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Thecabalissettingitsowntrap!Aresetthisweekend?OnApril11goldroseto$1365andsilverto$16.85asthepossibilityofawarintheMiddleEasttookcenterstage.Liborroseforthe45thconsecutivedayto2.35%onApril12indicatingthetightnessintheUSdollarmarketandincreaseduncertaintyrethetrustbetweenbanks.

ItlooksliketheLiborchartiswantingtobreakoutontheupsideboostedbyanincreasingbudgetandtradedeficitandreducedrecyclingofUSdollars.Increasingbudgetsdeficitsuntil2028arethenameofthegameTheMarchdeficitbroughtthecumulative2018Fbudgetdeficittoover$600bnduringthefirstsixmonthofthefiscalyear,orroughly$100billionpermonth;asareminderthedeficitisexpecttorisefurtheramidthetaxandspendingmeasures,andriseabove$1trillion,althoughatthecurrentrunrateitisexpectedtohiteven$1.2trillion.

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Inarecentreport,CBOhasalsosignificantlyraiseditsdeficitprojectionoverthe2018-2028period.

Interestrateswillriseeitherbecausetheeconomyisdoingreallywell,andthuscauseinflation,orbecausetheeconomyisn’tdoingwellatall,andthusgiverisetohigherrisk,thingsdidn’tworkoutButwhileoutofcontrolgovernmentspendingisclearlyaconcern,anevenbiggerproblemiswhathappenstonotonlytheUSdebt,whichrecentlysurpassed$21trillion,buttotheinterestonthatdebt,inatimeofrisinginterestrates.Risinginterestratesareonthewayfollowing8yearsofhistoriclowinterestrates(FedFundsRateat0.25%)from2008till2016.Interestratesinmypointofviewwillberisingbecauseoutofcontrolinflationand/orbecauseoverallriskisgrowing.

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TheFederalReserve,meetingforthefirsttimeunderChairmanJeromePowell,raisedthetargetrangeforthefederalfundsratebyaquarterpointto1.5%-1.75%duringitsMarch2018meeting,inlinewithmarketexpectations.TheFedofficialsalsoprojectedasteeperpathofhikesin2019and2020astheeconomicoutlookis“improving”accordingtothe“reliable”governmentfigures.NormalizedInterestratesintheUnitedStateshaveaveraged5.73%from1971until2018whilstreachinganalltimehighof20%inMarchof1980.

Andtherefore,after8yearsofaFedFundRateof0.25%,itisnotunlikelythatinterestrateswillrise.Either,asmentioned,becausetheeconomyisdoingsowell,andthusgeneratinginflationoritisbecausetheGovernmentfiguresareflawedandtheeconomicsituationisnotasgoodastheypretendittobewiththeriskprofilerising.Anywaytheconclusionisthatinterestratesarerisingandwillrisemostlikelymuchmore.AccordingtotheCBOthe10yTreasuryyieldwillrisetoonly4%-4.5%,whichIthinkisveryverymodestespeciallyputinahistoricalcontext.NeverthelessthepointisthatwithoutofcontrolUSdebtinterestratesaregoingtoriseeitherbecausetheratesriseand/orbecausethedebtlevelsincreasefurther.Thereisnoturningback.

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Asthefollowingchartshows,USgovernmentinterestpaymentsarealreadyrisingrapidly,andjusthitanalltimehighinQ42017.AndIwanttoemphasizethat'swhenFedFundswasstillinthelow1%'s.Justwhatwillhappenwhenitreaches3%astheFed'sdotplotsuggestsitwill?Itwillimplodethewholedebtstructurewithallitssubsequentoutcomes.

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TheU.S.governmentwillstartspendingmoreoninterestthandefenseby2023TheheadoftheCongressionalBudgetOfficewarnedlawmakersthattheU.S.governmentisontracktopaymoretoitscreditorsthanonitsownmilitary,asinterestratesanddebtlevelscontinuetoclimb.

CBOchiefKeithHalltoldtheSenateBudgetCommitteeWednesdaythatAmerica’snetinterestpaymentswilltripleoverthecomingdecade,outpacingmilitaryexpenditures.Hecalledthedatapoint“oneofmyfavoritefigures”usedtohighlightthechallengesposedbythecountry’sballooningdebt.Hisoffice’sbudgetandeconomicforecasts,publishedonMondayApril9,shownetinterestpaymentsfirstoutstrippingdefenseoutlaysinfiscal2023andreaching$915billionfiveyearslater.Theincreasewillcomeasdebtheldbythepublicalmostdoublesto$28.7trillioninfiscal2028fromthisyear,accordingtotheCBO,anon-partisanarmofCongress.TheU.S.governmentwillstartspendingmoreoninterestthandefensein2023,seebelow.ThoughimaginewhatthatwilldotothevalueoftheUSdollar.

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Federalgovernmentcurrentexpenditures:Interestpayments

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ShadedareasindicateU.S.recessions Source:U.S.BureauofEconomicAnalysis myf.red/g/jrWF

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Source:CongressionalBudgetOffice'sAprilforecastsNote:TimeframeisinfiscalyearsIncreasingtotaldebtormonetizingthedebt,followinganincreasinginterestburden,willputfurtherpressureontheUSdollarTheoptionsoftheUSgovernmentareeitherincreasingthedebtormonetizingthedebt(printingUSdollars)thoughinbothcasesitwilldiminishthepurchasingpower,thevalueoftheUSdollar.InmypointofviewtheenormousdebtlevelswillcreateaselffulfillingweakeningoftheUSdollarbecauseofthecumulativeburdenstemmingfromtheincreasinginterestrates.Increasingdebtandinterestratesstartfeedingoneachother!AndtheseanticipatedfactorsareweakeningtheUSdollarclearlynotmissingtheirimpact.TheUSdollarhasjustbegunitsthirdsuccessivefallafteranotherlowerrecoveryhighinahugelystrongmulti-decadechartpattern(seebelow).

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ThetimethatUSdollarswererecycledbackintoUStreasuriesiscomingtoanendasdescribedinoneofmylatestarticlesandwhichconsistsofthreeparts.https://www.gold-eagle.com/article/recycling-us-dollars-financing-us-deficits-going-end-part-1.AndwiththeweakeningoutlookoftheUSdollarthebestwayoftheChinesetogetridoftheirtreasurieswouldbetoswapthemforphysicalgoldandsilver.Swapsomethingthatisdeclininginvalue(USdollar)forsomethingthatwillincreaseinvalue(goldandsilver),afteralltheUSdollar/goldswapistheperfectinverseswapfortworeasons:

1. ThefirstreasonisthatthegoldpriceisexpressedinUSdollarsand2. Thesecondreasonisthatgoldisthemirrorimageofthereservecurrency

because:• Itsestablishedhistoricvalue(for6,000years),• Itsinherentvalue(goldandsilverhavevalueontheirownandnot

beingdeterminedbythesuccessorfailureofthepoliciesofthemonetaryauthorities),

• Itsscarcity(can’tbeprinted,sonodebauchment)and• Becauseitdoesn’thavecounter-partyrisk(itsvalueisnotdetermined

bytheperformanceofacounter-party).

Ultimatelygoldisthesafetynetandanchorofthefinancialsystemwhenthefiatcurrenciesfail.IncreasingnumberofEFPsbecauseinvestorsarelosingconfidenceintheUSdollarWhereasinthefirsthalfoflastyearinvestorsstillsufficedwithaUSdollarornominalsettlement(notinkind)thelastseveralmonthsthatdogmahaschanged.TheoutlookfortheUSdollarhasworsenedwithrisingtwindeficits(tradeandbudgetdeficits)andthedollarlosingitsPetrostatusbeingreplacedbythePetroYuanbeingbackedbygold.Thereisnostrongerbackerofacurrencythangold.AndthusasaresultofthedecliningUSdollarweseethenumberofEFPsincreasingquitestrongly.WeseeincreasingnumbersofEFPs(ExchangeFuturesforPhysical)becausetheComexdoesn’thaveanyregisteredinventoriestospeakof(only0.7%ofallgoldfuturescontractsoutstandingarebackedwith

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physicalgoldwhilstthatnumberforsilveris5%)andthereforefuturesstandingfordeliveryneedtoberoutedthroughtheLondonLBMAforphysicaldelivery.YeartodatetheamountofsilverEFPsequalsanastounding90%oftheglobalannualsilvermineproductionof867moz.(withatotalvalueof$14.4bnatthecurrentpriceof$16.63/oz)whilstforgoldthenumberofEFPstotalssome70.7moz.equaltoabout70%ofannualworldproductionof106moz(withatotalvalueof$142bnatthecurrentpriceof$1345/oz).ThevalueoftheUSstockmarketaloneissome$30trnbasedonthetotalmarketcapitalizationoftheRussell3000Index—whichcovers98.5%ofthecountry’smarketcapitalization.TheUSbondmarketisvaluedatsome$45trn.Thecabalissettingitsowntrap;itisdiggingitsowngrave,bysuppressingthegoldandsilverpricesWhatthecabalclearlydoesn’tunderstandisthattheirschemeismeanttofail,theyarediggingtheirowngrave,becausetheymustbelievethattheycansuppresstheultimatecurrencywithoutcreatingever-largerincreasingdemandforthephysicalattheserockbottomprices,especiallywhenonewouldcorrectthepricesforinflation.

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Source:shadowstats.comWiththecontinuouslossofpurchasingpowerfollowingtheabuse(monetaryprinting)ofthefiatcurrencies,andespeciallythereservecurrency,thepreciousmetalslookmoreattractivebytheday.Investorsarefinallybecomingawarewhatanincrediblebargain,inherentvalue,theultimatecurrencies,goldandsilver,represent.Goldandsilveraretheperfectinverseassetclasstoallpaperassetsandthusagainstthecounterpartyrisksofanythingofvaluethatisrepresentedinapieceofpaper.Mypointisthemorethecabaltriestosuppressthepreciouspricesthemoregoldandsilverwilltriggerdemandforthephysicalbecausethepaperisattheendofitsrope.Thecabalunderthecurrentcircumstancescreatestheoppositeresultofwhatittriestoachieve,lessinterestandbuyingofthepreciousmetals,causingmoreinterestinthephysicalandthusanincreasingnumberofEFPs(physical),whichwillcreatethedemiseoftheirsuppressionscheme.Thecabalissettingitsowntrap.Theydigtheirowngravebysuppressingthepriceofgoldandsilver,theultimatecurrencies,tolevels,thatareconsideredbymoreandmoreinvestors,atgiveawayprices,withsilverat$16.63/oz.andgoldat$1345/oz.,consideringtheworseningoutlookfortheUSdollar,theincreasingrecordglobaldebt,theflatteningoftheyieldcurve,inflationarypressures,budgetdeficits,higherLiborrates(tighteningcreditconditions)threatoftradewarsandworseninggeopoliticalsituation(Syria).

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WithannualizedEFPdemandforsilveratalmost4xannualglobalmineproductionand2.8xgoldmineproductionthissituationisuntenableandIbelievethereisnotmuchtimeleftbeforethissituationwillcometoahead.AsweknowthedefaultoftheComex(withnoorhardlyanyregisteredinventories)isalreadybeingcircumventedbyusingtheEFPswaps,“forexceptionalcases”,totheLondonLBMA.AlthoughtheLondonLBMAmarketisanOTC(overthecounterorbi-lateral)marketandthusnontransparentornotinthepublicdomainandthereforehasmoreleewayinordertohidethetightsituationinthephysicalgoldandsilvermarkettherearelimitstoits

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containmentofthegoldandsilverdeliveryobligationsandgoldandsilverprices.Consideringtheenormousamountsofforwardcontractsreplacingthe38,609EFPsforgold(38,609EFPsequal3.8mozor120tonsofgold!)inthelasttwodays(April11and12)thecounterpartiesinLondonstillwillhavetosourcethephysicalgoldandsilverinthemarketorfromtheminingcompaniestomeettheirobligationsandwhenthepricesuddenlytakesofftheywillincursignificantlosses.Thequestioniswhenwillthisschemebreak.ItappearsthattheCommercialsarealmostnetlonginsilverforthefirsttimeinatleast15yearswiththeopeninterestatanall-timehigh,silvervolatilitynearhistoriclowsandsilverpricesatalowpriceof$16.63/oz.Sowhatcouldbetheconsequenceswhataretheoptions?SoeithertheCommercialswillridethiswaveup,takingprofitsatonestage,andthengoshortagain,ortherewillbeahugeresetatmuchhigherpricesthatwilltriggerenoughgoldsalestomeetthedemandforthegoldforwardsinLondonandwilldiminishtheappetitefortheEFPsbecauseofthehugepricerise,wellatleastforthemoment.AnywayinbothcasesIbelievethegeniewillbeoutofthebottleandtheunsustainabilityofthesuppressionofthegoldandsilverpriceswillbedemonstratedandwewillbelookingatmanyyearsofmuchhigherprices.AndoneofthetriggersthatcouldhavethegeniecomeoutofthebottlecouldbeaneventaswearewitnessingthisweekendwiththesurgicalattackonSyriantargets.Wearenotfaroffamajorreset!©GijsbertGroenewegeng.groenewegen@silverarrowpartners.comApril14,2018