Is this it? Is the bull market finished and the good times over? Well, they could very well be. We are looking at a world which is rotten to the core, a world which is built on debt which will never be repaid. And a debt which is artificially supporting $100s of trillions of assets and quadrillions if we include derivatives. The supposedly most powerful economy in the world (the US of course) is now so indebted that it needs to fight the whole world in all kinds of different wars for its survival, with the latest being a trade war.
US WAR DRUMS
Whenever a nation starts fighting with other countries, it is always done from a position of weakness. US debt has been running out of hand for a long time. Federal, state, corporate, personal, mortgage, auto, student etc, etc, they are all escalating exponentially. On top of that the US budget deficit will be in the trillions for the foreseeable future and the trade deficit was $600 billion in 2017 and could soon be one more trillion dollar deficit.
Starting wars is an Indication of the final stages of a troubled empire. The wars and interference in countries like Iran, Libya, Ukraine, Syria and Yemen are all part of that. The appointment of hardliner John Bolton as National Security Advisor as another perilous sign that the US is on the war path again.
So is policing the world’s financial system and so is protectionism and trade wars. These are all desperate measures of a country in a terminal decline. And it is certainly not a coincidence that this trade war started right before the oil trading in Yuan begun. Eventually this will lead to the demise of the dollar and a major power shift from West to East as well as much higher gold prices.
Nor is it a surprise that Silk Road countries have been buying major amounts of gold in this century. As the graph shows, the gold holdings of Russia, Turkey, India and China have increased 7 fold since 2004 from 5,000 tonnes to 35,600 tonnes. The question is how much is actually left in Western Central Banks of the 23,000 tonnes that they allegedly hold.
THE US BLAMES EVERYONE ELSE
The whole world is living above its means but the US is the worst culprit. So what is the US doing about it. Well there is no question of adjusting your spending in line with your expenses. That would be much too simplistic. Instead you blame the whole world that it is their fault and that they must be punished. And this is exactly what Trump is doing now. It is China’s and everybody else’s fault that a major part of US manufacturing has moved to low cost countries. And it is these countries’ fault that the US is living above its means and borrowing and spending more that it earns. Therefore these nasty countries must be punished. And that is the reason the US has started a trade war. Trade wars are almost without exception a desperate measure taken by an ailing economy. A trade war, especially between the two biggest nations in the world will indisputably lead to a downturn in world trade and therefore also a major global economic downturn.
TRUMP’S TRADE WAR AND NIXON’S DOLLAR WAR
The desperate measures the US is currently taking reminds me of Richard Nixon in August 1971 when he blamed the whole world for the dollar being attacked. President de Gaulle of France was clever enough to see what was happening and asked for payment of the US debt to France in gold. Since the dollar was backed by gold, sovereign states could demand payment in gold at that time. With the US currency under pressure, Nixon abandoned the gold backing of the dollar on August 15, 1971. That was the beginning of the end for the US economy and also the world economy. A credit expansion and money printing bonanza started that has continued until this day. This has made a very tiny minority very rich and lumbered the rest of the world with a debt that they neither will nor can repay.
But here is the important point. Trump’s desperate measure to save America will be seen as the nail in the coffin for the US and the world economy. And here we can draw a parallel to 1971.The US was in a similar situation then as it is now. Deficits were increasing and the dollar was falling. So what were the consequences of Nixon’s fatal decision. The dollar collapsed. I was in Switzerland at the time and saw the dollar fall 63% against the Swiss franc between Aug 1971 and January 1980. During that same period gold and silver surged. Gold went from $35 an ounce to $850 or up 24x. Silver went from £1.60 to $50, up 31 times.
ACCELERATION OF GOLD AND SILVER TO $32,000 AND $500?
Applying the same multiples, which means gold going up 24x from here, we would see $32,000 gold and with silver up 31x the silver price would be above $500.There could be lots of different arguments that it is different today and that the starting point is wrong etc. But in my view the starting point is very significant. Trade wars will have a major impact on all paper money and especially the dollar which is absurdly overvalued and only rests on debt. Not that any of the other major currencies are in a better position. So now we have an inflection point which will result in the dollar falling fast and gold and silver surging.