Sticking to the Basics

Policymakers constantly play a kind of Three-Card Monte on the public. The Fed for example picks and chooses which statistics to tell the public it uses to make money printing decisions, but no one really knows what it is basing its decision on, because it operates in total secret. Working in concert with the Fed, the Treasury also plays a kind of Three-Card Monte game, spinning a view that there is no problem finding people to buy U.S. Treasuries paying near zero rates of interest and then they and the Fed point to low rates as if that is proof of no problem funding a federal debt that seems to be doubling with new Presidential administration.

I really want to keep my eyes on the question of who is actually buying these negatively yielding U.S. Treasuries that are growing exponentially in number even as the U.S. economy continues at near zero growth. I spoke to John Rubino about this on my show last week, which you can listen to here: John opined that it is coming from some central bank or banks somewhere and is being created out of thin air. For political reasons the Treasury apparently doesn’t want you to know from where nearly 50% of domestic buyers are, who are replacing foreign buyers, and a massive reduction of social security trust fund buying and of course the supposed discontinuation of QE. In the past, the notion that such a huge amount of money created out of thin air would be used to monetize debt would have sent the markets into a massive decline. But no more! Wall Street is so blinded by academic Keynesian propaganda that it doesn’t even ask the question about who “other” is. The Paul Krugmans and Lawrence Summerses of this world have them brainwashed into thinking it doesn’t matter! That is absolutely amazing. Who needs God when such religious fervor and trust is placed with our Ivy League elite, who see no need to follow the natural laws of the universe?

One person who does pay attention to natural laws and who has always been willing to tell it like it is, even to the President of the United States, is David Stockman. This week, to his subscribers he explained the political dynamics as to why, soon after Trump’s first 100 days are up, there are going to be some horrific rumblings over getting approval to lift the debt ceiling. That may or may not roil the equity markets but I’m guessing it will. Stockman ends the article with the following: “Here’s the thing, however. Last year between March 31 and September 30, the US Treasury came up about $275 billion short in terms of incoming cash to pay its bills—notwithstanding the usual, ample April harvest of tax receipts. This year the run-rate of the Federal deficit is actually 20% or so higher, so we expect the shortfall for the last six months of FY 2017 will be in the order of $350 billion. Then again, the Treasury’s cash balance yesterday was only $227 billion, or more than $100 billion lower than last year during tax season; and the debt ceiling itself is no longer on “holiday” as last year, but as of March 15 was frozen by law at $19.809 trillion. In a word, the rubber will meet the road sometime during the heat of mid-summer—depending on how many short-term accounting tricks the Treasury still has in its back pocket. So perhaps even the clueless Steve Mnuchin has begun backing off of his ridiculous prediction of a tax bill by the August recess because he’s finally done the math. This year, in fact, it is virtually guaranteed that there will be no August recess, but not in order to get the tax bill done. Instead, they will be sweating profusely in the Imperial City’s summer heat and humidity over the mother of all debt ceiling crises. And with no path to a Congressional majority to raise the debt ceiling, Nixon’s pitiful, helpless giant (the United States) will not only finally materialize; it will be strung out, well, helplessly, for the whole world to see.” 

If David is right about that, this event is not likely to be dollar friendly. This may be the event that triggers the kind of massive decline in the dollar that Michael Oliver’s work has been predicting, which, as he points out, will put a mighty wind at the inflation trade’s back! With respect to my trades this week, I sold Pure Gold Mining this week, not because I have turned negative on that company but simply to help fund purchases of Arianne Phosphate as well as Camino Minerals. Please see my following remarks regarding both Camino Minerals and Arianne Phosphate.

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.