Turbulent markets let gold and silver boom again

Current market commentary by Markus Blaschzok for

The upcoming US presidential election has given markets a volatile roller coaster ride over the past two weeks of trading. The US population has not been so divided since the secession of the southern from the northern states. Depending on whether the Republicans or Democrats win the election, it is likely that taxes will rise sharply and trillions of additional new national debt will be borrowed. These would have to be financed by the US Federal Reserve by printing new uncovered greenbacks if it wants to prevent a rise in short-term interest rates. If Joe Biden wins, the US dollar’s slump could accelerate as the Democrats seek tax hikes, more debt, more intervention in the economy, the abolition of the filibuster, and a change in the Constitutional Court, greatly transforming the U.S. Society would be strengthened once more.

Accordingly, the markets are currently reacting sensitively to every event that could influence the outcome of the election. Since the presidential election of 2016, when it became apparent that those polls that predicted a huge victory for Hillary Clinton were selected, the polls published have been questionable. Yet they are still being absorbed and priced in by the markets. When Trump received a positive corona test on Friday a week ago, the US dollar reacted with weakness, only to become strong again last Monday with the president’s recovery. When US President Trump postponed negotiations with the Democrats for further stimulus until after the election last week, the US dollar surged while the price of gold and the stock market fell under the wheels. When Trump rowed back a day later and promised even more stimuli than even the Democrats wanted, as long as the bankrupt states were not cross-subsidized, the US dollar plummeted again and the price of gold rose significantly in many currencies at the end of the week.

Regardless of whether the Democrats or the Republicans can win the presidency and / or the Senate for themselves, the US national debt, which has now risen to over 27 trillion US dollars or 136% of US gross domestic product, will in any case , will continue to grow and much more money will have to be printed by the Fed to fund this.

The inflation tax will threaten the very existence of many

Money that the central banks create and print out of nothing merely causes a redistribution of wealth, away from the saver to the recipients of the newly created money. Money that the state spends must be taken from the citizen through direct taxes or the indirect inflation tax. Later generations will not pay off national debts, but everyone through the devaluation of wages, savings, pension entitlements and rising costs of living. The expansion of the money supply usually leads to rising consumer prices with a time lag of two to three years. Incorrect information that represents the time lag between the cause of inflation and its effect on prices, as well as embellished harmonized consumer price indices that do not even come close to reflecting the real price increase of goods and services for everyday use, are the cause of the distorted and careless perception among the population.

Money that the state supposedly distributes generously also devalues ​​the wealth of the rich and high-earning taxpayers, but their wealth is mostly parked in real estate, stocks or other inflation-protected investments that are not subject to inflation tax and which may even be affected by rising prices benefit. Most of the money that the state spends, however, pays the common average citizen, who has little or no savings, and it hits the poorest and most vulnerable in society particularly hard. Public debt, which is ultimately always financed through the printing press, is an antisocial tax as it drives up the cost of living for the poorest and devalues ​​the pensions of those who have worked and saved all their lives, driving them into poverty in old age.

Rising taxes and national debt are also the reason why the gap between rich and poor has been widening for decades. It is not the “greedy” entrepreneurs who plunder the population, but the state that implicitly takes 70% of their income from people through direct and indirect taxes and ultimately devalues ​​the remaining savings through the inflation tax. Until the gold standard was dissolved in 1971, everyone could preserve the fruits of their labor for old age and benefit from the increase in productivity in the economy, which ensured a certain level of prosperity for everyone in old age. However, since state money has been uncovered and has increasingly lost its value due to excessive national debt, it has become difficult or even impossible for the little man to make provisions for old age. The little money that remains after deducting the high taxes loses purchasing power over time due to government-generated inflation.

Public debt is always destructive and cannot stimulate an economy or help it to grow. Every euro or dollar that governments spend is missing from the economy. In other words, where it could best meet people’s needs productively and would create prosperity and sustainable jobs. There is still the possibility of escaping the inflation tax by exchanging the euro, which is constantly losing purchasing power, for the strongest currency in the world: gold and silver. With further debts and an increasing expansion of the money supply in the coming years, not only will the dollar and the euro continue to lose purchasing power, but the price of gold will also rise in real terms, as more and more people will seek this haven.

The destructive policy of the central banks

Due to the shutdown forced by the state and the artificially triggered recession, income from the federal, state, local and social security funds in the Federal Republic fell for the first time since 2012 compared to the previous year. These fell by 5% to 709.4 billion euros, while at the same time expenditure rose by 8.6% to 797.8 billion euros, resulting in a financing deficit of 89.8 billion euros. This deficit is financed through debt, which in turn is bought up by the European Central Bank on the secondary market and monetized by printing money, which will ultimately devalue the euro and devalue wealth and savings.

In the US, the White House had raised its “aid package” offer to $ 1.8 trillion, with the Democrats still asking for $ 2.2 trillion after lowering their demand of $ 3.5 trillion. Chicago Federal Reserve President Charles Evans said last week that the US Federal Reserve would expand its QE program if the economic recovery slows.

The minutes (Fed-Minutes) of the last meeting of the Federal Open Market Committee, which were published last Wednesday evening, brought nothing new and left the markets cold. Before the Fed would even consider raising the key rate from 0%, the following would have to happen beforehand:

  1. The labor market must have reached the maximum employment target. However, this was not defined more precisely. The improvement in the labor market in July and August was better than expected, but there is still a long way to go before the labor market fully recovered.
  2. The official rate of price increase according to the CPI-U must reach 2%.
  3. What is needed is some evidence that prices will rise moderately more than 2%.

The Fed’s statement that it will not raise interest rates until at least 2023 is not set in stone. Future central bank meetings are expected to discuss how the bond purchase programs could best support this goal. Treasury and MBS purchases are expected to remain unchanged over the coming months, but the US Federal Reserve has been on pause for two months, contradicting this statement.

The Fed assumes that further financial aid will be needed this year, since without it the economic recovery would supposedly be slower. This is just a monetary illusion, in that the inflation rate shown is calculated too low and thus the illusion of increasing economic growth that is only based on inflation. The so-called Fed financial aid cannot accelerate the economic recovery; it slows it down. However, the “aid” ensures that the burden is distributed across the entire population, with the wealthy, who have inflation-protected assets, even benefiting in the short term. In the long term, this will slow down economic recovery, slow economic growth in the US and ultimately harm the prosperity of everyone, including that of rich Americans.

The Fed expects the current restrictions on social coexistence and corporate business, as well as voluntary social distancing, to ease over the coming year. The Care Act and checks for the population are very important as the low wage sector has been particularly hard hit by the pandemic.

In the meantime, the WHO has also changed its mind and is now recommending that lockdowns be avoided as the primary type of pandemic control. A lockdown was and is only justified in order to buy time. David Nabarro pointed to the collateral damage caused by global lockdowns, particularly among the poor. Because of these measures, poverty in the world could double by next year. Child malnutrition is also likely to double, as their families can no longer afford food or medication without work. The lockdowns have one consequence that must never be forgotten, they make poor people even poorer, says Nabarro.

Central banks against cryptocurrencies

In addition to the US Federal Reserve and the European Central Bank, the Japanese central bank is now planning to create a digital yen. At the same time, all central banks are stepping up their fight against decentralized cryptocurrencies. It has long been clear that governments would seek to criminalize the possession or transactions of cryptocurrencies. A week ago, the owners of the BitMax crypto exchange were indicted by the US futures market regulator CFTC after they had been investigated for over a year. The only mistake they are accused of is that they have not submitted to the US government and the US futures market regulator. As a result, Bitcoin collapsed by $ 500. The very existence of Bitcoin and the hundreds of billion US dollar market capitalization of the cryptocurrencies are proof of the bad fiat money of the central banks as well as that the current monetary system is about to fail. The Bitcoin and a decentralized financial system are a real threat to the absolute power of the state apparatus. The emergence of cryptocurrencies was a natural reaction to an era when central banks pushed the global economy to the brink of systemic collapse in 2008. Even if the crypto currencies cannot be banned completely, governments and central banks will further restrict the possibilities of use, which is why it is better to exchange fiat euros in the safe havens of gold and silver that have been tried and tested for thousands of years.

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