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Things are bad – catastrophic. We haven’t seen jobless claims or declines in productivity like this ever. Over the course of 3 weeks, we’ve seen depression level declines for almost every area of the economy…[except] for staple food products and essential services. Buckle up, the world is about the change.
Politicians are no longer asking us to shut down the economy; they are forcing us to…[and] many…are now…[suggesting that] this could go on until August. In other words, we’re just getting started…In the end, no one really knows how this will play out.[Thanks to the coronavirus (COVID-19) pandemic] the U.S. is seeing the effects of an…economic shutdown [that could last for]…3 to 18 months. The measures taken by leaders, create a real-time experiment that is fattening the tail risk with every passing day. You’re damned if you do, you’re damned if you don’t….
In order to stop the virus, we basically need…to shut down the economy, and focus on keeping it together until the restart…[and,] when you shut down the economy, you are really shutting down velocity….[and] if one’s income gets shut down for more than a month, then one can’t pay their bills. Economically speaking,
- money wouldn’t be exchanging hands,
- velocity…[would become] toast and
- GDP would likely see more than a 50% annualized decline in the quarter
…so, what’s a government to do?[That’s easy, they would]…”jack the money supply, baby!” by turning on the printing presses and starting to hand out cash to everyone…The U.S. government has already started [doing just that] with a$2T program called the CARES Act….Overall, the Fed and the Treasury are looking to do somewhere in the ballpark of $6T between each other (with mumblings of more in the works) which will increase the money supply and offset the reduction in velocity
…[but] what are the side effects of doing that?
Eventually the economy will kick back on and velocity will speed back up. Let’s assume the monetary supply is now over 2x the size it was before the pandemic started. If we go to the same productivity as the pre-corona level, then expect twice the GDP so, in theory, we could have twice the GDP as before with no change in pre-corona productivity. What’s the difference you ask? Inflation…History has taught us that when prices start rising at hyper-inflationary levels, people want to get rid of their money as fast they receive it, [thereby] speeding up velocity even further [and this is] known as runaway inflation.
The longer the economy stays shutdown, the more money we will print; increasing the risk of hyperinflation…[so] we are starting to build our portfolio around precious metals to help hedge this risk. We believe that pegging the U.S. dollar back to gold is a relatively high potential outcome [and we expect that]…this time gold will be pegged at a much higher value than today’s prices.