Warning: Inflation Ahead

Posted On Jun 13, 2016 By Dave Gonigam

  • Central bankers fall victim to “Jaggernomics”…
  • … but they still have three inflationary tools they can put to work
  • Why gold will offer only limited protection in the scenario Jim Rickards anticipates
  • Two huge victims of low interest rates, and their impact on you
  • Wine taxes, state by state… the impunity of the elites, Soviet edition…. a reader researches the roadside-forfeiture-of-your-bank-account story… and more!

Jim Rickards calls it “Jaggernomics.” Central bankers around the globe are moving heaven and Earth to bring about inflation… and it’s not happening. At least not to the degree they want.

As Mick Jagger and the Rolling Stones said so succinctly, “You can’t always get what you want.”

“The elites want inflation,” says Jim,” and so far, they can’t get it.” Indeed, at the moment, it appears the entire developed world is sliding into the sort of funk Japan’s experienced for a quarter-century.

The mainstream is slowly waking up to this reality. Thus, the cover of The Economist earlier this year…

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… and a front-page Wall Street Journal story over the weekend with the headline “Negative Rates Alone Struggle to Lift Growth.”

Well, yes. Seven and a half years of ultralow interest rates in the United States… and recent experiments with negative rates overseas… still haven’t generated the inflation that conventional wisdom says would generate more economic growth.

Some renowned experts — Harry Dent and Gary Shilling among them — believe this is just how it’s going to be, far into the future. They say deflationary forces are too powerful to overcome.

“They’re right about deflationary forces, but they underestimate the capacity of governments to force inflation in the end,” Jim Rickards counters.

“The elites have no choice. Deflation makes the real value of debt go up and destroys tax collections (when prices and wages go down in deflation, government collects less tax). If the value of debt goes up and tax collections go down, the entire house of cards starts to collapse.

“Governments can’t allow that. They must have inflation, and they will get it.”

But how? “There are three ways to get inflation that have not been tried yet,” says Jim. “You can see them coming a mile away if you understand elite jargon and the elite message system.”

The first is known informally as “helicopter money.”

“Helicopter money results when governments run larger deficits and central banks print the money to cover the deficits,” Jim explains. “Central banks have been printing money since 2008. The problem is banks won’t lend it and people won’t spend it.

“Helicopter money cuts out the middleman. Governments just borrow and spend the money directly without waiting for the banking system to do the job. Central banks pick up the tab.”

The second is special drawing rights, or SDRs.

As Jim’s often explained here in The 5, that’s the International Monetary Fund’s super-currency — circulated among central banks and governments.

“The one advantage of SDRs is that very few people understand them,” says Jim, “and there’s no political accountability. SDRs can work hand in hand with helicopter money.

“If governments want to spend more but legislatures won’t let them, the IMF can hand out SDRs, and governments can spend those without waiting for their own legislatures to act. The IMF acts like the ‘central bank of the world,’ and no one can stop them.”

The third way to achieve inflation is the easiest of all — simply raise the price of gold.

“A higher dollar price for gold is practically the definition of inflation,” Jim tells us. “Governments can do this in a heartbeat. The Fed would just declare the price of gold to be, say, $5,000 an ounce and make the price stick using the gold in Fort Knox and their printing press to maintain a two-way market.

“The Fed could sell gold when it hits $5,050 an ounce and buy gold when it hits $4,950 an ounce. That’s a 1% band around the target price of $5,000 an ounce. The band and the use of physical gold will make the target price stick.

“A higher price for gold is the same as a lower value for the dollar. The world of $5,000-per-ounce gold also means $10 per gallon gas at the pump and $40 for a movie ticket.”

Boom — there’s your inflation.

And yes, the elites are hatching a plan to execute all three of these steps.

Jim reads articles the elites write for each other to read. Articles describing these steps have appeared en masse over the last two months with titles like “Helicopters on a Leash” and “How to Finance Global Reflation.”

An especially noteworthy one is by economist Harley Bassman from PIMCO, the world’s largest bond investment manager. “How silly is it,” Bassman asks rhetorically, “to suggest the Fed emulate a past success by making a public offer to purchase a significantly large quantity of gold bullion at a substantially greater price than today’s free-market level, perhaps $5,000 an ounce?”

Jim counts seven such articles appearing in the month from April 11 through May 10. “It’s almost as if someone hit the ‘Start’ button right around April 11 (the beginning of IMF spring meeting week), and the elites have been cranking out the inflation plans ever since.”

No, it won’t unfold overnight. “The inflation plans may take a few years to implement,” Jim cautions. “The elites are discussing them now to condition the intellectual environment for action later.”

Yes, you’ll want to hold gold as these plans are put into place. “The problem with gold is that it just may not be available when you want it the most,” says Jim.

“This could be due to simple supply and demand, or governments may try to regulate sales or buy the floating supply for their own reserve positions. The time to get your physical gold is now.”

In the meantime, Jim wants you to know about a shorter-term catalyst for gold that could move the price past $5,000 an ounce with no action by central bankers at all.

What’s more, he warns most gold holders will not profit when it happens. “In fact,” he emphasizes, “this gold many will actually kill many gold owners’ retirement — making them much, much poorer.”

That’s because of a dynamic unfolding in the gold market right now, spotlighted by one of Jim’s high-level contacts in the precious metals world — a fellow whose identity Jim has sworn to protect, and thus we know him only as “Goldfinger.”

Jim has convinced “Goldfinger” to join him for an online briefing live from Goldfinger’s home base in Zurich, exclusively for Agora Financial readers like you, tomorrow night at 7:00 p.m. EDT.

Yes, it will be 1:00 a.m. in Zurich — so this is an extraordinary event. You really don’t want to miss it. It won’t cost you a thing to watch. And we still have a few spots available. Just drop us your email at this link to RSVP and you’re guaranteed access.

Off to the markets…

Stock found their footing after opening in the red. Then they lost it again. The Dow gained 16 points late this morning, after slipping almost 50 earlier this morning. Now it’s down another 42 points.The S&P’s down 7, and the Nasdaq’s down another 25. Word on the street is that jittery investors are sitting tight ahead of the big Fed meeting tomorrow and Wednesday.

Brexit concerns also dragged global markets lower this morning. Recent polls are indicating that many British voters are now in favor of exiting the EU, although the race is tight. The market now places the odds of a Brexit at 34%. The vote takes place on June 23.

All this comes after global stocks sold off Friday. But as Jonas Elmerraji of our trading desk reports, it’s a classic case of bad news and good news. Bad news first: “Friday’s dip looks like a pretty boring correction when you only look at the S&P 500 itself — but dig a little deeper into the individual stocks and it’s clear that a very big chunk of this market got hammered.”

The index itself closed down less than 1%. But almost a quarter of the stocks within the index spilled 2% or worse.

Now the good news: “The good news,” says Jonas, “is that at this stage of the game, the last couple of days of selling look much more like a correction than any sort of change in trend.”

Well, that’s reassuring.

It’s a good day for gold. The yellow metal’s up about $11 this morning, to $1,286. Brexit concerns and diminished expectations of a Fed rate hike this week are the catalysts.

Meanwhile, oil clocks in this morning at $49.11 after topping out near $52 last week.

It’s not just savers suffering from these ultralow interest rates, warns our income specialist Zach Scheidt.

Gone are the days when pension funds could invest in safe vehicles like U.S. Treasuries or highly rated corporate bonds. They too have to step out on the proverbial risk curve. But what happens if the risks don’t pay off?

“If pensions run out of money, taxpayers foot the bill,” Zach reminds us. “You may not have a teacher retirement program, a state employee pension or some other U.S. pension plan to collect from. But if these pensions run out of money, you can bet that you’ll be the one paying for it in the form of taxes.”

And don’t forget insurance companies are in the same boat. “Life insurance companies operate much like pension funds,” Zach reminds us. “They take your monthly or annual premiums and invest that money. Over time, that money is expected to grow so the insurance company has enough money to pay claims.

“I expect to see insurance premiums rise substantially. That is inconvenient, but it could get even worse. We could see insurance companies have to cut back on claims — simply because they don’t have the money to pay.”

Zach’s best defenses? They’re the ones he’s already developed for people suffering from low rates. If you have a small nest egg, look here. If you have more assets to put to work, consider this.

Because we missed it when it happened, allow us to be the last to wish you a happy National Wine Day.

It was May 25. But as it happens, the Tax Foundation came out last week with a new ranking of the 50 states and the taxes they impose on wine.

“The treatment of wine differs extensively across the states,” says the foundation’s Scott Drenkard, “and at higher rates than beer because of greater alcohol content.” Kentuckians pay the most, Louisianans the least…

“Notably,” Drenkard writes, “these rankings do not include states that control all sales.”

That would include Pennsylvania… where only last week, the sale of wine at grocery stores was made legal (limit four bottles per customer), effective in early August. The wine monopoly long held by state-owned liquor stores has finally been broken.

“Once again, the University of Michigan consumer confidence index appears to be moving the markets,” a reader wrote us during the trading day Friday.

“Could you explain how an index with a totally invalid sample size of 500 and a history of selling the data to investors before the actual announcement time can possibly be taken seriously?”

The 5: It can’t. We can’t remember the last time we’ve bothered mentioning it. And we’re hard pressed to see how the release at 10:00 a.m. Friday had a material impact on, say, the S&P 500.

In general, it’s probably overrated as a “market-moving” kind of number. And so we ignore…

“I’m reminded of the dear old departed Soviet leader Leonid Brezhnev,” a reader writes after we pointed out last week that the global elites have one set of rules for you and me and quite another for themselves.

“OK, yes, this is apocryphal, but still…

“The story goes Brezhnev had his ancient grandmother visit him at his office in Moscow. He proudly showed her his many ZiL limousines — all left running for whenever his whims demanded — the Italian marble floors in his private bathroom, the gold-plated handles on his mahogany desk, all his dachas, his multiple fine silk suits in his closets, and much, much more.

“Finally, the end of the day came, and all the assistants, servants and aides went home. After everyone had left, the aged grandmother looked around very, very carefully and then sidled up as close as she possibly could to her grandson and whispered very, very quietly in his ear:

‘This is all very well, Leonid. But… what if the Communists come???

The 5: In another telling of the story, the punch line is, “What if the Communists come back?”

“I first read about the Oklahoma forfeiture situation in an Alex Jones post,” writes a reader who caught our item last Thursday that raised the question of whether state troopers could seize funds in a bank account by scanning your ATM card.

“Not really a fan of his,” the reader hastens to add, “as a lot of what he says is almost always just opinion or plain false statements. I did, however, place some calls to Bank of America and Citibank to get some facts. Here they are, along with some other info on the matter.

“This is only for prepaid cards. They cannot do it with regular bank debit cards. I verified this with both of my banks, but for anyone still concerned, please note the following.

  1. There are no card readers that can do a balance inquiry on a bank card. Only a bank ATM can do that.
  1. You are not required to tell them or anyone else how much is in your account. Do not answer such questions, as it’s none of their business and they cannot compel you. (This is not The Vampire Diaries.)
  1. permission. Any transaction requires either your PIN or your signature.
  1. They cannot force you to enter your PIN or to sign anything.
  1. You can ask your bank to reduce the daily transaction limit on your debit card to something much lower. Many are set to $5,000 by default.
  1. If you really want security. ask your bank to issue you an ATM card instead of a debit card. ATM cards will only work at ATMs and for purchases using your PIN. Signature sales are not allowed. Again, they can’t force you to enter your PIN.
  1. Want a 100% fail-safe? Only carry credit cards.
  1. BTW, it is worth noting that all prepaid cards and gift cards can be checked online by anyone or by phone to get the balance.”

The 5: Ah, nothing like crowdsourced research by readers of The 5 to amplify issues we’ve previously discussed. Thanks for sharing!

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. While the subject is fresh in our mind…

“The next time a cop pulls you over for a traffic infraction,” says Laissez Faire director Doug Hill, “pull this weapon on him when he comes up to your window.

“No, you won’t be Tased, shot or hauled downtown in cuffs. But you WILL very likely be let go with nothing more than a verbal warning!”

Have we piqued your curiosity? You can scratch the itch right here.


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