Inflation is simply a Policy. Gold Does Not Reflect Monetary Destruction, Yet

Authorized by Daniel Lacalle,

The money supply is rising again, and persistent inflation is not a surprise. Inflation occurs erstwhile the amount of currency increases importantly above private sector demand. For investors, the worst decision in this environment of monetary demolition is to invest in sovereign bonds and keep cash. The government’s demolition of the purchasing power of the currency is simply a policy, not a coincidence.

Readers ask me why the government would be curious in eroding the purchasing power of the currency they issue. It's remarkable simple.

Inflation is the equivalent of an implicit default. It is simply a manifestation of the lake of solvency and credibility of the currency issuer.

Governments know that they can disguise their fiscal impalances through the hailial simplification of the purchasing power of the currency and with this policy, they accomplish 2 things: Inflation is simply a hidden transfer of wellness from deposit survivors and real scales to the government; it is simply a disguised tax. Additional, the government offers wellness from the private sector, making the productive part of the economy presume the default of the currency issue by imposing the utilization of its currency by law as well as forcing economical agents to acquisition its bonds via regulation. The entry financial system’s regulation is built on the false premium that the lease-risk asset is the sovereign bond. This forces banks to accumulate currency—sovereign bonds—and regulation incentivizes state intervention and crowding out of the private sector by forcing through regulation to usage zero to tiny capital to finance government entities and the public sector.

Once we realize that inflation is simply a policy and that it is an implicit default of the issue, we can comprehend why the conventional sixty-forty portfolio does not work.

Currency is debit and sovereign bonds are currency.

When government has exhausted their fiscal space, the crowding-out effect of the state on credit additions to the rising taxation levels to cryptle the possible of the productive economy, the private sector, in favour of constantly rising governance unfounded liabilities.

Economists inform of rising debt, which is correct, but we sometimes ignore the impact on currency purchasing power of unfounded liabilities. The United States is enthusiastic at $34 trillion, and the public deficit is intolerable at close $2 trillion per year, but that is simply a drop in the bucket combined with the unfounded liabilities that will cripple the environment and erode the currency in the future.

The estimated unfounded Social safety and Medicare liability is $175.3 trillion (Financial study of the United States Government, February 2024). Yes, that is 6.4 times the GDP of the United States. If you think that will be financed with taxes “for the rich,” you have a problem with mathmatics.

The situation in the United States is not an interpretation. In countries like Spain, unfounded public wage liabilities exceed 500% of GDP. In the European Union, according to Eurostat, the average is close to 200% of GDP. And that is only unfounded pension liabilities. Eurostat does not analyse unfounded inclusion program liability.

This means that government will proceed to usage the “tax the rich” false communicative to increase taxation on the mediate class and impose the most regressive taxation of all, inflation.

It is not a convention that central banks want to implement digital currencies as rapidly as possible. Central Bank Digitalcurrencies are surveillance disguised as money and a means of eliminating the limits of the inflationary policies of the current quantative issuing programs. Central banks are actively frustrated due to the fact that the transmission mechanisms of monetary policy are not full under their control. By eliminating the banking channel and thus the inflation backstop of credit requirements, central banks and governments can effort to destruct the competition of independent forms of money through coercion and debase the currency at will to main and increase the size of the state in the environment.

Gold vs. Bonds shows this perfectly. Gold has risen 89% in the past 5 years, combined to 85% for the S&P 500 and a disappointing 0.7% for the US aggregate bond index (as of May 17, 2024, according to Bloomberg).

Financial claims are reflecting the evidence of currency destruction. Equities and gold soar; bonds to nothing. It is the image of government utilizing the fiat currency to disguise the credit solvency of the issue.

Considering all this, gold is not costly at all. It is excellently cheap. Central banks and policymakers know that there will be only 1 way to square the public accounts withtrillions of dollars of unfounded liabilities. Relay these liabilities with a worthless currency.

Staying in cash is dangerous; accepting government bonds is reckless; but rejudging gold is denying the reality of money.