, how can you best protect your wealth and profit from the historical trend that forecasts a rise in gold prices?

You can do this with a company called Karatbars



Buying gold through Karatbars is one of the easiest things on the net.  In fact, the business model of Karatbars is to sell gold in affordable quantities, such as 1, 2.5, and 5 gram increments, and allow customers to get into the metal without having to shell out $1200+ for a single ounce coin.

And as added perks to signing up with Karatbars, as a customer or affiliate, Karatbars is working on a new e-wallet system that functions just like an offshore bank account, and is outside the authority of the banking system.  From there, you can take your fiat currency in any denomination... dollars, euros, yen, etc... and purchase physical gold which can either be delivered directly to you, or stored for free at one of Karatbar's vaults.

Additionally, any gold that you buy can easily be sold back to Karatbars, or any metals dealer, and if with Karatbars it is then exchanged for currency that is uploaded to you through a pre-loaded debit Mastercard which is connected directly to your e-wallet.  And as we know, MasterCard is recognized in nearly every country around the world, and usable in any currency that accepts it.

But perhaps the best feature with Karatbars is their affiliate program, where you can earn money off commissions from getting others to sign up and become a customer or affiliate.  Not only do you receive commissions from their purchasing of physical gold, but you also earn commissions from anyone who buys a commission package, with that money going directly into your debit MasterCard when you have enough units to cycle.

Imagine the ability to earn the money in which to buy your gold savings simply by purchasing a commission affiliate package one time, and then getting others to sign up and do the same thing.

How many businesses or entrepreneurs can build an infinite business with spending less than $400 of their own money?  And there is never a mandatory requirement to buy beyond what you desire, on your own schedule.  And there is nothing to lose, because you're using money (paper dollars) to buy gold (physical money) and in the end you don't lose a thing.


The global financial system, along with dozens of respected economists, are telling us that now is the time for the end of our current form of money, and the beginning of the transition into a new monetary system that is expected to be backed by gold.  And with banks, governments, and even Harvard professors mandating that central banks have no choice but to eliminate cash from usage by the people to stave off collapse, will you wait until it is too late to make a decision on how you will protect your wealth, and be able to function within the coming new monetary system?

To learn more about Karatbars, you can contact the individual who sent you this article, and click on their referral link to open a free account and begin buying, or building your own gold savings or business with the company of the future.