Gold Is The Go-To Safe Haven of 2019… Per Jay Taylor
The comments below are an edited and abridged synopsis of an article John Rubino
This year is looking like one of those either/or years, where growing financial instability leads to either a 2008-style financial crash or another round of asset inflation. In Jay Taylor’s latest newsletter, he concludes that both scenarios are good for gold.
In the 1970s, double-digit interest rates were needed to quash inflation, but that was nothing compared to what Fed Chair Jay Powell faces today. The federal debt then was just a few hundred billion dollars, not $22 trillion as it is today. A mere 1% rise in interest rates now leads to $220 billion of additional government expense, without providing any additional services. Adding to Powell’s problems, the US continues to spend trillions on military excursions, and baby boomers will take US debt north of $50 trillion over the next 30 years.
In the past, the US has gotten away with living beyond its means, because countries like Japan and China have been willing to buy US Treasuries. That began to change with the financial crisis of 2008, partly because of the financial injury to foreigners by dishonest US bankers. Also, it was dawning on the rest of the world that the US was expanding to the point where bankruptcy was in its future.
Now, late in the current credit cycle, we face a moment of truth. Interest rates are rising, leading to volatility in stocks and the beginning of a bear market in equities. History suggests that the Fed will begin to print money in whatever quantity it takes to keep the banks from bankruptcy, just as it did in 2008-09. At what point will there no longer be any buyers of US Treasuries, causing the Fed to print so much money so rapidly that foreigners completely abandon the dollar, leaving the Fed with no choice but to hyper-inflate?
We are nearing a point when the Fed is either able to hold the dollar system together for another cycle, or the system itself blows up or implodes, leading to a new global monetary regime.
In the optimistic scenario, gold is likely to behave as it did after 2008, when it rose for the next four years. If the more pessimistic (but realistic) outcome takes place, the dollar will be replaced as the world’s reserve currency and gold will be the only safe haven, leaving it priced at levels that may be beyond the imagination. It’s simple math: If the dollar nears a state of worthlessness, gold rises to levels approaching infinity.