The Coming Monetary Collapse

Since the arrival of COVID-19 and the subsequent decision to lockdown entire cities and nations, world economic activity has significantly decreased. When normal recessions strike, they typically involve only one nation or a single region. But the COVID Recession has hit the whole world at once. This is the first time every nation has simultaneously seen a decline in output since the Great Depression.

Despite the scale of this economic disaster, many economists are calling for a quick V-shaped recovery once the coronavirus is brought under control. But is this likely? No. Even if the virus disappears tomorrow, we won’t see a V-shaped recovery. Why? Because of central bank policies and unrestrained government spending. The world’s central banks (the U.S. Federal Reserve, the European Central Bank, the Bank of Japan, and others) have made reckless policy decisions for decades. But their bad policy decisions kicked into overdrive following the Great Recession of 2008-2009.

After September 11th, central banks pushed out artificially low interest rates. These low rates, along with other poorly thought out government policies, blew a massive housing bubble. When the bubble burst, central bankers and politicians rewarded corrupt and incompetent bankers and business executives with huge bailouts. Unrestrained by a gold standard, they created new currency to fill the holes created by bad decisions, mismanagement, and misallocation of resources. They propped up a broken financial system and blew yet another asset bubble in the process.

When COVID popped that bubble, we saw a new round of bailouts and central bank schemes to elevate financial markets and avoid the inevitable. We also saw direct government payments to individuals in the hope of “stimulating” the economy. This is only possible because governments can create new currency at will. The U.S. dollar and every other national currency in the world is a fiat currency. This means they aren’t backed by anything but a government promise. They only have value because governments say they do. They’re nothing but pieces of paper or ones and zeros in a computer, and that means governments can create as much currency as they want to with the click of a button.

Fiat currencies don’t have the value of those backed by gold, silver, or other hard assets. This means politicians and central bankers can create new currency out of thin air to fund an endless array of stimulus programs, welfare benefits, and schemes to bailout and enrich their friends.

For decades, and especially since the Great Recession, these politicians and central bankers have done everything in their power to avoid the pain of a recession or even a protracted stock market decline. But no matter how hard they try to avoid the inevitable, a day of reckoning is coming. They’ve distorted the free market, and they can’t hold off the consequences forever. The bill will soon come due. COVID didn’t cause the coming crisis. It only accelerated it.

All these foolish government policies have put the global economy in a no-win situation. As a result, only two options are left:

Option #1): Deflation – The Great Depression is the most famous example of economic deflation. In a deflationary spiral, credit contracts and the overall money supply shrinks. People cut spending, and workers lose their jobs. Debt levels become a massive burden. Businesses fail and bankruptcies rise. Unemployment spikes and breadlines form. A deflationary spiral is a painful event for all of society. It foments riots and calls for revolution. The pain of deflation is necessary to clear the economy of bad debt and poorly managed companies. Nevertheless, central bankers and politicians try to avoid deflation at all costs. Why? Because the temporary and necessary economic pain threatens their power.

Option #2): Big Inflation or Hyperinflation – The Weimar Republic gave us the most famous example of hyperinflation. Crushed under a mountain of post-war debt and reparations, the German republic printed more and more currency to meet its obligations. The result was a massive loss of purchasing power for Germany’s currency – the mark. Prices rose quickly to reflect the new reality. A 160-mark loaf of bread at the end of 1922 cost over 200 billion marks less than a year later. In one story from that time, a woman carried a wheelbarrow of marks to the bakery just to buy a loaf of bread. When she went into the bakery, a thief stole her wheelbarrow, but he left the pile of worthless marks. That’s how quickly the currency lost its value.

All this happened because an unrestrained government vastly increased the supply of its currency, and basic economics says when supply increases without an increase in demand, price falls. In other words, the citizens of Germany quickly figured out that what they thought was “money” was nothing more than worthless pieces of paper. The mark wasn’t anchored to gold or silver or anything of real value. Once this reality came to light, the world lost all faith in the mark, and its purchasing power plummeted. Eventually, it became worthless.

In the last few months, central bankers and politicians have flooded the world with trillions of dollars in new currency. Their answer to every financial problem is to throw more and more currency at an ever-expanding list of government aid programs and targeted bailouts. Like Weimar Germany, the world is simply printing more and more currency in an effort to solve its financial problems. At best, the result will be a 1970’s-style stagflation with high unemployment and runaway inflation. At worst, we’ll see a total collapse of the purchasing power of all fiat currencies relative to gold, silver, and other hard assets. Once again, it will cost wheelbarrows of dollars, euros, or yen to buy a single loaf of bread. Unsurprisingly, the Bible says such a time will come – a time when an entire day’s wages will buy nothing more than a loaf of bread (Revelation 6:6).

Politicians and central bankers will never accept Option #1. This is because deflation poses an immediate threat to their power and position. Clearing the system of bad debt is necessary for a healthy economy. However, the pain it creates will lead voters to demand new leadership. That frightens the politicians and central bankers who love their positions of power and prestige. Faced with a deflationary spiral, Option #2 will seduce them. They’ll buy into the belief they can “engineer” a recovery while managing and controlling inflation. However, history has proven central planning doesn’t work. In the end, they’ll lose control, and all the world’s fiat currencies will collapse.

We’re already seeing the early stages of this crisis. As governments around the world call for bailouts of businesses, local governments, and the unemployed, we see the cost of their big government policies reflected in the surging prices of gold and silver. The chances of a global Weimar-style hyperinflation are much more serious than the public believes.

Once the world experiences a massive inflationary spiral, the current monetary system (in place since 1971) will come to an end. A new monetary system will rise from the ashes. What will it look like? We don’t know for sure. But in all likelihood, it will be built upon some sort of digital currency. Already the world’s central banks are lining up to launch their own cryptocurrencies. China is currently testing its own state-sponsored cryptocurrency, and dozens of other nations have already announced plans to launch their own. Just last week, news broke of the U.S. Federal Reserve partnering with MIT to develop its own digital currency.

If government cryptocurrency replaces paper currency, individual freedom and liberty will disappear. Governments will be able to “turn off” an individual’s cryptocurrency. That means if you do something the government doesn’t approve of, they’ll be able to shut down your ability to buy and sell. This shouldn’t surprise you either. The Bible says this is precisely what will happen in the end times. The Antichrist will establish a global system of commerce. His system will play a part in every economic transaction on earth. It will be so dominant, no one will be able to buy or sell anything without approval from the Antichrist (Revelation 13:17).

We’re fast approaching a time the prophets warned about. We’re in the midst of a global pandemic (Luke 21:11). Israel is back in the land (Jeremiah 23:7-8). The Jewish people are back in Jerusalem (Luke 21:24-28). And the Gospel is being preached throughout the world (Matthew 24:14). The end times are drawing near. The tribulation, the Antichrist, and global government are part of the world’s immediate future. But don’t despair; this also means Jesus is on the brink of return (Revelation 22:20). He will establish an everlasting kingdom (Daniel 2:44) with no more death or crying or pain (Revelation 21:4). So keep your eyes fixed on Him!

“My monthly food bill is almost twice as much as I was paying in 2019”

Just that alone should tell most people that there is a major supply & logistics problem.

My steaks that usually cost $18-$23 are now in the $40 range.

I have been on record that we have been in a massive deflation since the early 1990s.

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Excellent analysis, LS. I am quite impressed, as there are many very good thinkers (e.g., Mark Levin) who are helpless when it comes to business and the eoonomy.

Not only are we in a hard-core deflationary period, but the FED and Treasury are fighting to prevent the type of runaway deflation that could lead very quickly to Great Depression II.

The same RISK hit us in the 2008-09 collapse, when the velocity of money slowed to a near halt. This is a sign of dangerous deflation, reflecting the general idea that if prices are falling, it is unwise to make purchases today.

The stock market and gold are rising together now, which is unusual, and indicates that these are asset bubbles ... meaning the vast sums being dropped into the economy by Fed and Treasury are not all finding their way into economic activity.

The BULLISH CASE, as I see it (and I am currently stock-bullish) is that such asset bubbles can go on inflating for years. One wouldn't want to have missed the upside profits of the Internet bubble, the credit derivatives bubble (2003-2008) or the current "Easy money" bubble. Just gotta figure our when to bail.

There is a Federal Reserve dollar which the US government borrows at interest.

Sounds awful! The Fed must do something evil with the interest the earn, eh?

Trump has effectively taken control of the Federal Reserve and forced them to zero interest.

So what?

He likely has no intention of paying this money back

He's going to default on US Treasury debt? You sure that's a good idea?

as he plans to bankrupt the Fed

You don't understand the definition of bankrupt, do you?

(of a person or organization) declared in law unable to pay outstanding debts.

Who did the Fed borrow from? What interest are they paying? Why can't the Fed pay its outstanding debts?

Like I said get informed about how our currency is created and how the Federal Reserve works. Because by the questions you are asking you don’t currently know. Or just stay uninformed and you will find out what’s going to happen when Trump rolls it out. It’s probably not important for you to understand.

Like I said get informed about how our currency is created and how the Federal Reserve works

You keep pretending you're well informed and then you post things that show you're not. At all.

Monetary policy is one thing, but not understanding bankruptcy. Just silly.

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