Gold & Central Bank Confidence

The US election is now only about two weeks away. The winner of this election is likely to be… gold.  Here’s why:

Both candidates are eager to increase infrastructure spending, and that’s likely going to open the door to congressional discussion of the issuance of perpetual bonds (aka “perps”).

That’s inflationary. It is also going to lead to a significant drop in central bank credibility, because central banks will be reluctant to increase the cost of borrowing for governments at a time when governments want to borrow more for their infrastructure spending schemes.

The longer that central banks wait to increase interest rates more consistently and substantially, the more dangerous the credit bubble becomes.

Also, bank loan profits have been in a twenty-year bear cycle. That has caused a vicious deflationary bear cycle in money velocity.

Central banks are prolonging that bear cycle by promoting unprecedented growth of government debt and unfunded social programs.

The longer that central banks wait before moving interest rates noticeably higher, the more violent the liquidity flows from the government bond markets will be when the rates are finally hiked.

In my professional opinion, I think most career politicians really believe the world is in a “new era”, where governments can take on unlimited amounts of debt without any real consequences.

Central bankers are supporting this fantasy world view by pretending that the economic upcycle now in play from 2009 was created by them.

They created nothing except more danger for pension funds and government bond investors. Central banks effectively engineered a massive flow of bank assets into the stock market, real estate, and government bonds.

They did it with the biggest attack on Main street citizens in the history of America.Main street workers and pensioners have really been under constant attack since 2009, via QE and low rates.