Before I even start this update, I want to make a disclaimer (how about that, right off the bat!). I have given great thought to the fact that I have to “footnote” where I get some of the information that I quote in this update. We do this so that we can: 1) Give credit to the person who wrote the information first, and 2) So we are not plagiarizing. I am sure compliance departments around the world would tell you there are other reasons, too, but I’m going with these two.
What we don’t do is tell you that we have NO idea if what we are reading is TRUE or factual information, someone’s perception of the facts, or if it is misinformation that is geared toward pushing the writer’s agenda. We do not know if what has been written has been fact checked, if the fact-checkers have been fact checked, etc. I have come to the conclusion that “footnoting” could also be thought of as “calling out” the person with the original thought as spreading Misinformation.
Funny thing; at the time that I wrote these first two paragraphs President Obama had not spoken at some university about the fact that “democracy is being threatened by disinformation”; Elon Musk had not made a move to buy Twitter in a move to balance the scales of free speech (that is what he claims he will do, time will tell); and in response to Musk’s potential purchase of Twitter the Biden Administration (In a move that I call “Oh no! Obama is trying to ‘one up me’ again!) creates a Disinformation Governance Board. A “what”???
WEALTHSMITH FINANCIAL PLANNING LLC ECONOMIC UPDATE – May 1, 2022
I have tried to finish this update about ten times, but “things” have gotten in the way. Each time I am certain I am done, something else happens in the world that impacts our investments. As of 5/1/22, the date that I finally plan to submit this update to compliance for their “two cents”, the market is extremely volatile, as I said it would be for the first 6-9 months of the year.
As is always the case, if you need time with me to walk you through the environment we are in, just go to my online calendar and schedule a call.
HERE ARE SOME OF THE TOPICS THAT YOU HAD ASKED ME TO TOUCH ON IN THIS UPDATE
A SHORT HISTORY ON GOLD AS AN INFLATION HEDGE (this is a long one :)) and THE DOLLAR AS THE RESERVE CURRENCY OF THE WORLD
<The U.S. dollar has been one of the strongest currencies in the World for quite some time. Now, some have said that the dollar is the “least dirty shirt in a closet of dirty shirts” ¹, so keep that in mind. It has certainly seen its share of challenging times, and changes, but it has been the reserve currency of world for quite some time.
Another fun fact is that most currencies do not last much more than a century before they fail. ² Let’s revisit the history of the Federal Reserve, which was introduced as a topic in our last economic update.
The fed was instituted back in 1913. We know that it is mandate was to fight inflation and to stabilize employment/unemployment. ³
Except for a gold embargo on exporting gold during WWI, the US was on the gold standard from 1879 until 1933 when FDR took us off from it. I am going to summarize here for simplicities sake.
FDR did not want a run on the banks during the great depression where “dollar holders” demanded gold for payment because they did not have faith in the dollar itself. Dollar holders were also hording gold for the same reason. Upon taking office in March of 1933 FDR forbade banks from paying out in gold or exporting it. You see, Keynesian Economic Theory states that when we run into an economic downturn as a nation, one of the best ways out of it is to “inflate” the money supply. By having all the gold at the Federal Reserve, FDR was able to inflate the money supply, pump more money into the economy (sound familiar?) and stimulate the economy³.
FDR ordered that all gold, or gold certificates of over $100 in value be turned into the Federal Reserve. By May of 1933, the FED held over 300 million worth of gold, and 470 million in gold certificates. It paid a spot price of $20.67/ounce for all the gold that it took in³. That sounds like a small number compared to the trillions of dollars that we throw around today, but back then it was a substantial number. Note something here, the government ordered its people to turn in its gold. Remember this point as we continue through the update.
In 1934 the Government declared that the new price per ounce of gold was……$35/ounce. ³ Ha! Just like that the government decided to increase the value of gold. Can I do that with my house? How about my car? How about my earning potential so I can automatically create in increase in pay? Oh, wait, I am self-employed so I guess that would not work…. but the government could do it!
So now the government had all the gold (at least all the gold in the U.S.), and they increased its value by 69%, so now they could “inflate away” the economic downturn of the 1930’s depression. Let us pump more money into the economy to stimulate it! Again, sound familiar?
FDR did not take us all the way off the Gold Standard, he just tweaked the standard by not allowing a run on the banks. It was not until 1971 that we came off the gold standard completely with Nixon, when he stated that the U.S. would no longer convert dollars to gold at $35/ounce. ⁴ So gold stayed at $35/ounce for 38 years, from 1933 to 1971.
But what about this “Bretton Woods” meeting in 1944? What did that do? Simple. Bretton Woods was a meeting in Bretton Woods, New Hampshire that was attended by forty-four countries represented by over seven hundred delegates where said countries decided to peg their currencies to the U.S. dollar. The foreign countries were allowed to “float” their currency, if necessary, by no more than 1%.
So, what was the dollar pegged to? As mentioned above, the dollar was pegged to gold at $35/ounce. Bretton Woods also resulted in the creation of the IMF (international Monetary Fund) and the IBRD (Today called the World Bank). But more importantly, Bretton Woods made the dollar the world reserve currency. The “not so simple part” of Bretton Woods is the discussion of Capital/Current Accounts and Balance of Trade/Payments. ⁵
Balance of Trade is the difference between exports and imports. If the U.S. has more exports to the world than it takes in (imports) from the world, then it is said that the U.S. has a positive balance of trade. At the start of the Bretton Woods agreement the U.S. had a positive Balance of Trade/Payment, and Current account. ⁵
Remember that “1% float” that foreign countries were allowed to let their currency fluctuate? One of the triggers that allowed a country to do this is if there was a “fundamental disequilibrium” in the balance of trade/payments. In other words, if the U.S. had too much of a surplus in the Balance of Trade, then the foreign countries were allowed to devalue their currency bring the balance of trade back into line. ⁵
Well, in the early years of the Bretton Woods agreement, war-torn countries were not producing that much in products as they were rebuilding. The U.S. was not rebuilding, we were producing goods. This meant that foreign countries were buying our goods, (importing more than they were exporting) and many foreign countries had a negative balance of trade/payment. I will not go into the “current account vs. the capital account” but suffice it to say that if you read about it, you will see that a positive current account (net exporter) means you will have an equal, yet opposite Capital Account. Again, I do not want to get into the weeds on this but if you want to read about this go to the footnote. ⁵
So in the early years of Bretton Woods it sounds like everything is great for the U.S. as we are producing all these goods, and foreign countries owe us all this money, and because everything is traded in dollars or gold, in order to make up the balance of payments the foreigners had to deplete their hordes of dollars or gold to make up this deficit that they had in the balance of payments to us, the U.S.
But in further examination of this situation the U.S. decided that it needed a more stable trading partner. Since the IMF and the World Bank were limited on how much they could lend to Europe and the U.K. by their charter, the U.S. had to do something to restore stability to the trading world so they came up with the Marshall Plan in 1949 and lent the Eurozone and U.K. 13 billion dollars to bring their current account balance into line, and then they let them all devalue their currencies against the dollar so that they could start exporting more products to the U.S. and other countries.⁶
Though the Marshall plan achieved its goal, it took until 1958 to do so. During the ten-year period from 1949 to 1958 the U.S. embarked on increasing the supply of dollars (the U.S. printed more dollars to continue to stimulate the economy). This, coupled with the increased economic expansion that the U.S. helped create in the U.K. and Europe turned the U.S. surpluses into a current account deficit. ⁶ Oops.
By 1960 the U.S. had foreign liabilities (a negative current account) that was greater than its gold reserves. ⁶ Remember, the foreign currencies of forty-four nations were pegged to the U.S. dollar, and the U.S. dollar was pegged to gold. If the U.S. dollar is pegged to gold, and we do not have enough gold to pay back our debts to foreign countries due to our trade imbalance, that is not good. Here is why.
By printing too many U.S. dollars, and not having enough gold to back up those dollars, guess what? The foreign countries holding those dollars now want MORE GOLD per dollar. Why? Dollars that are just freely printed are not worth as much. Here is a quick example to explain this.
Let us say I am Henry the 8th, and I am paying my soldiers in silver. One war, I am o.k., I have enough silver coins to pay my soldiers. Two wars, I am starting to run out of silver coins. Three wars, I do not have enough silver coins. What do I do? I start minting silver coins that are only half silver and the rest are made from, well, whatever I have. After a while the soldier’s notice: “hey, this silver coin feels a pinpoint light! Excuse me, Henry, pay me double, I know what you are up to!” Same problem started to ensue with the U.S. and its foreign allies. They started feeling that the $35/ounce was over valuing the dollar.
What did the U.S. really fear? That the U.K. or other allies would start trading in their dollars for gold at $35/ounce, when it should have taken $38 dollars for an ounce of gold as we had printed too many dollars. We call this “arbitrage,” and this could have depleted the U.S. reserve of gold and the entire system could have collapsed if England turned around bought other dollars with the gold from the U.S. at $38 dollars an ounce and continued down this road.
There were a few other issues that took place that were an attempt to stabilize the system. One was the IMF creating a substitute currency called SDRs (special drawing rights) so that it could create liquidity to the system if it needed, and a gold pooling reserve of all the European countries. But the SDRs, though introduced in 1964, did not come on-line until 1970. Too little too late, as by 1971 France wanted out of the pooling reserve and when they took their gold and went home, the price of gold spiked. There was a run on the U.S. gold supply as the U.S. trade deficit had risen to four times the amount of gold reserves at the FED.
In 1971 the U.K. wanted to trade in 750 million in dollars for gold, and Nixon shut it all down. ⁴ Quick note here on SDRs (Special Drawing Rights): SDRs are being talked about today (2022) as a potential replacement for the U.S. Dollar as the world reserve currency.
What happened after Nixon closed the Gold Window?
At the time, 1971, the U.S. was starting to see inflation. Nixon and Arthur Burns, the chair of the Board of Governors of the Fed, decided they would attempt to fight inflation by accepting a rise in unemployment. But due to the rise in food prices and energy (due to the war, sound familiar to today?) and OPECs control of Oil (sound familiar to today?), a rise in unemployment was ineffective in fighting inflation and it rose from 5% to 6%.
So, Nixon met with Burns, Connolly, and others (Paul Volcker being one of them. Remember this name as he was runner up to Time’s Person of the Year in 1980 for raising the Fed Funds rate to 13%…. today’s rate is 2.35%…. fun fact, Time’s person of the year was The Computer ) and they came out with two other mandates other than closing the gold window.
1. They put a freeze on wages and a freeze on price increases for 90 days. Ha! Can you imagine this? Some of you were of working age at this time so I am sure you can tell ME some stories!
2. A 10% surcharge on American Products was implemented so that we would not be at a disadvantage due to exchange rate issues.
These two ideas worked in the short run, but inflation was already baked into the economy, and inflation raged on.
The years of 1972-1980 realized some of the greatest inflation we have ever experienced as a country. It has been blamed on the rising price of Oil, Currency Speculation, and other culprits. In the end, it was the Keynesian economic policies of the Nixon administration. As Milton Freidman said in his book Money Mischief: Episodes in Monetary History, “Inflation is always a Monetary Phenomenon.”
No, it was not caused by war, and heightened Oil Prices did not cause it, it was, and still is caused by money printing.
Unfortunately, it has always been about getting reelected. Nixon wanted low unemployment and decided if he had to have one or the other, he would settle on higher inflation as opposed to high unemployment. How do you get low unemployment? You print money, lend it out at low rates, spur economic activity, and businesses grow and hire more people.
While he was at the printing presses, he decided to pass legislation to expand Social Security, just in time for his reelection.
Well, lower interest rates and cheap money certainly got Nixon reelected, but within two years he and his administration would pay for it (not that he cared as Watergate and “I’m not a crook” are what defines him now).
By the winter of 1973 inflation had risen to 8.8% (a number which is strikingly similar to our last reading of inflation in March of 2022). By the end of the decade, it was 14%. Many people who remember this era blame it on the Arab countries and oil prices. The Wall Street Journal in reviewing this period in January of 1986 said, “OPEC gets all the credit for what the U.S. had mainly done to itself.” William Greider. “Secrets of the Temple: How the Federal Reserve Runs the Country,” Page 340. Simon and Schuster, 1989.
In other words, it was the money printing which was the main cause of inflation.
This reminds me of something that I heard the other day: “Putin’s to blame for this inflation” I heard it on every news media outlet known to man, and it was Joe Biden who said it. Its money printing that is the culprit, not Putin, not OPEC, it is money printing. ¹
So, what happened to gold after the dollar was unpegged to it? During the hyper inflationary period brought on by Nixon’s money printing, the dollar lost 90% of its value relative to gold (we will come back to gold in a bit). ²
Because the dollar was the world reserve currency and forty-four nations were tied to it, Saudi Arabia had an overabundance of dollars in the 1970s that only grew with the increase in oil prices. Oil exporters had no choice but to accept dollars as the U.S. was their biggest customer and the dollar was the reserve currency. ¹˒³
In 1974 Nixon sent a contingency to Europe on various tours of the area, and one group had a “lay over” in Saudi Arabia. The layover was planned, and the mission was to stabilize the relationship between the largest oil producer in the world at the time, and the U.S. It was left up to William Simon, newly appointed Secretary of the Treasury, to sell the Saudis on the concept of taking all their “Petro-dollars” that were gained by selling us oil in U.S. dollars and plow those dollars back into the U.S. and buy our treasuries. The Saudis would finance America’s spending, and we would in turn buy their oil and supply them military aid and other military equipment. ⁴
Today Saudi Arabia is one of the U.S.’s greatest creditors, owning greater than 117 billion in treasuries. Of course, it is also believed that that number is much higher than 117 billion as one of the conditions of Saudis making these purchases was that the deal be kept a secret, so there are not many of the details on what the value of their treasuries are today. ⁴
The secret was kept from 1974 until 2016 when Bloomberg asked for details on the deal using the Freedom of Information act. At this point, 2022, Bloomberg reports that China and Japan own more treasuries than Saudi Arabia. ⁴ At least one of three is a “friendly.” Saudi Arabia will not even take Joe Biden’s call.
OK, back to gold.
So, we know that the price of gold went from $35 in 1971, to $104 +/- per ounce in August of 1978. That is a 200% gain in just 7 years. Then in 1980 it went to $835/ounce. That was a 700% gain. By January of 1988 it had settled at $483/ounce meaning that it dropped 45% from 1980, but from 1978 it was still up 350% in 10 years.⁵˒⁶
As it has been written, interest rates went as high as 20% in 1980 with the prime rate at 21.5%, and inflation at a rate of 14%.² This is most likely where gold gained its moniker as an inflation hedge. But was it a hedge against inflation from 1988 until present day?
To answer that question, we need to do a deeper dive on the definition of inflation, and whether we are still using the same variables to define inflation today as we were back in 1980.
It has been argued that we are not using the same measure of inflation today, that we were using back in the 1980s when inflation surged to 14.9%. I have found that it is true, we are not using the same measurement that we used back then. In fact, there have been about 6 major changes to the CPI measurement, and many smaller changes as well. ²¹
According to an article from Yankee Institute, 12/15/21, if we were using the same measurement today that was used back in 1980, inflation would be closer 15% not 7.5%, and if we were using the same measurement that was used in the nineties it would be closer to 10%. ²¹
OK, so how much has the price of gold per ounce risen since 1988? It was at $483/ounce to start 1988, and today it is at $1,927/ounce. That equates to an increase of about 300%, or approximately 4.15% compounded annually for 33 years⁵˒⁶.
What has inflation been since 1988? According to the Bureau of Labor Statistics website, one dollar in 1988 has the same purchasing price as 2.45 dollars today. ² Another way to say this is that the cost of goods has gone up 145% over that 33-years. If something costs $10 dollars in 1988, it costs $24.50 dollars today. So, it does look like gold has been a hedge against inflation because gold went up 300% and costs of goods only went up 245%.
But wait. They changed the reading of inflation, and we know that we need to adjust the inflation numbers by about double (7.5% inflation today is more like 15% inflation by the original metric). So that means that the purchasing power of one dollar from 1988 has the same purchasing power as 4.90 dollars today. Using the correct measure of inflation from 1980, this means that the cost of goods has gone up 390% over that 33-year period, and gold only went up 300%. We do not have to bring it down to an annual, compounding inflation rate as we can already see that gold has not kept up with REAL inflation for the last 33 years.
Let us bring this forward to today. What is happing with gold today? Well, we have put some heavy sanctions on Russia. We have made it difficult for some of Russia’s banks to use the swift system to conduct their banking activities. Swift stands for Society for Worldwide Interbank Financial Telecommunications. ¹
The Russian Ruble lost 50% of its value v. the dollar for a period. Putin decided that he needed to prop up the Ruble, so he told buyers of his energy (which are many) that they had to pay for his energy in Rubles. If they did not have Rubles, they could purchase Rubles with gold. Alternatively, he told buyers of his energy that they could use gold to buy his energy. He pegged the floor of gold at 1,500/ounce. What Putin has effectively done is pegged the Ruble to gold. ¹³
Interesting. This sounds familiar, like it has been done at one time or another in the past. Hmmmm.
This is coming at a time when major “energy purchasing” nations have been looking for a way to move away from the “Petro-dollar” and transact energy trade with their own local currency. China and India have been in talks to use a local currency rather than the U.S. dollar for quite some time. China would love for it to be the new “digital yuan”, but Putin has other needs, so gold might be the new medium of trade for energy in the Euro/Asia/India zone.
Another interesting fact is that the IMF has been in talks with other global leaders about using the Special Drawing Rights (SDRs) as a reserve currency¹⁴˒¹⁶, but, according to podcast from Darren Moore Jr.-Podcast 4/23/2022 the U.S. must approve of any distribution from the IMF in the form of SDRs. I am assuming this is a caveat of the Marshall plan mentioned above, but I have not researched this.
If this is the case, the only way that the SDRs become an alternative to the U.S. Dollar as the reserve currency of the world is if the U.S. approves it (which we would not), or there is a split in treaties, allies, long standing understandings which some may argue is part of this “great reset” that both Klaus Schwab and Glenn Beck have written books about. We will talk about this “great reset” in more detail below.
How much gold does Russia have that is beyond the long arm of sanctions? About 140 billion dollars’ worth. How much gold does China and India have? About 120 billion. India residents hold about as much gold as 40% of their GDP. They have about forty-six billion. ¹³
What about U.S. debt? Other than Saudi Arabia, who else holds U.S. Treasuries? Japan owns the most U.S. treasuries, about 1.3 trillion. China owns over a trillion as well. ¹³
Remember that trade imbalance that was referenced earlier in the update? Well, what happens if the dollar loses its status as world reserve currency? What if it loses it just a little bit as Brazil, Russia, India, China, South Africa (the “brics”) decide to trade in some other form of currency? Well, if “dollars” flood the market and are no longer held as the worlds “risk free asset” then the U.S. would see hyper-inflation. ¹⁴ We think we have it bad now at 7.5%-8.5% inflation? Try 20% inflation on for size.
Is it likely that the U.S. dollar will lose its status as the reserve currency of the world any time soon? Most likely not. There are too many other countries in the world that us the dollar as its medium of exchange. What do I mean by “anytime soon,” I mean not in the next few years. But in the next five to ten years, it is any bodies guess as to what currency will be the world reserve currency.
There have been many “moves” by many countries and coalitions of countries to be able to trade outside of the dollar system for various reasons. Take the U.K. back in 2016 after Trump imposed sanctions on Iran. The U.K. created a “work around” to be able to buy Iranian Oil without using the dollar. ¹⁴ Speaking of Sanctions, only 30 out of 195 countries have honored the U.S. sanctions on Russia. That means that 165 countries are voting with their pocketbooks over the atrocities that are taking place in Ukraine. ²⁰ That is not good.
Will Bitcoin be the reserve currency of the world? Not likely. Not because it is not a viable candidate as a currency, but mostly because it has a finite number of coins…. meaning no government in the world can issue more than what is already denoted in its genesis block from 2009.¹ Governments don’t want a currency that they cannot print more of. But we do know that the BRICS and other countries have been working on BRIC-Coin so that they can use cryptocurrencies to rely less on trade using the U.S. dollar. It is especially important that the U.S. “catch up” with the rest of the world regarding cryptocurrencies and digital assets as this space is one of the key factors toward moving world-trade away from the U.S. dollar as the reserve currency. ¹⁴
So, if it is not going to be bitcoin, is it possible that it could be another form of digital currency? Good question. That leads us to the section on the Central Bank Digital Currency.
The Central Banks of the World and Their “NEW ELECTRONICALLY-TRANSFERABLE MODE OF CURRENCY” & MODERN MONETARY THEORY
Currently the Chinese are much further ahead than we are with their “New Electronically-Transferable Mode of Currency” (hereinafter “NETMOC©”), but make no mistake, the U.S. is right behind them. But what does this mean? Does it mean that the physical currency is going away? Does it mean that we can no longer print dollars to our hearts content? Let us break this down question by question.
Physical Currency: In his 2018 MIT course on cryptography, now head of the Securities Exchange Commission, Gary Gensler, stated that the amount of physical currency in circulation is up, and the main reason it is up is that it is the best way to transact illicit activity such as money laundering because it cannot be traced or tracked as easily as money that is passing hands electronically. ¹
It has been stated repeatedly (even Gary Gensler, the Director of the SEC in his 2018 course at M.I.T.) that electronic transmission of currencies is a stupid way for criminals to launder money and engage in illicit behavior because there is a record of where the money is going.
So why then is Senator Elizabeth Warren shouting from the roof tops that electronic transmission of currencies is bad because it can be used for illicit activity, when even the head of the SEC has stated that it cannot be used for those purposes effectively. It is my opinion that Senator Warren is practicing “disinformation”, she doesn’t want U.S. citizens to have an alternative to the U.S. NETMOC©. When the U.S. NETMOC© is introduced (and it will be soon) she will be able to tell everyone that it is the safest way to transact business, and it is an uncomplicated way to get money to the people in the way of stimulus payments should another “crisis” hit like Covid 19.
Unfortunately, as was stated by Senator Lumis, the representative from Wyoming at this year’s Bitcoin 2022 conference in Miam on April 9th: “The U.S. NETMOC© is nothing but an infringement into our privacy, plain and simple”.
What many people are missing is the fact that because it can be tracked and traced, it can also let regulators know exactly what you spent your money on. Did you buy that shotgun at LL Bean? Did you buy that super gulp slurpy with extra shots of espresso and two shots of vodka? Hmmmm, should we be allowing this as a nation? Hmmmm, why are your real estate taxes so much higher than everyone else in your area? Oh, your house is 4500 square feet. Do you need that much room? That is an awfully large carbon footprint you have there, Mr. Libertarian. We are going to have to tax you more because of your carbon footprint.
A client reached out to me back in the Spring of 2020 and asked me if I heard about a social credit score that banks could use to lock you out of certain spending habits. I told him I had no idea about what he was talking. Fast forward to today and I have read numerous articles about this very activity currently happening in China with their NETMOC©. I have seen “posts” on social media that include a copy of a letter from a U.S. Credit Card Company showing a denial of credit to spouses of certain members of our U.S. House of Representatives because of their political views.
The Biden budget proposal was floating the idea of the government wanting to be able to see what was in all your bank accounts: WBNS-10TV-Auther: Lindsey Mills – Sept.14, 2021 “yes, the Biden Plan would allow the IRS to have more information on bank accounts with greater than $600.00.”
But this was not the first time the idea of tracking the spending habits of U.S. citizens has been floated by our current Congressional Members or the current White House Administration.
On the 22nd of March 2020, Nancy Pelosi floated a bill called Protecting Consumers, Renters, Homeowners, and People Experiencing Homelessness which first introduced the NETMOC© and the ELECTRONIC MEANS FOR HOLDING (hereinafter “EMFH©”) the currency that was going to be used to send direct stimulus to the American People⁷. That bill was scratched and the next day on March 23rd, 2020, Senator Sherrod Brown, Democrat from Ohio introduced the Banking for All Act⁸, that outlined a similar regulation that also would provide for the NETMOC and a EMFH. Both the NETMOC© and the EMFH© were defined in the proposed legislation.
On March 26th, 2020, Microsoft filed a patent titled for a type of NETMOC that uses Body Activity Data. ⁹ I have heard all sorts of things about Bill Gates wanting to control the population by vaccinating people, but I have found that this information was distorted from a TED talk in 2010. I have never heard of Microsoft trying to create a form of NETMOC© that is based our “Body Activity” and I cannot say I am all that excited about it . It is one thing to track our purchases through a NETMOC© (I am not a fan of this, either), it is quite another to propose that our amount of money, access to it, or denial of it, be based on our “bodily activity”. If you can think of another reason to have a NETMOC© system based on our “bodily activity” other than to track where you are and what you are eating, drinking, smoking, or whatever, please chime in.
Anyway, Visa filed a patent in May of 2020¹⁰ which outlined their proposal for a EMFH© to interact with the NETMOC© and in that patent application they specifically call reference to the “the removal of the physical currency from circulation including physically destroying the physical currency, the physical currency being fiat currency.”
Then there is the issue of ID2020. ID passports that combine your vaccine status as well as other health status’ and may be able to be combined with your digital NETMOC©/EFMH© account at the Fed so that everywhere you go, you can present your health status and your financial status. Wow. Yes. That is what I want every Tom, Dick & Harry that I encounter to know about me.
Thankfully, this initiative has not “gotten legs” and it has not become a reality. Legal contributors to the ID2020 project pushed back on the necessity for an ID2020 passport that included your health/vaccination status as well as the necessity of linking it to your NETMOC©¹¹. Though the idea of ID2020 makes sense for those who are “undocumented” throughout the world, whenever there is a crisis like Covid 19, there are those who will try to exploit the crisis to push forth their agenda, gain more power, and more control. Thankfully, at this time, this has not happened.
Since ID2020 did not work, congress has buried language in H.R. 4741 that gives the government the ability to track all transactions related to a NETMOC© system. Yes, this includes what you buy with the NETMOC. ¹² This bill is currently making its’ way through the House of Representatives.
As former Congressman, Dr. Ron Paul was quoted as stated: “The cashless Society allows the Government total knowledge of, and control over, the finances of every American.” ¹³ I could not agree more with this statement.
Can we still print to our Heart’s content?
This is, of course, a very polarizing topic. It is polarizing between the American Public and those in charge of Monetary and Fiscal Policy here in the United States. You do not see very often that a “non-governmentally employed citizen” of the U.S. chimes in that they are ‘for’ more money printing.
In all honestly, unless one spends time researching our monetary system, it is not an easy topic to understand. Why, then, do we continue to print more money here in the United States, and will it be any different under the NETMOC©?
The short answer is “NO”, it will not be any different under the NETMOC.© The long answer as to ‘why’ we continue to print money, follows.
Modern Monetary Theory. This is the theory that a government can print their way out of any dilemma and that deficit spending and Sovern Debt does not matter when you can continue to print money. In other words, the U.S. does not care that it is running deficits, and it does not care about its debt. The U.S. does not care that its current debt is about 128% of the U.S. GDP. The U.S. debt is around twenty-eight trillion dollars. The U.S. GDP is around 21.5 trillion dollars. Oh, and this debt does not include “unfunded liabilities” like future Medicare and Social Security entitlements that are underfunded. If it did, the debt would be over one hundred trillion. ¹⁵
The last time our debt to GDP was close to this level was after World War II. What was different then? We were the exporter of goods and services to the world (remember the Marshall Plan and why it came about from earlier in this update). We are not that today. What, then, can we do about this debt? In the past we were able to “inflate it” away. Today, we cannot do that. Why? Because most of our debt is “indexed” to inflation. ¹⁵ What we mean by this is that the majority of what we owe money to are things like Medicare and Social Security. Those are indexed to inflation meaning that if inflation goes up, so too does our obligation to those trust funds. ¹⁶˒¹⁷
But, hey…. luckily, Modern Monetary Theory tells us that it doesn’t matter how much we print. We can print out way out of anything. ¹⁶˒¹⁷
When one follows the money, an interesting pattern will emerge. This is taken straight from the book footnoted as “16” below: “Stephanie Kelton is a professor of public policy and economics at Stony Brook University. In 2015 she served as chief economist of the Democratic Party’s staff on the U.S. Senate Budget Committee. She was also a senior economic advisor to Bernie Sanders 2016 and 2020 presidential campaigns, and, a member of Joe Biden and Bernie Sander’s 2020 “Unity Task Force”, which was given the responsibility of reforming the platform of the Biden campaign and the Democratic Party. She is also the author of the popular book on MMT “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy”.
I am going to paraphrase an interview that Kelton had with CNBC back in 2019, and I am going to try to be a centrist as I do so:
“Households must go out and find money, earn it. The government which prints the money never has to find it, they have a monopoly over the currency, they just have to print it.”
She went on to say that deficits can be too big, and they can be too small as well. Evidence of the deficit being too big is
inflation, and evidence of it being too small would be unemployment. The right amount of deficit allows you to have low unemployment and low inflation.
Also from Glenn Beck’s book is the following quote: In a 2019 article for Barron’s, writer Matthew Klein suggested that MMTers believe that “governments can do whatever is necessary to satisfy the ‘public purpose’ if they maintain their authority over the populace.” ¹⁶
This MMT seems to benefit both sides of the political spectrum who make all sorts of promises during election season but have no plan to pay for them. The book goes on to ask two remarkably interesting questions: If we can print all the money we want and it does matter, why do we have taxes? The second, wouldn’t all this money printing cause inflation?
In her own book, Kelton gives her answer to the first question. Taxes can only be paid in dollars, so it forces citizens and foreign entities to use dollars to pay their taxes: “taxes enable governments to provision themselves without the use of force.” This is another reason that being the World Reserve Currency is so important. What better way to ensure/force someone to use dollars than to charge them a tax that can ONLY be paid in dollars. ¹⁶
As for inflation, Kelton suggests raising taxes to “force us to cut back a little to make room for additional government spending.” She then goes on to say “If the government wants to boost it is spending on health care and education, it may need to remove spending power from the rest of us to prevent its own more generous outlays from pushing prices up. ¹⁶
Here is another excerpt from Beck’s book where he quotes Professor L. Randall Wray from Bard College on his take on taxes and how they relate to Modern Monetary Theory:
“For far too long left-leaning Democrats have had a close symbiotic relationship with the rich. They have needed the “good” rich folk, like George Soros, Bill Gates, Warren Buffet, Bob Rubin, to fund their think tanks and political campaigns. If you listen to the last two words of many of the political ads on the radio this month here in Maine you will hear that the major contributor that funded those ads is George Soros. The centrist Clinton wing, has repaid the generosity of Wall Street’s neoliberals with deregulation that allowed CEOs to shovel money to themselves, vastly increasing inequality and their own power. And they in turn rewarded Hillary-who by her own account accepted whatever money they would throw in her direction.
Today’s progressives won’t fall into that trap. The question of ‘how are you going to pay for that’ is answered by stating ‘through a budget authorization’. Uncle Sam can afford it without the help of the rich.
And, they are going to tax you anyway, because you have too much-too much income, too much wealth, too much power. What will we do with the tax revenue? Burn it. Uncle Same does not need your money.
Taxes just lead to debits to bank accounts. We will just knock 3 or 5 zeros off the accounts of the rich. Of course, double entry bookkeeping means we also need to knock off the debts held by the rich-so we will wipe zeros of the student loan debts, the mortgage debts, the auto loan debt, and the credit card debts of American Households. Yes, debt cancellation too.”
This is Gary speaking. This is insane. They know it is insane. Something is going to have to be done about this at some point, or the dynamics of a world economy will come crashing down. Therefore, we hear all this talk about the “Great Reset”, which is something that is very hard to define, and certainly doesn’t have a “time-table” other than “we have to control global warming by 2030 or the world comes to an end”.
Also, it is important to note that if the government really does not need tax dollars as MMT says they can just print their way to their spending goals, taxes can be used to discourage activity that the government deems inappropriate.
According to Kelton, “governments can use taxes to encourage or discourage certain behaviors, to improve public health, battle climate change, or deter risky speculation in financial markets.” ¹⁶ So, MMT is effectively using the tax code to manipulate people. Great.
There is much more information that I could impart regarding Modern Monetary Theory and how it gives the ruling cast broad power to play favorites in the economy and reward their donors, but I will reserve that for a later update.
One more tidbit about MMTer, Stephanie Kelton: She was invited to speak at the World Economic Forum in 2020, where she touted the benefits of continual money printing and deficit spending. Klaus Schwab runs the World Economic Forum. I will touch on my research into Mr. Schwab, next. Suffice it to say, the World Economic Forum is strongly behind MMT¹⁸, and though Kelton said it would never happen, if the World Economic Forum were to have its way, the U.S. dollar would lose its status as the World Reserve Currency, and we know what would happen to prices in the U.S., hyperinflation. Unless, of course, the U.S. joins this “Global Elite run” new society. God help us.
Klaus Schwab and the Great Reset
In his book, Covid-19 The Great Reset, Klause Schwab states that Covid 19 gave the world a terrific opportunity to reset many of the wrongs in the world. He states that our world has become too complex, and that too much can go wrong when there are so many nations working in a bubble and not working together toward: Climate Change, Stakeholder Value, Equity, and Equality.
Schwab believes that there should be a global currency. He believes that the world should be run by The Elite in the world, and that in the next ten years it would be better that “normal society” is taken care of by big government, which is run by The Global Elite. Before I go on about who the Global Elite are, get this. According to Sky News.com/AU, if you go to the World Economic Forum’s website there is a picture of a young man, smiling, and under his picture is the caption “You will own nothing. And you will be happy.” I guess if you are a multi-billionaire, and you sit on the global elite council this makes sense. 99.9% of the world’s population will own nothing, we (the Global Elite) will own it all, and we will take care of YOU. Oh, I am sure they will take care of us. Can you believe an organization like this exists in the world, and that they are gaining traction?
Who are The Global Elite? Well, do you know the old saying “he who has the gold, makes the rules”? Well, yes, that is who the elite are. The rich, powerful politicians and corporations and their boards. All the folks who are invited to the World Economic Forum annual meeting in Davos, Switzerland.
This is the group that is pushing Universal Basic Income.
This is the group that is pushing all solar and wind energy technologies.
This is the group that is telling us that Climate Change is a must. It is imperative that we stop global warming. Is Climate Change important? Of course. Do I want sea levels to rise to a point where acres and acres of land are submerged? I do not. But do I believe that the Global Elite care about climate change as much as they say they do? I do not.
I believe that Schwab and all the others on the list believe that Climate Change is a cause that normal people like you, and I can get behind. The Global Elite also know that Climate Change cannot be solved in a year or two, so it is the perfect “dilemma” to enact changes that they see fit over an extended period of time. Covid-19 was that dilemma, but it was not long lasting enough, and many claims made about the virus have been proven to be false.
Climate Change cannot be solved overnight, so it is a goal that they can champion for years to come. Case in point, we do not even extract enough silver in a year to power all the solar panels that would be necessary to outfit all the residential homes on the U.S. today. Let alone the commercial and municipal buildings in the U.S. Do not forget that silver is in 100s of products, not just solar panels. So, unless they devise another way to produce solar panels, it is going to be a long time before that energy source is fully utilized. ²¹
With the “never ending” printing of money, they can also funnel that money toward Climate Change initiatives. They can funnel that money to the companies that they want the money to go to. Who do you think will be on that board of directors? Who do you think will own those companies? Those are rhetorical questions, of course.
If there is a global currency, say a global central bank NETMOC, the Global Elite will also be able to decide what it can be spent on. We may not be able to change our constitution very easily, but if the global digital currency cannot be spent at certain stores, say at gun stores, you do not need to change the second amendment to the constitution. Problem solved. This is not an argument for or against guns, it is about stopping all political parties or factions from circumventing all aspects of our governing document, the Constitution.
What else do we know about the printing of money and the parties who get it first? We know that those who have access to all the money first do not see the inflated prices as the money has not caused inflation right off the bat. This is called the Cantillon Effect. Those who get the money last pay the inflated prices. Ergo, the large banks and corporations benefit more than you and I, the little people.
Why am I so cynical about the Global Elite? Ask yourself this question. Do you think the rich and powerful care more about us, the little people, then they care more about keeping their wealth and power? This, too, is a rhetorical question.
Here are examples of the hypocrisy:
How exactly is President Trump and President Obama going to get TO their newly purchased island retreats? Are they going to take their battery powered boats? Are they going to take their batter powered jets? Interesting question, no?
How exactly do all the global elite get to the Davos, Switzerland meeting each year? It must be by the battery powered jet.
How about the COP26 climate meeting in Glasgow, Scotland, how are all the elite getting there (that is if they even go. China and Russia did not even show up this year)?
Oh, and here is a question, do we share the same ozone as the one covering the earth around Russia and China, where coal plants and natural gas is flowing without restriction? I am asking for a friend.
How are Russia and China doing containing their carbon footprint? Did anyone hear about the massive Co2 leak from Gazprom which was uncovered by a Washington Post reporter? Massive amounts of Co2 from the leak.
Why would President Trump, Obama, Clinton, Bush, George Soros, et al own “generational properties” on the ocean if there is a significant risk that they are going to be overrun by rising seas?
If Germany is so “on-board” with the Global Climate Accord, how is it that the head of the German Green Party is on the Board of Directors of Gazprom, the largest natural gas company in Russia, the one that just had that massive Co2 leak? ¹⁹
If we are so concerned about the fossil fuel industry, why do we not look to nuclear energy? It is cleaner, safer, and cheaper than Wind and Solar.²⁰ Again, this update spans a few months so this paragraph might be a little behind the time as I believe the Biden Administration has stated over the last few days that they are creating funding (creating, of course, means more deficit spending) for Nuclear power plants to come back on line. This is one of the reasons that you might have seen a precious metals/commodities investment allocated to recently in your portfolio. Uranium is a big part of nuclear power.
I know this update has been long, but these are all the topics, the aspects of our life that you, my clients, asked me to touch on. These are all the variables that go into investment management that determine how we allocate your portfolios.
Wow, that is all I am going to say in this update . I have so many more articles that point us in the direction that we will want to invest²³ (and if you want to see how I spend a good part of my day check out footnote 23, below) but suffice it to say, that I have deployed capital as I believe it should be at this time. Because there is so much “going on” in the world today, I will tackle some other topics much sooner than next quarter.
If you feel this update is worthy of sharing with someone that you believe should become part of the WealthSmith Family, please forward it along. If I ever get around to producing a YouTube video with this information this is where I would say “like, share, and subscribe”.
As always, thank you for the trust that you place in me as the steward of your financial wellness, I do not take it lightly.
Gary Smith – CFP, ChFC, AIF
WealthSmith Financial Planning, LLC