Deficit Spending and Negative Real Rates Keep UK Inflation Elevated.

Wednesday June 21st 2023 Monaco 64 home of alternative economics and contrarian views we're going to look at inflation again today especially here in the UK we've had the CPI and RPI data and we've also had the budget deficit data or the public sector net borrowing requirement they make it seem so uh Arcane and people don't look at it they could just call it budget deficit it

would be too it would make it too easy for people to notice I think and we're continuing to see record uh deficit spending the biggest on record for the month of May and we're continuing to see negative real rates uh as per the bank of England base rate and that's why we have Rising prices that's why we have what is called inflation as per the CPI

and why do I say that well because CPI and RPI they don't cause inflation they're the consequence of inflation and what is inflation that's what we're going to look at today and one thing I wanted to tell you if you're concerned about the price of gold or silver in British pounds I personally am not yes it's frustrating to see what's going on in this country and

to see the pound go up so so much it doesn't make sense not that I want the pound to collapse but things uh are much worse so what do I think is happening before we go into uh the news that came out this morning in terms of the markets well I I think governments and central banks when they're desperate and they're trying to keep investors on

their side they will do anything necessary to give the wrong signals then what do I mean by that well they they will use What's called the uh exchange stabilization account or Equalization account that account was opened uh by by the UK back in 1931 and when the UK left the gold standard and it's still around and it's used to um stabilize the value of the currency

and of course the guilt Market is very important for the currency and yesterday we saw in the middle of the day uh the two-year guilt magically dropped from like above 5.1 percent to below five percent and one of my friends even noticed uh noticed that and sent me a message and said well looks like someone intervened in the guilt market and someone's also intervening in the

gold market and and how do they do that the bank of England well unfortunately there are a lot of Bank central banks out there who should know better than to leave their gold with the bank of England Bank of England has got 5 000 tons of gold that is not theirs that's kept with them for some reason by by many countries and they they will uh

lease that out to the bullion Banks bullion banks will take uh that gold that's leased from the bank of England and sell it into the market and then uh receive dollars for that and with those uh dollars they will buy British pounds so it's a double whammy they they smack gold uh they take the dollars they buy pounds they make it look a lot better like

they're putting lipstick on the pig and uh it can't last forever because people are gonna wake up to the fact that uh inflation is a deliberate government policy and why do they do it well because uh our government is up to hearing that well in the US as well everywhere and the only way they can keep uh going is to extract wealth from the public and

how do they do that well they issue a lot of debt a lot of currency they devalued that currency and they use it to buy things to keep uh to buy votes while the General Public they get that currency later and devalued and that's why prices are rising because it's the simple law of supply and demand and I'm going to quote again and I don't Tire

quoting uh Felix summary because he was a very influential uh Banker in the first half of the 20th century he was originally from Austria then he moved to Switzerland he advised the United States during the Bretton Woods conference or in the run-up to the Bretton Woods conference and this is what he said in his memoirs and I quote the state alone is responsible for inflation inflation

without government or indeed against government is impossible so there you go and we keep hearing of course uh from uh Jeremy Hunt the chancellor of the ex-chequer for those of you who don't know what the chancellor of the ex Checker is well he's the equivalent of Janet Yellen or the Secretary of the Treasury or in Europe better known as a finance minister he keeps saying that

they're going to have inflation or the CPI that's the other uh way they fool people uh into thinking that they're not the ones inflating they call the consequence uh the uh the inflation it's like saying that uh if you're overweight your tummy made you overweight now what made you overweight is that you ate too much and you didn't exercise enough and it's the same thing with

inflation so I'm afraid Jeremy Hunt is speaking with four with a forked tongue he keeps telling the public and he's trying to convince investors that they're going to be good they're going to have inflation well even if they have the CPI it will be around five percent which is still a huge tax on the public so before we look at what came out today I want

to show you why uh we're having this inflationary problem and the only way that they will stop it I'm going to show you just showing you a chart that's the only way that they can do it so I've got here uh a chart that I uh I plotted and I've got RPI which is the blue line which is the re retail price index why did I

use the RPI well because that used to be what people uh the government and and markets used as a measure of uh prices or inflation up until New labor came to power and they then came they came up with this CPI which is uh not really a good reflection of the cost of living for the average household so um we use that so we've got we've

plotted the RPI the annual change percentage annual change and the green um line is the Bank of England base rate at year end and prior to 1975 it was the treasury discount bill so what you will notice here is that with the exception uh of like some short periods in the 70s the uh green line or the bank of England base rate or the discount Bill

treasury discount bill is substantially higher than than the RPI and why is that well that's in order to keep uh inflation in check to keep prices under control and you can see why in the 70s they had problems with prices or inflation because uh in the early 70s uh the bank of Indiana base rate or the discount rate was below the rate of inflation or RPI

and the same thing happened in the mid 70s and in in the uh late 70s and it was only when in the early uh to mid 80s that they actually targeted the money supply and they allowed uh the rate to be way above the RPI that's when they're able to bring uh a semblance of price not price stability I don't like that term but of disinflation

but now I'm gonna show you something that has never happened before and yes rates are very low but as you can see since the 08 crisis the uh real rate and this is called the Rio rates has been negative so it means that still today uh you're getting paid if you're a big borrower like the government the treasury they're getting paid to borrow and how does

that work well you've got RPI uh the latest uh number is still around 11.1 I think has gone up yesterday not today it's gone up to 11.3 while the bank of England rate is at four and a half so that's why we have inflation and when and how can they stop it well they can stop it by raising rates way above where RPI and CPI are

I would say they need to be in double double digits and uh if the bank of England is really serious about doing that tomorrow they have their decision they should raise it tomorrow to 10 10 of course they're not going to do that they're not going to do that because it would cause a major crisis and I think Andrew Bailey would be out the door as

quick as you can say Jack Robinson uh so he's not gonna do that and that's why this is going to continue what's the danger here well the danger is that the general public realized that this policy is deliberate that it's not going to stop they're going to keep inflating and they react accordingly by getting rid of the currency as quickly as possible and that could develop

into very high uh price Rises or inflation if you want to call it that and eventually it could even result into hyperinflation so I mean this is a great opportunity if you've been fortunate enough to have savings to protect yourself in my opinion with gold and silver they're at a discount right now I would say especially in British pounds I would be loading up on it

personally and I have been in the last few weeks and I would be doing more if I had some spare Fiat but I don't at the moment but uh what what else came out today that uh uh convinces me that the UK government and the bank of England are working together to financially repress Savers and keep up this Ponzi going well it's the UK public sector

borrowing uh requirement so that number that statistic came out today at the same time as the CPI and RPI data so that was expected to be a 14.9 billion uh deficit or net borrowing requirement but it was actually almost 20 billion 19.22 billion and this is the the most a borrowing in the month of May since 1993 when records began so a 30-year the biggest borrowing

go through these uh CPI and RPI numbers before we look at the markets and the guilt Market so uh course CPI which is really the CPI without the volatile components like food and energy that's a problem because it actually Rose from 6.8 to 7.1 was expected to remain unchanged at 6.8 and these are all uh year on year uh changes so uh not good so what

about the CPI the headline number well that was expected uh to drop from 8.7 percent to 8.4 but it stayed at 8.7 percent so no good uh what about RPI which I think is a much better reflection of the cost of living for the average household well it was expected to drop from 11.4 to 11.2 and it dropped to 11.3 but it's still a double digits

and uh we're seeing now uh another problem come up which is the uh the housing market all the mortgage rates going up and why mortgage rates going up well because Gale yields are going up because people are investors are waking up to the fact that this is a deliberate inflationary policy and they don't want to hold uh government bonds that yield only uh a four percent

handle while uh the currency has been debased in in the double digits so so we're already hearing uh people in government and other politicians and other commentators saying that the government has to step in to help the real estate market mortgage uh people with mortgages and uh well that's another uh way of printing money to help a cost of living crisis it's uh only going to

end in tears if they do this so that's what's going on and uh you need to remember that inflation is a deliberate government policy back in the day when he only had gold and silver as money gold and silver coinage the only way to inflate the currency like the Romans did was to debase uh the coins let's say uh anarius uh Roman coin had so many

grams of gold uh and if the government wanted to spend more and it was they still wanted to call it an Arias or whatever denomination it was they they would uh inject a little bit of Base metal make it still look like gold but it was actually um inflated inflated it means that uh there's still the same denomination but less gold and that's what it's all

about they did it also to the uh Daenerys the silver coins and by by the fourth Century uh there's almost no silver left but nowadays they can do it uh through just issuing this paper money or digital uh currency that out of thin air and it's only the government and the banking sector that can do that we can't do that of course and the bank of

England uh and the government work together to to keep this Ponzi going but I'm afraid people are waking up to it uh and investors are waking up to it so uh that's what's going on so it's uh 20 past 8 A.M London time so we're gonna jump right to the guilt Market because I think that's important so as I said yesterday we were trading above 5.1

percent about 511 I think and all of a sudden in the afternoon it dropped below five percent I'm convinced they they knew what the numbers were going to be today and they did that to cushion uh the blow that we'd have today because right now uh we're up 18 basis points but we're pretty much where we were yesterday early in the day at 5 12. uh

that's where we are right now 5.12 the two-year yield yield uh even the 10 years up about 12 basis points they're 30 years up about 10. so let's quickly look at the other markets now so we've got spot gold pretty much unchanged at 1935. uh the high has been 1940 in the low 1931 Silver's at Silver spot Silver's at 2308 down about a third of a

percent Dow futures about 45 NASDAQ futures 100 Futures down 25 points s p Futures down six points to the currencies uh Sterling is unchanged 127.63 and I think uh this is just temporary the relative strength of uh Sterling versus the dollar and also versus gold I'm sure also the bank of England aside from leasing gold and buying pounds with the dollars they're also using the the

FED swap line which back in March uh I think Powell announced that they're gonna uh have daily swap lines so they're making use of that as well but that won't last forever in my opinion are the Euros unchanged uh the dollar is up a third of a percent versus the Yen at 142. and uh let's see the dollar is up a quarter of a percent versus

the U1 just below 720 Aussie dollar is down a third at 67.66 of the dollars on change versus the Canadian dollar at 132.36 and the Kiwi dollar is unchanged at 61.68. now to the Commodities General Commodities we got WTI Crude up half a percent at 71.50 we got Brent up a third at 76 12. we've got uh Platinum found five uh bucks trading around 960 and

high grade copper is unchanged trading just below 390 so I'm gonna end at that and wish you all a very good day take care bye