As cancellations, emergency restrictions, and panic selling of assets spreads, the global economy is at risk of grinding to a halt. We are already in the throes of the worst market mayhem since 2008.
If the news on the coronavirus front gets any worse from here, we will be facing a once in a century financial crisis – and a possible Great Depression ahead.
That said, there are at least some reasons to be hopeful. The number of coronavirus cases in China and Korea appears to have plateaued. Warmer weather in the weeks ahead and more aggressive containment strategies may begin to inhibit the spread of the deadly infection in the U.S. and Europe.
But public officials so far are failing to inspire confidence. German Chancellor Angela Merkel shocked the markets when she said up to 70% of the German population could contract coronavirus if more isn’t done to stop its spread.
And the stock market tanked immediately after President Donald Trump spoke to the nation Wednesday evening.
Meanwhile, the response from central bankers and the Plunge Protection Team has so far been woefully ineffective. The Fed’s emergency rate cut last week, and its $500 billion expansion of bond purchases announced Thursday have done little to stem trillions of dollars in market liquidations as circuit breakers on stock exchanges get blown out.
The tools central bankers have at their disposal aren’t suited to the problem at hand.
The Fed can address liquidity and solvency problems in the bond market and banking system. But it can’t get consumers, workers, and businesses in the real economy to return to their normal activities. Government officials wouldn’t allow a return to normalcy at this time, anyway.
President Trump is contemplating invoking temporary new emergency powers. And globalists are eyeing permanent new power grabs to restrict our personal travel and financial freedoms.
The World Health Organization is exploiting the coronavirus crisis as an opportunity to promote cashless technology. The WHO says paper cash may be spreading the virus and recommends people use digital payments instead.
One of the virtues of silver-based money, by the way, is silver’s antimicrobial properties. Viruses and bacteria that thrive on the surface of paper Federal Reserve notes are naturally repelled by silver coins.
But the threat of the Wuhan virus spreading through common currency is likely to accelerate the war on cash. That’s what trends forecaster and frequent Money Metals Podcast guest Gerald Celente warned about in a video presentation earlier this week.
Gerald Celente: No paper money. You're going to spread them germs. We got digital dough for you. You think things are bad and the market's going way down, economy's crashing? Martial law, digital currency, and for me, I don't give financial advice. My gold forecasts, match them, anybody, anywhere in the world. You said the gold bull run began in June of 2019, June 6th, and that gold bull is going to keep on running, as I see it. But you know. Think for yourself.
Although gold prices got pulled down on Thursday in the brutal wave of selling that hit Wall Street, the money metal this week is once again holding up much better than the stock market, commodities, and cryptocurrencies.
As the Dow Jones plunged 10% yesterday – its worst day since the 1987 crash – Bitcoin crashed 26%. Gold suffered only a 3% drop.
Another week like this in asset markets, and a true deflationary spiral could take hold, with a wave of corporate defaults and bankruptcies coming seemingly out of nowhere.
By this time next week, it’s even possible the stock market and banking system will be shut down – and some form of martial law imposed as you just heard Gerald Celente forecast.
The good news is that while deflation scares tend to be sudden and severe, they are ultimately short-lived. Deflation will never be allowed to persist for long while our inflationary fiat monetary system remains in place.
The old adage, “Don’t fight the Fed” is worth heeding.
The last deflation scare in 2008 led to Zero Interest Rate Policy, Quantitative Easing, and unprecedented Fed balance sheet expansion. The Fed is set to do all that and more this time around – possibly even buying up shares in U.S. companies and monetizing Americans’ tax bills.
The current turmoil in markets – and the central bank response – will create generational buying opportunities in beaten-down assets.
Those who hold gold and cash will be the real winners because their purchasing power is dramatically increasing versus virtually everything else now on the chopping block.
While Wall Street cheerleaders will scream about buying opportunities in U.S. stocks as they do on every down day, the greatest buying opportunities may be in overlooked markets such as silver.
On Thursday, the white metal fell to a historically low discount versus gold as the gold:silver ratio spiked to 100:1.
This extreme reading reflects just how stretched the deflation trade has now become. While gold is often thought of as an inflation hedge, it is actually better viewed as a crisis hedge. Once the crisis fades and markets reinflate, other hard assets can be expected to begin vastly outperforming gold.
At some point – and it could be any day now – the deflation/inflation dynamic will swing violently in the opposite direction. And when it does, silver is likely to be a prime beneficiary. Once a new bull market in silver and other inflation-correlated assets gets going, it can run for years.
So as painful as the past month has been for investors, it sets the stage for the next great inflationary mega trend that will last for many, many months to come.
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