You Can’t Taper A Ponzi Scheme

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

This year, the US must pay out 5% more for Medicare and Social Security, and 7% more for its military. Meanwhile, businesses with debts coming due have to roll them over at higher interest rates, while homeowners with adjustable-rate mortgages see their monthly payments rise.

You Can’t Taper A Ponzi Scheme - BullionBuzz - Nick's Top Six
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That’s a lot of new dollars that didn’t exist a year ago but are needed now. They have to come from somewhere. In a normal fiat currency system, the central bank creates the needed currency out of thin air, everyone gets paid, and the resulting decline in the value of the currency is small enough that few are bothered.

But that’s not what’s happening today. As the above obligations come due, the amount of available money is shrinking. The M2 money supply growth rate shows a massive spike from all the covid lockdown stimulation cheques and a correspondingly dramatic plunge this year. Note that during the entire fiat currency era, M2 has never before gone down.

This means some debts won’t be paid. Creditors will fail to pay their debts until sectors start blowing up. Here’s where it gets even more interesting.

During the pandemic, central banks discovered how easy it is to flood an economy with newly printed cash. The US simply mailed cheques to citizens and made loans to small businesses while giving trillions in loan guarantees and direct aid to favoured large corporations.

When this Ponzi scheme starts to unravel, governments will be faced with a choice: Letting virtually everything grind to a halt, or restarting the stimulus cheques, but on a much bigger scale and with a major twist.

Instead of sending out cheques, the Fed will roll out its central bank digital currency and fund free account balances for those it deems worthy. The vast majority will happily accept the free money. Just like that, the next financial system is born.

Which takes us back to gold and silver. The first phase of this process will feature an equities bear market that takes precious metals down. But in the second phase (the CBDC introduction), people who prefer not to own currency that’s monitored 24/7 by the NSA will convert their dollars to real assets. Shortages of gold and silver will ensue, and prices will respond accordingly.

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