The US government is spending money and running up debt at an unfathomable rate. The US national debt increased by a staggaring $814 billion in just two months. When confronted with this reality, most people just shrug. Policymakers certainly don’t care. They continue to ramp up spending and call for even more. Paul Krugman recently tweeted that we need more government stimulus — ie spending — to stoke tepid demand.
Democrats have never cared about spending and Republicans swear tax cuts will grow the economy and fix the debt problem. But as we’ve reported many times, debt retards economic growth.
Now we have even more evidence that government stimulus doesn’t stimulate. In fact, it has the exact opposite effect, as we can see from Europe’s spending binge.
We’ve written extensively about a push toward de-dollarization by countries like Russia and China and their desire to undermine the ability of the US to weaponize the dollar as a foreign policy tool. The global gold rush on the part of central banks is part of this movement.
And it’s not just countries like Russia and China. As fund manager Ronald-Peter Stöferle wrote in an article for the Mises Wire, Europe as also joined the de-dollarization party.
As uncertainty swirls around Brexit and exactly what that will mean for the economy, Brits have been hoarding gold.
According to a statement by The Royal Mint, the demand for gold bars and gold coins spiked in December as uncertainty about the UK’s exit from the EU grew.
We have seen a significant increase in demand for gold this month and at the end of last year, a trend which we have no doubt is largely attributed to Brexit turmoil and subsequent market volatility.”
We often criticize the Federal Reserve for its three rounds of quantitative easing. Coupled with artificially low interest rates, Fed QE stimulus — essentially money creation –pumped up all kinds of asset bubbles. Now that the US central bank is trying to tighten, we’re beginning to see the air seep out of those bubbles.
But when it comes to QE, the Federal Reserve has nothing on the European Central Bank. The ECB just announced the end of its QE program this month. The ECB’s QE purchases totaled somewhere in the neighborhood of 2.6 trillion euros. The bank also pushed interest rates below zero. So, what did the EU get for all this stimulus? Not a whole lot.
The EU has announced it will create a special payment channel to circumvent US economic sanctions and facilitate trade with Iran.
Last month, German foreign minister Heiko Maas called for the creation of a new payments system independent of the United States. The announcement Monday sets that plan in motion.
Investment guru Jim Rogers recently told RT that the dollar is just a few short years away from losing its global dominance.
In the next few years, the American dollar is going to lose its position as the world’s reserve currency and the world’s medium of exchange.”
We live in a world full of bubbles. We’ve reported extensively on the stock market bubble, the student loan bubble, and the auto bubble. We even told you about a shoe bubble. Last summer, US Global Investors CEO Frank Holmes called global debt “the mother of all bubbles.”
So what happens when these bubbles start to burst?
In a recent interview, outgoing German Finance Minister Wolfgang Schäuble warned about bubbles and said global debt could set off the next financial crisis.