STAFF NEWS & ANALYSIS
As Billionaires Predict Worldwide Defaults, Would You Rather Hold Bonds or Gold
By Daily Bell Staff - May 27, 2016

Gold on Track for Eighth Losing Session U.S. GDP data revision seen bolstering case for interest-rate increase … Gold prices edged lower Friday, on pace for an eighth straight losing session, amid mounting evidence of improving economic growth in the U.S. that would strengthen the case for an interest-rate increase.  –Wall Street Journal

Gold went up by 16 percent in the first quarter of 2016 and kept on moving even afterward for a total of 20%.

Investors are nervous about the economy and the first quarter’s results reflected those nerves with a rise in gold.

Since then it’s moved down some 6% as Janet Yellen has counterattacked with vaguely worded suggestions that the Fed might hike rates again.

As we pointed out in a recent article, the idea that the US economy is on an upswing seems difficult to believe.

The US owes something like $200 TRILLION if one includes Social Security and other outflows going forward.

Meanwhile some 100 million individuals including young people and seniors are not working in mainstream jobs or not working at all.

Our perspective on the US and the world economy is summed up by a top executive for the Bank for International Settlements, William White.

Speaking some months ago, he was quoted by the UK Telegraph as saying that nothing less than a worldwide debt jubilee would bring back global solvency.

Without a jubilee, the world simply continues to sink into a morass of sovereign, corporate and personal debt.

White’s perspective was echoed just a few days ago by billionaire bond investor Bill Gross. Speaking of Japan, he said the current debt burden was not manageable and that the central bank would have to acquire it and forgo repayment.

This scenario may need to play out around the world.

Given what the most savvy financial professionals are saying about the global economic condition, it is hard to see how the mainstream media (echoing Janet Yellen) remains upbeat about a “recovery.”

Nonetheless, the Journal manages it:

More:

Recent data suggest that 2016’s early weakness was temporary, and more recent data indicates the U.S. recovery, while weak, continues apace.   Those recent data points have strengthened the hand of the Federal Reserve to further raise interest rates from rock-bottom levels.

The data being referred to includes durable goods orders, which recently rose 3.4%.

Jobless claims supposedly dropped 10,000 to 268,000 for the week ending May 21, vs. forecasts for 275,000. Home sales jumped 5.1% in April

Yet market watchers quoted in a recent New York Times’ article remain unconvinced.

Reports … suggest that 2016’s economic trajectory will follow an arc that has bedeviled forecasters for years: a soft first quarter followed by a turnaround in the spring even though underlying conditions remain largely the same throughout the period.

“There is better momentum now, but it’s still a bit of a head fake,” said Diane Swonk, an independent economist based in Chicago.

Swonk pointed out that some of the upturn may be simply be statistical. Seasonal anomalies can “create a false sense of security.”

And she added about the first quarter, “It was still a tepid quarter even if it was less bad. That doesn’t equal good growth.”

How on earth is a rate hike going to aid US solvency? And according to White and Gross, the problems are so bad that they cannot be dealt with by normal means. The world, in other words, will have to organize a jubilee.

The Journal does not focus on this “bigger picture” of course. In fact, it points out that “Rising rates tend to weigh on precious metals, as gold struggles to compete as an attractive investment with yield-bearing securities such as bonds.”

Conclusion: But when the entire world’s financial infrastructure is threatening to implode due to unmanageable debt, what would you rather be holding – gold or bonds?

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  • Chuck

    There are two types of debt:

    1. Real Debt – You do something for someone in exchange for their promise to do something for you in the future. In case of default, the creditor and debtor are harmed. No one else is affected.

    2. Fake Debt – You create slips of paper and coerce others to accept them in exchange for real goods and services. You haven’t provided any value so no one owes you anything.

    There is another category I call “Not Even Fake Debt.” Welfare such as social security is not even fake debt. A scam artist promises you “free” stuff in exchange for your vote. Oftentimes they end up not delivering.

    • acudoc1949

      Excellent analysis. Basically, banks do not offer consideration in the technical sense, so the contact is not legally valid. I encourage people to walk away from credit card debt as a first step. It is not a valid contract. The sooner banks fail the sooner will critical thinking occur regarding what should constitute money and what is a Ponzi scheme by shyster bankers.

    • Macon Richardson

      On that Social Security stuff, pal. I was forced to give my money into Social Security since 1955. The pittance they give me back was my money MY MONEY! My money from the time I was fifteen years old. That’s not a fake debt. That’s a real debt. Had I been allowed to keep my money from then until age 65, I’d have a money vault like Scrooge McDuck. Instead, I live like Ducky Daddles.

      Who’s Ducky Daddles? Google Henny-Penny. “The sky is falling. The sky is falling.”

      • mary

        This emotional response is typical of those who actually believed that social security was some how a pension system. It never was. It is a tax/welfare scheme with the money spent immediately upon being withdrawn from our salaries. It’s no different in this way from the income tax. Do we expect our income tax to be paid back to us? Of course not. Then why do we expect our FICA tax back? Because we believed the lie.

        This guy has not been receiving his money back, but the money taxed (stolen) from younger people who are still working. In other words, he is a welfare recipient, on the Dole. No doubt he will be angry at me for telling him. That will be confirmation that he has been believing in the government fairy tale all his life.

        • Macon Richardson

          Why should I get angry at you? I’m always forgiving towards my moral and intellectual inferiors.

          • OK let’s not get into a fight please. Just comment on the article … Thanks.

  • Gambeir Bay

    What a hoot;
    “Investors are nervous about the economy” There are investors? Who knew? What are they investing in; prisons, gambling, prostitution, drugs, what? Have I missed something or is there like a secret organization which is actually making products in America? Are there like jobs somewhere that don’t require 400 hours of phony annual training to keep which pay over $10 bucks an hour somewhere? What am I missing here? Who are these imbeciles you are calling investors? What kind of idiot invests in a corrupted nation whose politicians are stripping away all the the liberties which once made that nation the economic powerhouse of the world, who are now in bed with organized crime pretending to be business associations bribing them to pass tens of thousands of laws restricting competitors and placing roadblocks and endless gov-corp agencies before anyone stupid enough to try to do anything more advanced than running a lawn keeping service?

    Investors huh? Who are these idiots and what are they investing in? Like what, a police state is a good investment? Maybe if you’re so stinking rich you don’t have to worry about driving without insurance, or some of the other criminal and illegal corporate sponsored abridgements of the Bills of Rights and the theft of public property. Oh so, yes, please give a bond instead of a piece of gold. Idiots, I hope you end up eating your own yard clipping just to survive. God knows these idiots investing in this criminal operation deserve it.

    • Silverstake

      Jeez. Don’t hold back. Tell us how you really feel.

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