Latest report from ABC Bullion co-authored by SilverStackers own Bron Suchecki (and John Feeney) Lets say that ABC Bullion ain't backwards in being forward re ECB EQ and Govt debt. https://www.abcbullion.com.au/investor-centre/pdf/endgame-monetary-debasement#.XXtAiWeP7mU Had to crop report due to length so have only copies a couple below. Clink above link for full report. Endgame: Monetary Debasement Late last week Jay Powell, chairman of the US Federal Reserve, proposed make-up inflation as “a great idea” to the problem of how to forestall a potential downturn when interest rates are already close to zero. The idea is that if a central bank undershoots its inflation target then it aims to overshoot in the future. For example, if inflation averaged 1% for 5 years when the target was 2%, then in the 6th year the central bank would aim for 7% inflation. A great idea? To us, that sounds like a goofy idea. It seems that rather than admit they can’t force people to spend in a way that creates inflation, central bankers will instead double down on failed policies. Australian investment manager Narrow Road Capital agree saying that “central banks need to admit their errors and acknowledge they are powerless to solve problems that require tax, structural and productivity reforms” with their “Frankenstein monetary policy.” As an aside, we do like their idea that financial repression should be forbidden by the RBA following this interest rate policy: In other words, interest rates should, after you have paid your tax, equal inflation. Now that is a great idea. Demonstrating how out of touch central bankers are, the article notes that for make-up inflation to work, “everyday consumers need great confidence in their central bank.” Here’s a tip: telling people you are going to give them a big dose of inflation when most people are struggling isn’t going to crate confidence in a central bank. Powell did say that it would require people to “go out on a limb, so to speak, raising spending in the midst of a downturn.” We don’t see that happening. Consider the chart below from AMP Capital. You can see after the financial crisis the preference for bank deposits/paying back debt increased and have remained at that level since. People, not surprisingly, became risk adverse and that is reflected in the declining preferences for share and real estate investment. We also note a Bloomberg article on the $1,080 tax refund scheme which reported a Westpac poll showing that “over half planned to save part or all of the cash” due to concerns about the economy, international issues and employment. Powell also said that make-up strategies are “hard to find a way to implement practically.” We don’t think it is an issue of practicality, but of proportion. Add a couple of zeros to those refund cheques so everyone gets $108,000 and we suggest you might see some impact on prices. Go hard or go home, Mr Powell. BlackRock, an Mutual Fund/ETF issuer with $5.1 trillion of assets under management, says that central bankers are ignoring structural changes in the economy that create falling inflation: slowing population growth peak in female participants in the labour force globalisation, primarily opening up of China OPEC keeping oil prices from becoming too volatile technological innovations. With lower and lower interest rates, quantitative easing and other strategies failing to fight these trends, BlackRock say that the endgame for central banks in their battle to get inflation will be monetary debasement. Their suggestion for investors is “to hold an asset that maintains its real value … that can participate in an inherent devaluation of the local currency, which is to say: equities, real estate, and even hard assets that have historic value-relevance, such as gold.” Even though BlackRock operate gold and silver ETFs, we consider it significant that such a large mainstream investment firm even mentioning gold as an option is indicating that gold is starting to become respectable. Perpetually in Debt? Issue Perpetuities As governments rarely ever pay back their debt, when a government bond matures they are effectively paying back the bond holders with money from new bonds they issue. Sounds a bit Ponzi-ish to us, but then we are just simple sellers of physical gold so maybe there is something we are missing. As there is something farcical about a government issuing a bond with a maturity date when across all of its bonds it has no intention of paying the debt back, we find ourselves agreeing with academic economist John Cochrane that governments should issue Perpetuities, which are bonds with no principal payment and just pay interest forever. Doing so would make it explicit that the government really has no intention (or is that capability) to repay its debts. Cochrane argues that there are benefits in that it would do away with multiple debt securities and thus by consolidating all government debt into a single security, create more liquidity and lower the interest rate. Perpetuities are not theoretical, as the UK first issued them in 1751. The valuation of a perpetuity is very simple – one just divides the dollar interest amount by the current interest rate. So if a perpetuity pays $1 and interest rates are 2%, an investor would pay $50 to a government and receive $1 forever thereafter. Of course with over $16 trillion worth of government bonds trading at negative rates and talk of central banks pushing for negative interest rates, that would means that $1 divided by -2% = um, that a government would pay $50 to a investor and receive $1 from an investor forever!? Hmm, we think we’ll give this fancy fiat finance a miss and just stick to physical gold and silver. Click link at top of post for full report.