What Goes Up Must Come Down

What Goes Up Must Come Down, By Adam Taggart.

With negative interest rates metastasizing across the globe and central banks once again speaking in unison about resuming QE (a.k.a., massive money printing), we have a pretty good sense that we’re approaching the limits of current monetary policy.

After a decade of injecting tens of $trillions of ‘thin air money’ into the world economy, what do the central planners have to show for it?

Not a return to robust economic growth, which was the outcome sold to us.

Not a “normalization” of these “short term” emergency measures, which was also promised.

Instead, we’ve had rampant inflation in the prices of all the assets that the elites own. For everyone else, the cost of living has exploded. But wages have been stagnant. Savers have been starved of return. Companies have borrowed to reward their executives handsomely while investing in automation eliminating an ever greater percentage of jobs.

We’re left with the widest wealth gap in US history. One that’s worsening every year.

The response from the central banks at this point is clear: to do more of what isn’t working. To intervene more. To double down. And then triple down. (the latest example: Mario Draghi’s swansong stimulus announcement from yesterday)

So as we look into the future, we see a high risk of the world money supply increasing further. Or put in layman’s terms, your money being devalued by rampant inflation.

Which is why we’ve long been advocates of owning inflation-adjusting income streams produced by tangible assets. Productive farmland. Profitable businesses. Resource mining companies. Investment real estate property.

These are investments whose innate value can’t be inflated away. As more money is printed, their product prices will keep pace with inflation. Plus, you’ll be building long-term equity along the way.

Charging interest was outlawed in the West by the church until a few centuries ago. Fractional reserve banking was only gradually permitted from the late 1600’s — and not coincidentally we got the first bubbles, in south sea companies and Dutch tulips, in the 1720s and 1730s. In 1912 we started coming off gold, and by 1971 had totally detached western currencies from gold. Issuance of paper money then knew no bounds. Ratios of debt/money are at record levels, two to three times higher than in 1929, the previous peak.

The development of banking is a growing crescendo. Four centuries of banking and money growth has led us today. The big picture of banking is not a cycle so much as a ballistic trajectory. There doesn’t seem to be any more up possible, from here only down. The next recession ought to push the system over the brink, or maybe the next one. In any case, we are reaching the ending of money in the West. We get to live in exciting times just ahead! When it happens, this will push most other issues into the background.