Below is Fitzwilson’s exclusive piece for KWN:

“Proponents of the view that we are in no danger of inflation, let alone hyperinflation, frequently point to the chart below.  We believe that the chart is reflecting economic desperation, not proof that we should be unconcerned about inflation.

From a practical standpoint, our view of the velocity of money is the value of goods and services recorded in a time period divided by the money in the system.  There are various velocities of money that can be calculated depending upon the measure of money being used so it is a bit of a hazy concept from which to begin.

The first point is that many of the economic indicators upon which we have relied for the past century are rooted in the idea that we have reliable data.... 

Continue reading the Robert Fitzwilson piece below...  


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“As we know, there is very little data being provided that is without controversy.  Data for unemployment, inflation, deficits as well as credit ratings are among the formerly reliable foundations upon which investment strategies could be based.  There are now concerns surrounding almost all economic and financial reporting.  Very few can be taken at face value.

The numerator in the ratio reflected in the chart above is supposed to include the value of goods and services.  In a transparent and relatively identifiable economy, the theory behind the above chart probably worked well for many decades.  We do not have that now.  The relationship between gross domestic product, consumption, government spending, and net exports cannot possibly be accurate anymore.  No allowance can possibly be made for fraud, waste and a burgeoning underground economy.  The estimate for the GDP is as murky as it has ever been.  At a minimum, we know that the economic growth purchased by each round of Quantitative Easing continues to decline.

Putting aside problems with the numerator, the denominator, M2, continues to grow exponentially.  The money that is being printed does show up, but not in ways that would make the velocity of money a valid indicator of policy and the path for inflation.  It shows up in massive accumulations on corporate balance sheets.  It shows on the balance sheet of the Fed and other central banks. 

Instead of the “monetary stimulus” going for jump-starting economic activity, the majority is really going to fund the Federal deficit and support other financial institutions and central banks.  The indefinite $85 billion per month in “stimulus” is probably the best estimate for what the “on-books” Federal deficit will be on an annual basis.  That money is not going to stimulate the economy as in the past. 

An unacceptable portion is being used for non-productive activities as well as the inevitable fraud that accompanies a lack of transparency.  It is being shunted away from the real economy, so it will not show up in the general level of prices.  Yet.  What we will eventually get is the hyper-devaluation of the fiat currency.  Prices will give the impression of rising exponentially, but the reality is that prices will pair up with the only viable alternative currencies, gold and silver.

What we see in the chart above is not an “all clear” on inflation.  At best, it is another sock puppet diverting our focus from the destructive economic and fiscal paths upon which we find ourselves.   At worst, we see economic cardiac arrest.  You can almost hear the panicked voices at the central banks yelling "Clear!" as the financial defibrillators of quantitative easing are used with greater force while the patient slips in and out of consciousness.

We are now getting ready for unlimited financial defibrillation.  A call went out this week for printing $30 trillion!  Why stop there?  We have over $200 trillion of unfunded obligations, and the pile grows every year with unending deficits.  They won't stop.  They can't stop.

As investors, we can only try to get out of the way of this runaway train.  The conditions for an economic “kill shot” are in place with interest rates near zero, huge future obligations on the books, and more deficits to come.  A sudden rise in rates would likely cause the financial system to melt down.  The only path for investors is debt reduction and to convert to tangible assets such as real property, collectibles, gold and silver.  Natural resources should also be a key portfolio component for consideration.”

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Eric King

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