Saturday, December 3, 2022

We Are All In The Same Boat And It Has A Massive Leak

The potential of a recession is not the problem, a deep inflationary depression should be a far greater concern. Higher interest rates combined with a tightening money supply, rising energy prices, the threat of war, and de-globalization create a toxic brew. Many of us argue we are already in a strong downturn and the statistics and data simply haven't caught up to where there reflect this. 

While we may deny it, we are all in the same boat and it is leaking. The debt we have seen growing has become a bubble. This is the consequence of governments continuing to print money rather than dealing with problems. It has become clear, if nothing else, we need to make better bad choices. Under the notion, we are all in the same boat and it has a massive leak many people may soon find the answer is not only to bail out those in trouble but to "bail in" or take money from those depositing money in banks to keep them afloat, but that is a story for another time. 

The ability of a country to achieve a soft economic landing by leveraging up like crazy is no longer available to most countries. This means expanding credit and pumping money into the system. Most countries have been there and already done that, In short, they no longer have that tool in their toolbox. Not only does every dollar or yuan of stimulus create less economic growth it feeds the inflation monster by debasing the currency. In short, the chickens are coming home to roost and a major distraction is needed to take our eyes off the situation that has developed.

Inflation is far worse than the CPI indicates. Here in America, the purpose of the consumer price index (CPI) is to reflect just how much inflation is eating into both our incomes and our savings. Since many people can't handle the truth, the government understates inflation by using a formula based on the concept that evolved during the first half of the 20th century that misleads us into thinking it will remain manageable. 

The Social Security Administration recently announced that due to inflation an 8.7% cost of living adjustment (COLA) would be given next year. This translates to an additional $140 per month for the average Social Security recipient. That goes on top of a substantial 5.9% COLA for 2022. The 2023 increase is the biggest in 40 years. Back in 1981 when the COLA was 11.2%. The increase will add around $100 billion of spending per year and at the same time increase the cost of the program.

As far as, how bad inflation or the coming economic situation is it going to get, it is hard to say. We should remember things often bend before they break, and sometimes they can bend a great deal while we deny just how close we are to them breaking. When you have idiots in charge making bad decisions and ignoring reality problems can rapidly accelerate. People that have studied this issue for years, even decades, such as Alasdair Macleod, head of Research for GoldMoney generally hold little in the way of answers for the common man. 

This is because the common man has little interest in overall economics other than getting by. Macleod attempts to educate the average person and advocates for sound money. He does this by attempting to demystify finance and economics. Macleod's accumulated experiences have convinced him that unsound monetary policies are the most destructive weapon governments use against the common man. This drives his mission to warn and educate the public in layman's terms about what governments do with money and how to protect themselves from the consequences. 

Many of us hold a view of financial devastation that may prove far more civilized than what may eventually unfold on the ground. In a recent video, he uses his background as a stockbroker, banker, and economist to give us some insight as to how bad decisions lead to horrible outcomes. Still, it is questionable how much his advice can help us when the financial system implodes. 

Then there is the idea held by the more ridged folk that gold is and will remain the only true money. This extends to the idea the "banksters" manipulate the price of gold to keep their fiat in play. This group claims that when all is said and done and the fiat system collapses, gold will return to its rightful role as money in the minds of the populace. It's just that most people think paper currency is money since they have never been taught the difference between currency and money. This is why "gold bugs" tout owning gold as the answer to economic survival.

It could be argued the ridged idea that gold is the only money is as outdated as the buggy-whip. Some of us prefer paid-for real estate or some other real asset over trying to hide gold that does not generate an income from the government and others that wish to steal from us. Often the one thing those of us suspicious of fiat currency do agree on is that staying away from paper promises and the stock market is very important. Part of our reasoning is that mega-cap companies are far from their 2020 lows and most likely stock markets have a long way to fall.

Such a fall would take its toll on the wealth effect furthering its shift into reverse. Consumer sentiment indicates the margins of consumer discretionary companies will be compressed going forward. Without a doubt, bank credit remains the backbone of lending across the world. Adding to our problems is that we live in a consumer-driven economy and once a consumer falls behind on payments it is a "bitch" getting back on track. Many people today do not have the money management skills or tenacity to dig their way out of a financial hole. Today, credit spreads have not yet moved to reflect the true risk of default.

Expect Financial Assets To Suffer Most From Defaults

Containing the swings between deflation and inflation is the test before us, this means walking the fence and not falling off either side. When the system is highly leveraged, as liquidity contracts, the potential of a debt crisis becomes overwhelming. Blame it on Putin, blame it on covid, blame it on climate change, blame it on Trump, blame it on Powell or Biden. Whatever and whoever those in power and the media choose to blame, one thing for certain and that is they will never blame themselves. The system is theirs to exploit not something to take responsibility for. 

At the same time, he highlights the risk we all face in the case of a debt crisis, Macleod explores what might happen if fiat currencies collapse. What is now being referred to as "Bretton Wood 2.0" would constitute a total reshaping of currencies and the financial system. This would be hashed out, decided upon, and forced upon us by those making the decisions, most likely behind closed doors. This would dictate how we move forward. Needless to say, this would or will carry with it a huge impact on society. Over the years as the financial sector in America and across the globe grew faster than manufacturing the world became overly credit dependent. This means that as credit and liquidity dry up, the rest of the economy will shrivel. 


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  1. This probably will end in an all out global war. Governments that have piled on debt for the last 50+ years are now coming to terms that the debt will never be repaid. It's like the person who has gotten into so much debt they have to hire an attorney to file for bankruptcy. The attorney will probably advise their client to max out the remaining credit cards on consumable items because bankruptcy will reset that final debt.

    The power structure around the world are coming to terms with this fact although they can't tell their citizens or there would be revolutions and governments overthrown. So those in power will do everything they can to stay in power. As such war has always been used as the "get out of jail card". Unfortunately, many countries now have access to Nukes which is why the MSM are now conditioning its people for a possible nuke war and that's never good.

    1. Rod, Thanks for the input, as always I appreciate the feedback. I'm afraid we are looking at inflate or default.

  2. Just wait till all the fertilizer shortages begin to work their way thru the system. The Dutch government has gone to war with its farmers in the Netherlands by wanting to ban fertilizer from farming. Now Germany is doing the same. This is all at the behest of Der Klaus Schwab who wants to rid the planet of climate change because according to him, fertilizer use is contributing to the problem.

    Once this continues throughout the EU, today's inflation will look like a small blip on the radar. We'll be lucky if we don't see massive civil unrest breaking out around the world because of massive starvation. The only way to feed 8Billion on this planet is because of industrial farming. And fertilizer use is a major ingredient in its operation.

    The Netherlands and Germany are being run by Klaus Schwab's protege's.

  3. Hello Bruce, you have benefited from the Fed's inflationary monetary policies, by owning real estate. Any investor who invested in stock market, bond market or real estate market in the last 30 years has seen their paper wealth grow 3x -10x. I can understand why you fear a change to the current Fiat System. But the Debt Based Fiat Monetary System was designed to fail.
    “Paper money eventually returns to its intrinsic value -- zero.”
    ~ Voltaire

    "Gold/Silver is Money everything else is Credit"
    JP Morgan

    The economic fundamentals donot apply, because any asset price can be manipulated using the leveraging power of
    the $2.3 Quadrillion Derivatives/Paper Market. This includes price suppression of Gold, Silver and Crypto Currencies. But God's Money Gold & Silver will return to its Sovereign place of above all other manmade fiat currencies.
    Central Banks are hoarding Gold & Silver, because they know a new monetary system is being implemented. Become your own central bank by owning tangible assets like Physical Silver. Silver is purposefully the most undervalued asset in the world.

    God Bless you & your family,


    1. Weston, thanks for the comment. I agree that silver is hugely undervalued. Sadly it does not generate wealth in the same way some other assets can. Two advantages it has over gold are that it can be used in smaller transactions and the government is less interested in swooping in and confiscating it.

  4. I think people are in general too pessimistic about the prospects of fiat money. The idea that the system is over indebted and that this condition must necesserily lead to a collapse of the system is in my opinion a fallacy which is the result of applying historical events to our present situation. I think government worldwide have many tools to prevent a possible collapse. The most important tool is the abolishment of paper and coin currency. The introduction of digital money means that money will exist only in the banking system. We as consumers will only be able to shift money from one account to another account but we will never be able to remove money from the banking system. The competition by gold and silver can be eliminated not by confiscation, but by extremely high taxes on any exchange of precious metals against legal tender. The Dollar will remain an important currency for decades simply because any competition by real assets will be eliminated. So if the monetary system is imposed upon us and if we can not withdraw money from the banking system, what choices do remain ? Paid for real estate is an illusion because taxes have to paid on every real estate holding. Taxes can go up significantly to the point that the holding of real estate may be unattractive (taxes and rent control). The advantage of gold is that this is an asset which can not be taxed for as long it is not being bought or sold.

    The greatest danger we are facing is not monetary collapse. All nuclear treaties between Russia and the US have been canceled (including the earliest one signed in 1963 by the US government and by the Soviet Union). So why canceling all these treaties ? In my opinion, the treaties are being canceled in order to prepare for nuclear war. Neither the US nor Russia can admit defeat. There is no negotiation between Russia and the US. So nuclear war is the only imaginable outcome.