MMT is the socialists’ dream. It officially stands for Modern Monetary
Theory but a more appropriate name would be More Money Theory. Because MMT
is just a fancy name to justify more money printing, more deficits and more
debts. Socialists love MMT, because for a sovereign nation, it
justifies constantly living above your means.
This is of course nothing new for the US which has practised MMT for soon
70 years. Not since the early 1960s has the US had a real budget surplus.
Europe has had socialist governments for decades, but for the US it is a
relatively new phenomenon. Alexandria Ocasio-Cortez (AOC) has now picked up
the baton from Krugman, arguing that socialism and deficit spending is the
solution to the US problems and the world’s.
US UBER-SPENDING
Trump, who normally is as far from a socialist as you can get, is
nevertheless applying MMT to the US economy by continuing to spend money that
doesn’t exist. His tax cutting and uber-spending, combined with the imminent
downturn of the US economy, will soon put the US in the same category as
countries like Italy. That is what is called the basket case category
where default will be unavoidable.
As opposed to Italy, the US can print its own money. And they continue to
do at an ever increasing rate. Just look at the chart below which shows the
only way the US government knows how to grow GDP. But we must remember that
printing unlimited amounts of worthless money leads to a total debasement of
the currency which is just another form of default.
From 1970 to 2008 it took $0.77 of debt to produce $1 of GDP. From 2008 to
2019 it has taken $4 of debt to produce $1 of GDP. In simple terms, the US is
running on empty.
FALSE MONEY LEADS TO FALSE VALUES
How can anyone believe that any of the values we are looking at today are
real. Bezos and his wife are worth $150 billion and his company Amazon has a
Market Cap of $1.4 trillion. These are just fantasy numbers. And so are all
the other billion and trillion dollar values that have been created out of
nothing. So the US government has printed $13 trillion since 2008. And the
world as a whole has increased total debt by $125 trillion. It is all this
money that has created the illusory wealth in the world in this century.
Very few people realise that these telephone book numbers will all vanish
in the next crisis and lose 90 to 100% in nominal value.
REAL GDP GROWTH HAS BEEN NEGATIVE SINCE 2000
Looking at the growth in GDP, based on real inflation (ShadowStats), real
GDP growth has grown by less than 2% annually since 1990. And since 2000,
real GDP growth in the US has been negative. The reason for that is obvious.
The US has printed $4 to achieve $1 increase in nominal GDP. But the nominal
figure is totally meaningless since it has only been achieved by printing $13
trillion of fake money that has ZERO value. How can anyone believe that you
can create wealth by just creating money out of thin air. If an individual
prints fake money, that would be a blatant fraud and he would end up in
prison.
FRAUD OF THE HIGHEST DEGREE
So why isn’t it fraud when a government prints money? Well of course it is
fraud of the highest degree. A country that creates debts and prints money is
defrauding its people. But sadly the people are unaware of the misdeeds of
their government. They don’t realise that the value of the dollar, pound or
euro in their pockets is declining precipitously.
The best way to determine the decline of paper money over time is to
measure it against gold. All currencies are crashing against gold in this
century. The dollar has lost 79% since 2000, measured in gold and the pound
82% as the charts below show. The decline has paused since 2012 but the next
leg down is imminent. Within the next 4-6 years, the move down should
take the dollar and the pound to their intrinsic values of zero.
This fall will be accompanied by unlimited money printing in a final and
desperate attempt by central banks to save the global financial system.
Sadly, they are guaranteed to fail.
GOLS IN US $ WILL SOON BREAK THE MAGINOT LINE
In the short term, gold seems to have stalled just below the critical Gold
Maginot Line at $1,350. Just like the French did in WWII, the BIS and the
bullion banks are defending this line strongly.
The Germans pushed through the Maginot Line at its weakest point and the
same will soon be the case with the Gold Maginot Line. Gold has already
broken through this line in many currencies like the Australian and Canadian
dollar, the pound, the Swedish and Norwegian kroner etc. Thus it is only a
matter of time before the US dollar line is broken at $1,350.
GOLD IS ETERNAL MONEY
Investors who hold gold for the right reasons are not concerned. Gold is
eternal money and therefore short term moves are irrelevant. We know that
when governments and central banks behave irresponsibly, like they have done
for the last 100 years, it will all end badly. When it does, gold will reach
levels that no one can imagine today. But when that happens, the world will
be a much worse place to live. So best to enjoy the present times as long as
they last.
THE EU ELITE IS DESPERATE
The fall of the EU and the Euro is inevitable. The unelected and
unaccountable Brussels elite is desperate to stop the sinking ship from going
to the bottom. They are doing what they can to stop Brexit. Just like they
have interfered in Ireland, Denmark, Greece, and Italy. But they will not
succeed. Italy’s economy and banking system is in a hopeless position and the
coming crisis and default will have severe repercussions for French Banks,
Spanish Banks, the ECB and thus the global financial system. That is one of
the potential triggers for the next global crisis which will be much bigger
than the 2007-9 one. I discussed some of these issues in an audio
interview on King World News last week.
A FINAL HURRAH AND A GLOBAL CRISIS
The inevitable global financial crisis is approaching fast. A final hurrah
in stocks is still possible. That can finish abruptly or it can take a few
months. Once it finishes we will see the biggest secular bear market in
history.
Gold’s next move up is not far away. There is still a short time when gold
and silver can be bought at reasonable prices. But we are already
experiencing supply problems in silver. So there is not much time left to
acquire proper wealth protection in physical precious metals. Once the paper
shorts run for cover and ask for delivery, there will be no metals available.
I would advise investors not to wait for that moment.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45
Matterhorn Asset Management’s global client base strategically stores an
important part of their wealth in Switzerland in physical gold and silver
outside the banking system. Matterhorn Asset Management is pleased to deliver
a unique and exceptional service to our highly esteemed wealth preservation
clientele in over 60 countries.
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