In his latest interview with The Gold Report, Shadowstats founder and leading contrarian economist John Williams says hard assets, namely gold, will be insurance against the coming economic Armageddon. Williams and Gold Report’s Karen Roche discuss a host of topics from government statistics to the coming economic meltdown.
On Government Statistics
The way I describe the economy is that it started turning down in 2007, plunged throughout 2008 into 2009. Basically, it has been bottom bouncing ever since. I’d caution anyone that we’re seeing extraordinary distortions in economic reporting, due primarily to the system never having been designed to handle a downturn of this severity. Post-WWII economic reporting is based on the presumption of ongoing economic growth and is seasonally adjusted. In tracking payroll employment for example, the assumption is that if a reporting company doesn’t report, it is still in business, so the government will impute what they think would have been reported. They theorize that any jobs lost through companies going out of business generally are more than offset by jobs being created by the companies that haven’t reported.
We’ve repeatedly warned that the government statistics are manipulated, sometimes on purposes, sometimes because the people compiling the numbers suffer from normalcy bias. Whatever the case, the economic picture is not as rosy as we’ve been told, and unemployment statistics are a clear sign of this. The official government unemployment rate, the one cited by the news media and optimism opium smoking sheeple, is 9.8%. The real number of unemployed, including all those who are counted as officially no longer looking for work and those who have fallen off unemployment benefits (i.e. the 99ers), is closer to 22% according to John Williams.
The Economy in 2011 and Beyond
Eventually, the continued economic decline will be recognized officially, but people will be talking about the second leg of a double-dip before it gets any official recognition. I don’t see any economic growth ahead. In fact, I see a pretty bad further contraction. For instance, as bad as it’s been, if you look at housing starts, the housing market never really had any bounce-up from the stimulus (except maybe a little bit in the home sales numbers tied the expiration of tax credits), and it’s actually started to turn meaningfully to the downside again. That’s bad for the banking system. It’s not good news for anyone.
The problem is we have a solvency crisis and an economic crisis that are ongoing simultaneously.
The ‘double dip’ oft discussed by economic talking heads is nothing but propaganda. A double dip suggests that we may have another mild recession, but it won’t be anything severe. It’s just a dip – not a collapse.
In reality, it is going to be much more than just a ‘dip.’
The Catch 22
There is no happy exit. The correct approach would have been to avoid the circumstance in the first place, but it’s the nature of the political system always to take a gain in the immediate future regardless of the expense over the long term. There have been many years of conventional wisdom that the deficit and the U.S. dollar don’t matter. They both do. There comes an eventual day of reckoning and that’s what we’re facing.
I think they’ll continue to do what they’re doing, and I can’t blame them. They have a series of devil’s choices. We’ve gone too far to bring things into balance.
The current circumstance could have been avoided decades ago with prudent management of the government’s finances. Now, given the choice between immediate systemic collapse and printing more dollars, I likely would do what the government is doing, because printing money at least buys a little more time.
In a recent letter to Congress, Secretary of the Treasury Timothy Geithner confirmed Mr. Williams’ views and suggested that we are literally on the brink of collapse. We either stop printing voluntarily now (which is simply not going to happen) or our creditors will stop buying our debt. It’s that simple.
The end result in both instances is a collapse of our economic system.
What Collapse Might Look Like
My views haven’t changed since we last talked. The ultimate result here is the government printing money to meet its obligations. The Fed effectively is funding the government’s borrowing. But as the economy continues to weaken, as the deficit worsens, as the Treasury funding needs increase, quantitative easing and monetization of U.S. Treasuries will have to increase. We’re going to see more and more foreign holders of dollars sell their dollars. I think there’s high risk in the next year of a panicked sell-off, a panicked dumping of USD-denominated paper assets. All of that will cause the Fed to continue to flood the system with liquidity, to buy up unwanted Treasury debt and stimulate inflation. As people increasingly don’t want to hold the currency because of the inflation, we’ll start to see higher inflation that quickly can evolve into hyperinflation.
I can’t tell you for sure that’s going to happen, but if I’m right about what’s happening with the economy and how the Fed will respondâ€”with more, not less, quantitative easingâ€”the general response in the world markets will be to dump dollars, and there is high risk of that in the year ahead.
We may have already triggered hyperinflation. Food costs are rising at an alarming rate. In a previous interview, John Williams suggested that we had perhaps a couple of months before the first signs of hyperinflation kicked in. That interview was in December of 2010. It is now more likely than anytime since the crisis started, based on rising prices for essential goods like food and energy, that inflation is the probable end result.
How To Protect Yourself
As an economist looking at the broad trendsâ€”I’m not an investment advisorâ€”people in a USD-denominated environment will need to try to preserve their wealth and assets and protect the purchasing power of the dollars they have. That means holding some physical gold, physical silver, getting some assets outside the U.S. dollar. I still like the Australian dollar, Canadian dollar and Swiss franc, and I think they will come out of this relatively unscathed versus the USD. Over the long haul, gold really is the preeminent asset, with a history of holding its purchasing power over time.
As we’ve discussed prior, hard assets will be the only protection for preservation of wealth during a hyperinflationary collapse.
Gold and silver are just a part, in our view, of any complete SHTF plan.
John Williams has suggested previously that there is a significant threat of disruptions to our food supply and the normal flow of commerce in the event of a collapse.
In the onset of such a collapse, even gold and silver may be difficult to trade for essential survival goods like food and gas. That’s why if your concerned with life during and after hyperinflation you should ask yourself what is money when the system collapses and how do i prep, invest and preserve wealth during hard times?
Value will be redefined in such an event. Don’t be sitting on Federal Reserve brand toilet paper – have some hard assets.