CRAIG HEMKE - Central Banks Actively Destroy The Value Of Dollar
I think it was back in 2019. The end of 2019. When we were talking about oh gold is going to be approaching, 2000. It might get up to that point, and, it seems that, we reached, that point i think gold was around 20 50 or so and i wanted to get your take, on gold and silver, and what you make of all this because all of a sudden, since 2016. Gold is up what like 500. Or something like that very close to that i mean this is just unbelievable. And i wanted to try to understand. Why all of a sudden, gold, is moving up here, why do you think, gold, is continually, making these incredible, moves and silver, actually well it all draws back to. What the fed was, attempting, to do spinning all their plates, from uh 13, through. 18, or so, because remember, as you said gold and silver were both you know going crazy, in, 11, and into 2012. Then they came falling back to earth and then went sideways, for about five years. So what happened in late 2018. That changed, everything well that was the point where. Remember the fed was. Uh lying to everybody about how oh everything's, fine, you know we're normalizing. Interest rates and we're normalizing, the it was all garbage. I mean, come on. Um. And they but they did work off, something like 700, billion, dollars, of bonds off their balance sheet and interest rates, gradually. Crept up on the 10-year, note to, north of three percent. And we got into the fall of 2018, and everything crashed, remember. Yeah. Spark, market did a nosedive. They had to have an emergency, meeting on christmas, eve. Of the. Working group on financial markets which people call the plunge protection, team. Uh and then magically, it all turned around. The day after christmas. Uh but what did not turn around, was this, uh, killing. I guess was put what did turn around and also with it was his fed policy. Where at that point they said well that's as far as we can go. Interest rates started coming back down. The feds started. Buying, and increasing, their balance sheet again they had to do that particularly. About this time last year. If people remember something called the repo, crisis, where all of a sudden. Uh, you know all of this, liquidity, that they drained, out and rising interest rates had created a real problem with. It's already, set to continue. This year. And then we had this coven. Uh, crisis, if you will creep in with the you know the lockdowns, and the crashing, economy, and now the fed is monetizing. Everything. And there's no looking back we can. We can debate, whether you want to call it modern monetary, theory at this point where the fed just simply. Monetizes. Any demands. That the federal government has, for, new funds. That's what they're doing though. I mean. Well we're all going to run a trillion dollar deficit, this year dave and we're going to end up at 7 trillion or something like that, i mean where's that 6 trillion coming from the fed, is monetizing. Basically, buying from, the treasury. Indirectly. Through the primary dealer banks.
Every, Single, treasury, bond that gets issued. So the fed creates, new cash. Buys these new bonds. Uh, the fed the treasury, then takes that money and distributes, it you know whether it's through the ppp. Program or direct checks or you know paying interest on the debt you know or buying military, equipment all this kind of stuff right. And so all this new cash is getting created. And, uh and that now is, is driving. All of the markets, that's why the stock market's, up, uh, everything, changed, when all of this went into effect back on march 23rd, and. Mandate, there's no looking back it's never, straight, up obviously, it's never you know going to be, up up up every day after day after day you're always going to get this pattern of, big rushes, and then you know pull backs and consolidations. Which is what we're in now but. I mean the trend is clearly in our favor because there's no going back for the for the fed. You don't think that the those, players, out there that you know use paper contracts, where they slam. Gold and silver you don't think that we're gonna see that. I i think, actually what's been bearing out so far is the banks are trying to get out of some of those positions. Um. The only way we can measure that and, you know we can debate whether this is valid data or not but it's the only thing we have are the reports, that come out from the cftc. Every week. That show. Uh, whether the banks, which they. They classify, as commercials, but are mainly the bullion banks. Uh, whether they're getting long, or short, and whether the speculator, is getting long or short. And, as you mentioned where it's always works, and, prices, rising. Speculator, money hedge fund money that type of stuff comes rushing, into the comex, gold and silver markets. The speculators, get long the banks get short and eventually. Momentum, dries up price begins to crash the banks give it a big shove, and you know and, price crashes, all the speculators, start to sell. The banks buy back their shorts it's a whole wash, you know cycle, and then the cycle begins again. What's curious, at this point though. And this goes back to everything that changed, back in march. Is during this current run the banks are actually, reducing. Their short position. Uh, so we're not in a big speculative, bubble in fact it almost appears. That the banks are reticent. To add more shorts, as if they know, that, that's a losing, game going forward. And so. Um. I i, wonder, if again most of these bullion, banks we call them are also these primary, dealer banks with a tight relationship. With the treasury department, the fed. Uh i wonder if they haven't you know. Seen the writing on the wall. From those two partners and have said you know i don't think we want to play this game anymore, and i'll tell you one more thing too dave, uh on just a straight up business sense. Um, i don't think there's a lot of money to be made in bullion banking anymore. Uh the mining companies don't hedge. Like they, anywhere near like what they used to 10 and 20 years ago. Uh and so there's no there are not a lot of fees, involved, the way it used to be. And then on top of that. You finally got the us department of justice, sniffing, around. Uh with indictments, in jp morgan, and we just had a huge. Settlement. From scotiabank. In in. Canada. And i think a lot of compliance, departments. Of these banks are going what the hell are you doing here. You know, when you're not helping the bottom line. Your exposure, on the short side could eventually, cost us a lot of money. And two and lastly you've got, you know the the department of justice sniffing around. And so i think there's a lot of incentive, for the banks to actually get out of. This business. And, um, and maybe that's what we're seeing maybe that's why these short positions aren't growing so where do you see gold, moving, i mean, is it going to stay around 19 and change or do you think this is going to skyrocket, i mean because it moved up very very quickly in the last couple of months, where do you think this is going to go, uh. You know, at present we're kind of in a consolidation. Which again is perfectly, fine. Um. We're up, she year to date, we started at 15, 20 we're at 1920. What's that 400. Is about what 25, percent. Uh something like that year-to-date, and silver obviously doing even better than that. Uh we're doing great. Since the end of march march 23rd, was when, uh, qe to infinity was announced, and there's no going back, i mean. The debt levels, and deficit, levels, are.
We're Not having some you know v-shaped, recovery, where all of a sudden by november, everything is just great again, right we lost so much and there's so many businesses, being closed. Nationwide. And it's a worldwide, phenomenon. There's no going back i mean it's not like all of a sudden we're gonna be running budget surpluses. Okay. So, qe to infinity begins march 23rd. Monday march 23rd, this year. Since then. Uh gold's up, about, a little almost exactly. 30 percent. And silver's, up, about. Again, in five months. So of course you're due for some pullback, and consolidation, that's what we were expecting, in august, because these are kind of the dog days of summer where everybody's on vacation, and. Kind of the computers, take over. But man as we get into september. We should probably talk about this everybody's, really looking forward to. The fomc. Meeting that's in three weeks. And even in the short term. Uh on thursday, of this week. Uh chairman powell's, going to be. Talk speaking, at. Usually these bankers all go to jackson hole wyoming, for a little hoedown. Yeah, they're doing it virtually, this year and powell's going to be speaking. On thursday and people are expecting, some major, announcements, about how the fed's going to target inflation, in the future and i think all of this combines. To create. A, just an extraordinarily. Positive, situation. For the precious, metals. I don't want to say indefinitely, but going forward for a lengthy period of time, i think we're back to. Where. You know you accumulate, on the dips. And you continue to accumulate. And. Hold for the long term because, the long term. Picture looks pretty good so what do you think he's he's gonna say what do you think his, his uh agenda, is where he's gonna tackle, inflation, i mean he can't raise rates. Right that's gonna be a disaster. That's the important, part right we learned that already i mean you and i have been talking about this for years you can't raise rates because. Even if rates.
Even At three percent. Back in 2018. Everything seized up and crashed. And just think about it from, you know the fed monetizing. The debt standpoint. I mean, the treasury department. Has moved this 27. Trillion dollars of debt into the shortest, possible, maturities. They can because the shorter maturities, are where the lower interest rates are. But if interest rates start going up. Then the interest, on that accumulated. Debt of 27. Trillion, dollars starts to go up. And the line item. You know, in the budget goes from 500 billion dollars a year in interest to a trillion. You know to turn in a half you know the whole thing just explodes, and so they. Not only that you start thinking about, levels of corporate, debt, personal, debt mortgage rates all this stuff, so. Higher interest rates. On the long end, i just aren't can't be allowed. Okay. But the fed. Needs to generate. Inflation. Because. Uh when you get this type of debt to gdp, ratio, the only way you can manage it. Is through. Printing, money, cheapening, the money creating inflation, and paying off, yesterday's. Debts with a cheaper. Currency, of tomorrow. That's what they want to accomplish. So. We've been warned about this. Uh since. Well. Really actively, since july. July 17th. Actually people can look at the chart they can see that's when gold and silver really took off a little over a month ago. And that was the day an article appeared on bloomberg. That said the fed. Was. Going to be making a major, policy, change regarding, inflation. Well that articles don't appear in bloomberg by accident right dave, right. These people know i mean these are trial balloons and we've seen other articles from cnbc, and other sources, since. And once. Powell's expected, to talk about now on thursday. Is they're going to change. Uh, what that you know this, dual, mandate, thing of two percent, inflation, and you know maximum, employment. To say well. Maybe more than two percent inflation, is fine. Because. Uh, what powell has said is that he thought that the the bernanke, acted a little too quickly. Uh, last time. And started hiking rates as soon as inflation, got to two percent, and now they're gonna let inflation, overshoot. Go to three percent. Maybe even four percent. Well here's the conundrum. Um. The bond market will react to that. And. The ten-year treasury, yield. Will, should at least in theory. Move up with inflation, because. Who wants a 10-year treasury, at one percent. If inflation, is three percent. That's a guaranteed, loser of two percent a year, on your purchasing, power, right. So nobody wants that. Um, so, in theory and rates nominal, rates should move up with inflation. And your. Uh most important factor in driving gold prices. Real. Rates as it's called. Inflation-adjusted. Interest rates. Should never be more than plus or minus one percent you know inflation goes to three. The. Yield on the taylor note goes to three. Your real return is zero. Well. The fed. In this. Situation. Is trying to spark inflation, but cannot. Allow. Higher. Nominal, rates, because it'll crash the economy, and all this other stuff again. So therefore. While he may not announce this on thursday. What's coming, with this policy, change of allowing higher inflation, will be yield curve control where they say. You know if that 10-year, gets above. One percent, or some other target. We're going to go in and start actively buying bonds and drive it back down, and if it falls below, a half of a percent.
Or Whatever the target is we'll start selling bonds and drive rates back up. If you, lock in. Nominal rates, again just for simple, simplicity. Sake at one percent. But inflation, goes to, like i said three percent. You've got a negative. Real rate of of negative, two percent. Now what's been driving gold, this summer. Why did it get to 2080. Three weeks ago. Because. Real raids. As, currently, measured the 10-year, note versus, cpi. Hit a multi-decade. Low of negative, 1.1. Percent. At negative 1.1, percent we're at, 20 80. Gold. What's gold going to be at negative two percent. Or if this continues, negative three percent. I'll tell you in the 1970s. We got to negative, five percent. In that stagflation. Of the 1970s. And it from 76, to through 79, gold went from 100, to 900. So that's why i say, uh these ups and downs and zigs and zags and rushes, and pullbacks, and all that stuff that's all interesting, and it you know if you're trading and all that kind of stuff it's compelling, and fun and all that jazz. But the long-term, trend here. Is extremely. Positive. For gold and silver and that's that's what people need to keep their eye on well don't they also have another problem because, when people see. Gold, and silver. Moving up it means that it takes more dollars, to pay for that same exact, ounce, aren't people gonna look at, the fiat, currency, and say okay what's going on here because why do we have 2 500, gold why do we have 3 000 gold, i mean aren't people going to say well let me see i need to get out of paper currency, and move into gold right now to protect. My wealth. Will this start something. Yes. And, that was part of what, impacted, us in 2011. And 12. Is the fed was still trying to inspire, confidence. In their policies, and make it look like they were, you know in control, and we got this you know we know what we're doing here. And they like i mentioned earlier they kept those plates spinning all the way until. Late 2018. People thought oh yeah i mean, yeah rates are going back to normal and the balance sheets it was just a one-off, deal and it's not it never was. But they were able to push that lie out there and as part of that lie. You couldn't have gold soaring. Right. Because you could how could you maintain that lie if gold was at three thousand dollars you know and, going higher. Now. Again the fed's. Biggest, concern. Is trying, to, manage, this debt to gdp, ratio. In the past. And again this is now market history. Uh, the last time it got this high. Was after world war ii most people, you know, probably remember, or have seen or read about that, you know at some point. And what did the fed do from 1942. To 1951. They instituted, yield curve control. So as to. And allow them to manage, that accumulated. Debt, again. Through inflation. That's why they're so desperate, to spark inflation. Now and again that's what that's the speech on apparently, all going to be about on thursday, and. And what they'll be talking about at the fomc, in three weeks. So. If you're trying, to spark. Inflation. What you, do not need. Is a rising, dollar. Right a rising, dollar, is, disinflationary. Deflationary. Um. And so therefore. We're probably going to enter into a period where you want. Falling, where they're going to we're going to see falling dollar and you think well that's again that's. Uh that reflects. Lack of confidence, in the fed. Okay. I think that's kind of the, the medicine they're they're gonna have to take i think that's just what, they're gonna have to deal with cause they got bigger fish to fry, and so if the, if the dollar, is going down and if gold is going up and real rates are moving negative. Hey that's just a consequence. Of. Them managing, a. Much larger, and more important picture, which is. Essentially, the solvency. Of. Of the us. And keeping the markets, up. Because if they fail at that. You know if we run into a, real liquidity, crisis the markets, begin to collapse, and pension funds collapse and everyone's 401k, gets cut now. I mean that's a much bigger problem. For the fed and and their politicians. Than. A, rising gold price would be, it seems that the the fed. By doing all of this and as they continue to do this they're kind of backing themselves, in a corner i mean you said there's no turning back right now they can't raise rates they can't shut stimulus, off they can't do anything i mean look at the eu, they haven't stopped anything look at japan, they haven't stopped anything.
We Don't see you know two three four five six percent interest rates in those areas, so are are they backing themselves. In a corner i mean it seems like there's no way out for them right i've used that metaphor, forever, i've got a couple of pictures, that i store, on my computer, that i use. Whenever i type, something in that that context. Uh, and make a post out of it you know of a, someone who's painted themselves, into a corner. And that's right, that's exactly, right dave that's the right way to look at it, uh there's no turning back, again think of this. Um. The federal, government. In the u.s. Uh has, liabilities. Or expenses. And then. Revenue. Well i mean they don't we don't make anything the only revenue is is, tax receipts, right right, and the difference between what the outlays, are. And the tax receipts. Is the deficit. We were already going to have a trillion dollar deficit, this year that was like 4 trillion in spending and 3 trillion. In revenues. Well it's going to turn out to be more like, 10 trillion in spending, and, you know 2 trillion in revenues because tax receipts have fallen so much because of the you know the contracting, economy. So, it's a 7. 8 trillion dollar debt what's it going to be next year. I mean we're not going to have this sharp v-shaped, recovery. Uh, i just can't imagine. We have so many small businesses, that are have either closed or on the verge of closing. Um. Yeah there have been some jobs that have come back in the last couple of months but it's still less than. Half of what was lost in april. Okay so we still have. Double digit unemployment. That's. Not going to be going back to three percent anytime, soon. And so then we roll into the next fiscal year which begins. Uh october, 1st what are we going to do next fiscal year fiscal year 21. 6 trillion dollar deficit, versus, 3 trillion in revenue. You know so anyway, someone's got to come up with that cash. And you're not getting it especially, if inflation's, at three percent you're not going to get it from. Other countries, other central bank they've got their own problems anyway, you're certainly not going to get it from. Insurance companies, and institutions. And and, other, major, buyers, pension funds. Um. You're not gonna they don't have demand for that kind of you know who wants a 10-year treasury at one percent. Um. And so someone's, got to, buy those bonds someone's got to fund the government and it, falls, back to the fed as the buyer of last resort, and so this will continue.
Again. Uh. Even if it's not, modern, monetary. Theory where the fed just simply monetizes. Whatever the government needs. Even if it's not that, in name, that's, pretty much what it is in practice, and we're seeing it already, so what happens if this is, this this plan that we're seeing with the fed and everything that's going on, it's a plan, to. Drive, the fed, into the ground. Because. We have an individual, her name is judy shelton. Who is, a gold bug, like sound money. And it seems that, she's, coming on board, onto the fed, now, what happens, and and. The reason why i'm saying this is because if we go back in time no one would ever thought oh wow the fed was going to start stimulus, the fed was going to lower interest rates like this, and they were going to do qe1. Qe2. Qe3. If anybody said that back in the 80s or 90s they'd say you're absolutely crazy. What happens. If what we're seeing right now, is a way to create, another crisis because in the 70s, we had a crisis where there were, speculators. In the gold market which there really, were no speculators. But this is what they used us but this is the argument they used to move us off the gold standard onto the petrodollar. What happens if this is creating, a crisis, pointing, all fingers, at the fed that they can't handle the economy, now, and we need to move away. From a central bank system. Well, i would say that's probably coming eventually. Right. Um. History, is replete, with examples. From the roman empire, on. Of. Uh. Currency regimes, began, with some type of foundation. A link, to gold or silver, or some, some sort of hard money. That eventually. You know the demands, got so great that you just could didn't have enough gold to back it and so you turn to just straight fiat, and then eventually, you make so much of it it. Becomes worthless, right. Uh, weimar, germany, maybe or what you're currently seeing in venezuela. Being. Uh. Recent examples, i guess. And we're trending that direction as well now i don't know if. Uh. Judy shelton. If she gets. Approved, because man. Uh, the bankers. And their politicians. Are sure lined up against her, i'm not sure they don't like her, oh no they despise, her yeah. I know you're joking. Um. And and again she's just one person, and we don't know who's going to win the election in november. Full on, the, federal reserve, board of governors, and so. Uh but i do think it's trending, in that direction, in time, and and like i said there's. There, people can google. Uh i haven't tried this but i assume you can you can google. Revalue. Gold or something, and i'm sure there are papers, out there on google that you can find. Where people are starting. Academics. Economists, are starting to. Postulate. That a, way out of. This. Debt crisis. You know and where we are with these fiat currencies. Is an official, revaluation. Of gold. You know i mean, the us, allegedly. Has what 8 200, metric tons of gold. Uh in fort knox and in, west point and you know a couple, federal reserve bank in new york, yeah we still haven't had proof of that. Right, exactly that's why i say allegedly. Allegedly. Uh but let's just for this sake of argument let's say they do. Um, it's official, it's still officially, valued, at, 35. An ounce. Right. Yeah that's what it's carried on. Uh, the balance sheet and so you look at it and you say well. The us only has, i don't even know what that number is, x number of billions, of dollars, worth of gold but we have. A multi-trillion. Dollar, money supply. And. You know 27, trillion dollar debt. Well what if all of a sudden, you make an official, pronouncement. That, gold now is worth 10 000, an ounce. Well all of a sudden you've got a. Lot more gold than you know in terms of dollars than you had, earlier. It's extremely, inflationary, to do and as we said the fed is very, want, wanting, to, spark, inflation, to, pay off, all of these accumulated, debts.
Um. I that's a possibility. Something like that could have again not tomorrow. But, you know as you look over the horizon, is where there's all my head in the years to come i mean that's certainly, out there too so moral of the story is. Whether something like that happens or not whether we just simply, continue, down this road. The fed just begins to monetize, everything, has to hold interest rates low. Uh, real, inflation, adjusted, rates go to negative two negative three negative, four. Um. The gold price, is going to soar. Even under this current, pricing scheme, you know with the banks and their derivative, contracts, and the unallocated. Gold and all the phony bologna bs that they do, gold's going to go anyway because, again just demand. For it. Will push it higher. Is it possible. To. Or, i guess it is possible, if we transition. From. The central bank establishment. Because, look what look at the eu, look look at the rest of the world look at the central bank the global. Central bank system, like you said on your blog, it's it's dying, it's coming to an end, to to move us from a, central, bank system, to, a, maybe a sound money system that's backed by gold or something else, is this possible, to do, you mean globally. The u.s, globally, yeah. Yeah absolutely, it's possible. Um, i think that you know the bankers, the folks that are profiting. From. The fee this current regime, will always tell you that it's not. You know and they're very oh you killed that'd be terrible idea there's just not enough gold in the world, no there's plenty of gold. It's just not priced correctly. Um. You know, you can certainly restart, a system based off gold if you but you can't do it at 35, dollars an ounce. You know the other part of it too dave. Is. It may not be voluntary, it may not be a decision. That the fed, or the ecb. Makes. Um. It may just be offered as an alternative. There is real value. In having. At least. Some, measure, of reserve, currency, status. You know the u.s. Because. We've had, you know what uh, secretary. Of the treasury, connelly, described, as the exorbitant. Privilege, of having reserve, currency, status. Has been able to print dollars. You know, here to this extreme, level. For now for 50 years. Without any backing. And in doing so. I'm, look at i guess you'd say we have a decent standard of living but look we've had guns and butter. In the keynesian, sense right, had all these massive, social, welfare, programs, and government spending, and, huge military, and all this stuff. Without. You know the attended, inflation, that would come with that. If we didn't, have, our own if we didn't have the reserve currency, status it's extremely, beneficial. Uh to the politicians. And to the bankers. Um. I guess you could i don't know trickle down to the society, if you have that status, okay so, other countries are going to want that status. Going forward right right. Um. So why wouldn't the chinese, want a piece of that action. Uh, because they've got, over a billion, people. And you've got it you know that population. Can get you know. Restive, and. And uh, cause problems when you have that many people right you can overwhelm.
Um, The leaders, pretty quick, so you gotta keep them modified. Well you keep them modified, with you know free stuff. How do you do free stuff, if well you got to be able to print as much currency as you want. And, not cause. Huge inflation, so you got to be able to have demand for that currency, as you print it. The u.s has like i said benefited, from that for the last 50 years, so what if the chinese, at some point. And i'm not saying. This is all just speculation. I, don't want to you know maybe oh yeah the chinese are good no i'm just saying what if they did what if they said okay look we've been telling you all along we only have a couple thousand tons. We actually have, forty thousand tons. Between, all the stuff we mine and all the stuff we've accumulated, all that kind of stuff. And we should be like you know five times what the us says. And now we are gonna, you know value it in yuan, at this certain level. And it's even exchangeable. If you use the, chinese yuan, or renminbi. International. Trade. You know kind of like what the dollar was before 1971.. Well all of a sudden there'd be all kinds of demand, for that currency. Uh maybe at least regionally. So anyway i don't know how i got off on this tangent, but, i guess what i, what i'm driving at is is. It, does it move back to sound money, at least in the west. You know europe. Us. May not be voluntary. You know they may get dragged, into it because. Some other, power. May offer that as an alternative, to the world and. Everybody else may just have to follow suit just to keep up yeah, and and if if we do, move back to that, do you think the central banks would still be in power, or do you think, there'd be no, reason to have the the private, western central banks, hey, there was a fed, from 1913. All the way to 1971. You know, when, the u.s dollar was backed by gold. And so i don't see why. There can't be still a fed. Uh, if we head back in that direction and again we're talking about. I mean these are. Really, i mean these are really powerful, institutions. Yeah. With a lot of friends at very high levels you know kind of this, symbiotic. Relationship. Between the politicians. And the bankers, right. Um, the bank the politicians, need money, so they can give it away to people and buy votes, and, buy their re-election, all that kind of stuff and the bankers are more than happy to provide it to them. Right. And so, that's pretty tough. Uh combo. To overcome. Yeah i think, i think it would be a very. Tough battle. One of the biggest battles that we've ever seen because, why would the private western central bank establishment. Leading all the way up to the roth trials why would they want to lose control. They're not just going to go, okay our time is up your turn, yeah i think this is going to be if if. If the move is to get rid of the private western central bank this i think is going to be one of the biggest battles that we've ever seen. And and so in the end. I mean, one that's, we're just speculating. And two. If these things play out like you said. Then, at the end just take care of yourself. You know be your own central bank. I agree you know don't, save in dollars, don't, hold, all of your savings. In dollars, because if the central banks are going to actively, destroy, the value of those dollars and they're basically, stealing, from you. You know if you can instead. Hold, maybe not all, but a large portion of your savings, in actual, money yourself, don't wait for the central bank to do it do it yourself, buy your own gold and silver. At least you know, over time that's gonna keep up. Uh and you know and counterweight. Against the destruction. Of of your dollars or whatever your your local currency, is and so. Don't just wait for this to happen. You know take action on your own and you know that's kind of generally good advice, you know across the board.