By Bill Holter
As we wind up the year, let’s first briefly look at where we are and then wrap up with a most very basic concept “it is hoped” you will never see …until it’s too late? Before getting started I would like to apologize to readers as apparently the “political correctness” exchange between Harry Truman and Douglas MacArthur never took place. It certainly does sound like their individual tones and I will add, if they did not have this exchange …they should have! Hopefully you understood the theme in my last writing?
Ever since the onset of quantitative easing (flooding the system with money) we have been told we were in “recovery” and “escape velocity” was imminent. This was even more so during 2015 as the cry of rate hike was deafening. They raised rates at a time that credit was already becoming tighter, the problem of 2008 is coming back again only this time MUCH BIGGER, The Credit Crunch Is Back: Banks Scramble To Collateralize Loans To Record Levels. This is a very unwise strategy and done only once prior, 1937 …and we know how that well that worked out! The Fed has NEVER raised rates just before Christmas and as far as I know, never raised rates within less than one year before a presidential election. It is important to point out the one word apparently missing or lost to Wall St/Washington and even main stream media vocabulary …”expansion”. Do you remember this word?
I do but maybe because I am getting old and can remember when we actually had markets and an economy that were functional and allowed to “clear” on their own no matter what the level or results.
It is unquestionable the U.S. economy is skidding. Even looking at the official reports, something is very wrong. Some will retort “but unemployment is at 5%” … really? We have 95 million people now no longer in the work force (46 million on food stamps) and supposedly not looking for jobs (is this because they have saved so much and no longer NEED to work?). If you look at U-6 unemployment which is what “used to” be reported, we stand at 10%. How do you suppose THIS number could be spun as being “good”? Where would the unemployment rate be if even half of these 95 million were included as being “unemployed” (the ugly truth)?
This is not just a U.S. problem, it is global. Just look at global trade. This inconvenient truth cannot be hidden and is collapsing! China has regularly fudged their numbers and even they cannot hide the reality of much slower growth or even contraction. No matter where you look, economic activity is sluggish …and this on the shoulders of a world with more debt than any time in history. “Debt” is a funny duck, it is some wonderful stuff on the way up but a death accelerant on the way down. Debt is a weight around the neck of the weak and will not go away (unless of course the IMF wipes it out as unenforceable because it is not dollar denominated!).
Speaking of the dollar, hopefully you can see the preparations being made all around the world …to no longer use it for trade. Story after story has come out (and more frequently) where the dollar will not be used for international settlement. This has been a theme of many deals done by Russia but more importantly China. They are clearly preparing for a world where the dollar’s importance is lessened greatly. You would be wise to do the same and also to understand what this will mean to the purchasing power of the dollar. If you are American, this will greatly affect your cost of living and undercut the value of your savings in dollars.
A reader late last week sent; “Every Gold Standard in history has had people creating more receipts for gold than existing gold and/or debasing gold. Why aren’t we talking about that?” This is very true, I knew this, you knew this, anyone with any sense of history knows this. Actually, this concept is one of the reasons given that a gold standard can never work. It is said “there just isn’t enough gold” or “a gold standard cannot accommodate sufficient stimulus for growth”. I believe this is a chicken or the egg situation. As gold was “over receipted” we got a credit boom which was followed by a bust when it was discovered there wasn’t enough gold … This of course is never the case, the problem is not quantity, it is price! What they mean to say is …there is not enough gold to carry the system and provide for growth AT THE CURRENT PRICE! This (contrary to what Martin Armstrong would like you to believe) is WHY gold was revalued higher from $20.67 per ounce to $35 in 1934. It helped create inflation and was then immediate collateral to be used to heal broken balance sheets and avail new credit.
We did get a bit of gold news over the holiday, news as in some gold “went missing” in the Middle East. Two great stories on this: Exclusive: “And It’s Gone… It’s All Gone” – The One Gold Scandal That Goes To The Very Top and The Mystery Of Dubai’s Vaporized Gold: The Plot Thickens You see, the statement above “every Gold Standard in history has had people creating more receipts for gold than existing gold” is absolutely true. This is never realized until someone calls on their gold and it’s not there. We thought maybe the Germans, Austrians or Belgians calling on their gold might have busted the market open a couple of years back. The Germans played nice and agreed to accepting about 100 tons or less per year in lieu of their entire load. The light bulb will go on sooner or later, gold has been “receipted” well beyond 100 times what actually exists, a very deadly game of musical chairs!
Over the last two years, London has been in and out of backwardation and firmly so for the last couple of months. I had others tell me “it doesn’t matter because COMEX is not in backwardation” … Well now even the COMEX is in backwardation going out six months! (I would like to point out, the backwardation appeared right about the time the Fed raised rates …which would instead suggest a higher contango to allow for the higher rate … NOT BACKWARDATION!). Another little problem is COMEX now has about the same amount of gold standing for December delivery as they claim is deliverable. The process should be finished by this Thursday. Then what? COMEX has received very little gold into the registered category over the last 75 days and the cupboard looks to be empty, will they pull another rabbit out of their hat?
Only time will tell but we are living a very dangerous game of musical chairs in the gold market. A “bank run” by owners to verify or withdraw their gold is logical and inevitable. There are many out there who say “don’t worry, no problems here, please move along”. History shows us this ALWAYS happens with gold under a gold standard or not. More receipts are issued than gold in existence. The fraud goes on until it is discovered and then the price moves higher. …And “history” was generally a time when we had a rule a of law. Ask yourself this question, do we live in an era of a “rule of law”? Not for us little guys, for those running the circus? How many went to jail after the 2008 episode? Do you believe the fraud is more, or less, rampant today? It is only a matter of time until the mother of all bank runs occurs and I am not talking about digital or electronic withdrawals or currencies!
To finish, I have been asked numerous times what I thought the world might look like when the run begins. I wrote a fictional article about “Jack and Jill” last year and have reprinted it here.
The only thing I would now add is a gigantic false flag (because what comes MUST BE BLAMED on something other than broken policy) might be what kicks this off in which case it won’t be as slow as I described. I wish everyone a healthy, happy and safe New Year!
Bill Holter for;
Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration.
Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present.