Financial System on Edge of Collapse

Saying this was a “risk off” week would  be  an  understatement  and we  may have come within a whisker of having the entire global financial system face the undertaker. It may be easy to criticize the Bank of England for abruptly taking a 180-degree turn, from getting ready to raise rates by 1%,  to  effectively  implementing QE by buying long-dated gilts. But as Peter Boockvar put it last week: “We’re witnessing the further unraveling of the grand experiment of central banks over the past 15 years, originally championed and led     by Ben Bernanke. The accidents continue to pile up in its reversal  and in response, they can never really leave.”

Keynesian central bankers have screwed up the global financial markets  beyond  comprehension. The BoE is trying to spin it’s reversed policy as if they are not abandoning QT, but who’s kidding who? The entire financial system is nearing collapse in England and beyond because investors were enticed to borrow at low rates. With almost unprecedented rate of increase in rates, suddenly more and more investors—especially those who used leverage to buy bonds—are finding their investments deeply underwater. Insurance companies, pension funds and, others were ready to bite the dust. As Peter Boockvar also stated this week, “The more I read about what brought about the spike in UK gilt yields that led to the BoE intervention, the more it reminds me of 2007-2008. Not in the sense of impending doom in the housing and banking system but the reminder of how then we all learned something about many of the exotic products that were created so institutions can get extra yield in a regime of artificially suppressed interest rates.”

 

Perhaps that is the reason gold, silver, and bitcoin all performed relatively well last week. Perhaps some of the very serious investors are seeing that there is no place to hide within the existing monetary system. To keep global prices from hyperinflating, the authorities know they have to administer “chemotherapy” to kill inflation but at the same time run the risk of killing the patient, that being the global economy. The near financial catastrophe in the U.K. no doubt has alerted some of the really smart billionaire hedge fund managers that the jig is up! So, unlike recent weeks when stocks and bonds were clobbered and gold and silver were hit hard too, this week the monetary metals actually rose! Michael Oliver’s view may be playing out. Just as in 2008 when gold went down with fiat denominated assets, gold soon took off like a rocket to reach new highs. Even those who hated the honesty of gold had to capitulate and own it, simply to survive. I’m not sure we are there yet, but the action this week suggests that we might be.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.