Hey There Income Hunters,
First up, be sure to join me and Mark Sebastian live at 1 p.m. today for “The Digital Currency Arms Race Part 2: On the Brink.”
Big rule changes are going into effect NEXT MONDAY that could impact your wealth — for good or bad.
We’ll break down what it means and you can profit, plus answer all your questions live.
Plus attendees will walk away with a couple of cool bonuses.
I was out this weekend walking around downtown Tampa and all the stores seemed very busy.
That got me thinking that maybe we’re seeing a real turnaround and spending activity is about to pick up …
I’ve talked a lot about the missing ingredient in longer lasting growth and inflation being a pickup in spending activity and its official measurement, money velocity.
So, I checked it out yesterday … and nothing — not even a glimmer …
As they used to say on In Living Color, the Fed can print “mo’ money” all it wants, but without velocity rising, we’re just spinning our wheels.
The Fed CAN, however, create velocity by forcing a shift in the psychology of spenders. But that will only meet the central bank’s need to devalue its debt — it won’t do much for hard-working Americans.
This has happened in the past, and I spent yesterday reviewing some of the triggers that moved people to spend their money in the past.
It’s good to see it in real-life numbers, because it may happen here sooner than anyone thinks …
Let’s say there is a country made up of 10 people …
Well, if $1 is spent and circulated one other time, that would give the country a GDP of $2.
So velocity is the money multiplier for total goods and services produced in a country in a year.
Now if you injected $10 into the economy and it changed hands 10 times, that would give you a GDP of $100, and the economy would be cruising …
Here is the problem though …
Economists that advise the Fed and the US government are Keynesian economists, who believe if you simply print “mo’ money,” you will create velocity and growth.
But that’s not the case, and the Fed is doing a great job of proving it.
You see, if the psychology of the spenders never shifts to confidence in government, they may never want to get out and spend, unless …
They LOSE confidence and realize if they hold on to their currency it may get completely wiped out …
That’s when inflation turns into hyperinflation.
I’m starting to believe that’s where we’re ultimately heading.
Already today we’re at a point where it takes $4.50 of debt to create $1 of growth.
We can never grow our way out of that
Psychology and Cycle-ology
If the Fed prints greater and greater amounts of money just to pay interest on our debt, citizens will get to the point where they see their currency is losing purchasing power week after week.
That is when psychology could shift and wage earners will realize if they don't spend their money as soon as they get it, it will devalue to nothing.
That’s when the hyperinflation cycle begins.
The Money Illusion
This is what I find so interesting, because money is just an illusion of prosperity or inflation.
By itself, it has zero value and zero impact on inflation …
Money must be spent to have any impact at all.
This is so important to understand if you are trading the markets.
Let’s say a year from now, the Fed is still not creating enough inflation to shrink the debt. Leaders would have to change the rule at the Fed so the central bank could print money and send it directly into the economy.
If they did that, then they could flood consumers with cash until they realize if they don't spend it it will devalue to nothing.
That would shift the psychology and all consumers would buy real assets in order so preserve some wealth
Here’s What That Looks Like
The graph below illustrates Germany from 1914 to 1921.
Germany started with its currency, the mark, backed by gold.
However, the war was so expensive that they were forced to break the link to gold and print marks into oblivion.
When you look in the white book, you’ll notice the broken green line is currency growing. The yellow line is gold, whose price stayed very low …
Until citizens realized Germany was going to lose the war and they would lose everything.
Once psychology shifted from uncertainty to total certainty that the government would not help them, citizens went out and spent every penny on real assets.
So, the loss of confidence in the government was the turning point at which velocity soared and hyperinflation ensued.
The US is around the September 1918 point on the graph above.
If, as I expect, China does announce they have 25,000 tonnes of gold and will back the yuan with gold, then central banks and foreigners will liquidate their US bonds and sell US dollars to buy silver, gold and commodities.
That will be the point at which consumers will spend all their money out of fear it will be completely destroyed.
Bring It Home
You have to be willing to accept reality.
If you aren’t, you risk losing everything you’ve worked for.
No nation, no individual, is insulated from the cycles of history.
If we acknowledge them and apply them in our trading, we can be part of the few who actually come out ahead in the end.
Another way to get there?
By joining me and Mark Sebastian at 1 p.m. EST for incredible news on developments surrounding the new monetary system and ways you can capitalize on the changes that are coming in the weeks and months ahead!
Live and Trade With Passion My Friends.