Inflate or Die!

It’s hard to see this week as anything but a risk-on week. Or perhaps what we need to start calling weeks like this are “Catastrophic Avoidance Weeks.” I say that because it’s clear now that the only way the Fed can “save us” from an immediate deflationary depression is to create money more and more money faster and faster. Every time in recent decades the Fed has tried to “normalize” its balance sheet by holding off on buying Treasuries it has triggered stock market crashes. Our monetary system has been given so much fiat monetary narcotic that the system requires more and more of that anti-capitalist toxin to avoid the next financial crisis. Clearly the markets now realize that the Federal Reserve has only one option and that is to inflate or die! That means that a dollar that is rapidly decreasing in value because its supply is skyrocketing is causing people, especially those who are already well-to-do, to buy stuff that will help to retain wealth. Sitting in fixed rate income instruments that give you negative real returns that you are then forced to pay taxes on makes zero sense. So smart investors are buying gold and silver and for now select stocks. The rise in the price of silver is especially is a dead giveaway that the inflation trade is cranking up in a big way. Silver has been on an absolute tear but many other inflation trades are also doing very well. And check out my Inflation/Deflation Watch; it’s nearing a new high as it has risen dramatically from the March market plunge, which showed once and for all the Fed cannot return to normal without killing the economic patient. It must print, print, print, faster and faster, which means prices must continue to expand and eventually do so exponentially.

For now, the inflation trade seems to be a one-way street. It’s hard to think of a way stocks and precious metals and various commodities won’t continue to rise at a faster and faster clip. Ray Dalio suggests this inflation trade will end when another currency threatens the dollar. Alasdair Macleod has gone on record on my show and elsewhere suggesting that he thinks the dollar will be toast before the end of the year. Others suggest the dollar will be the last fiat currency to collapse. That could be. But Alasdair wrote an excellent essay on August 6 titled “Gold at $2,000. So why the fuss?” In that article he suggests the ongoing attempt to keep a lid on the value of precious metals by shorting those metals at a time when masses of Americans, starting with shrewd investors, are catching on to the fact the Fed has been caught naked and clueless. Decades of intrusion into the natural flow of markets by disallowing the price of capital to be determined by the markets has reduced profitable production while fostering exponential debt growth. The system is in fact now bankrupt and the only policy it has is to hyperinflate. But now, as Alasdair documents, the obstruction of market capitalism over the decades since 1971 has finally pushed the precious metals market manipulators to the point where market laws are about to explode metals prices higher. Here is the introduction to his article titled “Gold at $2,000+. So why the fuss?”  

There appears to be no way out for the bullion banks deteriorating $53bn short gold futures positions ($38bn net) on Comex. An earlier attempt between January and March to regain control over paper gold markets has backfired on the bullion banks. 

Unallocated gold account holders with LBMA member banks will shortly discover that that market is trading on vapour. According to the Bank for International Settlements, at the end of last year LBMA gold positions, the vast majority being unallocated, totalled $512bn — the London Mythical Bullion Market is a more appropriate description for the surprise to come. 

An awful lot of gold bulls are going to be disappointed when their unallocated bullion bank holdings turn to dust in the coming months — perhaps it’s a matter of a few weeks, perhaps only days — and synthetic ETFs will also blow up. The systemic demolition of paper gold and silver markets is a predictable catastrophe in the course of the collapse of fiat money’s purchasing power, for which the evidence is mounting. It is set to drive gold and silver much higher, or more correctly put, fiat currencies much lower. 

This is only the initial catalysing phase in the rapidly approaching death of fiat currencies.

Alasdair’s explanation of the mechanics of the gold and silver bullion markets and the players who dominate them provides an understanding of why the precious metals are still in the early stages of a massive rise in value as measured by fiat currencies. There now appears to be a major short squeeze for the bullion banks that Alasdair argues is likely to cause an explosion in the price of metals that will call attention to the miserable failure of fiat money not only to the likes of Ray Dalio but also to every Tom, Dick, and Susan on the street. During times of less economic and market duress, those bullion banks have been able to keep a lid on the price of the monetary metals and thus convince most everyone that all is okay. That has served to keep investors unaware of the real intrinsic wealth that gold and silver contain as Wall Street profited greatly from selling inferior and sometimes outright toxic financial products.

As fiat money is now being created at an exponential clip against the growth of gold at its usual 2% annual pace, the Keynesian Piper is about to be repaid. This week propaganda from Goldman Sachs, Bloomberg, and Yahoo obviously aimed at an attempt to keep as many people as possible down on the mushroom farm may still deter many people for now. However, a rise in food prices that is meaningful for lower income people 30 + million of whom are now unable to pay their rents in the midst of COVID-19 are causing an increasing number of people to wake up. As trillions upon trillions of dollars are printed to pass on to our economically depressed population, it won’t be only the smart money folks like Ray Dalio and Eric Sprott who have trashed fiat in favor of gold, silver, and other tangibles. To the extent possible “ordinary people” will seek to do the same. It is all very regrettable but those of us of an Austrian school persuasion have long seen this coming. Gold’s day is here and a massive transfer of wealth will be flowing from those who hang on to Keynesian fiat propaganda to those who transfer their wealth from fiat money to tangibles starting with gold & silver.  

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.