Thursday , 13 June 2024

As Global System Unravels Deflation Seen As a Distinct Likelihood

The World Gold Council has reported that the central banks of Russia, the Philippines, Kazakhstan and Venezuela have been buying gold, and Saudi Arabia’s monetary authority has “restated” its reserves upwards from 143m to 323m tonnes. If there is any theme to the bullion rush, it is fear that the global currency system is unravelling. Or, put another way, gold itself is reclaiming its historic role as the ultimate safe haven and benchmark currency. Words: 638

Lorimer Wilson, editor of, provides below further reformatted and edited [..] excerpts from Ambrose Evans-Pritchard’s ( original article* for the sake of clarity and brevity to ensure a fast and easy read. Evans-Pritchard goes on to say:

The Economy Is In The Grip of Debt Destruction
It is not inflation that is worrying big investors – though inflation may be the default response before this is all over – but deflation.

1. Core CPI in the U.S. has fallen to the lowest level since the mid-1960s. Unlike the blow-off gold spike of the Nixon-Carter era, this rally has echoes of the 1930s. It is a harbinger of deflation stress.

2. Capital Economics calculates that the M3 money supply in the U.S. has been contracting over the past three months at an annual rate of 7.6%. The yield on two-year Treasury notes is 0.71%. This is an economy in the grip of debt destruction.

3. The ECRI leading indicator for the U.S. economy has fallen at the most precipitous rate for half a century, dropping to a 45-week low. The latest reading is -5.70, the level it reached in late-2007 just as Wall Street began to roll over and then crash.

4. David Rosenberg from Gluskin Sheff said analysts are once again “asleep at the wheel” as the Baltic Dry Index measuring freight rate for bulk goods breaks down after a classic triple top.

5. The recovery in U.S. railroad car loadings appears to have stalled, with volume still down 10.5% from June 2008.

6. The National Association of Home Builders’ index of “future sales” fell in May to the lowest since the depths of slump in early 2009.

7. RealtyTrac said home repossessions have reached a fresh record. A further 323,000 families were hit with foreclosure notices last month. “We’re nowhere near out of the woods,” said the firm.

8. Spain had to pay a near-record spread of 220 basis points over German Bunds last week to clear away an auction of 10-year bonds, roughly what Greece was paying in March. Spanish companies have been shut out of the capital markets since Easter. Given that the Spanish state, juntas, banks and firms have together built up foreign debts of €1.5 trillion, or 147% of GDP, and must roll over €600bn of these debts this year, this is a crisis unlikely to cure itself.

9. Fitch Ratings said it will take “hundreds of billions” of bond purchases by the ECB to stop the crisis escalating. Since Bundesbank chief Axel Weber has already deemed the first tranche of purchases to be a “threat to stability”, it is a safe bet that Germany will fight tooth and nail to prevent such a move to full-blown quantitative easing.

The markets, however, doubt whether the EU’s strategy of imposing wage cuts on half of Europe without offsetting monetary and exchange stimulus can work. Such a policy crushes tax revenues and risks tipping states into a debt-deflation spiral, as if everybody had forgotten the lesson of the 1930s.