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Silver Stimulus & Beyond: INFRASTRUCTURE!

I have to be honest: I have no idea who the US Transportation Secretary is.

Still, CNN is making a big deal out of it:

They’re making a big deal out of it in a “spend a whole bunch of money” kind of way.

And I hope so.

Why?

Well, because we know the US dollar hyperinflation is the end game scenario, as is always the case with any unbacked, debt-based fiat currency dependent on exponential, unsustainable growth. As such, the faster the US dollar hyper-inflates, the less painful it will be on Main Street. Of course, one might think that point-of-view is cruel, but what is cruel, in my opinion, is a Fed and US Government working hand over fist to ensure interest rates are suppressed, to ensure the cost of living rises more than and faster than it already has been rising, and to ensure that financial asset markets of their choosing are “smooth functioning”, for whatever that means.

But I digress.

I have a theory about the US dollar hyperinflation, and I’d like to share it now.

Call it the Dollar Rubber Band Theory, because, well, I’m not really all that creative, so that’s as good as it gets.

There have been effectively two pulls on the rubber band, the US Dollar if you will, or if I may, and each pull has pulled (hyper-inflated) the rubber band (the US dollar) to its snapping point, only to “ease up” on the tension just before the point of actually snapping. The "easing up" can be things like investor psychology, confidence in government, Fed & government actions and interventions, and things like that. The point is that the US Dollar Rubber Band comes close to snapping, but it has not snapped just yet.

Now, there have been two pulls, and they have been different, but there is one more pull left, and that pull will cause the rubber band to snap.

PULL NUMBER ONE: THE SLOW PULL

The slow pull, which could also be thought of as a “slow print” of the US dollar, took the span of about 100 years. Call it from 1913 to 2010, and yes, some terrible things happened in the world of Free Markets in the United States in that infamous year back in the early Twentieth Century. Regardless, this is commonly thought of in the mainstream media as “the US dollar has lost 97% of its purchasing power”.

In fact, there is even a handy graph over at the St. Louis Federal Reserve which shows this clearly:

That’s what I call the Slow Pull, and it outlasted most people's lives.

PULL NUMBER TWO: THE MEDIUM-TERM PULL

It’s funny because before the various Fed Chairs became like mainstream Rock Stars, everything was about the “short-term”, the “long-term”, or both when it came to explaining the markets and the economy. Nowadays, however, the Fed Chairs like to talk about the “intermediate-term” or the “medium-term”, and if I had to guess as to why they talk so much about the medium-term now, I’d imagine that it is easier to not admit being wrong since the medium-term affords failure after unforeseen dynamics. In other words, a Fed Chair can say, “geez, we were on such a solid footing, and everything we had been doing was working, but then came coronavirus”.

Funny how that works out, isn't it?

The medium-term pull, which could also be thought of as a “medium-term print” of the US Dollar, took the span of about 10 years. Call it from 2008 to 2020, and yes, there is some overlap on the years, but the point is the same: Everybody agrees there has been inflation, only that it “has been contained to the financial system”. On that note, I would argue that there has been US dollar hyperinflation, and so far, it has been contained to the financial market system. How so? It’s simple. At a normal, “market rate of interest” of, say, 5.0%, which is somewhere around the historical average for interest rates, one could draw $50,000 per year of interest income off of $1,000,000 in savings, or, what one might consider a lifetime’s work of savings. This is no longer the case, for a “performance savings” account, such as the one shown below from a popular Credit Union, often pays near to nothing, such as the 0.4% interest rate on $1,000,000 or more:

Said differently, in the financial market system we have today, that same $1,000,000 of savings will earn a whole whopping $4000 per year, which I’m pretty sure we can all agree is downright near impossible to live off of in the United States in the year 2020, whereas a lot of people could and do make $50,000 work. Furthermore, if at the interest rate of 0.4% using the example above, if one wanted to earn $40,000 of interest income per year, one would need not $1,000,000 but $10,000,000.

Hyperinflation, is it not?

The Medium-Term Pull lasted about 10 years, it pulled the US dollar to its snapping point, but just before the dollar snapped, the tension was miraculously eased.

PULL NUMBER THREE: THE SHORT-TERM PULL AND SNAP

Pull number three, in my opinion, has just started.

The Short-Term Pull And Snap, which could be thought of as the “short-term print AND collapse” of the US Dollar, will, in my opinion, if the past is prologue, take about a year to complete. There is no easing from the tension on pull number three, but rather, the rubber band snaps, and as such, the US Dollar as we know it collapses. There will be no easing of the tension this time around because the people will simply give up on the dollar at some point as the people's confidence in the dollar is lost.

What does the short-term pull and snap look like?

It looks like the crack-up boom on Main Street. It is a mad shopping frenzy where the public finally understands their dollars are rapidly becoming worthless, by the week and by the day, and so the public is desperately trying to convert their dollars into anything and everything that’s real, such as a washing machine, or a few bags of rice, or some toilet paper, or some gold & silver, or whatever. I think we are seeing signs of this now as supply chain disruptions continue to disrupt the supply of everything from chemicals and raw materials to finished products. The Fed and the Government will respond by pumping more and more money into the system, because, well, you know, they just have to "do something", but all they can really do is print more money which will only speed up the process. Sure, they could try price controls, but in an era of eBay, Craigslist, and myriad 2020 realities, in my opinion, price controls will not be successful. Furthermore, as is the case with Gold & Silver, we could see one price on the screen when in reality the price we pay is nowhere near that price.

Back to the Short-Term Pull And Snap: Perhaps now we see why Janet Yellen, the ex-Fed Chair, is expected to become the next US Treasury Secretary in a Biden Administration, conflicts of interests aside, of course, because she will be presiding over the short-term pull and snap!

If the Fed is the cheese and the government is the macaroni, Janet Yellen is the box of mac-n-cheese in the kitchen cupboard.

This brings me back to the point of the US Transportation Secretary and an infrastructure package.

If the US dollar is going to die in a hyper-inflationary death spiral anyway, then, for the sake of repairing our decrepit infrastructure, why not have the US government engage in a major, massive infrastructure package to go on one last major shopping spree of raw materials to make it all happen: Copper, crude oil, steel and iron ore, silver, and things like that?

In other words: It’s just math, and the math shows us the Federal Reserve Note, commonly called the “US Dollar”, is unbacked, debt-based fiat currency dependent on exponential, unsustainable growth, so it's going to die a death of hyperinflation anyway, and in my opinion, the upward spiral has already started. More fiscal stimulus is coming very soon, and there may be a whole heck of a lot of stimulus in the chute in the form of this Infrastructure Package, ready to follow, so the quicker the US dollar hyper-inflates, the less pain it will be for people overall on Main Street, and if the United States, in addition to bailing-out everyone and everything, whether one agrees with the bail-outs or not, has even a halfway decent chance at repairing at least some of our aging infrastructure, then why not get at it while the getting’s good?

Silver's had a good run over the last couple of days:

 

You'd think even the permabears would agree the bottom is in by now!

Silver is clearly making a move on gold:

The Fed concludes its 2-Day FOMC Meeting today, with a press conference at 2:30 p.m. EST, and if the Fed comes out with "yield curve control" or "government bond market interest rate targeting" or something to that effect, we may even kiss the 70s goodbye before the week is over.

Gold looks like it could be launching off of its 200-day moving average:

If so, it may very soon become difficult to get some gold, in-hand, for less than two thousand bucks per ounce.

 I'm kind of looking to palladium for some confirmation this week:

The sideways choppy channel is approximately between $2200 and $2400, and if palladium is going to confirm a breakout in gold & silver, I'd be looking for palladium to at least attempt to tag the resistance of the channel.

Platinum looks bullish:

We're in the green, year-to-date, we've got up-days mixed with down-days, a higher-low, and a beautifully upward sloping 50-day moving average.

Bullish!

Speaking of bullish:

Just how much copper is going to be needed for that infrastructure package?

Spoiler: A crap-ton.

Pardon my French.

We'll need a lot of crude oil to make the reconstruction possible:

It takes a lot of crude oil to build bridges, to restore airports, and even to make "green tech" because, well, you don't just drop some battery acid onto fertile soil and harvest electric vehicle batteries six months later, you know!

If the crack-up boom has indeed begun then big stock market crashes are indeed a thing of the past:

Although the US stock market is measured in US dollars, so a rising stock market will be rising to worthlessness all the same.

For now, "market participants" haven't a clue of the sheer money printing that's on-deck:

They're focused on the wrong thing, however, because it's not about the stock market crashing anymore, but rather, in my opinion, about the stock market hyperinflating away.

Look for a lot of interest rate talk at 2:30 p.m. today from Fed Chair Jerome Powell:

The pressure, in my opinion, continues to be to the downside.

There is no "coming out of retirement" for one more championship run:

And there also won't be any riding off quietly into the sunset, either.

Thanks for reading,

Paul Eberhart

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Paul Eberhart
Paul Eberhart
Senior Market Analyst and Columnist

Paul Eberhart has been actively trading and writing about precious metals for more than a decade. A U.S. Army Iraq War Combat Veteran, he holds an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill.