Central planners and policy makers are fighting a titanic battle to avoid a deflationary bust, one for which they have laid the foundations themselves. The irony is that they are fight the battle with the same tools which caused the problem: debt and debt related instruments. Consider the following developments of the last week:
ECB President, Mario Draghi, promised to take more drastic measures to avoid deflation slipping into the Eurozone area, promising to use whatever means necessary to boost its sagging economic growth. Draghi said last week that his focus is to raise inflation and inflation expectations.
The People’s Bank of China cut the interest rates unexpectedly for the first time since July 2012. They did so after industrial production and retail sales figures showed the slowdown deepened last month.
Japanese Prime Minister Shinzo Abe has called snap elections as he is struggling to provide any proof of the benefits of “Abenomics” after his country slipped again into an official recession.
The G20 and OECD are defining another set of taxes for individuals. The G20 also confirmed that uninsured bank deposits are just part of commercial banks capital structure. This brings bank deposits on the same level as paper investments; banks no longer recognize your deposits as money, but as liabilities controlled by the bank or institution.
The sad truth is that, after trillions of paper money have been pumped into the economic system, growth is insufficiently present, trade is slowing, private debt is peaking, currency wars are heating up, fear among consumers is increasing, wealth inequality is at all time highs. In sum, “there is a disconnect between debt-saturated real economies and irrationally exuberant financial markets; yet, despite the overwhelming evidence showing failed monetary policies, governments continue with their expansionary monetary policies and low interest rates,” as David Levenstein puts it.
These are plenty of reasons to hold part of your assets in physical metals. Although we do not hope for it, the above scenario really offers more proof that policy makers are not in control. At a certain point, it will become painfully clear.
The fact that the Dutch Central Bank has shipped 122.5 tons of gold from safekeeping in New York back to its headquarters in Amsterdam, during a secret operation, has an important underlying message. What’s more, just today we did find out that a movement is starting in France to repatriate their gold as well. It seems like there is much more value in holding gold than most policy makers make us believe. What do they know that they do not want to share? Why is this trend accelerating? If gold is a barbarous relic …
Try to connect the dots and come to a plausible conclusion. If nations are preparing for the worst, then individuals should do as well.