The western welfare states (US, UK, EU etc.) have borrowed more digital currency than can be repaid at current values. The choices are:
Massive inflation: a bad choice
Default: an even worse choice
From Jim Rickards (Strategic Intelligence – Sept. 2016 issue):
“Given the nonsustainability of sovereign debt under current monetary regimes and the necessity for global inflation, there are three possible endgame scenarios facing us now.”
- “The first scenario is that central banks are finally successful in launching inflation …”
- The second scenario is a massive issuance of SDRs (Special Drawing Rights from the IMF) in the multitrillion-dollar equivalent range …”
- “… the third scenario is the nuclear gold option … last resort … central banks and the IMF would … peg the price of gold much higher …”
“What these three outcomes have in common is inflation… Inflation is another word for the destruction of the value of the U.S. dollar.” [emphasis mine]
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This is a FICTIONAL discussion regarding inflation between two western central bankers. It is purely speculation….
“The US economy is mired in a low inflation and outright deflationary swamp. What are we gonna’ do to pump up inflation?”
“And you think low inflation is real based on official inflation statistics that have been gimmicked to reduce cost-of-living raises and to make politicians look competent?”
“Of course! As a central banker I support pretend money, goofy economic policies, and officially managed statistics. That is my job.”
“Right! But back to inflation. Your kid is in college. Just as a test regarding the low inflation story what are tuition, fees, and the whole shebang costing you?”
“About $75k each year. What is your point?”
“My college back in ancient days cost less than $3k per year. You still think there is no inflation?”
“Good point. My neighbor bitched about a 27% increase in his health insurance for next year. Fortunately our health insurance is paid by the skim from the central banker game. Okay, I admit, there actually is inflation.”
“Exactly! The S&P was about 50 back in 1962 and now it is over 2,000. Housing costs have risen back to 2007 levels. Average rent is the highest in history. A new truck costs over $50k, college tuition is outrageous, the national debt is nearly $20 trillion, and military expenses are insanely high. Yes, there is inflation.”
“Speaking of military expenses, I saw that the US Army screwed up their accounting so badly they had to make a few trillion bucks in plug entries to balance their books. Probably military expenses are far higher than reported, just like inflation is worse than we realize for everything but crude oil. And even crude oil costs four times more than in 1998.”
“But the real elephant in the room, the real issue behind the phony inflation and deflation discussion is debt. Horror of horrors, what if half that debt defaults? I mean student loans are about $1.4 trillion and much of that balance is delinquent, sub-prime auto loans are another trillion and dangerous, consumer credit card debt is nearly a trillion, non-financial corporate debt is over five trillion, and the upcoming recession will kick much of that debt into default. A few defaults are no big deal, but central bankers and politicians have been figuratively hanged when massive defaults tanked employment and the economy. I like my cushy job, fancy office, humongous salary, and all the perks. We have to support the central banker game, keep the money flowing, minimize defaults, and crank up inflation.”
“So what is the big deal? Argentina and dozens of other countries have fed the inflation monster, so we can too. More inflation makes all that debt you’re so worried about much easier to service and it preserves our jobs, keeps the upper 1% wealthy and powerful, and gives the politicians cover for what they have planned.”
“So triple the money in circulation, double wages, make the debt more serviceable, and live happily ever after. We can do it! The trick is cranking up inflation but successfully blaming someone else – like China or Russia.”
“Bingo! Of course inflation screws a lot of people, especially the poor, but so what? We’ve been taking care of the wealthy and powerful for a long time, and we’ll continue to do so. The poor and middle class will have to take care of themselves.”
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CONCLUSIONS:
- Central banks continually devalue their currencies and always cause collateral damage from that devaluation, but central banks exist to facilitate the transfer of wealth from the masses to the wealthy and powerful, so that collateral damage has been inflicted upon the masses for over 100 years. Expect it to continue.
- Politicians and central bankers need and want more consumer price inflation. One good war will do the trick. Pick your poison – Russia, China, the Middle-East, South China Sea, or the Ukraine.
- Devaluation of fiat currencies is locked in – it is essential to the system. Hence consumer price inflation, over the long-term, is guaranteed. Gasoline prices may be low compared to two years ago, but most other prices are higher.
- Consumer price inflation is here to stay, unless central bankers and politicians choose to crash the system, default on $ trillions, and want to lose their jobs, perks, power and wealth. Don’t bet on that choice.
- Central bankers may be the cause of many of the ills in the world, but they own the politicians, so expect central bankers to remain powerful, wealthy, influential, and corrupt.
- Stocks are overpriced, bonds are in a bubble, and gold will be much higher in five years. Bet on consumer price inflation, continued devaluation of fiat currencies – all of them – and much higher gold and silver prices.
Stack gold, stack silver, and ignore the babble from Wall Street, the media, and all politicians.
Gary Christenson
The Deviant Investor
