Introduction
“Both wealth and governance belong to the people, not just the kings.” This quote from Jiang, the founding prime minister of the Zhou dynasty, emphasized the importance of socialistic democracy and the well-being of all citizens.
Economic Definitions in a Changing Landscape
As the economy has evolved, so too must the definitions of economic terms. For example, inflation should be distinguished between consumer price inflation and asset price inflation.
The Narrow Money Supply and Great Responsibility
The pure fiat system of the dollar, untethered from gold since 1971, has led to unbridled fiscal deficits. The consequences of money printing at will are severe, as it leads to increased sovereign debt.
The Expansion of Treasuries
In recent years, treasuries have gained prominence as narrow money, accompanying and oversizing the base money (M0) of the Fed. This expansion has been facilitated by changes in rules and policies.
Fiscal Deficits and Monetary Machine
The large fiscal deficits of the past decades have put the monetary machine on the brink of runaway mode, leading to increasing national debts of treasuries.
Hope and Consequences of Treasury Expansion
While treasury expansion is perceived to provide economic growth and fuel for the stock market, it has also led to depreciation in the quality of the dollar and its purchasing power.
Weakening Dollar and Yield Curve Normalization
The weakening of global fiat currencies and systems is evident in the inverse relationship between gold and the dollar index. The yield curve changes indicate stress points in the debt market, signaling potential losses for long-term treasuries.
Gold and Miners
Gold is a valuable indicator of the dollar’s health. When gold performs well, it suggests that fiat currencies are weakening. Gold miners have been undervalued in recent times and may present potential gains.
Conclusion
After decades of declining interest rates and fiscal deficits, the economy has entered a difficult stage. The alarmingly high fiscal deficits and interest payments necessitate a balanced budget to restore economic stability. Risk-off assets, including gold, are favored in times of economic uncertainty.
