Words from the Man on the Margin

The Fed, gold, and MMT… [Gilder's Daily Prophecy] January 29, 2021 [UNSUBSCRIBE]( | [ARCHIVES]( External Advertisement 44 famous people shifting funds here [Headshot]( identified 14 billionaires and dozens of wealthy, successful individuals who are shifting their funds into a special type of deal. Peter Thiel, Michael Jordan, and Wilbur Ross are just a few of the names. They’re chasing exponential gains in a new and very specific type of play with the potential to churn out some pretty extraordinary returns: (eg: 7,946%, 2,740%, 3,626%). And while gains like these can’t be promised… Our technology guru, the gentleman who found the #1 tech stock on the S&P 4 out of the last 5 years, Jeff Brown, is sharing where this investment capital is flowing to… and the #1 way for you to play this same trend. [This is the story you’re not hearing in the news.]( [Warning] Do you enjoy receiving Gilder's Daily Prophecy? Please [Click Here Now]( so we know to continue sending you Gilder's Daily Prophecy for free! Words from the Man on the Margin [George Gilder]Dear Daily Prophecy Reader, Some of you may have read in Life After Google about my “Man on the Margin” Mike Kendall. Swashbuckling American Airlines pilot and luminous thinker on all monetary issues, the 6-foot-5-inch Dallas visionary gives you a gimlet-eyed view from 35,000 feet. That’s a macroscopic multiple of roughly five-thousand-five hundredfold, or a zetta Krugman, for short. Today you get to read him hot off the press, explaining the price of gold and the relative lack of so called “inflation” in the face of an apparent 78% increase in the Federal Reserves’ balance sheet since last year in 2020. Hint: It’s neutralized by “excess reserves.” Read on… [This World-Famous Tech Guru Has Some Good News...]( Urgent Warning: America’s Death Spiral [Money dying]( we needed to trigger an epic financial meltdown was a pin to pop this massive debt bubble. Well, we just got it with the Coronavirus pandemic… And that historic event sent us into the first stage of America’s death spiral… Make no mistake. What’s to follow is much, much worse. [Click here now for full details and to learn how to prepare.]( [Prototype code that could change your life?]( The price of gold (POG) is the inverse of the value of a country’s currency. Changes in the POG reflect changes in a currency’s value, not in gold’s value which is stable. If gold supply and demand determined the POG, we would see inflations or deflations across all countries simultaneously. Gold supply and demand would also result in changes to annual gold production rates that have remained stable at 1.5-2.5% for centuries. Because of its unique monetary properties, gold negates the supply and demand component common to all other commodities, goods, and services. More obvious when looking at the dollar POG is that new dollar creation — whether viewed by M1, M2, Fed balance sheet increases, debt levels, deficits, or new spending outlays — indicates a rising POG. This may or may not be true. It is important to understand the Fed’s balance sheet. The current Fed balance sheet of [January 21, 2021]( shows the following: [Fed Balance 2021] Let’s compare that with January 02, 2020, Fed balance sheet. [Fed Balance 2020] A 78% increase in the Fed’s balance sheet in one year is alarming and indicates dollar devaluation, but it requires a closer look to understand what is happening. The only money is base money. Base money is cash and reserves. Excess reserves (ER) and interest on reserves (IOR) began in 2008 and is an anomaly to historical Fed operating policies. One can view ER as base money reserves that don’t exist — as long as it remains ER. The Fed creates base money by purchasing bonds, usually treasuries and MBS, from primary dealers on the secondary market. The Fed’s bond purchases since the 2008 financial crisis have expanded its balance sheet by a factor of 9X, increasing it from $.8 trillion to today’s $7.3 trillion. This massive increase in bond purchases (QE) has driven interest rates to the zero bound. The Fed’s brief attempt in 2018 at normalization — reducing its assets — quickly collapsed. Controlled interest rates near the zero bound fund accumulating budget deficits and debt loads. If interest rates rise to normal historical levels, the debt load becomes unsustainable without a return to stable money and fiscal growth policies. The simultaneous withholding of a portion of the newly created base money as ER limits the actual “effective” supply of base money. The Treasury General Account held at the Fed also removes reserves on a one to one basis from the banking system. In the last year, the Treasury General Account has increased by $1.25 trillion while ER has increased by $1.54 trillion for a total of $2.79 trillion. This is $2.79 trillion of newly created base money that is withheld from the reserve system. In essence, it doesn’t exist on the Fed’s balance sheet as an inflationary force. Looking at January 21, 2021, Fed balance sheet, the total of ER + Treasury General Account = $4.782 trillion. Subtract from the Fed’s total assets of $7.375 trillion, and you get an actual “effective” Fed balance sheet total of $2.59 trillion. If you do the same calculation for January 02, 2020, you get a Fed balance sheet a year ago of $2.135 trillion. The Fed’s balance sheet has increased 22% in real terms rather than the apparent 78%. Interestingly, the POG over the same one-year period has increased 24% — in line with the “effective” 22% increase in the Fed’s balance sheet. This is the gold signal. The POG accurately reflects changes in the supply of base money relative to demand. While demand over the previous year is indeterminate, supply is known. Faith that the dollar will maintain some semblance of value affects dollar demand and can change rapidly. What one can determine from analysis of changes in the Fed’s balance sheet over the last year is that the POG is accurately signaling inflationary forces — though they remain subdued for now. If Treasury started depleting its General Account through spending, reserves would increase on a one for one basis. If those reserves were not held as ER, then inflationary forces would increase correspondingly. With the apparent increase over the last year in the Fed’s balance sheet — as opposed to the “effective” increase — modern monetary theory (MMT) has come into vogue as the economic theory du jour. If the Fed can increase its balance sheet with no apparent inflationary pressures, why can’t the Fed print unlimited dollars to finance everything the federal government wants and we’ll all live happily ever after? That’s MMT theory in a nutshell. The Federal Reserve Act of 1913 separated the Fed and the Treasury for the express purpose of preventing the Fed from directly funding government debt. That’s why the Fed buys bonds on the secondary market from primary dealers and not directly from Treasury. There is no difference in the Fed’s balance sheet’s growth over the last year in response to COVID as there would be in response to the federal government funding foreign aid, useless wars, shovel ready projects, bridges to nowhere, great society programs, or any federal government outlay. The only way MMT can come into existence is if Congress amends the Federal Reserve Act to allow the Fed to purchase debt directly from Treasury. In this case, the Fed and Treasury will become one entity. There would be no brakes on the Fed monetizing government debt, and the POG would soar. The Fed won’t do MMT. It would make the Fed Chair gender-binary-neutral, irrelevant, and unable to ascend to the title of “Maestro.” It has other plans. Central bank digital currency (CBDC) is coming as the means for increased centralized control. If Klaus Schwab gets his Great Reset, CBDC will be the totalitarian financial arm of a cashless society. One should not confuse CBDC with a Bitcoin-type decentralized cryptocurrency and blockchain. CBDC will be digitalized fiat in our cashless brave new world. Go [here]( for the original post. Regards, [George Gilder] George Gilder Editor, Gilder's Daily Prophecy New Federal Rule could change America forever [Federal building]( about your way of life is about to change – thanks to a new rule passed by the Federal Government. How much you pay for energy… how you shop for groceries… even how much you pay for healthcare – it could all radically change. That’s according to the man dubbed “The Tech Prophet” by Forbes magazine. [Not only that, he believes it could create one of the greatest money-making opportunities in American history – click here to see why.]( [Three founders Publishing]( To end your Gilder's Daily Prophecy e-mail subscription and associated external offers sent from Gilder's Daily Prophecy, feel free to [click here](. If you are having trouble receiving your Gilder's Daily Prophecy subscription, you can ensure its arrival in your mailbox by [whitelisting Gilder's Daily Prophecy](. Gilder's Daily Prophecy is committed to protecting and respecting your privacy. 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