The quicker the printing of money to fill the debt holes, the quicker the closing of the deflationary depression and the sooner the worrying about the value of money begins.  In the 1930s US case, the stock market and the economy bottomed the day that newly elected President Roosevelt announced that he would default on the government’s promise to let people turn in their money for gold, and that the government would create enough money and credit so that people could get their money out of banks and others could get money and credit to buy things and invest. 

Eoin Treacy's view

This latest book by Ray Dalio is well worth taking the time to read. Chapters are being released weekly via LinkedIn. His focus on governance, hard money and the credit cycle will be familiar to veteran subscribers but it is always refreshing to hear an additional perspective and not least because of the study of long-term cycles which he throws fresh light on.

It took approximately three weeks for governments to arrive at helicopter money in their efforts to tackle the coronavirus. The locking up of the repo market last September was the initial factor which alerted central banks to the lack of liquidity in the market and the lockdowns pushed them over the edge into outright monetary financing. It is estimated by the end of the year, the Fed could be financing as much as half the almost $4 trillion US deficit.

The effects of monetary debasement are not felt all at once and with so many deflationary forces in evidence but the effect is cumulative. The rise of populism was in no small part driven by a revolt against austerity and the “unfairness” of bailing out banks over individuals. Given the current political backdrop, everywhere, it is going to be almost impossible to go back to trying to pay down debts. That suggests more of the same and it is likely to be dressed up as social, environmental, national interest or infrastructure spending. One way or the other spending is likely to increase and considering the increasing militarisation of China’s geopolitical program another “Guns and Butter” era is likely dawning.

The primary reason gold continues to rally in all currencies is because investors have an innate sense that all of the solutions to the world’s problems being pursued today involve devaluation of fiat currencies.