Could Gold & Bitcoin Crash?
The real reason that the prices of gold, silver, and Bitcoin have soared is not because of the virus…but because they are a hedge to inflation against the financial system.
Fed And Treasury Entered The Repo Market
A repurchase agreement or “repo” market is a system in which collateralized short-term loans are traded each day.
Ask any average person and they would probably not have any clue what the repo market is, even though it is an integral part of the financial system.
Here’s a great example from Bankrate.com on why the Fed got involved in the repo market in the first place:
The Fed’s involvement in the repo market can be traced back to Sept. 16, when a traffic jam occurred at the intersection of cash and securities. Experts say that piles of cash flowed out of the system because corporate tax payments came due.
That happened right as new Treasury debt settled onto the markets. Financial institutions wanted to borrow cash to purchase those securities, but supply didn’t match those demands.
This ultimately caused a cash crunch, and the repo rate soared — reaching as high as 10 percent intraday on Sept. 17. In other words, banks didn’t want to part with their cash for anything lower than that rate.
It pushed up the federal funds rate along with it, which was supposed to be trading in a target range between 2-2.25 percent at the time. It was also days away from a second reduction.
The Fed had planned to start tapering off its repo operations…but when the coronavirus came along, Treasury markets started seizing up even more.
Of course, it became clear that now was not the time to be backing away from its repo market operations—but instead, be ramping them up.
Remember that the Federal Reserve is the central bank for the United States. It’s decisions affect the U.S. economy, and therefore the world.
This position makes it the most powerful force in the global economy. It is not a company or a government agency. It’s leader is not an elected official. This makes it seem highly suspicious to many people because it is not subject to either voters or shareholders.
People often wonder why there has been so much controversy around Central Banks. It’s because Central Banks control a nation’s money supply and determine the quantity of money in circulation by buying and selling debt. Hence, they have more power than governments and the people.
And that is why I say there is little difference between communist central planning and capitalist central banking. Central banks look capitalist on the surface but have their roots in communist literature. Advocates of centrally planned economies believe central authorities and economic planning is consistent with socialist and communist systems.
Capitalism is a market-driven economy in which market forces shape society and life. Socialism is characterized by state ownership of businesses and services. Central planning is used to attempt to make society more equitable.
The Fed is nothing but a puppet show. Which is why I do not get worked up every time the Fed makes announcements.
The Everything Bubble
In 1971, the U.S. dollar stopped being a store of value. Sadly, if you look at modern definitions of money, the words “store of value” are no longer included in the definition.
That was the year the gap between the rich and poor began to widen. This is why Rich Dad’s lesson #1 is: The rich do not work for money.
I’ll pose the question yet again: Why work for money when the rich are printing it and interest rates are sub-zero?
After 1971, inflation set in because the dollar was quickly losing value. Stock prices and housing prices began to rise. Real estate flipping and stock trading became professions for the average person. Investing for the long-term was for losers.
The world economy boomed. Unfortunately, it was an economy that was no longer a house of bricks. Today, the world economy is a giant, invisible castle in the sky, a castle made by the Big Bad Wolf, a castle made of straw, a castle to capture the Three Little Pigs.
Since 1987, the Big Bad Wolf has been huffing and puffing, hoping his castle made of straw does not come down. The wolf’s huffing and puffing has blown the world economy into the “everything bubble.” The cost of everything we want is cheap. Television sets, clothes, and toys are cheap. The cost of everything we need is expensive. Education, healthcare, housing, and food are expensive.
When the “everything bubble” bursts, everything—stocks, bonds, real estate, gold, and silver—will come down and a global depression will begin.
When will it happen? No one knows. Maybe tomorrow, maybe five years from today. Maybe 10 years. (Which is exactly why you should act now before it’s too late.)
The straw castle will collapse when all the public employee pension funds want to get out of the shadow banking system at the same time.
That is what happened in 2008. When that day comes, everything will crash. Stocks, bonds, real estate, commodities, even gold, and silver.
The Future Of Money
The year 1989 marked the end of the Industrial Age and the birth of the Information Age.
Today there is lots of talk about UBI, a Universal Basic Income. Presidential candidates tout socialist agendas, such as free education, free medical, free housing, and on and on.
The question that few seek to address is, in my view, the most important: Who is going to pay for it?
I meet and talk with people from all over the world. One thing I hear over and over again is:
“I’m just an average person…how does an ordinary person—without a lot of training or skills or financial literacy—prepare for the future and the future of money?”
In my opinion, the best way to prepare is to not need money. How does a person learn not to need money? That path and process start with seeking real financial education.
I know I may make it sound simple, but for me, it was not easy.
It is undoubtedly easier to go to school to get a job and then work for money, pay taxes, save money, and invest in the stock market.
But, it’s choosing the road less traveled that can make all the difference.
Editor, Rich Dad Poor Dad Daily