URGENT🔴 Will Government Shutdown Return As The Trade War Expands?

Will Government Shutdown Return As The Trade War Expands?

The mainstream economic community has a notoriously short attention span and a lack of long-term perspective. After the longest government shutdown in American history subsided, the mainstream proclaimed the fight well and over – in other words, nothing to see here, Trump “folded” and all is well. Of course, what they consistently seem to ignore is the fact that the shutdown was only placed on a three week hiatus. This is hardly any assurance of a return to “normalcy”.

As I write this, the Trump Administration has yet to make its State Of The Union Address, and it is possible we will know more afterwards on the shutdown issue. Trump’s propensity for saying one thing and doing another makes it difficult to discern the future on policy actions. We don’t have long to wait, however, as this March is set to be possibly one of the most tumultuous times for the modern U.S. economy.

It should be noted that the timing of the possible return of the shutdown is set just before the Trump Administration’s decision on expanded tariffs against China. The trade war “pause” is yet another event which was wrongly heralded by the mainstream as the “end of uncertainty”. Along with the propaganda surrounding the Fed “pause” in policy tightening, I am starting to see a pattern here.

For the past month, it has seemed as though market risk sentiment is being manipulated to the positive side through numerous promises – The promise that the shutdown has been averted, the promise that the trade war will be over by March, and the promise that the Fed has “capitulated” on raising interest rates and cutting the balance sheet. Perhaps all of these promises will turn out true, but my suspicion is that most, if not all, of them will be found false.

In terms of the shutdown, I see little indication that there has been a change in narrative. Keeping the false left/right paradigm in mind, as well as the fact that Trump works closely with elitist banking and think tank interests within his own cabinet, the screenplay for our little drama continues to present a staunchly divided political arena. Democrats are unlikely to budge on their opposition to the southern border wall, and Trump is unlikely to budge either.

This can culminate in one of two ways: Either Trump will re-initiate the government shutdown fight by the end of February, or, he will declare a state of emergency, bypassing the shutdown altogether and using the military to build the wall through funding at the executive level.

Another possibility, which I personally subscribe to, is that BOTH events could occur simultaneously – a shutdown and a declaration of emergency. There is the potential for obstruction by Democrats in the Senate or by the military itself in a declaration of emergency, which would add considerable confusion to the matter.

A shutdown in this case would be unavoidable. But some liberty activists might ask, why should we care? Don’t we prefer a government shutdown? Ideally, yes, but there are consequences for the venture that need to be addressed.

First, it is important to realize that the government is the largest employer in the U.S. The federal government employs approximately 2.7 million civilians; its closest competitor is Walmart with 2.3 million employees. But if we take into account every person that takes home a government paycheck from the state and federal level, including school teachers, police officers, DMV workers etc., the number rises dramatically to over 22 million people.

Some people might argue that state workers would be unaffected by a government shutdown, but this is not necessarily true. With most states utterly dependent on federal funding to operate public programs and entitlement programs, states can in fact be affected by a long-term shutdown.

The near panic that ensued over the last shutdown was motivated by some legitimate concerns. It is not just the millions of government employees which represent the largest part of the American economy, but the millions of people (families) dependent on those employees for their survival. In an economy which is around 70% retail and service based, the removal of ANY existing pillar of consumerism can have negative reverberations through the entire system.

Beyond a freeze in pay to America’s largest employment base, there is also the issue of welfare programs like EBT, which were already on the verge of being cut off this month if not for early payments. A return to the shutdown is likely to last much longer, and with EBT payments delayed through March, a panic would ensue.

This is why it is important to take the shutdown into account, as a trigger event as well as a mass distraction from central bank activity.

The “pause” in the trade war with China also represents a kind of non-event that is driving false optimism. With the trade deficit only expanding further with China, one must question what the goal of the conflict actually is. The potential extradition of Huawei CFO Meng Wanzhou does not help matters, as well as the series of unproductive trade meetings ending with more declarations of progress but no written deal.

The U.S. economy is like a massive Jenga tower in which most of the vital supporting pieces have already been removed. Pull even one more, and the whole structure will collapse. Before we get too focused on a shutdown scenario or the trade war, though, we should ask, who removed all the other supporting pieces?

The Federal Reserve has done this expertly through the inflation of the ‘everything bubble‘ and the subsequent and deliberate deflating of that bubble, all while using Trump’s ventures into government shutdown and the trade war as cover for their activities.

Recent changes in language to Fed statements have led to an astonishing sea change in the views of the economic world. Within a month’s time market sentiment has gone from fears over Fed tightening to euphoria over assumed capitulation. I would remind the people embracing this sentiment, though, that the Fed pulled this same con only two months ago.

In November of last year Jerome Powell changed minor language to his statements, which was broadly interpreted as “dovish” by markets. This led many to believe that Fed rate hikes and cuts were over. Only a month later in December, Powell stunned investors with aggressively “hawkish” language on top of an interest rate hike and more asset dumps. I mention this event because I believe it is dangerous and foolish for analysts to now proclaim the Fed has capitulated when all we have to go on is mere rhetoric that the Fed can change any moment it wishes.

So far there is little indication beyond changes to Fed speech that tightening will stop anytime soon. Balance sheet cuts continue, and the Fed dot plot for interest rates still calls for at least two more hikes this year. Stock markets for now are driven by pure blind optimism that the Fed will step in with stimulus, not to mention the hundreds of billions of dollars in liquidity that the Chinese have been pumping into global assets in the past month.

The fact is, nothing fundamental has changed. The effects of Fed tightening are currently evident in housing markets as overall home sales continue to plunge, auto markets see the most dismal sales in years, credit markets continue to tighten, and corporate earnings have been mostly disappointing.

As a reader recently reminded me, Fed excess reserves are also falling rapidly. Financial institutions have kept excess reserves with the Fed for years because it offered a separate, higher interest rate as it lowered the Fed funds rate to near zero during Quantitative Easing. The Fed used these excess reserves for “overnight lending” to numerous domestic and foreign corporations during the credit crisis.

As the Fed has raise the funds rate, the outflow of banks funds from the Fed’s excess reserves has increased dramatically in the past several months. While normal economic logic would say that this is a good thing because it would encourage banks to lend that money to get a better return, this has not been the case.

Bank lending has not improved to keep pace with the repatriation of excess reserves once held at the Fed. So, the question is, if banks are not holding that money with the Fed, and they aren’t lending it, then where are the trillions of dollars going? My theory – probably into stock buybacks, which would explain the bull rally despite all reason during the first half of 2018.

The continued outflow of excess reserves stands as more proof that the Fed is continuing to tighten policy while the mainstream wrongly convinces itself that the Fed is planning to reverse.

Of course, as excess reserves dwindle and the Fed raises interest rates, making corporate debt more expensive, one wonders what will be left to artificially support stocks? The systemic crash of December will return with a vengeance if Fed language on dovish “accommodation” doesn’t pan out with action.

The next major Fed meeting with a potential for a rate hike is set for March, and perhaps it is just a coincidence that both the trade war and the shutdown fight are poised to explode at the exact same time. If the Fed goes hawkish once again, or makes a move which surprises markets in any way, the shutdown and the trade war would provide more than enough distraction in the event that stocks plummet as they did in December.

That said, it is possible that there will be no shutdown or declaration of emergency. Maybe the trade war will end in March with an equitable deal that makes China and the U.S. happy rather than another non-deal that both sides claim is “optimistic” while escalating the confrontation with more tariffs. And, maybe the Fed will reverse course on balance sheet cuts and interest rates, admitting policy failure and taking responsibility for lying about economic recovery. This would be quite a miracle, but miracles do happen.

Government Shutdown Reveals Nasty Truth About Americans’ Savings.

The temporarily-ended government shutdown didn’t have had a large effect on the U.S. economy, but it may have revealed something disturbing about the savings of 80% of Americans.

They aren’t prepared if the economy get worse.

MarketWatch published some recent findings in an op-ed (emphasis ours):

Why do a few weeks without pay turn into a crisis for many families? Simple: Nearly 80% of Americans live paycheck to paycheck. That’s a problem when you have little to no savings. In fact, it’s akin to playing financial Russian roulette.

And the problem is terrifyingly pervasive. According to a recent GoBankingRates survey, only 21% of Americans have more than $10,000 in savings, with nearly 60% having less than $1,000 in savings.

The findings come from a recent GoBankingRates survey, which contained the following chart reflecting MarketWatch’s findings:

With interest rates on the rise and the economy at levels of uncertainty not seen since 2008, it’s crucial for Americans to buffer their income with some sort of hedge.

Without reliable “go-to” savings and a plan, there could be tough times ahead if the market continues diving into recession.

But the nasty truth appears to be most Americans don’t have enough savings, if any at all, to get them through the tough times.

Right now, government-reported unemployment is the lowest it’s been since 2000. But as you can see from the chart below, a recession tends to follow the “lowest” unemployment rates:

It’s not for sure that this is a signal of an imminent recession, but it sure seems like enough circumstantial evidence to consider looking into your savings options. That, and the fact that the shutdown has only been “ended” until February 15. After that, we may see “Part II.”

And the shutdown isn’t only affecting individuals. It even drew the attention of top CEOs.

James Gorman: “Going to Have an Extremely Dangerous Affect”

Morgan Stanley CEO James Gorman had some choice words from the recent meetings in Davos, Switzerland. His frustration was quoted in a CNBC video:

If it goes through months of this year, it’s going to have an extremely dangerous effect on … the momentum of the economy. This thing needs to get resolved…

The distinct feeling conveyed in Gorman’s remarks is in his choice of the word “resolved.” A temporary three-week solution is not going to cut it.

But Gorman wasn’t the only CEO expressing concern. Arne Sorenson at Marriott International also expressed reservations in a video linked from Forbes after seeing business drop double digits:

Marriott International CEO Arne Sorenson said the shutdown is hurting his hotels in the D.C. area. The company’s 150 or so hotels in the Washington, D.C., metro area have seen business drop double digits since the shutdown.

Forbes also reported on a Southwest Airlines earnings call, where CEO Gary Kelly shared his January sales woes, blaming them on the “maddening” shutdown:

In an earnings call with analysts this morning, Southwest Airlines CEO Gary Kelly, called the shutdown “maddening.” The company estimates it’s lost $10 to $15 million in revenue this January as a result of the shutdown.

So it appears the shutdown weighed down U.S economic growth, and impacted revenue for major corporations. Not good.

And after February 15, more corporations and Americans with little savings may see another “helping” of this shutdown whether they like it or not.

Time to Plan for the Worst – And Hope for the Best

Another government shutdown in the near future is highly possible. It’s time to start thinking about how the markets will respond to the uncertainty going forward.

Future shutdowns can destabilize your retirement savings, especially if you don’t have savings or a plan.

One way that many Americans have safeguarded their financial future is by diversifying their retirement portfolios into physical gold and silver. Traditionally, these assets perform well in uncertain markets and can be considered as part of any diversification plan.

As we enter 2019, the U.S. national debt continues to grow, approaching $22 trillion with global Government debt sitting at $72 trillion.

It seems like the 21st century is hitting the U.S. with a debt “haymaker,” according to CNBC (emphasis ours):

U.S. debt began accelerating at the turn of the 21st century. The total jumped 85 percent to $10.6 trillion during former President George W. Bush’s two terms, another 88 percent to $19.9 trillion under President Barack Obama and has risen 10 percent during the first two years of President Donald Trump’s term.

And even though the U.S. economy may be growing, the sustained annual deficit exceeds $1 trillion. This is concerning economists, including Chairman Powell:

I’m very worried about it… It’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face.

If a recession hits (and signals are potentially pointing towards one), then having that amount of sustained deficit could be devastating.

And since the Fed is partially responsible for creating this debt problem, it seems odd for Powell to call it a “long-run” issue when it’s more of a “right-now” issue.

According to a recent CNBC article, normally when the deficit is expanding, the “Fed would be lowering rates”. But they aren’t. In fact, rates have been on a steady rise for the last few years.

At the global level, the picture isn’t much better. Debt has reached record levels, double what it was in 2007.

This is “leaving many countries poorly positioned for financial tightening as global interest rates begin to move higher,” says James McCormack, Fitch’s global head of sovereign ratings, in a statement.

Powell and other economists have every right to be concerned, because both debt and deficit spending may be spiraling out of control.

In March the U.S. Debt Crisis May Come Roaring Like a Lion

David Stockman, contrarian economic commentator and former budget director for Reagan, pulled out all the stops in an MSNBC video interview:

There is a freight train coming down the road that is going to hit in March, when the debt ceiling expires.

The “freight train” he is referring to is the U.S. deficit. He also claims the spending plan being implemented by Congress since February 2018 will “smother the U.S. economy.”

That same plan lifted the debt ceiling up till March of this year. Back in 2018, Stockman issued one of the sharpest warnings about U.S. deficit spending (emphasis ours):

When you start marching toward a $2.1 trillion deficit before even factoring in the next recession, and when you recall that today’s 60 million Social Security recipients will be 80 million by 2027 due to the massive baby boom retirement wave, you are just plain sunk fiscally.

So how far has the U.S. come since Stockman’s dire 2018 proclamation? As should be expected, not very far. In the first quarter of FY 2019, the U.S. deficit continues to climb and is already on pace to top $1 trillion this year.

According to the New York Times, even with “payment shifts” that started in 2018, this years’ federal spending still outpaced revenue by 17%:

Federal spending outpaced revenue by $317 billion over the first three months of the fiscal year, which began in October, the budget office reported. That was 41 percent higher than the same period a year ago, or 17 percent after factoring in payment shifts that made the fiscal 2018 first-quarter deficit appear smaller than it actually was.

And just to balance FY 2019’s budget, massive spending cuts would be necessary, according to a report at American Spectator:

To balance the federal budget in FY 2019, it would be necessary to cut all spending by 22%. Yes, this means Social Security, Medicare, defense, food stamps and college loans. A cut of 22% would be devastating to our economy, which means we must begin now to reduce federal spending and debt as a national priority.

Of course, balancing this year’s budget doesn’t offset the seemingly insurmountable piles of debt from previous years. Not even close.

So when March comes and the debt ceiling needs lifting once again, the “debt lion” may come in roaring louder than it ever has.

If you thought 2018 was bumpy, hang on tight.

Don’t Let U.S. Debt Get Your Retirement

U.S. debt may have reached the point of no return. The federal government will still have to pay more interest on its debt too, meaning they’ll have to borrow more just to pay that interest back.

This creates a downward spiral that puts incredible pressure on interest rates to keep rising. And even if Powell and the Fed don’t want to raise them, they might have to.

This also means any unforeseen crisis would be catastrophic. The market is already at risk of losing billions more in value, and 2019 is off to a rocky start.

One way to protect your savings in times like these is to hold an asset that has often acts counter to other investment options. The diversification that precious metals such as physical gold and silver can provide to your savings is one reassurance that your wealth will be less exposed in times of economic uncertainty.On January 6, we wrote the Surest Way to Overthrow Capitalism. We said:

“In a future article, we will expand on why these two statements are true principles: (1) there is no way a central planner could set the right rate, even if he knew and (2) only a free market can know the right rate.”

Today’s article is part one of that promised article.

Let’s consider how to know the right rate, first. It should not be controversial to say that if the government sets a price cap, say on a loaf of bread, that this harms bakers. So the bakers will seek every possible way out of it. First, they may try shrinking the loaf. But, gotcha! The government regulator anticipated that, and there is a heap of rules dictating the minimum size of a loaf, weight, length, width, depth, density, etc. Next, the bakery industry changes the name. They don’t sell loaves of bread any more, they call them bread cakes. And so on.

There is always a little arms race going on, wherever there are government controls. One recent example is Uber. This company actually illustrates two different workarounds. One, is labor law. Labor law sets not only a minimum price for labor, but also adds many other restrictions that make companies less flexible, and therefore less able to deliver what customers want. So Uber drivers are not employees. Oh no, they are independent contractors.

Two, is taxi regulation. Uber is not a taxi. It is a ride-sharing service. Under regulation, definitions determine the difference between life and death. So everyone is forced to play a game of hair-splitting.

But what does not happen: consumers can buy as much bread as they want, below production cost. Something has to give. And if nothing else can give, then bakeries are ruined and you arrive at Venezuela. The average adult there lost 11kg (24 lbs) in 2017.

What does not happen is: bakeries pay workers $15 to produce $12 worth of bread.

Why not? What is it about production cost that makes bakers unable to go below it, even if they were willing? What is it that makes employers unable to pay workers more than the revenues generated from the work? And make no mistake about this point. Our socialist friends may try to turn it into a character attack (especially on the minimum wage), alleging evil motives for the baker, who is greedy and exploiting workers.

Of course it has nothing to do with motives. Reality does not permit you to consume more than you produce. If you spend $1.01 to produce a loaf of bread that you sell for $1.00, then you lose a penny on every loaf. This is true, regardless of whether a price-fixing law caps bread at $1.00, or whether a minimum wage low hikes your cost to $1.01.

You only have so many pennies. And eventually, you will run out.

Production consumes resources. It consumes the obvious resources that everyone can see. For example, baking a loaf of bread consumes flour, water, labor, etc.

It also consumes the not-so-obvious resources that most people do not see. Such as wear and tear of the mixing equipment and ovens, depreciation of the building, etc. It consumes capital.

To illustrate this, let’s look at Able Bakery. Able publishes financial statements showing only the first category, the flour, labor, and other ingredients. But they do not address capital at all, the ovens and mixers, the building, etc.

Able’s financial statements do not paint an accurate picture of the business.

Suppose Able reports a small profit. It does not count the (potentially large) costs of wearing out equipment and the building. So, the true picture of the bakery business may actually be that it loses money. We don’t know for sure (but we suspect from the small profit and potentially large cost that is excluded).

Even if a business uses peanut shells to do its buying and selling, it’s easy to count how many shells it had in the morning and how many it has at the end of the day. If the number goes up, then it created wealth. So long as there is no capital used for production.

However, in most businesses, there are non-obvious (i.e. non-cash) expenses. These are not obvious because they occur slowly. The baker can fire up the oven every day for years. He can open and close the over door thousands of times. But with each cycle of heat and cool, rotation of the hinges, and impact of the closing door on the seals, the oven degrades imperceptibly. Eventually, it is worn out and stops working. Wear and tear must be included in the financial statements. That should be obvious (and it is, to anyone in business or accounting).

This is necessary, but not sufficient. Businesses also need a consistent currency. Changes during the life of the equipment may cause inaccuracy in measuring wear and tear. We’ll look at two examples. The first is when the unit of account falls, what most people call inflation. The second is when the interest rate falls.

Charlie Bakery buys an oven for $10,000. At the time, the ingredients and labor to produce a loaf of bread are $0.90 and the retail sales price is $1.00. One could say that the oven is purchased for 10,000 breads (though a bread loaf is not a constant unit of value).

Ten years later, the oven is toast. By that time, a loaf of bread costs $9.00 to make, and it sells for $10.00. However, on the books, the depreciation of the oven is a straight line of the original $10,000, over ten years. This is $1,000 a year. By the tenth year, the wear on the oven appears to be 100 breads. This is a pleasant illusion, shattered when Charlie buys a new one and finds that it is now $100,000. The annual wear is really 1,000 breads.

Oops. Charlie’s depreciation appears on its books, 90% less than it should be. Profits are overstated by $9,000. Depreciation should have been $10,000 a year if a new oven is $100,000 and it lasts 10 years. If Charlie has 20 ovens, then profits are overstated by $180,000 a year.

Suppose that Charlie’s financials showed a profit of $150,000. Then the truth is that they suffered a loss of $30,000. They should go back over the last ten years, and restate everything.

What had appeared to be a profitable business, turns out to have been generating losses all along. This is a problem, as the company may be paying bonuses and dividends, while it is slowly eating itself.

This is just from the problem of a falling currency. The problem of falling interest is worse. With each drop in the interest rate, oven manufacturers, and bakers too, have a growing incentive to borrow more to buy more equipment to make more products. The oven company borrows to buy more metal brakes. Management are willing to operate at a lower margin, because their cost of borrowing is lower (and they don’t reckon that when the rate drops again, the next oven company will borrow more at even lower rates, and put the squeeze on them). Charlie Bakery borrows to buy more ovens, to bake more loaves of bread. Is this the creation of wealth? Or is it wealth consumption?

The problem that inflation distorts Charlie’s books is simple by comparison. One can recognize the loss of value of the currency (especially if the currency is measured in terms of gold).

But in this case, where the central planners have lowered, not the purchasing power of the currency, but the interest rate, how do we see the problem? The currency’s purchasing power is actually rising. And producers may be making greater profits (especially at first). So where should we look?

We might look at the return on assets. If a business is obliged to buy lots more ovens, to generate similar profits, then that’s an indication. We could also measure the ratio of debt to profit. Not only is there an increase in borrowing to get the same profit, which is bad enough, but the business has increased its risk too.

And one other point bears emphasis here. If a business is obliged to take on debt, where debt had not been necessary before, then that may be a sign that it has consumed its capital. Its capital is becoming negative. That is, investors are letting the company use their capital, in exchange for a diminishing return. Or even a negative return (which has occurred in Switzerland and Germany).

Let’s look at it from another angle. Suppose that buying a new oven will add $7,500 in profit per year for ten years. What is the net present value of the oven? One uses the interest rate to discount future earnings. If the interest rate is 10%, then the oven is worth about $48,500 today. But if the rate drops to 5%, then the net present value of the oven jumps to over $60,000.

So when the rate decreases, new equipment generates increased cash flow (revenues net of interest expense). And there is a synergistic effect. Each dollar of that cash flow is worth more. No wonder why businesses load up on debt to increase production… and no wonder why falling rates drives falling prices!

We have not yet proven that only a free market can know the right rate. However, we have shown that when the central planner alters either the value of the currency unit or the interest rate—show us any theory of central banking that does not involve altering the value and the interest rate—that unrecognized losses of capital occur. They are unrecognized because they are hard to calculate, even if one is looking especially for them, and of course mainstream theory does not encourage one to look.

Take GDP, for example, an economic statistic that is the perfect product of the conventional view. Even free-marketers use it.

But GDP is blind to the capital lost by the Able Bakers of the world. This blindness is not a bug, it’s a feature. GDP is also blind to the capital lost by the Charlie Bakers.

Conventional economics is based on not seeing capital consumption. Instead, it offers up purchasing power as a sop (especially since 1981, when rates have been falling).

To reiterate, cash flow is not the full picture of profit and loss. One must consider the capital account. The decision to invest capital, as well as the measured return generated thereon, are distorted by central planner induced changed in the unit of account and the interest rate. And macroeconomic statistics, by design, are blind to the consumption of capital.

This leads us to the key question: what measurements are the central planners supposed to use to determine the right value of the fiat currency? Or the right interest rate? Or the right wage? Or the right price of bread, or ovens? The central planners have macroeconomic statistics like GDP, which have inherent design flaws. The central planner cannot tell creation of capital from destruction. He can see GDP, tax revenues, and employment. All of which may rise with an increase in capital consumption. Both Able and Charlie are employing people, to generate their faux profits.

We conclude part I, with the question: have we proven our case for premise #2, that “only a free market can know the right rate”?

In part II, we will look at the other premise “there is no way a central planner could set the right rate, even if he knew”.

Supply and Demand Fundamentals

The prices of the metals were up, $14 for gold and ¢14 cents in silver. We have received many comments over the years, asking about our nonstandard language when discussing price. Why do we always say “the price of gold went up” and not “gold went up”? The latter would be easier to type, and it’s shorter. We normally prefer brevity, as it also makes text easier to read and clearer.

But in this case, “gold went up” would do the opposite. It would mislead the reader. It would convey the sense that (1) the dollar is an economic constant and (2) gold became more valuable. Both are false.

And this provides a segue into one of the themes we have seen circulating in the gold community since the President Trump commented that the Fed was raising interest rates too fast, on December 25. The theme is that the Fed is losing credibility.

This theme rises from time to time, like a phoenix from the ashes. We recall it during the go-go years of Quantitative Easing. And again when QE ended. And again when the Fed’s so-called Quantitative Tightening began in fall 2017.

And now, again, that the president seemingly directed the Fed to alter monetary policy. Plus, it should be mentioned, by Dec 24 the stock market (and oil and credit—but not gold) was looking like it was on a bumpy road.

So the logic goes, if the Fed stops hiking rates now, what room will it have to do something to help avert/mitigate the next crisis? It’s kind of like wearing your winter outerwear while sitting in a nice warm restaurant. When you walk out into the night, you will suddenly feel miserable and cold.

Well, it needs to be said: the Fed does not avert or mitigate crises—it causes them. If they don’t lose credibility for causing crises, then what risk to their credibility now? And, if they don’t lose credibility for claiming to avert and mitigate the crises they cause, then why should people suddenly see the Fed in a different light today?

We have said in the past, and we say it again today. You’ll know the Fed is losing credibility when people stop thinking that gold goes up. When they stop thinking of the dollar as the firm reference point, against which up and down are measured.

The first people to arrive at this new paradigm will be the gold community. And conversely, so long as the gold community still thinks of gold going up—still asks Monetary Metals why we insist on the distinction of the gold price going up—then you know that the Fed’s credibility is the same as it ever was.

It’s a constant in the financial world, just like the dollar. A rock that has always been, and will always endure.

Let’s look at the only true picture of the supply and demand fundamentals of gold and silver. But, first, here is the chart of the prices of gold and silver.

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio (see here for an explanation of bid and offer prices for the ratio). It was falling this week, then rose to end the week up a hair.

Here is the gold graph showing gold basis, cobasis and the price of the dollar in terms of gold price.

As the price of the dollar falls (which we insist is the right way to think of it, not gold going up but the dollar going down), we see gold becoming slightly scarcer.

And so it should be no surprise that the Monetary Metals Gold Fundamental Price rose this week, +$41 to $1,391.

Now let’s look at silver.

The price of silver was up this week, and the scarcity (i.e. cobasis, the red line) held but did not rise further.

The Monetary Metals Silver Fundamental Price rose 28 cents, to $16.62.