Editorial note: You can read part one of Jim Rickard’s article, published on Tuesday, here.
The global monetary elites had a conference in Zurich, Switzerland, last week. Among the speakers were William Dudley, president of the Federal Reserve Bank of New York, and Claudio Borio, chief economist of the Bank for International Settlements (BIS).
The topic of the conference was the prospect of multiple reserve currencies in the international monetary system. The speakers generally agreed that a system with more reserve currencies — such as the Australian dollar, Canadian dollar and possibly certain emerging markets’ currencies in addition to the Chinese yuan — would be a desirable one.
There’s only one problem…
It’s a zero-sum game. All of the reserve currencies in the world add up to 100% of the reserve currencies. If new currencies have a larger share, then the US dollar must have a smaller share. It’s just basic math.
That means a long-term process of selling dollars and buying the new reserve currencies. That selling lowers the value of the dollar and imports inflation into the US.
It also means a higher dollar price for gold.
According to Bloomberg,
‘Soros cut his firm’s investments in US stocks by more than a third in the first quarter and bought a US$264 million stake in the world’s biggest bullion producer, Barrick Gold Corp….
‘Soros also disclosed owning call options on 1.05 million shares in the SPDR Gold Trust, an exchange-traded fund that tracks the price of gold.’
These are all signs of a weaker US dollar. But it’s one thing for famous billionaires and analysts like me to expect a weaker US dollar. It’s another thing when the guy who prints dollars also says the US dollar will weaken. A moment ago, I mentioned William Dudley, head of the New York Fed…
Well, when the Fed wants to print dollars, it’s the New York Fed that buys bonds from Wall Street primary dealers and pays for them with money that comes from thin air.
In a recent interview, Dudley said that ‘energy prices seem to have stabilized and actually increased a little bit, and the dollar has actually weakened… I am reasonably confident that inflation will get back to our 2% objective over the medium term.’
So if the guy who prints US dollars is looking at a weaker dollar and more inflation, maybe you should too.
On Tuesday, I explained how the global elite plan to use higher gold prices to unleash inflation. Below, I show you the second part of their plan, which may already be underway. Read on…
Gold’s trading at around US$1,226 this morning. So, if you buy gold today and it goes to US$5,000 an ounce or US$10,000 an ounce, which I do expect, you’d probably be extremely happy.
But that doesn’t tell the whole story. Gold will have increased dramatically in nominal terms. If gold goes from US$1,000 an ounce to US$5,000 an ounce, most people would say that’s a 400% increase in the price of gold.
But it’s really an 80% devaluation of the dollar. That 80% dollar devaluation leads to a world of US$5,000 gold. But it also leads to a world of US$400 per barrel and US$10.00 gas.
Yes, you need to own gold in that situation because you’ll be protected against inflation. You’ll be in a far better position than those who don’t. They’ll be wiped out. But in many ways you’re just keeping up, since everything you buy will be much higher.
The key takeaway is that a higher dollar price for gold is just a lower value for the US dollar. And that’s what the elite’s want.
It’s part of their global inflation plan…
How do you get all the major economies in the world to create inflation without relying on destructive currency wars that merely shuffle money around between winners and losers?
The answer is very interesting. It’s a two-part answer, really. And they’re both coming. You could call it a master plan for global inflation…
I’ve explained in recent weeks how the monetary elites are looking to engineer higher gold prices to generate inflation since nothing else has worked. That’s the first answer. The evidence is very strong for that hypothesis.
The second part of the answer goes by the name of helicopter money. You’ve probably heard all about it. Helicopter money is different than QE, quantitative easing. It conjures up the image of a helicopter dropping money onto the streets below. Everyone picks up the money, runs down to Walmart and goes on a buying spree. All that extra spending leads to inflation. That’s not literally how the process works, but the idea is the same.
Let me explain technically how helicopter money does work. It’s a combination of monetary policy and fiscal policy. The central bank controls money printing, but it can’t control government spending. That’s up to the Congress.
With helicopter money, the monetary authority and the fiscal authority work together. When Congress wants to spend a lot more money, it produces larger budget deficits. And the Treasury has to cover that deficit by issuing more bonds. The Federal Reserve buys the bonds. And it prints money to buy the bonds.
The answer still comes back to money printing. Quantitative easing, which they’ve been doing for seven years on and off is money printing, but it works differently. With quantitative easing, the Federal Reserve simply buys bonds from a bank. It pays for the bonds with printed money, which goes to the bank. What do the banks do with it? In theory, they’re supposed to lend it to businesses and private citizens.
But people have been reluctant to spend it and banks don’t want to lend it. What do the banks do with that money if there’s no lending and spending? They give it back to the Federal Reserve in the form of excess reserves. After all, the Federal Reserve is a bank. It’s a bankers bank, essentially.
What good does that do anybody? None, really. It just inflates all the balance sheets and props up the banks. It doesn’t do the economy any good.
Helicopter money is different because Congress spends the money. Helicopter money doesn’t give the money directly to people because they might not spend it. But the government will. The government is very good at spending money.
The Democrats prefer benefit programs, welfare programs, social spending, education, healthcare, and the like. The Republicans prefer defence, intelligence, corporate subsidies, and so on.
The way Democrats and Republicans usually compromise on these things is to do both. Everybody gets something. They can build six new aircraft carriers, offer free tuition, free healthcare, free housing, etc.
Then the supposed Keynesian multiplier kicks in to increase consumer spending. The Keynesian multiplier says that if the government spends money to hire people to build a highway, for example, they’ll spend it by going to dinner, the movie theatre, buying new cars, vacations, etc. And those on the receiving end of that money spend it on other things, in a virtuous cycle.
But the Keynesian multiplier might not be nearly as effective as elites suspect. With an economy saturated in debt like ours, you reach the point of diminishing returns. By the way, if helicopter money fails, plan B is to increase the price of gold, as I explained yesterday. That works every time.
The leader on this is House Speaker, Paul Ryan. Last December, Sir Paul Ryan passed Obama’s budget and busted the ceiling caps that have been in place since 2011. The Ryan budget of September 2015 busted the cap. It also refinanced the IMF, which was buried in a 2012 bill, but that’s a story for another day.
But that budget bill was the tip of the iceberg. The plan now is to have much larger budget deficits. The point is, if people won’t spend, the government will. When the government spends and deficit finances it, it will eventually produce inflation.
That plan is on the table. It’s discussed among the elites. It’s being advanced by all the big brains who work for the big think tanks, run by George Soros and the financial elite. These people don’t walk around with hoods around their heads. We know who they are. You just have to follow them to see what they’re up to.
But these elites are actually beyond the stage of calling for helicopter money. That’s already been decided. They’re now debating what they should spend the helicopter money on. They looking for the best way to reassure the public — meaning lie to the public — about what they’re actually up to.
I wrote recently in these pages about how the recent climate agreement may have really just been a disguised helicopter money scheme. Spending on emission reduction programs and infrastructure could total about US$6 trillion per year, which would be carried out by the IMF through the issue of special drawing rights (SDRs).
That’s one way the elites could sell their plans to the public. It’s inflation masquerading as ‘saving the planet’, ‘climate justice’, or what have you.
The bottom line is that helicopter money is coming. I think inflation is too, either through helicopter money or increasing the gold price — or a combination of both. It may not happen overnight, but governments will ultimately get it if they’re determined enough.
It’s true, inflation is low right now. The Fed says it wants 2%. But it secretly wants 3%, which is really not so secret. Troy Evans is the president of the Chicago branch of the Federal Reserve. And he told me he wouldn’t mind seeing 3% to 3.5% inflation. His theory is that, if the target is 2% and it’s been running at 1%, you need 3% to average the two. And mathematically that’s right.
But the economy isn’t a fine Swiss watch you can tinker with to produce desired outcomes. Deflation has held the upper hand in many ways since the 2008 crisis. But once inflation takes hold, it can’t easily be put back in the bottle.
Think of the forces of deflation and inflation as two teams battling in a tug of war. Eventually, one side wins.
If the elites win the tug of war with deflation, they will eventually get more inflation than they expect. Maybe a lot more. This is one of the shocks that investors have to look out for.
Strategist, Strategic Intelligence
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