Gold News

Just Like 1980 Wasn't

Stocks and bonds are high, not low, and big government is deemed a solution, not the problem...

good news...and bad news...and a lot of news in between, writes Bill Bonner in his Daily Reckoning.

Consumers spent a little more than was expected of them, new figures say. And manufacturing did a little better than expected too.

On the other hand, the federal government's tax receipts plunged in the month of February...and bank lending is still contracting. Last week it shrank $33 billion – the 7th week in a row it has contracted.

How does an economy expand when the banks are lending less money? Beats us.

We believe the "expansion" reported in the latest GDP figures is mostly counterfeit. It's government spending and hot money filtering into the economy. Still, it's amazing that the GDP figures are positive.

The Dow was flat yesterday. The Euro rose a little – on expectations of a settlement of the Greek affair. Greece only had a month to sort out its problems. That was two weeks ago. The "clock is ticking," say news reports. Most likely, the Hellenes can't really sort their problems out on their own. Greece will need some sort of bailout – even if it is limited and tentative – from Germany. Stay tuned.

It will be interesting to see what happens when Britain runs into trouble financing its deficits. It won't have the Germans to help. Britain never took up the Euro. It will be on its own.

But the big news from yesterday is that gold hung onto Tuesday's $19 boost per ounce. Why did gold suddenly shoot up? We don't know. But our guess is that gold will suddenly shoot up a lot more. We're in a deflationary period. That means everything is going down in price. But against what? Well, against money. Against real money that is – meaning Gold Bullion.

Gold should continue to go up until this deflationary period is over. That doesn't mean there won't be more hiccups and reverses in the gold bull market. But one of the surest trends of our time is the crack-up of the paper money system. And that is bound be good for Gold Prices.

Chris Wood of CSLA says he gives the Dollar Standard five more years. Maybe it will be a bit more...maybe a bit less. But one thing is sure. Governments cannot continue to run such huge deficits forever. There will come a day of reckoning.

The feds are hoping it comes at a time and place of their own choosing. They all want to ease their way out of their troubles...with the help of consumer price inflation. You heard central bankers talking last week about increasing the inflation target from 2% to 4%. If they can actually control inflation so precisely, it will be a miracle. But that is what they hope to do.

A few years of 4% inflation would do wonders. In ten years, they would have cut a third of the national debt – in real terms, of course (supposing that they don't add to it even faster). Not only that, the debts of the private sector would be eased too. At 6%...debts would be cut in half in a decade. With half the debt burden - the private sector might be ready to begin a new period of growth. That is the feds' real de-leverage the private sector enough that it can grow...and increase tax receipts.

By the way, that was what happened in the Reagan administration. The inflation of the '70s forced up interest rates and caused the worst recession since the Great Depression. But it also lightened debt loads – so much that the economy was ready for another big growth spurt.

This growth really paid off in the '90s...and the very early years of the Bush junior administration. Thanks to growing tax revenues, both Clinton and Bush were able to pay down the huge debts of the Reagan years...and still increase spending. The economy was able to "grow its way" out of debt.

Then, with the war on terror and the micro-recession of 2001, the budget magic of the '90s was lost. Bush apparently never met a spending bill that he didn't like. Spending exploded...especially time bomb spending for health care, which increases automatically year after year.

Then came the depression...known popularly as the Great Recession of 2007-2009. Tax revenues fell. Spending increased even more. And now the deficits come hard and fast. And there seems to be no way to "grow our way out" of them.

All of the conditions that made for a boom in the early '80s are making for a bust in the early 2010s. Interest rates are at record lows, not record highs. Stocks are high, not low. Bonds are high, not low. The government is the solution, not the problem.

Buy Gold at live Spot Gold prices, starting with a free gram stored in Zurich right now by using BullionVault...

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

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