Rig For Stormy Weather

What storm? The Dow Jones Industrial Average (DOW) reached another all-time high. Interest rates in the U.S. are yielding multi-decade lows, some say multi-century lows. Trillions of dollars in global sovereign debt have negative yield and European junk bonds yield less than 10 year U.S. treasuries. “Official” unemployment is low. Borrowing is inexpensive. Things are good, so they say!

I Doubt It!

Do you believe the above is a fair and accurate representation of our economic world? If so, how do you explain the following?

  • Global debt exceeds $200 trillion and is rising rapidly. This massive debt will NOT be paid back in currencies with 2017 purchasing power. Debt MUST be rolled over in continually DEVALUING dollars, euros, yen and pounds.
  • The financial system rolls over maturing debt, adds more, and pretends repayment will not be problematic. Those who hope this will remain true ignore the lessons of history, including sky-high interest rates in the late 1970s, the Asian and Long Term Capital crises in the late 1990s, many defaults and hyperinflations in the last century and the credit-crunch-recession-market-crash of 2008.
  • Official inflation statistics show that consumer price inflation is low – supposedly in the two percent range. However, if you pay for health care, hospital bills, prescription drugs, Obamacare, beer, cigarettes, college tuition, fresh vegetables, processed food, auto insurance, and many other necessities, you know better. The Chapwood Index agrees with your experience. Their statistics show consumer price inflation is much higher than official numbers.
  • National debt – the official debt of the U.S. government exceeds $20.5 trillion – more than the U.S. Gross Domestic Product. The debt has increased exponentially (straight line on a log scale chart) for the past century.

  • Interest paid on the official national debt is approximately $500 billion per year and climbing. Congress is influenced by the financial elite and will not operate within a balanced budget. Therefore the U.S. will pay more interest each year.

  • U.S. government expenditures increase every year. Since annual revenues are less than expenses by a trillion or so, the shortfall is borrowed. Hence national debt rises every year and interest must be paid on ever-increasing debt.

  • Debt, out-of-control expenses, and economic craziness are universal in our current system. Race, gender, and political party make no material difference. Why should they? Corporations, politicians, lobbyists, military contractors, Big Pharma and individuals want more dollars to spend every year and the government satisfies everyone by adding to the debt load.

  • Debt and currency in circulation rise far more rapidly than growth of the economy which must support the debt. HENCE PRICES RISE.
  • Rising consumer prices are essential to a financialized economy. Do you remember prices in 1970? If you don’t, examine the following overview.

WHAT COULD IMPROVE OUR FINANCIAL WORLD?

  • Balanced budgets and honest accounting at all levels of government. Not likely.
  • Honest currency units, currency units created from productive effort, not units conjured out of “thin air” by central banking and commercial banking fractional reserve policies. Dreaming!
  • Global peace. Military and defense expenses could be reduced to a fraction of current levels. Redirect those resources toward more productive purposes. All but impossible!
  • Political honesty, absence of corruption and effective, non-intrusive government. Hmmmmm. Maybe we should write to our congressmen.

WHAT COULD MAKE OUR ECONOMIC WORLD WORSE, BUT WE HOPE DOES NOT OCCUR?

  • Wars with North Korea, Iran, Russia, China, and others.
  • Hyperinflation in western countries, because central banks will be forced to “print” an almost unlimited number of currency units to address their self-created financial problems.
  • Derivatives implosion (remember 2008), nuclear war, electromagnetic pulse weapons, and global plague.

PROGNOSIS:

The world will muddle through its problems in spite of wars, pestilence, corruption, central bankers, and self-serving politicians. Based on centuries of economic history, we should expect increasing financial trauma, periodic market crashes, devalued currencies, debt defaults, and … that someone else will be blamed.

WHAT CAN WE DO FOR SELF PROTECTION?

  • Realize that markets rise and fall. The stock markets have enjoyed a long bull market while many commodities are relatively inexpensive. Expect a reversal, perhaps soon.
  • Buy silver and gold. Why buy metals? They have been real money and a store of value for centuries. They are currently undervalued compared to total debt and the stock market. See below.

Graph silver prices divided by the official U.S. national debt. Silver prices have increased less rapidly than exponentially increasing national debt for 25 years, and are currently selling for multi-decade lows compared to national debt. National debt will increase 8 – 10% per year and silver prices will rise more rapidly in coming years.

Graph silver prices divided by the S&P 500 Index. Silver prices are currently near a two-decade low when compared to the S&P 500 Index. Silver prices will rise and the S&P will correct, possibly soon.

Based on decades of history, silver prices are inexpensive compared to exponentially increasing national debt and stock market prices. Silver prices will rise compared to both, perhaps soon.

CONCLUSIONS:

  • Debt and government expenses are excessive and too large for the economy to support. However, they exponentially increase.
  • Positive change is possible but given the massive economic resistance from debt, central banker intrusion into markets, and over-valued stock markets, significant improvement in revenues, debt loads and balance sheets seems unlikely.
  • Expect a reversal in stock market prices. Expect gold and silver prices will rebound much higher in 2018. Guaranteed – no! Likely – yes!
  • Silver and gold will protect your savings, retirement assets and purchasing power from continual currency devaluations, central bank policy errors, and excessive government debt.

Gary Christenson

One thought on “Rig For Stormy Weather

  1. I have to agree on so many of your points and disagree only mildly with few.

    I especially agree with: Interest paid on the official national debt is approximately $500 billion per year and climbing.

    It is class war that really got going under Reagan. NOBODY likes paying taxes, but we all have to contribute or we no longer have a civilization, we all use public goods, we all have to pay, except for those already in poverty, because if we were running the nation and economy honestly there would be nobody in poverty. America creates enough wealth that if labor were being appropriately compensated working people would not be in debt or doing without basic necessities. And I for one am damned mad that our leadership is saying that the poor deserve to be poor because they spend all their money on “women, booze, and movies.” Please refer to Senator Grassley’s comments yesterday when he said the wealthy deserve a tax cut because they invest. News for Grassley, 40 plus years of gifting the top 10% with unearned wealth and financialization of our economy has resulted in aristocratic and dynastic wealth leaving debt and downward mobility for the other 90% of us.

    Tax cuts without spending cuts penny for penny has meant that the rich are no longer paying their fair share and instead are allowed to lend to the government at interest by “investing” in government bonds. So, those who do still pay get the debt while their taxes go to pay half a trillion windfall per year interest to the already wealthy.

    There is no better or faster way to destabilize a democracy than to undermine the living standards and faith in upward mobility among the majority of it’s citizens. And what the wealthy and politically connected just fail to see from inside their bubble is that most Americans are now verging on poverty even at $40k per year take home pay.

    This is in great measure a planned class war, they do NOT honestly measure prices, when they do they adjust inflation back out so employees wages and government COLA’s do not have to be increased. They do not even measure our largest expense at all, housing, especially rents, the HUD office in the county where I lived for 15 years says the median rent is $850 per month, Zillow and Trulia both say almost $1,700 per month. And I say you cannot get decent rentals there for less than $1,400 at all. Even that has an auction quality to it where hundreds of people line up to bid on the rental. I had to leave the state, I cannot afford Oregon now. And that was the far south of the state, not even the Portland metro.

    I have a degree in finance, I am on a fixed income, I watch expenses very closely, I can tell you that my cost of living has risen by more than 40% since 2014 while my COLA has gone up about 6%. But, housing in most areas has gone up 70-100%.

    I have a theory about why (REAL) inflation is edging onto hyperinflation, corporations are borrowing huge mountains of money very cheap and buying back stock, while speculators flush with cheap debt are speculating with it. This is what fuels the equity rallies around the world. But, because they are pouring all new profits and all new borrowings into the equity markets they need products and services to pay the full freight of this. This is certainly true of the more than 100% increase in auto insurance I have experienced in the last 4 years. There is a bubble in all asset classes except maybe some commodities right now, and even those commodities that look cheap will not seem so cheap when this all comes to a crashing end.

    I say we are less than a year away from a depression that cannot be dealt with unless there is a massive failure of fiat and the scale is pretty simple to measure, it will be directly proportional to the debt level. Of course the Fed will always just print more and give it free of charge to the asset OWNERS, while the rest of us go deeper into debt slavery. But, that cycle is near it’s end.


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