Gold: Wars, Wars and More Wars

The comments below are an edited and abridged synopsis of an article by John Ing

A cooling CPI number sparked a rally on Wall Street on hopes that the Fed may be ready for a pivot (capitulation) in its battle against inflation. The gains are premature and won’t change the trajectory of the economy.

Gold: Wars, Wars and More Wars - BullionBuzz - Nick's Top Six
The crisis has raised the price of situation and finance theme. Money investment and risk control. Safe haven asset.economic risk. A wooden sieve with word “Crisis” written on it holds a pile of gold nuggets.

Global inflation soared to 40-year highs as governments unleashed trillions of dollars of additional spending, stoking the inflationary fires. Despite concern over rate increases, the global economy remains resilient. With inflation so broadly based, however, investors’ hopes of a reprieve from rate increases are likely misguided.

Decades of QE, unfunded deficits, and trillions in public spending created a false sense of prosperity made possible by artificially low interest rates and cheap credit. Central banks, led by the Fed, kept rates near zero and revived inflation. The corresponding boost to debt and consumption created the biggest stock market bubble in history.

The Fed’s free money sent the message that not only was money free, but risk was nonexistent. The FTX crypto implosion could put a $10-50 billion hole in the market. However, the mirage vanished when Biden’s spending, state intervention and the war in Ukraine let inflation get out of hand, forcing the Fed to crank up interest rates.

Now investors must deal with a raging war, soaring prices and skyrocketing interest rates deepening the financial mess. However, deficits financed by borrowing cannot go on forever.

The problem is that budget deficits of 10% plus of GDP financed when money was cheap allowed governments to spend without a care. They kept on spending, leading to the inflation of today. First the pandemic and now the Ukraine war; soon more spending will be needed to boost an economic recovery to offset the soaring cost of energy, food and credit.

Up for discussion: The end of cheap money; you can’t suck and blow at the same time; chickens come home to roost; energy geopolitics boosts inflation; climate change compounds uncertainty; sanctions also increase risks in financial system; derivatives of mass destruction; the dollar is king; currency crisis; wars, wars and more wars; a Chinese reserve currency; the dollar is strong until it isn’t; as good as gold; which way is up; and recommendations.

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