By and large, the mainstream is bullish on the economy. According to conventional wisdom, we are in the midst of a robust recovery. In fact, many people out there believe the Fed is going to have to tighten monetary policy sooner rather than later. But there are a few people in the mainstream who seem to have caught a glimpse behind the veil. Former JP Morgan managing director Jon Deane told Kitco News that we’re sitting on an economic cliff. And because of that, Deane is extremely bullish on gold and silver.
Gold has struggled in recent months due to inflation expectations. Many in the mainstream think the Fed will reverse monetary policy sooner than expected to deal with inflation. In an interview with Kitco News, Deane said inflation is already here.
If you look around the world, you see real estate prices, building supplies, and services skyrocket.”
Historically, the Fed has dealt with inflation by tightening monetary policy and raising interest rates. But how does the central bank do this in an economy built on debt? Peter Schiff has been saying the Fed won’t fight inflation because it can’t. Deane echoed that sentiment.
What we created since the early 1990s is an entire financial infrastructure that is relying on debt, and we have accelerated that dramatically in our response to managing the COVID-19 crisis. In that regard, we will continue to increase the money supply globally, and we will continue to have a quite aggressive fiscal policy. We are sitting on an economic cliff.”
Deane says that the monetary policy system is broken. The entire global economy is built on debt. There was a massive debt problem even before the pandemic. Monetary policy is incentivizing even more borrowing. You can’t raise rates to fight inflation without popping the debt bubble.
If you are now at 50 basis points and you raise rates by 25 basis points. That is a 50% increase in your borrowing costs at a time when the world has the greatest amount of debt we ever had. It would be a huge economic shock to put it through the system.”
Meanwhile, all of this stimulus is doing the exact opposite of stimulating. It’s actually blowing up a giant economic bubble.
Monetary policy is broken because of the debt situation everyone is in and it is impossible to get rates back up to a meaningful level without some form of significantly higher inflation. Money printing creates stimulus in the economy. You are pushing those dollars out the door. And people are building houses, renovating their properties, starting new businesses, spending cash. That naturally creates inflation.”
Peter has been saying that once the Fed figures out inflation is a problem, it will be too late. Deane echoes this sentiment, saying that once inflation starts running hot, it’s very difficult to control.
We don’t want inflation to run too hot. And this is the risk of Fed’s approach to inflation right now. People are losing confidence in economic management. People are less likely to hold US dollars. The return on them is zero.”
As a result, Deane expects to see a big move in gold, with the yellow metal trading above $2,000 in 2021.
We’ll see a real big move in gold. We’ve taken a lot of the length out. We are in a real position to move higher. We’ll go well north of $2,000 this year. Realistically, $2,200 is probable. It may have some headwinds as we go through $2,000 again. Gold is in a much better position than where it was a few months ago.”
He’s also bullish on silver, saying we could see the price upward of $40 by Q1 2022.