Recently I was asked this: "I do believe interest rates will go much higher. Will that contribute to a crashing dollar or help strengthen it? Don’t higher interest rates hurt physical metals? What other investments would do well with higher interest rates? Not bonds I’m guessing …"
Here's my response, as best as I can answer leaving out many sources and peripheral items but books could be written on these topics.....
In my opinion, higher interest rates can only happen after a dollar crises. The dollar is in such a precarious state higher rates don’t do anyone any good. Even those who would like to see it. Unemployment is rising. Federal tax revenues are falling. Higher rates means the Fed would have to print more money to pay the interest that is owed them. Weird eh? Basically we would be borrowing from the group we owed to pay the group we owe. You know this. The world for the most part knows this and is figuring it out in more detail. It’s appalling to any who discover this dark secret. So higher rates would hasten the weakening of the dollar, not strengthen it like it did in ’80.
When rates rose near ’80 it was drawing liquidity out of the system and deflation (stagflation) set in. Deflation today is devastating because money is credit. If you allow for deflation you are allowing debt to default which then calls into question the underlying asset values attributed to that debt. And since money is credit and all that contributes to the GDP, if those credit instruments fail and assets fall in value so does the GDP. If the GDP isn’t rising then investors (foreign banks, institutions and domestic sources) lose faith in our bond market and there’s a great sell off. That sell off would cause the rates to rise because that would be the natural market response to falling demand. Higher rates would attract demand again but would bankrupt the US. So the Fed must buy all these failing credit sources (mortgages, securities, bonds, etc) or the game is up.
In actuality the game IS up it’s just that no one knows what to do about it. Too many chefs in the kitchen who want to prepare their own meal. Too many have suffered as a result of the dollar policy of the US and UK. The world has had enough. Interestingly enough, George Soros has organized a meeting (Soros Plans New Bretton Woods Conference) to discuss a new monetary order at guess where? The Mount Washington Hotel in Bretton Woods, NH, the same place where our current monetary system was designed in 1944. I think choosing that location is symbolic of the fact that something is going to be hammered out. Do you think gold will be included in the new monetary system? Soros increased his $650M gold position by 15% recently. The higher the ultimate price the better off he is. It will suck up all the gold out of the market, never to be held again by the peasantry. Same for silver.
Enough of that. Now for your question will higher rates hurt metals? That’s a tough one considering everything I just wrote. We are witnessing the end of a currency system. Something entirely new will be put in place. I don’t even know that it’s a relevant question at this point because I firmly believe they will create an environment where metals will be priced so high that most people will sell everything they have down to the last spoon. This will all be by design.
In 1980 when the metals rose in price it was BECAUSE the rates were rising. Many bobble heads on TV mix this up because they are buffoons with an agenda. Rising rates were a sign of monetary weakness then. It wasn’t until rates rose PAST the point of inflation that the metals crashed. At this point the markets decided that they would rather be in paper and get more yield than the metals. It also became clear that paper would survive a little longer. If Turk and Williams are right and we hit 20-50% inflation starting this year, there is no way in HELL we could pay that kind of interest rate.
This game is over. The machine can take no more bogus quarters. There is no continue. The old money must be removed for a new, more acceptable form of currency. Money and the understanding of it has evolved just as our understanding of science has. But this time around you have a much more sophisticated citizenry who have the power of the internet to reveal all the chicanery. The games and tricks of the Power Elite can only be foisted on people for only so long.
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