The BRICS Nations' Central Bankers Are Returning To The Gold Standard. Are You?
It is truly shocking how few seem to understand America is in a debt crisis, equally as alarming is how few are preparing for the ramifications of the Death Spiral of Debt. At least when it comes to the Western world. The central bankers of the BRICS nations get it as they are putting themselves on the Gold Standard.
Investors in the West are fed highly manipulated government statistics and merely go on their way buying Wall Street stocks as if the economy is in good shape. They focus on the headline numbers and ignore when the numbers are revised to show a different picture. When in reality the economy is being propped up by debt.
The debt crisis numbers are there for everyone to see. Government debt is over $34 trillion and on a path to drive past $40 trillion much faster than most seem to think. Deficits are well on their way to $3 trillion plus with politicians spending like debt doesn’t matter. The Free Money Era after the 2008 GFC has conditioned them to spend like they have an unlimited credit card. In a way it doesn’t matter until it matters and then it is too late.
We are at the too late point. Look at the debt servicing costs, it is going well over $1 trillion and on an unstoppable path to $2 trillion. It is locked in. The government has to roll over $9 trillion of debt in 2024 that was built during the Free Money Era. Even if the FED lowers 3 or 4 times by ¼ of a percent, it is still going to be alarming.
There is no way the politicians will slow down on spending, in reality they will ramp it up. This is an election year, so spending will increase. Then there are two hot wars to fund, with other countries looking like they want to enter the battle in the Middle East. There is absolutely no reasonable argument that the politicians will cut spending. As we all know, once spending increases, it never decreases after they increase the limit on the credit card.
Meanwhile, the FED goes on operating with blinkers on. When they put blinkers on a race horse, it is to prevent them from seeing what is happening beside them and keep focused in front of them. I would argue the blinkers the FED has on covers their entire eyes so that they don’t see beside them or in front.
They look at the highly manipulated economic statistics that are massaged to justify their narrative at the moment. They want to raise rates, the statistics magically help them keep the smoke and mirrors show running. They want to pause raising and the statistics miraculously justify it. When they want to lower, which they will this year, the statistics will give them cover. The currency traders will continue to focus on the headlines from the statistics and ignore the chronic revisions, and just keep trading because traders trade.
The politicians, aided and abetted by the FED and Wall Street bankers will never recognize or take responsibility for creating the Death Spiral of Debt. The politicians will keep overspending and the FED will help them with lower rates so they can crank up spending in an election year.
The FED will also keep supporting the Wall Street bankers. Last year, when regional banks started hitting the wall from holding too much underwater debt and had to sell it at a loss to cover depositors wanting their cash en masse showed they were insolvent. Then the FED came up with a new twist on bailing out banks. This time they said give us your underwater debt at par and we will lend you money to keep the balls in the air.
Imagine going to a pawn broker and saying I have this product that I bought for $100 a few years ago, can you lend me money as if it is still worth $100. After they stopped laughing, they would show you the exit. Not the FED. Instead they said sure, use your underwater assets at par, then go out and leverage that up some more with derivatives.
The banks are a ticking time bomb, with the fuse being commercial real estate. Just in the past couple of days, a Canadian pension fund, announced that they were selling a New York building they put millions into for a dollar. High vacancies and debt put in place during the Free Money Era are going to cause more commercial real estate owners to walk away from their struggling commercial real estate. The fuse is lit and getting closer to the ticking time bomb.
Consumers are under immense strain from debt as well. They are using their credit cards and dipping into their pension plans to make ends meet. While consumers are under intense pressure, the job statistics say the economy is strong. Never mind that the labor participation numbers are dropping and layoffs at high paying jobs are increasing.
It is one thing if someone retires and is no longer in the workforce, entirely different when someone is chronically unable to find a job. Sadly, we are seeing the ramifications in many American cities with alarming homelessness.
Making matters worse, there are tons of layoffs at big corporations that had workers making high wages. They switch to a low paying job, or have to take on more than one part time job, the labor statistics still count them as employed. Even if their purchasing power has dropped dramatically. But, the government statistics will have us believe that the labor market is strong when that is far from the truth.
No matter how you slice it, there is a Death Spiral of Debt that will only get worse. America is not the only one with this problem, it is happening all over the world.
The only ones to see the issues of the debt crisis are Chinese, Indians and central bankers in the BRICS nations. They have been buying gold since the 2008 GFC, ramping it up dramatically in 2022, increasing it to new records of buying in 2023, and looking to make new records in 2024.
They are putting themselves on the Gold Standard because they see the writing on the wall from the debt crisis and way too much money printing for much too long. Western investors should be doing the same thing.
In fact, some of the wealthiest investors, like Stanley Druckenmiller and Ray Dalio and more are buying gold stocks. They see the trends and feel like the best parking space for their money is in gold and gold stocks.
While the FED was raising interest rates, which supports the USD and should put pressure on gold, instead gold has been strong against the USD. It has touched new record highs, has stayed above $2000 per ounce for a few months and is a coiled spring looking for a reason to go higher.
I can see that it won’t be long before the FED lowers rates, the Death Spiral of Debt is much too heavy to withstand the current rates. This will be very bullish for gold. We saw a precursor when the FED got dovish in their December, 2023 meeting. When they pull the trigger, gold is primed to break above $2100 and make a series of new record highs during 2024.
The Death Spiral of Debt is so bad, plus the politicians won’t slow spending, that it won’t surprise me if the FED goes back to the Free Money Era.
Gold has been showing a lot of relative strength while the FED raised rates, then paused and is transitioning to dovish interest rate policies. This can be clearly attributed to strong demand from the East while the West sells them their gold.
While gold has been doing very well, the gold stocks are in depression mode. Some super wealthy investors are positioning themselves in gold stocks. They see how cheap they are and I don’t think it will be long before generalist investors start following Stanley Druckenmiller and Ray Dalio into the gold stocks.
The Western generalist investors will first move into the major gold mining companies and the ETFs. When they think of gold, those are the top of mind gold stocks they think of. So I will be watching them for signs the generalist investors are starting to move into gold stocks. They look significantly oversold and ready to bottom and rally off the lows.
After the generalist investors start filling up their boots with the majors, we should see them move down the food chain. Into the mid-tiers, smaller miners, developers and explorers. This is coming to a theatre near you soon, faster than most think, including the gold stock bulls that are very stressed and losing faith.
I firmly believe we are on a path for the central bankers, not only in the BRICS nations, but also in the West to return to the Gold Standard. There is nothing stopping investors to do the same.
For me, the serious torque is in the gold stocks. The audience for them are depressed. A rally above $2100 is just what the gold doctor ordered. It looks to be immediately in front of us.
All the best,
Allan