Industry figures the worst in 10 years, QE 4 is a fact and the number of retail bankruptcies shows an implosion of the sector. What implications does it have for the wider economy and is gold an alternative?

October 4 2019

If we are to believe the rhetoric of policymakers, the economy is running smoothly. In the various capitals, politicians, perhaps sincerely, think there are few indicators to worry about. But what do the numbers show?

Inform yourself:

The reader of course knows that the crises that we have experienced have never been predicted and that in those cases the people we have entrusted with running the country knew what could happen, they withheld that information and citizens absorbed financial blows without a chance of preparation. We can therefore certainly not assume that if the economy fails, the government will let us know. We are on our own and being able to make our own analysis is, with an ever-changing society, very important.

What do numbers show:

An analysis of a handful of sectors shows that the cycle of expansion has come to an end and shrinkage is either ongoing or will start soon. The fact that we are in a recession always takes at least two quarters of data and therefore it looking ahead is crucial. The German industrial indicators show a contraction that has not been showing since 2009 and even those rose coloured glasses only predict minimal growth of the economy in 2020. Industrial figures from the US also paint a gloomy picture. After a modest contraction in September, the October figures show the sharpest decline in the past 10 years.

QE to infinity:

The ECB announced a new round of Quantitative Easing last month and, unlike during the financial crisis, there is no prospect of an end date or completion of this implementation of MMT. And although there is no negative interest rate or an official new round of QE in the US yet, the FED's balance sheet has grown because banks were in need of liquidity. With so-called REPO actions, the Federal Reserve created tens of billions in liquidity in recent weeks to artificially lower the interest on loans. This also involves the printing of currencies in the US.

MMT, uncertainty and despair:

The figures that show that the global economy is slowing are a rejection of Modern Monetary Theory or MMT. MMT states that currency printing, building up debts and lowering interest rates, even into negative territory, can be done without consequences if the right preconditions are created. However, human actions are not taken into account. While MMT assumes a society in which common goals are pursued, Ludwig Von Mises wrote in his Human Action, an economic treatise, that there is always a need for foreseeable “achievement of one’s own success” to pursue a collective goal.

And where, at a social level, for example, negative interest rates or the printing of "free money" can be beneficial, it certainly does not contribute to "achieving one's own success" for, for example, savers or pensioners who see their purchasing power disappear. These negative consequences therefore induce the individual to take action. And it is that individual action that encourages policymakers to return to financial repression, such as further lowering interest rates or banning cash transactions. This circle of despair leads to a well-known and unfortunately very painful route of mass suffering, currency devaluation, and the final return of our “money” to its intrinsic value of zero!

Stagflation is lurking:

The signals have been pointing for some time and I wrote about it in June because all circumstances seem to come together in a perfect storm in which a shrinking economy and rising inflation come together to the destruction we call stagflation.

Gold as eternal money.

Part of such an approach is investing in "real money". Gold and silver have been this for 4000 years! Gold in particular has given a signal in recent months that expansion is stagnating and that MMT does not offer a solution for the recession that is around the proverbial corner. When that inevitable recession starts, everyone who has informed themselves and takes a critical look at the proven and disastrous track record of governments and central banks. They will also see the eternal value of precious metals.

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