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“Deflation,” and Why You Must Own Precious Metals – Now!

 -- Published: Friday, 14 March 2014 | Print  | Disqus 

By Andrew Hoffman

It’s Friday morning, and the prospect of the “sum of all fears” is creeping into the global consciousness. In other words, the “realization of reality” is – slowly but surely – taking hold, which is why, at the moment, even unprecedented doses of money printing, market manipulation, and propaganda are not working. Despite such efforts, global equity markets are plunging, precious metals are surging, and a general fear that 2008 was not the end, but the beginning, is relentlessly becoming a part of the public awareness. To understand this sea change in sentiment, which has been fostered by five years of the aforementioned “perception manipulation tools,” all one needs to do is view the headlines on the top MSM lackey, Yahoo! Finance; particularly today, as gold homes in on $1,400/oz.


This weekend could be a particularly troubling one, given that not only are the odds of a significant military confrontation in the Ukraine sky high, but Sunday’s Crimean referendum will likely result in a vote of confidence for Russian occupation. Such a result will not be tolerated by the U.S.-led Western bloc, which will certainly claim the election was fixed; and equally ominously, it appears Russia is equally interested in “annexing” the rest of Ukraine. John Kerry unabashedly claimed such offensives will not be tolerated; going so far as promising “serious steps” on Monday if the Crimean referendum passes. To that end, we cannot be more vehement in our warnings of how strategically important the Crimean peninsula is to America’s “cold war” posturing; and thus, as we wrote in “This is Why We Do What We Do,” we strongly warn you to consider the ramifications of escalating Ukrainian tensions in the coming weeks – or perhaps, days.

Of course, such “black swans” are not the cause of the world’s main problems, but the symptom. To that end, the principal reason Ukraine was plunged into the political and economic chaos that opened the door for Russian aggression was the inflation exported by Western central banks, particularly the Federal Reserve. Ironically, the Russian Ruble has been decimated as well; but in the big picture, its enormous energy reserves and gold holdings will protect it from what’s coming – as opposed to the U.S. and its Western cronies, who are net energy importers and long ago sold, leased, or swapped their gold into Eastern hands. Worse yet, the U.S. sold out its manufacturing capacity for the benefit of a handful of “elitists” – and so badly abused the privilege of issuing the “reserve currency,” its inevitable fall from grace will rival the most cataclysmic empire collapses in recorded history. It’s a mathematical certainty; and thus, the only question remaining is how long can this inevitability be delayed?

As for said cause, no nation is immune – as ALL have participated in the greatest Ponzi scheme ever perpetrated; i.e., the global fiat currency regime that commenced when Nixon reneged on the Bretton Woods agreement in 1971 – thus, abandoning the gold standard – whilst the entire world stood by and watched. The “elitists” heading the world’s leading nations saw the prospect of limitless near-term profits from this economic sacrilege; and thus, knowingly or not, sentenced billions to generations of inflation-generated misery – and in many cases, war.

Sadly, human nature is being displayed in all its selfish, unmerciful glory as the final stages of this horrific economic cataclysm play out. Central bankers have more power than at any time in history, as TBTF banks are rivaled only by defense contractors and healthcare conglomerates in supplying campaign contributions; and thus, have been afforded the ability to defend their own interests – at the expense of all others. That interest, of course, is inflation – which supports the (rigged) markets they invest in; devalues the astronomic debts they owe; and creates proletariat subservience – and dependency – that prevents the masses from challenging them. And thus, as they print their respective currencies into oblivion – as have Central bankers controlling the previous 599 failed fiat currencies – they are free to not only destroy the global standard of living, but lie about what they’re doing. And to a man, no such lie is more destructive – or prevalent – than that of “deflation.”

Yes, “deflation”; which as the Miles Franklin Blog has noted for years, has been horribly – and in many cases, purposefully – utilized as a red herring to justify Central bankers’ toxic printing presses. By definition, deflation refers to a contraction in the money supply – which NEVER occurs under fiat Ponzi schemes. However, not only do “economists” and politicians alike butcher this definition – by instead, referring to consumer price levels – but manipulate the reporting of consumer prices via accounting gimmicks like “hedonics,” “substitution,” and outright lying. And of course, they ALWAYS neglect to note that whilst luxuries – including home ownership – tend to decline in price during recessions, items we “need versus want” do not, so long as Central banks have the keys to the printing presses.

The most notable poster child of the “deflation scare” is Japan – which care of its expanding “demographic hell,” experienced what the rest of the world is witnessing today a decade earlier. To that end, in last month’s “Deadly Dollar Demographics,” we noted how America – and sadly, the vast majority of the Western world – is now entering the same death spiral as Japan; which, for the record, has been ranked as one of the most expensive nations to live in for the past 15 years. To wit, when populations are younger, they are more apt to participate in the financial bubbles created by fiat currency regimes – which inevitably crash, fostering long-term recessions that destroy the value of said “luxury items” – including equities – causing Central banks to attempt to “reflate” them via the printing press, in an endless spiral that simply begets more debt, higher interest rates, and ultimately, more money printing. Then, as populations age – and said inflation further reduces the ability for people to afford large families – they spend less, yielding intensified recessions; which in turn, creates the need for increased entitlements – funded by dramatically declining worker pools; and, of course, additional money printing to fund exponentially expanding shortfalls. All the while, the money printing disease creeps into an increasingly globalized economy, yielding soaring inflation and ultimately, economically deadly currency wars.

The nations where citizens spend the highest percentage of their incomes on food – i.e, the poorest ones – typically have the least ability to manipulate their currencies for near-term gain; and thus, are the first to experience the social unrest that ultimately leads to war. The case in point of this deadly cycle was the “Arab Spring” that commenced in late 2010; and now that global money printing has reached historic levels, this financial cancer is spreading like the Ebola virus. It should surprise no one that the so-called “Fragile Five” nations of India, Indonesia, Brazil, Turkey, and South Africa – where one quarter of the world’s population resides – are among the highest per capita food spenders in the world, at anywhere from 4x to 7x the amount spent in America. And thus, we assure you, anyone crazy enough to bandy the world “deflation” around such environs is putting their personal safety at grave risk.


Actually, the catalyst for today’s article was neither Japan – whose “misery index,” which measures the sum total of inflation and unemployment, just surged to a 33-year high; the Ukraine, which sits on the verge of war; nor the United States of Decay, which this morning reported plunging consumer confidence and its own “deflationary” PPI reading, just in time for Janet Yellen’s first FOMC meeting next week – to be discussed in greater detail on Monday. Although, frankly, I’m having a difficult time putting off the cataclysmic piece of data just published; i.e., that foreigners sold a RECORD $104 billion of Treasuries last week alone, setting the stage for increased QE later this year, as we have predicted all along.

Source: Zero Hedge

Instead, said catalyst was in fact Europe – which for some reason, has gotten a free pass in recent months, from both the MSM and financial community at large. Until recent weeks, its stock and sovereign bond markets have risen despite by far, the worst economic data sine the Eurozone and Euro Currency were formed 15 years ago; which, by inference, means key metrics such as unemployment, manufacturing output, and GDP growth have breached the lows seen in 2008’s Global Meltdown I and 2011’s Global Meltdown II. The unprecedented liquidity supplied by the Fed and central banks of the UK, Japan, and China – among others – has levitated European financial assets to historical levels of overvaluation; not to mention, the July 2012 promise by “Goldman Mario” Draghi that the ECB would do “whatever it takes” to save the Euro, and “believe me, it will be enough.”

Well, here we are 20 months later, and not only is Europe on the verge of economic collapse – which will occur exponentially faster if there is any type of disruption of Russian natural gas deliveries through the Ukraine – but the entire world appears headed for the same fate, potentially in 2014. The OMT, or “Outright Monetary Transaction” that Draghi proposed in 2012 as the ECB’s equivalent of QE has yet to be overtly launched; but as we recently wrote in “Draghi’s Reckoning Day,” it will inevitably be debuted – likely this year, particularly with the IMF breathing down the ECB’s neck, pleading for such measures to be taken to prevent a dreaded “deflation” from taking hold.

Draghi – and other ECB governors – have thus far managed to simply reduce interest rates down to 0.25%; but in recent weeks, have been increasingly vocal about their intention to utilize more draconian measures if “deflation” becomes a greater threat – such as negative deposit rates (i.e., “NIRP”) and outright debt monetization, via the OMT. To that end, record unemployment and flat GDP growth have now been joined by official CPI figures intimating a broadly expanding deflationary threat, despite the fact that energy and food prices remain persistently near all-time highs. Even the MSM has championed the IMF’s cause in recent weeks; and frankly, no article spreads such propaganda more thoroughly than one from the typical conservative UK Telegraph – in essence, joining the cacophony begging for the ECB’s printing presses to be turned up full tilt. When they are – and we assure you they will – the Euro’s recent surge to multi-year highs against the dollar will likely be rapidly erased; proving, once and for all, that it’s nearly impossible for the world’s two largest currencies to collapse against each other – while at the same time, proving amply how they can both collapse against items of real value such as gold and silver.

This week, George Soros claimed Europe faces 25 years of stagnation; and for once, I agree with him. Nigel Farage, a British member of the European Parliament who I deem the “Ron Paul of Europe,” says “the European dream is crumbling” – and we’ll take that a step further, predicting the Euro itself will inevitably fail. Perhaps the upcoming European Parliamentary elections – just two months away – will start this process in earnest; but irrespective, be prepared for said “deflation” to rapidly morph into a universally recognized, dramatic surge in consumer price inflation.

Anyhow, at midday Friday, U.S. stocks have again lost their early, PPT-fostered gains, whist PMs are surging anew. Gold is up – what a shock – by EXACTLY 1.0%; and as you can see below, the 10:00 AM EST “Cartel Herald” is desperately attempting to prevent a surge toward $1,400/oz to end the week. Silver is up 2%; and with PHYSICAL demand surging, as PHYSICAL supply plunges, it’s just a matter of time before the ridiculous, Cartel-created gold/silver ratio of 64:1 declines significantly.


Ultimately, all fiat currency regimes end in hyperinflation; and thus, when TPTB start creating “deflation” propaganda to justify further money printing, it should be your BLARING SIREN SIGNAL to protect assets with the only historical “anecdote” – i.e., PHYSICAL gold and silver.


Andrew C. Hoffman, CFA

Marketing Director

Miles Franklin Ltd.

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