Daily Market Update

Consequences of Ignoring Economic Reality Are Dangerous

“We can ignore reality, but we cannot ignore the consequences of ignoring reality…”


Source: Thequotepedia.com


Guest Post by Gary Christenson of  Deviant Investor

The western world has ignored economic realities for decades.

It’s not a Republican or Democratic problem. Banking, power, fiat currencies, dishonest money and transfers of wealth are the issues.

The consequences of ignoring reality are uncomfortable and dangerous. However, most people prefer palatable, easy to digest and believable stories.

In the United States, the U.K., Europe, and Japan it is comforting to believe:

  • Debt has increased exponentially for decades and for over 100 years in the US. We want to believe debt will grow for another century. (It won’t.)
  • Governments want to borrow, spend their way into prosperity, and pretend and extend indefinitely. (Not likely.)
  • It is comforting to believe our politicians and central bankers manage our countries and currencies for the benefit of the populace. (Don’t plan on it.)
  • Every major country uses a central bank. It is comforting to believe central banks are necessary. That delusion benefits the banking cartel and the political and financial elite.
  • It is comforting to believe gold is not necessary. Per Warren Buffett, we dig it from the ground and store it in a vault. Russians and Asians know its value and always want more.
  • It is comforting to believe in paper assets, debt based assets, fairy tales and the Easter Bunny. Gold, silver, platinum, land, and other real assets survive. Gold thrives, paper dies.

These comforting beliefs are incorrect and will be proven false in coming years.

The U.S. national debt has increased from about $3 billion in 1913 to over $21,000 billion ($21 trillion) in 2018. That is an average annual increase of about 8.8% per year. A similar debt increase for another 100 years will exceed $90,000 Trillion. Delusion!

  1. The crisis of 2008 hinted that “peak debt” had arrived. The Fed and other central banks responded by creating more debt and took credit for saving global economies. More debt is not a solution. The coming implosion will be destructive.
  2. Place one penny in a savings account at 6% annual interest and allow it to grow for 1,000 years. Your $0.01 has grown to a few hundred bucks—right? No! It has grown to $202,000,000,000,000,000,000,000. (Yes, the math is correct.)
  3. Compound interest rapidly increases debt. Debt will not increase forever and a reckoning will occur. What is the value of a 30 year bond yielding 3%, issued by an insolvent government that cannot pay the interest without going deeper into debt?

    CONSIDER:
  • Central Banks: Central banks and commercial banks produce paper and digital currency units that devalue all existing currency units. Central banks create profit for their owners and the financial and political elite. They are not beneficial for most people and small businesses.
  • Gold: The western financial and political elite claim gold is mostly useless. However gold has been money for thousands of years, is valued globally, and is convertible into paper and digital cash everywhere. An ounce of gold sold for about $42 in 1971 and sells for about $1,330 in March 2018 – a compounded annual increase of 7.6%.
  • Debt: The debt pyramid will crash and bonds and currencies will decline toward intrinsic value. Central banks will create more currency units to “paper over” the crisis and gold will increase in price as dollars devalue.

Ignoring Reality and the Consequences:

“We can ignore reality but we cannot ignore the consequences of ignoring reality.” The consequences are:

  • U.S. government spending and national debt growth are “out-of-control.” Expect continual dollar devaluation.
  • Based on Fed policies and government actions, the Fed can save either the dollar’s purchasing power or the bond market. Pick one!
  • Because an imploding bond market will destroy credit and the economy, expect the Fed to sacrifice the dollar, not the bond market.
  • However, the Fed and the U.S. government may kill all three – the stock market, bond market and dollar – in their delusional efforts to project military power and protect the banking cartel.
  • Gold and silver prices must increase as all fiat currencies devalue. Another country might back their currency with gold to prevent further devaluation. It won’t be the United States.
  • The cumulative damage from past economic delusions increases gold prices. The western financial world should be worried. Trouble, trauma, and a reckoning lie ahead.
  • Confidence in the dollar affects gold prices. When the dollar plummets, gold prices at $3,000, $5,000 and $10,000 will be sensible.

Which will have more purchasing power in ten years?

  • An ounce of gold or 14 one-hundred dollar bills?
  • An ounce of silver or a politician’s promise?
  • A ten year note for $10,000 purchased in 2018 that yields less than 3%, or 7 ounces of gold?

Courtesy of DeviantInvestor.com

 

News and Commentary

Gold gains on U.S. growth data with lingering Italy uncertainty (Reuters.com)

Gold settles higher on weaker dollar, edges down after Fed Beige Book (MarketWatch.com)

Italian Bonds Rebound Before Auction That’s Seen as Litmus Test (Bloomberg.com)

Global equities tumble, bullion hasn’t yet pushed higher (Bloomberg.com)

Signs of overheating in Irish economy, OECD warns (IrishTimes.com)

Italian Euro Exit May Have Moved A Little Bit Closer (MoneyWeek.com)

Europe banks ALERT: Turkey on brink of COLLAPSE as Lira PLUMMETS threatening Euro crisis (Express.co.uk)

Why The Eurozone And The Euro Are Both Doomed (ZeroHedge.com)

China and Russia Planning A Gold Backed Crypto Currency – Rickards (DailyReckoning.com)

Breaking down America’s worst long-term challenges: #1- Debt. (TheDailyBell.com)

 

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Gold Prices (LBMA AM)

30 May: USD 1,298.60, GBP 979.27 & EUR 1,119.26 per ounce
29 May: USD 1,302.05, GBP 983.83 & EUR 1,130.57 per ounce
25 May: USD 1,303.95, GBP 976.53 & EUR 1,113.70 per ounce
24 May: USD 1,296.35, GBP 967.73 & EUR 1,104.88 per ounce
23 May: USD 1,294.00, GBP 967.91 & EUR 1,102.88 per ounce
22 May: USD 1,293.90, GBP 961.24 & EUR 1,095.29 per ounce

Silver Prices (LBMA)

30 May: USD 16.37, GBP 12.33 & EUR 14.08 per ounce
29 May: USD 16.48, GBP 12.43 & EUR 14.26 per ounce
25 May: USD 16.67, GBP 12.49 & EUR 14.24 per ounce
24 May: USD 16.51, GBP 12.32 & EUR 14.09 per ounce
23 May: USD 16.53, GBP 12.38 & EUR 14.11 per ounce
22 May: USD 16.58, GBP 12.32 & EUR 14.04 per ounce


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Mark O'Byrne
Executive Director

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