{"id":2123,"date":"2024-05-30T17:46:09","date_gmt":"2024-05-30T17:46:09","guid":{"rendered":"https:\/\/trusteconomics.eu\/?p=2123"},"modified":"2024-05-30T17:46:09","modified_gmt":"2024-05-30T17:46:09","slug":"gold-is-the-only-lifeline-from-inflation-inflation-is-implicit-government-bankruptcy","status":"publish","type":"post","link":"https:\/\/trusteconomics.eu\/index.php\/2024\/05\/30\/gold-is-the-only-lifeline-from-inflation-inflation-is-implicit-government-bankruptcy\/","title":{"rendered":"Gold is the only lifeline from inflation \u2013 Inflation is implicit government bankruptcy"},"content":{"rendered":"\r\n<p>The money supply (the M2 index) in the US is rising again and persistent inflation is no longer a surprise. Price inflation occurs when the quantity of currency increases significantly above private sector demand. For investors, the worst decision in this currency disaster environment is to invest in government bonds and hold cash.<\/p>\r\n\r\n\r\n\r\n<p>The destruction of the purchasing power of the currency by the government is a political decision and not a random event. Why would the government be interested in eroding the purchasing power of the currency it issues? It&#8217;s remarkably simple.<\/p>\r\n\r\n\r\n\r\n<p>Monetary inflation is the equivalent of an implicit bankruptcy. It is a manifestation of the lack of solvency and credibility of the issuer of the currency.<\/p>\r\n\r\n\r\n<div class=\"wp-block-image\">\r\n<figure class=\"aligncenter size-full\"><img decoding=\"async\" class=\"wp-image-18671 aligncenter\" src=\"https:\/\/www.liberalglobe.com\/wp-content\/uploads\/2024\/05\/image-192.png\" alt=\"\" \/><\/figure>\r\n<\/div>\r\n\r\n\r\n<p>&nbsp;<\/p>\r\n\r\n\r\n\r\n<p><strong>Government bonds<\/strong><\/p>\r\n\r\n\r\n\r\n<p>Governments know that they can hide their fiscal imbalances by gradually reducing the purchasing power of the currency, and with this policy they achieve two things:<\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li>Inflation is a hidden transfer of wealth from savers and real wages to the government &#8211; it is a disguised tax.<\/li>\r\n\r\n\r\n\r\n<li>In addition, the government expropriates wealth from the private sector, forcing the productive part of the economy to default on the currency issuer by mandating the use of its currency by law as well as forcing economic agents to buy its bonds through institutional regulation.<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p>The regulation of the entire financial system is based on the mistaken assumption that the lowest risk asset is the government bond. This forces banks to hoard currency\u2014government bonds\u2014and the regulatory framework incentivizes government intervention and crowding out the private sector, forcing them through regulation to use zero to minimal capital to finance government entities and the public sector.<\/p>\r\n\r\n\r\n\r\n<p>Once we understand that inflation is a policy and that it is an implicit bankruptcy of the issuer, we can understand why the traditional 60 \/ 40 type portfolio does not work. <strong>&#8220;Mutilation&#8221; of production possibilities<\/strong><\/p>\r\n\r\n\r\n\r\n<p>Currency is debt and government bonds are currency. When governments have exhausted their fiscal space, the effect of state competition for credit is added to the rising levels of taxation to cripple the productive economy, the private sector, in favor of the continued increase in unfunded liabilities of the Government.<\/p>\r\n\r\n\r\n\r\n<p>Economists may be warning about rising debt, which is correct, but the impact on the purchasing power of the currency of unfunded liabilities is sometimes ignored.<\/p>\r\n\r\n\r\n\r\n<p>The United States debt is massive at $35 trillion and the budget deficit is unsustainable at almost $2 trillion a year, but that pales in comparison to the unfunded liabilities that will cripple the economy and erode the currency in the future .<\/p>\r\n\r\n\r\n\r\n<p>The estimated unfunded liability for Social Security and Medicare is $175.3 trillion (<a href=\"https:\/\/www.crfb.org\/papers\/cbos-february-2024-budget-and-economic-outlook\">United States Government Economic Report, February 2024<\/a>). That&#8217;s 6.4 times the GDP of the United States. If you think it will be funded by taxes &#8220;for the rich&#8221;, you have a math problem.<\/p>\r\n\r\n\r\n\r\n<p>The situation in the United States is no exception. In countries like Spain, unfunded public pension liabilities exceed 500% of GDP. In the European Union, according to Eurostat, the average is close to 200% of GDP. And that&#8217;s just unfunded pension liabilities.<\/p>\r\n\r\n\r\n\r\n<p>Eurostat does not analyze the unfunded liabilities of insurance and pension schemes. This means that governments will continue to use the false &#8220;tax the rich&#8221; narrative to raise taxes on the middle class and impose the most regressive tax of all, inflation.<\/p>\r\n\r\n\r\n\r\n<p><strong>Digital currencies<\/strong><\/p>\r\n\r\n\r\n\r\n<p>It is no coincidence that central banks want to implement digital currencies as soon as possible. Central Bank digital currencies are surveillance disguised as money and a means of eliminating the inflationary policy constraints of current quantitative easing programs.<\/p>\r\n\r\n\r\n\r\n<p>Central bankers are increasingly frustrated that the transmission mechanisms of monetary policy are not fully under their control. Central banks and governments can try to eliminate the competition of independent forms of money through coercion and debase the currency at will to maintain and increase the size of the state in the economy.<\/p>\r\n\r\n\r\n\r\n<p>Gold relative to bonds highlights this fact. Gold is up 89% over the past five years, compared with 85% for the S&amp;P 500 and a disappointing 0.7% for the U.S. total bond index (as of May 17, 2024, according to Bloomberg).<\/p>\r\n\r\n\r\n\r\n<p>Financial assets reflect currency crash figures. Stocks and gold soar bonds do nothing. It is the image of governments using fiat currency (issued by the central bank) to mask the creditworthiness of the issuer.<\/p>\r\n\r\n\r\n\r\n<p>Considering all this, gold is not expensive at all. It is extremely cheap. Central banks and policymakers know there will be only one way to balance public accounts with trillions of dollars of unfunded liabilities.<\/p>\r\n\r\n\r\n\r\n<p>Pay off these liabilities with a worthless coin. Holding cash is dangerous. Hoarding government bonds is a reckless act for an investor, while rejecting gold is a denial of money having real value.<\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>The money supply (the M2 index) in the US is rising again and persistent inflation is no longer a surprise. Price inflation occurs when the quantity of currency increases significantly above private sector demand. For investors, the worst decision in this currency disaster environment is to invest in government bonds and hold cash. The destruction &hellip; <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19],"tags":[237,82,745,44,736,95,141],"class_list":["post-2123","post","type-post","status-publish","format-standard","hentry","category-economics","tag-economy","tag-gold","tag-government-bankruptcy","tag-inflation","tag-m2","tag-money-supply","tag-usa"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2123","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/comments?post=2123"}],"version-history":[{"count":2,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2123\/revisions"}],"predecessor-version":[{"id":2133,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2123\/revisions\/2133"}],"wp:attachment":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/media?parent=2123"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/categories?post=2123"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/tags?post=2123"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}