Gold is the Alpha Currency

Miles Franklin sponsored this article by Gary Christenson. The opinions are his.

Breaking News:

The Dow closed at 26,616 on Jan. 26, 2018, a new high. The Dow closed on November 5, 2019 at 27,492, a gain of 3% in 22 months.

Gold closed at $1,352 on Jan. 26, 2018. Gold closed at $1,484 on November 5, 2019, a gain of 10% in 22 months.

The Fed announced they would buy $60 billion/month in Treasuries but refused to admit it was QE. Sounds like welfare for the upper 1%…

Look back at 1965. The London Gold Pool held the price of gold at $35.00.

Average wage: $2.60/hour

Cost of a new truck: $2,000

Total credit market debt: $1,110 billion

The Vietnam War escalated, President Johnson pushed social programs, and politicians spent freely to reward cronies.

Problem: The U.S. had spent so much on the military, wars, and social programs that debt and prices surged higher as the dollar devalued. Foreigners realized the dollar was worth less than 1/35 of an ounce of gold. They wanted to trade paper dollars for real gold.

Look back at 1971. The London Gold Pool had collapsed, and gold prices “skyrocketed” to $44. Foreign central banks wanted U.S. gold instead of paper dollars. The official U.S. gold hoard had fallen from 20,000 tons to over 8,000 tons, according to unaudited records.

Average wage: $3.62/hour

Cost of a new truck: $2,900

Total credit market debt: $1,749 billion

The South-East Asian War escalated, and politicians spent to reward cronies.

Problem: The U.S. spent excessively on the military, wars, and social programs. Debt and prices accelerated higher. Foreigners wanted gold instead of paper dollars. Under advice from central bankers, President Nixon “temporarily” stopped exchanging dollars for gold. During the next decade the dollar collapsed in purchasing power, consumer price inflation devastated many households, and currency in circulation expanded rapidly.

Look back at 2001. Gold had been in a bear market for 21 years and had fallen 70% from its bubble high in 1980. The dollar was strong, and the U.S. planned to invade Iraq, Afghanistan, Syria and Iran.

Average wage: $14.66/hour

Cost of a new truck: $20,000

Total credit market debt: $30,105 billion

The Middle East Wars escalated, and President Bush supported military contractors and drug companies. Politicians spent to reward cronies.

Problem: The U.S. increased spending on the military, wars, and social programs. Official national debt increased to about $6 trillion. The stock market had crashed in 2000, and the Internet bubble, inflated with “printed currency units,” imploded. The Fed introduced other bubble-blowing policies. Within seven years Americans would suffer another housing bubble and crash, and a stock market bubble and crash.

In October 2019 gold had been in a bear market from 2011 to 2016 and had fallen 40% from its all-time high in 2011 by early 2016. The forever wars in the Middle East and Afghanistan continued, and the nation polarized more than any time since the Civil War.

Average wage: $23.00/hour

Cost of a new truck: $45,000

Total credit market debt: $74,100 billion

The Middle East Wars escalated, while President Trump reduced taxes and supported military contractors. Politicians spent to reward cronies.

Problem: Spending for the military, wars, and social programs expanded further. Official national debt increased to about $23 trillion. The stock market, inflated with “printed currency units,” was near another all-time high. The Fed used new bubble-blowing policies in September and October but denied they were QE or “Inflate or Die” support for a fragile economic system.

WE KNOW THAT:

  • Deficit spending, larger debts and wars are continuous.
  • Politicians support their cronies and contributors.
  • National debt has grown exponentially, about 8.9% per year for many decades. At this rate national debt will exceed $40 trillion well before 2030. A recession, new wars or socialistic politicians put in play $50 trillion in debt by 2030.
  • Prices and wages rise as bankers and politicians devalue dollars. The bottom 90% are not wealthier, but the numbers are larger.
  • Gold prices rise as excessive printing of currency units devalues the dollar. Politicians and central bankers respond by creating distractions.
  • The U.S. economy runs on debt and credit. When corporations want to boost stock prices, they borrow and buy back stock. When politicians “need” a new program, they pass legislation, borrow the cost and increase debt. To pay the interest on past debt, the U.S. government borrows more and adds to total debt.
  • If this nonsense sounds crazy… then you understand!

BUT WAIT:

Debt expands because the population increases. There should be more debt and more currency in circulation every year. Debt expands slightly because of population increases but primarily because of excessive borrowing and spending.

PROVE IT:

The St. Louis Fed tracks debt. Divide total credit market debt by population and observe the massive increase of debt per capita. See log-scale graph below of population adjusted total credit market debt.

Divide gold prices by population adjusted total credit market debt. The ratio has remained within a narrow range, except for bubble years around 1980.

A close up of a map

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A close up of a map

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YOU CAN SEE THAT:

  • The Ratio has been relatively constant for 50 of the last 60 years. Debt increases and gold prices rise along with the debt.
  • The ratio was too high during the gold bubble years after President Nixon allowed the dollar to collapse following his 1971 decision.
  • The ratio was low in 1971, in 2001, and in late 2018. It should rise during the next five years.
  • The ratio could double and stay within the range.
  • If debt doubles in 7 – 9 years and the ratio also doubles, gold prices would be in the $5,000 to $8,000 range in 2026—2028.
  • If you doubt that quadrupling is possible, remember that gold rose by a factor of 21 from 1971 to 1980, and by a factor of 7.4 from 2001 to 2011.

Read “16 Tons and a Briefcase.”

From Bill Bonner:

“No matter who is president, the U.S. is in an Inflate-or-Die trap. And nobody wants the boom to die. So, they’ll inflate more…

Bring on the quantitative easing, the shovel-ready programs… the tax credits… the student loan forgiveness… the Social Security increases… and all the other boondoggles…”

From Jim Rickards:

“Russia and Iran have announced a new payments channel that avoids both SWIFT and the U.S. payments system.”

From Bill Bonner:

“Excess debt [about $40 trillion] will be eliminated… fake wealth will be destroyed… and people may come to see leading economists, Fed governors, and policymakers for the jackasses they really are.”

From David Stockman:

“QE is an absolute financial fraud: the swapping of something (treasury debt) for nothing (central bank credits plucked from thin air).

CONCLUSIONS:

  • Politicians, individuals and corporations will borrow and spend, debt will increase, and bankers will devalue dollars.
  • Prices for most goods and services, including trucks, cigarettes, rent, political payoffs, hospital bills, and food will rise. Computers and televisions will be exceptions.
  • Gold prices will rise. Silver prices will rise rapidly since they have been more repressed.
  • Regardless of Trump tweets, off-and-on Chinese trade deals, QE by whatever name, recessions, and bailouts… debt and prices will rise.

Protect your savings and assets with gold and silver. Think insurance with no Counter-Party Risk!

Call Miles Franklin at 1-800-822-8080 to order silver coins and bars, and gold coins and bars.

Gary Christenson

The Deviant Investor

5 thoughts on “Gold is the Alpha Currency

  1. Thinking along these lines, one can easily see that the problem of excessive debt has its origin in too much savings. the inflation tax works only if there are savings which can be taxed. If there are no savings to be taxed, then it is impossible to issue new debt as the currency will immediately be devalued by the new credit issued out of thin air. So the problem is fiat money and excessive debt buildup is enabled by the fatal concept of savings. People should save in silver and gold and maintain almost no money in the banks. That would greatly reduce the incentive to issue new debt. the reason why large amounts of debt do not cause hyperinflation is because too many savers (including Warren Buffet ) hold these Dollars in their account without releasing them into the general economy where they could cause hyperinflation. So the unspoken secret is that government policies encourage people to save in retirement accounts where that money can be quietly taxed by the issuance of debt. As long the as inflation is moderate (less than 4% ) per year, few people will notice and few will complain.

    But even gold and silver are not a perfect insurance against the the desire of the democratic majority to tax the savings of the workers. As long as few people save in gold, nobody will notice or object against it. However, that will change dramatically as soon as a large number of people starts to buy gold. Then tax rules will change. Crime will change. It is not clear whether gold and silver are the ultimate solution to our problem by socialism being a too popular ideology. We need to go back to capitalism.


  2. Normally, money is a receipt for work. If there is a huge amount of debt outstanding, then this means that many people received money without working for it. Paying that money back, means providing work for the money. So if the debt can not be repaid, that means that a huge number of people got free lunches. Who are these people? I think everybody (including gold bugs) benefits if a large amount of debt is being issued and pumped into the economy. The monetary stimulus lifts all parts of the economy. So even people benefit who are employed. Why ? Because chances are that these workers may end up being unemployed if the stimulus is withheld. We have a large number of people in our society who either do not work or do “make believe” type of jobs. Look at the huge number of people sitting in an office and doing basically nothing of value. Look at the large number of people serving in the army and doing nothing productive, to the contrary, they destroy human life and infrastructure. Issuing debt on a large scale is ultimately a form of redistribution of the wealth created by the working class. The beneficiaries are all those who do not produce anything, they will be employed by the capital issued by debt. If the debt is not repaid, then that capital is a form of inflation tax on the savings of the working class.

    To sum up, debt is a form of tax. The government collects taxes in many forms. Less than 20 % of GDP is collected in direct taxes by the federal government , a larger part is collected in form of loans which nobody has the intention to repay. That means that these loans are ultimately an inflation tax as documented by the more than 90% loss of purchasing power of the US Dollar during the past century due to the inflation tax. The rent of my apartment I live in is $1,500 per month. In 1942, the same apartment rented out for $19 per month. Almost a 100 fold increase in rent in 75 years. All of that is due to the inflation tax caused by issuing debt.

    If you have lots of liquid savings, you may consider the idea of buying some gold as a protection against the continuing crisis. however, most people do not have the savings to buy an ounce of gold. For them it is essential that the government continues to issue food stamps and welfare checks, disability checks and social security checks all financed by issuing new debt.

    So what is going to happen in the future ? Well, one day the debt has to written down and a new currency issued where $100 old Dollars will be worth only $1 of new Dollars. After a few months of adjustment, society will forget and life will go on. It happened many times in history and it will also happen in the US. What will not happen that the monetary system will go on a gold standard. That can not happen because in a gold standard the issuance of credit is very limited. Such a system would make politicians unemployed. for that reason, gold will never return. The future belongs to fiat and digital currencies.



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