The reason real retail sales cannot recover is that real average weekly earnings continues its downward path. Earlier in this new century, the lack of income growth for the bulk of the US population was masked by a rise in consumer debt. Americans borrowed to spend, and this kept the economy going until the point was reached that consumers had more debt than they could service.
John Williams report of real average weekly earnings shows that Americans are taking home less purchasing power than they did in the 1960s and 1970s.
Reflecting the dollar's loss of purchasing power, the price of gold and silver in dollars has risen dramatically during the Bush and Obama regimes.
For the last year or two the Federal Reserve and its dependent banks have operated to cap the price of gold at around $1,750. They do this by selling naked shorts in the paper speculative gold market.
There are two gold markets. One is a market for physical possession by individuals and central banks. The rising demand in the physical bullion market points to a rising price for gold.
The other market is the speculative paper market in which financial institutions bet on the future gold price. By placing large amounts of shorts, this market can be used to suppress price rises in the physical market. The Federal Reserve, which can print money without limit, can cover any losses on its agents' paper contracts.
It is important to the Federal Reserve's low interest rate policy to suppress the bullion price. If the prices of gold and silver continue to rise relative to the US dollar, the Fed cannot keep the prices of bonds high and interest rates low. If the dollar is widely perceived to be declining in value in relation to gold, the price of dollar-denominated assets will also decline, including bonds. If the dollar loses value, the Fed loses control over interest rates, and the US financial bubble pops, with hell to pay.
To forestall armageddon, the Fed and its dependent banks cap the price of gold.
The Fed's fix is temporary, and as the Fed continues to create ever more dollars, the price of gold will eventually escape the Fed's control as will interest rates and inflation.
The Fed has produced a perfect storm that could consume the US and perhaps the entire Western world.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
7
6
4
