War + Inflation = Gold

Authored by Egon von Greyerz via VonGreyerz.Gold,

All the fundamentals are now in place for the above equation to be true: 

• Wars will sadly not go away but instead escalate since there is ZERO desire for peace from the US neocons or the weak Europeans. 

• Inflation and interest rates will increase rapidly, driven by deficits and exponential growth of debt.

• Wars and inflation will lead to a major shift into GOLD by Central Banks, the BRICS  as well as for wealth preservation purposes.

“Poverty is the parent of revolution, crime and war” is what Aristotle stated 2,300 years ago. I added “war” since this is often the consequence of poverty and bankruptcy for a nation in a desperate attempt to borrow more money and blame the war for the economic woes.

As the US is now totally losing its hegemony, we can on a daily basis follow the desperate actions that a failing super power takes. 

As every empire and nation that fails, the US has followed the same pattern whether we talk about the Roman, Mongol, Ottoman, Qing or British Empires. 

Initial economic success as well as military might lead to illusions of grandeur and infallibility. 

Riches, often stolen from other nations, turn to deficits and debts, collapsing currencies and decadence. That leads to money printing followed by the collapse of the currency. At that stage wars are often started which generally have disastrous consequences. 

The RISK OF A COLLAPSE OF THE global geopolitical and economic SYSTEM is crystal clear BUT the outcome is extremely murky.

So let us look at what is clear on the geopolitical side:

• The US is not led by a visible leader but by an invisible and unaccountable group of neocons who only want war. And in Europe there is not a statesman to be found. Instead, weak European leaders follow the headless US.

• The US Neocons want to crush Russia by any means, even if it leads to nuclear war. Thus the US has implemented sanctions against Russia and forced Europe to take their full part by also sending weapons, money and military expertise to Ukraine. The cost of these measures is destroying the European economy and making the US even more bankrupt than it is, by running a deficit approaching $2 trillion with total US debt at soon $100 trillion. Remember it was $1.7 trillion in 1971 when Nixon closed the gold window.  See graph further down. 

• If the US war against Russia (carried out in Ukraine) escalates, Russia will have many friends on their side like China, North Korea and Iran. The US and NATO do not have the capacity to win a war on the ground so any war involving the West will be in the Air and very likely nuclear. 

• The US also wants to crush the Muslim/Arab world. Iran is currently the principal enemy. But the US is also supporting Israel against Hamas and the Houthis in Yemen. The Muslim world has no capacity for a major war against the West but they have a much more effective method of paralysing the West which is terrorism on a major scale.  Most Western countries have well armed Muslim cells, most probably also with dirty nuclear weapons. So surprise attacks on strategic buildings or major shopping centres  in the US, UK  and rest of Europe are probable. That would totally paralyse the countries involved.

• A cyber war is also very likely. Whether Russian and Chinese missiles can take out major communication satellite systems, as recently published, remains, to be seen. But they have well developed skills for cyber attacks anywhere. 

• The US has no desire for peace. They and other NATO countries are not sending a single peacemaker to Russia but only weapons and money. 

• The majority reaction to the recent Tucker Carlson 2 hour interview is typical for the propaganda led hatred for Putin. Most people in the West have been told by MSM to hate Putin and blame him for all evil acts and thus not listen to the interview. I am by no means saying that Putin is an angel because he definitely isn’t. But nor is any other leader of course. Nevertheless Sun Tzu, the Chinese General, strategist and philosopher told us 2,500 years ago: KNOW YOUR ENEMY.  

• So how can anyone in the West understand Russia or Putin when they are not prepared to listen to him calmly presenting the Russian side for 120 minutes? 

• Tucker Carlson – Biden interview. Some US politicians wanted to ban Tucker Carlson from coming back to the US after the interview. Instead I would suggest that Tucker would be given a 2 hour interview with Biden. Just like with Putin, there should be no advisors present, no crib sheets and no teleprompters. 

• Let the world thereafter compare the quality of the argument of the two leaders, their clarity and if they are both Compos Mentis. After all, these are the minimum requirements for a leader of a major power and someone who personally can press the nuclear button. 

I  have above covered the global geopolitical situation which is “crystal clear” from a risk point of view. 

I have since the Ukraine war started been very clear that Ukraine can never beat Russia. After a lot of initial enthusiasm for the underdog and a lot of fake news that Ukraine was winning, the world now realises that this war is a human catastrophe with both sides reporting big losses for the enemy and minimal for themselves. Total deaths are probably well above 500,000 but we will never know. 

The tragedy is of course that the leaders sit in their safe offices and send 100s of thousands of men to their slaughter with no resolution in sight. 

How this war will play out in detail, we will of course only know afterwards. But in the end it will be seen as another futile war with no winners and one or several million losers, just like most wars that megalomanic leaders start. 

THE RISK OF A COLLAPSE OF THE WESTERN ECONOMY IS CRYSTAL CLEAR

So let us now look at the global economic picture. 

The risk of your wealth declining by 70-90% in the next 5-7 years is today probably greater than any time in history. 

The US market is driven by a handful of tech stocks which are massively overvalued. 

On any measure, US stocks are greatly overvalued and as the US debt disaster starts to dominate the discussion, markets will quickly realise that the US is bankrupt.

TOTAL US DEBT IS NOW GROWING EXPONENTIALLY  

US debt has almost quadrupled this century. 

As I have set out in several articles, the interest cycle bottomed in 2020 and we will now see a long term trend up for 20-30 years.  

US Federal debt has doubled every 8 years on average since 1980. With the state of the US finances, the debt is likely to now grow super exponentially. Thus it is likely that $100 trillion Federal debt will be reached before 2036 as a mere doubling every 8 years would result in. 

So with $100 trillion or more of Federal debt within the next 10-12 years, the US economy will default, especially if interest rates reach 10% or more. Remember they were around 20% in the late 1970s and early 80s. 

Obviously, at that point, or more likely well before it, the US dollar will have collapsed and gold will be the only real money that central banks and ordinary investors will be willing to hold. 

Yes, there will probably be a few rounds of other forms of fake money in between like CBDC’s issued by central banks, in the next few years. But they will fail as CBDC’s will just be another Fiat currency backed by debt and no assets. 

So there we have it. Aristotle’s prediction is coming to pass. The US debt and deficit is the Poverty for the country as a whole and will rapidly spread to the people as the financial system implodes. Revolution or internal conflicts will follow both in the US and Europe. The truckers’ action in the US and in many European countries is the start of a form of Revolution.  But it will get much worse. There will be conflict between various political fractions whether it is Trump supporters against the system or neo-Nazis against immigrants or just ordinary people against the wealthy. Extreme income and wealth inequalities, like we are currently seeing in the West,  normally lead to conflicts or revolutions. 

And anyone living in the WEST knows that Crime (as Aristotle said) is rampant and the prisons in most countries are full.

Anyone who doesn’t see that we are at the end of a major era, with massive calamities next, will soon have a rude awakening. 

So overvalued stock markets will crash as will bond markets with interest rates surging. 

SO WHAT ABOUT CASH IN A BANK– will that save investors?

Your cash in a bank belongs to the bank: And that is where most people keep their cash. 

What people don’t realise is that your cash in the bank isn’t your money. 

No, all you have is a claim on the bank as an unsecured creditor. 

And as soon as the bank receives your electronic money, it lends it out up to 10X!

The consequence of that is if one borrower out of the ten can’t repay his loan, you have lost all your money. 

This process is now happening slowly but just as debt is accelerating exponentially, so will defaults. I explain the process in this article. 

First Gradually and then Suddenly – The Everything Collapse

Banca Rotta or Bankrupt: This expression comes from the Italian financial system in Florence in the 1600s when banking was conducted on a bench or desk. If the banker couldn’t honour his obligations, his bench was broken. And that is where the word Bankrupt (Banca Rotta in Italian) derives from. 

So there we have it, a broken or rotten banking system is what the world is looking at now. 

We had the first signs just under one year ago when four US banks had to be saved, starting with Silicon Valley Bank. Shortly thereafter Credit Suisse, Switzerland’s second largest bank, had to be saved by the Swiss National Bank and government and then UBS were made an offer by the Swiss government that they weren’t allowed to refuse and bought Credit Suisse. 

What we saw during the Ides of March last year (March 15 when Caesar was murdered), was the first warning signal for the world that the banking system is broken.

The pressure on the banking system continues. The number of companies that failed to meet required repayments increased by 83% in 2023. 

US corporate debt has increased by 18% since 2000 and is now at $13.7 trillion.

Further deterioration is expected for 2024 due to higher rates. 40% of debt Rated B- or below is risking to be downgraded in 2024. 

The market is hoping for lower rates in 2024 but as I have stated many times, inflation and continued deficits will put pressure on the debt markets.

Commercial property is a real timebomb with vacancy rates approaching 15% and rents under pressure. Office sales prices are also falling rapidly by between 20% and 66% (in San Francisco).

The commercial property market is likely to lead to major write-offs for the banks and eventually either rescue actions (=money printing) or defaults – Banca Rotta!

But let’s face it, the exponential growth of total US debt is unsustainable. 

Please read my article on how exponential moves explode towards the end. So whether US debt goes to $200 trillion, $500t or quadrillions will be determined in particular by the collapse of the derivative market. 

I have in many articles explained that the outstanding derivatives are likely to be a lot higher than the BIS figure of just under $700 trillion like in this article: $2 quadrillion debt precariously resting on $2 trillion gold.

There are sources quoting up to $7 quadrillion derivatives but since I cannot prove it, I cannot make that claim myself. But since there are so many “bets” outside the banking sector and in the shadow banking sector, most of them uncollateralised, we will never know the true size until the system implodes. But whatever the sum is “only” $700 trillion or as much as $7 quadrillion, it is at least 8X global GDP which is enough to break the world financial system and collapse the world economy. 

This is not a fantasy. It is a nightmare. Because when counterparties fail the gross outstanding derivates cannot be netted and the gross amount outstanding is due. 

Initially governments will assist banks in turning the derivatives into on balance sheet debt but as the sheer weight of the debt becomes unmanageable and hyperinflation ravages, that’s when the system will fail. 

Yes, central banks will issue CBDS (Central Bank Digital Currencies)  and try to hide the debt but CBDS is just another form of fake money and will suffer the same fate as paper money. 

Besides the risk of the financial system, governments and central banks around the world, have throughout history destroyed our money without fail. 

Only since the early 1700s over 500 currencies worldwide have become extinct, the majority through hyperinflation. 

Just take the dollar which has lost 98% of its purchasing power since 1971 and 86% since 2000. 

GOLD

As I declared in a recent article – Catch the Goldwagon or lose your Fortune.

 

If stocks crash there might be some short-lived gold sales but 

GOLD IS ON THE CUSP OF A MAJOR MOVE AS:

• Wars will continue to ravage the world.

• Inflation will rise strongly due to ever increasing debts and deficits.

• The world flees from stocks, bonds, and the US dollar. 

• The BRICS countries continue to buy ever bigger amounts of gold.

• Central Banks buy major amounts of gold as currency reserves instead of US dollars.

• Investors rush into gold at any price to preserve their wealth. 

SO PLEASE DO NOT MISS THE GOLD WAGON BECAUSE IT WILL BE YOUR LAST CHANCE TO PRESERVE YOUR WEALTH