Jay’s Inflation/Deflation Watch

My January 2018 speech at the Metals Investor Forum was titled “2018—A Year of Epic Market Disruptions?” View here: https://www.youtube.com/watch?v=RDEKv0bLbHI

With stocks plunging this past weekend and volatility picking up dramatically we didn’t have to wait long to get an answer to the question I posed in my speech. Although the year is young, we started to get a sense of how rising interest rates (which I maintain are occurring because of natural market forces, not because of Federal Reserve actions) are starting to indeed create major disruptions in the market.

The way I see it, the markets are poised on a “knife’s edge,” which is why I think my IDW shown at the top of the prior page is once again something I want to pay very close attention to. Notice the dramatic sharp turn down in my IDW last week when the “risk off” trade took over. Which way will it go? It’s hard to say. With rates rising, if central banks stand aside, one could logically predict that what we saw last week will be only the beginning of a devastating implosion of asset values in dollar terms.

But central banks are not likely to stand quietly by. The only policy the Fed has is to print money when the system implodes under the force of debt-based money created by that not-so-prestigious institution out of thin air. Interest rates are clearly on the rise now for a number of reasons, including (1) a declining desire and ability of previous sovereign buyers of Treasuries; (2) a massive decline in savings by U.S. citizens; and (3) Trump’s budget, which has Republicans now a party of politicians spending money like drunken sailors. Of course, at some much higher rate of interest, the U.S. Treasury could be funded. In fact, now, we have a return of the Bond vigilantes not seen since the late 1970s who seem to be demanding a return to a market driven rate of interest.  To the extent they are successful in restoring truth to politicians and bankers regarding the inability to print your way to prosperity, the lesser of two evils will prevail—that being a massive deflationary depression. But since the only policy the Fed knows is to print money when the system implodes, a we are now about to witness a battle between the deflationary bond vigilantes and inflationary central bankers.   

Actually, whether inflation or deflation, we could be looking at what Jim Rickards has written and talked about, namely, a single global currency—SDRs (Special Drawing Rights) headed by the IMF, the only central bank still standing after the next financial market meltdown takes place. With only the IMF left standing, Rickards suggests the world will likely settle for SDRs as the global currency, which dovetails with the move by the elites for a one-world government.

Notwithstanding recent nationalistic moves like Brexit, Trump and other right-leaning political movements in various European countries,  I say that because it’s amazing but true that Western institutions of “higher learning” are just as effective if not more so in effecting “group think” as the old Soviet Union. It is said that in the Soviet Union people understood that the enemy was government because the thugs were visible in literally beating the snot out of Soviet citizens when they dissented from government policy. And now, if you think independently and are critical of the policies of silver-tongued “economists” like Kenneth Rogoff, you are also written off as a troublemaker or right-wing nut or considered ripe for the loony bin. But an examination of Rogoff’s Keynesian policies reveals they are one and the same as Soviet-styled tyrannical communist economics. For example, Rogoff not only has pushed for negative interest rates but also a cashless society, knowing full well that when the Fed ushers in negative interest rates individuals will seek self-preservation by withdrawing their money from banks. It is the ridiculous policies of Keynesians like Rogoff that have planted the seeds of our market destruction by thinking they are smarter than our Creator, who provided us with natural laws of economics as well as physics as once were understood by our Founders and free-market economists.

There can be no doubt that rising interest rates are occurring due to market forces not Fed policy. And as we saw last week, that is starting to cause severe withdrawal pains and anxiety that are in fact a result of the easy debt-based monetary narcotic administered by Keynesians like Rogoff in the first place. In any event, the chickens now appear to be coming home to roost. It’s a simple matter of supply and demand for money. And since the Fed and other central banks are, at least for now, pulling back from issuing endless fake money, who is going to buy massively rising levels of government debt unless interest rates are allowed to find their equilibrium? Obviously, interest rates need to rise dramatically to raise funding for government. But remember, government doesn’t create wealth. At best it provides basic infrastructure to help the private sector grow and produce wealth. But how will trillions of dollar annual budgets accomplish that? How will businesses, especially smaller ones, be able to find capital to create wealth that feeds parasitic governments?

Mother Nature can be fooled for a while but then the laws of nature will prevail. The trouble is elites have all the guns and monetary control to perpetuate a growing hell on earth for a long time until our Creator puts an end to it. We can hope and pray that natural forces teach these elitist humanists to return closer to the origin of liberty for which our Founding Fathers bravely risked their lives. But as rising geopolitical and economic forces finally lead to a decline of dollar hegemony, I think it is more likely that the elite will dig in their heels, much as the anti-Trump and Antifa forces are now hell bent on death and destruction, resulting from blindness to obvious economic truths. As economic laws force interest rates to rise, we should be on the lookout for one of two economic outlooks. As the stock market crashed last week, we were reminded of one of those outcomes, namely, the potential for devastating market turmoil and plunging asset prices in a deflationary scenario. On the other hand, since the only policy other than outright totalitarian police state action that the Fed knows is to print money we should be ready for inflation, even hyperinflation. With China and other net saving nations stepping away from buying U.S. Treasuries I’m guessing that will be a likely outcome, which will then be followed by more market destruction and increasing totalitarian government to “fix” prices. Certainly, the one asset that figures to serve us well, at least within these four dimensions of time and space, is gold. But ultimately, the only “G word” we can put our faith in is God, the Creator of the universe and all the laws that our humanist elites are choosing to defy. In this letter, I will try to give you my honest thoughts about these tumultuous markets. In any event, my faith is in that other “G word.”

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.