Pre Holiday Update

As we head into the Holiday Season, I expect that there is not likely to be much new information to report here related to any kind of major monetary system reform. This post will attempt to serve as an update on things based on the information available at this time. Below is a Q&A style format to discuss the status of the issues as they appear at this time.
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Q: Do you see any indications that some kind of major change in the monetary system is likely?

A: Not right now. We have been reporting here for some time that we do not see any signs of major change unless some kind of new major financial crisis were to emerge that basically forced the system to make major changes or even be fully reset. That is still what we would report for now. This analysis is based on following news reports and from direct input I get from a number of experts around the world that I view as highly credible.

Q: So what could trigger the kind of major crisis that might prompt major change?

A: There are a number of potential triggers that are always out there that we have covered here extensively. Global debt (private and public) is at all time highs. We still have trillions in derivatives contracts in an interconnected global banking system. Geo political negative surprises are always possible at any time (trade wars, currency wars, etc.) So far the powers that be (mostly central banks) have managed to keep the system functioning in a way that most people don't sense an imminent crisis is coming. Perhaps the most noticed event recently is the ongoing efforts by the US Fed to support overnight lending markets with liquidity and an apparent resumption in their policy to expand their balance sheet. The Fed says there is nothing worrisome to see here, while Fed critics and skeptics are suspicious that the Fed may be trying to hide something going seriously wrong behind the scenes. It is certainly worth following to see what happens. As always, time will tell us the answer.

Q: How does the ongoing political war in the US impact the chances for some kind of financial system or monetary system disruption?

A: That has been an interesting irony so far. Despite three years of intense political fighting virtually daily and constant news stories that well known officials may be indicted for crimes, the markets have almost completely ignored it all. We have told readers here that perhaps the best thing to do is just monitor market reactions. They are more likely to let you know if anything truly disruptive to the present system is really going on. So far the stock market has been strong, the US dollar has been strong, and gold and silver prices have been trading in a range with upward, bias but are not indicating any kind of major crisis is at hand yet. If you see gold move sharply up to or above all time highs around $2000, that would be a possible signal. The same for a move in silver above the $25-$26 level or even back up to all time highs around $50. Until you see things like that, the markets are not indicating they are too concerned with all the political maneuvering we see virtually daily now. It's always possible something truly significant could arise. However, the sources I hear from do not expect the impeachment process to result in a removal of President Trump from office and the markets also seem to view things that way. While rumors have persisted for years now that some former high officials in the Obama Administration could be charged with crimes related to efforts to remove President Trump, nothing has happened yet on that front either. So far, everything seems to be more related to political strategies to try and gain an advantage in the 2020 elections If anything major does emerge from this, it will be obvious to us all. For now, the markets are not the least bit concerned about it. One prediction that seems pretty safe is that we will see the political war continue and even escalate into the elections and that will probably suck all the oxygen out of the room until the 2020 elections are over. If President Trump is re elected, not much is likely to change unless a crisis forces change. If a Democrat is elected, change is more likely and the US will likely move more sharply towards socialism. That is pretty easy to predict.

Q: What will this blog do if nothing much changes any time soon?

A: Just continue as we are now. Try to watch for any major signs of trouble. Post a few articles when we can find something relevant to our mission here. Report any change in the situation if we hear of that from any of the experts that provide input from time time. We try to report things (like input from some experts we hear from) you are not likely to see reported in mainstream news since those stories are already widely reported. We do also monitor several alternative media sites in case something of note appears there. We will pass along anything we see that we think might be useful information.
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Added note: If all the political fighting has you thinking we are a nation with no hope for the future, take a look at this short video and perhaps you will change your mind:

https://twitter.com/dcexaminer/status/1190335635078467584

Added note 11-14-2019: After the first impeachment hearings in the US Congress, we are still seeing no market reaction that would suggest anything disruptive is going on or that markets think the President will be removed from office. So no change from the analysis posted above for now.

Confused Markets?

One aspect of watching for any signs of monetary system change is to monitor various markets. Most the time markets tends to operate under established norms that can provide some insight into whether anything unusual is happening. If markets stray from established norms for an extended period of time, it becomes reasonable to wonder if this may mean the current financial and monetary system is under abnormal stress.

Let's discuss a couple of examples looking at where markets seem to be what we might describe as confused.

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An Inverted Yield Curve

Typically, long term interest carry a higher yield than short term interest rates and only rarely do we see this "invert" such that shorter term rates actually go higher than longer term rates. Just this year, we have seen this condition arise at times. Certainly, the spread between longer term rates and shorter term rates has stayed somewhat reduced for an extended period of time even when not inverted. Historically, when this situation occurs, many analysts predict that a recession will follow an inverted yield curve. 

But these days, there seems to be a lot of conflicting opinion on all this. Some do take the traditional view that an inverted yield curve means we will see a recession coming in the US. Others say that the current situation is different and the yield curve is only inverted because the US Fed is refusing to lower short term rates in the face of declining world wide rates and that money seeking yield is pouring into US bonds.

At this time, there seems to be a lot conflicting signals in these markets leading us to call them confused. On the one hand, we hear much of the mainstream financial media assure us that no recession is forthcoming and the US Fed is also taking this view. On the other hand, the Fed has sharply reversed its course since late last year and has started into a program of lowering short term rates (and ending their QT program) despite saying they see no signs of recession at this time. Then we have President Trump also touting the economy as "the greatest in history" even while he says the Fed must lower rates further because everyone else has lowered their rates and the US is at a competitive disadvantage. Of course we understand that their are 2020 election political ramifications to what happens with interest rates. But for now, markets seem unsure of whether to conclude the US economy is strong and healthy or needs more easy monetary policy to avoid heading into recession. The political atmosphere in the US contributes to the confusion.

Rising Gold and a Rising US Dollar 

Normally, gold and the US dollar tend to have an inverse relationship meaning that when the US dollar is strong, it tends to depress gold prices stated in US dollars. However, in 2019 we are seeing another unusual market condition where BOTH the US dollar and gold prices stated in US dollars are strong over the last several months. There are all kinds of explanations out there as to why this may be happening. I saw this one by Lobo Tiggre on  Kitco which may as plausible as any I have seen (investor worry/fear is causing money to flow into perceived safe havens and for now both the US dollar and gold are viewed that way). So what are these markets telling us? That harder times are ahead? If so, why is the US stock market holding up reasonably well since it normally looks ahead like all markets do? Various economic indicators bounce up and down, but seem to stay mostly positive. Again, we seem to be getting mixed signals from markets that appear confused.

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Conclusion: One theory as to why markets are behaving unusually is that so much attempted manipulation of markets has taken place over the last 10 years that traditional normal market behavior has been distorted. Central banks all over the world have implemented easy monetary policies in response to the 2008 crisis. There are now trillions of dollars globally invested in bonds that pay a negative yield (the bond purchaser has to pay the bond issuer interest which is completely reversed from normal bond market conditions). The creation of various derivative products allows large market players (central banks, large multinational banks, large hedge funds, etc) to actually gain enough leverage in some markets to be able to manipulate the price direction for those markets, at least in the short term. Governments also engage in currency market manipulations when they feel it serves their purposes. On top of currency wars we have trade wars just as Jim Rickards accurately predicted several years ago (see Currency Wars - 2011).

Whatever is causing these confused markets, it appears that many traditional market norms can no longer be relied upon to try and forecast future trends. This suggests that market volatility and uncertainty for investors is likely to continue and even increase. 

This could explain why gold has now reached all time highs in many major currencies around the world and seems to be heading that way in US dollars even as the US dollar itself remains relatively strong thus far. Click here to see how gold has fared against the major global currencies (average annual gain of 9-12% since 2004 with a huge surge across the board in 2019 averaging around 20%).

Will any of this lead to some kind of major reform or reset of the present monetary system? Is it even possible to get the kind of political consensus needed to do some kind of major monetary system reform? Only time will tell us the answers. That is what this blog attempts to monitor. There are many ideas for potential system reform as we have noted here. But there seems to be very little political consensus around any one idea at this time.