Kelsey Williams

More Downside For Gold And Silver?

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You can bet that most vocal proponents for spectacularly higher gold and silver prices will see Tuesday’s huge intra-day reversals as just another dip in price before the next jump to warp speed.

The longer and more severe the “correction”, the more frequent use of the phrase “temporary setback” can be expected. After all, the fundamentals demand higher prices, right? A day of reckoning is at hand.

The euphoria surrounding higher gold and silver prices seems to know no bounds. I remember how it was in 1980, as those of us in the trade at that time experienced a similar situation.

Notwithstanding the grim circumstances of double-digit interest rates (fed funds at 17.6% in April 1980), consumer prices averaging increases of almost 12% annually for three consecutive years, and enthusiastic calls for the “death of the dollar”, there was a pronounced peak to the price action in hard metals in January 1980.

In 2011, a government shutdown began on July 1st and lasted for twenty days. The gold and silver price peaks in 2011 came amidst similar sentiments regarding government debt, inflation, and the dollar.

Now, here in 2025, we can only wonder whether a similar situation is unfolding. If it is, it might be worth considering what happened after the peaks in 1980 and 2011.

GOLD AND SILVER AFTER PEAKS IN 1980, 2011

The price peak for gold in 1980 came on January 20th at $843 oz. Within a few days, gold was priced in the mid-$600s – a drop of almost $200. That might not sound like much, but it was a decline of more than 20%. A similar decline now would take the gold price below $3,500.

After a few more weeks, the gold price had broken the $500 level. In less than two months, gold had declined by more than 40%. Measuring from its recent intraday peak of $4,355, a similar drop at this time would take gold down to $2,600.

Silver fared worse. After peaking at close to $50 oz. on January 20th, 1980, silver’s price dropped by more than 30% in two short weeks. By February 3rd, silver was priced at $34.75. A similar decline at this time would take silver down to $37.80 by the end of next week.

Gold found temporary stability around $500, but silver continued to plummet, losing 76% in less than four months. Measuring from its recent peak of $54 oz, a similar drop now would take silver down to $13 oz.

Prices for gold and silver declined in nominal and real terms over the next two decades, reaching respective lows of $260 for gold and $4 for silver. The cumulative declines totaled 70% for gold and 92% for silver.

The gold price decline after its 2011 peak amounted to 45 % and the silver price decline was approximately 80%. Similar declines at this time could take gold as low as $2400 and silver as low as $11.

MORE DOWNSIDE FOR GOLD AND SILVER?

Quite possibly, yes, especially when considering what has happened in the past. The specific conditions are not necessarily the same, but they are similar. Also, there are other factors that are more important as to whether gold and silver continue to decline, how quickly, and by how much.

Liquidity concerns and deflation are the bigger forces at work that could stop in a heartbeat the relentless march of inflation-fueled higher asset prices (see No Winners When The Inflation Balloon Pops). As far as gold and silver are concerned, their price increases have outrun the fundamentals for now.

That does not mean they cannot go higher at this point. They could. You might not want to bet against that possibility, but you would be foolish not to be prepared for some sizeable declines. (also see The Case For Gold Has Nothing To Do With Its Price)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

The Case For Gold Has Nothing To Do With Its Price

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THE CASE FOR GOLD

The case for gold is straightforward…

Gold is a proven long-term store of value that retains its purchasing power over extended time periods. When used as money (medium of exchange and measure of value), gold acts as a restraint on a government’s propensity to overspend. Also, using gold as money – without government intervention – guarantees price stability.

Gold is practical and convenient, and was money before fiat currencies. Goods and services were priced in ounces and fractional units of gold (grams, grains, etc.). Because the supply of gold is relatively stable and reasonably scarce, the threat of inflation is greatly reduced, although not eliminated. (see Even Gold Is Subject To Inflation)

Gold is not issued by a government or central bank, so it carries no default risk and is immune to political manipulation.

As if that were not enough, gold has additional (secondary) value because it is desired and used for ornamentation and jewelry.

Lots of things have been used as money. Only gold has stood the test of time. Gold’s universal acceptance is independent of government policy or intervention.

Notice that, so far, we have not said anything at all about the price of gold. When gold was the circulating medium of exchange, there was no price for gold. Gold, itself, was the measure of value for everything else.  How much gold you held – not its price – was indicative of your purchasing power, or wealth.

In other words, the gold price has nothing to do with gold’s fundamental value, i.e., its use as money.

HISTORY OF GOLD AS MONEY 

Gold emerged as the money of choice through competition.  Many other things (beads, grains, various industrial metals, etc) were tried throughout history.  For one reason or another, they didn’t work consistently over longer periods of time.

The first gold coins appeared around 560 B.C.  Over time, it became a practice to store larger amounts of gold in warehouses.  Paper receipts were issued certifying that the gold was on deposit.  These receipts were negotiable instruments of trade and commerce, which could be signed over to others.  They were not actual currency but were a presumed forerunner to our modern checking system.

The warehouse proprietors (‘bankers’) decided they needed to find a way to increase their profits.  Earning fees from their depository and safekeeping services wasn’t enough.  Since most of the gold remained in storage and most transactions involved exchange or transfer of paper receipts for the gold on deposit, they decided to issue ‘loans’ of the gold/money to others and charge interest.  The cumulative amounts of gold loaned out could not exceed the amount of gold held in storage.  Hopefully, not too many depositors would ask to redeem their physical gold at the same time.

By this time, there were reasonable indications of just how much gold needed to be kept available to meet the ongoing, day-to-day withdrawal demand.  The warehouses (banks) began issuing loans in the form of receipts backed by the gold held on deposit. That shouldn’t be a problem as long as people continue to trade with their paper receipts. Occasional redemptions of receipts (withdrawals of gold from storage) were met with smiling faces – business as usual.

It seemed to be a workable system.  But apparently, the ‘bankers’ were not content.  They soon started issuing more loans/receipts for gold that did not exist.  Of course, they saw no need to inform anyone of their actions, and the receipts still stated that they were redeemable in fixed amounts of gold.  And when some wanted to take possession of their gold on a physical basis, they could still do so – up to a point.

Questions arose, however, as to the value of the receipts. More and more individuals, companies, and countries opted for real money – gold.  There simply wasn’t enough gold to meet the redemption demands.

As late as the early twentieth century, U.S. paper currency was issued with a clear statement specifying that it was redeemable for specific amounts of gold (and silver) at fixed rates.  In addition, gold (and silver) circulated concurrently with U.S. paper currency and were interchangeable.  One was as good as the other. Supposedly.

In 1933, President Roosevelt issued an executive order “forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States”.  Then, in 1971, President Nixon suspended convertibility of the U.S. dollar into gold by foreign nations.

For more than half a century, there has been no fixed convertibility of U.S. dollars (i.e., fiat currency) into gold (i.e., real money).

THE PRICE OF GOLD

The price of gold in dollars is an inverse reflection of the purchasing power of the U.S. dollar. Under the watchful eye of the Federal Reserve, the U.S. dollar has lost more than 99% of its purchasing power.

The dollar’s loss of purchasing power results in higher prices for goods and services. The gold price reflects the dollar’s loss of purchasing power by continually rising over time, albeit irregularly and in a volatile fashion.

Of particular note is that increases in the gold price come after the effects of inflation have worked their way into economic activity and are readily apparent.   The huge increase in the gold price from $35 oz. to $843 oz. happened over nearly a decade (1971-80) and was reflective of the loss of dollar purchasing power that had occurred over the previous several decades.

The phenomenally huge increase, however, was followed by huge declines. Eventually, more than thirty years later (2011), the gold price peaked again, this time at $1895 oz.

The gold price had more than doubled from its peak in 1980, but the huge price increase did not mean that gold was more valuable. In fact, the value, or buying power of gold at $1895  oz. in 2011 was consistent with its value in 1980 at $843 oz.

Similarly, what one can buy with an ounce of gold today at $3700 is comparable to what one could buy with an ounce of gold in 1980 at $843.

Since 1980, prices have risen more than fourfold. An upscale, new car at $16-18k in 1980 was the equivalent of approximately 20 ounces of gold ($843 times 20 = $16,860). A comparable vehicle today costs closer to $70-75k, and can still be purchased with 20 ounces of gold ($3700 times 20 = $74,000).

CONCLUSION 

The case for gold is the same today as it was centuries ago. Gold is real money; honest money. The price of gold tells us nothing about gold. The gold price tells us the extent to which the dollar has lost purchasing power.

Similarly, it does not matter whether gold is priced in dollars, yen, euros, yuan, etc. The price of gold in any fiat currency is nothing more than a reflection of  changes in the value of that particular currency.

Higher prices notwithstanding, the value of gold remains constant and unchanging. (also see Gold’s Singular Role)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

What Powell Said And Why It Matters

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WHAT POWELL SAID

“a marked slowing in both the supply of and demand for workers…suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.” and “…the shifting balance of risks may warrant adjusting our policy stance,” Jerome Powell – Jackson Hole, WY 8/22/25

An AI summary of Powell’s remarks sans the emotion and frothiness of investors and others said that “Powell’s Jackson Hole remarks were carefully calibrated—not a firm commitment to cutting rates, but a clear signal of readiness to pivot if economic conditions warrant it. He recognized rising risks in the labor market and suggested that, given such risks and the Fed’s already restrictive stance, a policy adjustment might be justified. However, any change would be data-driven and cautious.”

WHY IT MATTERS 

Investors and the media interpreted those remarks as the signal that “the race is on”. Someone said that Powell’s remarks “opened the door to a possible interest rate cut”. 

Investors rushed through the door with complete abandon and drove stock prices up to new highs, seemingly oblivious to Powell’s expressed statements  that conditions “may warrant adjusting our policy stance” and “any change would be data-driven and conscious.”

The door was kicked open almost one year ago when the Federal Reserve announced its intention to lower the Fed funds target rate in September 2024. After two successive cuts, the target rate has remained unchanged.

Jerome Powell acknowledges the growing risks in the labor market and the presumed risk of higher inflation from tariffs. The labor market threat is real and appears to be significant. Hence, Powell’s comments that labor market risks can accelerate “quickly in the form of sharply higher layoffs and rising unemployment” are noteworthy.

Tariffs are not inflationary.

“Tariffs are taxes imposed by a government on imported goods. Tariffs are assessed at the port of entry and must be paid before the goods can be unloaded. Whoever (businesses, consumers, etc.) imports the goods pays the tariff(s) to U.S. Customs and Border Protection, a government agency. Subsequently, remittance is made to the U.S. Treasury. (see Tariffs Are NOT Inflationary)

The effects of tariffs compound the risks associated with the labor market. Any acceleration in layoffs and unemployment will be exacerbated by the effects of tariffs. The results could lead directly to deflation and economic depression.

CONCLUSION

The Fed dilemma pertaining to interest rate policy remains the same. Lower interest rates and aggressive monetary growth will slam the dollar. Higher rates and restrictive monetary policy will depress economic activity.

Holding rates stable seems the more prudent choice. If nothing else, a disastrous day of reckoning might be postponed.

Far from being a boon to growth (domestic or otherwise), the effects of tariffs will magnify and accelerate problems in the labor market and the economy. Those effects can overwhelm Fed efforts to stave off financial and economic collapse.

The worst that could happen is likely to come quickly. (also see Complete Financial Collapse Is Unavoidable)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

Complete Financial Collapse Is Unavoidable

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Throughout history, financial markets have risen and fallen in cycles of expansion and collapse. Booms are celebrated, but the busts usually come as surprises—even when the risks are supposedly understood.

Today, multiple warning signs point to the inevitability of a comprehensive collapse of global financial markets. Equities (stocks), bonds, real estate, and commodities will all be affected. This forecast isn’t based on fear or speculation.

It is based on historical precedent and recognition of three specific factors – structural imbalances, unsustainable debt, and systemic overvaluation – any one of which could trigger the collapse.

HISTORICAL PRECEDENT AND MARKET CYCLES

Financial collapses are not anomalies. They are the end result of any or all of the three factors mentioned above. The Dutch Tulip Mania (1637), the South Sea Bubble (1720), the Panic of 1837, the U.S. Banking Panic of 1907, the Great Depression (1929), the Dot-com Bubble (2000), and the Global Financial Crisis/Great Recession (2008) all demonstrate a repeating pattern: artificial expansion driven by leverage, followed by abrupt contraction.

Each cycle has a unique trigger, but the underlying mechanism is the same—excess credit, speculative fervor (fever) and eventual default. In every case, investors believed “this time is different.”  Each time, they were proven wrong.

STOCK MARKET OVERVALUATION

Today’s stock markets are historically overvalued by almost every traditional metric:

  • Price-to-earnings (P/E) ratios for major indexes like the S&P 500 remain well above historical averages.

  • The Buffett Indicator (market cap-to-GDP) has hovered over 170%, indicating markets are priced far beyond the productive output of the economy.

  • Corporate buybacks—a major source of stock market growth over the past decade—are financed largely by cheap debt.

Moreover, algorithmic trading, passive investing via ETFs, and highly correlated global markets increase the risk of flash crashes and liquidity spirals. When panic selling begins, the feedback loops will accelerate declines across all asset classes. (see If The Markets Turn Quickly, How Bad Can Things Get?)

BOND MARKET RISK IS ELEVATED

The global bond market—especially sovereign debt—is on a trajectory that cannot be sustained. Consider the following:

  • As of mid-2025, global debt surpassed $315 trillion, according to the Institute of International Finance.

  • U.S. federal debt alone exceeds $35 trillion, with annual interest payments now over $1 trillion.

  • A return to historically normal (higher) interest rates exposes debt holders to massive capital losses and some governments to rising default risk.

The inverse relationship between bond prices and interest rates means that the value of trillions in fixed-income securities will plunge as rates move higher. In the case of credit collapse, the higher rates are because of poor credit quality and defaults.

In the corporate bond market, companies issued record amounts of low-interest debt during the 2010s. Much of this must be refinanced in the coming years at higher rates, which could trigger downgrades, defaults, and bankruptcies.

Bond investors are trapped in a market that can no longer promise safety or positive real returns. (see The Looming Threat Of Credit Collapse And Deflation)

REAL ESTATE 

Commercial Real Estate (CRE)

The CRE sector is already collapsing in slow motion:

  • Office vacancy rates in major U.S. cities (San Francisco, Chicago, New York) have soared past 20%–30%. This is at least, in part, a consequence of the shift to remote work.

  • Billions in loans tied to these properties are maturing in 2025–2027.

  • Many buildings are underwater—worth less than the debt attached to them—and face rising interest costs for refinancing.

Banks, especially regional ones, are heavily exposed to CRE. As defaults rise, balance sheet impairments will increase, leading to bank failures or taxpayer bailouts.

Residential Real Estate

While home prices soared from 2020–2022, rising mortgage rates have now priced out many buyers. The affordability crisis means:

  • Home sales have plummeted.

  • Inventory is artificially low due to rate-locked sellers.

  • When forced sales begin (due to job losses or debt stress), prices will adjust sharply downward.

In places like Canada, Australia, and parts of the U.S., price-to-income ratios are in unsustainable territory. A correction is inevitable—and history shows that housing bubbles rarely deflate gently.

COMMODITIES – VOLATILITY, NOT STABILITY

Commodities are traditionally considered inflation hedges or safe havens—but they are not immune to collapse:

  • Oil and energy markets remain vulnerable to global demand shocks. A deflationary recession will crush consumption and send prices lower, as seen in 2008 and during the COVID-19 collapse.

  • Agricultural commodities are tied to supply chains, geopolitical tensions, and weather—but also price speculation. Price swings can be large and destabilizing.

  • Gold and silver, even with recognized monetary roles, are potentially subject to huge declines in price.

INTERCONNECTION AND FRAGILITY

Central banks hold massive amounts of government bonds and mortgage-backed securities on their balance sheets. Pension funds, insurers, and sovereign wealth funds are heavily invested in real estate, equities, and credit markets. Systemically important financial institutions (SIFIs) rely on overnight funding markets, derivatives exposures, and leveraged trades.

A collapse in any one sector—stocks, bonds, real estate—will spawn reverberations that spread quickly. No part of the financial infrastructure operates in isolation anymore.

Central banks—especially the Federal Reserve—are caught between the proverbial rock and a hard place. If they raise rates to tame inflation, they destroy asset prices and increase default risk. If they lower rates or restart quantitative easing (QE), the increased inflation debases the currency.

CONCLUSION

Confidence is the last line of defense in any monetary system. Trust in the central bank is falling amid accusations of policy errors and inflation denial. Dishonesty and deceit are rampant at all levels of government and in all departments and agencies; and, financial institutions are plagued by scandals and corruption.

As seen historically—from Weimar Germany to Argentina to 1970s America, as well as currently — the erosion of confidence leads to the flight of capital, currency devaluation, and civil unrest.

Geopolitical instability (e.g., war in Eastern Europe, Middle East conflict, U.S.-China tensions) exacerbates the financial stress and hastens the the eventual collapse.

A complete collapse of financial markets is not only likely—it is inevitable under current conditions. It will be the cumulative result of decades of unsound money practices and disregard of fundamental economics.

Today’s modern financial and economic system, based on fiat currency and leverage (credit), is ripe for failure. (also see No Winners When The Inflation Balloon Pops)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

Top Beneficiaries Of The Federal Reserve

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I asked ChatGPT who benefits from the Federal Reserve. My exact question and ChatGPT’s complete response are below. The response has not been altered and is entirely attributable to ChatGPT, including bold type and quotation marks. My comments and conclusion are at the end of the article…

Kelsey’s Gold Facts: Who – specifically – benefits from the existence and operation of the Federal Reserve?

ChatGPT: The existence and operation of the Federal Reserve benefits a wide range of entities—some directly, others indirectly. But when we ask “who benefits most” or “who benefits specifically,” we’re typically talking about:

🎯 Top Beneficiaries of the Federal Reserve System

1. Large Commercial Banks (Especially Primary Dealers)

These include:

    • JPMorgan Chase

    • Bank of America

    • Citigroup

    • Goldman Sachs

    • Morgan Stanley

    • Barclays, BNP Paribas, etc.

Why they benefit:

    • Direct access to liquidity: Can borrow cheaply from the Fed’s discount window or repo operations.

    • Influence over monetary policy transmission: As primary dealers, they execute Fed open market operations and often get early insight into policy sentiment.

    • Backstops during crises: Received bailouts, special lending programs (like during 2008 & 2020).

    • Asset price inflation: Low rates and QE support higher bond and stock prices, which boosts bank assets and profits.

💡 Example: In 2020, the Fed’s emergency lending and bond-buying programs disproportionately aided large banks’ balance sheets and market holdings.

2. The U.S. Treasury and Federal Government

Why they benefit:

    • Lower borrowing costs: Fed purchases of Treasury bonds (QE) reduce yields and interest payments.

    • Monetary–fiscal coordination: While technically independent, Fed policies like low rates and QE help finance large deficits more cheaply.

    • Remittances: The Fed returns excess profits (minus expenses) to the Treasury—over $100 billion in some years.

3. Wall Street & Asset Managers

    • BlackRock, Vanguard, Fidelity, Bridgewater, Citadel, etc.

Why they benefit:

    • Asset inflation: Fed-driven low interest rates push capital into risk assets, boosting equity, bond, and real estate markets.

    • Monetary policy front-running: Large firms often interpret and trade on Fed policy shifts faster than the public.

    • Contractual relationships: In 2020, BlackRock was contracted to run parts of the Fed’s corporate bond-buying program.

4. Investors & Speculators

    • Hedge funds, pension funds, and private equity.

Why they benefit:

    • Predictable Fed policy (forward guidance) reduces market volatility.

    • QE and interest rate suppression inflates asset values.

    • Moral hazard: Speculators feel confident the Fed will step in during downturns (“Fed Put”).

5. Member Banks of the Federal Reserve System

Over 2,000 U.S. banks own stock in their regional Federal Reserve Bank.

Why they benefit:

    • Annual dividends (6% or market-based) paid on required capital stock.

    • Regulatory access & influence: Participation in Fed advisory committees.

    • Support services: Payments systems, bank supervision, research.

📌 Important: These “shares” in the Fed are not publicly traded and do not confer ownership or control in the corporate sense—but member banks still benefit financially and operationally.

6. Corporate America (Indirectly)

    • Lower interest rates = cheaper business borrowing.

    • Stimulated consumer demand via credit and employment.

    • Rising asset prices improve corporate valuations and shareholder wealth.

7. U.S. Dollar Holders & Global Institutions (Mixed Impact)

    • Foreign central banks, IMF, global corporations.

Why they benefit:

    • The Fed’s stability policies protect the dollar’s reserve status.

    • In times of global crisis, the Fed provides dollar swap lines to foreign central banks—sustaining global trade and investment flows.

⚖️ Who Benefits the Least (or Bears the Costs)?

    • Savers: Near-zero interest rates erode real returns on savings.

    • Lower-income individuals: Asset inflation primarily benefits the wealthy who own stocks and real estate.

    • Small banks and credit unions: Have less access and influence compared to megabanks.

    • The broader public: Often experiences delayed wage growth and long-term inflation impacts.

🧭 Summary

Those who benefit most directly and consistently from the Federal Reserve’s operation are:

    • Large commercial and investment banks (especially primary dealers)

    • The U.S. government (via debt financing and remittances)

    • Wall Street firms and large asset managers

    • Major corporate borrowers and institutional investors

These entities operate closest to the Fed’s monetary and financial plumbing—where influence, access, and monetary flows are strongest.

MY COMMENTS AND CONCLUSION

Who benefits the most…

It should not be surprising that the top beneficiaries of the Federal Reserve System are 1) large commercial banks (primary dealers) and 2) the U.S. Treasury and the federal government.

The Federal Reserve exists for the benefit of the banks and bankers. Its purpose and motivation are not aligned with public expectations. The Fed’s objective is to facilitate the ongoing creation of money and loans (no-reserve banking), which generates interest income. Banks create money, lend it, and collect interest – all in perpetuity. (see Federal Reserve – Purpose And Motivation).

In order to swing the needed votes in Congress to pass the legislation which authorized creation of the Federal Reserve in 1913, some additional pressure was brought to bear by the executive branch and some key players in government. In exchange for that support and special influence, the Federal Reserve affiliated parties promised that the government, i.e., U.S. Treasury, would never run out of money. Hence, existing Treasury debt gets rolled over continuously and the size of the debt continues to grow…

“The Federal Reserve provided a convenient ‘funnel’ for US Treasury securities in the form of bills, notes, and bonds. These securities are a form of debt that is “monetized” on issuance and become a source of collateral and funding for trillions of dollars worth of economic activity.

Today, US Treasury securities are issued and sold at auction. A portion are sold via the program Treasury Direct, but most are placed with certain primary dealers. Any unsold securities are required to be kept and held by the primary dealers.

The Federal Reserve also holds Treasury securities on its own balance sheet. Between the Fed and its primary dealers, plus any Treasuries sold to the investing public, the US Treasury receives an amount of money equivalent to the dollar amount of securities it has issued. This is true always – every time; regardless of any undersubscriptions.

In other words, the Federal Reserve underwrites and guarantees that the U.S. Treasury/Government will get whatever funds it needs. And that was the promise made over one hundred years ago.” (U.S. Government Is Beholden To The Fed )

Close behind in the heirarchy of Federal Reserve beneficiaries are Wall Street firms, money managers, investors and speculators.

There are some additional beneficiaries listed which might raise some eyebrows. Personally, I would question the claim that U.S. dollar holders are a beneficiary of the Federal Reserve.

The Federal Reserve and the banks create inflation by continually expanding the supply of money and credit. Intentional inflation by the Federal Reserve System has destroyed the U.S. dollar, which has lost more than 99% of its purchasing power since the Fed’s inception in 1913.

Who benefits the least (or bears the costs)…

I did not ask for this information, but ChatGPT gave it to me anyway, and it is an eye-opener.

The Fed doesn’t care about smaller banks and credit unions. That lack of concern dates back to the Fed’s inception. Smaller banks are at the bottom of the list in size and influence, regardless of remarks made by former Treasury Secretary Yellen. It is all about size and influence, not fairness.

Bringing up the rear for benefits from the Federal Reserve is “the broader public”. Actually, the broader public is not a beneficiary – at all – of the Federal Reserve. As a result of the U.S. dollar’s loss of purchasing power, coupled with painfully slow wage growth, the broader public “Bears the Costs” for the Fed’s fun and games.

All of this contrasts markedly with public perception of the Federal Reserve and its role as stated by Fed Chair Powell earlier this year..,

“The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals, and, really, keeping our heads down and doing our work,” he added. “That is how we best serve the public.”  Federal Reserve Chair Jerome Powell, January 2025

The Federal Reserve does not exist “to serve the public”. The Federal Reserve is a banker’s bank and exists for the benefit of the banks and bankers who create, control, and lend money in perpetuity.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

The USD Is Worthless – Gold Is At $100k!

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If the U.S. dollar were to become worthless, what difference would it make if the gold price hits $100,000?

The ten ounces of gold you bought for $30,000 ($3000 x 10) would be worth $1,000,000. Should you sell?

A worthless U.S. dollar means that it has no purchasing power and is unacceptable for trading purposes. What would you do with a million dollars that nobody wants?

Likely, though, there would not be a gold price quoted in U.S. dollars. In fact, by that time, anything that would have been quoted in U.S. dollars would need to be repriced in something else, i.e., another fiat currency, crytocurrency, gold itself, etc.

Only then will you have a reasonable idea of how much your gold is worth. In all cases, though, it is about the purchasing power of the gold, not its price – in any currency.

COLLATERAL DAMAGE – CHAOS 

Total collapse of the U.S. dollar would break the entire financial system and wreak economic devastation on the world. A global depression would result. There would be disruptions in communication and public services.

Financial markets would be closed indefinitely (I hope you own physical gold) and social chaos would be rampant. That’s okay. You’re a millionaire, right?

WEALTH PRESERVATION 

Owning gold during a currency collapse does not make you rich. It preserves your purchasing power. (see Gold’s Singular Role)

Since 1980, the U.S. dollar has lost 75% of its purchasing power. It costs four times as much today for comparable goods and services as it did in 1980.

A salary of $50,000 in 1980 would need to be $200,000 today just to maintain the same standard of living.

The gold price peaked at $843 in January 1980. At more than $3400 oz. recently, gold has quadrupled in price since 1980, which compensates for the loss of purchasing power in the U.S. dollar.

CONCLUSION 

Fantastic price predictions for gold are meaningless when couched in terms related to destruction of the U.S. dollar. The financial, economic, and social conditions attendant to a complete collapse of the dollar are so horrific as to nullify any potential positives associated with a “phenomenally higher gold price”.

The value of gold is in its use as money. As a long-term store of value, gold protects and preserves purchasing power.  (also see “Will Gold Hit $3460?” – Followup)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

“Will Gold Hit $3460?” – Followup

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In mid-March, I wrote the following:

“The U.S. dollar has lost approximately 75% of its purchasing power since 1980. What this means is that it costs about four times as much today for comparable goods and services as it did in 1980. 

In order for the gold price to fully reflect the loss in USD purchasing power, it would need to be $3460 oz. today. As it is, gold is priced at $3045 oz.,  more than $400 oz. cheaper than its inflation-adjusted high in 1980.” 

The intraday high for gold in January 1980 was $843 oz. The current inflation-adjusted equivalent of $843 oz. is $3463 oz. In my original article, I rounded the number to $3460 for simplification.

In conclusion, I asked:

“Will gold reach $3460? It’s possible. A 14% surge from here would do it.”

The answer came quickly as gold surged in price by more than $400 oz. in April. The price action is shown on the chart (source) below…

Live gold chart

The gold price did not reach $3460, but has peaked now, on three occasions, just above the $3430 mark.

Practically speaking, though, it is reasonable to say that gold has now matched its intraday price peak of $843 oz. in 1980.

Where Do We Go From Here? 

After its recent peak at $3435 in April, the gold price declined to $3171, a drop of more than 7%. After last week’s action, gold appears to be headed back to the same level.

Beyond that, the gold price could easily fall back to $3000 oz. or lower.

The upside barrier for the gold price could be more important that any downside price targets. In other words, the gold price is not likely to push through $3500 very soon, regardless of how well it is supported at current prices or lower.

Gold’s higher price over time is a reflection of the U.S. dollar’s loss of purchasing power. It is not a question of “how high can gold go?” but rather “how much purchasing power has the dollar lost?”

Once the gold price reaches a point that reflects the dollar’s loss of purchasing power up to that point, it has gone about as far as it can go, for the time being.

Afterwards, the price can decline or go nowhere for years. This can be seen on the chart (source) below…

 

The increase in the gold price from $35 oz. in 1970 to $843 oz. in January 1980 reflected the effects of inflation on the dollar’s purchasing power over the previous four decades. After finding its inflation-adjusted price, gold declined.

The gold price peak of $1895 oz. in 2011 accounted for the effects of inflation after 1980 and up until 2011. Thereafter, the price declined for nearly five years.

The recent gold price peak at $3435 oz. reflects the dollar’s loss of purchasing power since its 2011 peak at $1895.

All three periods of increasing gold prices were approximately ten years in length (1970-80; 2001-2011, 2015-25). The first two periods (1970-80; 2001-2011) were followed by multi-year declines.

Time will tell us if something similar happens this time.

CONCLUSION 

Gold’s recent price peak at $3435 oz. likely represents the culmination of its latest inflation-adjusted advance. With the dollar’s loss of purchasing power fully accounted for, history suggests that gold could enter a prolonged period of stagnation or decline, much like what happened after the 1980 and 2011 peaks.

A drop below $3000 oz. wouldn’t be surprising. For now, gold appears to have exhausted its momentum. (also see Gold, Silver, & Gold Stocks Since 2011 – Gold Kills It!)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

No-Reserve Banking And Less Capital, Too!

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BANK CAPITAL REQUIREMENTS

The Federal Reserve Board voted last week to move ahead with a proposal to scale back the amount of capital that banks must hold as part of their assets. A Reuters report indicated that the amount of capital that banks must set aside will depend on the size of the role they play in the global financial system.

Is reducing capital requirements for banks a good idea?  The Federal Reserve and the banks think so. The banks want to use the restricted capital to buy more Treasury bonds. Fed Chair Powell said it was “prudent” to reconsider the current requirements.

Here is a short summary of the situation from an article at https://www.pyments.com …

“Currently, banks are required to hold a flat percentage of capital in reserve against all assets, per the report. The CNBC report said that for this purpose, lower-risk assets are treated essentially the same as high-yield ones, and banks are practically penalized for holding Treasuries.

The current requirement was put in place after the 2008 financial crisis, increased over the years, and has for years been the target of banks that argue that it unnecessarily restricts their ability to facilitate trading in lower-risk assets, such as Treasury bonds, the Reuters report said.” (source)

Treasury Secretary Scott Bessent wants to see the requirements relaxed, too. Bessent said “we are very close to moving” on this issue and he thinks it would allow greater flexibility for banks to increase holdings in government bonds. That may be so, but…

ARE TREASURIES LOWER-RISK ASSETS?

For the past three years, Treasury bonds have proven to be anything other than a “lower-risk asset”. Below is a chart that shows how badly U.S. Treasuries have performed…

TLT (Long-Term Treasury Bond ETF) 2020-25

Who needs more restricted capital? Let’s buy more Treasury bonds, instead. They are safe and liquid. Oh-oh…

SILICON VALLEY BANK 

Existing higher capital requirements put in place in 2008 did not help Silicon Valley Bank (SVB). Liquidity problems forced SVB to sell Treasury bonds that had declined by 30% or more.

The argument for higher capital requirements is that it can reinforce and support overall capital structure (strong capital base) and maintain solvency. The additonal capital can be a source of temporary liquidity, when necessary.

Unfortunately, it did not work that way for SVB. Their flawed lending strategies (borrow short and lend long) put them at a huge disadvantage. Being forced to liquidate long-term bonds at huge losses in order to meet customer withdrawl demand erased any illiusion of solvency and catapulted them straight into bankruptcy.

Regardless, there is another issue that looms large in the SVB debacle and portends ill for all banks.

SVB’s bankruptcy, and some other bank failures in 2023, occurred three years after the Federal Reserve suspended the 10% reserve requirement for banks. What was “fractional-reserve banking” became “no-reserve banking”.

NO-RESERVE BANKING 

Under the fractional-reserve system, banks were required to keep a portion of customer deposits on hand. The amount could vary, but was formerly 10% of the deposits on hand. The reserves were required in order to meet ongoing withdrawl demand. The other 90% could be lent out to individuals and businesses.

If too many people wanted too much of their money in a short period of time, the bank might not be able to satisfy the demand for withdrawls of money. (see Fractional-reserve Banking – Elephant In The Room).

However bad the problem was before, it is worse now. Previously, the 10% threshold gave us an indication of just how seriously worse was the situation of any particular bank if they dropped below the threshold. Now, we know nothing.

The 10% reserve requirement was reduced to 0% on March 15, 2020, just as the economy entered its forced shutdown. The entire banking systm now functions on a 0% reserve requirement.

CONCLUSION 

Banks are horribly illiquid. Solvency is an illusion – not a reality. Relaxing bank capital requirements at this time probably doesn’t add much to the exagerated risk that already exits in the banking system.

The additional capital won’t prevent financial institutions from going bankrupt; they already are. (see Bank Stress Test Results Are Just Window Dressing)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

Trump vs. Powell vs. Yellen – Same Game

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We have been here before. President Trump’s latest bashing of Fed Chair Powell isn’t without precedent. Chair Powell was the object of President Trump’s scorn during his first term, too.

It doesn’t stop there, though. Trump vs. Powell was preceded by Trump vs. Yellen.

During the 2016 campaign, Trump accused Yellen of keeping interest rates artificially low to benefit the Obama administration and predicted a market collapse once she raised rates. He claimed she was “keeping them artificially low to get Obama retired” and “she should be ashamed of herself.” (NBC News Nov 2016) 

One year later, towards the end of his first year in office, President Trump nominated Jerome Powell as the new Fed Chairman. Here is what I said then…

“President Trump nominated Jerome H. Powell as the new Chairman of the Federal Reserve Bank. Don’t look for much to change. And Janet Yellen’s announcement that she will resign from the board upon Mr. Powell’s induction as board chair is pretty much a non-event.” (New Fed Chairman, Same Old Story Nov 2017)

That was almost eight years ago. Has anything changed? Ironically, in 2016, Trump was displeased with Fed Chair Yellen for “keeping rates artificially low”. Now, he is attacking Fed Chair Powell for not lowering rates more aggressively.

THEN AND NOW

Both Ms. Yellen and Chair Powell face(d) similar situations. Their terms as Fed Chair expire(d) before their terms as board members conclude. That would mean sticking around for a couple of years as a board member after their term as board Chair ends.

I believe Ms. Yellen, as Fed Chair, was very concerned about the prospect of presiding over a financial crisis that would tarnish her reputation as Fed Chair. Here is what I said seven months prior to Jerome Powell’s assumption as Fed Chair…

“…if Ms. Yellen makes it through the current year unscathed, she won’t be hanging around afterwards. She won’t want to extend her risk of being at the helm when the ship sinks.

And don’t trouble yourself worrying about who the next Fed chief will be.  It doesn’t matter. It is too late in the game for a quarterback change to have any meaningful impact.” (The Fed’s Dilemma July 2017)

CONCLUSION 

The situation today isn’t much different from eight years ago. Jerome Powell’s term as Federal Reserve Board Chair ends May 2026. I expect him to finish his term (ends May 2026) as Chairman and voluntarily resign from the board at that time without serving the remainder of his term (ends January 31, 2028) as a member of the board, just as Chair Yellen did, for similar reasons.

Can you imagine either Janet Yellen or Jerome Powell serving as a member of the board after their term as Fed Chair ended? (also see Cruisin’ Wtih The Fed and Federal Reserve –  Conspiracy Or Not?)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED

The Rush To Regulate Crypto

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Here are some of the latest news items concerning government and central bank stances on cryptocurrencies. Each item is followed by my comments…

 

…..June 18, 2025 (Reuters) – South Korea’s central bank governor said on Wednesday he was not against issuing won-denominated stablecoins but had concerns about managing capital flows. At a press conference in Seoul, Rhee Chang-yong said “Issuing won-based stablecoin could make it easier to exchange them with dollar stablecoin rather than working to reduce use of dollar stablecoin. That in turn could increase demand for dollar stablecoin and make it difficult for us to manage forex,”

Chang-yong is quite clear that potential “demand for dollar stablecoin and (would) make it difficult for us to manage forex,”

My comments… Who cares? Should adoption and use of cryptocurrencies be dependent on any government or central bank’s ability “to manage foreign exchange“? If cryptocurrencies provide a possible altrernative to fiat currencies, then, complicating things by adding another layer of regulation and increased market intervention doesn’t benefit anyone.

 

…..Febuary 11, 2025 (The Times) The governor of the Bank of England has downplayed the idea of launching a central bank digital currency, warning that there is still no “must-have” reason for developing the technology.

Speaking to an audience at Chicago Booth Business School in London, Andrew Bailey said there needed to be a case for providing benefits that existing commercial alternatives could not.

My comments… Bailey is correct. There is no “must-have” reason for developing the technology FROM THE PERSPECTIVE OF THE BANK OF ENGLAND.  Anyone who wants privacy in financial transactions and an alternative to ongoing monetary debasement and regulation would disagree.

 

…..June 17, 2025 (NBC News) The United States Senate passed a landmark cryptocurrency bill that would establish the first regulatory framework for issuers of stablecoins. Sen. Bill Hagerty, R-Tenn., author of the GENIUS Act, said in a floor speech “With this bill, the United States is one step closer to becoming the global leader in crypto. This bill will cement U.S. dollar dominance, it will protect customers, it will drive demand for U.S. treasuries.” 

The article pointed out that Washington continues to wrestle with how best to regulate the fast-growing cryptocurrency industry. Just two Republicans — Rand Paul of Kentucky and Josh Hawley of Missouri — voted against it.

My comments… How does “becoming a global leader in crypto” reestablish U.S. dollar dominance? If stablecoins are tied to the dollar, then what is the point? If approved by the House, the bill is exactly as stated above: “the first regulatory framework for issuers of stablecoins”. Thumbs up to Senators Paul and Hawley!

 

CONCLUSION 

The global trend in cryptocurrency regulation should be seen for what it is – a continuation of governmental efforts to control and regulate every aspect of money and finance.

Any positive benefits derived from the growth and use of cryptocurrencies are minimized and negated when government gets involved. The risk to high-flying Bitcoin in terms of its price and popularity is greater than other cryptocurrencies because it is a big ($2T) target.

Two trillion dollars is a lot of money currenly flying under the radar. Probably not for long, though. (also see Will Cryptocurrencies Become Fiat Currencies?)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED