Crisis Exposes Devastating Consequences of Fed Policy: Americans Have No Savings

Published here: http://goldsilverworlds.com/money-currency/crisis-exposes-devastating-consequences-of-fed-policy-americans-have-no-savings/?utm_source=rss&utm_medium=rss&utm_campaign=crisis-exposes-devastating-consequences-of-fed-policy-americans-have-no-savings

Two weeks ago, during a March 17 address to the nation in response to the COVID-19 outbreak, President Donald Trump asked that Americans work from home, postpone unnecessary travel, and limit social gatherings to no more than 10 people.

And last week, on March 27, Trump signed a stimulus package of over $2 trillion dollars to provide relief to an economy on the precipice of collapse.

The aid package includes handouts and loans to individuals, small businesses, and other distressed industries.

Despite Trump’s “having created the greatest Economy in the history of our Country,” when the markets tanked, massive and immediate government intervention was the only thing left to forestall a total collapse.

So why can’t greatest economy in the world can’t handle a temporary shock without needing trillions of dollars injected to stay afloat?

The Federal Reserve and its vicious and ongoing war on savers are to blame.

Using the Federal Reserve Note – commonly (but incorrectly) referred to as the dollar – introduces a dilemma. Because of inflationary monetary policy, Americans have long been forced to select among three undesirable options:

A) Save. Hold Federal Reserve Notes and be guaranteed at least 2% in purchasing power every single year.
B) Consume. Spend Federal Reserve Notes on immediate goods and services to get the most out of current purchasing power.
C) Speculate. Try to beat the Fed’s deliberate inflation, seeking a higher return by investing in complicated and unstable asset markets.

With businesses and Americans defaulting on their rent and other obligations only days into the collapse, the problem is clear: Few have any savings… and why should they when saving their money at negative real rates of return has been a sucker’s game?

Lack of sound money, or money that doesn’t maintain its purchasing power over time, has discouraged savings while encouraging debt-financed consumption.

American businesses and individuals are so overleveraged that once their income goes away, even briefly, they are too often left with nothing.

Fiat money is especially pernicious in the way it harms its users. To some, small 2% losses can go easily unnoticed, year to year. Over 100 years, the loss has been well over 97%.

And who can save for emergencies when you’re being forced to work and spend more – simply to maintain the same quality of life?

Over 100 years, the Federal Reserve has destroyed more than 97% of our currency’s purchasing power.

With the Fed slashing short-term rates to zero, the US Federal Reserve Note has been further destroyed as a method of preserving savings. (And negative nominal interest rates could be coming next.)

Inflationary economic policy, absent the guardrails of sound money, has created a situation with an obvious and deadly conclusion: that many Americans lack savings to protect themselves against downturns.

This situation isn’t necessarily the fault of the people, but rather the fault of a system in which discouraging and punishing savers is a crucial tenet of the entire framework.

The Federal Reserve, the U.S. Treasury, and the White House are trying to reassure the public that everything is “under control,” that “the U.S. economy’s fundamentals are still strong,” and that the economy will skyrocket once COVID-19 is taken care of. What if they’re wrong?

Maybe the greatest monetary experiment in history is coming to an end. Maybe sound money can still save the day, but we must not waste any more time in restoring it.

 

Jp Cortez is a graduate of Auburn University and a resident of Charlotte, North Carolina. He is the Policy Director of the Sound Money Defense League, an organization working to bring back gold and silver as America’s constitutional money. He is also an occasional contributor to Money Metals Exchange. Follow him on Twitter @JpCortez27

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Gold & Silver Mines Closed as Physical Silver Becomes “Most Undervalued Asset”

Published here: http://goldsilverworlds.com/category-mining/gold-silver-mines-closed-as-physical-silver-becomes-most-undervalued-asset/?utm_source=rss&utm_medium=rss&utm_campaign=gold-silver-mines-closed-as-physical-silver-becomes-most-undervalued-asset

A surge in coronavirus cases, an expansion of economic lockdowns, and an explosion in unemployment claims hit markets this week.  But this deluge of bad news didn’t seem to catch investors by surprise.

Instead of crashing to new lows, the stock market held within a trading range and rallied yesterday following the release of a horrific jobs report.

It’s been a huge week for commodity markets as oil prices posted their biggest single day percentage gain ever Thursday, popping more than 25%.  Oil prices lifted from their severely depressed $20 per barrel level after President Donald Trump met with oil executives and announced Russia and Saudi Arabia would agree to curtail production.

Turning to the precious metals, volatility finally tamped down a bit after three straight weeks of some of the wildest moves we’ve ever seen in both the spot market and the bullion market.

With so many disruptions and dislocations now hitting the economy, investors have to ask themselves: What is truly sustainable?  A great many businesses won’t be around after this global pandemic finally recedes.  Entire industries will never be the same.  And so many families will be financially wiped out.

Government “stimulus” may well prevent politically favored companies from going under.  But at the cost of putting federal spending and borrowing on an even more unsustainably steep trajectory.

While there is no limit to how much currency the Federal Reserve can create to prop up the government and the entire financial system, there are limits to the U.S. dollar’s credibility as a store of value. And they are likely to be tested as the currency supply accelerates upward.

At the same time, production of scarce assets such as precious metals and an array of commodities is likely to fall off a cliff.  The current supply and demand dynamic in most raw materials is both unprecedented and unsustainable.

The big story we have been told with regard to crude oil is pandemic-driven demand destruction.  The global oil market is seeing demand contract by up to 25 million barrels per day as economies remain virtually shut down.

To make matters worse for oil producers, Russia and Saudi Arabia had been flooding the world with more output. They drove crude prices down so low that the entire North American shale industry, which was already reeling, now faces the prospect of being driven out of business.

In the first quarter of 2020, oil prices suffered a 66% crash – a record drop for a single quarter – settling right around $20 per barrel.  At that price, nearly the entire energy sector is unsustainable.  From the frackers to the deep-sea drillers to even the more conservatively positioned diversified energy giants, $20 oil simply doesn’t work.

Until oil prices get back above $40, the only way some of these companies can hope to survive is by drastically shrinking their operations.  Wells are being capped.  Industry analysts anticipate a 70% drop in U.S. drilling over the coming months.

At the same time, demand is also expected to recover from current levels.  Although energy use will increase gradually at first as sections of the economy reopen, demand can increase a lot faster than supply – especially when that demand is being accelerated by $6 trillion in federal stimulus so far, and likely even more ahead.

Similar supply and demand pressures face the base metals and precious metals mining industries.  Multiple mines around the world – from South Africa to South America – are currently shuttered due to the coronavirus.

Even before the pandemic, the mining industry was in distress due to low market prices for metals.  First Majestic CEO Keith Neumeyer had determined it made more business sense for the company to hold onto its silver assets rather than sell them into the market at extremely depressed prices.

This year could see a record decline in mining supply for silver and other metals.  And while the crude oil market entered the year with a supply glut that has only continued to grow, silver and palladium in particular were headed for supply deficits.  Although industrial demand is currently way down, when it does recover, it will be difficult to see how those deficits don’t widen and perhaps lead to price spikes.

Analyst and MoneyMetals.com contributor Steve St. Angelo expects investors will continue to seek precious metals for financial security during this pandemic and its aftermath.  But there may simply not be enough gold and silver above ground to go around – not at current prices, anyway.

And here are some of Steve St. Angelo’s thoughts from a video presentation he posted earlier this week:

Steve St Angelo:
As a lot of large cities in the US and around the world, and countries are on lockdown and they’re going to continue to be unlocked down. I believe the US now according to Trump, is on lockdown till the end of April. That’s another month. This is really going to damage the system and so we’re going to get into a financial storm in the next several months. So, I believe the precious metals, you’re going to see a lot more investors move into the precious metals and there just won’t be the supply.

I believe we’re going to see serious trouble with the bond market in the next month or so. And that’s going to cause trouble with actual bank accounts, the money market accounts, all the money… the digits that are held in the commercial banks, and then as well as the fiat money, the currency in circulation. So right now, the total gold value, and this is identifiable above ground investment stocks, central bank and private is valued about $4 trillion. Compare that to the base money supply, which is about $28 trillion. That’s seven times more than all the gold. Now, get silver, total silver value is only $40 billion. It’s 100 of the gold. Again, to me, I believe the most undervalued asset is physical silver, and we’ll start to see that in the future as more and more investors move into silver to protect wealth.

Retail investors in precious metals across the globe seem to agree that silver is the asset to own at current prices.  Supply of minted coins, bars, and rounds have all but disappeared in the past three weeks.

Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

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