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What Is The Federal Government Trying To Hide?

In 2020, the price of gold rose $375.75 from $1,519.50 to $1,895.25, the greatest calendar year dollar amount increase ever. As a percentage rise, it was the highest since 2010.

Silver’s price rose $8.58, from $17.83 at the end of 2019 to $26.41 at the end of 2020. This was its highest dollar amount increase and percentage increase in any calendar year since 2010.

In 2020 gold significantly outperformed every one of the 28 foreign currencies that Patrick Heller, editor, Liberty’s Outlook newsletter tracks, every major world stock index he tracks except for the Nasdaq, and platinum. It barely beat the price increases in US MS-65 Morgan Silver Dollars and US MS-63 $20 St Gaudens.

In fact, gold in 2020 outperformed all assets Heller tracks but palladium, US MS-63 $20 Liberties, the NASDAQ, and silver.

For the year 2020, silver’s increase exceeded that of every other asset we track.

As much as gold and silver prices increased in 2020, I anticipate they will enjoy even greater price hikes in 2021, both as a percentage and in absolute dollar terms, notes Patrick Heller in Liberty’s Outlook 2020 Annual Results.

The reason for this expectation is by looking at all the financial problems the US government is doing its best to hide from the public.

What Is The Federal Government
Trying To Hide From The Public?

If you were to review a single act of the federal government, that by itself may not be enough to wave a major red flag to the public that there are dire financial problems looming. But, when you consider several actions in a comparatively short period of time, especially where the government does them in such a way to minimize public aware- ness, the risk is much easier to identify.

For this list of actions, let’s start in 2019, by repeating information from the January 2020 issue of Liberty’s Outlook:

1. “The value of the US dollar was strong for much of 2019. However, after the Federal Reserve Bank of New York had to inject more than $100 billion of emergency liquidity into the banking system’s overnight loan markets on September 17 and 18, the dollar started to decline.

Although Fed officials have testified before Congressional committees that this liquidity crisis was only a two-day problem in September, the Fed has actually continued providing more liquidity every business day since. These loans are no longer just overnight loans. Now they include 14-day loans and up to 43-day loans. By the end of December, the Fed had provided more than $4 trillion in loans. Now in January 2020, the Fed has increased the daily limit of liquidity injections to $120 billion.

It seems obvious to me and other market observers that these supposedly 1-day, 14-day, and 43- day loans are simply being paid off by taking out new loans to do so. The evidence that this is happening is that the Fed’s balance sheet has not ballooned by the entire $4 trillion by the end of 2019.

On October 11, 2019, Federal Reserve Chair Jerome Powell said that the Fed would begin buying government-backed securities to expand its balance sheet. When the Fed did this a decade ago as a tactic to end the Great Recession, this practice was called “quantitative easing,” which was a way to try to disguise that the Fed was inflating the money supply.

Now, the Fed is pretending that these same actions are not inflating the money supply.”

By September 27, 2019, the value of the US Dollar Index was down almost 5% from where it closed on September 19, 2019. The Index generally declined further until the beginning of January 2020. When it became obvious that other major world currencies such as the euro and Chinese yuan were weakening, there was a flight to the relative safety of the US dollar.

On March 19, 2020, the day it became clear that the CARES Act was going to become law, the US Dollar Index closed at a 17-year high of 103.605. By March 27, 2020, the US Dollar Index had fallen 4.9% as investors realized that trillions of dollars were being added to the US government’s budget deficit. At the close of 2020, the US Dollar Index was down 13.2% from its March 19, 2020 peak.

In 2020, exactly as we forecasted, the Federal Reserve ramped up increases in the money supply and in its own assets on the balance sheet. Note, from December 30, 2019 to December 21, 2020 the US M2 definition of the money supply increased 25.2%. From January 1, 2020 to December 23, 2020, the Fed’s balance sheet increased 77.4%.

Total liquidity that the Fed had injected into the overnight bank loan market exceeded $6 trillion by mid-March 2020. Then, the Fed simply stopped reporting such data under the guise that these continuing actions were now part of the CARES Act bailouts and subsidies enacted that month.

2. The CARES Act officially created $2 trillion of bailouts and subsidies, but the fine print made it clear total expenditures could reach $6 trillion, with almost all of the unacknowledged excess being available only to the 24 primary trading partner banks of the Federal Reserve Bank of New York.

Any and all amounts being spent by this legislation were above and beyond the federal government’s ability to pay out of resources it had. Consequently, these expenditures increased the federal budget deficit.

The politicians in Washington, DC almost completely avoided any discussion of where resources would be obtained to pay for these expenditures. The reason this was not discussed is because governments, by themselves, have no resources.

Therefore, any expenditures are ultimately paid by the private sector – taxpayers and the general public. The three means by which governments obtain resources are through taxes, borrowing, and inflation of the money supply. Today, the federal government is ramping up all three methods of obtaining resources. A common government strategy is to spend money today that is ultimately paid by future taxpayers and the general public.

The CARES Act was a response to the rising incidence of COVID-19 coronavirus cases and deaths in the US. While the politicians claim that the expenditures are related to the impact of the economic lockdowns from the pandemic, in truth much of it is cover for the Fed to continue to bailout the major banks. Passage of the CARES Act enables the government to more deeply hide the banking crisis by pretending it is related to the lockdowns.

3. On August 27, 2020, the Federal Open Market Committee updated its Statement on Longer-Run Goals and Monetary Policy Strategy. One of the major policy changes was that the Fed “seeks to achieve inflation that averages 2 percent over time” and “Following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”

Instead of using changes in consumer prices, consumer unit expenditures, import prices, export prices, or producer prices, the Fed used an artificially low Personal Consumption Expenditures index to pretend that consumer prices are rising less than 2% annually for the past few years.

Unfortunately, the PCE data understates the rise in expenditures by omitting the category with the greatest increases – tax payments. A further sad note is that PCE has been rising an average of more than 2% annually since May. Now that the Fed explicitly seeks higher increases in consumer prices (meaning a decline in the purchasing power of the dollar), actual consumer expenditures are likely to increase 5-10% annually for several years.

4. [From the November 11, 2020 issue of Liberty’s Outlook]: “On September 17, 2020, the Federal Reserve announced that a new round of stress tests would be conducted by the end of 2020 on all 34 banks that had already undergone a “stress test.”

The new round of tests would check for the ability of these banks to manage a severe economic downturn and high unemployment continuing into 2021.

Further, 13 banks (Bank of America, Bank of New York Mellon, Barclays US, Citigroup, Credit Suisse, Deutsche Bank USA, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, State Street, UBS, and Wells Fargo) were to undergo a more rigorous stress test.

“These firms will be required to estimate and report the potential losses and related effects on capital associated with the instantaneous and unexpected default of the counterparty that would generate the largest losses across their derivatives and securities financing activities.”

The Fed never explained the need and urgency for such dire stress tests.

5. In early October, The Congressional Budget Office reported the projected federal government budget deficit for the fiscal year ended September 30, 2020 at $3.1 trillion. This is the largest deficit in US history. As a percentage of Gross Domestic Product, it is the highest since 1945!

Unfortunately, the true picture of US government finances is even worse, because these financial results are fraudulent. While the US government’s financial statements claim to be prepared on the basis of accrual accounting standards, the statements do not include the growth in the net present value of unfunded liabilities for Social Security, Medicare, and some smaller programs.

In years past, when interest rates were higher and government expenditures were lower, the increase in these unfunded liabilities added $3-5 trillion to the annual budget deficits. For the fiscal year ended September 30, 2020 the growth in these liabilities are almost certain to add at least another $5 trillion to the CBO figure. At a $8 trillion deficit, that maths out to a $24,000 liability for every single man, woman, and child in America.

6. The International Monetary Fund held a press conference on October 20, 2020 upon the release of a report stating that the COVID-19 coronavirus pandemic will severely test the resilience of the global financial system. Tobias Adrian, the IMF’s financial counsellor, stated “Some pre-existing financial vulnerabilities are now intensifying, representing headwind to the recovery.”

This report confirmed that the financial problems were not caused by the pandemic. Instead, they existed even earlier than the appearance of the virus. Further, the financial problems were of such a magnitude so as to warrant a special report.

7. In November 2020, researchers reported that about $340 billion of CARES Act funds that were supposed to have gone to rescue businesses and their employees were instead diverted to the Exchange Stabilization Fund (ESF). For the fiscal year ended September 30, 2020, the ESF’s holdings of foreign currencies and securities rose from $7 billion to $21.7 billion. The ESF reported a gain for that year of more than $1 billion as the value of these assets rose while the US dollar fell. From September 30, 2019 to a year later, the ESF’s total assets had increased from $93.3 billion to $682.2 billion.

8. On December 17, 2020 the Federal Reserve announced that it was changing the definition of the M1 money supply by moving savings accounts from the M2 definition into the M1 definition. It will eventually revise reported data retroactive to May 2020.

In addition, the Fed will soon stop reporting weekly data on the money supply. Instead it will begin reporting it on a monthly basis. Even more misleading, it will not report that data as of a specific date such as month-end. Instead, the data reported will be an average of the daily totals for the previous month.

With the just enacted additional subsidy and bailout law, the US Dollar Index nose-dived toward the end of 2020, recently hitting a 32-month low.

To summarize: The combined impact of all these changes over the past 16 months makes it far more difficult for people to realize that:

• At least some large US banks are in such dire financial straits that the Fed has injected multi-trillions of dollars of liquidity into the system over the past sixteen months;

• Government officials are skirting the requirements of the Dodd-Frank Act to identify which banks are receiving financial aid and how much they are getting;

• The federal government omits from its financial statements the nearly one hundred trillion dollars of the net present value of unfunded liabilities for Social Security and Medicare;

• Consumer expenditures – especially if you include tax payments – are rising much faster than we are being told;

• The purchasing power of the US dollar is dropping faster than before; and

• By keeping investors and the general public in the dark, the government is quietly seizing America’s wealth. Put together, the government is admitting that it and the American financial system are on the brink of a major financial catastrophe of the greatest magnitude in American history. It is entirely possible that the US dollar may not survive.

Possibly, this crisis may not occur in 2021. If not, it will almost certainly come to pass in 2022 or soon thereafter. The US government has boxed its financial situation in a corner from which it cannot extricate itself without one or more major catastrophes – regardless of which political party candidates are in office.

For these reasons I predict gold and silver prices in 2021 will rise by an even greater percentage than they did in 2020.

If you have not yet acquired your “wealth insurance” position of bullion-priced physical gold and silver in your direct custody or stored in a non-bank vault under your own name, you need to take action – sooner rather than later.

Editor’s Note: Patrick A. Heller is editor of Liberty’s Outlook, monthly, 1 Yr. $159, newsletter on rare coins and precious metals subjects published by Liberty Coin Service. The newsletter was named Best Investment Publication in 2020 and 2019 by Numismatic Literary Guild. Liberty Coin Service is a buyer of gold, silver, platinum and palladium bullion and quality rare coins. For more information, visit www.LibertyCoinService.com.

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