By Sean Kelly
While our hearts and thoughts are drawn to family and holiday celebrations, we’d like to share a couple of last-minute thoughts about gold before we turn the page on the 2020.
Would you be willing to give some broker $1,000 on January 1, 2021, only to get back $995 on January 31, 2021?
Or would you be willing to let your bank use $100,000 of your money for a year to get back $99,500?
Not likely!
Yet that is the sort of thing that happens under a negative interest rate regimes. Bloomberg News reports that the market value of negative yielding debt rose above $18 trillion earlier this month.
Bloomberg, 12/11:
“The market value of the Bloomberg Barclays Global Negative Yielding Debt Index rose to $18.04 trillion on Thursday, the highest level ever recorded…. About $1 trillion of bonds have seen their yields turn negative this week, meaning 27% of the world’s investment-grade debt is now sub-zero.”
There are many things that could be pointed to that are wrong with negative interest rates. In a natural economic world, a dollar today is always worth more than a dollar in some distant future. Interest rates developed because people were willing to pay to be able to put a dollar at work today. Interest is the price of money. But negative rates are like water flowing uphill: they say that a future dollar is worth more than one you can put to work today.
Negative interest rates undermine the storied ant’s idea of saving for the future. They reinforce the grasshopper’s legendary irresponsibility. They are a sign of severe monetary disorder.
It is not a surprise to discover that as the world’s central banks and their frenzied money-printing became the drivers of negative interest rates, informed investors around the world turn to gold and silver for protection. As they did, the price of gold climbed to new highs in 2020 in virtually all the currencies of the world.
Owning gold and silver in this bizarre economic environment makes especially good sense because negative rates are only made possible by frenzied central bank money-printing. In the present mess, central banks have expanded their balance sheets by more than $30 trillion of made-up money since 2000. And that money printing assures that the purchasing power of their currencies – dollars, euros, yen, pounds – will be diminished in the future.
But nothing stops the central bankers from doing more of what they have been doing. Accordingly, it announced at its year-end meeting earlier this month that the Federal Reserve intends to continue its money-printing ways, buying $80 billion a month of US treasury bonds and $40 billion a month in mortgage-backed securities for the foreseeable future.
Thus, the Fed will purchase financial instruments to the tune of $1.44 trillion a year with money made up out of thin air, just has it has been doing since June. That follows an even bigger two-month spree when the Fed funded the entire US deficit, buying $1.5 trillion in Treasuries in March and April alone.
Little wonder that Charlie Munger, Warren Buffett’s wise Berkshire Hathaway partner, said this week, “We’re in very uncharted waters. Nobody has gotten by with the kind of money-printing now for a very extended period without some kind of trouble.”
That from a man who is 93 years old and has seen it all.
“We’re very near the edge of playing with fire.”
We wouldn’t want to leave you with that unsettling thought as you head off to the holiday celebrations if we couldn’t also assure you that owning gold and silver is the best way to protect yourself and profit from the monetary foolishness of our times. We hope you will take prudent steps while you still can. We are always standing by to help.
From all of us at Red Rock Secured, best wishes for a warm and meaningful holiday season with those your love.
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