Gold is Money, Everything Else Is Credit

By now it is probably obvious, even to the most naive of mainstream narrative followers, that we are well past the point of no return on many fronts. Politics, on a national and global level, are never getting back to “normal”, the economy is already knee-deep in a severe recession, while social frictions and public discontent with governments, institutions and all kinds of rulers and central planners is on a sharp and dangerous trajectory.

In this charged environment and during these uncertain times, it is increasingly difficult for responsible investors and citizens to answer even basic questions, especially as we’re being constantly bombarded with new directives, news stories and “expert” opinions that not only contradict each other, but very often common sense too. Under these circumstances, separating the signal from the noise might be particularly challenging, but never before has it been more important. From the markets to the economy and from political risks to real and sound money, there are crucial questions that investors need to be asking themselves. To help navigate these murky waters, I asked Rafi Farber for his views and analysis, which I’ve always found very insightful. His background and experiences, as well as his unique way of weaving relevant historical and cultural perspectives into his arguments, have long produced very interesting points and useful reflections.

Rafi Farber, pen name Austrolib, is the publisher of The End Game Investor, a daily market commentary written from an Austrian economics perspective focusing on precious metals markets, the Comex, and monetary analysis. His work is followed by leaders in the precious metals industry including Eric Sprott. He also writes a weekly column on the gaming industry at CalvinAyre. Contact him at endgameinvestor@gmail.com

Claudio Grass (CG): We’re now at an advanced enough stage of this pandemic to have reliable data and a decent idea of the economic damage and wider implications of the lockdowns and various restrictions. Given what we know, what do you make of the hopes and predictions of a swift, “V-shaped” recovery?

Rafi Farber (RF): I think the entire phrase “V-shaped recovery” is patently ridiculous. By even using the term, we are falling into the same fallacies of the Keynesian econometricians who see nothing but aggregate numbers and statistics in their monetary voodoo. As if the economy is some kind of “shape” that can be measured to come to any sort of meaningful conclusion, prodded and poked like we’re all lab rats in the cage of their social experiments.

The truth is, as the Austrian School of economics states and as the title of Ludwig von Mises’ treatise on economics makes very clear, the economy is itself Human Action. It is our lives. For all intents and purposes, human action is now illegal, or at the very least extremely restricted, so what are we even talking about when we say “V shaped recovery” when people can’t even live?

Hundreds of millions of people are effectively under house arrest and we’re talking about a recovery? The most acute damage of all this is unspoken and unseen, like Frédéric Bastiat’s broken window. The unseen is what could have been had the window not been broken. In this case, the unseen casualty of all this is the human mind, basic human sanity. That doesn’t show up in the Keynesian GDP charts. The value of human capital depends among other things upon the mental health of human beings, which wasn’t so top notch before government started locking people in their homes and starving them of social interaction and their basic livelihoods.

There has never been a global assault on the human race on this scale, and I say that as a Jew with emotional attachment to Hitler’s holocaust not to mention Mao’s and Stalin’s as well. Those attacks on humanity were of course worse in terms of the direct deaths caused and the lockdowns aren’t as bad in that narrow sense, but what is happening now is worse in the sense that governments are cooperating globally to cast a much wider net on all humankind as a species, to attack their minds all at once all across the world simultaneously. They are provoking mass mental illness and suicide, and looking the other way as it happens. These lockdowns are a pure crime against humanity.

Does anybody know anyone who hasn’t had their mental health severely damaged by this insanity? How could there possibly be a “V shaped recovery” when people are not allowed to go about their daily lives, to even breathe without a cloth strapped across their faces?

I’ll tell you what’s going to happen. People are going to go much deeper into debt, debt that’s yielding negative and doesn’t even so much as pad the pockets of the lenders anymore, and the deeper they go the Keynesians will show us all the stuff that they’re consuming, tell us that this is all so great, that we’re “recovering” and we will be one giant leap closer to the entire debt pyramid collapsing across the world.

When that finally happens, the Keynesians will call it an unexpected disaster. But in reality, it is the cure to all this madness, and it can’t happen soon enough.

CG: Unemployment figures in most advanced economies paint a horrifying picture. A lot of lost jobs aren’t even counted in the official data, as a result of government policies like furlough programs that mask the problem, especially in Europe. To what extent do you think this kind of damage is reversible and are there any policies or initiatives that you believe could actually help?

RF: I may sound like a pessimist, but I promise you I am a pure optimist. There’s a famous saying in Judaism by Rabbi Nahman of Breslov. He says, “There is no despair in this world at all.” Not to say that we don’t all feel despair from time to time, but we must keep in mind that it is never permanent. This, too, shall pass. All damage is ultimately reversible. That’s why society has progressed until now despite constant attacks from governments. Society will continue, and humanity will absolutely endure. The lockdowns will end, simply by necessity because this cannot be sustained. When they are over, my guess is by the time fiat money finally dies its ignominious death and lockdowns can no longer be financed with more debt, there will be ecstatic celebrations in the streets all across the world. I can already see them, and thinking about them sustains me and keeps me sane.

In terms of policies or initiatives I have no interest in advising governments or suggesting they follow this or that policy. Not to say I’m against the top down approach, it’s just not where I put my faith or energy, at least not anymore. I can only say the best all governments can do for people is tear down all these lockdowns and restrictions and completely reverse everything they’ve done. Let individuals decide how they want to protect themselves from this virus on their own and stay out of it, whether they want to wear masks or not, lock themselves down or not. Let people go to work! Let people get married, have big weddings, celebrate Thanksgiving, Christmas, Hanukah with their families and friends for the love of God. Let people breathe, literally! How about that policy?

What can people do though from the ground up? They can do a lot. They can practice civil disobedience. This is already happening in Israel thank God. The Ultra-Orthodox led by Rabbi Chaim Kanievsky God bless him – a 92 year old sage who contracted the coronavirus and survived just fine by the way – they are defying the lockdowns in Israel and sending their children to school. Instead of backpacks kids use shopping bags for their books so it looks like they’re shopping for food at an “essential business,” staggering school hours and changing locations so it’s more difficult for police to catch them learning with other kids. Meanwhile the despicable Israeli media disparages them.

It’s time we recognize this for what it is. In Hebrew it’s called a time of “Shmad”. That literally means “destruction” but it’s used to refer to religious persecution. This shmad is much broader though. It’s against all humanity. It’s broad-based against life itself.

People can protest peacefully together, fight for their right to live, for their lives and livelihoods, for the minds of their friends and families that are being pounded into the dust by the most insane generation of politicians since the 1930’s. That’s what I suggest. Band together peacefully and fight for your right to life and liberty for God’s sake and for your own.

CG: Right from the start of the covid crisis, we saw central banks and governments take unprecedented steps and extreme monetary and fiscal measures. But when we also consider the scale of the economic destruction, it can be challenging to determine which force will prevail, so there’s a raging “inflation vs deflation” debate. Where do you stand on it?

RF: This is a fascinating question. Let me answer it cryptically and then explain. Inflation/deflation is a false dichotomy. Inflation is deflation. They are the same thing. Nonsense you say! How is that possible? I’ll explain it simply.

Real production has plummeted across the world, and fiat money supplies are going parabolic. How could anyone possibly say this is not inflationary when all central banks are doing is literally inflating? The answer is that as debt comes due but payment flows stop, debt cannot be serviced, and therefore cash must be raised by any means possible to pay it off or bonds default and the entire global banking system stuffed with toxic debt up the wazoo collapses. They’re all loaded to the gills with this poison.

In the fury to raise cash by any means, the demand for money rises precipitously and the demand for goods and services conversely falls in the emergency, pushing the general price level down temporarily. This is perceived as perceived is deflation. The thing is, the sole job of a central bank, the very reason for its entire existence, is to keep the entire debt scheme going, in Orwellian terms to be the “lender of last resort” and so they absolutely cannot allow this to happen, ever. So rather than let everything finally deflate in a spectacular implosion and let all the toxic debt be wiped out to its intrinsic value of zero, central banks simply buy all the junk and hand out the cash they conjure out of nothing. Now everyone is literally in debt to them, because they’ve bought all the debt with nothing.

At some point very soon, international holders of dollars are going to catch on to what’s happening and dump their dollars for anything tangible. China is already doing this with agricultural commodities like wheat and soybeans. So are Egypt and Jordan by the way. The price of plane tickets may be falling, but that’s only because flying anywhere is almost impossible without quarantines. The price of food however is rising everywhere, and fast. Once the dollar is dumped internationally in favor of tangible commodities – and I believe this could possibly start getting really serious after the next multitrillion dollar bailout passes – the affect on domestic consumer prices in the US is going to be drastic and scary, and that’s when we could quickly see hyperinflation in consumer prices.

But if you think about this a bit more deeply, what really is hyperinflation? It is the destruction of all debt in real terms, all paper assets really, in favor of real assets. Hyperinflation is really complete and utter deflation of everything in gold and silver terms. In terms of real money, all prices absolutely plummet. True, those without any real money end up desperately poor, and that’s just horrible. Those with real money though, gold and silver, suddenly have all the purchasing power. In Weimar Germany in 1923 for example you could buy a nice house in Berlin with just four 1oz gold coins. That’s it. Hyperinflation is just hyperdeflation by another name. It all leads to the same objective – the final end of the fiat money bubble that enabled this ongoing crime against human civilization, which is now finally peaking in more ways than one.

Either the bubble deflates, or it hyperinflates and explodes. Either way the end result is the same.

Murray Rothbard describes hyperinflation in Man Economy and State not as some tragedy to be avoided, but as the people’s last remaining defense against the systematic theft of money printing. It is only a tragedy if you’re not prepared for it. We are now in the jubilee, the 50^th year of this monstrous debt bubble that began in 1971 and it desperately wants to deflate. And it will. If the Fed will not let toxic negative-yielding debt completely deflate and die and let its crony banks loaded with this crap go bankrupt, then the people are going to fight back and destroy the bubble on their own by attacking the dollar itself. Inflation is deflation in real money terms. It’s the same thing. That’s where we are headed.

Claudio Grass, Hünenberg, Switzerland

———————-END PART 1

In the upcoming second part, we look at the wider impact of the lockdown policy, while Rafi also outlines his outlook of equity markets and his views on physical precious metals and their role, especially during this crisis.

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