Consequences of an Inflationary Recession
June was an extremely important month in the financial world for one main reason; that reason being that upon months conclusion it would also mark the end of Q2 leaving many of us waiting for the official GDP announcement for the U.S. to be revealed. However, the Q2 GDP number reveal only makes official what many of us already know to be true and in no way marks the start of a recession – rather confirming that we have actually been in a recession since January 1st of 2022. Now think about what that would mean: for the past six months Jerome Powell (Federal Reserve Chairman), Janet Yellen (U.S. Secretary of the Treasury), and other well-connected economists that many in the public look to for accurate economic analysis to help them preserve and grow their family’s wealth have been saying that inflation is under control and that slowdown is highly unlikely. In fact, they told us the economy was booming and they were in the driver’s seat, so why worry about either at all. Knowing what we know now we can see these were blatant lies as this was all being told to us while we were ALREADY IN A RECESSION.
As we moved deeper into June with the Q2 GDP report looming, these same economists began changing their tune (knowing the lie of a strong economy was running out of legs as everyday citizens started REALLY feeling the pinch) stating that they needed to now make a tough decision between accepting surging inflation or stomping out that inflation with aggressive interest rate hikes causing a recession. All that said, apparently, the economy was not as strong as they had initially been telling us as it has sank into a recession with the FED barely over 1% interest rates. If what I was taught growing up was true that past behaviour is the best indicator of future behaviour, it would lead me to be sceptical of what we are now being told and propel me to begin searching for the real truth they will inevitably reveal at a later date once the public is well behind.
After doing a little digging you will find that at the end of June the Federal Reserve out of Atlanta snuck a quick report into circulation that rather than a dismal 0.3% growth projection for Q2 (which while nothing to write home about would technically keep the economy out of recession) they now predicting an overall contraction in GDP of 2.1% to follow up the 1.6% contraction in Q1: an official recession. Quite the dramatic change in prediction right at the closing horn for Q2 while most were distracted by the long weekend, but as dramatic as the swing may be, what does it actually mean for our main focus of these newsletters: silver and gold? To answer this question we need to understand why slowdowns happen in the first place and in short, breakdown while painful, why they are also necessary.
After massive booms in asset prices caused by inflation due to money printing by governments/central banks, the economy eventually needs a contraction that helps bring prices back down to a manageable level. The reason this is actually necessary is because during a recession many people lose their savings and their job (source of more income), and subsequently money becomes tight and standard of living plummets. If prices continued to surge like they did during the boom phase during the bust or recession phase, the every day person would get crushed infinitely more as their savings/income drop all the while everyday items still continue to get more expensive increasing the cost of living. And this is where it becomes very important for precious metals investors to have a full understanding of what is currently happening. The last time we saw similar stagflation conditions as we see now where the economy is in a contraction phase (citizens are feeling the financial squeeze) while inflation is surging with no signs of slowing down was in the 1970s when gold and silver did this:\
SILVER PRICE CHART
GOLD PRICE CHART
From 1970-1980 silver moved from $1.66 an ounce to $36.13 an ounce equating to a 2076.51% increase in value. During the same time period, gold moved from $35 to $677.97 an ounce – a 1837.06% increase in value.
The reason why this is so important to visualize is actually to further understand what stopped the bull runs in silver and gold back in the 70s and cause their price to contract. We have touched on this before, but with an inflationary recession right around the corner from being confirmed this is vital to reiterate. The reason the bull runs in silver and gold was halted in the 80s was due to aggressive rate hikes being taken. The same rate hikes that Powell is threatening to make now, however, this time he can’t due to the National Debt being over $30 trillion (30x what it was in 1980). The U.S. would be unable to service debt payments if interest rates rise even to 2%. Paul Volcker used massive rate hikes up to 20% in the early 80s to stop surging inflation (which was causing gold and silver to rocket in value), this time interest rates have been held artificially low since the 2008 crash due to easy money being needed as the band-aid fix for the great recession we experienced then. What this means is that the Federal Reserve has gotten itself so behind inflation, while simultaneously convincing the public that inflation will not be sticking around and that gold and silver prices have not even started to move in response to the stagflation conditions we are currently seeing. When markets fully grasp that not only will the economy grind to a halt as the slowdown in the economy is acknowledged, but inflation at 8.6% is likely at the low end of what we are about to see – the rush to preserve whatever wealth remains in silver and gold will take place at blazing speeds. Consider the fact they wish to convince you silver and gold are relics of the past (so there being no reason to own them) prior to them even waking up and reacting to what is currently going on. The truth is price surges of silver and gold were halted by interest rate hikes made by Volcker that are quite literally impossible for Powell to make now, yet the market has priced in that it is possible due to the constant lies about a strong economy being able to handle them. They tell you this all while they have been stacking silver and gold hand over fist since the band-aid was placed on the economy in 2008. Curious timing, don’t you think? What if to save their illusionary debt-based system they needed to abandon the gold standard back in 1971 and to attempt to save it now they need to reintroduce silver and gold to stabilize? It would not be so far-fetched when considering they have been hoarding it all the past 15+ years in preparation while telling the public not to buy.
If you are convinced like I am that silver and gold are about to wake up and wish to hoard some of your own while the public still can at these low prices, check out our website here where we are always running great deals like the one below that offers you the chance to get a 1oz Canadian Silver Maple below spot price: