Joe Biden, the newly elected US President is just about to face a number of issues that will be almost impossible to tackle. One of them is the looming financial bubble of 2021.
The social and political divisions in the US cannot be cured by optimistic calls for unity. Then there is the moral duty to do something about the covid19 pandemic. In addition, sooner rather than later the President will have to deal with the effects of the largest financial bubble ever in the history of the United States of America.
When I say the largest financial bubble ever I am dead serious about it. We are currently living in the largest financial bubble because it includes almost all available assets thanks to the Federal Reserve.
The Fed’s Irrational Policy
The Fed willingly encouraged investors to buy overpriced assets. Dealing with the Fed’s irrational policy will be a very difficult task. In fact, it will be of the same magnitude as the gold standard exit in the early 70s was, or dealing with the high inflation numbers in the early 80s.
It will take strong political action and a full review of the country’s monetary policy.
The ex-Fed president and now the US secretary of the treasury will not be much of a help. Mrs. Yellen walked the same path set by Allan Greenspan. Unfortunately, it wasn’t just her, all her predecessors did the same.
Alan Greenspan’s recipe during a crisis was to reduce interest rates and thus extend enormously Fed’s balance sheet.
Every time the Fed intervened to “help the economy” by just lowering interest rates, what it actually did was to set up the conditions for the current bubble and consequently the oncoming financial crisis.
Inflation Gradually Accelerates
Nonetheless, this game is now over. Inflation is slowly picking up and personal spending has risen 1,5% more than expected. Certainly, this is not much but in the middle of the covid19 pandemic that number gives us an indication that it will continue to rise.
The truth of the matter is that nobody paid any attention to these figures as everyone followed the GameStop media frenzy.
The Fed’s Money Printing
The Fed prints money nonstop. This way it finances a large chunk of the government deficit. The huge amount of money the Fed has created always finds a way to come out of the banking system. At the same time, there are extensive restrictions in the food chain, processing, manufacturing, and in-services.
Free Money is About to End
The oncoming inflation hike will force the Fed to tighten up its monetary policy. The Fed stretches out moves like that will be slow and take time. However, the markets always react before the Fed, especially in a crisis situation as fear takes over.
No matter which way you turn there are signs of a wild derailment. Most investment and market analysts see it coming, except the bankers. It is expected for most types of investments to lose money over the next years.
The Stock Market Bubble
When it comes to the index that really matters, the index that predicts real returns things do not look good. The US stock market is overpriced in fact, its value is similar to 1929, 2001, and just before the 2008 global financial crisis.
All stock market bubbles tend to keep up with fast credit expansion and the credit expansion we are seeing right now is not the exemption. Business debt compared to GDP has exploded over the last few years. One of the reasons for that was the large GDP drop.
In the past, when the stock market was facing difficulties investors had the opportunity to put their money in government bonds. Nowadays this is not viable. Government bonds in Europe and Japan tend to offer zero or negative interest rates. The return of the US bonds is 1,1% right now, which is poor.
It will also be a bad idea for the investor to buy private company debt. Private company debt is also not worth investing in. Their returns are at all-time historical lows. Even the high-risk bond returns have never been lower.
It looks like there will be a time when investors won’t find a place that offers decent returns to put their money.
The Fed Will Take Swift Action
When investors are about to face a financial crisis, the same goes for the Fed and the White House. The Fed’s duty will be to move carefully because nobody wants the markets to panic. If the markets should panic then, billions of dollars could be lost overnight.
Nevertheless, seeing the oncoming crisis and doing nothing to deal with it is not politically correct. Inflation has a negative impact. It affects the poor more than the rich. A development like that doesn’t do much for social justice, and the politicians will always step up and do something about it. Unfortunately, in most cases what they do doesn’t always work.
Many of you will disagree with me and there is nothing wrong with that. However, in the next few months, we are about to find out how big is the hole the Fed has created. How much it will damage the markets, the bank itself, the ordinary folk out there, and the US.
Final Words
All data indicates 2021 will be a very interesting year. The financial bubble build by the Fed will explode with huge implications on the economy and all investors.
When the world’s largest economy gets in trouble then the global economy suffers too. A US financial crisis will turn into a world financial crisis, with stock markets around the world crushing.
Most assets will suffer great losses except for gold and other precious metals. Many market analysts argue cryptocurrencies could also be a safe place to be during those times. I still think cryptos are too unstable but there is a belief that cryptos might attract funds.
Everybody knows gold is the safe haven during bad times. It always has been and it will always be. Every time there has been a crisis situation gold has been called upon to save the day and never disappointed. It always has been and it will always be.
Gold is a non-correlated-asset which means when all other mainstream assets take a downturn gold tends to move the opposite way and it actually sees its value grows.
Many people in the community are now wondering whether capitalism is still a healthy system, or whether it has changed for the worst, and whether capitalism faces its biggest crisis ever.
We are living in a world that can not survive without a constant budget deficit, can not survive without cash printing, can not survive without negative interest rates, there is something extremely rotten. In fact, we are living in a world that accumulates government and public debt, a world that gives us a false sense of fulfillment by spreading around worthless currency. Well, this world is not only rotten but also disgusting! Yes, it stinks of lies, deception as well as ethical decadence.
Capitalism Faces its Biggest Crisis Ever
Why does not anyone stands up to warn the community where we are heading? Well, for the straightforward reason that no politician can tell the truth. Since if they did, they wouldn’t be chosen. The principal function of any politician is to buy or obtain votes and as a result, they can never speak the fact.
Additionally, there are so many beneficial interests with endless rewards. The money men that regulate the monetary system have all to obtain, from developing false markets, false money, and false interest rates.
The Reality Never Dies
The Roman philosopher and also statesman Seneca said: “Veritas Nunquam Perit” (The Truth Never Perishes). That could very well hold however it can be suppressed for a very long time as we are seeing now all over the world.
Let us initially think about the greatest lie which is cash. For 5,000 years, the only genuine cash has been gold (and sometimes silver). Whenever the financial system has differed from that basic principle, by creating false money, it has finished in disaster for the world, whether that has been done with silver coins full of zinc or copper or by just printing paper money.
Complete Disaster of the Currency System to Follow
Which is where we are heading currently. A tragic course of events was triggered when Nixon closed the gold window on August 15th, 1971. Ever since international debt has taken off and also all money has imploded. Financial obligation, derivatives, and unfunded liabilities have gone from workable amounts in 1971 to over $2 quadrillion today. As well as every single money has shed 97-99% in actual terms.
We are currently at the point when we will certainly not be able to change the training course of either of the two. The environment is figured out by really long cycles that humans have no impact on. Now we just have to allow it to take its course which will be devastating for the whole world.
So why is nobody seeing what is taking place and why is nobody taking on the claim that the Emperor is completely naked?
The truth is unpleasant and painful yet it does never die.
It is an indisputable reality that essentially all the fiat cash that is printed by federal governments, central banks as well as commercial banks is pointless as well as for that reason incorrect.
If a federal government prints cash out of nothing to cover deficit spending, that cash has NO worth given since all the jobs needed to develop it was to push a button on a computer system.
We likewise recognize that the money has no worth because no financial institution or central financial institution is prepared to pay interest in deposit accounts. Instead, because cash is worthless, these bankers desire to be paid to hold the money. There is no reason to pay interest in worthless money.
There is an Abundance of Worthless Money
American Dollars
As well as when a financial institution receives a $1,000 down payment and after that lends out that very same cash 10 times or even more, that cash is likewise worthless, considering that it has set you back $0 to provide the funding.
It is the same with a credit card company, or car funding, they all concern counterfeit money developed by the touch of a switch.
For the ones who don’t recognize what this implies, let me describe it. Allow us to begin with the bubble’s possession. When the worldwide stock, property, and also various other bubble asset markets stand out, all these properties will certainly lose a minimum of 95% of their value in actual terms. The best way to calculate real terms is certainly gold because that is the only cash that has actually survived and also preserved its purchasing power for hundreds of years.
And also, if we take a look at the financial obligation bubble, global financial debt goes to the very least $270 trillion. Yet when the financial obligation bubble stands out, so will other liabilities like the $1.5 quadrillion of derivatives. So when the financial obligation bubble pops, basically all that fiat money ends up being entirely useless. No person can repay it as well as no one wants to acquire it.
Global Debt Chart
I recognize that the above two paragraphs are an extremely streamlined description of what will certainly take place over the coming years. However, this is the ugly truth.
These occasions will undoubtedly not take place in one go. They will certainly most probably begin with the securities market very first collapsing, which will certainly put pressure on credit score markets. A lot more QE will certainly adhere to yet that will just have a short-term impact. Even more collisions, even more, cash printing, the rising cost of living, devaluation, credit report defaults, company closures, and also bank defaults.
We had the first clear signals from numerous significant reserve banks, that something was rotten in the worldwide monetary system already in August, when the Fed, ECB, and BOJ all proclaimed that they would do what it requires to sustain the system.
Quantitative Easing and Money Printing the Same
In September the Fed launched overnight Repos of $75 billion boosts to $100 billion. They additionally took on two-week Repos of $ 30 billion rising to $60 billion. Adhering to that the Fed has now announced that they will certainly start QE of $60 billion each month. We should not call it QE according to the Fed. So allow us just call it money printing since that is what it is.
The President of the Minneapolis Fed stated: “This is not about changing the stance of monetary policy. This is about making sure markets are functioning. This is kind of just a plumbing issue.” He is right, it is a plumbing concern. However, the issue is that the economic system is leaking like a filter without the possibility of connecting all the openings.
Between the end of 2017 and also 2019 the Fed reduced its balance sheet by $700 billion from $4.5 trillion to $3.8 trillion. As always, the Fed has no idea whatsoever. The issue is that the system will not make it through with even more cash printing either.
Central Banks Introduced Unprecedented Economic Stimulus
The FED
The world’s largest central banks had no other option to fight the covid-19 caused crisis than to introduce further economic stimulus amounting to trillions of dollars. It was the Fed and the US government first with the ECB-European commission next, and all the other major western economies and central banks to follow.
Yes, the system is rotten and is currently starting to smell. The activities by the central banks specifically in the last couple of weeks smells of panic. The problem with JP Morgan or Financial Institution of America, the ECB, or possibly the Fed is supporting the bankrupt Deutsche Financial institution? We will most likely quickly learn where the greatest stress is.
On top of the bank issues, the company’s financial debt is obtaining riskier day by day. The financing of firms like We Work and Merlin, are clear indications of just how hazardous this market has ended up being.
Central banks are already trying to deal with the fires, most people are not aware these fires exist. There is a concern whether the central banks will be able to contain these fires or whether they will spread like wildfires.
The Decadence Started in 1971
US financial debt back in 1971 was $400 billion versus $26 trillion today, a “plain” 55x boost. US GDP was $1.2 trillion in 1971 versus $26 trillion today. A 55x boost in US financial debt in the last 48 years has just generated a 17x boost in GDP.
The US economy is in trouble which is not surprising because never-ending money printing of pointless paper money, can not create real growth and wealth whatsoever. Its only effect on the economy is to create the stock market bubble.
It is not just the US that is in this setting. Since taking away the gold support of the dollar in 1971, offered all countries an incentive to print money and increase credit.
The UK Example
I do keep in mind the beginning of the damage of money. Moving later on to the UK, I saw the pound collapsed against the Swiss Franc from CHF 10 in 1972 to Swiss Franc or CHF 1.20 today, an 88% loss of the extra pound.
A period of economic mismanagement and political turmoil in the UK in the 1970s started it all. The annual rising cost of living was 15-17% for 7 years and interest rates got to over 20%.
The economic system was moments from breaking down in 2008 throughout the Great Financial Dilemma. Eleven years later on, worldwide financial debt has doubled and danger has increased greatly.
Central lenders are conscious that the global economic situation is currently standing at a crossroads. The course was laid by them many decades back and now there is no way back.
The US and the Gold Standard
August 2020 remains in many ways comparable to August 1971. America was at that time behind-the-scenes. The country was under pressure after the costly Vietnam battle, as well as the gold standard, which stopped the United States from cheating the system by printing cash. The remainder of the world saw the US’s precarious situation as well as began marketing bucks. To recover their position, Nixon saw no other way than to take the buck off the gold standard, and this was the start of 50 years of global cash printing, and also credit score growth on a humongous scale.
Nixon-Elvis
Nixon’s August 1971 choice has brought about a dilemma of extraordinary proportions. Still, most people can see that we are currently at the point of “a final and also total catastrophe of the currency system included” as von Mises stated.
This August is not one solitary event like in 1971 yet a variety of very clear indicators that all reserve banks are worrying about. Every major reserve bank is currently revealing a level of concern that is extraordinary. They are all telling us that there will certainly be unrestricted money publishing incorporated with no or negative interest rates. This will certainly not clear up half a century of reckless monetary mismanagement.
What Nixon started will now be finished off by current governments as well as main lenders in the most magnificent money printing bonanza, leading to hyperinflation as well as a collapse of the economic system.
Until now, over 40% of worldwide bonds currently generate less than 1% and over $16 trillion well worth of bonds have an unfavorable interest or negative interest.
Negative Interest Policy is Insane
A negative rate of interest prices is of course complete insanity. It will certainly come to be also much more intriguing when home loan rates go to minus 25% so after a few years the financial obligation has been paid by the financial institution!
Us Rates to Decline Unless
95% of international bonds are now listed below the Federal Finances price. Since that rate is 2.5%, this is a short-lived scenario. US rates are likely to decline dramatically throughout the autumn to absolutely nothing unless the devastating results of the neverending money printing start to take place. That will cause a lower dollar and greater gold. US stocks will certainly decrease despite lower prices.
Lower rates are no longer seen by securities market financiers as helpful for markets as a sign of financial difficulty in advance.
Powel Trump and the US-China trade war
Fed Chief Powell simply stated that the “Economy is in a beneficial area”. You ask yourself where that area is, considering that there is nothing good regarding the United States economic climate currently. As well as it appears that Powell doesn’t think his very own words given that in the same breath he claims that there are “substantial threats”.
So the Tit for Tat video game between the US and also China proceeds and what is specific is that everybody is a loser in a trade battle. Trump won’t give in and neither will China. As they play their video games, the global economy will certainly suffer and so will a breakable global economic situation. Global trade is currently down and I am afraid things could get worse in the autumn.
Trump is most likely to win this video game over Powell. Trump has stated that rates need to drop by 1% now. Hence, we are assured to see a lot lower US rates and a rapidly falling buck throughout the fall.
Investors set to Suffer Big Losses
Regretfully 99% of investors will not understand that they need to be out of stocks and move into gold, till their wealth has been wiped out. All stock investors will believe that central banks will certainly support them once more. But as I have described over, this time support will certainly fall short as we begin a secular bear market in stocks, and the global economic crisis will last a very long time as well as lead to massive wide range destruction.
That the global economic situation for the last 100 years was reliant on credit scores as well as printed cash, is not a new miracle paradigm but a sign of a diseased system. The never-ending credit and the constant printing of worthless money are about to end. In a corrupt way, it is virtually paradoxical that the trigger for finishing this sick financial system would certainly be a pandemic disease.
Social Discontent and Anger to Come
Currently, the world remains in a situation when all of those aspects will possibly come to pass. We already have the recession and also we have a condition. There is no significant famine yet however, this is most likely to come. Social discontent and conflict are possible repercussions of these troubles. Starving and angry people will stand against their leaders as well as against the elite. The differences in income, as well as the huge gap that separates the wealthy and the poor, have created an illogical scenario. This is basically without exception just how every change starts.
There is a lot of anger in the community. People aren’t happy at all. They are wondering what on earth is going on with their taxes, they are wondering why the money they earn is never enough, they are wondering why social inequalities have increased, they are wondering where all this abundance of (fake) money is going, and so on.
The Money that does not Exist
Central banks and governments are currently printing limitless amounts of cash to help small and also big organizations as well as individuals. It is a program terrific in that every person gets aid, but no one asks where is the money coming from.
No one stresses that THERE IS NO CASH. The $ 100s of billions as well as trillions that are being provided to the needy do not exist. They are just produced out of thin air. Because the situation started in the very early autumn of 2019 with the Repos, the Fed’s balance sheet has increased by practically $3 trillion to $6.5 T. Yet this is just the start. The forecast is that it will get to $9T in June as well as possibly $12T a couple of months later on.
What we have to keep in mind is that this situation did not start now however, in 2006 when the Fed’s annual report was $800K. By 2012 it had gone to $3T. In the following few months, the equilibrium sheet will certainly blow up by 3-4x to $12T.
In the present year, the US can quickly get to a shortage in unwanted of $4T, taking the financial debt to $28T. If we just go back 3 months, who would certainly have thought a Fed equilibrium sheet reaching $12T as well as a US financial obligation of $28T? They don’t even do that because if they had, they would have known that the United States financial debt has doubled every 8 years because of 1981.
The United States is likely to have a debt of $40T in 2025 however, that number is most possibly a low number. Then we are going to see failings not simply in the economy but also in the financial system. That is the danger the economic system is currently facing as well, as we are currently in a stage when the surprises will be much even worse than anybody can think of.
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Back to the Future
It all began with private lenders taking control of the financial system in 1913 when they established the Fed for their very own benefit. For practically 60 years their power grew slowly however, then in 1971 when Nixon closed the gold window, all hell broke shed.
The United States currently begun what is currently 60 years of shortage investing. Every solitary year given that 1960, the United States is running at a loss. (deficit)
Because the main purpose of political leaders is to purchase votes, Nixon had no choice back in 1971. The United States had currently at that point been running a shortage for ten years. With a gold standard, it is necessary to run a sincere economic system without deficits. Or else you lose all your gold as well as the currency breaks down. Given that Nixon had no intent to run excess, he might not be connected by a gold requirement and also consequently abolished the gold backing of the dollar. The consequences were of course tragic as well as the dollar has actually fallen since.
Back then $33 could buy you an ounce of gold nowadays you need well over $1900. This is how much the dollar has depreciated.
Considering that the US began running deficits 60 years ago, total United States debt has actually gone from $800 billion to $26 trillion today. What we are seeing is a fantasy world all built on financial debt, federal, state, customer, home mortgage, car, trainee, and so on. The checklist is limitless just how to produce phony wealth simply based on the financial obligation.
US Debt Chart
The US is currently coming back to reality which will certainly be the biggest shock. The trillions of fake cash and fake assets will now implode and also so will certainly the US economy.
What the world has experienced in the last 100 years is fake capitalism. It more looks like Voodoo capitalism. Central bankers, led by the Fed, have successfully taken on Mayer Amschel Rothschild’s philosophy: “Permit me to issue and control the money of a nation, and I care not who makes its laws.”
By doing this, they have placed a spell on the international economic system as well as lumbering it with debt that might never be paid back. They are instrumental in developing a debt-plagued world economic situation as well as then they are the only ones who can come to the rescue and “save” it.
A debt-burdened world can never be saved by even more financial debt. Next, we will certainly see limitless cash printing that squashes money as well as leads to depressionary run-away inflation.
Inflation is on the Way
The reckless money printing by the Fed is expected to bring an inflation crisis. Analysts are convinced that unprecedented money printing could increase inflation substantially. That means your cash will lose value. For example, if you are planning to take a holiday to an exotic location with your retirement savings, chances are that you will not be able to afford it. You could probably end up at a cheap resort nearby.
Business Collapse and Unemployment.
Market bulls argue the market is already recovering. Shops are opening, factories are back in business, restaurants are opening too, stocks are holding up, and so on.
They are wrong. Unfortunately, unemployment levels are massive and still growing. Several airlines already declared bankruptcy. Some of them are Avianca from Colombia, Virgin Australia, Trans States airlines from the US, Compass airlines also from the US, and many others. Rolls Royce announced 9000 job losses in the UK, Nissan shuts down its Barcelona plant in Spain with 3000 redundancies, and another 25000 jobs indirectly threatened.
In the US the news is not good either. The country has lost 20,6 million jobs since mid-March, resulting in an unemployment rate of 14,7% a level not seen since the great depression in the 1930s. I am afraid, there will be more business collapse and more unemployed in the following months.
The recession is going to be bigger than the 2008 recession. It will take years for the world economy to recover not months or weeks. The numbers are already massive and still growing. As I just said, the economy is not going to be back to where it was within a year that’s for sure. So why is the stock market still high? What is that’s still driving equity prices? It is the Fed’s liquidity.
Stocks and Bonds set to Collapse
In genuine terms, all bubble possessions will now collapse. Actual terms indicate secure acquiring power and evaluate against gold. We will see supplies, bonds, and also residential or commercial property decline by 90-100% against gold. In nominal terms, stocks may go up at first with hyperinflation. That will just be imaginary gains.
Supplies worldwide dropped initially by around 40% and also have currently recouped half of that loss as stock capitalists have been buying the dips in the hope that central banks will certainly save them yet afterward. Yet they will certainly quickly have their next shock. Markets might begin their next leg down already in the coming week. Or it could take 2-3 weeks. What is clear is that a profane bearish market has begun which has a very long way to go.
Gold is Still Undervalued
For twenty years I have discussed the value of riches conservation in the form of physical gold. Throughout that time gold is up 6-7 times depending on which currency you rate it with. Still, much less than 0.5% of world economic possessions are in gold.
Gold is still exceptionally undervalued regarding the growth of the international cash supply. It is still possible to obtain gold, yet the physical market is under real pressure.
This is an outrageous circumstance that will not last long. Both the Comex and the LBMA are under huge pressure which quickly will lead to substantial distribution problems and also a significant cost squeeze. The home window of opportunity to acquire physical gold at current costs will soon close.
Keep in mind that gold is actual physical wealth in addition to an insurance policy against a monetary system that is unlikely to make it through. Gold can still be bought with miscalculated fiat cash at prices significantly below its genuine value, however, not for too long.
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End of June 2020 and the western world is trying to recover from the covid-19 lockdown. How much is the damage caused by the coronavirus and how this economic shutdown will affect the markets remains to be seen. Is there going to be a quick recovery, or there will be a recession? Where should I invest my savings now? Investing in gold now in July 2020 could be a good move.
Stock Market is Inflated
When the market crashes you get a W move. Very rarely you will get a V move and yet, if we look at the economic numbers, they are catastrophic, but we are back to all-time highs. There has to be a reason for that and there is.
The central banks, Fed, ECB, and Asian banks have been pumping vast amounts of credit into the economy. That is what is pushing up equities. The market is telling us these market highs are due to a large amount of inflation, caused by liquidity the central banks have created. It is not the market rising, it is the value of money forming.
50% Inflation for the Next 5 Years
The only reason stocks are so high is because inflation is coming. If inflation is on the way, where do you put your money? Many investors and financial experts say gold and rightly so. Most investors are small, they do not own large amounts of credit. However, billionaires, fund managers, and so on only have one place to put their money to get away from inflation and that place is equities.
We are seen equities so high because the central banks have baked in a 50% or maybe 100% rise in inflation over the next four to five years. In other words, the big money is trying to protect themselves from that inflation by going into equities which by definition will rise from inflation.
If you believe there will be deflation, all you have to do is to hold on to your cash. If you think inflation is on the way, cash is not useful because it will lose value. The Fed believes there is a strong possibility for a 50% to 100% increase in inflation over the next three to four years. That is a huge number and it will affect everyone. For example, if you are planning to take a holiday to an exotic location with your retirement fund, you will not be able to afford it. You will probably take a holiday to a cheap resort nearby. In a few words, your purchasing power will drop substantially.
Market bulls argue the market is already recovering. Shops are opening, factories are back in business, restaurants are opening too, stocks are holding up, and so on.
They are totally wrong. Unfortunately, unemployment levels are massive and still growing. Several airlines already declared bankruptcy. Some of them are Avianca from Colombia, Virgin Australia, Trans States airlines from the US, Compass airlines also from the US, and many others. Rolls Royce announced 9000 job losses in the UK, Nissan shuts down its Barcelona plant in Spain with 3000 redundancies and another 25000 jobs indirectly threatened.
In the US the news is not good either. The country has lost 20,6 million jobs since mid-March, resulting in an unemployment rate of 14,7% a level not seen since the great depression in the 1930s. I am afraid, there will be more business collapse and more unemployed in the following months.
The recession is going to be bigger than the 2008 recession. It will take years for the world economy to recover not months or weeks. The numbers are already massive and still growing. As I just said, the economy is not going to be back to where it was within a year that’s for sure. So why is the stock market still high? What is that’s still driving equity prices? It is the Fed’s liquidity.
Everyone is Printing Massive Amounts of Money
The Fed and its proxies are doing it one way or the other. They are squeezing people out of the bond market and indirectly, by enabling certain parties to buy equities, to support the market, and to support liquidity.
It is important to support equity prices because that supports employment, it supports the middle class and it also supports the rich. In addition, it is also important to support the property market because it supports the middle class.
If you let stocks, bonds, and property go down you will have an economic collapse. Anyhow, we already have economic collapse and this is called unemployment. The Fed and the government are propping up the rest of the economy by printing money, which is exactly what governments did for hundreds of years, to deal with similar issues. Pumping money into the economy and in the end creating inflation. In fact, inflation has always been the end result.
Inflation isn’t going to be a US economic issue. It will be a world economic issue as the rest of the world is also printing and pumping money into their economies. For example, the Europeans have decided to pump almost 3 trillion euros to aid their economies.
Covid-19 is Coming Back
I am afraid our covid-19 struggle isn’t over yet. There is already the second wave in the US and the markets are already distressed. From 18,000 infections a day a week ago, we are now to a record 40,000 infections a day. That will add more strain to the weak economy, as there will be an extension to lock down in many states across America.
Nonetheless, there is not going to be a second lockdown, not in the States and not in the rest of the world. The reason for that is because nobody can afford it. A second lockdown will take us back to the stone age. Western democracy cannot operate with lockdowns, as lockdowns diminish tax revenue. The state cannot support its social policies. (welfare, education, public housing, health, and so on.)
Support the Real Economy
Every time countries cannot raise tax money, they print it and that leads to inflation. The Fed will argue that a 50% inflation over 5 years is nothing to the economic meltdown that was coming and that is partially correct.
I would argue that the Fed shouldn’t be throwing billions of dollars into stocks. Last week the Fed injected over $60 billion into the markets. That is a massive amount of money to spend in a week’s time. There will be a time when easy money for equities will not be around and then equities will take a dramatic downturn. Supporting the stocks is vital, but only up to a point. What is more important is to support the real economy out there. The real economy is real jobs, real growth, and prosperity for everyone.
The Fed will continue to print money throughout the year and this will continue for 2021. The Fed also will not raise interest rates for the next couple of years as their quantitative easing policy is well on track.
Gold Offers Stability and Growth
Volatility is the new reality for the market. At this time gold and silver can offer, stability, protection, and growth. Gold has always had a strong second half of the year. We’ve seen it over and over again for gold, to finish the year with a good rise. The yellow metal is expected to move higher. It is already building nicely at the moment but I do not expect gold to get over the $2000 mark this year. Gold is expected to do well in 2021 as well. Beware though, usually gold is weak before any elections, we might see gold slowing down in Autumn.
Geopolitical tensions always give gold a boost. The Chinese Indian border clashes, the North Koreans are back and Turkish ambitions in the Mediterranean sea could drive gold’s price further. I would also like to mention silver. At the moment I consider silver a good investment.
Moreover, I would like to mention bitcoin. For me, bitcoin is digital gold. You can buy it fast and sell it fast and you can have it in cold storage virtually in your basement.
Final Words
Credit expansion and monetary stimulus are driving the market into new highs even though, we are in the middle of a covid -19 caused recession. We are seeing the stock-market not follow the economic downturn. The market is now addicted to never-ending credit, is asking for more and getting it. Inflation is coming, we expect at least 50% inflation for the next 4 to 5 years. But, there will be a time when easy money runs out and then, things could get ugly.
A prudent down to earth investor always has a percentage of his portfolio invested in gold to protect his savings from inflation, economic crisis geopolitical tensions, and so on. In these uncertain times, gold is a good bet to safeguard your life savings from the economic recession.
Is bitcoin a big bubble ready to burst or not? Will bitcoin crash or not? Many people will argue bitcoin has a long way to go and many others will tell you that bitcoin is overvalued. Here is what I think about bitcoin.
Will Bitcoin Crash?
I am skeptical about bitcoin. Criminals, tax evaders, money launderers, and even terrorists will always find some use for it. I am also worried about the price transactions, I think fraud is there. The bitcoin market is unregulated and as a result, it is open to price manipulation. On the other side, gold, silver, stocks, bonds, etc. have all been subject to price manipulation and that’s why the SEC and the stock exchange are regulated.
Bitcoin Market Manipulation-Fraud
Is bitcoin the only market in history that’s not manipulated? No, it is definitely not. Bitcoin’s unregulated trade is actually a magnet for all manipulators. It only takes a few people to manipulate the market. This can be done when these people buy and sell between them bitcoins several times, back and forth. This will cause the price of bitcoin to increase. This process is called “painting the tape“. It is a well-known practice and it is illegal. When it comes to bitcoin trading, this practice is not illegal!
Bitcoin and other cryptocurrencies are closely associated with ICOs. (Initial Coin Offering). Most of them are based in Switzerland in the city of Zug, also called the crypto valley. The reason they are there is that in Switzerland ICOs are not considered securities but assets. As a result, they do not have to go through additional regulatory hurdles in order to protect the investors.
The US Securities and Exchange Commission has warned investors to beware of scammers using ICOs. The European Securities and Markets Authority, also notes high risks and the risk of investors losing their money.
Hackers Could Steal Your Bitcoins
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The Mt. Gox experience is a fine example of what I am talking about. Mt Gox, was the largest bitcoin exchange until 850.000 bitcoins were stolen by hackers, valued at 450 million US dollars. That led Mt Gox to collapse with investors losing their money. Bitfinex was also hacked with total damage of 72 million dollars which was also taken from the investors.
Bitcoin Mining Costs
Electricity is the number one cost for bitcoin miners. By the end of 2017, bitcoin miners consumed as much electricity as Nigeria, a country of 90 million people. If that continues, soon they will be using the same amount of electricity as Japan, the third economy in the world.
This is not going to happen. They will not let them do it because we don’t have the resources. This applies to all cryptocurrency mining. When electricity becomes an issue, miners will have to reduce the output and thus limit their profits. In that case, they will not be interested in mining bitcoins anymore. Who will then validate the blockchain? Are they going to charge fees? Banks charge fees. At the end of the day, all bitcoin advantages will be gone.
Bitcoin’s Performance in a Crisis Situation
Bitcoin is like a currency. People accept money and now bitcoin as a form of exchange, not only as an investment. Bitcoin is like a currency. People accept money as a form of exchange because they have faith in the value of the paper money they are holding in their hands. it took thousands of years for people to trust and have faith in a piece of paper. This is not the case with bitcoin.
When people lose faith in bitcoin there will be no return. There is a large sum of money in the world the US dollar, the Euro, gold, bitcoin, Yen, and many others. All these currencies have been around for decades and some of them for hundreds and thousands of years.
This is not the case with bitcoin. Bitcoin was born in 2009. We do not know how it will perform during a financial crisis. In fact, it hasn’t seen a financial crisis at all. Investors do know how all assets (gold, stocks, bonds, silver, real estate) performed in a panic situation. With bitcoin, we have no idea how it will perform when a panic situation occurs and that is a big issue.
Its price could skyrocket or diminish, leaving millions of people penniless.
Conclusion
Many people have made money with bitcoin, and I am talking about a lot of money. At the same time, the Mt Gox investors lost large sums of money. In my humble opinion, there are too many risks involved in bitcoin or any other crypto-currency. The Fraud issue is by far the most important issue for me. It is something that cannot be overlooked.
No, I do not like Bitcoin or any other cryptocurrency the risks are too many and I would not exchange my hard-earned dollars for Bitcoins.
