AN ECONOMIC REPORT
THE LAST ASSET STANDING
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The Covid-19 pandemic thrust the global economy
into the worst financial crisis in more than a
century. It’s naïve to believe that the world’s
banking systems, trading networks, economic
infrastructure, education programs, and society as
a whole would emerge unscathed. They have not.
We are in the “fallout years,” and this is a highly
volatile and uncertain moment in history. We
find ourselves not only in a post-pandemic world,
but one that is post-truth and post-trust. Faith in
American institutions and government has collapsed. We no longer believe in the safety and security of
U.S. banks, Wall Street, the Federal Reserve, the American Dream, or each other.
Since Covid-19, the U.S. economy has been rocked by stubborn inflation, skyrocketing interest rates,
bank failures, stress in the financial markets, soaring consumer debt, mounting commercial real estate
woes, and unprecedented geopolitical unrest.
It is in this economic and fiscal climate that many Americans are looking to safeguard their assets,
manage risk, and plan for retirement. It is no easy task in an inflationary world threatened by war,
political polarization, unsustainable debt, and de-dollarization.
This is a time to think about safety nets, portfolio protection, and strategic asset diversification. This is a time
to look at the long arc of history to see what has been reliable and secure. This is a time to preserve wealth
and safeguard the future. This is a time to for gold. It has no counter party risk and is a known hedge.
Since 2022, Central banks have been amassing gold at the fastest pace on record. They hold gold to
diversify their reserves, prop up their currencies, and guard against global perils. Imagine, being able to
protect your wealth with the same financial safety net as some of the most powerful central banks in
the world.
1 https://www.thestreet.com/finance/why-central-banks-are-buying-and-selling-gold
What is it that central banks know? Perhaps that if the dollar slides, cryptos evaporate, real estate collapses,
equities crash and the bond market melts down — gold could likely be The Last Asset Standing.
“Central banks bought a staggering $70 billion of gold in 2022 – the most since 1950 – as
heightened macroeconomic and geopolitical uncertainty drove governments to accumulate the
precious metal … Central banks buy the world’s “favorite safe haven” because it retains its value
against volatile currencies or falling bond prices. Simultaneously, investors don’t need to rely on
any particular issuer or government to trade it.”1
I. Introduction. The Fallout Years
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“There is no historical precedent for a painless return from moderate to low inflation … No team
of policymakers has ever executed an immaculate reduction of inflation from moderate to low
akin to what we have seen in the vanquishing of high inflations past. Ironically, the stock market,
which in the U.S. has been yearning for signs that interest rates will not remain higher for longer,
actually provides the strongest evidence that a quick return to the Fed’s target is highly unlikely.
Policymakers—and financial markets— ignore this lesson at their own peril.”5
“The Consumer Price Index increased 8.5 percent for the year ended March 2022, following a
rise of 7.9 percent from February 2021 to February 2022. The 8.5-percent increase in March was
the largest 12-month advance since December 1981. Consumer prices for food increased 8.8
percent in March 2022, the largest 12-month advance since May 1981. Within food, prices for
food at home rose 10.0 percent and prices for food away from home rose 6.9 percent.”2
Back in March of 2022, the U.S. Federal Reserve was confronted with some of the largest increases in
consumer prices in over forty years. According to the Bureau of Labor Statistics:
2 https://www.bls.gov/opub/ted/2022/consumer-prices-up-8-5-percent-for-year-ended-march-2022.htm
3 https://tradingeconomics.com/united-states/effective-federal-funds-rate
4 https://www.imf.org/en/Blogs/Articles/2023/10/10/higher-for-longer-interest-rate-environment-is-squeezing-more-borrowers
5 https://www.nber.org/system/files/working_papers/w31129/w31129.pdf
Soaring consumer prices prompted
the Fed to embark upon the first, of
eleven interest rate hikes to drive
down consumer demand, cool the
economy, and quell highly persistant
inflation. The Fed’s recent tightening
cycle was the fastest pace in forty
years.3
There is a downside to rate hikes at
this speed and scale. According to the
International Monetary Fund, ‘higher
for longer’ rates squeeze borrowers,
create stress within the banking system, and make it difficult for individuals and corporations to service
their debt — increasing credit risk. “The risk … is that borrowers might already be in precarious positions
financially, and the higher interest rates could amplify these fragilities, leading to a surge of defaults.”4
According to a National Bureau of Economic Research paper titled, “Disinflation and the Stock
Market: Third World Lessons for First World Monetary Policy,”
II. The Fed’s Big Gamble
TRADINGECONOMICS.COM | FEDERAL RESERVE BANK OF NEW YORK
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The U.S. consumer has always been considered “the backbone” of the American economy.
Indeed, consumer spending fuels business revenue and is a key driver of economic growth. The White
House recently declared that, “Consumption spending [by consumers] makes up two thirds of the U.S.
economy on average, so as the U.S. consumer goes, so goes the U.S. economy.”6
But the resilient American consumer is growing weary from the rising cost of living, high interest rates,
and mounting global risks. Indeed, Business Insider reports that:
“American consumers are finally showing signs of slowing as they blow through their savings,
and there are a handful of warning signs that the economy could soon tip into a spending
recession … A major pullback in consumer spending could force GDP growth to grind to halt …
pushing the overall economy into borderline recession territory.”7
The report further cites rising credit card delinquencies, falling personal savings8, slumping consumer
confidence, and a pullback in household spending as evidence that consumers are indeed “running out
of steam.”
6 https://www.whitehouse.gov/cea/written-materials/2023/10/30/as-the-u-s-consumer-goes-so-goes-the-u-s-economy/
7 https://www.businessinsider.com/economy-consumer-spending-credit-card-debt-delinquencies-retail-hiring-2023-11
8 https://fred.stlouisfed.org/series/PSAVERT
III. The Embattled American Consumer
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In the wake of the pandemic,
American households have
contended with everything
from inventory shortages
and product rationing —
to backorders and empty
shelves. This was followed
by the highest inflation level
in four decades and interest
rates at a more than 20-year
high — dramatically impacting
home buying, car buying,
credit
card
rates,
debt
levels, and the availability of
financing. Many experts fear
that the U.S. consumer is
simply exhausted.
In a Gallup Poll conducted in September 2023, 73% of Americans said economic conditions are getting
worse. In addition, the Economic Confidence Index, which has been negative almost every month since
the start of the pandemic in 2020, dropped to -39. According to Gallup, the only other period of such
sustained negativity about the economy was recorded in the years after the 2007-2009 recession.9
9 https://news.gallup.com/poll/511868/americans-weak-economic-ratings-slip-further-september.aspx
100
80
73
60
40
20
24
The Personal Savings Rate of Americans
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Domestic Real Estate
It’s a curious real estate conundrum when no one can afford to SELL a house and no one can afford
to BUY a house. Many American homeowners refinanced during the low mortgage rates prevalent
during the pandemic and locked in a 30-year fixed often under 3%. This has made them hesitant to sell
since rates have now more than tripled — dramatically increasing monthly payments for a new home
purchase. Homeowners have subsequently been shackled by ‘golden handcuffs.’ The term first coined
in the 1970’s to describe perks that kept executives in their jobs, now appropriately describes why
homeowners now feel trapped in their homes:
“In 2023, ‘golden handcuffs’ can more aplty be used as a term to describe why homeowners
hesitate to move. Selling their homes could mean giving up their low 2% to 3% mortgage rates
and taking on higher rates around 7% to 8%. Many potential move-up buyers find this rate
increase too costly. This, combined with near-record-high housing prices in many key markets,
has led to an unaffordability gap. This means many potential home sellers couldn’t sell even if
they wanted to.”10
With so many homeowners ‘staying put,’ housing inventory fell to record lows in 2023 pushing up prices.
And as mortgage rates skyrocketed to their highest levels in over 20 years, U.S. home sales fell to a two-
decade low due to a lack of affordability. This has led some real estate investors to warn of a coming
correction. “How do you make housing affordable? If you have to raise interest rates,” said Sean Terry,
the founder of Flip2Freedom, a community of real estate investors, “the prices have to come down.
Something will crack, and I think...we’re gonna have a Black Swan event probably in the next six-eight
months...that’s going to rock the markets.”11
10 https://finance.yahoo.com/news/golden-handcuffs-why-many-americans-191549718.html
11 https://www.newsweek.com/when-will-housing-market-burst-black-swan-timeline-1826148
IV. Real Estate Mayhem
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Commercial Real Estate
Commercial real estate is also facing what
Bloomberg calls, “a slow-motion crisis.”12
When savings accounts were paying low
rates of return, commercial real estate
became an attractive haven for better
yields. But as central banks dramatically
raised
rates
to
combat
inflation,
commercial properties started looking like
volatile investments, particularly as ‘work
from home’ took over corporate culture
causing many companies to dramatically
reduce office space.
As tenancy rates collapsed and commercial real estate prices
floundered, banks, particularly small banks were left holding trillions in
commercial property debt and delinquent loans. According to the Wall
Street Journal, small banks currently hold over $2 trillion in commercial
real estate debt or almost 80% of commercial mortgages held by all
banks.13 And, an infamous ‘Wall of Maturity’ is now approaching as
scores of loans are set to mature and subsequently come due for
payment.
12 https://www.bloomberg.com/news/articles/2023-11-06/how-home-working-interest-rates-tipped-commercial-
propertyinto-crisis
13 https://www.wsj.com/articles/commercial-property-debt-creates-more-bank-worries-b36184ba
14 https://www.bloomberg.com/news/articles/2023-04-08/a-1-5-trillion-wall-of-debt-is-looming-for-us-commercial-properties
15 https://www.goldmansachs.com/intelligence/pages/stress-among-small-banks-is-likely-to-slow-the-us-economy.html
Smaller Banks Pushed Into Commercial Real Estate Lending
■ Reginal/Local Banks ■ CMBS ■ Investor-Driven ■ Private/Other
■ Government Agency ■ Insurance ■ International Bank ■ National Bank
2017
2018
2019
2020
2021
2022
50
100%
Source MSCI
Percentedages are rounded
“Almost $1.5 trillion of US commercial real estate debt comes due for repayment before the end of
2025. The big question facing those borrowers is who’s going to lend to them? ‘Refinancing risks
are front and center’ for owners of properties from office buildings to stores and warehouses,
Morgan Stanley analysts including James Egan wrote ... ‘The maturity wall here is front-loaded.
So are the associated risks.’ The investment bank estimates office and retail property valuations
could fall as much as 40% from peak to trough, increasing the risk of defaults.”14
While the U.S. banking system is still reeling from the Banking Crisis of 2023 which saw the second and
third largest bank failures in U.S. history, it is the small and regional banks that power the economy.
According to Goldman Sachs, “Small and medium-size banks play an important role in the American
economy. Lenders with less than $250 billion in assets account for roughly 50% of U.S. commercial
and industrial lending,” and as these banks are stressed and lending is tightened, it could significantly
impact U.S. economic growth.15
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It has been a long time since we’ve talked about surface-to-air missiles, Abrams tanks, Howitzers,
Stinger air defense systems, and Bradley fighting vehicles — but this is a small sampling of the air
defense, fire power, ground maneuver equipment, aerial systems, and small arms that America has
sent to aid Ukraine since the Russian invasion in February of 2022. And, according to the U.S. State
Department, it has cost the U.S. taxpayer billions:
“To date, we have provided approximately $44.2 billion in military assistance since Russia
launched its premeditated, unprovoked, and brutal full-scale invasion against Ukraine on
February 24, 2022, and more than $47 billion in military assistance since Russia’s initial invasion
of Ukraine in 2014. This investment in training and equipment assistance demonstrates our
enduring and steadfast commitment to Ukraine’s sovereignty and territorial integrity. It supports
Ukraine’s efforts to defend itself against Russia’s aggression, secure its borders, and improve
interoperability with NATO.”16
16 https://www.state.gov/u-s-security-cooperation-with-ukraine/
17 https://www.rand.org/pubs/commentary/2023/03/consequences-of-the-war-in-ukraine-the-economic-fallout.html
According to the Rand Corporation, the Russia-Ukraine war has not only caused energy shock to the
markets and pushed up global energy prices, but it has also created considerable economic disruption,
lowered economic growth, exacerbated already rising inflation and decelerated the pandemic recovery.17
V. The Return of the War
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In the aftermath of the October
7, 2023 attack on Israel by the
Hamas terror organization, the
Biden administration detailed
an over $14 billion aid package
for Israel that includes monies
to boost their air and missile
defense system, strengthen
their military, and enhance
security at the U.S. Embassy.
Billions
more
was
also
appropriated for humanitarian
aid
for
Israel,
Gaza,
and
Palestinian refugees.18
The cost of these wars to the U.S. economy will likely eclipse hundreds of billion of dollars. Treasury
Secretary Janet Yellen declared in October of 2023, that America can afford to fund both wars. But
the truth is, the government is currently operating under a Continuing Resolution, which limits defense
spending to the prior year’s level. This has forced the Pentagon to reallocate funds away from our own
military spending and according to Politico, “we’re taking it out of our hide!”
“The military, like the rest of the federal government, is operating under a temporary funding
measure that freezes spending at the previous year’s levels. And because the Middle East troop
movements weren’t planned, the Pentagon has had to pull money from existing operations and
maintenance accounts, DOD spokesperson Chris Sherwood said. President Joe Biden signed
the stopgap measure this month [November 2023] to keep the government open until lawmakers
can agree on a full-year spending bill. Because DOD had to hunt for funds, that means less
money for training, exercises, and deployments the military had already planned for the year.”19
The reality is, these wars will be funded with debt. The U.S. government will simply print more money
which will fuel more inflation. To quote Connor O’Keeffe from the Mises Institute, “The savings-starved,
debt-ridden, inflation-strained American public needs to heal. Forcing us to fund a deadly stalemate
in Ukraine has been a disaster. And taking even more to bankroll the coming devastation in Gaza only
makes things worse.”20
18 https://www.cnn.com/2023/10/20/politics/us-israel-ukraine-aid-package/index.html
19 https://www.politico.com/news/2023/11/28/pentagon-scrambles-to-pay-for-middle-east-troop-buildup-00128882
20 https://www.eurasiareview.com/19102023-no-we-cannot-afford-to-fund-yet-another-war-oped/
10
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21 https://www.reuters.com/markets/commodities/central-banks-bought-most-gold-since-1967-last-year-wgc-
says-2023-0131/
22 https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2023/central-banks
23 https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q3-2023/central-banks
24 https://www.gold.org/goldhub/gold-focus/2023/03/you-asked-we-answered-history-context-and-outlook-central-bank-gold
What have central banks been
doing in response to soaring
interest rates, sinking consumer
sentiment, global real estate
woes, and wars on multiple
continents? They have been
adding to their gold reserves at
record levels.
In 2022, central banks added
1,136 tonnes of gold to their
stockpiles or about $70 billion
worth of gold, the highest level
since 1950. According to Reuters,
it reflects a significant shift in
attitude from the 1990’s and
2000’s when central banks were
selling gold.21
According to the World Gold Council, through Q3 of 2023, central banks bought another 800 tonnes
of gold — 337 tonnes were acquired in Q3 alone making it the second highest third quarter on record
and building upon record setting gold demand for the first half of the year.22
The buying spree has been fueled by the People’s Bank of China, the National Bank of Poland, Turkey’s
central bank and the central banks of India, Uzbekistan, the Czech Republic, Singapore, Qatar, Russia,
the Philippines, and the Kyrgyz Republic.23
The World Gold Council says Central banks hold gold to diversify their reserves. Gold also tends to
retain its value against volatile currencies, guard against geopolitical chaos — and it’s highly liquid:
“It [gold] has no political risk, it can’t be de-based and it can’t be talked down in a currency war of
words. Our comprehensive central bank surveys confirm that gold is an important reserve asset
– valued for its performance in times of crisis, its long-term store of value and lack of default
risk. And it confirms that central bankers expect further growth in global gold reserves.”24
VI. What Central Banks Are Telling Us About Gold