What Everyone Wants to Ignore

My brother in California sent this out to his "circle of friends" list, so I thought I'd share it here. Most who hear about this either don't understand what's going on because finance isn't taught in school anymore, or, if they do, their eyes gloss over when hearing this news because it's so frustrating, or they don't want to hear bad news. This attitude will be their demise when the "smelly stuff hits the fan".

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The below is from Jim Rickards’ Strategic Intelligence.  Our country is not far from a financial implosion.  Read below.  I’m using most of my financial assets to buy physical gold and silver.  You might want to consider protecting your assets by doing the same.

IV. Debt-Financed Growth Works Until It Doesn’t. We’re Now in the Red Zone

John Maynard Keynes was famous for the idea that in a liquidity trap where individuals and companies refused to spend or invest and hoarded cash, it was the responsibility of government to stimulate the economy by deficit spending. Keynes’ ideas have some merit in a situation where the government is not heavily indebted to begin with and where the economy is in a severe recession or the early stages of a recovery. Keynes died in 1946, but his ideas lived on. The problem was that “deficit spending” became an all-purpose excuse for more government entitlements rather than the limited recession remedy Keynes envisioned. The U.S. has only had three modest surplus years in the past 50 years; the other 47 years were all deficits. The U.S. national debt now stands at $21 trillion (not including guarantees and entitlement liabilities) and the debt-to-GDP ratio now stands at 106% (the highest since 1945). Worse yet, the U.S. is past the point where debt creates any growth at all. The U.S. is in a zone where more debt actually hurts growth and slows the economy, while the debt remains. This article reports on the return of $1 trillion annual deficits under Donald Trump for the first time since the early years of the Obama administration. Both Republicans and Democrats embrace crude versions of Keynes’ original ideas without regard to the fact that there is no stimulus in current conditions and additional debt risks a complete loss of confidence in the U.S. government’s finances and the role of the dollar. If Keynes were alive today, he’d be the first one to object to such out-of-control spending and profligate debt levels. You can lodge your own objection by getting out of risky assets and into a combination of liquid assets and safe havens such as gold.

V. The Fed Could Not Escape the Room. Now We’re Stuck. Got Gold?

An 11-year monetary experiment is coming to an end in failure. No one knows what happens next, but the need to position portfolios to preserve wealth has never been greater. The experiment began in the midst of the financial panic of 2008 when the Fed began printing money under a program called “quantitative easing,” or QE. This first program lasted until June 2010. After a pause, the Fed began a new program of money printing called QE2 in November 2010, which lasted until July 2011. The Fed then took another pause, but the economy weakened so a new program called QE3 started in September 2012, which lasted until October 2014. All told, the QE programs expanded the Fed’s balance sheet from $800 billion to $4.5 trillion. At the same time, the Fed held interest rates at zero from December 2008 to December 2015. It has raised rates to 2.5% since. The benefits of money printing and zero rates are still under debate. But beginning in December 2015 with the first rate hike in nine years and in October 2017 with the first balance sheet reductions since the crisis, the Fed began to “normalize” interest rates and balance sheet to prepare for the next recession. The goal was to get rates up to 4% and get the balance sheet down to $2.5 billion in time to fight a recession. The conundrum was whether the Fed could normalize without causing the recession they were preparing to fight. According to this article and recent remarks by Fed Chair Jay Powell, it appears the answer is no. The Fed will pause in its interest rate hikes in March and may also slow the rate of balance sheet reductions in the near future. This is in response to a slowing U.S. economy and slowing global growth. The Fed cannot normalize without causing a recession, which means it cannot prepare for the next recession. The Fed is stymied and cannot escape the room. The only way out is inflation. Investors should prepare accordingly.