Former Fed chairman Paul Volcker has spoken the words that have been on everyone’s mind…”American policymakers have exhausted fiscal and monetary policy remedies in their bid to cure the US economy’s growth blues, legendary inflation tamer Paul Volcker said”. He also said “there is no magic bullet in fiscal or monetary policy. We have pretty much fired all the bullets we have”. Please keep in mind that Paul Volcker is not one of us tin foil hat “bloggers,” he ran the central bank from 1980-1987 and “saved the system” at the time. If you recall, we had runaway inflation and the prospect of a Dollar collapse was very real when he took over the helm.
What he did back then (allow interest rates to rise which caused a convulsive double dip recession) cannot be undertaken again today. The difference now? Simple, too much debt…everywhere. Back then, consumers were not up to their necks in debt, the housing markets still had lots of equity versus debt, corporations were more prudent with their use of debt and the cities, states and federal government had not “levered up” to the extent that they are now. Simply put, in today’s world, higher interest rates will blow up everything from A-Z by making the carry cost too much to bare. Paul Volcker’s strategy back in the 1980′s may have worked again back in 2001-2002 but the pain would have been far greater than the recessions in 1980 and 1982. Because the amounts of debt and especially derivatives back in 2008, this option was off their table because the entire system would have been nuked as it eventually will today.
The problem now as I have written many times before is that we have reached “debt saturation” level where very few are able to borrow more nor want to, while lenders at the same time are very reluctant to lend. We are living through a debt contraction as there are now no asset classes left that have not been levered up (borrowed against) and already blown into a bubble. Paul Volcker fully understands this and has watched the last 4-5 years as each policy response that had historically worked, didn’t. He does however conveniently leave open to your imagination exactly what the policy response will be. Richard Russell calls it “Inflate or Die”, Jim Sinclair calls it “QE to infinity” and Ben Bernanke if you recall, calls it “dropping money from helicopters”. Mr. Volcker knows this all full well, but being a central banker from “the old school” means that he can’t or won’t publicly tell us that THE BIG PRINT is coming because it is THE only policy tool left.
I would like to note that both former chairmen, Greenspan and Volcker have publicly “confessed” their knowledge that Gold is in fact money, the ultimate money! Greenspan of course has said that Gold is the “ultimate” for settling international trade and that all fiat will accrue to Gold, Volcker called it a “mistake” to not have “managed” the Gold price with more force during the 1979-80 spike. Ben Bernanke on the other hand, well, what can you say about him? He won’t admit that Gold is anything other than a “tradition”, it according to him in sworn Congressional testimony is “not money” which makes him either incredibly stupid or a perjuror under oath.
No matter in any case, because he is backed into a corner with only one option left, he will be forced to destroy his own creation through the act of new creation. This will occur in tandem with the mass realization all over the world that the same ounce of Gold has been sold over 100 times. It will not matter whether the Gold scam is “publicized” first or another reckless round of QE printing is announced first, they both will have the same result. I cannot stress enough that what is coming will amaze even the most ardent Gold bulls. If I recall correctly, within 5 years from 1918 where it took something like 200 Reichmarks to purchase an ounce of Gold, by 1923 it took 87 Trillion! Did Gold “go up?” No, Gold was Gold and was exactly what it was 5 years earlier, the currency is what collapsed. If you can understand the concept of a currency imploding then you will understand why I continually say that NO ONE can forecast a peak “Dollar price” for Gold.
We do not know exactly how much more money supply will be created but we do know that it will be “a lot”. We do not really know how much Gold the U.S. truly has but you can bet that it is less than we are told. On top of these two variables we also have a derivatives market which is already more than $1 Quadrillion which will be addressed (fixed?) with the creation of more Dollars. I bring this up again because it is very probable that the Dollar price of Gold will reach an “unthinkable number” (to even the most bullish) which is why you just cannot trade it for any reason other than an emergency. Please do not fret the preceding 12 months sideways action as everything possible has been done to contain the price. This cannot last much longer because the word is absolutely buzzing around the planet that Gold’s price is rigged and many vaults are empty! The latest $59 Billion London LOCO Gold scam has assured this.
P.S. after writing this piece, Reuters reports “The EU may criminalise commodity price distortion,” …and they made sure to include “Gold” as one of these “commodities”. It seems that the Europeans have had just about enough, look for any upcoming weekend to be THE weekend that the monetary system is changed forever!