The Coming Gold Fiat Price Crash: The economy is Deflating and the only Tool Central Banks have is Liquidity, Do Commercial Banks want to take the blame? – May 26, 2021,
This article should not be confused with investment advice. First things first, I’d like to remind the reader that I’m a buyer of Gold all the way up to $5000 USD, I bought gold at $2000, I love gold, but I buy gold for insurance, not for fit price appreciation and the numbers on my end suggest that the economy is deflating and the only weapon central banks have is liquidity.
As a Canadian, my bets are that interest rates in Canada are going NEGATIVE! What people tend to forget about with our fiat money system is that the commercial banks are responsible for most of the distribution of checks and currently most of the money being spent in society is coming from Governments borrowing money, that assume these governments believe they can retrieve in taxes at a later date?
The problem with this ideology is that its cure is austerity measures which if people are unaware are reductions in government spending, increases in tax revenues, or both. Joe Biden is currently attempting the raise taxes on the rich strategy. Now, Peter Schiff actually does the best job explaining that the rich already pay their fair share of taxes, loopholes exist, because, without them, the private sector would be less productive which would equate to fewer people being hired and more jobs being shipped overseas.
Unfortunately, when I read publications from both the political Left and the Right, neither side wants to acknowledge that government costs will need to be cut, otherwise, there are going to be more defaults or as we have now government subsidized defaults, which basically means that the government is going to have to subsidize the private sector entirely, which equates to less productivity.
Now, obviously, this equates to fiat price INFLATION, but it also equates to some people being forced to sell their assets which is deflationary. I think people tend to forget that COVID-19 crashed the economy, the economy has already crashed it’s just that the Central banks have infused us with “THE WEALTH EFFECT”
The Wealth effect creates economic illusions that most people are hoping will be permanent and who I am to bring them back to reality? The truth is this illusion can last for as long as it’s going to last? The whole purpose of Keynesian economics was to delay the crash, delay, delay delay.
Austrian economics revolves around the harsh reality that it’s a hard knock life and based on my research most people don’t want to hear that, humans typically want a quick fix, and politicians and central banks temporarily fulfill this desire. In the 1990s in Canada, the Liberal Party of Canada began cutting more public services than the prior Conservative Party, corruption aside, it led to one of the biggest booms in Canadian history.
Unfortunately for Canadians, the boom revolved around using NAFTA to Canada’s advantage, it’s not at all strange to me that the current Minister of Canadian Heritage of Canada Steven Guilbeault is coming after my freedom of speech, because what the then Liberals did was they got Canadians comfortable with the idea of making certain economic realities subjective.
Canadians used to buy a whole lot of things made in America, not so much anymore, Donald Trump was the only President I know of to really call Canada out on some of our trade policies with America. Trump lost the battle, but I suspect Canada is going to lose that war, primarily because Canada is heavily reliant on INCOME tax collection and REAL income taxes come from the Private Sector(public sector income taxes are taxes that were taxed again because the public sector derives its wealth from the private sector.
The tariff tax gets passed to the often indebted business person who then passes it onto the consumer. Because Canadians aren’t paying income taxes like they once were and Trudeau is sending a lot of Canada’s workforce free money to do be unproductive, these savings rates that Canadians have are going to get eaten up by price inflation.
Although some imagine fractional reserve banking to be permanently inflationary, it’s actually quite deflationary if asset prices are reflective of the market, because it will be contained if a bank’s balance sheet forces said bank to make cuts or call in debts.
In order to prevent asset price deflation I expect the Bank of Canada to react by going into negative interest rates, the problem with Canada going to negative interest rates, is that the Liberal Party of the 1990s via their tariffs, government wages hikes, and taxes which resulted in higher costs for Canada’s private sector hallowed out Canadian manufacturing.
The Canadian economy like many others can not support negative interest rates. Germany, Japan, and Switzerland can handle negative interest rates because they still manufacture more than they consume. Those countries aren’t reliant on Chinese manufacturing as an example. When a country is reliant on imports, the DECENTRALIZED forex markets can be extremely problematic for them.
I often write about Latin America, well the peso problem stems from Latin America’s inability to manufacture things. I’m not a fan of socialism, but if you want it, at the very least your people have to be able to manufacture things. Latin America can’t manufacture, Latin America because of their excessive costs in PESOS creates a constant deflationary death spiral, which they cure by debasing their currency.
In Canada, we have the privilege of having the world’s reserve currency, and Tiff Macklem who is currently the Governor of the Bank of Canada(BoC) has basically bought up all of Trudeau’s debt, doesn’t seem to understand that we’re given this privilege because of the idea that Central Banks and Federal Governments in WESTERN NATIONS are supposed to operate independently.
So why I say the BoC is headed for negative territory is that once deflation becomes obvious, I suspect he’s going to attempt to stimulate the Canadian economy by lowering rates. If Tiff raises rates, first of all prices aren’t going to come down for Canadian consumers and secondly, asset prices will decline which means people who are reliant on things like equity lines of credit and other debt instruments that give us the wealth effect will see their ‘wealth’ VANISH OVERNIGHT.
Furthermore, a rate hike also means fewer people will qualify for debt, and being that more people are reliant on government money, which in reality is FIXED INCOME more people are going to find themselves with less money. So for me, all signs in the long term point to austerity measures, but in the short term, I see negative interest rates for Canada and overall deflation for the global economy.
Debt is deflationary, sure we can prolong the debt, but a digital dollar isn’t going to save us, because forex markets are decentralized and Bitcoin gives us an example of what decentralized-centralized digital dollar forex market will look like, and all signs point to Chinese dominance.
Digital dollars equate to technology, Bitcoin is decentralized, governments backing their currency to bitcoin would be stupid, it would actually be worse than a Gold Standard for Governments, because all of these lying politicians would be so naked that they’d have to create an enemy to destroy and as I like to point out, humans like quick fixes, so don’t think that when Government turns someone or something into an enemy of the people, that voters won’t reward said politician with their votes.
As Robert Kiyosaki points out and I agree with him, the problem is financial education. Being that Commercial Banks are responsible for the distribution of money, I don’t think they’re going to voluntarily take the blame for a problem clearly created by the government, instead, I see the commercial banks doing exactly what Jerome Powell has been doing since Donald Trump called him publically for raising rates.
When the government says they want this for the economy, as long as the politicians make it law, the commercial banks will be accommodative. How this manifests in my opinion is that the commercial banks are going to finance ‘industry’ in the manner the government prefers and this is all deflationary which is bad for the price of gold.
Now, for people like myself, this is a buying opportunity, but it’s going to confuse most people who don’t understand debt and the wealth effect. But there’s money all over the place, people will argue, yes, but a fool and their money are soon parted.
There’s malinvestment EVERYWHERE, there are a lot so people who right now with lots of money who feel smart, many of these ‘rich’ individuals have no financial education, which means that when the crash happens, they’ll have no clue what to do!
Once the reset comes, it’s all about how you interpret the reset, a rest might come and it might be a socialist reset, this has happened before and it’s led to massive deflation, which resulted in hyperinflation of the currency. What’s confidence in the currency is lost, we’re back to bartering and in the cutthroat world of bartering either you understand survival or you don’t!
Interesting times ahead!
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