The Emperor Is Wearing No Clothes!

There is little doubt that we are facing a Great Depression or possibly a Greater Depression. How did America get into this horrible economic depression? Stephen Roach who was then an economist with Morgan Stanley wrote the following in 2004: “The world economy is on a collision course. The U.S.–long the main engine of global growth and finance—has squandered its domestic saving and is now drawing freely on the rest of the world’s saving pool. East Asian central banks—especially those in Japan and China—have become America’s financiers of last resort.  Breaking points are always hard to pinpoint with any precision. Most serious students of international finance know that these trends are unsustainable.  But like any trend that has gone to excess, a group of “new paradigmers” has emerged with a compelling argument as to why these imbalances can persist in perpetuity. That is usually the sign that the denial is about to crack—possibly sooner rather than later.
(Stephen Roach, Chief Economist at Morgan Stanley – Sept. 2004)
Bottom Line:Americans are spending too much and not saving enough!

The “powers that be” have been able to hold the existing system together since Dr. Roach wrote those words in September 2004. But by September 2019 a major tremor in the Repo Market was as revealing as Pinocchio’s nose in showing that President Trump’s proclamation that this is the greatest American economy in history is blatantly false. The kindness of “strangers” like Japan and China have disappeared so there is no one in or out of the U.S. left to buy U.S. Treasuries especially with artificially low interest rates. What happened in the Repo market in September 2019 has since been papered over by the Fed’s counterfeit money creation that purchased Treasuries. But the shortage of savings persists and now the world is realizing the emperor is wearing no clothes. COVID-19 ripped the clothes off the emperor. His fraudulent money is rapidly losing its allure. He can’t print gold which is the only money in which the markets are signaling growing faith. Consequently, because of that, the outlook for gold and gold shares has never been more bullish since I began writing this letter in 1981.  

About Jay Taylor