Choose your poison, because something is going to have to give, sooner or later...
The Federal Reserve, along with many other governments around the world, have essentially circumvented the free markets, choosing in the short term to keep the system and the entirety of their populations from entering into an outright collapse by simply printing staggering sums of fiat money, out of thin air.
Whether or not this is the right course of action, is not up to me to decide, however, to think that there will not be long term consequences to what government officials are currently engaging in, would be foolish to say the least.
Bailout after bailout program has been initiated, with many countries choosing to send their citizens large sums of money in the mail, or digitally, to help mitigate some of the economic damage caused by the COVID-19 shutdown.
Unfortunately, as common sense would dictate, this cannot and thus will not go on forever, as one cannot create true wealth by simply printing ever increasing amounts of money, without any production, or productivity to go along with it.
However, in the short term, government officials are proving just how far they can push the limits of an ever increasing supply of fiat money, without entering into an outright collapse.
(Chart source, usdebtclock.org)
This has caused national debts around the world to explode, with the most notable of these being the United States government, who has issued trillions of dollars since the outbreak of COVID-19 began just a short few months ago.
This blatant intervention in the markets has inverted reality, largely destroying the free markets in the process, as we have just recently seen with the latest jobless claim figures, which in any rational world, would of sent markets spiraling lower.
Yet, this is not rational times that we live in. Quite the opposite.
Over five million Americans filed jobless claims last week alone, bringing the total to over 22 million in just one month!
These are truly staggering numbers, that are going to have cascading and dire effects on the economy not only in the short term, but the long as well. The true economic fallout caused by the COVID-19 outbreak is going to be felt for years to come.
As one economist recently stated;
“The labor market is showing us what I think we all know, that the economy is falling off a cliff at an unprecedented rate,”
At the same time as this, the United States is reporting their largest ever one day increase in coronavirus related deaths, rising by at least 2,371 and bringing the total to 30,800, according to a recent tally done by Reuters.
(Chart source, worldometers.info)
Meanwhile, futures rebounded on this devastating news, doing exactly the opposite of what any rational minded person would believe they should do, indicating once again just how much of a bizzaro world we now live in.
This is because, as I stated earlier, Wall Street knows that the Federal Reserve "will do whatever it takes" to keep the markets afloat, they will print as much money as need be, no matter the economic cost down the road.
Even if that means completely eroding the value of the dollar in the long term.
The Federal Reserve is now the market and that is truly terrifying, as this has the potential to end in complete and utter disaster, as people lose complete faith in the system as a whole, forcing the Fed to take an ever increasing role in supporting the markets.
What people also need to remember is that we are just in the early days of this crisis, as many health experts are now indicating that the coronavirus is going to be a threat for many more months, if not into next year as a possible "second wave" brings the system to its knees once again.
If these statements come true, this means that the bailouts are far from over and thus the fiat money printing is going to have to continue, unless governments around the world suddenly change their tunes and open up their economies again, hoping for herd immunity to occur, while also hoping that they are not sacrificing a significant percentage of their populations in the process.
This means that the markets are going to become increasingly more and more of an illusion, the longer that Central Banks are forced to intervene and support the system as a whole. How long can this last? No one truly knows, as nothing the likes of this, on such a grand scale, has ever been attempted before.
However, one thing is for certain, tangible, real assets, such as physical gold and silver bullion are going to continue to increase in price and be in extreme demand the longer that this crisis continues.
I believe that $2000 USD per oz of gold is only going to be a pit stop, with future gains in the coming years to make that price look cheap in comparison.
Additionally, I believe silver bullion is going to follow a similar pattern, however, with even greater potential gains in store, as the gold to silver ratio eventual stabilizes and comes back down to a more historic average.
Until then, stay the course, stay safe and keep stacking.
- Source, Nathan McDonald via Sprott Money Blog
