Why is it 1790 all over again? Because today, just as in France in 1790, we have a set of conceited men running the world’s economic policy on the basis of a flawed intellectual construct. In 1790, the flawed construct was the Assignat. Today, the flawed intellectual construct is the irredeemable US dollar and its derivative currencies.

In 1790, gold was the enemy of those conceited men, because the depreciation of the Assignat against gold revealed the falsity of the Assignat, so the National Assembly tried to suppress the use of gold by violence against its owners. Today, gold is once again the enemy: gold, whose value threatens to expose the falsity of the irredeemable US dollar.

Our conceited masters are struggling to keep their intellectual construct, the irredeemable currency that is the dollar, from plunging in value to thousandths and ten-thousandths of a gram.

The dollar faces the same fate as the Assignat, which in 1797 fell to a value of zero grams of gold. And since the rest of the world’s currencies are derivatives of the dollar, they too will become worthless.

The fundamental flaw in the thinking of the members of the National Assembly of France in 1790 was the mistaken idea that they could invent a money more suitable than gold to achieve the prosperity of France.

Today, the fundamental flaw in the thinking of politicians and economists is the same as that which blinded the members of France’s National Assembly: they are convinced the US dollar is far more suitable than gold for use as money.

The conceit of the National Assembly in France in 1790 led to the total failure of the French economy in the course of 7 years. The conceited central bankers of today will without a doubt achieve a world sunk in economic failure. But don’t expect any of them to say, “we were mistaken.”

related:

Stealth Bear Market

“I look at the overall market as being in a major transition. As we talked about in late 2014, there were a number of generational multi-decade and even multi-century cycles all coming to a head and I was looking at the timeframe of 2015-2017 as being really the first phase of that transition with a larger phase moving into 2021…

I have expected a very stealthy bear market where the majority of observers and participants would not be convinced that a bear market was actually unfolding until the second shoe, whatever that ends up being, drops. And that’s kind of what we saw in 2000-2001. You had the dot.com bubble bursting in the beginning of 2000 and… that weighed on some of the other indices but wasn’t enough to really drag them down until the events of 9/11 in 2001.

That was when the markets [finally gave in]… and that continued on until October of 2002. That’s the type of thing that I have expected in the indices this time around and everything I’ve seen up to this point has confirmed that with some precision that I wasn’t even expecting…”

Significant Low Still Ahead

“I think this is going to be an ongoing progression of lows, some of them being double-bottoms like we just saw in August and January… but for the overall bear market, it would not surprise me at all to see it continue into 2017, so I do think it is a progressive thing, not the type of bear market that we saw in 2008…

I’m looking for June to be the next important low. I think we could see an intervening top in this timeframe – late March, early April – and looking at a little bit of a danger period in mid-to-late April when you perhaps get that first convincing selloff and overall decline into June before the next 1-2 month bottom takes hold.”

Gold’s “First Wave”

“I definitely viewed 2016 as being the initial confirmation to me of a multi-year bull market in gold and silver. I described it as a golden year, which to me meant that… gold would see the first sustained and significant rally bigger than what we’ve seen in the last 3-4 years…

To me, all we’ve seen is just the first wave of a major gold advance. Now the second wave, after the correction off that initial impulse wave, is often a long drawn-out affair with a lot of volatility. A couple of times where the market starts to run up towards its highs and everyone gets really frothy with their expectations and then all of a sudden turns back down and you kind of drag out that second wave corrective period. I could see something a little like that with gold, although we might only be talking a couple months there, but I do expect a much bigger advance later in 2016 and then into 2017 and 2018…”

40-Year Cycle

“But also this 40-year cycle that we’ve talked about, it’s just uncanny how consistently we’ve seen a major battle between gold and silver, fiat currency or paper currency, and the attempts at either centralized or decentralized control of money that has repeated in this country since its founding in the 1770s…

The last big battle was in the 1970s and involved everything from Nixon shutting the gold window in ’71 to the collapse of Bretton Woods in ’73. But it was really in the 1975-1976 period that I saw the most significant event and the first one was all of OPEC agreeing to price oil in dollars, which then gave the dollar a new kind of backing. And then in ’76 with the Jamaica Accord, which was really all of the westernized, industrialized countries basically codifying into an agreement that gold no longer played any role in the calculation and the backing of currency and, to me, that ushered in a new 40-year cycle that comes to fruition in 2016…”

Listen to this full podcast interview with Eric Hadik of Inside Track Trading and 40yearcycle.com by clicking here.

FRA Co-founder Gordon T. Long is joined by Michael Pento in discussing topics from the government debt problem, the current boom in gold and the outlook of the dollar.

Mr. Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients. Mr. Pento is a well-established specialist in the Austrian School of economics and a regular guest on CNBC, Bloomberg, FOX Business News and other national media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.

Prior to starting PPS, Mr. Pento served as a senior economist and vice president of the managed products division of another financial firm. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. Additionally, Mr. Pento has worked for an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career Mr. Pento spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Mr. Pento graduated from Rowan University in 1991.

KEYNESIAN INTEREST RATE MANIPULATION

“You cannot take interest rates down to zero percent and then into the negative territory, constantly increase the amount of something I like to call ‘quantitative counterfeiting’ and ultimately hope for a good ending. It’s just not possible.”

They’re constantly pushing interest rates lower and lower and now to the point where if you’re going to loan money to somebody, you’re going to pay them to do it. The reason their doing this as a method to make their debt serviceable; they need to make ends-meat so they borrow at lower cost. We know there is going to be a collapse because markets have been aggravated and not allowed to function for years.

“30% of all the worlds sovereign debt now has a negative sign in front of it, that’s $7 trillion.”

Here’s the main issue, let’s consider Japan: There is -0.1% for the Japanese 10yr note, an all-time record low. You’re loaning money to Japan, a nation that has 250% debt-GDP and you’re loaning this money going out for 10 years. All for the deal that you’re going to lose money each and every year in nominal terms, and then they have an inflation target and assuming they meet it, Japanese authorities will eventually step in and all of a sudden begin fighting inflation. The only thing this can lead to is an enormous implosion.

“Price discovery is essential, it is the nucleus of capitalism and we haven’t had it in decades.”

 SUSTAINING GOVERNMENT DEBT

“As debt has increased, interest rates have gone lower; it is all that they can do.”

When you base a nation’s growth, not on productivity and the size of the labour force, rather on market bubbles, furthermore when you consider there is 19-20 trillion in the US of outstanding debt; there is just no tax base that can finance this.

Look what Draghi had to do, it was not enough to buy $60 billion euros a month, they went to 80 billion, and why just buy government debt when you can buy corporate debt? These practise make no sense, seemingly there is no rationally thinking individual that enforces decisions.

We are stuck until we are hit with an inevitable implosion. The trigger will be when they reach their inflation targets and then become inflation fighters. There will be a period of time following this where you will see bond yield completely unravel, they will soar, and consequently stock prices and economic growth will plummet.

CENTRAL BANK PATTERNS

Local banks have their excess reserves at the central bank, and now the central banks rather than paying to keep the reserves, they are charging for the reserves. They are doing this so banks can go out looking for someone who cannot pay back in taking out a loan, else they will simply go buy more sovereign debt.

“Have we become such children in this world where grown men and women cannot just come forth and admit they have made a mistake and admit there will be a year or two of a recession or depression followed by prosperity?”

If you have so much debt which you cannot pay back, something has to change; the debt needs to be restructured. Debt is not fixed by artificially taking out interest rates and forcing individuals to take out more debt. We are not adjusting we just keep rolling the debt over and over.

“Capitalist systems do not work unless you have a cleansing at some point of excess debt. It is a healthy and necessary part of growth.”

THE GOLD BOOM

Well now in a time where if you stick your money in a sovereign note in a bank, you either get nothing from it or even charged for doing so, gold is definitely lucrative now more than ever. Additionally the ratio between gold miners and gold has never been lower than it is now. As interest rates go more and more negative across the globe, more and more money will be put into gold because for every ounce of gold you’ll pull out just that, an ounce of gold.

“The only escape is a deflationary depression on a global scale from the likes of which the world has never seen.”

ADVICE FOR INVESTORS

“Gold is going to be a winner no matter what happens, there is no losing scenario for gold.”

 To have 20-25% of my portfolio in mining shares which is high as far as Wall Street is concerned. So have gold, short in the market, and the only place being long is with energy. being long with energy as of late has proven to show great results. Forget base metals and in terms of energy it’s a great hedge in being short in the market.

THE FUTURE OF THE DOLLAR

“As I predicted, I have been on record in December of 2015 in saying the dollar will fall hard and it did.  I knew it was going to happen because I knew the economic data wasn’t supportive of floor rate hikes and this is what the dollar was priced in. It is important to question not what the dollar is going to do against the Yen and Euro, but moreover intrinsically against gold. I believe all the currencies out there are going to lose their value, the reason being that the real money out there and it has been for thousands of years, is none other than gold. “

Abstract written by, Karan Singh  Karan1.singh@ryerson.ca

Video Editor: Min Jung Kim minjung.kim@ryerson.ca