Stagflation Is An American And Worlwide Problem That Is Extremely Bullish For Gold And Silver - Especially For The Companies With Gold And Silver In The Ground

Making America great again with trade wars is a recipe to slow the economy and cause higher inflation. At a time when both of those are not needed as the economy already has a stagflation issue brewing.

Nonetheless, as soon as the inauguration of President Trump took place, he was once again making threats about severe tariffs against Canada and Mexico, two of the three largest trading partners of America.

He did seem to soften his stance against China, which probably reminded him that they own a lot of US debt and US dollars. He may have backed down for the time being against China, but at the World Economic Forum, he was on the warpath against Europe.

He is convinced that trade wars are a good thing for the US economy. They aren’t. All they will accomplish is slowing down the economy and increasing inflation when there is already mild stagflation (using the current way they calculate economic statistics) that could get worse very quickly.

If they calculated the jobs market and economy, as well as inflation, the way they did in the 1970s, the stagflation problem would be much more apparent than it is now. Consumers feel it because they live in the real world, not the one depicted by the farcical numbers the government and the Fed rely on for their fuzzy math.

Only fools believe that tariffs are paid by consumers, they are charged to importers and then passed along to consumers. Which will without a doubt slow down the economy. When other nations retaliate, which they will, then it puts added pressure on exporters that are already challenged by the high value of the US dollar. So the economy slows.

President Trump threatens that countries in the BRICS nations will be punished if they don’t keep the US dollar as the world’s reserve currency and the dominant currency for world trade. But, then makes the case that the US dollar is too strong and needs to come down, to spur exports. He wants both a strong and weak dollar. That is a circle that can’t be squared.

In addition to stoking the fires of trade wars, he is also ready to fight with the Federal Reserve, by forcefully arguing that the interest rates are too high and they need to be cut. Of course he wants that because he is a spending junkie that loves increasing the debt.

The only thing standing in the way are the bond vigilantes who have been on a buyer’s strike since the Fed declared victory over inflation and started cutting rates in September.

The Fed hasn’t beat inflation, and they know it, but they also know that the economy is weaker than they would like. They may not overtly say it, but in their December meeting, when committee members were asked to give their forecasts for economic growth and inflation, they are predicting that there will be weaker growth than inflation by around one perfect in 2025.

This is a prediction for stagflation, whether or not Powell sees stag or flation. He even said that their models on inflation coming down have fallen apart.

I imagine that the Fed folks, although they probably don’t like President Trump, would like to accommodate him with more cuts because they are worried about the economy and potential for stagflation to not be transitory.

But, the fly in the ointment are the bond vigilantes. Since cutting in September, they caused a correction in bonds that drove up yields. After the December meeting, when the Fed threw in the towel and signalled that there may only be a couple cuts in 2025, there has been a bounce in the bonds and drop in yields. That looks more like a dead cat bounce than a change in the trend.

If the Fed wants to accommodate President Trump, especially if the economy gets softer than they want and the inflation is stronger than they are letting on, they will have to revive their role as the buyer of last resort in the debt market. Which means they will need to get back in the QE business.

There is an unprecedented supply of debt instruments which is a massive issue on its own for the bond vigilantes, and a problem throughout the world and in America that won’t be swept under the rug. The Death Spiral of Debt emanates from America, the biggest debtor, throughout the world, and it isn’t going away because the politicians are spending junkies.

Instead of talking about concrete plans to slash spending, which is needed to slow down the Death Spiral of Debt that is under plenty of pressure due to the cost of servicing the debt, President Trump has been playing the smoke and mirrors game.

Since he was inaugurated, he has been busy signing a flurry of executive orders in an attempt to get folks to focus on his signing ceremonies and not on the real problems that he is going to cause with his trade wars that will juice up inflation and weaken economic growth.

This should surprise nobody as he said exactly what he was going to do and is doing that come hell or high water. Flexing his muscles with sabre rattling about trade wars may make him and the MAGA crowd feel like tough bullies. But, like all bullies, their actions come from a position of insecurity.

He has started the process of mass deportation. Less well publicized is that farm workers in California and low wage workers elsewhere aren’t showing up for work in fear they will be deported. In addition, 1500 troops are on their way to the border to keep migrants out and I would imagine plenty are trying to leave America to get back into Mexico.

This will make the MAGA folks and President Trump feel good, but there are economic ramifications. There are a lot of American companies that need those low-wage workers. The net result will be that it will put pressure on American companies that depend on them who will have to increase wages if they can find American workers that will do the work.

This is not an easy task for the American companies because the reason they need migrant workers is twofold. One is that they struggle to make a profit even with the low-wage workers and secondly because they can’t find American workers that want to do the hard work.

What will happen is that companies will go out of business, putting pressure on the economy and the ones that can find workers that they have to pay more will have to increase their prices. So it will cause two problems, slowing the economy and causing inflation.

President Trump and the MAGA crowd love to vilify migrants. But they aren’t so vocal when it comes to blaming the American companies and consumers that benefit from the hard work they will do for low wages.

I don’t believe they will ever come to terms with these economic realities. It is much easier to blame migrants than American companies that use them and consumers that like the low-cost stuff they produce. What reality they will have to deal with is a slower economy and higher prices.

It will likely happen much faster than anybody thinks. There will be a slow down in people coming over the border and an increase in them leaving the country in fears of getting deported. It is a perfect example of being careful about what you wish for because you might get it. In this case, it isn’t a question of might, it is a question of when, and it will be much faster than most expect.

This issue plays out in other areas as well. President Trump loves to blame China for sending goods into the US and uses that as a reason that America needs to get tough on trade. What he conveniently ignores is that they send goods that American consumers want to buy and American companies make money from selling.

China sends over boatloads of goods and takes US dollars, and until a few years ago would use that to buy US debt. Which allowed President Trump in his first term, and Obama and Biden to spend like drunken sailors. They were all interdependent.

America is also dependent on its other two biggest trading partners, Canada and Mexico. Why are they such important trading partners, because American consumers want the goods at the price they can make them for and American companies make a lot of money off this interdependence.

President Trump can complain about the trade deficit, but the economic reality is that the entire global economy is interdependent. The whole world economic system has been built on debt and destruction of purchasing power of fiat currencies. President Trump and the MAGA crowd may not like to face these economic realities, but they are to the benefit of America which is the biggest economy in the world.

The whole debt and fiat currency system is broken. Instead of China selling their manufactured goods and taking back US dollars and buying US debt, they are using those US dollars to buy gold.

They have run the numbers. With the unprecedented supply of US debt, it doesn’t make a lot of sense to buy it and get paid in US dollars that have constantly destroyed purchasing power since Nixon removed the last vestiges of the Gold Standard.

They aren’t the only ones running the numbers. Since Russia invaded Ukraine and were slapped with sanctions and kicked off the SWIFT banking system, BRICS nations have realized that if they ran afoul of America, they could face the same actions. Their conclusions were that they needed an alternative to the world’s reserve currency.

So, they have been loading up on the soundest money which is gold.

Some of them are also buying silver. They are starting to realize that gold and silver are excellent alternatives to US dollars and other fiat currencies. The issues above, especially the stagflation problem will be very bullish for gold and silver. It was during the stagflation in the 1970s and will be again.

That is the thing about economics, governments can play around with the numbers and sell that to the masses. But, economics have a way of seeing through the smoke and mirrors. The economic reality is that stagflation in America and other countries is a growing problem. As is the broken fiat currency and debt system.

Don’t be surprised when gold and silver go much higher in 2025. It is a combination of the Death Spiral of Debt, costs of servicing the debt and stagflation.

Investors that can see through the economic fallacies they are being sold, and protect their wealth and combat purchasing power destruction of fiat currencies are going to be much happier than those that don’t.

The writing is on the wall of how broken the fiat currency system backed up by debt is, which is why gold is at record highs against every fiat currency. Including the US dollar.

There are other economic realities playing out before our very eyes since the inauguration of President Trump. Even if few are talking about them. Earlier, I mentioned that President Trump has softened his stance about putting tariffs on China.

What likely happened is that President Trump and President Xi Jinping, probably had a little heart to heart conversation. That went something like this, President Trump, need I remind you that China holds a lot of US debt and US dollars, plus we produce a lot of raw materials. If you slap tariffs on us, we can blow off our US debt and US dollars, and we can cut off access to raw materials that you need.

What happened when America was offshoring manufacturing of practically everything to China was that China quickly realized that they needed copper, and other metals to make those products. So, they got into the mining and refining business in a big way. Now they control the refining of most of the critical metals.

Offshoring provided the goods that Americans wanted to buy at the prices they wanted to pay. Plus, American companies make a lot of money off selling those goods and also need the critical metals needed for them to make tons of money.

President Trump can campaign and thump his chest, but economics has a way of bringing folks to reality. Which is why President Trump has softened his tone toward slapping tariffs on China.

Trade wars, inflation, destruction of purchasing power of fiat currencies, plus a world economy built on debt have costs. As does who controls the natural resources needed to make everything and make it all work.

Mining legend Robert Friedland has called the era we are coming into the Revenge of the Miners. For much too long, mining has been an overlooked and underappreciated industry.

A perfect example is if you took the market valuation of every miner worldwide, plus all the mine developers and exploration companies with important discoveries, and combined them into one big publicly traded company, they wouldn’t equal the valuation of the top 10 or so publicly traded Wall Street stocks.

The global financial system has been built on debt and fiat currencies, and the world is awash in them. Whether the masses realize it or not, there is a new Gold Standard being built that will drive gold much higher as it is the only vaccine for the ills of a broken debt and fiat currency system. Well that, or defaulting on the debt. Either way is extremely bullish for gold.

Stagflation is an American and worldwide problem that will be very good for gold and silver, Which is a key reason that I argue will drive the prices of gold and silver much higher in 2025.

But, these aren’t the only metals that are primed to go much higher. Look at the supply and demand for the most critical of all metals, copper. For two decades, discoveries have been in decline, production of copper is relying on old mines that were found 20-50 years or more ago. Meanwhile, technological advances keep driving forward.

Power grids in developed economies are ancient and need rewiring, while energy grids in developing countries need to be built, new energy sources are needed, technologies like the internet, cloud computing, Bitcoin mining and Artificial Intelligence are energy intensive. Plus, electric vehicles need a lot of copper to build them and to get the energy from the source to the cars.

All of this needs a lot of copper. But, the supply chain is currently strained and in the next couple years will enter a supply deficit that will get worse for decades.

This is not the wishful thinking of a copper bull, it is based on the world relying on old copper mines for too long, not enough copper development projects to even replace the old mines with new mines let alone prepare for the looming supply deficit that is right around the corner.

When you look at new discoveries, they have dried up for a couple of decades. The copper supply chain from top to bottom is broken and this will drive copper prices much higher. A double or triple in price is a lot closer than most think is remotely possible.

It is pretty clear that I am very bullish on gold, silver and copper. I have never held as high of a conviction that they are heading much higher, actually, multiples of their current prices.

But, the real play for me is the miners, new mine developers and explorers with important discoveries.

For two key reasons. One is that the bullish moves that are coming will shock even many of the ardent metals bulls. Secondly, because generalist investors are completely ignoring them as can be seen in the way they are being valued compared to priced for perfection Wall Street stocks, Bitcoin and tech stocks.

Gold, silver and copper held by miners, new mine developers and explorers with important discoveries are extremely undervalued. Relative to current prices and not even slightly looking forward to much higher prices for the metals.

All the best,

Allan Barry Laboucan