Last Piece Now In Place To Trigger Hyperinflation

Today James Turk spoke with King World News about the smash in gold and silver yesterday, and what to expect going forward.  Here is what Turk had to say about the action:  “The precious metals took it on the chin yesterday, Eric.  But how many times have we seen this happen, only for the metals to bounce right back?  In fact, the last time this happened was also a Monday, just two weeks ago.  With yesterday’s drop, gold and silver are simply re-testing support formed two weeks ago at $1650 on gold and near $31 on silver.”

“Sentiment is fairly weak at the moment, even while the fundamental picture is improving.  Look at some of the evidence.  For example, Brent crude is at a 9-month high and approaching $120 per barrel.  All of the usual excuses for this price rise are being given, like strong demand from China, lower OPEC production, and ongoing concerns about political instability in North Africa. 

These factors are having an impact of course, but what is being ignored is the most important explanation because people aren't paying attention.  There is no shortage of crude oil.  Rather, there are just too many dollars, euros, pounds and other fiat currencies being printed by central banks....

Increasing attention needs to be given to what is happening with the quantity of money, Eric.  All the money printing ordered by central planners is starting to take effect.  US dollar M1 has now been growing at double-digit rates for two years.  Over the same period M2 growth has been in the high single digits.  Even the broader measure of dollars, M3, which is calculated by ShadowStats.com, is at 4.5%, which is the highest rate of growth in more than 3½ years.

Money is no different from any other good or service.  It too complies with the laws of supply and demand.  If you create money at a rate faster than the demand for it, its ‘price’ declines, which for money is its purchasing power.  With crude oil and other commodity prices like copper continuing to work their way higher, the purchasing power of dollars and other fiat currencies is being eroded.  So all of this money printing is clearly taking hold and becoming apparent.  That gold and silver prices remain in their trading ranges suggests to me that both of them have some catching up to do with the price rises we are seeing in some basic commodities.

What is clear is that central banks have flooded the world with QE - or in other words, money printing - but it is a policy that doesn't work.  Look how much QE has been unleashed by the European Central Bank, which has not stopped Europe from sliding into a recession.  It’s the same in the US, where the Federal Reserve's balance sheet has started growing again.  Its total assets topped $3 trillion a few weeks ago. 

In fact, the QE4 announcement may have been the tipping point because US government debt purchases by the Fed have apparently switched from being bond friendly to bond bearish because of the hyperinflationary implications from turning government debt into currency.  The evidence for this conclusion is that yields have been rising since then, notwithstanding continuing purchases by the Fed.

Importantly, the suspension of the debt ceiling we spoke about last time has been signed into law by the President.  There is now no limit whatsoever on what the federal government can borrow, and therefore spend.  The federal government has now taken a big leap down the road to hyperinflation of the US dollar.

Remember, hyperinflation is not an event, it is a process.  Hyperinflation occurs when changes are made to eliminate prudent checks-and-balances.  The big change occurred in August 1971 when President Nixon broke the US dollar's constitutional link to gold.  That is when the US government fell over the fiscal cliff, and has been falling since then.

There have been dozens of other changes since 1971, but suspending the debt ceiling means the last restraint on government spending has been eliminated.  With the Federal Reserve committed to buying US government debt, nearly everything is in place for hyperinflation.

The sovereign debt downgrades in recent years have lit a slow fuse.  It is a sign that the big countries resting on their past laurels can no longer expect a free-ride from the rating agencies.  Therefore, it won't be long before this burning fuse hits the UK, the US, Japan or a number of other countries.  When it does, an explosion in prices will be the hyperinflationary result.  Thousands of years of history have taught us unequivocally that the best way to protect investors and savers from the coming carnage is to own physical gold and silver.”