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4 Under-Reported Signs Paper Money Is Dying

4 Under-Reported Signs Paper Money Is Dying

Authored by Matthew Piepenburg via,

Below, we look at four deliberately ignored…

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This article was originally published by Zero Hedge
4 Under-Reported Signs Paper Money Is Dying

Authored by Matthew Piepenburg via,

Below, we look at four deliberately ignored reasons why extreme liquidity is drowning paper money.

Reason 1: The Taper Debate May Not be a Debate at All

Here, we look past the taper headlines and ask a simple question: Would a Fed “tapering” of QE really matter?

As we’ve written elsewhere, the Great Taper Debate is less of a debate than it is a pundit circus, forever fueling now classic yet complimentary debates on inflation vs. deflationgold vs. the dollar and Fed-speak vs. honesty.

Of course, such topics, including the great “taper,” are all critical issues worthy of opposing views and somber discussions.

The world needs open, transparent and respectful (as opposed to tyrannical) debate, now more than ever.

If the Fed, for example, were to taper money printing, it’s logical to assume (and argue) that this would mean falling bonds, rising rates, deflationary forces, a stronger dollar and massive headwinds for risk assets like stocks and real estate.

But for many who are not otherwise deeply ensconced into the weeds of Wall Street (i.e., normal, smart and conscientious investors), what they may not know is this: The Fed has other tricks up its liquidity sleeve than just “QE.”

Stated otherwise, the taper fears as well as taper debate may not be as central to the central bank debate as one might think.


Hidden Liquidity Tricks and More Central Bank Fire Hoses

Because hidden within the backwash of the deliberately murky and mysterious (i.e., toxic) love affair between Wall Street and the Fed, lies unmarked little islands of hidden liquidity powers known as the Standard Repo Facility (SRF).

Specifically, we’re referring to the Reverse Repo Program (RRP) for domestic use and the FIMA swap lines (for foreign creditors) which allows the Fed to keep dumping liquidity into the system even during a QE “taper.”

The RRP program, for example, allows the Fed to help commercial banks avoid (i.e., cheat on) those otherwise laudable Basel 3 rules, thereby giving our seemingly immortal banks the hidden power to circumvent Basel 3’s reserve requirements.

Without diving too deep into this intentionally complex arena, RRP programs technically reduce liquidity, but the program’s fine print effectively allows increasingly less “liquid” commercial banks to sidestep Basel 3, which means they are not forced to become “less liquid” in actual practice—just more dangerous.

As we warned months ago, as debt conditions worsen, so too does transparency and truth; far more importantly, centralized control over (and support for) an otherwise grossly distorted banking system (and risk asset bubble) continues to rise behind the headlines.

In short, if investors are wondering why or how markets can and could climb despite “taper” headlines, the answer is hidden in plain yet deliberately complex sight. After all, distortion loves to hide behind complexity.

Like inflation, the real truth behind Basel 3 and the taper-debate is hidden behind deliberate obfuscation and mis-reporting—what normal folks call, well…lies.

This means, taper or no taper, the dollar liquidity will keep pumping within the fantasy islands of the RRP archipelago and hence the liquidity needed to help “inflate away” otherwise unconscionable and mathematically growth-killing sovereign debt will and can continue.

Such liquidity trends, of course, just mean the further debasement of fiat/paper money.

Reason 2: The IMF Signals More Liquidity

But if you think the Fed is the only monetary body growing more desperate and hence liquidity-clever by the day, let’s not forget those Wunderkinder at the IMF nor Forest Gump’s reminder that when it comes to dumping more paper money onto an already unsustainable debt pile, “stupid is as stupid does.”

Just one month ago, the IMF’s board of governors approved an allocation (its first since 2009) of Special Drawing Rights (SDR) to the tune of $650B (456B in SDR) in order to stimulate, you guessed it, more global liquidity.

And as the graph below confirms, this latest allocation is an historical doozy, even for the IMF.

Aside from confirming desperation, the foregoing SDR allocation facts have a direct implication on that “barbarous relic” otherwise known as gold, which has been consolidating above last year’s breakout.

That is, whenever SDRs are issued (and they just issued a lot of them), that basket of global paper money (USD, JPY, EUR, CNY, GBP and JPY) tends to go on a shopping spree for gold.

Of course, that’s just another tailwind for precious metals, but the CNY (i.e., Chinese) component of those SDR’s won’t be the only demand-driven tailwind for gold.

As Brazil’s gold reserves skyrocketed by 100% in recent months, it’s worth noting who has been buying the bulk of those precious rather than “barbaric” metals.

Here’s a hint, the buyers are Brazil’s biggest trading partner—i.e., China.

But the plot thickens.

China is buying gold (as well as soybeans, steel, corn and oil) from Brazil for a reason

Like Russia, the Chinese can buy and sell those Brazilian products in CNY yet settle prices in gold which floats in price (as well as back into Brazil’s gold-thirsty central bank) based on each currency, thereby slowly but surely ignoring that increasingly discredited and distrusted world reserve currency known as the U.S. dollar.

Reason 3: The World Reserve Currency—Not So Exceptional

But as for such declining trust, political gaslighting and dollar-debasing trends, we can thank our so-called “experts” rather than the Chinese or Russians, who are calmly playing financial chess while Powell, Lagarde and others struggle comically to master checkers.

As DoubleLine’s Jeffrey Gundlach observed just last week, the U.S. is running its economy “like we’re not interested in maintaining global reserve currency status.”

Like the recent retreat from Afghanistan, U.S. monetary policy (and its dollar) is looking ever more embarrassing to the world at large.

We’re not suggesting that the U.S. Dollar’s “status” will change tomorrow, but we do believe strongly that owning real assets in general and precious metals in particular is simply commonsense realism in the backdrop of increasing currency fantasy spewing out of D.C.

Reason 4: Simple Math and the “Not-So-Crazy” of Rising Inflation & Deeper Negative Rates

A core aspect of that realism comes down to inflation now surging past “transitory” and morphing into just plain dangerous.

As repeated so many times, negative real rates (i.e., inflation outpacing sovereign bond yields) have extraordinary implications for rising gold price.

Last week, for example, we made a case for negative rates going as far down as -15%, which would require some pretty ghastly (but we feel deliberately engineered yet publicly denied) inflation ahead.

Toward that end, we reminded readers of prior moments in US debt history when rates fell that deep below zero as inflation rose to the sky—all deliberately allowed to get Uncle Sam out of a debt hole as he sucker-punches the public.

In case that -15% prognosis still seems “crazy” today, keep in mind that the official CPI measure of inflation itself, as reported out of DC, is simply another open CPI lie from the Bureau of Labor Statistics.

Deep down, we all know this.

Nevertheless, and if fantasy is officially accepted as a form of financial policy, the current inflation expectations (based upon the Fed’s 10-Year Breakeven Inflation Rate) of 2.3%, offset against the current 10YT yield of 1.3%, places real rates today at “just” negative 1% as of this writing.

As embarrassing as even negative 1% real rates may be, that’s hardly -15%, correct?

Reason to relax?

Not so fast.

Mathematical Reality vs. Policy Fantasy

The inflationary dangers become clearer once we dig deeper and factor in mathematical honesty rather than policy fantasy.

Even using the current year-over-year (July) CPI rate of 5.4% inflation against the 10YT yield, we arrive at a negative real rate figure of -4.1%.


But it gets worse.

That is, if we were to apply the Chapwood Index which accurately measures inflation by the more honest scale used by the U.S. in the 1970’s (i.e., before the inflationary CPI scale was conveniently “tweaked” to make paper money look more viable in the wake of Nixon’s closing of the gold window), actual inflation today is closer to what it feels like—namely 12%.

This means that when pitted against current 10YT yields, real rates today are negative to the tune of -10.7% right now. This very moment.

Which brings us back to the -15% figure we feel is coming.

Again, does it really seem that “crazy” to expect negative 15% rates in the next 4 years, 5 years, or 10 years when real, yet intentionally misreported rates, are already closer to negative 11% right now?



If gold shines brightest as real rates go deeper and faster into the negative, it’s our conviction, based upon honest math and genuine rather than doctored inflation figures or Fed-speak, that gold’s “golden era”has yet to even begin.

Whether more fiat money comes from: a 1) keyboard at a central bank; 2) the twisted fine print of the Reverse Repo Program; 3) the unprecedented fiscal deficits of mentally-mediocre policy makers seeking re-lection on COVID “concern”-signaling and tyrannical shutdowns, or 4) from the IMF’s SDR pool, the simple fact is that inflation follows the money supply, and today’s expanding money supply is literally off the charts.

The Fed, for now, can pretend to hide this liquidity-driven inflation behind double-speak or creative math, but eventually all truths (including inflation facts) float to the surface as real rates, like the paper money currency you own today, sink closer to the ocean floor.

But as every treasure hunter already knows, paper rots at such depths but gold never does—even after countless years of countless failed attempts by bankrupt regimes (from Rome to Yugoslavia) to pretend paper has value once the trust it has died.

But as Voltaire quipped, eventually all paper money reverts to intrinsic value: zero.

So, which asset do you want to own when the current fiat currency ship sinks like all who have come before it?

Here in Zurich, Switzerland, we’ve spent decades serving those who already know the answer.

Tyler Durden Wed, 09/08/2021 - 06:30

Precious Metals

Contact Gold hits gold mineralization in the Pilot Shale

Contact Gold (C.V) has released the assay results from additional holes drilled on the Mine Trend portion of its Green Springs gold project in Nevada,…

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Contact Gold (C.V) has released the assay results from additional holes drilled on the Mine Trend portion of its Green Springs gold project in Nevada, and the company  is pleased it has encountered gold mineralization in the Pilot shale, a layer underneath the more thoroughly explored lower Chainman shale.

The company doesn’t focus on the grade  (0.70 g/t Au) nor the width of the interval (16.7 m) as it looks at the gold in the Pilot Shale as a proof of concept as Contact Gold had been theorizing about potentially finding Alligator Ridge style of mineralization as the Alligator Ridge and Pinion gold projects owned by respectively Kinross Gold (KGC, K.TO) and Gold Standard Ventures (GSV.TO, GSV). An additional bonus is the fact this gold interval was encountered in a 900 meter gap in drilling in the mine trend, which means the mineralization remains open along strike to the north and the south, while another drill hole, 55, also encountered some gold in another ‘gap’ in between two past producing pits at Green Springs.

So rather than focusing on the assay results, the drill results should be interpreted as part of a bigger picture where the first drill test beneath the mine trend did indeed encounter gold. In his comment in the press release, CEO Lennox-King mentions he is looking forward to follow up on all four discoveries made this year (the two deeper Pilot Shale holes in the recent announcement as well as the Tango and X-Ray targets discovered earlier this year) in the fourth quarter but the company will require new funding to do so.

Disclosure: The author has a long position in Contact Gold. Contact is a sponsor of the website. Please read our disclaimer.

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US indices close week mixed, weighed down by tech stocks

Benchmark US indices closed the trading week mixed on Friday September 24 pulled down by losses in technology and healthcare sectors amid mixed global…

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Benchmark US indices closed the trading week mixed on Friday, September 24, pulled down by losses in technology and healthcare sectors amid mixed global cues.

The S&P 500 was up 0.15% to 4,455.48. The Dow Jones rose 0.10% to 34,798.00. The NASDAQ Composite fell 0.03% to 15,047.70, and the small-cap Russell 2000 was down 0.49% to 2,248.07.

Global markets remained volatile this week amid mixed cues. US stocks wavered after news that Chinese real estate giant Evergrande Group was on the brink of a major default.

Its US$300 billion debt bomb has sent shockwaves across the global markets. On Thursday, it entered a 30-day grace period after missing an interest payment deadline.

The Fed's sooner-than-expected timeline for stimulus tapering also weighed on investors' minds. The central bank said this week that it is considering withdrawing its bond-buying program by November. Consequently, an interest rate hike may be imminent.

Separately, the Biden administration is also planning to increase the corporate tax. It is currently debating a spending bill, which is expected to outline the program.

On Friday, the energy and financial stocks were the top gainers on S&P 500 index. Real estate and healthcare stocks were the bottom movers. Six of the 11 index segments stayed in the green.

Shares of Nike, Inc (NKE) fell 6.17% after it lowered its sales forecast. The company said it is facing challenges to meet the demand for shoes and athlete wear due to delays in production and shipping. Nevertheless, its revenue jumped 16% YoY to US$12.2 billion in Q1, FY22.

Meredith Corporation (MDP) stock rose 25.27 percent after news that the magazine publisher is in advanced talks for its purchase by media and internet holding company IAC/InterActiveCorp.

In the healthcare sector, Moderna Inc. (MRNA) fell 4.65%, Dexcom Inc. (DXCM) shed 2.25%, and Waters Corporation (WAT) fell 1.78%. Resmed Inc. (RMD) and Boston Scientific Corporation (BSX) ticked down 1.37% and 1.06%, respectively.

In technology stocks, Enphase Energy Inc (ENPH) declined 3.04%, NVIDIA Corp (NVDA) fell 1.89%, and Adobe Inc. (ADBE) declined 1.48%. Accenture plc (ACN) shed 1.20%, and Inc. (CRM) gained 2.47%.

In the energy sector, ConocoPhillips (COP) rose 2.43%, EOG Resources Inc. (EOG) gained 2.45%, and Baker Hughes Co (BKR) gained 1.25%. Hess Corporation (HES) and Pioneer Natural Resources Company (PXD) advanced 1.10 and 3.21%, respectively.

In the crypto market, prices tumbled after the Central Bank of China declared crypto transactions illegal. Bitcoin (BTC) fell 5.49%, Ethereum (ETH) fell 7.74%, and Dogecoin (DOGE) declined 6.82%.

Also read: With chipmakers in the spotlight, here’s a peek at five of them

Also read: Top five communication stocks that rode the Q2 rebound

Six of the 11 segments of the S&P 500 index stayed in the green.

Also read: Why are Salesforce (CRM), Affirm (AFRM) stocks in limelight today?

 Futures & Commodities

Gold futures were up 0.03% to US$1,750.40 per ounce. Silver decreased by 1.21% to US$22.405 per ounce, while copper rose 1.20% to US$4.2817.

Brent oil futures increased by 1.04% to US$78.05 per barrel and WTI crude was up 0.93% to US$73.98.

Also Read: In the Spotlight: Top 50 US startups in 2021

Bond Market

The 30-year Treasury bond yields was up 3.15% to 1.985, while the 10-year bond yields rose 3.02% to 1.453.

US Dollar Futures Index increased by 0.27% to US$93.278.

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Precious Metals

Your cash will lose at least 5% of its purchasing power in the next year

Earlier this week, Fed Chair Jerome Powell announced that the real yield on dollar cash and cash equivalents is likely to be -5% or less over the next…

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Earlier this week, Fed Chair Jerome Powell announced that the real yield on dollar cash and cash equivalents is likely to be -5% or less over the next 12 months. Yes, your cash balances will lose at least 5% of their purchasing power over the next year, and that's virtually guaranteed. So what are you—and others—going to do about it?

Assumptions: This forecast of mine optimistically assumes that 1) the first Fed rate hike of 25 bps comes, as the market now expects, about a year from now, and 2) the rate of inflation slows over the next 12 months to 5% from its year-to-date rate of 5.9%. Personally, I think inflation next year likely will be higher, if only because of the delayed effect of soaring home prices on Owner's Equivalent Rent (about one-third of the CPI), the recent end of the eviction moratorium on rents, and the continued, unprecedented expansion of the M2 money supply.

I'm a supply-sider, and that means I believe in the power of incentives. Tax something less and you will get more of it. Tax something more and you will get less of it. Erode the value of the dollar at a 5% annual rate and people will almost certainly want to hold fewer dollars than they do today.

I'm also a monetarist, and that means I believe that if the supply of dollars (e.g., M2) increases by more than the demand for dollars, higher inflation will be the result. We've already seen this play out over the past year: the M2 money supply has grown by more than 25% (by far an all-time record) and inflation has accelerated from less than 2% to 6-8%. Massive fiscal deficits have played an important role in this, but so has an accommodative Fed. Between the Fed and the banking system, 3 to 4 trillion dollars of extra cash were created over the past 18 months. At first that was necessary to supply the huge demand for cash the followed in the wake of the Covid shutdowns. But now that things are returning to normal, people don't need or want that much cash. Yet the Fed continues to expand its balance sheet, and they won't finish "tapering" their purchases of notes and bonds until the middle of next year. That means that there will be trillions of dollars of cash sitting in retail bank accounts (checking, demand deposits and savings accounts) that people will be trying to unload.

If we're lucky, the inept and feckless Biden administration will be unable to pass its $1.5 trillion infrastructure and $3.5 trillion reconciliation bills in the next several weeks. This will lessen the pressure on the Fed to remain accommodative, but it's not clear at all whether it will encourage the Fed to reverse course before we have a huge inflation problem on our hands. Non-supply-siders (like Powell) view an additional $5 trillion of deficit-financed spending as an unalloyed stimulus for the economy. Supply-siders view it as a virtually guaranteed way to increase government control over the economy and thereby destroy growth incentives and productivity.

Amidst all this potential gloom, there are some very encouraging signs, believe it or not. Chief among them: household net worth has soared to a new high in nominal, real, and per capita terms. Also, believe it or not, the soaring federal debt has not outpaced the rise in the wealth of the private sector. See the following charts for more details:

Chart #1

Chart #1 is a reminder of just how low today's interest rates are relative to inflation. Terribly low! In normal times, a 4-5% inflation rate would call for 5-yr Treasury yields to be at least 4-5%. yet today they are not even 1%. The incentives this creates are pernicious: holding cash and/or Treasuries implies steep losses in terms of purchasing power. That in turn erodes the demand for cash and that fuels more spending and higher inflation.

Chart #2

Chart #2 shows the growth of the non-currency portion of M2 (currency today is about 10% of M2). Currency in circulation—currently about $2.1 trillion—is not an inflation threat, because no one holds currency that they don't want. The rest of M2, just over $18 trillion, is held by the public (not institutions) in banks, in the form of checking, savings, and various types of demand deposits. For many, many years M2 has grown at an annual rate of 6-7%. But beginning in March of last year, M2 growth broke all prior growth records. As the chart suggests, the non-currency portion of M2 is about 25% higher than it would have been had historical trends persisted. That means there is almost $4 trillion of "extra" money in the nation's banks. This extra money has been created by the same banks that are holding it: banks, it should be noted, are the only ones that can create cash money. The Fed can only create bank reserves, which banks must hold to collateralize their deposits. Today banks hold far more reserves than they need, so that means they have a virtually unlimited ability to create more deposits. And they have been very busy doing this over the past 18 months. 

For most of the past year I have been predicting that this huge expansion of the money supply would result in rising inflation, and so far that looks exactly like what has happened. People don't need to hold so much of their wealth in the form of cash, so they are trying to spend it. But if the Fed and the banks don't take steps to reduce the amount of cash, then the public's attempts to get rid of unwanted cash can only result in higher prices, and perhaps some extra spending-related growth. It's a classic case of too much money chasing too few goods and services. And Fed Chair Powell has just added some incentives for people to try to reduce their cash balances. He's fanning the flames of inflation at a time when there is plenty of dry fuel lying around.

Chart #3

Now for some good news. Chart #3 shows the evolution of household balance sheets in the form of four major categories. The one thing that is not soaring is debt, which has increased by a mere 20% since just prior to the 2008-09 Great Recession. 

Chart #4

With private sector debt having grown far less than total assets, households' leverage has declined by 45% from its all-time peak in mid-2008. The public hasn't had such a healthy balance sheet since the early 1970s (which was about the time that inflation started accelerating). Hmmm....

Chart #5

In inflation-adjusted terms, household net worth is at another all-time high: $142 trillion. 

Chart #6

On a per capita and inflation-adjusted basis, the story is the same (see Chart #6). We've never been richer as a society.

Chart #7

Total federal debt owed to the public is now about $22 trillion, or about the same as annual GDP. It hasn't been that high since WWII. So it's amazing that, as Chart #8 shows, federal debt has not exploded relative to the net worth of the private sector. As I've shown in previous posts, the burden of all that debt is historically quite low, thanks to extraordinarily low interest rates. 

Chart #8

Chart #8 adds some color to my prior post, "What's wrong with gold?" What it suggests is that gold prices are weak today because the market is anticipating higher short-term interest rates. The red line shows the yield on 3-yr forward Eurodollar futures contracts (inverted), which is a good proxy for where the market thinks the federal funds rate will be in three years' time. Gold peaked when forward interest rate expectations were at an all-time low. Why? Because super-low interest rates pose the risk of higher inflation. With the Fed now talking about raising rates (albeit sometime next year, and very slowly thereafter), gold doesn't make as much sense because forward-looking investors are judging the risk of future inflation to be somewhat less than it was a few years ago.

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