Gold has easily outperformed the S&P 500 over the last three years

SPX is up about 53% in the last three years vs. gold which is up about 90% (1775-3373).

If stagflation is our future, gold may do even better. 

Ambrose Evans-Pritchard: Trump will stop at nothing in his quest for imperial power and will destroy the credibility of US Treasury debt

 

telegraph.co.uk

If you think it’s alarming now, just wait for Trump to wreck the bond market

The White House’s push for for expanded presidential power threatens US economic stability

 

Ambrose Evans-Pritchard

8 April 2025

---

Donald Trump is systematically purging every US government institution, a pattern familiar to anybody who has studied the caudillo regimes of Latin America, or the playbook of today’s Putin-Orbán-Erdoğan prototypes.

It is a racing certainty that he will soon do the same to the Federal Reserve, forcing the central bank to cut interest rates into the teeth of rising inflation, with epic consequences for the world’s dollarised financial system and for €39 trillion (£33 trillion) of offshore dollar debt contracts and swaps.

Late last week he fired the head of the National Security Agency and its top officials at the behest of Laura Loomer, a fringe conspiracy theorist, who whispered into Trump’s ear that they were disloyal to the Maga movement.

He has already fired the heads of the FBI’s intelligence division, its counterterrorism division and criminal investigations division, as well as the heads of the Washington and New York offices.

He has fired the top brass of the US military, starting with a preemptive strike on the chairman of the joint chiefs of staff. An earlier chairman – General Mark Milley – refused to ratify Trump’s attempted coup d’etat on Jan 6 2021.

“We don’t take an oath to a king, or to a tyrant or dictator, and we don’t take an oath to a wannabe dictator. We take an oath to the constitution,” said Milley in his parting shot.

But Trump also fired the three judge advocates general, who are legally independent by Congressional statute and have the authority to decide which military orders should be disobeyed – such as Trump’s order to “just shoot” American protesters, on American soil, during the Black Lives Matter saga.

That obstacle will not recur. Pete Hegseth, the defence secretary, said the three judges had been sacked to stop them posing any “roadblocks to orders given by the commander-in-chief”.

You can go through the list, agency by agency, extending to the universities and private law firms, and even to the muzzled editorials of some of America’s once great newspapers: the purge is Bolshevik in ambition.

Does anybody in their right mind think that Trump will spare the Fed’s Jerome Powell as the two men gear up for an almighty clash over US monetary policy? “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!” bellowed Trump in capital letters on Truth Social on Friday.

The Fed will indeed cut rates this year but not until it is able to see through the confusing blizzard of tariffs and the ricochet retaliation of an angry world.

Powell told Congress that the tariff shock is much bigger than expected and may set off “persistent” inflation rather than just a one-off jump in the price level. He came close to damning Trumponomics as a recipe for low-growth stagflation. That is a red flag to a bull.

The current debate over whether or not Trump has the legal power to fire Powell entirely misunderstands the character of the Maga revolution. America’s rule of law is for guidance only these days.

You could say it was ever thus. Franklin Roosevelt tried to pack the Supreme Court after it blocked the New Deal. He failed, and unleashed tax investigations to settle scores, as did Richard Nixon. But Trump is an order of magnitude more outrageous.

Powell will not go without a fight. “I will never, ever, ever leave this job voluntarily until my term ends under any circumstances,” he said during Trump 1.0.

Scott Bessent, the Treasury secretary, said the administration could sideline Powell by appointing a “shadow” Fed chairman, who could steer the markets by issuing forward guidance. But this does not overcome resistance from the Fed board and the hawkish regional presidents.

A secretive team of Trump loyalists drew up a 10-page report before the election proposing more radical measures. These include forcing the Fed to “align policy with administration goals” or even to make the president an “acting” member of the Fed board.

Trump could purge members of the seven-strong Fed board one by one until they get the message. The law states that the president can terminate the 14-year term of a Fed governor “for cause”, usually meaning malfeasance or neglect.

But Trump has just abused his tariff powers on an heroic scale by invoking fictitious “emergencies”. He could no doubt stretch the meaning of “for cause” to anything he wants. The Supreme Court has the last say, but Trump-appointed justices have already shown a strong leaning towards an imperial presidency.

In any case, there are other methods to bring the Fed to heel.

Maga vigilantes are intimidating American judges by having pizzas delivered to their homes – a mob tactic to say “we know where you live”. So we can assume that recalcitrant members of the Federal Open Market Committee will face this sort of treatment.

The major US banks are raising their inflation forecasts to 4pc or higher this year. This inflation will hit before the last three price shocks – Covid, the Putin commodity spike and Biden’s overspending – have faded from immediate memory. It is exactly how inflation psychology becomes embedded.

A variant happened in the 1970s. Nixon bullied the Fed into expansionary policies, with some choice language on “the myth of the autonomous Fed” that later surfaced in the Oval Office tapes.

Loose money stoked inflation, so Nixon ordered a freeze on prices and wages in 1971, declaring war on “gougers”. It was very popular. Illiterate policies often are.

If Trump succeeds in extracting rate cuts from the Fed and tax cuts from Congress, the same problem is going to arise. So my assumption is that he will blame the symptoms and will resort to price controls.

The elephantine difference is that US federal debt was 34pc of GDP in 1971. Today it is 122pc on the Fed measure, and galloping upwards. The fiscal deficit is over 6pc as far as the eye can see.

The US does not have the domestic savings to fund this debt appetite. The savings rate has collapsed to 0.6pc of national income. It was 12pc in the 1960s.

Foreign investors have been plugging the gap. This soaks up a large part of the world’s savings – the underlying cause of America’s trade deficit.

If you think the stock market gyrations of the last few days are terrifying, just wait until Trump destroys the credibility of the Fed and of US treasury debt, the anchor of the global system.

He could order a captive Fed to relaunch quantitative easing and buy the bonds, but to do that when inflation is running hot would be seen by the whole world as naked fiscal dominance. It would set off a price spiral and a collapse of the currency – the sort of outcome seen over the decades in Latin America, or Erdoğan’s Turkey.

The end destination is a return to US capital controls to stop foreign funds and US investors from taking their money out of America. A man willing to impose 116pc tariffs – including pre-existing ones –  on Chinese goods and shut down the biggest bilateral trade relationship in the world as if it were a TV reality show will stop at nothing.

 

https://www.telegraph.co.uk/business/2025/04/08/trump-sell-off-is-bad-wait-until-wreck-us-bond-market/

Democrats are whistling past the graveyard of the industrial downturn, but this article misses their coerced misallocation of investment to a green energy economy the voters don't want

 But perhaps most ominous are signs that domestic manufacturing is on the cusp of a full-blown sectoral recession. Output has declined for five months, no doubt due to uncertainty over interest rates, as well as the debilitating shortage of skilled workers. The contraction, however, isn’t merely a reflection of Federal Reserve policy reinforcing supply-side choke points, which has undercut Team Biden’s efforts to reshore industry. In fact, production has been largely anemic since at least the slump of 2019; according to the Institute for Supply Management, a leading industry association, a 13-month stretch from 2022 to 2023 was the longest downturn since 2000-2002, when Permanent Normal Trade Relations with China went into effect. ... 

These patterns should be of grave concern to progressives—as a matter of politics and policy. A similar, overlooked downturn late in President Barack Obama’s second term likely contributed to Hillary Clinton’s defeat in Pennsylvania, Michigan, and Wisconsin in the 2016 election. That, along with her campaign’s astounding indifference to the industrial Midwest, practically cemented the view among many working-class whites that today’s Democrats have abandoned their New Deal roots. Although the Harris-Walz ticket appears to be sustaining momentum and has trained its focus on preserving the “Blue Wall,” unanticipated headwinds in battleground counties could spell the same fate as Clinton’s. ...

The reality is that dozens of counties reeling from job losses have effectively experienced what many wage-earners rightly feared: stagflation. In more rural regions, peak inflation was higher than the national average, a trend which spread from the South to the postindustrial Northeast. Its toll undoubtedly compounded the sense of helplessness among rural households, who tend to pay more for groceries and other staples. Mainstream liberals seem reluctant to acknowledge as much. ...

An economy pockmarked by mini-regional downturns, moreover, belies headlines heralding a manufacturing renaissance.

More. 

 

 

The Federal Reserve Should Stop Paying Interest On Reserves

So says Louis Woodhill, here:

While the IOR rate has been constant at 0.25% since December 2008, the 90-day T-bill has fallen from an average of 0.14% in November 2010 (when QE2 commenced) to zero today.

Most people believe that an inverted yield curve heralds a recession, and right now we have an inverted yield curve at the point where new money is supposed to enter the economy. Not surprisingly, more and more economic indicators are now signaling recession. And, with inflation accelerating, the specter of stagflation once again looms over the land.

America does not need QE3, it needs a complete reversal of Fed policy. The Fed should end IOR. Then it should announce an upper limit for the gold price and use Open Market operations to contract bank reserves as needed to enforce this ceiling price. To accomplish this, the Fed would have to let interest rates be set by the markets, rather than by fiat.

The ultimate solution for a stable dollar, stable financial markets, and a stable, growing economy is for Congress to pass H.R. 1638, which would require the Fed to keep the value of the dollar stable in terms of gold. Until then, let’s pray that the Fed learned its lesson with QE2, and that it doesn’t give us QE3.

The Fed Must Tighten, and Marginal Tax Rates Must Be Cut at the Same Time

So says Brian Domitrovic, here, but only if we want to stop stagflation.

Otherwise, just keep doing what we're doing, like we did in the 1970s.

"The Feds Have No Faith in Recovery"

Penetrating analysis here from the chief economist at Delta Global Advisors.

November 5, 2009

The Feds Have No Faith in Recovery

By Michael Pento

The stock market has enjoyed a significant rally since the end of the first quarter. The Bureau of Economic Analysis reported last week that the economy grew at a 3.5% annual rate in the third quarter--a figure they achieved by that claiming inflation was running at only a 0.8% annual rate, despite a sharp drop in the dollar, a spike in commodity prices and record highs for gold.

The cyclical bull market in stocks and positive print on GDP has caused some on Wall Street and in Washington to claim the recession has ended. Despite all the good economic news, an end to fiscal and monetary stimulus is nowhere in sight, precisely because policymakers know the happy news is artificially derived.

A closer look indicates that neither the administration nor the Federal Reserve believes its own recovery rhetoric. They understand that the economy will not prosper without continued life support.

I believe removing such artificial stimulus is needed so the country can immediately begin de-leveraging and to prevent the accumulation of yet more baneful debt. What is truly amazing is how many people on Wall Street are foolish enough to postulate that our problems have been solved. The stock market will not be so easily fooled for much longer.

The Great Depression Part II was narrowly averted last year by slashing interest rates to near zero. The Fed made money virtually free because the record level of indebtedness ($34 trillion) in the economy required such low rates so that borrowers could service their obligations. Otherwise a cataclysmic domino effect of defaults and bankruptcies would have occurred. To avoid that scenario, the public sector assumed some of the private sector's debt and then subsequently took on a significant amount more. The debt of the nation continues to increase at a 4.9% annual rate. All public debt is ultimately the responsibility of the private sector to pay off--either directly or through future taxes. As a result, the economy has never been more precarious than it is today.

In spite of this, the stock market appears to be doing quite well. We've seen a 57% rally off the March lows in the S&P 500. However, if you measure the market against other assets its performance is much less impressive. Since the beginning of 2000 the S&P is down about 50% measured in terms of a basket of currencies other than the falling U.S. dollar. The index is down nearly 80% against the real inflation hedge--gold!

The sad truth is that this recent market rally has been produced on the back of a weakening dollar and the slashing of corporate overhead. Cutting payrolls and research and product development projects are not a prescription for sustainable growth. As I like to say, you can't burn your furniture to keep your house warm forever. Eventually, top-line revenue growth must emerge or Wall Street's game of beat-the-expectations will be short lived.

It's also worth noting that a country cannot devalue itself to prosperity and that a bull market cannot survive an inflationary environment for long. In the short run, nominal gains in the averages can occur since everything priced in dollars tends to increase in value. However, the rally will be truncated unless the Fed provides consumers and corporations with a stable currency.

The ramifications of a crumbling currency are vastly misunderstood. A strong dollar is the cornerstone of a healthy economy. It is essential for balanced growth and healthy investment to occur. On the other hand a weak currency decimates the middle class and the corporate sector's ability to maintain earnings growth. Inflation lies behind all infirm currencies, and it is inflation that destroys the purchasing power of consumers. The diminished value of their wallets leaves them with the ability to buy only non-discretionary items. As a direct result, unemployment rates soar and economic output plunges.

I believe we will suffer from a protracted period of stagflation. Money supply, as measured by M2, has increased 5% Y.O.Y. Meanwhile the output of goods and services is falling. As long as the money supply is chasing a shrinking GDP pie, there will be upward pressure on prices.

Making the situation even worse is the manner in which the money supply is growing. The quality of growth is very low because the increase in supply is coming from commercial bank purchases of Treasury debt, rather from an issuance of credit to the private sector for capital goods creation. Total Loans and Leases at Commercial banks are down 8.2% from last year. Meanwhile, the amount of Treasuries held at all commercial banks is up 20% year-on-year.

That means money supply growth is emanating from government's misallocation and redirection of capital. It isn't being loaned out to build mines and factories; it is instead being loaned out to increase consumption and build even more consumer debt.

If the Treasury and Federal Reserve truly believed the economy and the stock market were on a sustainable recovery path, talk of extending and increasing the home buyer's tax credit would be off the table. The Fed would already be reducing the size of the monetary base. The truth, however, is that no one in government really believes in this recovery. If they did, they would be hiking interest rates and the deficit would be shrinking.

The government's realization of our precarious economic condition means its largess will continue. Near term, that may ease some pain. So did the artificial stimulus that gave rise to the housing boom. In the end, a protracted period of a near-zero interest rates, along with endless economic stimulus, will spawn another bubble and not a genuine recovery.

Michael Pento is chief economist at Delta Global Advisors and a contributor to greenfaucet.com.