{"id":20795,"date":"2020-07-17T16:07:48","date_gmt":"2020-07-17T20:07:48","guid":{"rendered":"http:\/\/stateofthenation.co\/?p=20795"},"modified":"2020-07-17T16:08:28","modified_gmt":"2020-07-17T20:08:28","slug":"the-express-train-to-insolvency","status":"publish","type":"post","link":"http:\/\/stateofthenation.co\/?p=20795","title":{"rendered":"The Express Train to Insolvency"},"content":{"rendered":"

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Miles Franklin<\/em><\/a>\u00a0sponsored this article by Gary Christenson. The opinions are his and are not investment advice.<\/em><\/div>\n
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Breaking News:<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Gold reached $1,800, close to its all-time high of $1,923.<\/div>\n
\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Silver reached $19, a long way from its high of $50.<\/div>\n
\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0The NASDAQ hit another new high.<\/div>\n
\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Tesla closed on July 10 at $1,544, a new high. Tesla looked outrageously high at $1,200. Now the bubble has blown even larger.<\/div>\n
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Wolf Street<\/a>\u00a0divides the stock market into the \u201cGiant 5\u201d (Apple, Microsoft, Amazon, Alphabet, and Facebook \u2013 total market cap = $6.6 trillion) and the remaining Wilshire 3,410 stocks. The Dow hit a post-crash high on June 8, and is lower as of July 10. But the \u201cGiant 5\u201d have surged 14% since June 8. The Wilshire 5000 minus the \u201cGiant 5\u201d is down 10.9% since the February peak. Those five tech stocks caused the bubble and the new NASDAQ highs. Look out below when they crash. Examine Tesla. Does the stock price suggest a bubble?<\/div>\n
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We have begun a long and perilous journey toward currency failures, insolvency, higher consumer prices, stagflation, and eventual loss of dollar reserve currency status. Read:A Long and Perilous Journey<\/a>.<\/div>\n
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A Brief Review:<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Central banks created, via computer entries, well over $20 trillion in new currency units. This should encourage us to question the value of those newly created currency units. Call them fake money.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0The U.S. government spends more than its revenues every year and borrows the shortfall. Official national debt on January 1, 2009 was $11.1 trillion. On January 1, 2017 it stood at $19.8 trillion. As of mid-July 2020, debt has \u201cblown out\u201d to $26.5 trillion, up $4.5 trillion in the last 12 months.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Interest rates have fallen to multi-decade lows because the Fed buys bonds and supports the bond markets. Without Fed support, interest rates would be higher, and the government would be less able to deficit spend in the $ trillions.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0The Fed is monetizing U.S. government debt, a risky practice. The government deems it necessary to spend, given the COVID-19 shutdown, huge unemployment, many insolvent corporations, skyrocketing bankruptcies, election year politics, current recession\/depression, and the need to buy votes.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Necessary or not, excessive spending has consequences. The U.S. has entered the era of MMT\u2014Modern Monetary Theory or Magic Money Tree economics, in which debt hardly matters. Call it QE4ever or \u201cInflate or Die\u201d currency creation. Call it insanity or nonsense.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0The Fed has forced everyone to drink their Kool-Aid. This \u201cQE4ever Kool-Aid\u201d is poisonous to the lower 90% of Americans. The wealth of the top 1% has jumped because of the lockdown and QE4ever, but the financial security of the lower 90% is down hard.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0The quantity and quality of coming fiscal and monetary nonsense should worry every thinking individual who wishes to protect his savings, purchasing power, and retirement funds. (Do you own enough gold?)<\/div>\n
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The Fed is monetizing government debt, a sign of trouble to come. What other programs could government and the Fed initiate that accelerate the journey to national insolvency?<\/div>\n
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a)\u00a0\u00a0MMT creation – $ trillions more debt each year.<\/div>\n
b)\u00a0\u00a0Universal Basic Income\u2014income for all, work not required.<\/div>\n
c)\u00a0\u00a0Reparations to your favorite groups. Where will it end?<\/div>\n
d)\u00a0\u00a0Stimulus programs, boondoggles, and payoffs.<\/div>\n
e)\u00a0\u00a0Expanded Medicare, Medicaid, Student loan forgiveness.<\/div>\n
f)\u00a0\u00a0\u00a0\u00a0Enlarged wars. A new war.<\/div>\n
g)\u00a0\u00a0Pension plan bailouts for cities and states.<\/div>\n
h)\u00a0\u00a0Bailouts for politically connected corporations, cities, and states.<\/div>\n
i)\u00a0\u00a0\u00a0\u00a0When will it end?<\/div>\n
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Riding the Fantasy Express Train toward Insolvency and Dollar Collapse<\/div>\n
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Speculating on fiscal and monetary nonsense during the next two years\u2026<\/div>\n
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a)\u00a0\u00a0\u00a0The U.S. has 40+ million newly unemployed workers. They need currency units to pay for rent, mortgages, credit card bills, student loans, and\u2026 food. Assume they need $25,000 in government handouts during the next year.\u00a0That is $1 trillion.<\/div>\n
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b)\u00a0\u00a0\u00a0Student Loans: Assume $500 billion in defaults, less than one-third of outstanding loans. If former students aren\u2019t working, they won\u2019t be repaying loans.\u00a0Add half a $ trillion.<\/div>\n
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c)\u00a0\u00a0\u00a0Bailouts for city and state pension plans. New York, Chicago, New Jersey, Illinois, and California come to mind.\u00a0Assume $3 trillion of fake money will be needed.<\/div>\n
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d)\u00a0\u00a0\u00a0Bailout Wall Street. Estimate\u00a0another $3 trillion\u00a0to keep the upper 1% happy.<\/div>\n
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e)\u00a0\u00a0\u00a0Bailout large corporations, even though they bought back over $4 trillion in stock in the past decade. Assume they\u00a0need $3 trillion. The currency units are free, so add more as needed.<\/div>\n
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f)\u00a0\u00a0\u00a0\u00a0\u00a0Well over 100,000 businesses have (or will be) closed forever. That means more unemployment, lost sales taxes, and other revenue shortfalls. Estimate\u00a0another $ trillion\u00a0or so to bailout politically connected businesses.<\/div>\n
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g)\u00a0\u00a0\u00a0Free checks to citizens, illegal aliens, dead people, and others. Government has spent $2 or $3 trillion. Assume they will distribute\u00a0another $3 trillion\u00a0to individuals. It might discourage rioting.<\/div>\n
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h)\u00a0\u00a0\u00a0Toss in\u00a0another $2 trillion\u00a0for miscellaneous. The Fed is \u201cprinting\u201d so why not?<\/div>\n
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Total of the above is $16.5 trillion. It\u2019s free, so round up to $17 trillion in excess spending and new debt during the next twenty-four months. The era of fiscal and monetary nonsense proceeds.<\/div>\n
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Total official national debt is $26.5 trillion. Add another $17 trillion of fantasy bailouts and the debt exceeds $43 trillion by the end of 2022.\u00a0Assume $3 to $4 trillion in added debt for 2023\u20142024 and the official debt has jumped to $50 trillion in Fantasyland.\u00a0Those new fake dollars will devalue existing dollars. Maybe it will take a few extra years to arrive at $50 trillion in national debt. With MMT it doesn\u2019t matter\u2026 or does it?<\/div>\n
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Official U.S. government gold reserves (Remember –\u00a0\u00a0Fantasyland) are 260 million ounces. If (supposed) U.S. gold bullion backed the national debt, the price of gold in Fantasyland in 2024 could be $200,000 per ounce.<\/div>\n
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Gold at $2,000 looks tiny compared to $200,000 per ounce, or $26.5 trillion in current debt, or $50 trillion in future debt.<\/div>\n
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Back to the world of The Fed, deficit spending, and politics:<\/div>\n
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Second Order Consequences:<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Debt increases, currency in circulation rises, dollars devalue in purchasing power and assets rise in price. Example: the NASDAQ hit a new-all time high this week. The S&P 500 Index, Apple stock (market cap = $1.6 trillion), Tesla stock, gold, and silver will rise (erratically) as the era of fiscal and monetary nonsense unfolds.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Apple stock sold for $11 in 2009, and closed at $383 on July 10, up 34 times.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0The S&P 500 Index was 667 in March 2009 and closed at 3,185 on July 10, up 4.8 times.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0COMEX silver sold for $9 in October 2008, and for $19.08 on July 10, up 2.1 times. Apple stock, boosted by QE, was a better investment\u2026 so far.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0COMEX gold sold for $700 in October 2008 and for $1,801 on July 10, up 2.6 times.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Those extra dollars created by the Fed and other central banks have boosted the price of tech stocks more than prices for gold and silver.\u00a0Expect gold and silver to rally more than tech stocks during this era of fiscal and monetary nonsense.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Consider the ratio of ten times gold to the DOW Index. Gold is inexpensive compared to the inflated price for the DOW stocks.<\/div>\n<\/div>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n
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From Doug Kass<\/a>:<\/div>\n
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\u201cSeveral key labor-intensive industries \u2013 education, lodging, entertainment (Broadway events, concerts, movie theaters, sporting events), restaurant, travel, retail, non-residential real estate, etc. \u2013 face an existential threat to their core. For these industries, they simply cannot survive the conditions they face. For these gutted industries, we face, at best, an 80% to 85% recovery in the years to come. It should be emphasized that Covid-19 just sped up what was already a secular decline.\u201d<\/div>\n
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CONCLUSIONS:<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Official national debt increased $4.5 trillion in the last 12 months. Spending is \u201cout-of-control.\u201d The economy has fallen into a recession or depression with a collapse in GDP, employment, tax revenue, and economic activity. Debt will grow.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Without Fed \u201cprinting\u201d and QE4ever, interest rates would be higher, and stocks would be lower. Perhaps the Fed will lose control and the market will force interest rates higher.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Allowing interest rates to rise to historically normal levels would \u201cblow-out\u201d the budget. Take $30+ trillion in debt and assume 6 – 8% interest. That means $2 trillion in federal interest payments every year. Grim!<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0There is minimal desire to control spending in congress, the administration, or on Wall Street. More spending will come, and many economists will assure us that bailouts, QE4ever, stimulus programs, expanded social programs, and a new war are essential for the economy. Meanwhile the economy has entered a recession\/depression and government tax revenues will decline.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0The bankruptcy attorneys for businesses, corporations, and individuals will get more work. Debt will be liquidated or \u201cwritten down\u201d and the recession\/depression will deepen.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0The new debt will boost prices for gold and silver, and after a correction, for stocks as the mini dollar replaces our devalued dollar. The dollar has not yet collapsed, but it’s possible.<\/div>\n
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SOLUTIONS:<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Question the statements of politicians, economists, and nationally known doctors in charge of COVID-19 policy and spending decisions. With them in charge, the wealthy will become wealthier.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Expect much larger debt, lower governmental revenues, an enormous increase in bankruptcies, continuing unemployment, and many failed businesses. Stagflation and higher prices could be the best we should expect. Much worse is possible.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Many debts will not be paid. Other debt will be written down to pennies on the dollar.\u00a0Those unpaid debts are another\u2019s asset.\u00a0Counter-party risk will become important.\u00a0Gold and silver have no counter-party risk\u2026Repeat: In an era where counter-party risk destroys wealth, we are safer using gold as financial insurance.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0The Fed will sacrifice the dollar as they support stocks and bonds.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Stocks will correct lower and then rally as the dollar is devalued.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Gold and silver will exceed all-time highs and then rise multiples higher, depending on the quantity and quality of fiscal and monetary nonsense demanded by our leaders, politicians, and economists.<\/div>\n
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\u00b7\u00a0\u00a0\u00a0\u00a0\u00a0Buy gold and silver, especially silver, and sleep well knowing that your savings and retirements are protected from growing counter-party risk as debt paper is destroyed.<\/div>\n
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Listen:\u00a0JPM Has Amassed the Greatest Hoard of Silver in History for a Reason.<\/a><\/div>\n
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Miles Franklin<\/a>\u00a0sells silver and gold coins and bullion. Call 1-800-822-8080.<\/div>\n
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Gary Christenson<\/div>\n<\/div>\n<\/div>\n
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