Keith Barron on Gold and Massive Deflation

Wed, Apr 29, 2020 - 3:20pm

Keith Barron of Aurania Resources recently talked to Jim Puplava about why we’re in a favorable environment for gold and why he thinks the U.S. could be heading toward a period of “massive 1930s-style deflation.” He also shares his thoughts on MMT and a potential abandonment of the euro. See below for excerpts from his interview on the Financial Sense Newshour.

See Comeback: The Road to Recovery; Plus, Oil and the Economy for audio.

What do you see driving gold, other than it's an asset you want to have when there’s widespread fear?

Initially, as a result of this pandemic, gold and silver went down. They did so because they functioned exactly the way they're supposed to and were extremely liquid. People who had done trading sold their bullion to cover margin calls. We saw a lot of gold and silver coming onto the market and the price dropped quite precipitously and then it rebounded. It rebounded very, very positively and I think is continuing an upward trend.

The pandemic originated in China and now it's starting to pick up steam in India very unfortunately. Of course, they are very big consumers, but where is the buying coming from? Well, it's coming internationally, especially out of North America and Europe, as people run to it as a safe haven and a haven against currencies.

The gold price right now is an all-time high in pretty much every currency except for the US dollar and it's getting up there. It's only really a shade under 17 and it'll be back up there in fairly short order. This is exactly the way precious metals should be behaving. People are simply afraid of the equity markets. They're afraid of the bond markets and they're afraid of holding currencies. So, gold is something that isn't beholden to governments, it can't be inflated and so this is where people are going for safety.

We’re seeing huge debt imbalances in the U.S., Europe and globally. Many countries have zero or even negative interest rates. Why is this environment more favorable for gold?

I think the fact that that gold doesn't give you a yield doesn't really matter anymore, because the trend is upward. The American stock market had an all-time high in terms of the Dow just before the first COVID-19 case was reported in the U.S. I thought the market was headed for a crash last October after it was revealed in September that there was trouble in the repo markets. Then, in the beginning of March, the U.S government put $50 billion into the repo market to prop it up.

I really think a three-year-old could have pushed this market over. It was looking for a signal, and it got the signal in spades. This is much more profound, deeper and sorrowful than the 2008-2009 banking crisis because people are losing their lives.

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To get out of the 2008 and 2009 crisis in America, we had QE one, QE two and Operation Twist. That money, which was supposed to get the economy going (and the U.S. fed had targets for inflation) really didn't do much of anything. The reason was that it was held by the banks and the banks needed to capitalize. So, the money was not going into the broad economy and the velocity of money, which is one way to explain what inflation is—the velocity of money— was very, very low. We didn't have the inflation effect that we expected.

So now we're in a situation where if something very drastic is not done and done quickly to get money into the hands of everybody, we're going to go into a massive deflation, maybe even a dirty 1930-style depression. This is my opinion; I think they're going to do the much-heralded helicopter drop of money. There's been talk about debt jubilees. I think we're going to see a situation where the broad economy is simply flooded with liquidity. And that is going to have profound implications for inflation going forward.

I don't think the governments of the world are really bothered with what happens in a year, two years, three years from now, they've got to get out of this mess today. So, the way to do it is to put a certain sum of money into everybody's hands. Get them to spend that money to jumpstart the economy.

It looks like states are going to be on the government bailout next, and with Modern Monetary Theory (MMT) it seems like there are no restrictions. I don’t see any discipline in either party or hear from deficit hawks.

That's right. They they've got to do something drastic to get out of this mess. It's going to be debt forgiveness. It's going to be a bailout of the airlines, and it’s going to be bailout of everybody. It's going to be a bailout of small business and of corporations and muni bonds are going to be in trouble. They're going to bail out pension funds because things like CalPERS are not going to be able to earn their 7% and pay their retirees their pensions, and the list goes on and on and on. This is unprecedented. We've never have seen anything like this in recorded history and it's basically do whatever you can.

It will kind of belike the Weimar Republic spending money willy nilly to make sure that the populace doesn't embrace Bolshevism. After the WWI, Germany almost became a vassal state of Russia. There were incredible amounts of money that were spent. We all know the story what happened with the Weimar, they went to the hyperinflation. Eventually they German mark had to have 12 zeros lopped off the end, and they adopted a new currency called the Renton mark. I think in in our case, potentially, we're going to go back to a modified gold standard silver standard, or something like that.

I'm just an armchair economist but I'm living in Europe, in Switzerland, and I really think you're going to see a bond default from Italy and Spain. They've tried to get the rest of Europe to pay for Coronavirus bonds. The Germans and the Finnish are not buying it, they won't do it. They're saying, quite rightly, that Spain and Italy and a couple of other countries, mostly in southern Europe, were in trouble before this ever happened. And they're simply not going to pay for the bailout.

These countries can't print their own currencies because they're part of the EU. So, I think you're going to see abandonment of the euro. You'll see Spain going back to the peseta, Greece going back to the drachma and Italy going back to the lira because they can print it themselves and potentially get themselves out of the mess. All these places are democracies, of course, and they're only looking as far ahead as the next election, including America with Mr. Trump. So, there are going to be situations where they're not really thinking about how they're going to get out of the mess. It's just getting through today and tomorrow and getting to the next election.

Click here to listen to the full interview with Keith Barron or for an archive of past shows, visit our Financial Sense Newshour page.

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