News Note: Fox Business Article on the Upcoming 'Great Reset' Conference in 2021

Fox Business runs an article by Justin Haskins on the proposed Great Reset Summit to be held in Davos in 2021 by the World Economic Forum. We noted this upcoming event in an earlier blog article. Below are a couple of excerpts from the Fox Business article and then some added comments. (I added the underline for emphasis)

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"The economic, social and political chaos caused by the COVID-19 outbreak and Black Lives Matter protests have for months captured the attention of virtually every American — and for good reason. These are incredibly important issues worthy of significant and thoughtful debate.

But while most Americans have been preoccupied with protests and pandemics, a potentially bigger story has managed to slip beneath the radar: a growing movement among the world’s most powerful leaders to call for a “reset” of the entire global economy."

. . . . 

"In an article published on the World Economic Forum’s website, Klaus Schwab, the founder and executive chairman of WEF, wrote of the Great Reset, “Every country, from the United States to China, must participate, and every industry, from oil and gas to tech, must be transformed. In short, we need a ‘Great Reset’ of capitalism.”

Original article appeared on Fox Business on 6-25-2020

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Other links for further research on the The Great Reset 2021 

IMF Director Georgieva Explains How She Envisions The Great Reset

Mahmoud Jabari (World Economic Forum) on What the Great Reset Needs

World Economic Forum - The Great Reset as a response to COVID-19

Klaus Schwab (World Economic Forum) - Time for a Great Reset

Prince Charles says there is a "golden opportunity for a Great Reset"

Barrons - WEF Bills Davos 2021 As the 'Great Reset'

My added comments: Please note that the Fox Business article mentioned above describes this upcoming event next year as "a potentially bigger story" that "has managed to slip beneath the radar". This is why we covered this in our earlier blog article. Right now the major media and the world are mostly focused on other issues. But this is the very type of issue we watch for here on this blog. Here, we have by all accounts, (from both proponents and opponents) a proposal for a "Great Reset" of just about everything including the current monetary system. 

This has the potential to become a major event depending on the outcome of the upcoming elections in the US. As we said in our earlier article, a Trump election victory will likely mean very little US support for this proposal since it will focus on a more "globalist" approach while a Biden victory likely means the US would be much more supportive. Many of the generic proposals for this "Great Reset" are in line with the desires of the more progressive wing of the Democratic Party which we can expect will have substantial influence in a Biden Administration. For those wondering how a Biden Administration might look, this set of 'Great Rest' proposals may well provide a peek into what to expect.

It will be interesting to see if this surfaces as a major campaign issue in the upcoming US Presidential election. So far, it is mostly being completely ignored. This Fox Business article is the first I have seen on any major news outlet other than some articles basically announcing the summit will he held in Davos in 2021. 

If it does become an issue that is debated, it will be an interesting debate to follow. A number of questions come to my mind about this topic including:

- Do we really have a fully free market capitalist system now? (Ray Dalio says we don't) Currently, central banks including the Federal Reserve are massively intervening in all kinds of markets and this intervention results in winners and losers not determined solely by competition in the marketplace. What should we call a system like this? Did free market capitalism actually create wealth inequality or was it a perversion of true free market capitalism (governments and central banks implementing policies that created winners and losers)?

- Any such debate will likely be framed as a war between "Capitalism" and "Marxist Socialism" if it is debated at all. But right now, the US central bank is engaged in massive money creation policies in an effort to keep the present system from collapsing into a full blown major depression.  This is somewhat like the MMT that progressives have been calling for all along. They just want even more of it. So, again, exactly what is the present system as it exists at this time (and has for some time now)? 

-Almost everyone realizes that the present system is on an unsustainable path due to exploding debt burdens. The already massive debt obligations around the world are now rocketing even higher due to the global pandemic impact and the policy responses to it. So, when are we going to acknowledge this obvious fact and start to honestly discuss how all this will eventually get resolved? Can we really solve the eventual systemic stability problem by just creating any amount of unbacked currency we want and then insuring it is distributed equally? What kind of government intervention into markets (and bureaucracy) would be required to actually do this? How would that intervention impact citizens individual liberties and civil rights under the law? 

What if we do try that and it also fails because most people don't trust that the currency has any real value or they don't trust the authorities running the system to be politically unbiased and fair? No one anywhere has even asked that question as far as I know.

-Everyone in this debate is an an awkward position since no one will admit that the present system is unsustainable and that the creation of even more massive debt and/or money does not ultimately solve the problem. One side of this debate is currently engaged in a massive increase in debt and money creation. The other side just wants even bigger debt and money creation. So, will a debate on this topic (if we even get one) really be an honest debate based on reality, or just more political talking points designed to win an election and be in power? 

- Does anyone really believe either side has a realistic long term plan (beyond winning the upcoming election) to deal with the real underlying problems of excessive debt and the related potential debasement of currencies? How long will markets just continue to ignore the entire question of financial systemic stability? Months, years, decades?

These are immensely important questions that no one is likely to even ask or answer before the upcoming US elections. They are probably considered too complicated and too likely to upset or confuse potential voters. So most likely, no one will raise them during the campaign.

I don't have the answers, just the questions. But what this blog tries to do is monitor where all this is eventually going and also provide educational information to anyone interested in these issues from a variety of credible viewpoints. We have archived that kind of information in our Marketplace of Ideas for Monetary System Reform. The articles in this section are educational in nature and include Q&A style interviews with a number of experts on this topic from around the world. 

Some day, if the present system does fail, it might be useful to be aware of this kind of information. Current events suggest that systemic failure is more possible than ever no matter who wins the upcoming US election, even though neither political party is likely to acknowledge that fact or discuss it ahead of the election.
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Added note 7-3-2020: In this article, Ray Dalio raises some of the same issues raised above in our article here. He says we don't currently really have true free markets due to massive central bank intervention. This may be all the central banks can realistically do given all the current problems. But it is important when philosophical discussions and debates take place that "free markets" are not blamed for problems they did not cause and that an accurate full perspective is discussed. These are enormously important issues and a full and accurate discussion of all the pertinent facts is important when people try to decide what policies are best to pursue.

News Note: Gold Hits Highest Quaterly Closing Prince Since 2012

It appears our recent educational article on gold was pretty timely. Gold ends the second quarter of 2020 closing at its highest quarter ending price since 2012. You can look at its chart over that time period here. 

Below I have pasted in links to some articles noting the strong closing price for gold for this quarter. Interest in gold is obviously on the increase with the pandemic and the central bank response to the pandemic likely being a couple of the primary reasons for that interest. Gold can be an important indicator so it is always useful to keep an eye on how its price is trending in relation to major currencies.

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Gold Settles at 8 and 1/2 Year High

"Safe-haven demand and dovish central bank expectations have sparked fund buying of precious metals in recent months. Long gold positions in ETFs on Monday rose to a new record high of 3,199.12 MT (data since 2002). Also, long silver positions in ETFs rose to a new record high of 773.68 million ounces on Monday."

CNBC - Gold Sprints towards 8 Year High

“Bulls are delighted with what will almost certainly be a strong close, which provides the basis for a push to $1,800 in short order.” Gold, long considered a hedge against inflation and currency debasement, was headed for its third month of gains, driven by stimulus measures to support economies decimated by the pandemic."

Kitco News - Gold Prices Power to High

"Gold prices are sharply higher and hit an 8.5-year high Tuesday, on technical buying based on very bullish charts that got even more bullish today—suggesting still more (likely much more) upside price potential to come, including new record highs."

                                            

Jim Rickards Weighs in on the Gold Price Action

"Today’s price of $1,782 per ounce is the highest since 2012 and a 70% gain from the low of $1,050 per ounce at the end of the last bear market in December 2015." (editors note: Jim called the low in December 2015 as a bottom and the start of a new bull market for gold years ago).

US Mint 1 ounce Proof Gold Eagle (a collector version)

Here is the bullion coin - still nearly $100 over spot gold

All About Gold

Whenever economic conditions become unstable and the confidence of the general public is shaken, gold tends to re-surface as a topic of interest. As we have explained here before, gold is one market we monitor because it can provide signals as to how much confidence may be waning in the present system at any given point in time.

If you do any significant research into gold, you know that gold is a topic that for whatever reasons generates a lot of drama and passionate feelings pro and con. Here, we prefer to look at gold without the drama and examine its role over time as money, a hedge, and an insurance policy of last resort. That is what gold has been for thousands of years for billions of people. Anyone who wants to understand the kinds of economic and financial issues that shape world events must have some level of understanding of gold's economic role in both history and at the present time. 

With that in mind, we will feature the two part video documentary below as an educational opportunity for anyone interested in learning all about gold. This documentary does as good as any I have seen in providing that kind of educational opportunity.

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The Story of Man's 6,000 Year Obsession

Part I

Part II

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My added comments: While this documentary is a few years old now, the information presented is as relevant today as it was when it was released. The documentary traces the historic role of gold as money going back thousands of years, walks you through how gold is discovered, mined and refined into retail products, and attempts to peek into the future to see what role gold may play going forward either inside or outside the official monetary system. No matter how you feel about gold, you cannot watch this documentary and come away without learning anything. For that reason, we will include this article in our Marketplace of Ideas for Monetary System Reform as an educational resource on gold.

Added notes: Jim Rickards authors this recent article he titles "Why Gold?" and Jan Nieuwenhuijs authors: Why Gold and Why Now?

Alasdair Macleod, in this recent article, presents a potential worst case scenario where the US dollar collapses within the next year and only gold and silver survive the carnage. 

Former US Mint Director Edmund Moy says he keeps physical gold close at hand and views it as a hedge.


Reuters- Goldman Hikes 12 month gold price forecast to $2,000


Reuters article: World's Ultra Wealthy Go for Gold (excerpt below):

"Nine private banks spoken to by Reuters, which collectively oversee around $6 trillion in assets for the world’s ultra-rich, said they had advised clients to increase their allocation to gold. Of them, four provided forecasts and all saw prices ending the year higher than they are now."

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Additional added note: A thank you to blog reader BK who sent me the comment below by email related to the Reuters article above on wealthy clients being advised to allocate 5% to gold.

"A 5% allocation to gold is, fortunately, only $300 billion, about the market cap of Visa in the Dow.

However, a ton of gold only sells today for about $55 million, so it takes about 5400 tons, at "present prices" to achieve that allocation.

Since China and Russia produce combined about 600 tons of annual gold production, which they do not sell abroad, the total remaining production of about 2400 tons is what is available to fulfill this “new demand”.  So, if no other demand were to compete with these newcomers, it would still take 2 years and 3 months to complete this allocation from new stocks of metal.

But, how likely is it that the traditional sources of demand, augmented by more recent central bank purchases, would suddenly stop?  Will India weddings abandon gold?  World Jewelry demand? Industrial uses?

If I am correct, and the figures above have any validity, the claim that wealth advisors now recommend a 5% allocation to gold, to their super rich clients, is meaningless.  They are, as a group, already “locked out” of the physical market.  If they try to make a move, within a short period of time, they will so quickly spike the price that they will shut down the market. So, how much gold could they acquire without jolting the market?   Perhaps 4,5, maybe 600 tons per year? That might be do-able, but they would need 10 years to complete their acquisition.

One unlikely assumption in all the above is that “present prices” would prevail during this small shift in allocation to gold.  If prices increased by a factor of 10, then much less NEW gold would be needed, and indeed some significant selling from EXISTING private stocks would be expected to occur, particularly from areas ( The East ) where buyers are “price sensitive”. ( they buy when prices drop, and sell when prices have risen )   Would those “super rich” new gold buyers mind that they had to pay a huge premium to achieve their allocation?  That is hard to say.  They clearly don’t mind paying 4 or 5 times as much for a share of stock as they did 2 or 3 years ago, so perhaps they wouldn’t mind doing the same for gold.  (but for stocks, there always has to be a story.  For gold, what would the “story ”be? )

Physical gold has one huge problem for the financial industry, which takes in hundreds of billions in earnings per year in advisory, trading, and market making roles.  NO FEES.  Physical Gold sits quietly in a vault, and apart from minor storage costs, that’s it."  from reader BK

News Note: India Joins US in Opposition to an Increased Allocation of SDR's

The global pandemic which has fed into a global economic crisis has renewed an old debate within the IMF. Some have called for a new increased allocation of SDR's in an effort to boost global liquidity. The US was one of the first major nations to oppose any new increased allocation of SDR's and according to this article appearing in Livemint, has been joined by India. Below are a couple of excerpts from the article followed by some added comments.

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"IMF is contemplating redistributing the existing unused special drawing rights (SDRs) of rich member countries to low income countries in dire need for assistance. The move comes following opposition from countries like India and the US to the proposal by the multi-lateral agency to issue fresh SDRs to member countries to empower them to fight the economic fallout of the coronavirus pandemic.

Speaking at a webinar organized by Princeton Bendheim Center for Finance, IMF chief economist Gita Gopinath said the SDR allocation issue is being discussed and that there is no consensus on it at this point. “Let’s be clear what the SDR can do. When you do a general SDR or increase SDR allocations, most of it goes to the countries that don’t need it. Because it is proportional to your quota, it goes to the very large economies. It does not go to the low income countries in very large numbers," she said.

Gopinath said IMF is discussing an alternative mechanism with its members under which wealthy countries that don’t need it can loan their existing SDRs to low income countries. “There is certainly a lot of appetite for this second strategy and that’s something we are working on at the IMF," she added."

Please click here to read the full article on Livemint

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My added comments: In recent months issues like this have moved to the back burner in the US due to the media focus on the pandemic, the economic fallout from the pandemic, recent tensions in race relations, and of course how all that will impact the upcoming US Presidential election.

Our view here is that we are not likely to see any new major dramatic changes at the IMF or at the major central banks at least until after the US elections. The US election contest is viewed as a close race that most likely will stay close with both sides claiming a path to victory. Institutions like central banks and the IMF are not going to want to "take sides" in this kind of environment because they don't know who is going to emerge in power. The safest play is to just try and keep the status quo functioning with massive injections of liquidity by the major central banks. This is now an established policy with the public and my take would be that the belief is that the present system can be "held in place" until the election to see who wins. (note that the current IMF strategy described above is to encourage the use of existing SDR's in loans between member nations rather than any kind of substantial increase in new SDR's)

How would we expect "who wins" to impact things? 

This is a fairly easy forecast to make based on what we know at this time. If President Trump is re-elected, he no doubt will simply continue his America First populist agenda. He is not likely to defer important systemic changes to international organizations like the IMF or The World Bank. We can expect that he would not propose major monetary system changes until and unless the present system completely fails and there is no other alternative available.

If former Vice President Joe Biden is elected, we can expect a shift back to a more "globalist" policy approach. All of the policy initiatives that were disrupted by the election of President Trump likely return, but with a more progressive tone due to the makeup of the new base of the Democratic Party. A Biden Administration is far more likely to look to the IMF for major monetary system changes if the present US dollar based system falters.

This analysis is supported by a recent statement by the World Economic Forum that hosts its annual summit in Davos. The theme for its 2021 conference is - The Great Reset .

It is clear from the statement from the WEF that an economic reset is considered a key part of this initiative. It is clear that the thought leaders for the event will come from organizations like the IMF. Here are a couple of excerpts from the statement:

“In order to secure our future and to prosper, we need to evolve our economic model and put people and planet at the heart of global value creation."

. . . . .

"The announcement of the Great Reset was made by HRH The Prince of Wales and Professor Schwab during a virtual meeting, followed by statements by UN Secretary-General António Guterres and IMF Managing Director Kristalina Georgieva."

We can expect that a Trump Administration will be opposed to most of the policy proposals coming out of this Great Reset summit while a Biden Administration is likely to be much more favorable.

All this supports the analysis that we are likely to see a waiting game until the Novermber elections are over and a winner has emerged. The results of that election are likely to determine how much support the World Economic Forum gets from the US for its Great Reset proposal.

Interestingly, no matter which side wins the US election, many analysts from a broad spectrum of opinion anticipate a diminishing role for the US dollar as the global reserve currency in the future. Their differences of opinion on this are more a matter of timing. Some believe the US election may speed up the process for change away from the present dollar based system, while others still see a gradual pace of change unfolding over many years. 

Our view here in this post is mostly short term. We don't see much major change likely until after the election. Our focus here will be to continue to monitor key news events and present content we view as educational for readers interested in these issues as we find it. Long term we will watch to see if those that say the present US dollar based monetary system is nearing an end are correct.

Added note 6-25-2020: Fox Business runs this article on the upcoming Great Reset Summit to be held in Davos next year that we talked about here just above. This article notes that this is a potential major news story somewhat under the radar. But not here.

NY Sun Article by John Mueller Calls for Drastic Monetary Change

A thank you to a reader for pointing me to this article by John D. Mueller appearing in the NY Sun. This article suggests that the current pandemic and related economic disruption offers an opportunity to look back at the work of a French economist for some historical perpsective.

We featured an article that included some comments to us from John D. Mueller back in 2017. Mr. Mueller is the Lehrman Institute Fellow in Economics. Below is an excerpt from his recent NY Sun Editorial.

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"As President Trump charts his course back to prosperity, the confusing economic situation is signaling that the best sage for him to consult would be Jacques Rueff. He was the French economist who, during a long career, advised Premier Henri Poincarè in the 1920s and President de Gaulle in the years after World War II.

It was Rueff who first explained the relationship between monetary policy of central banks and inflation and between the fiscal policies of elected governments and unemployment. He steered France to prosperity not once but twice by hewing to a policy of honest money defined in gold.

What is so apt about Rueff is that he emerged in the wake of one of the worst pandemics in history. The Spanish flu of 1918 killed 50 million persons, 675,000 in America. It superimposed medical insult upon monetary injury."

Please click here to read the full NY Sun Editorial

News Note: Financial Times: We May Be Heading Towards a Post Dollar World

A thank you to a blog reader for pointing me to this article recently appearing in The Financial Times. In this article, Rana Foroohar asks if we might see a future where the role of the US dollar as global reserve currency is diminished. It's a good question and right in line with what we cover here. Below is a brief excerpt from the article. Readers should follow the link to read the full article on The Financial Times.

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We may be heading towards a post-dollar world

"The world is more likely to become tripolar — or at least bipolar — with more regionalisation in trade, migration and even capital flows in the future. There are all sorts of reasons for this, some disturbing (rising nationalism) and others benign (a desire for more resilient and inclusive local economies).

That begs the question that has been seen as controversial -- are we entering a post-dollar world?"  . . . . . . . . .        Click here to read the full FT article

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My added comments: In his most recent update on Fed policy Fed Chairman Powell made it clear that the Federal Reserve will do whatever is necessary to support a return to full employment in the US as soon as possible. Rates will be kept down for at least 2 and 1/2 more years and whatever money creation and asset purchases are required will be undertaken. As I understand this policy statement, it means the Fed is willing to let the US dollar slide as a result of this policy if that is what has to happen. Chairman Powell did not state this directly, but it was clear that such a slide in the US dollar would not cause the Fed to change policy course to try and support the economy. It is reasonable to assume that the dollar is likely to fall in reaction to this policy.


Added notes: Stephen Roach writes that the role of the US dollar as global reserve currency will diminish in the years to come and writes a followup to that article in response to those who argue there is no reasonable alternative to the US Dollar. Links to both articles are just below:


A Crash in the Dollar is Coming

Dollar Crash: How Will it Unfold?

More here on CNBC - Dollar Crash is Almost Inevitable


6-19-2020: Alasdair Macleod presents a potential worst case scenario where the US dollar collapses within the next year

Ray Dalio on Monetary History and Where We Are Now

Recently we featured an article by hedge fund manager Ray Dalio that took a deep dive into how the purchasing power of fiat currencies compares over time versus goods and services, stocks, debt, and gold. I got quite a bit of positive feedback that his information was helpful. This article by Ray Dalio was the most recent article in a series that takes an even deeper dive into history and looks at the rise and fall of nations, monetary systems and currencies. It also talks in depth about how history tends to move in both short term and long term cycles. 

Ray Dalio says he feels we are near the end of a long term debt cycle and also possibly the monetary system we have known for most our lives. Since that is exactly what we watch for here on this blog, below I have linked to the entire series of three articles with an excerpt from each article to provide a feel for the issues discussed. I will add this post to our market place of ideas for monetary system reform. While Mr. Dalio does not offer a specific proposal for reform or for a new monetary system, he does discuss many of the factors that historically have led to this kind of major change. Given his career and resume, I felt his articles deserve to be added to the marketplace so that readers can easily find them there if desired in the future. Any underlines below I added for emphasis.

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The Changing World Order - Chapter 1 - The Big Picture in a Tiny Nutshell

Where We Are Now

"As previously explained, the last major period of destroying and restructuring happened in 1930-45, which led to the new period of building and the new world order that began in 1945 with the creation a new global monetary system (built in 1944 in Bretton Woods, New Hampshire)and a new American-dominated system of world governance (located the United Nations in New York and the World Bank and the International Monetary Fund in Washington, DC).  The new American world order was the natural consequence of the US being the richest country (it then had 80% of the world’s gold stock and gold was then money), the dominant economic power (it then accounted for about half of world production), and the strongest military power (it then had a monopoly on nuclear weapons and the strongest conventional forces).


It is now 75 years later, and we are classically near the end of a long-term debt cycle when there are large debts and classic monetary policies don’t work well for the world’s reserve currency central banks.  This is happening as we are simultaneously in a deep economic and debt contraction that is producing income and balance sheet holes for people, companies, nonprofit organizations, and governments, while politically fragmented central governments are trying to fill in these holes by giving out a lot of money that they are borrowing.  Central banks are helping them do that by monetizing government debt.  All this is happening at the same time that there are big wealth and values gaps and there is a rising world power that is competing with the leading world power in trade, technology development, capital markets, and geopolitics.  And on top of all this, we have a pandemic to contend with.


At the same time, we have great human capital and thinking technologies that can help us see how to best deal with these challenges and do the inevitable restructurings well.  If we can all deal with each other well, we will  . . . ."

Please click here to read the full article

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The Changing World Order - Chapter 2 - Money, Credit, Debt, and Economic Activity

"Because what most people and their countries want the most is wealth and power, and because money and credit are the biggest single influence on how wealth and power rise and decline, if you don’t understand how money and credit work, you can’t understand the biggest driver of politics within and between countries so you can’t understand how the world order works.  And if you don’t understand how the world order works, you can’t understand what’s coming at you. 

For example, if you don’t understand how the Roaring ’20s led to a debt bubble and a big wealth gap, and how the bursting of that debt bubble led to the 1930-33 depression, and how the depression and wealth gap led to conflicts over wealth all around the world, you can’t understand the forces that led to Franklin D. Roosevelt being elected president. You also wouldn’t understand why, soon after his inauguration in 1933, he announced a new plan in which the central government and the Federal Reserve would together provide a lot of money and credit, a change that was similar to things happening in other countries at the same time and similar to what is happening now.  Without understanding money and credit, you wouldn’t understand why these things changed the world order nor would you understand what happened next (i.e., the war, how it was won and lost, and why the new world order was created as it was in 1945), and you won’t be able to understand what is happening now or imagine the future.  However, by seeing many of these cases and understanding the mechanics behind them, you will be able to better understand what is happening now and what is likely to happen in the future."

Please click here to read the full article

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Finally, here is the link to our previous article featuring his article comparing the purchasing power of fiat currencies versus debt, stocks, goods and services, and gold over time.

Ray Dalio Authors Article on Gold and Currencies

"As previously explained, there is a real economy and there is a financial economy, which are intertwined but different.  The real economy and the financial economy each has its own supply and demand dynamics.  In this section we will focus more on the supply and demand dynamics of the financial economy to explore what determines the value of money."

Printing and Devaluing Money is the Easiest Way out of a Debt Crisis

"While people tend to think that a currency is pretty much a permanent thing and believe that "cash" is the safe asset to hold, that's not true because all currencies devalue or die and when they do cash and bonds (which are promises to receive currency) are devalued or wiped out. That is because printing a lot of currency and devaluing debt is the most expedient way of reducing or wiping out debt burdens."

. . . . 

"Since 2000, we have seen a more gradual and orderly loss of total return in currencies when measured in gold, consistent with the broad fall in real rates across countries during those decades."

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My added comments: The only comment I can add here is that Ray Dalio in these articles talks about many issues that we have covered here on this blog for years and also emphasizes that understanding these issues is very important for each of us. This is also what we have said here for many years.

Added note: Ray Dalio has followed up the three articles linked above with another one that talks about The Big Cycles Over the Last 500 Years that you can find here. He also added this new article on his thoughts about the most recent turmoil in the US.

Billions, Trillions, Some Perspective

Over the course of my lifetime, we have seen the global money supply and global debt continue to expand endlessly. In the days of old during my youth, people worried that some day the total US debt might reach as high as a Trillion dollars. As you can see from this historical chart, total US debt edged up over time from around 250 Billion starting in the year 1950 to a little over 500 Billion by the year 1975. By this time people my age were about 20 years old and the idea of Billions in total debt seemed normal. As we can see from the chart, total US debt did not hit the Trillion dollar mark until 1982 when people around my age were approaching 30 years old. This seemed like a big deal at that time as we moved in "the Trillions" for the first time.

Of course now we look book back at a one Trillion dollar total debt as mere peanuts. Trillions have become quite acceptable in the public mind and no longer concern most people as we move well over the 20 Trillion mark in total US debt. Trillions for people today seem like Billions did to people when I was growing up. Clearly, the total US debt is headed much higher in coming years and these days no one seems very concerned about that. Every now and then a politician or financial analyst will act concerned about it; but we all know nothing will actually be done to stem the rising tide of debt unless there is no other option available to keep extending the debt. These days, it is even fashionable to promote the idea that debts don't matter at all and that all that matters is that we can pay the interest and roll over the debt. 

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With this background in mind, I though it might interesting to try and offer some perspective on the difference between the numbers one million, one billion, and one trillion. If we look at how long each of these numbers is in terms of seconds of time:

1 million seconds is about equal to 11 and 1/2 days 

1 billion seconds is almost 32 years

1 Trillion seconds is about 31,700 years

As we noted above, despite the exponential nature of the increase as we move from billions into trillions, no one is much concerned about it in terms of how much total debt the US builds up over time. No one offers any serious proposal to deal with the situation since no one is really all that concerned about it. Besides, none of the remedies for dealing with the debt are politically appealing except to just continue creating new money as needed to keep they system afloat which is what we do.

As we prepare this upcoming generation for the future; perhaps the question to ask is what comes after trillions? Don't laugh. When I was a kid no one could even imagine 25 Trillion dollars of debt. So it may not be too early to get familiar with the number one qaudrillion. Beyond that we have one quintillion followed by one sextillion. But why piddle with such small numbers. What dwarfs these as we head into the future?

The answer of course is the Googolplex as explained here. How big is this number? Wikipedia provides this perspective to give you some kind of an idea:

"One googol is presumed to be greater than the number of atoms in the observable universe, which has been estimated to be approximately 10⁷⁸. Thus, in the physical world, it is difficult to give examples of numbers that compare to the vastly greater googolplex. However, in analyzing quantum states and black holes, physicist Don Page writes that "determining experimentally whether or not information is lost down black holes of solar mass ... would require more than 10^1076.96 measurements to give a rough determination of the final density matrix after a black hole evaporates" The end of the universe via Big Freeze without proton decay is expected to be around 10¹⁰⁷⁵ years into the future."

For the few still worried about the rapidly rising tide of total US debt (and our future entitlements obligations), this number should provide great comfort. Recently, Fed Chairman Powell said there are really no limits on the Fed's ability to create monetary liquidity. 

It's good to know that we won't be limited by running out of numbers to use to record the total debt. We have a number far in excess of the total number of atoms in the entire observable universe available. One can't help but notice the ominous discussion of black holes just above, but it appears that is far, far into the future and certainly beyond the next election cycle -- which is all that really matters. 
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Note: If it is not obvious, this article is intended to be a humorous look at the US debt situation. I don't really expect us to get to a total debt of one googolplex any time soon. And if we do, I'm sure we can come up with a perceived googolplex of assets to offset the debt. It's all just a matter of perspective, right? :-)

Added note 6-2-2020: If this kind of issue interests you, Ray Dalio has put out a series of new articles exploring things like this in great detail which I have featured here.

Signals from the Gold and Silver Markets?

One of the sign posts we keep an eye on here is the precious metals markets. These markets historically can provide signals that something unusual is going on in the financial system. There are a couple of things that come to mind in this regard.  

One is that sharp rises in gold (and sometimes silver prices) often indicate sagging public confidence in the status quo of either the present financial system or at times anxiety that the some kind of disturbance in the normal social order is a concern. For example. a feeling that some kind of major geo political event may rattle the existing status quo. Gold is often viewed as a kind of refuge of last resort insurance policy in times like that. 

Secondly, whenever public confidence in an existing national currency diminishes, people often move into gold (and also silver in some cases) as a kind of currency hedge. Again, as an example, if there is a public perception that all the massive liquidity creation by the government and the central banks in response to the virus related financial crisis might weaken their national currency, some will move at least a portion of their savings into gold (and silver). This is true for the US dollar as well as any national currency. The more public confidence falters, the more demand for gold (and silver) resulting in strong bull markets for those metals. 

This year, we have already seen gold perform very well in response to the unfolding crisis and lately silver is starting to show signs of life as well. Since these markets can offer important signals as discussed above, we should watch them closely in the coming months. Below is a bullet point list for some of the things we can observe going on right now in these markets that may be worth your time to review.

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- in 2020, gold is at or near all time highs in many currencies and may be targeting an all time high is the US dollar price of gold later this year. If gold makes a new all time high in the US dollar price in 2020, we need to pay attention to that signal

- many technical analysts are saying that long term historical charts for gold and silver are indicating the potential for much higher prices ahead in the coming months and years. Here is one example of that kind of technical analysis.

- both gold and silver have had unusual price variations between the prices as set in the futures exchanges (such as the Comex exchange) and the actual prices to purchase real physical metal rather than a paper futures contract. In late March (on the 24th) I watched a real time example of weird gold price variation take place. That day, I checked the gold price as shown by Kitco, a leading precious metals web site that shows the gold price continuously as the market trades. At the exact same time I looked at the gold price showing on CNBC on TV. The gold price on CNBC was nearly $100 per ounce higher than the Kitco price. This is extremely unusual behavior. Normally, any variations are fairly minor. In fact, I have never seen this happen before in over 20 years of watching this market. (see this Reuters article related to this activity)

- as I write this article, Kitco shows the closing gold price for 5-22-2020 as $1732.70 while CNBC shows a gold price at close on 5-22-2020 of $1,734.70. This is more like normal. The same kind of wide variance I watched in late March has popped up several times over the past few weeks since then. This kind of unusual pricing variance can be an indicator that there is more demand for physical gold than supply and that gold futures contracts may be under unusual duress. If the situation persists, it can also indicate there is a stress in the futures paper markets that is a systemic risk to futures contract trading. So, it bears watching in the months ahead.

- this same unusual pricing activity is also happening with silver. Below I will illustrate this by pulling some silver prices from various sources at the market close for 5-22-2020. The retail market for actual physical silver is really acting in an unusual way. All you have to do is search the internet and see if you can buy a one ounce silver eagle coin anywhere for less than $25 (@ 5-23-2020) while the paper futures markets say silver is $17.29 per Kitco. It is normal for silver eagles to carry a premium to the price of silver ($2.75 to $3 per ounce), but the premiums out there right now of anywhere from $7 to $9 per ounce above the $17.29 price shown on Kitco indicates a very tight retail market for actual physical silver. Below I am pasting in an example from one typical dealer to illustrate this situation. Notice that this dealer will actually buy silver eagles from you for $4 per ounce ($21.37) over the futures market price of silver and wants $8 per ounce ($26.76) from you if you want to buy one from them. This is very typical of what is gong on right now in this market. Just search the internet if you want to observe it for yourself.

Also, as of market close on 5-22-2020, CNBC is showing a silver price of $17.69 (recall Kitco shows $17.29). Looking at all this, a couple of questions come to mind. What is the true price of silver? What is going in this market to create these kinds of price variances? In coming weeks we should keep an eye on this market for any signals it may send us.

Silver American Eagle - RANDOM Year, BU (Dates our Choice) - (Money Metals Exchange)

Quantity	Premium/Unit	Total Price Each
1 - 39	$9.39	$26.76
40 - 499	$8.79	$26.16
500 - 2500	$8.29	$25.66
2501+	Call for discount
Full Tube Qty = 20

Silver Price:

$17.37

Sell to Us Price: $21.37 each.

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Concluding Comments: Anyone who follows the gold and silver markets knows there is unusual activity going on right now. Some attribute this to short term disruptions in supply and demand due to the virus pandemic impact on the supply chains. Others say this unusual activity is sending us important signals that major changes in these markets are coming (leading to much higher gold and silver prices) and if those changes are very large it could indicate the entire current financial system is under stress. It's always important to monitor these markets, but even more so under the present conditions.

Keep in mind, we have had unusual activity in the repo markets from the US Fed since last fall following years of very easy monetary policies. On top of that we have now had a global pandemic leading to a shut down of the global economy. This has created millions of job losses, high volatility in many markets, and very high levels of uncertainty for what happens over the next year. No one really knows for sure what is coming towards us. Given all this, gold and silver could be trying to send us signals for the future and we need to be alert to anything they may have to say.

Added notes: 

Other current retail prices for silver eagles around the internet as of 5-23-2020:

JM Bullion - $26.64

Apmex - $28.36

SD Bullion -$26.82

Pinehurst Coins - $26.35

Provident Metals - $26.64

US Gold Bureau - $25.90

Gainesville Coins - Out of Stock


In normal times, silver eagles retail for anywhere from $2.75 to $3 per ounce over the price of silver and dealers will only pay the spot price of silver to buy them or at most a slight premium to spot price. A shortage of silver eagles may be partially due to the US Mint having to close due to the virus pandemic for a period of time. But it's back open now so everyone is watching to see if this abnormal pricing activity persists. Before closing, the Mint was experiencing a huge surge in demand.

Added note 5-27-2020: Above we illustrate that there is clearly a tight supply situation in the retail market for silver eagles that anyone can easily see. In this new interview, London metals trader Andrew Maquire confirms that the wholesale market for large silver bars is also very tight at this time. Mr. Maguire is in a position to see the supply and demand in the wholesale silver market that is pretty opaque to the general public. All this suggests we should watch and see what silver does over the next few weeks.