The Federal Reserve serves as the engine that makes all of the US government’s unconstitutional spending possible. Without the Fed, the entire system would collapse.
Just consider this: in March and April of this year, the Federal Reserve effectively monetized 100 percent of the new debt taken on by the U.S. government.
Gold just had its best quarter since 2016 and finished at its highest level in over eight years. But Q2 2020 wasn’t an anomaly. Gold has charted gains for seven consecutive quarters.
That represents the longest quarterly run of gains for the yellow metal since the 2008 financial crisis.
Gold just wrapped up a strong quarter, up 13%, and finishing at the highest price level in over eight years. On the year, gold is up about 16% and many mainstream analysts are starting to eyeball record gold prices in the coming months. But there has been some drag on the gold market, particularly sluggish consumer demand in the East – particularly in India.
That could be changing.
The national debt pushed above $26 trillion last week. In just a little over two months, the US government has added over $2 trillion to the debt. The budget deficit has already set an all-time record with four months left in the fiscal year. In April, the US Treasury sold $1.287 trillion in additional US debt.
So, who is buying all of this debt?
For years, I have been warning that during the age of permanent stimulus (which began in earnest with the Federal Reserve’s reaction to the dotcom crash of 2000), each successive economic contraction would have to be met with ever larger, increasingly ineffective, doses of monetary and fiscal stimulus to keep the economy from spiraling into depression. I have also said that the enormity of the asset price gains over the last 10 years had increased the danger because reflating the bloated stock, real estate, and public and private debt markets would bring on doses of stimulus that could prove lethal for the economy. But even though I expected that the next financial crisis would be catastrophic, I thought that it would come into the world in the usual way, as a credit crisis triggered by over-leverage. But the Coronavirus ripped up those stage notes, and instead ushered in a threat that is faster and deeper than I imagined, and I imagined a lot. It’s a perfect storm, a black swan with teeth.
Federal Reserve Chairman Jerome Powell went negative in a webcast speech on Wednesday, May 13.
I’m not talking about negative interest rates, although that could be coming down the pike as well. Powell went negative on the prospects of a quick economic recovery.
He’s right about the prospects for the economy, but he’s wrong about the solution. That’s because he doesn’t even realize it’s Fed policy at the root of the problem to begin with.
Are negative interest rates in our future?
The markets are starting to think so.
On Thursday, Fed fund futures contracts began pricing in negative interest rates. They were initially priced in for December but then shifted to early 2021. This doesn’t guarantee negative rates, but it does indicate markets are beginning to expect them.
What is the NFL telling us about the economy?
The conventional wisdom seems to be that the economy will quickly recover once governments open things up again. But recent moves by the National Football League indicate its leadership isn’t so confident.
Everybody realizes the US economy is in a bad spot. But most people still seem to believe it will bounce right back once we deal with the coronavirus.
They’re all high on Federal Reserve fairy dust.
The mainstream is a fickle place.
On the one hand, we had Bank of America raising its 18-month price projection for gold to $3,000. On the other hand, some people argue the price of gold could crash later in the year.