By Sean Kelly

“Americans are reaching retirement age in worse financial shape than the prior generation, for the first time since Harry Truman was president.”

-Wall Street Journal

We are not the first to notice a real retirement crisis in our future.  But it does not seem to get the attention it should.

After 40 years of Federal Reserve manipulated, twisted, tortured, and contrived interest rates, countless American’s have taken unacceptable levels of risk to earn meaningful returns on their retirement savings.  Afterall, prevailing rates are at the lowest levels in history.

It is not just individuals ramping up the risk to earn greater returns.  America’s pension funds are short trillions of dollars needed to fund their obligations.  Rather than managing American’s retirement money conservatively, they have felt compelled to take abnormal risks in a very risky environment.  They have increasingly borrowed money to invest for hoped-for capital gains in speculative assets since bond yields are inadequate to meet their future obligations.

But the damage that has been done to speculative and even to conventional assets by the COVID-19 shutdown has hardly been exposed.   All those malls and commercial properties that have seen their restaurant tenants close and businesses leave are owned by someone – like pension funds – that are not getting the lease payments they planned for.

At the same time, the Fed’s heavy-handed interest rate suppression is a powerful disincentive for savings, taking a huge toll on the middle class.  Even before the lockdowns hit, 60 percent of the people in the US had less than $400 in savings.

Between diminished sayings and the lockdown’s destruction of capital that was many long years in the making, we are entering a new era.  People who think there is something uncouth or disreputable about capital and capitalism may well discover how much less prosperous a decapitalized society and its stock markets quickly become.

But back to interest rates.  As I write this, the yield on 10-year US Treasury bonds is .844 percent.  That is less than one percent.  That means that $100,000 in retirement savings will only return a paltry $884 a year.  As for the underlying purchasing power of the dollar itself, no one could possibly believe the dollar will be worth as much in 10 years.  Afterall, the Fed’s policy objective has been to depreciate the dollar by two percent a year.  Just recently the Fed has decided that two percent is not enough and that it will let inflation “run hotter” than that.

What is the alternative?  Junk bonds?  Good luck with that; there is a reason they are called junk.

It is time to take another look at gold.  It is times like these, times of crisis and transition that gold performs best.

At today’s price gold would only have to climb $158 dollars an ounce over the next ten years to outperform 10-year US Treasuries.

That is like child’s play for gold in an era characterized by unprecedented money printing.  Look at this chart of the US money supply (M2: cash, checking and savings deposits, money market securities, mutual funds, and other time deposits).   It has grown by $3.83 trillion, a 25 percent increase in just the last year.

chart of the US money supply

Money printing – the Fed’s only real tool – is like the mother’s milk of precious metals bull markets.

Why not use this period after Thanksgiving and before all the demands of the holidays to make sure you have taken steps to protect your retirement with gold and silver?

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