The U.S. Dollar is being very aggressively devalued in a parabolic…[manner] as we enter the final stage in the paper currency cycle. The government needs Gold to go vastly higher so the budget can be balanced after all of the paper promise debts are added to the balance sheet. Interestingly, Michael Belkin, arguably one of the best analysts in the world, expects earnings for companies to plunge this year causing the DJIA to crater about 30%. This fits with the kind of correction in the now high flying DJIA that we have discussed per the late 70’s charts where Gold and the Dow would meet between 10,000 and 12.000. Words: 1022
So writes Goldrunner* (www.GoldrunnerFractalAnalysis.com) in edited excerpts from his most recent newsletter to subscribers (excluding his illustrative charts which are only available to subscribers) posted here with permission. Go here to subscribe and receive his unique analyses with one-of-a-kind charting.
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Goldrunner goes on to say in further edited excerpts:
The 1970s, like today, was a period of deep recession made more palatable as “rolling recession” over time. The Fed’s response was to aggressively print dollars via the banking loan multiplier system. This resulted in Gold ripping higher and then the economy later recovered after Gold rose to balance the U.S. budget into 1980.
Total Federal Spending Outpacing growth in Median Household Income
The chart below shows that:
1) The Federal government spent more aggressively after coming out of the 70’s recession based largely on increased government tax revenues in devalued dollars.
2) Once the markets and economy started to run out of “devalued dollar and falling interest rate juice” into the late 90s/ 2000, the Fed responded once again with aggressive dollar printing via the loan multiplier banking system from around 2002 into 2007 devaluing the dollar aggressively to inflate the economy and markets till they “blew the loan multiplier system out.” That ushered in the “deflation scare” into the 4th quarter of 2008 seen as a flat spot on the Total Federal Spending red line.
3) Immediately in late 2008 the Fed turned to the crack cocaine of outright debt monetization – dollar printing/inflation. From the flat spot on the red line, the debt monetization form of dollar inflation allowed the Total Federal Spending to rip upward at a higher slope than the aggressive dollar inflation via the bank loan multiplier system afforded from around 2002 to 2007.
4) The gap widened dramatically between Total Federal Spending and Median Household Income that generates tax revenues and has been filled by newly printed dollars by the Fed as the U.S. monetizes debt – the increase in spending above tax revenues. Recently, an article stated that over 70% of federal government spending is being generated by newly printed dollars by the Federal Reserve. This is debt monetization and default on debt….
5) All of the newly printed dollars are being spent to fill holes in the U.S. balance sheet to pay things that were never funded, or to keep people afloat, or whatever. Much of it is interest expense on the huge federal government debts that are going parabolic because you have to create debt to create dollars. Per the late 70s comparison, the U.S. dollar will need to be devalued ~ another 70%, or so. You won’t see it in the US Dollar Index, however, since it is a ratio chart compared to the currencies of other countries who will also devalue their currencies around the same amount. Thus we see both the Euro Index and the USD Index oscillate sideways while all of the paper currencies are devalued against Gold.
[Incidentally, it is interesting to note that] the DJIA Stocks eventually rose about 10 times in price following the last 2 major US dollar devaluations – the early 30s and the late 70s – as earnings and dividends returned; boosted by the effect of cheaper dollars. We can probably expect the same to play out this time around. Thus, after Gold rises to balance the budget/ devalue the debt, the inflationary effects will probably cause a similar rise for the DJIA over the following 10 years, or so, maybe up to around 140,000.
Federal Tax Receipts Failing to Keep Up With Federal Spending
The chart below shows that Federal Tax Receipts (blue line) are indeed failing to keep up with Federal Spending (red line) with the gap being closed by dollar printing via debt monetization.
Gold Price vs. Central Bank Balance Sheet
The third chart below shows the price of Gold plotted alongside the combined Total Central Bank (CB) Assets of various countries. Thus, the price of Gold in dollars is effectively an imperfect mirror image of Total CB Assets. The Total CB Assets simply reflect the amount of total paper currency printing world-wide. This makes sense since the supply of Gold is finite world-wide.
(Do you see any evidence in the above chart that the short-term paper gold shorting is affecting this chart? No, of course not. Paper Gold can only be used to manage the price of Gold in the short-term, but the massive buying of Gold will always win out. The central banks need Gold much higher, or they would not have come in during this correction to accumulate massive amounts. Do you remember the old adage “Don’t fight the Fed? The Fed front runs it own actions. Do you think the heavy Gold buying by the Fed indicates that their actions will take Gold much higher? Of course it does – they aren’t stupid.)
We can see on the chart that the green line representing total CB Assets has turned sharply higher while the price of Gold is moving sideways. Look how total CB Assets turned higher in 2007 as the price of Gold moved sideways, just before Gold ripped higher. In 2007 the increase in CB Assets was primarily the Fed Reserve buying the junk derivatives from the banks at the “begging bowl” and today, that has been going on in Europe. The bottom line in the short run, however, is that the sharp turn higher in CB Assets/paper currency printing will soon reflect paper currency devaluation world-wide that will ignite the price of Gold sharply higher like at the same point in the cycle in 1979.
We have reached the point where many countries are monetizing debt to pay their bills. This will only get worse as the various countries are forced to monetize more debt to cover unfunded liabilities to get them on their balance sheet before Gold goes completely parabolic in order to devalue those debts.
For the moment, GOLDRUNNER ~ Email me at [email protected] with your questions and comments.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*Goldrunner offers a subscription service which provides detailed technical analysis of where the price of gold, silver and precious metal stocks are going in each stage of their respective bull runs. This service comes with detailed charting based on conventional technical analysis and his proprietary fractal analysis based on the ’70s. Go here to subscribe.
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