Dear Joe Biden, deficits still matter

New president’s plans for more stimulus risk exacerbating inequality and low productivity growth

Ruchir Sharma

    © Ingram Pinn/Financial Times

New US president Joe Biden arrives at the White House on Wednesday with splashy plans for $1.9tn in new stimulus, buoyed by a solidifying consensus in the American elite that deficits don’t matter.

Warnings that rising deficits will reignite inflation and undermine the dollar have proved wrong for decades, so deficit hawks are increasingly easy to mock as crotchety old scolds. 

The new view, expressed by leading figures from the IMF, academia and media, is that with inflation long dead and interest rates at record lows, it would be unwise, even irresponsible, not to borrow to boost the economy. 

The amounts — billions, trillions — hardly matter, especially not for the US, which still has the world’s most coveted currency.

Mr Biden captured this elite view perfectly when he said, in announcing his spending plan: “With interest rates at historic lows, we cannot afford inaction.”

This view overlooks the corrosive effects that ever higher deficits and debt have already had on the global economy. These effects, unlike roaring inflation or the dollar’s demise, are not speculative warnings of a future crisis. 

There is increasing evidence, from the Bank for International Settlements, the OECD and Wall Street that four straight decades of growing government intervention in the economy have led to slowing productivity growth — shrinking the overall pie — and rising wealth inequality. 

This research does not question the use of stimulus during a crisis; the problems flow from the cumulative impact of constant stimulus. That suggests strongly that the growing scale of each new infusion matters as well. 

Average voters are justifiably befuddled by the claim that governments can borrow without limit or any consequences.

We calculate that last year the US and other developed nations committed a median sum equal to 33 per cent of their gross domestic product to stimulus, shattering the mark of 10 per cent set back in 2008. 

Those figures do not include the Biden plan, which will bring total US fiscal stimulus to fight the pandemic to more than $5tn, more than the GDP of Germany or Japan. 

That’s a lot for an economy to absorb in less than a year, and Mr Biden plans a second, more ambitious spending proposal next month.

The incoming administration argues that low rates liberate governments to borrow and spend in unlimited amounts for the foreseeable future. But this claim gets the story backward. Instead of a path to freedom, low rates are a trap. 

They encourage more borrowing and rising debt, which drags productivity lower and slows growth. That makes the economy financially fragile, forcing central banks to keep rates low. 

Given today’s very high levels of debt, only a small increase in interest rates would make the debt burden unsustainable.

This “debt trap” is, despite elite dismissals, a real issue. Public debts in the US and other developed countries averages about 110 per cent of GDP, up from 20 per cent in 1970, according to IMF data. 

During the Bretton Woods system, from 1945 to the early 1970s, many developed countries ran consistent budget surpluses. Since then they have run consistent deficits, in good times and bad.

Increasingly, the money printed by central banks goes to finance government debts. Many elites see this as fine, since it has yet to revive consumer price inflation. Though governments can print all the money they want, they cannot dictate where it goes, and much of it has stoked a different kind of inflation — asset price inflation. 

Since the 1970s, the size of financial markets has exploded from about the same size as the global economy to four times the size. Most of those gains go to the wealthy, who are the main owners of financial assets. 

As the era of constant stimulus gained momentum, average wealth in the past three decades has risen about 300 per cent for US families in the top 1 per cent, 200 per cent for the next 9 per cent, 100 per cent for the next 40 per cent, and zero per cent for the bottom 50 per cent. One out of 10 families in the bottom 50 per cent have negative wealth (they owe more than they own).

When those on the left, such as Senator Bernie Sanders, promise much more stimulus to come, they do not make this link between stimulus and rising wealth inequality. Yet Wall Street traders do. They drive up asset prices when Mr Sanders calls for more spending, or US Federal Reserve chair Jay Powell promises continued monetary support. They see these vows as more money in their pockets.

But recent studies show that easy government money has ended up supporting the least productive companies, including heavily indebted “zombies” that would otherwise fail. 

The support also favours monopolies that have expanded not because of their innovation but by lobbying governments for favours and sidelining smaller rivals. The OECD warned, in a 2017 study linking falling productivity to easy money, that these trends will make it harder for societies to deliver “on their promises to current and future generations”. 

BCA Research recently demonstrated that nations with big spending governments tend to suffer slower per capita GDP growth. Similarly, Ned Davis Research found that, since 1947, US government spending above 22 per cent of GDP is correlated with periods of slower economic growth. 

It warned that this share has risen above 34 per cent during the pandemic. My team also found a statistically significant link between periods of rising government debt and slow GDP growth. 

These studies cannot show causation, but the consistent link between growing deficits and weakening growth is unlikely to be coincidence. 

Even those arguing for unlimited new borrowing agree the money would be best invested in roads, green energy, and other projects that would boost productivity and future growth. Nonetheless, comforted by the faith that deficits don’t matter, Biden-backers are supporting a plan stuffed with cash transfers, including a $1,400 cheque for most Americans.

Like many in the no-worries camp, Mr Biden says more stimulus is urgently needed to limit the damage from job losses and bankruptcies. There was a case for that while the economy was in decline. 

But as vaccines roll out and normalcy returns, injecting more stimulus into a recovering patient is likely to do more harm than good. 

The average person understands that there is no free lunch. The path to prosperity cannot be so easy as to just print and spend. If he relies on low rates to fund further massive government spending increases, Mr Biden will double down on policies that have magnified the problems he aims to fix: weak growth, financial instability and rising inequality. 

Decades of constant stimulus have left capitalism weaker, less dynamic and less fair, fuelling angry populism. Deficits matter for the damage they are already inflicting. 

The writer, Morgan Stanley Investment Management’s chief global strategist, is author of ‘Ten Rules of Successful Nations’


Chris Vermeullen

While you may not have been paying attention, some of the strongest sectors are already showing great strength and setting up for new breakout rallies.  

Over the past 30+ days, sector trends have rotated as the market volatility has increased.  

Right now, we are seeing strength in some of the same sectors that were leading the markets 60+ days ago: Discretionary, Comm Services, Technology, Energy, Financials, and Real Estate.  

If you are not paying attention to these trends, you may miss some of the best assets to trade given big sector ETF moves we’ve seen in early 2021.


Existing trends, investor expectations, and government policies all work together to drive forward trends and expectations in sectors.  

Looking at the following 30-day sector comparison graph from, we can see that Discretionary, Energy, and Financials have been the strongest sectors over the past 30+ days.  

Comm Services, Technology, and Real Estate are close behind.

It is important to understand how these sectors and rotational trends within these sectors create opportunity when breakout patterns become evident.  With continued strength in these sectors, traders can attempt to take advantage of potentially explosive upside trends before the breakouts take place.


I will start off by illustrating the opportunities in ITB, the US Home Construction ETF.  

This Daily ITB chart highlights our use of the Fibonacci Extension tool to attempt to pinpoint upside price targets based on past price trends.  

The recent bottom near $58 suggests an upside price trend is likely to attempt to break above $64 while targeting $64.20 & $68.  

From the lows of this move, this represents a 17%+ rally where 12%+ of this move has yet to complete. 

The key to this upside breakout rally is for ITB to rally above $64.


Next, we will focus on Regional Banking with KRE, the S&P Regional Banking ETF.  

This Daily KRE chart, again, highlights our use of the Fibonacci Extension tool to attempt to pinpoint upside price targets based on past price trends.  

The recent bottom near $54 suggests an upside price trend is likely to attempt to break above $64 while targeting $60.00 & $63.60.  

From the lows of this move, this represents a 18%+ rally where 10%+ of this move has yet to complete. The key to this upside breakout rally is for KRE to rally above $60.

Be sure to sign up for our free market trend analysis and signals now so you don’t miss our next special report!

Take special notice of the recent upside price rally that has recovered nearly all of the recent downside price rotation. KRE appears to be trending higher quite nicely and may attempt a breakout rally very soon.


Last, we will focus on opportunities in Energy with XLE, the SPDR Energy ETF.  

This Daily XLE chart highlights our use of the Fibonacci Extension tool to attempt to pinpoint upside price targets based on past price trends.  

The recent bottom near $39 suggests an upside price trend is likely to attempt to break above $43.80 while targeting $44 & $47.  

From the lows of this move, this represents a 20%+ rally where 11.5%+ of this move has yet to complete. The key to this upside breakout rally is for XLE to rally above $44.

The similarities of these setups/pending upside breakout trends are not by accident.  

The strongest market sectors have recently rotated downward and have begun to resume the upward price trends.  

When this happens, the Fibonacci price extension utility we use to highlight the next most logical upside price targets can become very accurate for trading targets.  

Additionally, the opportunities of these trends, ranging from 8% to 18% or more based on the current setups, provides some very real opportunities should these breakout trends continue higher.

Sector trends can become a very powerful tool for traders to consistently find and execute profitable trades in bigger trends. 2021 is going to be full of these types of trends and setups.  

Have a great weekend!!

Senate Lawmakers Back Biden’s Stimulus but Reject Minimum Wage Increase

Democrats agreed to limit direct checks for high earners but rejected several Republican amendments to a budget resolution key to passing the president’s $1.9 trillion rescue plan.

By Luke Broadwater, Hailey Fuchs and Jim Tankersley

At President Biden’s insistence, the maximum amount of direct payments would remain at $1,400.Credit...Stefani Reynolds for The New York Times

WASHINGTON — Senate lawmakers gave their support to President Biden’s $1.9 trillion stimulus package just before sunrise on Friday, clearing a major hurdle for the legislation to proceed without Republican support after an overnight voting session that stretched for about 15 hours.

Vice President Kamala Harris arrived early in the morning to the Senate dais, where she cast her first tiebreaking vote, and the Senate adopted the resolution along party lines, 51-50, at about 5:30 a.m.

In the marathon session — known as a vote-a-rama and for which more than 800 amendments were drafted — Senate Democrats maneuvered through a series of politically tricky amendments that Republicans wanted to attach to a coronavirus relief package as lawmakers pressed forward with a budget plan that includes Mr. Biden’s economic aid proposal.

The resolution will go to the House, where Democrats do not require Republican support to approve it.

Still, the proposal did not pass the Senate without setbacks for some Democrats. 

Lawmakers dealt a significant blow to Mr. Biden’s plan by dismissing a major tenet: a measure that would raise the federal minimum wage to $15 an hour.

In an impassioned speech around 5 a.m., Senator Bernie Sanders, independent of Vermont, called for his colleagues to back the budget resolution “in the strongest possible terms,” even after they rejected the minimum wage proposal for which he has been the Senate’s leading proponent.

“We now come to the end of the debate that has gone on for over 14 hours, and we end this debate in a moment in which our country faces more crises, more pain, more anxiety than any time since the Great Depression,” Mr. Sanders said. 

“But we have the opportunity to give hope to the American people and restore faith in our government by telling them that tonight we understand the pain that they are experiencing and we are going to do something very significant about it.”

By a voice vote, senators backed an amendment from Senator Joni Ernst, Republican of Iowa, to “prohibit the increase of the federal minimum wage during a global pandemic.” It was a signal that the wage increase would be difficult to pass in an evenly split Senate, where at least one Democrat, Senator Joe Manchin III of West Virginia, is on record opposing it.

“A $15 federal minimum wage would be devastating for our hardest-hit small businesses at a time they can least afford it,” Ms. Ernst said on the Senate floor. “We should not have a one-size-fits-all policy set by Washington politicians.”

Mr. Sanders seemed unfazed. He said that his plan was to carry out the wage increase over five years and that he had never wanted to raise it during the pandemic.

“We need to end the crisis of starvation wages in Iowa and around the United States,” Mr. Sanders said. He added that he planned to try to get the phased-in wage increase included in a budget reconciliation bill that would allow Mr. Biden’s stimulus plan to circumvent the Senate’s 60-vote filibuster rule.

Speaker Nancy Pelosi said during the debate that Democrats would not give up on trying to raise the wage to $15 an hour even outside the stimulus measure.

“It’s not the last bill we’ll pass,” Ms. Pelosi said. “This is the rescue package.”

Entering the early hours of the morning, senators in both parties pushed forward test votes to showcase their dueling priorities. In an evenly split Senate, any amendment required the majority’s support to pass, and therefore several failed on a 50-to-50 tie.

Among the Republican proposals that did not garner enough support were measures to reduce funding to states like New York, which is under investigation over coronavirus deaths in nursing homes; to prohibit funding for schools that do not reopen for in-person classes once teachers are vaccinated; and to block funds from so-called sanctuary jurisdictions that do not cooperate with federal law enforcement.

Senator Patty Murray, Democrat of Washington and the chairwoman of the education committee, called the effort to put restrictions on sending aid to schools “simply a political show.”

“If we withhold funds and schools cannot implement health safety protocols, then we are acting counter to actually getting students back in the classroom,” Ms. Murray said.

Democrats did, however, rally around some amendments from Republicans. The Senate, by unanimous vote, agreed to a motion from Senators Marco Rubio and Rick Scott, both Republicans of Florida, to block tax increases on small businesses during the pandemic.

Lawmakers also backed a measure from Senator Roger Wicker, Republican of Mississippi, and Senator Kyrsten Sinema, Democrat of Arizona, to establish a fund to provide grants to food and drinking establishments affected by the coronavirus crisis.

And, by a vote of 58 to 42, they agreed to prohibit stimulus money from going to undocumented immigrants — something that is not included in Mr. Biden’s economic rescue plan.

The eight Democrats who voted with Republicans on that last measure included John Hickenlooper of Colorado, Maggie Hassan of New Hampshire, Gary Peters of Michigan and Mr. Manchin.

The Senate also approved an amendment to maintain the U.S. Embassy in Jerusalem. Under President Donald J. Trump, the United States recognized Jerusalem as the capital of Israel, breaking with decades of precedent, and opened a new embassy in the city, complicating peace in the Middle East.

Only three lawmakers objected to the amendment on Thursday night: Mr. Sanders, Elizabeth Warren, Democrat of Massachusetts, and Thomas R. Carper, Democrat of Delaware.

On the Senate floor on Wednesday in the lead-up to Thursday’s votes, Senator Brian Schatz, Democrat of Hawaii, dismissed the entire undertaking as a way to “try to set each other up, that we’ll somehow trick someone into taking a bad position that can be turned into a campaign advertisement.”

“Everybody should ignore it if they can. Do anything to not watch vote-a-rama,” Mr. Schatz said. “It is boring and it is the worst part of the United States Senate.”

Among the amendments that passed with bipartisan support — by a vote of 99 to 1 — on Thursday was a measure from Mr. Manchin and Senator Susan Collins, Republican of Maine, to restrict $1,400 direct checks included in Mr. Biden’s plan from going to high earners, though it did not specify what income level was too high. Democrats have largely agreed to limit payouts for Americans with higher incomes.

“Do we want stimulus checks to go to households with family incomes of $300,000?” Ms. Collins said.

Despite the amendments, the process left Mr. Biden’s plan largely intact as Democrats moved forward.

“We cannot repeat the mistakes of the past,” said Senator Chuck Schumer, Democrat of New York and the majority leader. “We cannot do too little.”

Before the vote, Senator Mitch McConnell of Kentucky, the Republican leader, had indicated that the amendments were meant to force Democrats into taking a position on some issues they might wish to avoid.

“We’re going to put senators on the record,” he said. “We’ll see how our colleagues vote on these basic, common-sense steps.”

Speaker Nancy Pelosi said that Democrats would not give up on trying to raise the wage to $15 an hour.Credit...Anna Moneymaker for The New York Times

During the voting, Ms. Collins, who led a group of 10 senators who met with Mr. Biden this week with hopes of persuading him to embrace a smaller, $618 billion stimulus package, released a letter to the White House that argued that Mr. Biden was overestimating the money needed to reopen schools and help state and local governments.

In an interview, she urged the president to take advantage of money already approved in previous stimulus packages.

“There are hundreds of billions of dollars in unspent funds,” Ms. Collins said.

Democrats were expected to introduce legislation and begin committee debate in the House next week, aiming to move the plan through the budget reconciliation process.

While details remain in flux, people familiar with the plan said it would largely mirror Mr. Biden’s $1.9 trillion proposal. The most significant deviation, they said, was likely to be lowering the cost of providing direct payments to Americans.

At Mr. Biden’s insistence, the maximum amount of those payments would remain at $1,400. But Democrats and the administration are discussing phasing them out for higher-income Americans at a faster rate than the $600 payments that Congress approved in December, meaning that those earning more would get smaller checks.

Democrats could further reduce the cost of the plan by lowering the income threshold at which the payments begin to phase out. 

Mr. Biden has proposed beginning the phaseout for individuals earning $75,000 a year and couples earning $150,000 a year. 

Lawmakers are discussing reducing those thresholds to $50,000 for individuals and $100,000 for couples, though they have not made a final decision on whether to do so.

Among the Republican ideas that appeared to gain some traction with the White House was a proposal from Senator Mitt Romney of Utah, who unveiled a plan to send payments of up to $1,250 per month to families with children, in an effort to encourage Americans to have more children while reducing child poverty rates.

Mr. Romney’s Family Security Act would provide $350 a month for each child up to 5 years old and $250 a month for children ages 6 to 17, via the Social Security Administration. 

The payments would be capped at $1,250 per family per month, and they would phase out for individual parents earning above $200,000 a year and couples earning more than $400,000.

To offset the costs of the new benefit, Mr. Romney proposed eliminating other government safety net spending, including the Temporary Assistance for Needy Families program and the expanded “head of household” deduction for parents who do not itemize their income tax returns.

Mr. Biden’s American Rescue Plan includes a one-year expansion of the existing child tax credit and earned-income tax credit, which analysts say could cut child poverty in half. Mr. Romney’s plan would streamline the earned-income tax credit, while adding in the child allowance.

The plan drew praise as an example of the possibilities of bipartisan action, and the White House chief of staff, Ron Klain, said in a tweet that it was an “encouraging sign.”

Nicholas Fandos contributed reporting.

The Day-Trading Barbarians at the Gate Won’t Sack Wall Street

The frenetic trading of options by retail investors isn’t large enough to disrupt the primary purpose of equity capital markets

By Mike Bird

Day traders and short sellers are playing the market like a videogame./ PHOTO: GABRIELA BHASKAR/BLOOMBERG NEWS

Once upon a time, short sellers were the hotshot outsiders, energetically assaulting fusty old Wall Street. 

Now they’re on the ramparts looking down as armies of day traders use options to send the value of heavily-shorted stocks like GameStop Corp. GME 18.12% surging.

Professional investors are worried: How can financial markets function when stock movements are so obviously disconnected from fundamentals, played by both sides like a videogame?

Those worries are understandable but overblown. 

Here, a little international comparison is helpful: Unlike some other major global equity markets, frenetic individual investors are far from the point where they are really disrupting the real purpose of equity markets—to help companies to raise capital.

Retail traders are associated with market inefficiency, because they’re considered more likely to trade on noise, accelerating surges and dips.

Volatility isn’t good for companies that want a placid, reliable environment to raise capital in. 

That’s part of the reason special-purpose acquisition vehicles, or SPACs, boomed in popularity last year, with both investors and issuers looking to avoid a choppy stock market.

But there is a difference of degree internationally. 

Retail order flows have reached 20% of the U.S. stock market’s total, according to UBS research, twice what they were in 2010. 

Off-exchange trading, which includes but isn’t limited to retail, is up to a record 48% of the total, compared with 2019 levels of more like 35%. 

That is nothing though, relative to the over 80% that Chinese retail traders account for, according to recent research by U.S. and China-based academics.

That’s why even on the most frenetic days in the U.S., individual options traders may move single stocks, or even a bundle of heavily-shorted stocks, but they don’t have anything like the same impact on the overall market. 

Compared with the retail-led run-up and collapse of Chinese stocks in 2015, what’s happening in U.S. markets is marginal. 

Nor is there anything yet to indicate that day traders, even in coordination, can beat the long-running, money-losing historical record of day traders in aggregate.

And even in China, public equity markets with far more frequent surges and swoons have improved over the years. 

Research by Thomas Gatley of Gavekal Dragonomics notes that public equity fundraising for strategic high-tech industries was at record levels last year, and filtered down into a boom in capital investment by those companies. 

Unlike in 2015, a market crash didn’t follow.

For the hedge funds shorting specific stocks, the prospect that day traders could disrupt that positioning for their own gain is a live-by-the-sword, die-by-the-sword sort of issue. 

If a surging stock has such a large effect on a short position that it threatens your business, you are playing at the high-stakes table and the risks are yours to bear.

Massive intraday movements driven by individual traders are dramatic, and can be extremely damaging for those also taking large risks betting against them. 

But for everyone else, they’re still a sideshow, and aren’t really undermining the working of American capital markets.


By Matthew Piepenburg

Most law graduates share a capacity to argue two-sides of any case, regardless of their own primary conviction.

When it comes to gold, my verdict as to its ultimate price direction (upwards) and its historical role (wealth preservation) have never wavered.

This, however, has not made me blind to sober counter-arguments to my own (and other’s) fundamental case for owning physical gold.

Below, therefore, I’ll consider the cases made by both the prosecution and defense when it comes to gold, as well as shed needed light on the current Bitcoin mania and possible Bitcoin trap.

Although not here to mock Bitcoin or those who defend it, I am here to splash some cold water on the face of those who compare Bitcoin to gold, or even worse, of those who feel BTC is the “new gold.”

Big mistake.

That said, there are gold headwinds worth considering, especially for those who don’t invest in gold for the long-term and are easily spooked by near-term headlines and price moves.

As someone who sees gold as longer-term fire insurance for global currencies already burning to the ground, such price volatility matters very little, as the longer-term wealth preservation role of gold remains without equal in the courts of history.

As dramatic changes in global debt to GDP expand nation-by-nation, there’s no mathematical way to grow out of the debt canyons dug by our esteemed central bankers.

This means we can expect more borrowing, printing and spending ahead—and thus an historically unmatched set-up for precious metals as global fiat money supply goes from stupid (manslaughter) to just plain insane (1st degree murder).

Let’s therefore examine the big picture, including gold’s headwinds and tailwinds, and leave you to draw your own verdict, already knowing mine.

Gold & Silver Ratios in a New Abnormal

In the 50 years since Nixon removed (i.e. welched on) the U.S. gold standard, a patterned waltz between the price of gold and silver has been in play, the choreography of which most are familiar.

Specifically, the dance involves silver lagging gold, then moving much faster, after which, at least since 1971, both metals often decline in price simultaneously.

In post-Nixon era, we’ve seen the gold-silver ratio gyrate from 47 (1973) to 19 (1974) to 40 (1978) to 65 (2016) to as high as 123 and then recently back to 70.

Does this dance today mean another bear market for both metals tomorrow?

The simple answer is no, and for bears who feel otherwise, I’d argue that you’re missing the macros. But more on that case below.

Declining Central Bank Demand—More Headwinds for Precious Metals?

Precious metal prosecutors will also argue that central banks have slowed their gold purchasing. 

This is a valid argument.

In 2020, central banks bought a record 660 tonnes of gold, ending a ten-year binge of over 5000 tonnes collectively.

But that buying has slowed, as has the gold price surge of 2020—for now.

The prosecution will further argue that the gold sold by central banks has not been re-purchased with similar gusto.

Russia’s central bank, for example, recently announced a suspension of additional gold purchases—due more to the cash-crunch it’s suffering from tanking oil prices and COVID pains than a loss of longer-term faith in the metal.

Turkey, which was a big gold buyer in early 2020, is equally likely to curb buying as their financial conditions deteriorate in 2021.

And as for China, having surpassed India as the world’s largest gold buyer in the last two decades, it is now evidencing less demand, as the premiums it has traditionally charged above the global gold price have been declining rather than increasing, and are in fact now trading at discounts.

The Bitcoin Alternative?

Needless to say, Bitcoin has also been taking headlines, as well as market share, away from the gold market (and gold “buzz”) as well.

Precious metal prosecutors will remind the court of public opinion that over $2B in outflows from gold ETF’s alongside $7B of in-flows into Bitcoin can’t be ignored, as digital currency bulls equate blockchain to the “new gold.”


Bitcoin is not the new gold…But what is it?

A Cash Payment System?

Originally designed as a digital cash system, Bitcoin’s noble vision as an electronic wallet for non-dilutable “coins” in fiat world gone mad was soon usurped by its use on the Silk Road, an online mecca for illegal drug sales et al.

Such shady uses are less discussed today as BTC makes greater inroads into the main stream consciousness.

That said, BTC is not alone, nor even supreme, as a payment tool.

Over the last decade, payment tools like Cash App, Zelle, Apple Cash and Venmo have emerged allowing transfers to take place in seconds for reasonable fees.

BTC fees are around $10 per transaction, but almost no one is buying BTC for such transactions, as other tools are superior.

The simple truth is Bitcoin holders are getting rich by just watching its value rise in their Coinbase wallets, not because they believe BTC is (or will be) the next medium for grocery or car purchases.

For BTC holders, the only thing on their minds and e-wallets other than instant wealth has been the cost of electricity needed to mine more of these magical coins as concerns rise about straining, or even killing, the electronic grid where coins are “mined.”

Bitcoin Beware

But, again: What really is Bitcoin? Is it an online cash system?

Is it a truly safe, un-seizable “digital gold” that will protect holders from debased fiat currencies and the inevitable yet ignored inflation risks ahead?

In short, will BTC send gold into the history books and gold prices to the basement?

The short answer is hell no.

Gold’s Golden Days Are Still Ahead


Although it’s normal to expect a correction phase within a larger bull market for both silver and gold, the price retracements of late signal a buy opportunity for precious metal investors, not grounds for a bearish panic—unless you’re a gold trader blind to technical buy/sell signals.

The broader bull market in gold today is much different than the bull markets of 1971 to 1978, or 2010, which saw very little interest/demand from western buyers.

Demand going forward will in fact be driven more by western than eastern buyers, though current investors can’t ignore declining demand from China, Russia or India.

That said, the gold-silver dance described above will be very different going forward as both assets rally in synch rather than two steps up, one step back.

Most importantly, the larger world (i.e. fully insane macro’s) in which gold and silver trade today is infinitely different than the world it rose and fell in during the immediate post-Nixon era and the cycles described above.

A Whole New Ab-Normal

Unlike prior bull and bear cycles, the global economy today, unlike say 1973, 1979 or 2011, is flat-out broke, with global debt limping toward $280T and global GDP 1/3 of that horrific number.

To pay for that debt, central banks like the Fed have all but gutted return in the Treasury market, whose real bond yields are all negative across the board, and thus technically in default.

With this much debt off our bow, the only way to pay for it has been with printed dollars, yen and euros. Lots and lots of them. Just look at the Fed’s recent printing spree…

Central bank balance sheets (i.e. the levels of unfathomable amounts of printed currencies) are unlike anything seen before in the history of capital markets.

At greater than $30T and counting, the level of fiat (i.e. fake) money has never been this high, which means the amounts of increasingly worthless paper money has never been this grotesquely inflated nor the purchasing power behind them so profoundly debased.

Of course, this also means that the need for a genuine real store of value to legitimize now openly discredited fiat currencies has never been greater.

Never. Not ever.

But is Bitcoin the answer to this fiat currency disaster?


Bitcoin Is Not the New Gold

Bitcoin, as a store of value so necessary to the inevitable recalibration (or re-setting) of the current debt and currency markets, is simply not the answer.

That is, Bitcoin may be many things, but it is not a currency stabilizer.

As an instrument of speculation, of course, Bitcoin is (for now) an absolute dream asset, with far, far, far greater speculative and price power punch than gold, as the following Bitcoin to Gold Ratio confirms:

The 5X annual price moves, the 10% daily gains (and losses) and the overnight millionaires made by Bitcoin are beyond compare, even to the speculative success recently enjoyed by gold.

But therein lies a key point (and problem) for BTC.

Although gold can and will see price surges (and losses), the kind of surges (and losses) made by BTC are far too volatile, up or down, to be considered as a credible store of value.

In short, Bitcoin will not be the Fed’s next balance sheet asset nor the IMF’s next SDR/currency solution.

The extreme price fluctuations in Bitcoin invalidate its claims as a store of value. Full stop.

As to being unseizable, Bitcoin in fact, is quite the opposite. There have been many instances of government confiscation of this digital asset from illicit enterprises.

Furthermore, and unknown to most, Bitcoin’s source code (and the complex inclusion of a “segregated witness” modification by Bitcoin miners) means that Bitcoin is no longer a digital cash system to be used as medium of exchange by other massive platforms, like…say Amazon.

Instead, Bitcoin is now being seen and held as the new gold—a fixed-supply asset to serve as an alternative to fiat currencies.


But how will Bitcoin serve a global population buying and selling goods by the second when it can only handle about 350,000 transaction per day?

Again, and whatever your or my opinion of the global “experts” —BTC is not going to be their new currency, but merely the new tool of a massive mania making many investors undeniably wealthy—for now.

Bitcoin Manipulation-the Tether Effect

Of course, like any new toy in the markets, room for abuse and fraud is equally possible, if not tempting.

There is growing evidence, rather than mere theory, for example, that Bitcoin’s astronomical rise has been artificially manipulated, in part, through one or more stablecoins, including Tether (USDT).

Without getting too complex, Tether was a coin allegedly promising a one-to-one USD backing.

There is concern, as well as growing evidence, that USDT agents were minting Tether coins out of thin air (much like the Fed creates dollars out of thin air), and then using those magically created USDT coins to buy Bitcoin on exchanges like Bitfinex.

Bitcoin defenders, of course, have been very busy of late downplaying the Tether story, but the potential for fraudulent BTC price manipulation now and going forward simply can’t be ignored.

Such concerns would make Bitcoin more than just a mania bubble—but something far worse: An artificial asset driven by artificial demand from other artificial coins. A veritable castle in the sky, of which the digital world will see many more.

In short, digital currencies are hardly beyond massive levels of risk as well as manipulation—and hence destruction.

Again: All Conversations Return to Gold…

Of course, gold finds its stability and source from the periodic table of the elements, science and the physical world, not a software miner, hacker or digital trader in a software world.

BTC generates no cash flows, has no industrial or consumer use other than as something to sell to someone else, who may be the next greater fool rather than millionaire.

Just saying: Be careful.

When the world one day faces the facts that fiat currencies (themselves no store of value) need a chaperone rather than just another technical imposter to contain otherwise open currency debasement and distortions, some re-pegging to gold is not only essential, but inevitable.

Anything less would be a charade, and all of us, of course, are growing tired of financial charades.

Closing Arguments

For each of the foregoing reasons, gold is entering a new era as well as a new bull market, though not one free of price volatility or even manipulation.

The recent 1.4 million oz. sell order of gold in a single illiquid market trade, for example, was additional evidence of the open secret on Wall Street that gold prices can and will be manipulated by bullion banks dumping gold in massive volumes to cover prior short exposures.

Overall, however, natural commodities, like natural market forces, get the last and final laugh over artificial markets, artificial currencies and even artificial “gold” like Bitcoin. 

For those looking to hedge against these un-natural and distortive forces, as well as the inflation and debased currencies here and to come, natural gold will preserve your wealth; fabricated Bitcoin will not.

Crimean Water Wars

The peninsula is running out of water, and Russia knows it’s on Moscow to fix it, one way or another. 

By: Ridvan Bari Urcosta

Water supplies in Crimea are critically low. Larger cities are tightly rationing their use, and stricter restrictions may soon be in the offing. 

Ecologically, this is a dire situation for the peninsula. Geopolitically, it’s bad news for Russia, since the collapse of Crimean agriculture and industry would create an untenable situation for Russia’s hold over a critical asset in the Black Sea, a key region of strategic, military and sacral importance. 

Moscow understands as much and is prepared to do whatever it takes to remedy the situation.

The Value of Crimea

Because of its location on the north coast of the Black Sea, Crimea has been a geopolitical prize for centuries. The Greeks, Romans and Ottomans all laid claim to it at some point or another, with Russia taking control in 1783. (Ukraine had held it for only a brief period, from 1991 to 2014.) 

It immediately became one of Russia’s windows to the world’s oceans and to the Middle East. 

Even now, Sevastopol, the peninsula’s largest city, is home to Russia’s Black Sea Fleet, without which Moscow would not be able to, for example, conduct its current military campaign in Syria. 

Along with Kaliningrad, the Russian exclave on the southern portion of the Baltic Sea, Crimea is one of Russia’s first lines of defense and an important tool in its anti-access/area-denial strategy. 

Unsurprisingly, Crimea is one of the most militarized regions of the Black Sea, posing an immediate danger to Ukraine, Georgia and NATO members such as Turkey, Bulgaria and Romania.

Its strategic value cannot be overstated. The annexation of Crimea in 1783 made Russia a Black Sea power, with ambitions of conquering the areas that were under Ottoman control. 

It’s no coincidence that the decline of the Ottoman Empire began when Russia started to block the empire’s access to its allies in Eastern Europe. (To this day, Crimea is still a check on Turkish influence.) 

Every belligerent in the revolutions of 1917 vied for control of the peninsula, for they knew that without it, it was impossible to establish full and permanent control over southern Russia and Eastern Europe. 

Crimea has thus been a target and a haven in nearly every modern war Russia has been a part of, including World War II and, of course, the Crimean War. (Not for nothing, the peninsula has sacral importance for Orthodox Slavs, especially the Chersonesus people. There, the kings of old Kievan Rus were converted to Orthodox Christianity. In a broader sense for eastern Slavic people, it was a portal to the rest of Europe.)

Having lost Crimea at the end of the Cold War, when the Soviet Union collapsed, modern Russia knew it wanted it back. 

It was simply too vulnerable to Western threats without it. So back it went to Russia in 2014, when President Vladimir Putin ordered its annexation.

Guns vs. Butter

But annexation meant that Moscow would have to govern, and in that regard it faced some unique challenges. 

For one, it had to keep Crimea independent of Ukrainian utilities and provide the peninsula, with which it is not connected by land, with its own. 

It achieved as much shortly thereafter, laying cables in the Sea of Azov to provide Crimea with communications and energy. But it was never able to provide it with water, a problem that culminated in 2020. 

Ukraine had been meeting about 85 percent of Crimea’s water needs through the North Crimean Canal, which runs from the Dnieper River, but abruptly stopped to induce Russia to end the occupation. 

Climate change compounded the problem. Over the past few years, low rainfall in the Black Sea region has affected just about every area, but none more so than Crimea. 2020 was consequently the driest year in Crimean history (or at least since records began 150 years ago).

Meanwhile, the population is increasing in Crimea. Before 2014, roughly 2 million people lived there. That figure dipped slightly as pro-Ukraine Crimeans left for the mainland, but Russian migrants quickly offset the difference and then some. 

Now, there are as many as 4 million people living on the peninsula, according to Russian statistics. Ukraine has its own figures, which naturally conflict with Russia’s, and the area is rife with tourists. 

So while the exact population is a matter of debate, it’s clear that the numbers are going up, with a military and industrial presence to boot.

It’s no wonder that Crimea’s water deficit has long since been a problem. In 2013, the total volume of water withdrawn was roughly 1.6 billion cubic meters. By 2017, it was only 301 million cubic meters. 

Just a few months ago, it had less than 20 percent of its water reserves left in its reservoirs. 

Snowy and rainy winters usually bring these levels up, but 2020 was too dry to do so.

Russia’s plan, then, is to provide water to Crimea by developing a sophisticated system that would diversify its sources away from Ukraine. The deadline for this strategy is 2024. Between now and then, Moscow intends to do any combination of the following:

drill new wells that can reach underground waters (notably, if Russia exhausts this resource, it will eventually destroy the Crimean agricultural sector)

build dams and hydrostations on Crimean rivers

renovate the water supply system

exploit the underground waters beneath the Sea of Azov

construct desalination plants (Russia has allocated $106 million for these projects)

transfer water through pipelines from the Don and Kuban rivers

artificially increase the amount of precipitation (rainfall and snowfall) in Crimea through the use of airplanes

While the total bill for this plan is unclear, Russia has earmarked some $653 million for it already. In lieu of this plan, and perhaps in addition to it, there is also a looming military option.

Russia would need additional territories in southern Ukraine to establish full control over the North Crimean Canal to help offset the water shortages. 

Hypothetically, Russia would have to occupy the entire zone of the canal that is still under Ukrainian control – about 100 kilometers (62 miles) of it. 

But this is easier said than done. Ukraine and its allies are developing a sophisticated system of defenses and bases for preventing just such a scenario. The Ukrainian Foreign Intelligence Service several times warned leaders in Kyiv and the West about the dangers of a Russian water takeover, and that Russia is already training for it. 

Moreover, the former commander of U.S Forces in Europe said that Ukraine must continue the water blockade of Crimea and avoid any concessions to Russia on this issue.

Alternatively, Russia could destroy the dam on the Dnieper River, using the humanitarian crisis in Crimea as pretext. 

Either way, Ukrainian intelligence believes the worse Washington’s domestic problems get, the higher the possibility that either of these scenarios will be realized. 

In December 2020, Ukrainian President Volodymyr Zelensky warned Russia that it would be grounds for war. Even so, the military option should be seen as a last resort, one that will be exercised only if, after all others are exhausted, Russia stands to lose its control over this hugely important area. 

Water security is a regional issue, and one that this part of the world will continue to struggle with for years to come.