Silver and the Deep State

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

The “Deep State” has been a high-profile topic for several years. Opinions are divided and strong. Those who benefit from the Deep State power and influence support the Deep State and fight against its opposition. Others think it’s the cause of much that is wrong in the world.

Rather than wade into the debate, consider the wit and wisdom of Bill Bonner regarding the Deep State.

We saw last week how the epic battle for the soul and future of America is over. The Deep State won.”

“No victory parade was held. And the Constitution was not repealed or rewritten. But the Deep State now controls the White House, Congress, the courts (more or less), the universities (more or less), the Pentagon, the bureaucracy, the dollar, the budget, and the press.”

“Neither the [Presidential] candidates, nor the press, nor the public seems willing to face the two things that matter most – money and war.”

“The $1 trillion budget deficit… soon to be $2 trillion… is not even an issue.” [Why? It should be!]

The Deep State lives on dollars, trillions of dollars. Those trillions support the political and financial elite. They buy the allegiance of Congress, the press, Pentagon, media and many others.

From David Stockman:

“…they [Deep State] have to keep these hot spots burning and these threats maintained or inflated, because they know if the real truth of the world were considered by Congress, the defense budget would be slashed dramatically.”

“I think the stock market is in its last days of bubble excess. I think the economy is slouching toward recession within a matter of a few quarters or months.”

But the U.S. government doesn’t extract enough tax dollars to fund the programs that our paid-for congress deems necessary, so government borrows the difference.

The consequences are clear. Debt increases every year, dollars are devalued, and prices rise. Wall Street, the financial cartel, and the military-industrial-security complex increase their wealth and influence over the economy… and the game continues.

THE DEEP STATE EXISTS. SO WHAT?

Prices for stocks, commodities, and consumer prices rise. A five-decade graph – log scale – of the S&P 500 Index (weekly prices) shows the exponential rise of stock prices as the dollar buys less. Note: The S&P is near the top of its channel.

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In 1971 the S&P500 Index was about 100. Today it exceeds 3,000. Gold in 1971 sold for $40. Today the price is nearly $1,500, on its journey toward all-time highs.

A log-scale chart of silver shows a similar exponential rise. Note: Silver prices are near the bottom of their channel.

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The Deep State needs ever-increasing expenditures, more than taxes can generate. No problem… borrow or print the difference, encourage The Fed to squash interest rates to make the debt service affordable, and spend, spend, spend. Dollars devalue and silver prices will rise. The 1% get richer.

The Deep State needs a huge military apparatus, which requires silver for components. The Deep State needs computers, server farms, missiles, and electronics for war machines, surveillance, electronics, and data processing. Silver is used in most electronic and computing applications. Silver prices will rise.

The Deep State needs an ever-increasing quantity of dollars and more silver every year. Dollars devalue and silver prices rise. Investors will eventually understand and become more interested in real money with no counter-party risk.

Deep State spending will increase until a reset or collapse occurs. The industrial demand for silver will rise. The COMEX can suppress physical silver prices via paper contracts for a long time, but not forever. The Fed can levitate prices of stocks for a long time, but not forever.

After the silver and gold bubbles in 1979-80, metals prices collapsed for twenty years, bottoming about the time of the 9-11 attack. Examine a chart of the ratio of silver to the S&P500 index since 1985.

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Silver prices, compared to the S&P, are almost as low as during the Internet bubble of 2000. Silver prices rose from $4.01 to nearly $50 following that ratio low. Someday soon the Fed’s “free money” liquidity injections will no longer levitate the stock and bond markets. About that time silver prices will explode higher – it is a small market. Capital will seek safety and real assets. Silver prices should exceed $100 during the next decade’s blow-off rally.

WHAT ABOUT DEBT AFTER ADJUSTING FOR POPULATION GROWTH?

The St. Louis Fed reports total credit market debt – about $74 trillion. After adjusting for the increase in population, debt per capita has grown exponentially (not shown). Examine the ratio of silver prices to debt per capita.

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Silver prices, compared to total debt, are near historic lows. Our economy runs on credit and debt. Expect the ratio to increase, total debt to continue rising, and silver prices to explode higher during the upcoming decade.

WHEN?

Something may be mathematically inevitable – such as a financial collapse or reset. However, the Deep State can delay, but not forever, the consequences of overwhelming and unpayable debt.

Jim Sinclair:

“The party is over mid-2019.” [Looks correct.]

Bill Holter:

“We’re already in recession.” [Yes!]

David Schectman:

“The Fed is trying to hold back the recession by pumping this cheap money in, but their fix is only temporary…The Fed is just propping it up, with more money and lower interest rates, just like they have done since the panic of 08.”

Bill Bonner:

“America won’t be the first nation ruined by a corrupt elite, runaway spending and a too-powerful military. The formula is classic.”

“You spend more than you can afford, year after year… and build up the military.”

We observed no market crash in October, but the Fed pumped hundreds of $billions into the economy and called it “not QE.” [Why? Liquidity crunch or insolvency in a bank or hedge fund?]

Will impeachment proceedings, a Guaranteed Basic Income, Negative Interest Rates, expanded war in the Middle East, wealth taxes, Medicare for all and other giveaways increase an already over-valued stock market? Probably not… but they will support an under-valued silver market.

WHAT ABOUT STOCK MARKETS?

Easy money, stock buybacks, low interest rates, massive debts and heaps of monetary nonsense levitated the NASDAQ, S&P and DOW to new highs. But the Russell 2000 and the Transports (and others) have not confirmed the new highs. Look at the Russell 2000 to DOW ratio.

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The ratio peaked years ago. The most recent rollover was July 2018. The easy money stock levitation has been narrow.

Sven Henrich:

“If fundamentals or earnings growth no longer matter and markets are drowning again in artificial central bank liquidity, [we] may as well forego any valuation or fundamental discussion.”

CONCLUSIONS:

  • The Deep State must be fed with an ever-increasing quantity of dollars. Debt must increase, as it has since 1913.
  • Dollars will devalue as too many are injected into circulation, as they have devalued since 1913.
  • Silver prices are under-valued when compared to the S&P, total debt and silver’s exponential trend channel. Prices will rise for many reasons including Deep State industrial demand, fear, a collapse in investor confidence in our flawed monetary system, and more.
  • Recessions and market tops are processes, best viewed in hindsight. Bill Holter and others believe we’re already in a recession.
  • A risk-reward analysis for stock prices versus silver prices favors silver when viewed from a multi-year perspective. We don’t know what prices will be next week, but during the next decade, silver prices will be much higher.

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Miles Franklin will convert digital and paper dollars into real wealth – silver coins and bullion. Silver prices measured against the S&P500 Index and total debt are at multi-decade lows. Those ratios will reverse.

Buy silver!

Gary Christenson

The Deviant Investor

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