Print Friendly and PDF



Which Looming Financial Catastrophe
Will Happen First?

Patrick Heller, editor of the award-winning, Liberty’s Outlook newsletter, published monthly by Liberty Coin Service, reviews precious metals and numismatics. Below, Heller discusses the negative financial news for the US economy that will be coming out before the end of 2022. There are several crises looming around the world that could soon wreak havoc on US and global financial markets. Here are just a few.

The most important reason to own a position of bullion-priced physical gold and silver coins and ingots is as a form of “wealth insurance” against the risk of falling values in paper assets such as stocks, bonds, and currencies.

Even though the price of gold as measured in US Dollars is down over 6% this year to date, ownership of gold has helped protect the wealth of the majority of the world’s population thus far this year. People who live in populous nations such as China (-6.6%), India (-2.5%), Indonesia (-3.4%), Pakistan (-14.4%), Nigeria (-0.5%), Bangladesh (-10%), Japan (-15.9%), Ethiopia (-1.1%), Philippines (-6.5%), Egypt (-31.3%), Vietnam (-2.5%), and Turkey (-23.5%), plus the 27 nations that use the euro currency as well as Great Britain have all seen the value of their local currencies fall against gold this year, year-to-date through Nov 8, 2022.

Of course, currencies of other populous countries such as the US, Brazil, Russia, and Mexico have appreciated against gold thus far this year, but their combined populations are dwarfed by those who live in nations where local currencies this year have fallen against gold. The most important currency against which gold is measured is the US dollar. At one time more than 90% of all international commerce was priced and paid in US dollars. Even today about 60% of all international transactions are denominated and settled in US dollars. On that basis, some could be lulled into thinking that the recent strength of the US dollar versus gold means there is no urgency in acquiring your physical gold and silver wealth insurance.

Don’t be complacent!

In my judgment, there are many reasons to be worried about an imminent decline in the value of paper assets such as stocks, bonds, and paper currencies. As one or more of these events come to pass, there is a strong likelihood that gold and silver prices could soar upward.

Why A Sudden Change?

Almost no financial markets in the US and worldwide operate as a free market to derive values. Instead, they are mostly manipulated for the benefit of governments, central banks, and those in the private sector who have close ties to them. In recent years there have been a growing number of convictions of traders for manipulating precious metals prices, interest rates, foreign currency values, and other financial markets.

One reason a government or central bank manipulates markets is by imposing a stealth tax on a nation’s citizens through inflation of the money supply to avoid having to resort to the unpopular tactic of an explicit tax increase. A government or central bank might also suppress, delay, or change statistical reports to avoid disclosing negative economic or financial data.

The US government and Federal Reserve Bank have mastered the techniques of surreptitiously manipulating financial markets. Since the prices of gold and silver are effectively a report card on the US dollar, government, and economy, these entities have a stronger incentive than any other party to try to hold down gold and silver prices.

Elections were recently held across the US. It is a too common practice that official statistical reports magically avoid reporting, as much as possible, negative news before the election, which then becomes news afterwards.

As one example, consider the monthly jobs and unemployment report released last Friday by the US Bureau of Labor Statistics. The headline touted a jobs gain of +261,000 jobs in October compared to September. Yet the media largely ignored that the household survey in this report instead counted a loss of –328,000 jobs from the month before or that more than 570,000 fulltime jobs had disappeared over the past five months.

Further, a record number of Americans, because of strained financial circumstances, are taking two or more jobs. Those employees holding two or more jobs are counted in the establishment survey as being multiple workers. Therefore, be ready for bad news in the next monthly jobs and unemployment report.

This bad news will be compounded by the massive hiring freezes or layoffs just announced over the past three months by such high-tech firms as Amazon (freezing hiring for the rest of 2022), Apple (freezing hiring other than for research and development), Booking.com (226), Byju’s (2,500), DocuSign (9%), GoFundMe (100), Intel (up to 20%), Lyft (760), Meta (Facebook) (11,000), Microsoft (1,000), Netflix (480), Opendoor (550), Peleton (4,100), Salesforce (fewer than 1,000), Snap (1,300), (Spotify (undisclosed), Stripe (1,050), Twillio (800), Twitter (3,750), Wayfair (870), and Zillow (300).

Another area where the forthcoming financial news will continue to get worse is in the housing market. Thirty-year mortgage interest rates have more than doubled since Joe Biden became US president. The higher cost of financing has crippled the ability of would-be home buyers to be able to purchase one. The homebuilder sentiment index in October fell for the 10th consecutive month to 38, the lowest it has been since August 2012!

This also affects retail consumer demand. Recent monthly retail sales reports have either been down from the month before or are up only slightly – and less than the increase in consumer prices. This indicates a decline in the quantity of products sold, which portends a decline in demand for workers to produce those products. Supposedly, there was good news where the US Bureau of Economic Analysis on October 27 issued a preliminary report that US Gross Domestic Product was up 2.6% in the 3rd quarter 2022 over the prior quarter.

Unfortunately, if you look at the details in this report and that of the first two quarters of this year, the news isn’t good at all. For the first nine month of 2022 as a whole, GDP is only up 0.1% from the 4th quarter of 2021. Also, GDP consists of four components – consumer spending, business investment, government spending, and net exports. In the 3rd quarter, the first three of these components all declined from the second quarter. The only positive factor was net exports, which is derived by taking exports and subtracting imports. Exports soared in the 3rd quarter in part because of the strong value of the US dollar. Also, imports declined in the 3rd quarter because American wealth is declining. US exports are now declining because of the high value of the dollar, so expect that the 4th quarter GDP report will again show a decline versus the 3rd quarter.

Other Looming Financial Crises

The above list just touches the surface of all the negative financial news for the US economy that will be coming out before the end of 2022. There are more crises looming around the world than there is space to list here, any one of which could start a domino chain collapse in US and global economies. Here are just a few.

Credit Suisse Bank and the Swiss National Bank. Last month I discussed how Switzerland’s second largest bank had been hit with multiple massive losses in recent years. Since, the continued survival of the bank has become even more shaky.

Credit Suisse announced a fourth consecutive quarterly loss for the 3rd quarter this year, this time exceeding $4 billion. The bank has now announced a major restructuring, which includes another $3 billion in asset write downs. The Saudi National Bank, the largest bank in Saudi Arabia which is majority owned by that nation’s government, will invest $1.5 billion to take up to a 10% ownership of Credit Suisse.

Credit Suisse will also transfer most of its securitized-products group to a consortium led by private equity firm Apollo Global Management, will cut employment almost 20%, and will seek billions more in other cost reductions and asset sales.

Many major US and world banks, hedge funds, and investors own Credit Suisse stock or bonds.

The risk that this bank would collapse forced Swiss National Bank, Switzerland’s central bank, to provide billions of dollars of liquidity injections into this and 16 other Swiss banks. The funds for the liquidity injections ultimately came from the Federal Reserve Bank.

At the end of 2021, Swiss National Bank had shareholders equity of almost $224 billion. In the first nine months of 2022, this central bank incurred losses of more than $142 billion, wiping out more than 63% of its net worth. The bank cannot go bankrupt so long as others are willing to hold the Swiss franc currency. But huge losses at a central bank discourage other governments, central banks, and private parties from wanting to own bonds or currency from that bank. Further deterioration in the Swiss banking system would inflict massive losses worldwide.

Saudi Arabia Government Asks To Join BRICS. The BRICS Bloc includes the governments of Brazil, Russia, India, China, and South Africa. Among the activities this bloc is considering is establishing a new international currency to compete against the US dollar. It is possible that such a currency could even have some gold backing, using Russian and Chinese central bank gold reserves. If this were to occur, international demand for US dollars could plummet, resulting in a massive repatriation of dollars to the Treasury Department to be redeemed for American goods and services and ownership of American companies and real estate. American prosperity could be devastated.

Within the past two weeks, the government of Saudi Arabia, formerly a major US government ally, has asked about joining the BRICS bloc. Other countries – Argentina, Egypt, and Turkey – have asked about the possibility of joining as well. Any such expansion of the BRICS bloc would quickly harm the US economy, even if no new currency were created.

Liability-Driven Investments. Liz Truss became the new prime minister in the United Kingdom in September. On September 23, her finance minister announced a major tax cut plan to stimulate the economy, but didn’t explain how lost government revenues would either be replaced or matched by spending cuts. Financial market professionals therefore assumed the tax cuts would be funded by larger government deficits or by additional borrowing.

This caused the British pound to fall to its lowest level ever against the US dollar. Interest rate yields on British government bonds rose, meaning that bond values fell.

Falling bond values triggered an enormous backlash in financial markets. British pension funds held almost $1.8 trillion worth of Liability-Driven Investments (called LDI).

LDI is a treacherous combination of derivatives and leverage to maximize investment returns. It works only so long as bond values remain stable. If bond values fall, it magnifies losses. Within days of the announced tax cuts, British pension funds faced losses of up to 50% on the LDI assets. Five days after the announcement the Bank of England was forced to begin a two-week program to purchase British government bonds.

Liz Truss fired the finance minister on October 14, but it wasn’t enough to save her job. She resigned on October 20.

LDI is already a problem in America. BlackRock has already sold more than $400 billion of such assets as investments. A year ago, the defined benefit pension funds of Raytheon, United Parcel Service, General Electric, Kaiser, and Caterpillar each held more than $10 billion of risky LDI assets. Any repeat in the US of what happened in Britain could potentially lead to the fall of the US government.

Gold and Silver Supply Squeeze. We have previously reported that the physical silver inventories in the London Bullion Market Association and the New York COMEX have declined significantly over the past year. Recently, a major silver supply squeeze developed at the COMEX when an unusually large number of owners of maturing September silver contracts asked for delivery of the underlying physical metal. In the three trading days from the COMEX close on November 3 to November 8, the spot price of silver jumped 10.7%! It also pulled up gold’s price 5.2%. These are massive short-term moves.

In theory there is a lot of gold and silver in LBMA and COMEX vaults. However, a high percentage of these inventories are owned by exchange-traded funds. Most inventories at the COMEX are also “eligible” rather than “registered,” meaning that those bars are merely being stored there for the convenience of the owners and are not available to deliver against maturing COMEX contracts.

Recently, the World Gold Council reported that 3rd quarter 2022 central bank gold purchasing was the highest it has been for 55 years!

At some point, I have been expecting a major supply squeeze of gold and silver inventories. There have been so many indications of a possible squeeze over the past few decades that did not come to pass that it’s hard to think this may be the time it finally occurs. But maybe it will. If so, don’t delay any longer acquiring your wealth insurance position of bullion-priced physical gold and silver coins and ingots.

There are several other crises that could soon wreak havoc on US and global financial markets, for which I don’t have space to discuss here. They include soaring global debt of more than $300 trillion, well over $100 trillion in unfunded liabilities for government employee pensions, retiree healthcare, Social Security, and Medicare, and over $2 quadrillion of derivatives contracts that could magnify any other financial crisis.

Editor’s Note: Since 1971, Liberty Coin Service has grown to become Michigan’s largest rare coin and precious metals dealer. Liberty Coin Service is a buyer and seller of gold, silver, platinum and palladium bullion and quality rare coins. The firm’s award-winning, monthly newsletter, Liberty’s Outlook, 400 Frandor Ave., Lansing, MI 48912, is available for $159/year. For recent special acquisitions and quotes call the trading desk toll-free at 800-527-2375 or visit the website at www.libertycoinservice.com.


The Resource Investor
Copyright 2021-23 | All Rights Reserved
Reproduction in whole or part is strictly prohibited
without prior written permission
NOTE: The Resource Investor does not itself endorse or guarantee
the accuracy or reliability of information, statements or opinions
expressed by any individuals or organizations posted on this site
PLEASE READ DISCLAIMER


Web Site Designed & Maintained by
Gemini Communications

This website is a publication of the
Bull & Bear Media Group, Inc.
Info@TheBullandBear.com