The Gold Bull Is Back

We know that central banks and governments have lost the plot. When the crisis started in 2006, US short rates were 5%. In 2008 they were down to zero and have virtually stayed there ever since. A crisis package of $25 trillion was thrown at the financial system. This is what the likes of JP Morgan and Goldman told the Fed they had to do to save the bank(-ers). Ten years later the world financial system is in a mess that is exponentially greater. World debt has exploded, most governments are running deficits and the financial system is balancing dangerously on the edge of a precipice. $8 trillion of government debt is now negative and $16 trillion is below 1%.

Negative yields are supposed to stimulate a deflationary global economy and also save bankrupt nations which can’t afford to pay a market interest rate on their exploding debts. But as usual, the central bankers have got it wrong again. Negative rates are increasing the risks for the financial system and the world economy. Bank profitability is crashing due to the low rates and forces them to take greater risks. For savers it kills the incentive to save. And without savings, there will be no investments and no growth in the economy. But the biggest disaster is hitting the pension sector. Virtually all pension funds are seriously underfunded, especially if they applied realistic rates of return. Pension funds hold three principal investments, stocks, bonds and property. These are all bubble assets inflated by the credit explosion in that central banks have orchestrated. As these assets implode, there will be no pensions left for anybody. People who are about to retire in coming years have no understanding of the fate that is going to hit them. They will receive no pension or a pension that is worthless. As the economy deteriorates, the unemployment rate will also rise dramatically. The combination of retirees with no pension and a high percentage of the population without a job will lead to severe human disasters around the world. Governments will of course print unlimited amounts of money but this will have no effect as manufactured money can never create wealth.