Economic Suicide Pact

Economic Suicide Pact

“The Biden administration is quietly signaling new support for a major step toward America’s economic suicide,” says The New York Times.

OK, no, the Gray Lady doesn’t actually say it like that.

What it says instead is, “The Biden administration is quietly signaling new support for seizing more than $300 billion in Russian central bank assets stashed in Western nations, and has begun urgent discussions with allies about using the funds to aid Ukraine’s war effort at a moment when financial support is waning, according to senior American and European officials.”

Same difference.

It was already an unprecedented act for Washington and Brussels to freeze such a huge sum held by another country’s central bank. From the get-go, Paradigm macro maven Jim Rickards said it was destined to backfire. No sooner was the freeze announced in February 2022 than Jim said, “Joe Biden crossed a critical red line on Saturday and the world will never be the same.”

And it’s not. Leaders of other governments looked around and wondered if they might be next. As a result, the dollar’s share of global currency reserves plunged from 55% in 2021 to 47% in 2022.

As we said last month when this subject came up, freezing Russia’s assets is extreme enough. Confiscating them and handing them to Ukraine is next-level insanity. But that’s where Team Biden’s collective head appears to be.

Congress has gone home for the year without passing a new aid package for Ukraine. Most of the $113 billion that’s been authorized since Russia’s invasion 22 months ago has been spent. Meanwhile, European leaders are having trouble coming to terms on their own Ukraine aid deal.

And so the prospect of confiscating Russia’s assets is looking more and more attractive to the White House — perhaps for funding Ukrainian government functions, or even for supplying Ukraine with more weapons. Per the Times, the goal is “putting forward a unified proposal around the second anniversary of the war [Feb. 24], when many top officials will be gathering in Germany for the Munich Security Conference.”

Bearing in mind that many of the Russian assets in question are U.S. Treasury bonds, confiscation “would amount to a default on U.S. government debt,” Jim Rickards told us last month.

➢ Speaking of which: According to new data from the U.S. Treasury this week, China has cut its holdings of Treasuries by 10% during the first 10 months of this year. Beijing has been selling off its Treasury holdings steadily since 2014 — but the pace has accelerated since the freeze on Russian assets last year.

“It would make U.S. debt permanently more difficult to sell and less desirable to hold,” Jim continued. “It would introduce a new risk premium on U.S. debt over and above the existing inflation premium. At its worst, it could trigger a dollar panic and full-scale flight from the dollar.”

There is at least some awareness of these potential consequences at the White House. Joe Biden has not yet signed off on this plan — perhaps in part because the Times says there’s “concern among some top American officials that nations around the world would hesitate to keep their funds at the New York Federal Reserve, or in dollars, if the United States established a precedent for seizing the money.”

But if cooler heads don’t prevail, Jim says the consequences could easily “rock the global financial system and cause a financial panic.” We’ll aim to keep you ahead of the curve as we head into 2024…

[Editor’s note: Jim recently got his hands on some urgent intel from a trusted source he describes as “a man with long and well-established connections in Silicon Valley, on Wall Street and in the artificial intelligence community.”

In short, It involves a $10 million AI project. “This could have a massive and direct impact on your life,” Jim says. He recorded a two-minute video explaining what’s going on — and what you need to do about it. Follow this link to watch immediately.]

As Long as the Inflation Numbers Keep Trending Down…

The Commerce Department is out this morning with the Federal Reserve’s favorite measure of inflation — and corporate media instantly latched onto the narrative that the “soft landing” is at hand.

“Core PCE,” the number is called. It’s up 3.2% year-over-year — less than Wall Street economists were expecting, and indeed the lowest reading since April 2021.

Never mind that it’s still nowhere near the Fed’s stated 2% inflation target. The Fed did a victory lap of sorts last week, declaring inflation to be contained and projecting it would cut the fed funds rate three times next year.

As long as the inflation numbers keep trending down, there’s nothing likely to alter that narrative.

And with that, the dollar is down today — pushing both stocks and gold higher.

At last check, the U.S. dollar index is down to 101.62 — the lowest level in five months. “It’s ready to break 100,” says Paradigm trading pro Alan Knuckman. The chart action is pointing to 95 next year.

That would be undeniably bullish for stocks and gold, and we’re seeing evidence of that in today’s trade.

All the major U.S. stock indexes are in the green, the S&P 500 up a third of a percent to 4,763. Wednesday’s late-day losses are already a distant memory. There’s still nothing standing in the way of the S&P notching a new record close before year-end; it’s less than 1% away from that mark now. (Gee, and it took only two years to get there…)

Spot gold is up $12 to $2,058 — although silver is down a dime at $24.27.

Bonds are selling off, pushing yields up. Still, the yield on a 10-year Treasury sits at 3.9% — far, far below the October peak of 5%.

Oil, Cheap Drones and Costly Missiles

Crude is set to end the week around $74. For now, there’s not much “fear premium” built into the price despite the tensions in the Red Sea.

On our Wednesday conference call, Paradigm’s energy and military affairs authority Byron King made a pithy observation about the attacks by Yemen’s Houthi faction on international shipping: “The Houthis are probably sending inexpensive drones,” he said, “and we’re probably shooting them down with $1–2 million missiles.”

From Byron’s lips to Politico’s ears…

“U.S. Navy destroyers have shot down 38 drones and multiple missiles in the Red Sea over the past two months, according to a Defense Department official, as the Iran-backed militants have stepped up attacks on commercial vessels moving energy and oil through the world’s most vital shipping lanes. On Saturday alone, the destroyer USS Carney intercepted 14 one-way attack drones.”

No one was willing to confirm exactly which missiles the United States is deploying to shoot down the drones: “But former DOD officials and experts said only one weapon would make sense for that job: the Standard Missile-2, a medium-range air defense weapon that can reach up to 92 or 130 nautical miles, based on the variant. The latest variant, the Block IV, costs $2.1 million a shot.”

It’s staggering to think how Israel’s war in Gaza has effectively dragged Washington back into the Middle East “forever wars” that you thought were over with the withdrawal from Afghanistan in 2021. And the Houthis are getting at least as much bang for their buck as Osama bin Laden.

Buy in Bulk: Silver Eagles at Costco

After making a splash with 1-ounce gold bars, Costco is diversifying into U.S. Silver Eagles.

As far as we can tell, Costco is keeping this relatively low-key. No press release and thus no articles in corporate media. Briefly sifting through social media, the coins might have gone on sale as recently as yesterday.

They’re available only in tubes of 20 — and at premiums that the Wall Street Silver site describes as “very competitive,” as you would expect from Costco.

Unlike the gold bars, the Silver Eagles are available at Costco warehouse locations, in addition to online ordering. Not every Costco warehouse though — definitely not the one closest to me. And I can’t even order online, at least not this morning. Then again, they might be sold out everywhere after only one day.

That suggests demand is strong — as is demand for Costco’s 1-ounce gold bars we first mentioned three months ago.

It also suggests that the great Silver Eagle shortage of the 2020s is finally starting to abate.

The U.S. Mint was hit hard by COVID lockdowns and supply-chain snags in 2020. The 1-ounce blanks used to make Silver Eagles were hard to come by. Result: By the summer of last year, Silver Eagles were selling at a ridiculous 70% premium over the value of the metal.

For reasons no one’s been able to explain, the U.S. Mint continued to have trouble sourcing the blanks long after other national mints that make bullion coins — Canada, the U.K., Austria — managed to get back to something resembling pre-pandemic normal.

Maybe the U.S. Mint has gotten its act together. Yesterday, Costco was selling the tube of 20 Silver Eagles for $549.99 — or $27.50 each.

Spot silver went for about $24.30 at midday yesterday, so that’s a premium of 13.2% — almost reasonable, and definitely better than many online precious metals retailers who are selling generic silver rounds for about the same price.

It’s intriguing that Costco is opting to sell silver coins from the U.S. Mint… but when it came to gold, it opted for private-label gold bars from PAMP Suisse and Rand Refinery. There’s gotta be a rationale for the difference, but no one at Costco is saying what it is…

Mailbag: “Texit”

I didn’t quite realize what a legalistic can of worms I was opening when I asked for reader feedback about the “Texit” movement for Texas independence from the United States.

Folks wrote in with niceties about the Texas annexation agreement of 1845, an 1860s court case called Texas v. White, et Al…

All I was wondering was what the vibe is now that there’s a chance that the idea will be on the Republican primary ballot next March. The referendum would not be binding, but it would be a guidepost for the GOP-dominated legislature going forward.

With that in mind, we’ll give the final word this week to a self-described “born-and-bred Texan” in his late 50s who loves the Lone Star State.

“I haven't heard of any serious ‘Texit’ movement actions. Yea there are some yard signs and bumper stickers around but nothing approaching getting on a ballot. 

“If it were, I think I'd vote against it — mainly because of the destruction that would happen as you have listed in this week’s 5 Bullets. 

“This problem gets solved by the same means all problems are solved in the end — the marketplace. The progressive-state dollars are drying up as all the productive citizens migrate — many to Texas. If we can satisfy this problem ‘slow burning’ it that way rather than scorched earth, that is certainly best.

“However, I am a Texan and if ‘they’ decide to start heading this way to take more than we are willing to give of what we have worked and earned… well, there is an event in history they should familiarize themselves with — the Alamo. (The John Wayne movie version is pretty good.)

“Life is not worth living under ‘complete’ tyranny. And most Texans I know agree.”

Dave responds: As do many Americans.

As I understand it, the Texas Nationalist Movement has turned over 139,000 signatures to Texas GOP headquarters in Austin. Now begins the process of verifying the signatures; just under 100,000 are required.

Thanks for the input. You bring up an interesting point about the migration that’s already underway. Maybe this all gets sorted out peacefully after all. Let’s certainly hope so here in this season that celebrates Peace on Earth.

Best holiday wishes,

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets