Gold, Credit And The Coming Financial Collapse
By Hubert Moolman
25 October 2019
Since 2016, the US
Monetary Base has declined by about 23.68%. This is the deepest and
longest decline since the Federal Reserve was formed. This should not
be ignored.
The last time there
was a decline close to this magnitude,there was a sharp deflationary
recession. That was the one that occurred from 1920 to 1921.
Below, is a long-term chart of the Monetary base that goes back to 1918:
During the 1920-1921
recession the decline in the monetary base eventually made it into
the broader money supply and this caused a significant drop in price
levels (between 13% and 18%) during the recession, with wholesale
prices dropping as much as 36%.
The current decline
in the monetary base has not evolved into a decline of the money
supply yet, but it will likely soon do so. Especially if the economy
goes into a recession and the stock market collapses.
The monetary base is
the foundation part of the money supply, and represents the most
liquid part of it. It basically acts like gold in a 100% funded gold
standard: it represents the final settlement of a transaction.
If the monetary base
is declining then less means to service debt is available and could
trigger mass defaults. Cash becomes scarce and suddenly you have a
situation where the Fed has to intervene in the repo market like it
has been over the last couple of weeks, just to keep the system
going.
This problem is not
just going to go away without a major crisis and some severe
consequences. By my estimation the banking system is broken and is
unable to continue creating new credit in its current form, just like
a bank is unable to increase its gold holdings under a gold standard
when there is distrust of the banking system or that particular
bank.
Believe it or not,
the reserve banks do not control all the elements in the system: they
are not all powerful and unstoppable. The appetite or ability to take
on new credit is just not there anymore.
In my opinion, their
intervention is not about making the crisis go away (because it
won’t), but to protect their interest during the crisis.
This is likely the
beginnings of the expected monetary event I have pointed out before:
The chart shows the
ratio of the gold price to the St. Louis Adjusted Monetary Base back
to 1918. That is the gold price in US dollars divided by the St.
Louis Adjusted Monetary Base in billions of US dollars.(from
macrotrends.com)
More
details about the chart and original commentary here.
The bottom at point
3 is now virtually confirmed and we could soon have an event similar
to the 1933 gold confiscation (bankruptcy) and the 1971 announcement
where the US ended the dollar convertibility to gold (at a fixed
rate).
Although both of the
historic events were significant, they did not occur during a stock
market crash or during a recession. There is a huge potential that
the coming event could happen during a major stock market crash and
recession.
Therefore, the
coming monetary event could be the cause (or at the center) of the
coming crisis, whereas with the previous two they were as a result of
an ongoing crisis, and came towards the end to “correct” the
situation.
Note that a sharp
move from point 3 to point 4 on the chart is akin to a bank run on
gold holding banks in a gold standard. With the decline in the
monetary base and a rising gold price this is exactly what is
happening.
For more on this and this kind of fractal analysis, you are
welcome to subscribe to my premium
service. I have also recently completed a
Silver
Fractal Analysis Report as well as a Gold
Fractal Analysis Report.
