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The United States suffered through a deflationary depression in the
1930s. Stock prices crashed, currency in circulation declined, commodity
and real estate prices fell hard and human misery prevailed.
President Roosevelt revalued gold from $20.67 to $35.00 per ounce in 1933 – a substantial devaluation of the dollar. Make-work and government spending programs were implemented. War followed the depression.
Then the United States suffered through the “stagflation” of the
1970s. The economy stagnated and inflation rose to previously unheard of
levels. The Vietnam war, inflation and social protests dominated the
news, gold shot upward from $42.00 to over $800 per ounce and the dollar
bought much less. Government spent massively on the Vietnam War and
social programs.
Those two eras had a number of commonalities – war, more government
programs, excessive government spending, social unrest, and escalating
gold prices.
Both were periods of weak or negative economic growth. The 1930s were deflationary and the 1970s were inflationary.
Stag-Depress-Flation of 2017 – 2025 might be next:
How and why? Everything is wonderful – we have new DJIA highs and a new President. Yes, but:
- Official National Debt is nearly $20 Trillion, an outrageous sum.
Corporate and personal debt, including mortgages, credit card debt, auto
loans and student loans are huge and difficult or impossible to pay.
- 95 million Americans are without jobs but are not included in the
calculations so we are told the official unemployment rate is low.
- Most people live paycheck to paycheck and have little savings and minimal retirement funds.
- Interest rates peaked in the early 1980s and declined until last
August. A 35 year trend that has reversed suggests interest rates will
increase for years or perhaps decades. Those increasing interest rates
portend bankruptcies, declining corporate profits, higher unemployment,
derivatives crash, and increasingly squeezed Americans overloaded by
excessive debt, even if they retain jobs.
- Higher interest rates will weaken the real estate market – already
happening – and most certainly will hurt the refi market – already
happening. The auto market will suffer – already happening.
CONCLUSIONS:
- Economically the U. S. is in trouble. We have far too much debt, too
many regulations, a deeply entrenched establishment taking more than
their share and massive but ignored unemployment.
- Social mood is deeply divided. Replay the SAG awards for a sample, or look at the number of protests in the past month.
- The country and populace are divided. The “left coast” and Hollywood
are convinced that nothing good can come from a Trump Presidency, while
“flyover America” rejoices and traditional media outlets fan the flames
of anger, resentment and betrayal. Eight years of disgust with
President Bush begat eight years of disgust with President Obama which
begat the President Trump era.
The country is more polarized than at any time since the anti-Vietnam War marches in the streets of America.
- The Fed deeply fears deflation because the risk of an economic crash
is high, tax revenues decline during deflationary episodes, and
everything leveraged with debt is vulnerable.
- Expect the Fed to do whatever is necessary to increase inflation,
“print currency,” promote QE, and more. Currency in circulation will
increase rapidly.
- As currency in circulation increases, consumer prices rise. Stocks
are already overvalued, bonds are declining (interest rates rising) so
expect the newly created fiat currencies to flow into commodities.
Prices will increase in commodities, gold and silver, as occurred in the
1970s.
- Hemmingway said, “The first panacea for a mismanaged nation is inflation of the currency; the second is war.” Consumer price inflation – never mind the official numbers – is here and increasing. Next is more war.
- Stagflation: Too much debt is a drag on the
economy. Rising interest rates suggest bankruptcies and declining
earnings – hence minimal or no growth. This is the stagflation part of
the scenario.
- Depression is an extended period of negative or low
growth, such as in the U. S. economy since 2008. Many believe the U. S.
entered the “Greater Depression” and never emerged.
- Inflation: The military believes that war is good for the economy. The previous President, who won a Nobel Peace Prize, dropped 26,171 bombs on foreign nations during 2016. Expect more war. Consumer price inflation always follows war.
- Expect much more inflation, like the 1970s and worse, as government
and the Fed “stimulate” the economy with currency printing, QE, war, and
spending. Congress likes spending projects and wars. The Fed likes
devaluation of the dollar and inflation of the currency. The dollar has
lost, compared to gold, over 98% of its value since 1913. Expect further
devaluation of the dollar.
- President Trump may be wonderful or the worst, but can he fix 100 years of mismanagement and corruption?
- Expect Stag-Depress-Flation in the coming years.
- Expect much higher gold and silver prices in upcoming years.
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GE Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of the book, “Gold Value and Gold Prices 1971 - 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy, and central banking. His articles are published on Deviant Investor as well as other popular sites.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
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