“Nobody who has ever watched the Navy’s Blue Angels acrobatic team perform ever walked away with anything but admiration and amazement. The performance showcases generations of technology, courage and skills of the pilots as well as the practiced teamwork and coordination that allow them to fly such tight patterns.
The separation of the planes during the formations and acrobatics can be as little as 18 inches. Pilots are trained to focus on the planes next to them to maintain the separation. It involves complete trust in the lead plane and it’s pilot….
The monetary Blue Angels of our day have closed their formation. With our Federal Reserve in the lead plane, the major central banks have pulled into a tight formation with the Fed. We see such feats of daring do as interest rates being driven to zero.
We see currencies, countries and institutions that should have failed by now being supported by the unlimited printing of money. Budgets and debt ceilings are passé. Crises come and go. Fiscal cliffs, debt ceilings and the like come to the fore. Nothing is ever resolved, but deadlines are moved and new plans for resolution are just around the corner.
While the central bankers might see themselves as Blue Angel equivalents, the reality is that they are engaged in precision balloon acrobatics. That image might trigger a smile, and even thought we know that balloons cannot be flown with any precision, it still represents an appropriate analogy. The balloons do rise, but chaotically. The hot air that fills the balloons is the electronic printing press.
The precision monetary team is floating countries, companies and markets. There are a few balloons such as the gold, silver and oil markets that tag along, much to their dismay. Releasing hot air from those balloons is considered a necessity to keep all eyes focused on the “right” balloons. Gold and silver balloons tend to rise at a much faster rate under these circumstances throughout history, so great effort must be made to tether them as best is possible..
Nobody knows how high the central bank driven balloons can go. The supply of hot air once appeared to be limitless. Perhaps it is. At some altitude, however, a vessel under pressure will pop in the absence of the counter force of atmospheric pressure. To the central bankers, they are floating us skyward to a new reality. It is more likely that our fate will be the black emptiness of outer space or a quick return to earth as the balloons pop. Only time will tell.
In 1982, the Air Force’s Thunderbirds Air Demonstration Team was at an air base in Nevada, preparing for one of their shows in Arizona. They were practicing what is called a four-plane line abreast loop. The loop begins with the planes climbing together to a high altitude. They would next roll over backwards and then descend straight down toward to surface at a very high speed. The last phase of the stunt was to pull out of the dive and level off at 100 feet.
Tragically, that never happened. It was initially believed to be pilot error, but a subsequent investigation showed that it was a mechanical failure involving the lead plane. True to their training, the other pilots followed the lead plane into the ground. All of the brave and accomplished pilots involved died that day. All were justified in their belief that their technology and their skills would not fail them. In the end, it was a component failure in a very complex piece of machinery that triggered the accident, not lack of competence or design.
Our central bankers have similar convictions and beliefs that the monetary system is known and can be effectively guided by pulling various levers. Using these beliefs and tools, central bankers are maintaining a tight grip on markets. The continuation of the savage attacks on the gold and silver markets, the “successful” sovereign debt auctions, interest rates maintaining low to negative levels, as well as an elevated S&P 500 are all signs that they are firmly in control.
There are two likely resolutions to this death-defying monetary show. The first is that we experience an historic, catastrophic, global, monetary collapse caused by an unpredictable failure in the system. In that case, the central bank acrobatic team flies the global economy into the ground while never doubting the wisdom of their ways. Our monetary pilots, focused on maintaining formation with the Fed, plow us all into the economic terra firma.
The second is that the academics and bureaucrats take us into a post-sovereign, post-money world. In so doing, they show us that central planning was the correct way all along. Past attempts were just bungled. Control is maintained, and a new world financial order emerges. The accrued obligations on the books vanish. The distribution of resources and wealth are controlled and allocated by a central power, not markets.
There is no successful version in history of the second outcome. The first outcome is always the way. What people have done throughout history to protect their wealth is to own tangible assets. As central banks continue to inflate away the value of their currencies and assets tied to those currencies, they are simultaneously gobbling up tangible assets such as agricultural land, oil, gold and silver.
A growing population will maintain the long-term value of scarce resources even if there are declines following a monetary collapse. Gold and silver will return to the historic role of sound money. Holders of those metals will see a dramatic revaluation to the upside. If history is our guide, the new wealthy will be those who had the wisdom to get out of paper money before the end of the current system.
There is an historic race going on for access to and control of oil and precious metals. You need oil to have a functioning economy, and we are on a heading for a troubling confluence of declining global production and accelerating global demand. The price of energy must rise.
You need precious metals to reestablish a believable monetary system. For investors, your only protection is to imitate the behavior of the global powers. It is imperative that you acquire resource-based assets, gold and silver, as the smart money is doing. A wealth preservation approach of this kind is the only chance that your money will weather the turmoil and financial destruction that lies ahead.”