With Biden in The White House and Yellen at Treasury, Do You Own Enough Gold?
Twitter provides some wonderful juxtapositions. This morning noted investor Dougie Kass tweeted “Hot rumor. Yellen as Treasury Secretary.” Directly underneath on my feed was Real Vision’s Ed Harrison with “Gold is getting crushed today. No appetite for an inflation trade?”
Indeed, the yellow metal is getting hammered, down $88 as I write. However, Mr. Kass’s hot rumor would indicate the shape of things to come. The famously too-short-for-Donald Trump Janet Yellen was Federal Reserve Chair from 2014 to 2018. In 2017, then-Madam Chair said, "Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we're much safer and I hope that it will not be in our lifetimes and I don't believe it will be." Whoops.
I quoted John Hussman that same year, “One thing should be clear: policy makers have not become ‘smarter.’ What they have become, with each bubble-crash cycle, is more reckless and arrogant in their willingness to extend speculative financial conditions by encouraging yield-seeking, compressing prospective future investment returns, amplifying the destructive consequences that inevitably result, and ironically, using those same consequences to justify fresh intervention.”
Hussman wrote on July 31 [2017], of “Hot Potatoes and Dutch Tulips.” The Fed creation of zero interest base money reserves which created “pressure to chase stocks, junk debt, anything to get rid of these yield-free hot potatoes. That didn’t stimulate more real, productive investment; it just created more investors who were frustrated with zero returns, because someone had to hold that base money, and in aggregate, all of them had to hold over $4 trillion of the stuff at every moment in time.”
Ms. Yellen lost her job, but Jerome Powell picked up where she left off. Today, the DJIA is soaring 1,265 points and approaching 30,000. And again, the short-sighted are selling gold.
Late last month, global investment strategist Kiril Sokoloff sat down with Real Vision’s Raoul Pal and discussed why he believes the bull market for precious metals is only in its third or fourth inning.
Mr. Sokoloff warmed the hearts of Austrian economics followers with,
Ludwig von Mises explained it very well. He said there are only two ways to end a credit filled room. One is you withdraw the credit. The Fed tried that with QT, but there was not the stomach or the tenacity to hold. He said the other is the full-fledged and utter debasement of currency. We have the combination of highest debt levels in history. America's debt to GDP this year, by the end of the year, certainly will be highest in history, exceeding that of World War II. Of course, it is going to get worse and worse, these deficits are not going to go away. There is no other way to deal with the problem other than inflating it away.
Sokoloff went on to further make his case. Debt deflation is not something that’s politically tolerable. COVID-19 has not gone away and something we don’t hear much about, “horrible demographics, which we have this decade, which is the worst, certainly in 500 years, when the adult working population in the developed world is retiring between 7% and 12%.”
He cited Lacy Hunt’s view, “the more debt you add, the less productive the debt is, and the less productive the debt is, the money velocity then is unstable, and it declines. It just feeds on itself, that the productivity of more borrowing, and the productivity of more monetary easing is getting less and less effective.”
With Yellen at the Treasury, there is no doubt America’s pile of debt will only grow.
Mr. Pal made the point “My thoughts on that are even if we get a deflationary pulse, let us say the asset bubble bursts, the only answer from the central banks is more...I think, this setup because with rates at zero, yes, they could go negative and I think they probably do, but either way, that is good for gold. Even in deflation, because the central banks can only do more, it is the only option they have got.”
To which Sokoloff replied, “That is exactly right...Buy Gold Before Central Banks Reflate. What we are doing is here, we are just anticipating what their actions are going to be. It is going to be the worse things get, the more they are going to have to do. There are so few people who own enough gold.”
Think about it; with Joe Biden in the White House, Janet Yellen at Treasury and Jerome Powell at the Eccles Building, do you own enough gold?
