By Dr. Jeffrey Lewis
Inflationary cycles tend to result in notable bullish moves in the prices of precious metals like silver, and such times have always created powerful political factions.
Furthermore, massive credit expansion and an extreme use of money printing presses provide incredible wealth-accumulating opportunities for sectors of the economy.
These sectors also give rise to powerful financial elites who are willing to use whatever tools are available to them by virtue of their extraordinary wealth and power to maintain the status quo.
Financial history tends to be cyclical, and the U.S. economy is now late in the cycle of the latest credit unraveling — with each fresh round of additional new money having less and less impact on those desperately seeking yield of any kind.
Meanwhile, the mainstream remains firmly distracted by the latest media circus. The Fiscal Cliff debate today, the Debt Ceiling debate tomorrow, with each representing yet another exercise in futility meant to appear valid for the people, but in reality only a performance for the new market makers.
Wealth redistribution also intensifies as the risk of out of control monetary expansion becomes less and less controllable during the cycle’s forward march.
Direct and Indirect Taxation
Simultaneously, another development involves the increasingly complex mechanisms that evolve to cull any remaining wealth from these financial systems — on top of the various methods of direct and indirect taxation.
Direct taxation is pushed through by lobbying concerns funded by those whose interests benefit. Indirect taxation arises through inflation of the money supply that eventually leads to price inflation and paper currency debasement.
Combined with decades long financial and real asset inflation throughout this unprecedented boom cycle, and you are virtually guaranteed to see a set of extraordinarily powerful political coalitions.
Why the Printing Presses Cannot Stop
The government agencies and central banks caught up in this process simply cannot stop printing money at this point.
Economic observers are slowly becoming aware of the ongoing rise in bank deposits compared to the relatively flat performance of the loans made by banks since the Lehman bankruptcy of 2008.
Furthermore, since the FASB rule change regarding securitized pools came into effect in March of 2010, the Fed has essentially financed an equities rally as at least some deposit-rich banks (JP Morgan notably among them) have used this widening deposit-loan spread to invest funds in the stock market and other risk assets. The U.S. central bank has also stepped into the bond market as the Treasury buyer of last resort.
If the Fed now stops pumping all of this extra money into the financial system via its quantitative easing programs, the entire U.S. financial sector would very likely collapse and reveal itself as the artificially created fractional reserve air pocket of a Ponzi scheme it truly is.
It should therefore come as no surprise that ever tightening supply and inventory dynamics, along with the value of precious metals has lead to a slow and steady ground swell of interest.
Indeed, this counter move has occurred despite enormous (and illegal) efforts and regulatory neglect by the status quo. Gold and silver are re-asserting themselves as the natural inverse to the ongoing monetization of everything.
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